UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 16, 1998
--------------------------------------------------
Date of Report (Date of earliest event reported)
FIELDS AIRCRAFT SPARES, INC.
-------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Utah 0-27100 95-4218263
--------------- ------------------------ ---------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) No.)
2251-A Ward Avenue
Simi Valley, CA 93005
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
(805) 583-0080
-------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On January 16, 1998, pursuant to a Stock Purchase Agreement dated as of
January 2, 1998 by and among Fields Aircraft Spares, Inc. (the "Company"), as
Buyer, and the stockholders (the "Sellers") of Flightways Manufacturing, Inc.
(Flightways"), the Company consummated the purchase of substantially all of the
outstanding common stock, no par value (the "Shares"), of Flightways.
Flightways was not affiliated with the Company. Flightways is based in
Van Nuys, California and manufactures and repairs high quality plastic
replacement components for commercial aircraft seats and interiors. Seating
components include foodtrays, latches, shrouds, panel armcaps, bumper strips and
escutcheons. Other components are used in aircraft lavatories, galleys,
cockpits, windows, overhead units and a variety of other subassemblies. Through
its repair station (FAA Repair Station No. UFWR486L), Flightways overhauls and
repairs seats, seating components, carts and modules.
The customers of Flightways include U.S. domestic airlines as well as
an increasing number of international carriers. The Company intends to initially
operate Flightways out of its Van Nuys, California office. The Company
eventually intends to consolidate its corporate headquarters, along with all of
the Flightways operations, into a larger facility. The Company will deliver the
products and services of Flightways through the Company's distribution system.
The Company purchased over 99% of the issued and outstanding shares of
Flightways for approximately $2.9 million in cash and, in addition, the Company
retired approximately $1.1 million in Flightways debt by refinancing such debt
through the Company's existing credit facility with NationsCredit Commercial
Funding. In determining the amount of consideration to be paid for Flightways,
the Company considered, among other factors, the historical level of sales and
profitability of Flightways, its past rate of growth, 1998 financial projections
for Flightways and the potential synergies that might be obtained by combining
the two businesses, and similar factors. The acquisition of Flightways will be
accounted for as a purchase.
The foregoing description is qualified in its entirety by reference to
the Stock Purchase Agreement, which is filed as an exhibit herewith.
Funds for the acquisition were provided by the Company's line of credit
with NationsCredit Commercial Funding.
Statements in this Current Report that relate to future plans,
financial results or projections, events or performance, including statements
with respect to future business potential, future sales and future earnings, and
the effects of the acquisition are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
<PAGE>
Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties that could cause actual results to differ materially.
Actual results may differ from such forward-looking statements as a result of a
number of factors, including but not limited to the successful integration of
Flightways into the Company's current operations, the ability to successfully
combine the businesses, competitive factors and pricing pressures, ability to
obtain necessary capital or financing, the price and availability of aircraft
parts and other materials, successful execution of the Company's expansion
plans, failure to maintain existing customer or vendor relationships, shifts in
market demand, general economic conditions and other risks and uncertainties.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired. The Company will file,
in the time period required by applicable regulations, pro forma financial
information regarding the Company and the acquired business and historical
financial information for the acquired business.
(c) Exhibits.
2.1 Stock Purchase Agreement by and among Fields Aircraft
Spares, Inc., as Buyer, and each of the individuals listed on Exhibit "A", as
Sellers, dated as of January 2, 1998. Pursuant to Item 601(b)(2) of Regulation
S-B, the Exhibits referred to in the Agreement are omitted. The Company agrees
to furnish supplementally a copy of any such Exhibit to the Commission upon
request.
10.1 Covenant Not to Compete, dated as of January 2, 1998,
by and among Fields Aircraft Spares, Inc., Flightways Manufacturing, Inc. and
Yung Ford.
10.2 Covenant Not to Compete, dated as of January 2, 1998,
by and among Fields Aircraft Spares, Inc., Flightways Manufacturing, Inc. and
Frank Scalise.
10.3 Covenant Not to Compete, dated as of January 2, 1998,
by and among Fields Aircraft Spares, Inc., Flightways Manufacturing, Inc. and
Christian J. Luhnow.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIELDS AIRCRAFT SPARES, INC.
Date: January 30, 1998 By /S/ Alan M. Fields
--------------------
Alan M. Fields, President
STOCK PURCHASE AGREEMENT
by and among
Fields Aircraft Spares, Inc.,
as Buyer
and
Each of the individuals listed on Exhibit "A"
as Sellers
Dated as of January 2, 1998
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS.................................................1
1.1 Applicable Contract................................1
1.2 Best Efforts.......................................1
1.3 Breach.............................................2
1.4 Buyer..............................................2
1.5 Board..............................................2
1.6 Closing............................................2
1.7 Closing Date.......................................2
1.8 Company............................................2
1.9 Consent............................................2
1.10 Contemplated Transactions..........................2
1.11 Contract...........................................2
1.12 Damages............................................2
1.13 Encumbrance........................................2
1.14 Environment........................................3
1.15 Environmental, Health, and Safety Liabilities......3
1.16 Environmental Law..................................3
1.17 ERISA..............................................4
1.18 Facilities.........................................4
1.19 Financial Presentation.............................4
1.20 Governmental Authorization.........................4
1.21 Governmental Body. ...............................4
1.22 Hazardous Activity.................................5
1.23 Hazardous Materials................................5
1.24 IRC................................................5
1.25 IRS................................................5
1.26 Knowledge..........................................5
1.27 Legal Requirement..................................6
1.28 Long-Term Debt.....................................6
1.29 Management Sellers.................................6
1.30 Noncompetition Agreements..........................6
1.31 Nonmanagement Sellers. ...........................6
1.32 Occupational Safety and Health Law.................6
1.33 Order..............................................6
1.34 Ordinary Course of Business........................6
1.35 Organizational Documents...........................7
1.36 Person.............................................7
1.37 Proceeding.........................................7
i
<PAGE>
1.38 Purchase Price.....................................7
1.39 Related Person.....................................7
1.40 Release............................................8
1.41 Representative.....................................8
1.42 Reverse Stock Split................................8
1.43 Securities Act.....................................8
1.44 Sellers............................................8
1.45 Shares.............................................9
1.46 Tax Return.........................................9
1.47 Threat of Release..................................9
1.48 Threatened.........................................9
2. SALE AND TRANSFER OF SHARES; CLOSING........................9
2.1 Shares.............................................9
2.2 Purchase Price.....................................9
2.3 Buyer's Further Obligations.......................10
2.4 Closing...........................................10
2.5 Closing Obligations...............................10
3. REPRESENTATIONS AND WARRANTIES OF SELLERS..................11
3.1 Organization and Good Standing....................11
3.2 Authority; No Conflict............................11
3.3 Capitalization....................................12
3.4 Financial Presentation............................13
3.5 Contracts; No Defaults............................14
3.6 Employee Benefits.................................15
3.7 Labor Relations; Compliance.......................15
3.8 Employees.........................................16
3.9 Insurance.........................................16
3.10 Environmental Matters.............................16
3.11 Adverse Claims....................................17
3.12 Ability of Company to Conduct Business............18
3.13 Disclosure........................................19
3.14 Brokers or Finders................................19
4. REPRESENTATIONS AND WARRANTIES OF BUYER....................19
4.1 Organization and Good Standing....................19
4.2 Authority; No Conflict............................19
4.3 Investment Intent.................................20
4.4 Certain Proceedings...............................20
4.5 Buyer's Knowledge.................................20
4.6 Brokers or Finders................................20
ii
<PAGE>
5. COVENANTS AND ACKNOWLEDGMENTS..............................20
5.1 Buyer's Acknowledgments...........................20
5.2 Payment of Indebtedness by Related Persons........21
5.3 Best Efforts......................................21
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE........21
6.1 Accuracy of Representations.......................21
6.2 Sellers' Performance..............................21
6.3 Additional Documents..............................22
6.4 No Proceedings....................................22
6.5 No Claim Regarding Stock Ownership or
Sale Proceeds. ..................................22
6.6 No Prohibition....................................22
7. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.......22
7.1 Accuracy of Representations.......................22
7.2 Buyer's Performance...............................23
7.3 Additional Documents..............................23
7.4 No Injunction.....................................23
8. POST-CLOSING COVENANTS OF BUYER............................23
8.1 Completion of Phase I Review......................23
8.2 Completion of Reverse Stock Split.................23
8.3 Payment of Factored Receivables...................23
8.4 Access to Company Books and Records...............24
9. TERMINATION................................................24
9.1 Termination Events................................24
9.2 Effect of Termination.............................24
10. INDEMNIFICATION; REMEDIES..................................25
10.1 Survival; Right to Indemnification Not
Affected by Knowledge............................25
10.2 Indemnification and Payment of Damages
by Sellers.......................................26
10.3 Indemnification and Payment of Damages
by Sellers - Environmental Matters...............26
10.4 Indemnification and Payment of Damages
by Buyer.........................................27
10.5 Procedure for Indemnification; Third
Party Claims.....................................28
10.6 Procedure for Indemnification; Other Claims.......29
10.7 Limit on Indemnification Responsibility...........29
iii
<PAGE>
11. GENERAL PROVISIONS.........................................29
11.1 Expenses..........................................29
11.2 Public Announcements..............................29
11.3 Compliance with Laws..............................30
11.4 Confidentiality...................................30
11.5 Notices...........................................30
11.6 Attorneys' Fees...................................31
11.7 Jurisdiction; Service of Process..................31
11.8 Construction; Representation by Counsel...........31
11.9 Arbitration.......................................32
11.10 Injunctive Relief; Specific Performance...........32
11.11 Freedom to Enter into Agreement...................32
11.12 Force Majeure.....................................32
11.13 Further Assurances................................33
11.14 Waiver............................................33
11.15 Entire Agreement and Modification.................33
11.16 Exhibits to this Agreement........................33
11.17 Assignments, Successors, and No
Third-party Rights...............................33
11.18 Severability......................................34
11.19 Section Headings, Construction....................34
11.20 Time of Essence...................................34
11.21 Counterparts......................................34
11.22 Governing Law.....................................35
iv
<PAGE>
EXHIBITS
Exhibit "A" - Capitalization/Long-Term Debt
Exhibit 2.2 - Closing Payments
Exhibit 2.2.2 - Purchase Price Allocation
Exhibit 2.5.1(ii) - Noncompetition Agreement
Exhibit 2.5.1(iii) - Director Resignation Certificate
Exhibit 3.4 - Financial Presentation
Exhibit 3.5 - Contracts
Exhibit 3.11 - Adverse Claims
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made as of January 2,
1998, by and among Fields Aircraft Spares, Inc., a Utah corporation ("Buyer"),
and each of the individuals listed on Exhibit "A" hereto (the "Sellers"), which
individuals collectively own all of the issued and outstanding stock of
Flightways Manufacturing, Inc., a California corporation (the "Company"), with
reference to the following facts:
RECITALS
WHEREAS, the Company is engaged in the business of manufacturing and
marketing high quality plastic components for commercial aircraft seats and
interiors; and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of
the issued and outstanding shares of common stock of the Company (the "Shares"),
for the consideration and on the terms set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and
the agreements and covenants contained herein and other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings specified or referred to in this Section 1:
1.1 Applicable Contract. "Applicable Contract" shall mean any Contract
(a) under which the Company has or may acquire any rights, (b) under which the
Company has or may become subject to any obligation or liability, or (c) by
which the Company or any of the assets owned or used by it is or may become
bound.
1.2 Best Efforts. "Best Efforts" shall mean the efforts that a prudent
Person desirous of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as possible.
<PAGE>
1.3 Breach. A "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
1.4 Buyer. "Buyer" shall mean Fields Aircraft Spares, Inc., a
Utah corporation.
1.5 Board. "Board" shall mean the Board of Directors of the
Company.
1.6 Closing. "Closing" shall have the meaning set forth in
Section 2.4 hereof.
1.7 Closing Date. "Closing Date" shall mean the date and time as
of which the Closing actually takes place.
1.8 Company. "Company" shall mean Flightways Manufacturing, Inc.,
a California corporation.
1.9 Consent. "Consent" shall mean any approval, consent,
ratification, waiver, or other authorization (including any Governmental
Authorization).
1.10 Contemplated Transactions. "Contemplated Transactions" shall mean
all of the transactions contemplated by this Agreement, including (a) the sale
of the Shares by Sellers to Buyer, (b) the execution, delivery, and performance
of the Noncompetition Agreements, and each of the certificates and other
documents set forth in Section 2.5.1 of this Agreement, (c) the performance by
Buyer and Sellers of their respective covenants and obligations under this
Agreement, and (d) Buyer's acquisition and ownership of the Shares and exercise
of control over the Company.
1.11 Contract. "Contract" shall mean any agreement, contract,
obligation, promise, or undertaking (whether written or oral and whether express
or implied) that is legally binding.
1.12 Damages. "Damages" shall have the meaning set forth in
Section 10.2 hereof.
1.13 Encumbrance. "Encumbrance" shall mean any charge, claim, community
property interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
2
<PAGE>
1.14 Environment. "Environment" shall mean soil, land surface or
subsurface strata, surface waters (including navigable waters, ocean waters,
streams, ponds, drainage basins, and wetlands), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant and animal
life, and any other environmental medium or natural resource.
1.15 Environmental, Health, and Safety Liabilities. "Environmental,
Health, and Safety Liabilities" shall mean any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or other remediation
or response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational Safety and
Health Law.
The terms "removal," "remedial," and "response action,"
include the types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et
seq., as amended ("CERCLA").
1.16 Environmental Law. "Environmental Law" shall mean any Legal
Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction, that
could have significant impact on the Environment;
3
<PAGE>
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
1.17 ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974 or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
1.18 Facilities. "Facilities" shall mean any real property, leaseholds,
or other interests currently or formerly owned or operated by the Company and
any buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by the Company.
1.19 Financial Presentation. "Financial Presentation" shall have
the meaning set forth in Section 3.4 hereof.
1.20 Governmental Authorization. "Governmental Authorization" shall
mean any approval, consent, license, permit, waiver, or other authorization
issued, granted, given, or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement.
1.21 Governmental Body. "Governmental Body" shall mean any (a) nation,
state, county, city, town, village, district, or other jurisdiction of any
nature, (b) federal, state, local, municipal, foreign, or other government, (c)
governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
4
<PAGE>
other tribunal), (d) multi-national organization or body, or (e) body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any nature.
1.22 Hazardous Activity. Hazardous Activity shall mean the
distribution, generation, handling, importing, management, manufacturing,
processing, production, refinement, Release, storage, transfer, transportation,
treatment, or use (including any withdrawal or other use of groundwater) of
Hazardous Materials in, on, under, about, or from the Facilities or any part
thereof into the Environment, and any other act, business, operation, or thing
that increases the danger, or risk of danger, or poses an unreasonable risk of
harm to persons or property on or off the Facilities, or that may affect the
value of the Facilities or the Company.
1.23 Hazardous Materials. "Hazardous Materials" shall mean any waste or
other substance that is listed, defined, designated, or classified as, or
otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, including any admixture
or solution thereof, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
1.24 IRC. "IRC" shall mean the Internal Revenue Code of 1986 or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
1.25 IRS. "IRS" shall mean the United States Internal Revenue Service
or any successor agency, and, to the extent relevant, the United States
Department of the Treasury.
1.26 Knowledge. A Person will be deemed to have "Knowledge" of a
particular fact or other matter if:
1.26.1 In the case of the Management Sellers, (a) such Person
is actually aware of such fact or other matter, (b) such Person reasonably
should have been aware of such fact or other matter, or (c) a prudent Person
could be expected to discover or otherwise become aware of such fact or other
matter in the Ordinary Course of Business in the role such Person performs and
the duties such Person has with respect to such fact or other matter; and
1.26.2 In the case of the Nonmanagement Sellers, such Person
is actually aware of such fact or other matter.
Buyer acknowledges that none of the Nonmanagement Sellers are
directly involved in the management of the Company, and therefore the
Nonmanagement Sellers may not have direct knowledge of matters relating to the
Company.
5
<PAGE>
1.27 Legal Requirement. "Legal requirement" shall mean any federal,
state, local, municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, principle of common law,
regulation, statute, or treaty.
1.28 Long-Term Debt. "Long-Term Debt" shall have the meaning set
forth in Section 2.3 hereof.
1.29 Management Sellers. "Management Sellers" shall mean the members of
or a member of the class consisting of Beowulf Holdings, James Flynn, Naulty
1994 Living Trust, Christian J. Luhnow, Frank Scalise and Yung Ford, who
constitute all of the Sellers who are, or have been in the past, actively
involved in the operations of the Company, or who are currently on, or
represented on the Board.
1.30 Noncompetition Agreements. "Noncompetition Agreements" shall
have the meaning set forth in Section 2.5.1(iii) hereof.
1.31 Nonmanagement Sellers. "Nonmanagement Sellers" shall mean the
members, or a member, of the class consisting of all of the Sellers who are not
Management Sellers.
1.32 Occupational Safety and Health Law. "Occupational Safety and
Health Law" shall mean any Legal Requirement designed to provide safe and
healthful working conditions and to reduce occupational safety and health
hazards, and any program, whether governmental or private (including those
promulgated or sponsored by industry associations and insurance companies),
designed to provide safe and healthful working conditions.
1.33 Order. "Order" shall mean any award, decision, injunction,
judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered
by any court, administrative agency, or other Governmental Body or by any
arbitrator.
1.34 Ordinary Course of Business. An action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons exercising
similar authority) [and is not required to be specifically authorized by the
parent company (if any) of such Person]; and
6
<PAGE>
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
1.35 Organizational Documents. "Organizational Documents" shall mean
(a) the articles or certificate of incorporation and the bylaws of a
corporation; (b) the partnership agreement and any statement of partnership of a
general partnership; (c) the limited partnership agreement and the certificate
of limited partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (e) any amendment to any of the foregoing.
1.36 Person. "Person" shall mean any individual, corporation (including
any non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
1.37 Proceeding. "Proceeding" shall mean any action, arbitration,
audit, hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
1.38 Purchase Price. "Purchase Price" shall have the meaning set
forth in Section 2.2 hereof.
1.39 Related Person. "Related Person" shall mean, with respect to
a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
7
<PAGE>
"Related Person" shall mean, with respect to a specified
Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse, (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
1.40 Release. "Release" shall mean any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, dumping, or other releasing into
the Environment, whether intentional or unintentional.
1.41 Representative. "Representative" shall mean, with respect to a
particular Person, any director, officer, employee, agent, consultant, advisor,
or other representative of such Person, including legal counsel, accountants,
and financial advisors.
1.42 Reverse Stock Split. "Reverse Stock Split" shall have the
meaning set forth in Section 8.2 hereof.
1.43 Securities Act. "Securities Act" shall mean the Securities
Act of 1933 or any successor law, and regulations and rules issued pursuant to
that Act or any successor law.
1.44 Sellers. "Sellers" shall mean the individuals listed on
Exhibit "A" hereto.
8
<PAGE>
1.45 Shares. "Shares" shall mean all of the issued and outstanding
shares of common stock of the Company.
1.46 Tax Return. "Tax Return" shall mean any return (including any
information return), report, statement, schedule, notice, form, or other
document or information filed with or submitted to, or required to be filed with
or submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
1.47 Threat of Release. "Threat of Release" shall mean a substantial
likelihood of a Release that may require action in order to prevent or mitigate
damage to the Environment that may result from such Release.
1.48 Threatened. A claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING.
2.1 Shares. Subject to the terms and conditions of this Agreement, at
the Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 Purchase Price.
2.2.1 The purchase price for the Shares (the "Purchase Price")
shall be Two Million, Eight Hundred and Sixty-Five Thousand, Six Hundred and
Seventy-Two Dollars and Nineteen Cents ($2,865,672.19), payable at the Closing
as set forth in Exhibit 2.2 to this Agreement, coincident with the transfer of
the Shares from the Sellers to Buyer.
2.2.2 The parties agree and acknowledge that the Purchase
Price shall be allocated as set forth on Exhibit 2.2.2 to this Agreement, and
all parties agree to use such allocation for all reporting purposes.
9
<PAGE>
2.3 Buyer's Further Obligations. In addition to the payment of the
Purchase Price as set forth above, Buyer shall assume and repay at the Closing
One Million, One Hundred and Twenty-Four Thousand, Three Hundred and
Twenty-Seven Dollars and Eighty-One Cents ($1,124,327.81) of debt and accrued
interest, as shown as "Notes" and "Accrued Interest" on Exhibit "A" (the
"Long-Term Debt"), which amounts shall be payable as set forth on Exhibit 2.2.
2.4 Closing. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the offices of Buyer's counsel located at 1299
Ocean Avenue, Fourth Floor, Santa Monica, California, at 11:00 a.m. (local time)
on January 16, 1998, or at such other time and place as the parties may agree.
Subject to the provisions of Section 9 of this Agreement, failure to consummate
the purchase and sale provided for in this Agreement on the date and time and at
the place determined pursuant to this Section 2.4 will not result in the
termination of this Agreement and will not relieve any party of any obligation
under this Agreement.
2.5 Closing Obligations. At the Closing:
2.5.1 Sellers will deliver to Buyer:
(i) (A) certificates representing the Shares, duly
endorsed (or accompanied by duly executed stock powers) for transfer to Buyer,
or (B) an executed Stock Assignment Separate From Certificate, in the form of
Exhibit "B" to the Counterpart Signature Page and Waiver of Claims, and an
executed Transfer and Indemnification Agreement, in the form of Exhibit "C" to
the Counterpart Signature Page and Waiver of Claims;
(ii) noncompetition agreements in the form of Exhibit
2.5.1(ii), executed by Christian J. Luhnow, Frank Scalise and Yung Ford
(collectively, the "Noncompetition Agreements"); and
(iii) Director Resignation Certificates in the form
of Exhibit 2.5.1(iii) executed by each of the directors of the Company except
Christian J. Luhnow.
2.5.2 Buyer will deliver to Sellers:
(i) Two Million, Eight Hundred and Sixty-Five
Thousand, Six Hundred and Seventy-Two Dollars and Nineteen Cents ($2,865,672.19)
by check, or if agreed by Buyer, by wire transfer as set forth in Exhibit 2.2;
and
(ii) written evidence of the payment by Buyer of the
Long-Term Debt set forth on Exhibit "A", which amounts shall be payable as set
forth on Exhibit 2.2.
10
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF SELLERS.
With the exception of representations and warranties relating to
capitalization, as set forth in Section 3.3 and Exhibit "A", the Financial
Presentation, as set forth in Section 3.4 and Exhibit 3.4, and environmental
matters, as set forth in Section 3.10 and Exhibit 3.10, Seller's representations
and warranties set forth in this Section 3 are expressly limited to the
Knowledge of each of the Sellers and to those facts and matters which,
individually or in the aggregate, may potentially have a material adverse effect
on the ability of the Company to continue to operate and conduct its businesses
as previously or currently operated and conducted. Based on the foregoing,
Sellers jointly and severally represent and warrant to Buyer as follows, which
representations and warranties are true as of the date hereof and will remain
true as of the Closing Date:
3.1 Organization and Good Standing.
3.1.1 The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of California, with
full corporate power and authority to conduct its business as previously or
currently conducted, to own or use the properties and assets that it purports to
own or use, and to perform all its obligations under Applicable Contracts. The
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
3.1.2 Sellers have delivered to Buyer true and complete copies
of the Organizational Documents of the Company, as currently in effect.
3.2 Authority; No Conflict.
3.2.1 This Agreement constitutes the legal, valid, and binding
obligation of each Seller, enforceable against each Seller in accordance with
its terms. Upon the execution and delivery by Sellers of the Noncompetition
Agreements and each of the other documents set forth in Section 2.5.1 of this
Agreement (collectively, the "Sellers' Closing Documents"), the Sellers' Closing
Documents will constitute the legal, valid, and binding obligations of each
Seller, enforceable against each Seller in accordance with their respective
terms. Sellers have the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and the Sellers' Closing
Documents and to perform their obligations under this Agreement and the Sellers'
Closing Documents.
3.2.2 Neither the execution and delivery of this Agreement nor
the consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
11
<PAGE>
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of the Company,
or (B) any resolution adopted by the Board or the stockholders of the Company;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which the Company
or any Seller, or any of the assets owned or used by the Company, may be
subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by the Company or that otherwise relates
to the business of, or any of the assets owned or used by, the Company;
(iv) cause Buyer or the Company to become subject to,
or to become liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to
be reassessed or revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by the
Company.
No Seller or the Company is or will be required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 Capitalization. Exhibit "A" to this Agreement sets forth the
capitalization of the Company, including the identity of each and every
stockholder of the Company and the full and complete number of shares held by
each such stockholder of the Company. Other than as set forth in Exhibit "A" to
this Agreement, there are no other shares of the Company outstanding and no
other stockholders of the company. The authorized equity securities of the
Company consist of fifty million (50,000,000) shares of common stock, no par
value, of which fifty-three million, four hundred and twelve thousand, five
hundred and eighty-two (53,412,582) shares are issued and outstanding and
constitute the Shares. Sellers are and will be on the Closing Date the record
and beneficial owners and holders of the Shares, free and clear of all
12
<PAGE>
Encumbrances. Sellers acknowledge that pursuant to the Company's Articles of
Incorporation all of the Shares currently issued to Sellers have not yet been
authorized, due to the Company's failure to file amended Articles of
Incorporation of the Company with the California Secretary of State authorizing
the issuance of all of the Shares. Sellers hereby waive any and all claims which
they may have against the Company or Buyer for any defects in the issuance of
the Shares arising out of the failure of Company to file amended Articles of
Incorporation authorizing the issuance of such additional Shares. No legend or
other reference to any purported Encumbrance appears upon any certificate
representing equity securities of the Company. All of the outstanding equity
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. There are no Contracts relating to the issuance,
sale, or transfer of any equity securities or other securities of the Company.
None of the outstanding equity securities or other securities of the Company was
issued in violation of the Securities Act or any other Legal Requirement. The
Company does not own, or have any Contract to acquire, any equity securities or
other securities of any Person or any direct or indirect equity or ownership
interest in any other business.
3.4 Financial Presentation.
3.4.1 For purposes of this Section 3.4, the term "Net Book
Value" shall mean (a) as at September 27, 1997, negative Five Hundred and
Nineteen Thousand, Two Hundred and Eighty-Seven Dollars (-$519,287), and (b) as
at December 31, 1997, the difference between the total assets and the total
liabilities (other than shareholders' equity) of the Company, as reflected on
the audited financial statements of the Company.
3.4.2 Exhibit 3.4 to this Agreement contains the "Financial
Presentation" of the Company, which Financial Presentation sets forth the
financial status of the Company as at September 27, 1997. Such Financial
Presentation, including the exhibits and notes thereto, fairly presents the
financial condition of the Company as at September 27, 1997, determined in
accordance with the Company's prior accounting principles, applied on a
consistent basis, subject to adjustments as reflected in the Financial
Presentation. Such Financial Presentation reflects the consistent application of
the Company's accounting principles throughout the periods involved, except as
disclosed in the notes to such Financial Presentation. From the date of the
Financial Presentation through and including December 31, 1997, there has been
no degradation of the Net Book Value, such that the Net Book Value as at
December 31, 1997 will be less than the Net Book Value as at September 27, 1997.
Except as set forth in the Financial Presentation, the Company has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Financial Presentation and
current liabilities incurred in the Ordinary Course of Business since the
respective dates thereof.
13
<PAGE>
3.4.3 Since the date of the Financial Presentation, the
Company has conducted its business only in the Ordinary Course of Business and
there has not been any adverse change in the business, operations, properties,
prospects, assets, or condition of the Company, and no event has occurred or
circumstance exists that may result in such an adverse change.
3.5 Contracts; No Defaults.
3.5.1 Exhibit 3.5 to this Agreement contains a complete and
accurate list, with reasonably complete details, including the parties and the
amount of the remaining commitment of the Company, and Sellers have delivered to
Buyer true and complete copies, of (i) each Applicable Contract that is material
to the Company or the conduct of the Company's business, or pursuant to which
the Company has obtained any of its equipment or assets, and (ii) each
amendment, supplement, and modification (whether oral or written) in respect of
any of the foregoing.
3.5.2 Except as set forth in Exhibit 3.5 to this Agreement:
(i) no Seller (and no Related Person of any Seller)
has or may acquire any rights under, and no Seller has or may become subject to
any obligation or liability under, any Contract that relates to the business of,
or any of the assets owned or used by, the Company;
(ii) no officer, director, agent, employee,
consultant, or contractor of the Company is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any conduct, activity, or practice
relating to the business of the Company, or (B) assign to the Company or to any
other Person any rights to any invention, improvement, or discovery;
(iii) each Contract identified or required to be
identified in Exhibit 3.5 to this Agreement is in full force and effect and is
valid and enforceable in accordance with its terms;
(iv) the Company is, and at all times has been, in
full compliance with all applicable terms and requirements of each Contract
under which it has or had any obligation or liability or by which it or any of
the assets owned or used by it is or was bound;
(v) each other Person that has or had any obligation
or liability under any Contract under which the Company has or had any rights
is, and at all times has been, in full compliance with all applicable terms and
requirements of such Contract;
14
<PAGE>
(vi) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give the Company or other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; and
(vii) the Company has not given to or received from
any other Person any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract.
3.5.3 There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or payable to the
Company under current or completed Contracts with any Person and no such Person
has made written demand for such renegotiation.
3.5.4 The Contracts relating to the sale, design, manufacture,
or provision of products or services by the Company have been entered into in
the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.
3.6 Employee Benefits. There are no "Plans," as defined in ERISA ss.
3(3), of which the Company, or any other person that, together with the Company,
would be treated as a single employer under IRC ss. 414 (an "ERISA Affiliate")
is or was a "Plan Sponsor," as defined in ERISA ss. 3(16)(B), or to which the
Company or an ERISA Affiliate of the Company otherwise contributes or has
contributed, or in which the Company or an ERISA Affiliate of the Company
otherwise participates or has participated, and the Company has no other
obligations, arrangements, or customary practices, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, or agents of the
Company.
3.7 Labor Relations; Compliance. The Company has never been and is not
presently a party to any collective bargaining or other labor Contract. There
has never been, there is not presently pending or existing, and there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process, (b) any Proceeding against or affecting the Company relating
to the alleged violation of any Legal Requirement pertaining to labor relations
or employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
15
<PAGE>
other labor or employment dispute against or affecting the Company or its
premises, or (c) any application for certification of a collective bargaining
agent. The Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing.
3.8 Employees. No employee or director of the Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
employee or director and any other Person ("Proprietary Rights Agreement") that
in any way adversely affects or will affect (i) the performance of his or her
duties as an employee or director of the Company, or (ii) the ability of the
Company to conduct its business, including any Proprietary Rights Agreement with
Sellers or the Company by any such employee or director. No director, officer,
or other key employee of the Company intends to terminate his or her employment
with the Company.
3.9 Insurance. All insurance policies to which the Company is a party
or that provide coverage to any Seller, the Company, or any director or officer
of the Company (A) are valid, outstanding, and enforceable, (B) are issued by an
insurer that is financially sound and reputable, (C) taken together, provide
adequate insurance coverage for the assets and the operations of the Company for
all risks to which the Company is normally exposed, (D) are sufficient for
compliance with all Legal Requirements and Contracts to which the Company is a
party or by which the Company is bound, (E) will continue in full force and
effect following the consummation of the Contemplated Transactions, and (F) do
not provide for any retrospective premium adjustment or other experienced-based
liability on the part of the Company.
3.10 Environmental Matters.
3.10.1 The Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. No Seller or the Company has any basis to expect, nor has
any of them or any other Person for whose conduct they are or may be held to be
responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or the Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials were
generated, manufactured, refined, transferred, imported, used, or processed by
Sellers, the Company, or any other Person for whose conduct they are or may be
held responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
16
<PAGE>
3.10.2 There are no pending or Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets (whether real, personal, or mixed) in which Sellers
or the Company has or had an interest.
3.10.3 There are no Hazardous Materials present on or in the
Environment at the Facilities or at any geologically or hydrologically adjoining
property, including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, sumps, or any other part of the Facilities
or such adjoining property, or incorporated into any structure therein or
thereon. No Seller, the Company or any other Person has permitted or conducted,
or is aware of, any Hazardous Activity conducted with respect to the Facilities
or any other properties or assets (whether real, personal, or mixed) in which
Sellers or the Company has or had an interest.
3.10.4 Sellers have delivered to Buyer true and complete
copies and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by Sellers or the Company pertaining to Hazardous
Materials or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Sellers, the Company, or any other Person for whose conduct they
are or may be held responsible, with Environmental Laws.
3.11 Adverse Claims. Except as reflected on the Financial
Presentation or as set forth in Exhibit 3.11 to this Agreement:
3.11.1 there is no pending Proceeding that has been commenced
by or against the Company or that otherwise relates to or may affect the
business of, or any of the assets owned or used by, the Company;
3.11.2 there is no Threatened Proceeding, and no event has
occurred or circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding, that challenges, or that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions, and Sellers have delivered to Buyer copies
of all pleadings, correspondence, and other documents relating to each
Proceeding listed in Exhibit 3.11 to this Agreement.
3.11.3 the Company is, and at all times has been, in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
assets;
17
<PAGE>
3.11.4 no event has occurred or circumstance exists that (with
or without notice or lapse of time) (A) may constitute or result in a violation
by the Company of, or a failure on the part of the Company to comply with, any
Legal Requirement, or (B) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature;
3.11.5 the Company has not received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of,
or failure to comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any remedial action of any nature.
3.11.6 there is no Order to which the Company, or any of the
assets owned or used by the Company, is subject, no Seller is subject to any
Order that relates to the business of, or any of the assets owned or used by,
the Company, and no officer, director, agent, or employee of the Company is
subject to any Order that prohibits such officer, director, agent, or employee
from engaging in or continuing any conduct, activity, or practice relating to
the business of the Company;
3.11.7 the Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject, no event has
occurred or circumstance exists that may constitute or result in (with or
without notice or lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which the Company, or any of the assets
owned or used by the Company, is subject; and the Company has not received any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order to
which the Company, or any of the assets owned or used by the Company, is or has
been subject; and
3.11.8 The Company has filed or caused to be filed on a timely
basis all Tax Returns that are or were required to be filed by or with respect
to the Company pursuant to applicable Legal Requirements, and Sellers have
delivered to Buyer copies of all such Tax Returns filed.
3.12 Ability of Company to Conduct Business. There are no facts or
circumstances currently pending or Threatened which may have a material adverse
impact on the ability of the Company to continue conducting its business and
operations as currently or previously conducted.
18
<PAGE>
3.13 Disclosure.
3.13.1 Sellers have provided Buyer with full and complete
access to the books and records of the Company and made all management and other
appropriate personnel of the Company available to representatives of Buyer, to
respond to inquiries regarding such books and records and to questions which
have come to Buyer's attention regarding such books and records and/or the
business and operations of the Company. The materials and information thus
provided to Buyer are sufficient for Buyer to become fully and completely aware
of any and all pending, Threatened or potential liabilities of the Company, or
facts or circumstances which could reasonably be expected to have a material and
adverse impact on the ability of the Company to continue conducting its business
and operations as previously or currently conducted.
3.13.2 Sellers have provided Buyer with all information which
could reasonably impact on the accuracy of the representations and warranties of
Buyers as set forth in Section 3 of this Agreement, and there is no fact known
to any Seller that has specific application to any Seller or to the Company
(other than general economic or industry conditions) and that materially
adversely affects or, as far as any Seller can reasonably foresee, materially
threatens, the assets, business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this Agreement.
3.13.3 No representation or warranty of Sellers in this
Agreement omits to state a material fact necessary to make the statements herein
or therein, in light of the circumstances in which they were made, not
misleading.
3.14 Brokers or Finders. Sellers and their agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Utah.
4.2 Authority; No Conflict.
4.2.1 This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and to perform its obligations under this Agreement.
19
<PAGE>
4.2.2 Neither the execution and delivery of this Agreement by
Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to (i)
any provision of Buyer's Organizational Documents; (ii) any resolution adopted
by the board of directors or the stockholders of Buyer; (iii) any Legal
Requirement or Order to which Buyer may be subject; or (iv) any Contract to
which Buyer is a party or by which Buyer may be bound. Buyer is not and will not
be required to obtain any Consent from any Person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the Contemplated Transactions.
4.3 Investment Intent. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's actual knowledge, no such Proceeding has
been Threatened.
4.5 Buyer's Knowledge. Based on Buyer's and its affiliate's due
diligence investigation and review of the Company, Buyer does not have actual
knowledge of any fact or matter which has not been disclosed in this Agreement
and/or in any exhibits to this Agreement and which would constitute a breach of
Seller's representations and warranties as set forth in Section 3 of this
Agreement.
4.6 Brokers or Finders. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
5. COVENANTS AND ACKNOWLEDGMENTS.
5.1 Buyer's Acknowledgments. Buyer acknowledges that the Board has
taken actions prior to the Closing in connection with (i) the amendment of the
Company's Compensation Program to provide that bonuses payable to management of
the Company on January 13, 1998 are to be calculated, on a non-adjusted basis,
through January 2, 1998, rather than through December 31, 1997, and (ii) the
amendment of the Company's Management Program to authorize the issuance to
certain management of the Company of additional shares of the Company's common
stock, in cancellation of the obligation of the Sellers to contribute their
Shares for the compensation of such management employees of the Company. Buyer
agrees that the above actions by the Board shall not constitute a breach of any
of the representations and warranties of the Sellers contained in Section 3 of
this Agreement.
20
<PAGE>
Buyer further acknowledges the obligation of the Company to
pay Ten Thousand Dollars ($10,000.00) to Akre, Bryan & Chang for legal fees
incurred in the representation of the Sellers in connection with the negotiation
and execution of this Agreement and the consummation of the Contemplated
Transactions.
5.2 Payment of Indebtedness by Related Persons. Except as expressly
provided in this Agreement, Sellers will cause all indebtedness owed to the
Company by any Seller or by any Related Person of any Seller to be paid in full
prior to Closing.
5.3 Best Efforts. Between the date of this Agreement and the Closing
Date, Buyer and Sellers will use their respective Best Efforts to cause the
conditions in Sections and to be satisfied.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in its sole and absolute discretion, in whole or in part):
6.1 Accuracy of Representations. All of Sellers' representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to this Agreement.
6.2 Sellers' Performance.
6.2.1 All of the covenants and obligations that Sellers are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects. Sellers and/or the Company shall have
filed with the California Secretary of State amended Articles of Incorporation
of the Company authorizing the issuance of all of the Shares.
6.2.2 Seller's shall have delivered to Buyer executed written
Contracts between the Company and all principal employees of the Company who now
have, or may in the past have had, access to any proprietary information of the
Company, assigning to the Company all rights to any inventions, improvements,
discoveries, or information relating to the business of the Company.
21
<PAGE>
6.2.3 Each document required to be delivered by Sellers
pursuant to Section 2.5 must have been delivered, and each of the other
covenants and obligations in Section 5 must have been performed and complied
with in all respects.
6.3 Additional Documents. Sellers must have delivered to Buyer such
documents as Buyer may reasonably request for the purpose of (i) evidencing the
accuracy of any of Sellers' representations and warranties, (ii) evidencing the
performance by any Seller of, or the compliance by any Seller with, any covenant
or obligation required to be performed or complied with by such Seller, (iii)
evidencing the satisfaction of any condition referred to in this Section 6, or
(iv) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
6.4 No Proceedings. Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceeding (a) involving any challenge to, or seeking
damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.
6.5 No Claim Regarding Stock Ownership or Sale Proceeds. There must not
have been made or Threatened by any Person any claim asserting that such Person
(a) is the holder or the beneficial owner of, or has the right to acquire or to
obtain beneficial ownership of, any stock of, or any other voting, equity, or
ownership interest in, the Company, or (b) is entitled to all or any portion of
the Purchase Price payable for the Shares.
6.6 No Prohibition. Neither the consummation nor the performance of any
of the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time), materially contravene, or conflict with, or result in
a material violation of, or cause Buyer or any Person affiliated with Buyer to
suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
7. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
7.1 Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
22
<PAGE>
7.2 Buyer's Performance.
7.2.1 All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
7.2.2 Buyer must have delivered each of the documents required
to be delivered by Buyer pursuant to Section 2.5 and must have made the cash
payments required to be made by Buyer pursuant to Section 2.5.2.
7.3 Additional Documents. Buyer must have caused to be delivered to
Sellers such documents as Sellers may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of Buyer, (ii)
evidencing the performance by Buyer of, or the compliance by Buyer with, any
covenant or obligation required to be performed or complied with by Buyer, (iii)
evidencing the satisfaction of any condition referred to in this Section 7, or
(iv) otherwise facilitating the consummation of any of the Contemplated
Transactions.
7.4 No Injunction. There must not be in effect any Legal Requirement or
any injunction or other Order that (a) prohibits the sale of the Shares by
Sellers to Buyer, and (b) has been adopted or issued, or has otherwise become
effective, since the date of this Agreement.
8. POST-CLOSING COVENANTS OF BUYER.
8.1 Completion of Phase I Review. Buyer shall, within thirty (30) days
after the Closing Date, retain an environmental investigation firm to, as
promptly as practical, complete a Phase I environmental investigation of
Company's facility located at 7660 Densmore Avenue, Van Nuys, California, and,
within sixty (60) days following such investigation, complete such further
environmental studies or investigation as the initial Phase I report deems
prudent (the "Phase I Review").
8.2 Completion of Reverse Stock Split. Buyer shall, within thirty (30)
days after the Closing Date, file with the California Secretary of State the
necessary amendment to the Company's Articles of Incorporation to reduce the
number of shares authorized, in order to effectuate a reverse stock split of the
Company's stock (the "Reverse Stock Split").
8.3 Payment of Factored Receivables. The Company has outstanding, as of
the date hereof, an obligation to pay the sum of One Hundred Eighty-two
Thousand, Six Hundred and Sixty Dollars and Fifty-Four Cents ($182,660.54) to
certain Sellers, representing funds previously advanced to the Company by such
Sellers (less agreed discounts) which were to be repaid by the Company upon
collection of certain designated accounts receivable. Buyer hereby expressly
agrees to cause the Company to use reasonable commercial efforts to collect such
23
<PAGE>
accounts receivable, and to pay the amounts so collected to such Sellers on a
weekly basis. If and to the extent that the Company has not collected, and
repaid to such Sellers, the entire outstanding obligation by not later than
sixty (60) days from the date hereof, Buyer expressly guarantees the payment of
any unpaid balance of such obligation on such date.
8.4 Access to Company Books and Records. Buyer shall, from and after
the Closing Date, provide Sellers or any Seller's designated representative
access to the Company's books and records, at the principal place of business of
Company during normal business hours upon no less than two business days prior
notice, in the event that there are claims (i) against any Seller relating to
such Seller's indemnification responsibilities pursuant to this Agreement, (ii)
against any Seller relating to such Seller's prior status as a director or
shareholder of the Company, or (iii) against any Seller for tax obligations.
Such access to, and review of, the books and records of the Company shall be
limited to the purpose for which such review is undertaken, and to those
documents which relate to such purpose.
9. TERMINATION.
9.1 Termination Events. This Agreement may, by notice given prior to or
at the Closing, be terminated:
(a) by Buyer or Sellers if a material Breach of any provision
of this Agreement has been committed by the other party and such Breach has not
been waived;
(b) (i) by Buyer if any of the conditions in Section 6 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition on
or before the Closing Date; or (ii) by Sellers, if any of the conditions in
Section 7 has not been satisfied of the Closing Date or if satisfaction of such
a condition is or becomes impossible (other than through the failure of Sellers
to comply with their obligations under this Agreement) and Sellers have not
waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by Buyer or Sellers if the Closing has not occurred (other
than through the failure of the party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before January 16,
1998, or such later date as the parties may agree upon.
Effect of Termination. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 11.1 and 11.4 will survive; provided, however,
24
<PAGE>
that if this Agreement is terminated by a party because of the Breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES.
10.1 Survival; Right to Indemnification Not Affected by Knowledge. All
representations, warranties, covenants and obligations in this Agreement, any
exhibits to this Agreement, the supplements to any exhibits to this Agreement,
the certificates delivered pursuant to Section 2.5.1 of this Agreement, and in
any other certificate or document delivered pursuant to this Agreement will
survive the Closing up and until the date which is one (1) year from the Closing
Date, except that;
10.1.1 From and after the earlier of the Reverse Split or
thirty (30) days from the Closing Date, Seller's only indemnification
responsibilities relating to the representations and warranties set forth in
Section 3.3 of this Agreement shall be as to claims that the information set
forth in Exhibit "A" is inaccurate, or claims by third parties not listed on
Exhibit "A", both of which claims shall survive the Closing indefinitely; and
10.1.2 All representations and warranties set forth in Section
3.10 of this Agreement relating to environmental matters will survive the
Closing indefinitely; provided, however; if the Phase I Review does not reveal
any potential environmental issues which could be attributed to Sellers and/or
the Company, then the survivability of the representations and warranties set
forth in Section 3.10 of this Agreement will immediately terminate; further
provided, however, if Buyer fails to retain an environmental investigation firm
within thirty (30) days after the Closing Date and as promptly as practical
complete the Phase I Review, then the survivability of the representations and
warranties set forth in Section 3.10 of this Agreement will immediately
terminate.
The right to indemnification, payment of Damages or other remedy based
on such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
25
<PAGE>
10.2 Indemnification and Payment of Damages by Sellers. Sellers
severally, and not jointly, in proportion to their ownership of the Shares, will
indemnify and hold harmless Buyer, the Company, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by
Sellers in this Agreement (without giving effect to any supplement to any
exhibit to this Agreement, the exhibits to this Agreement, the supplements to
the exhibits to this Agreement, or any other certificate or document delivered
by Sellers pursuant to this Agreement);
(b) any Breach of any representation or warranty made by
Sellers in this Agreement as if such representation or warranty were made on and
as of the Closing Date without giving effect to any supplement to the exhibits
to this Agreement, other than any such Breach that is disclosed in a supplement
to the exhibits to this Agreement and is expressly identified in the certificate
delivered pursuant to Section 2.5.1(iii) as having caused the condition
specified in Section 6.1 not to be satisfied;
(c) any Breach by any Seller of any covenant or obligation of
such Seller in this Agreement;
(d) any product shipped or manufactured by, or any services
provided by, the Company prior to the Closing Date; or
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with any Seller or the Company (or
any Person acting on their behalf) in connection with any of the Contemplated
Transactions.
The remedies provided in this Section 10.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
10.3 Indemnification and Payment of Damages by Sellers Environmental
Matters. In addition to the provisions of Section 10.2, Sellers severally, and
not jointly, in proportion to their ownership of the Shares, will indemnify and
hold harmless Buyer, the Company, and the other Indemnified Persons for, and
will pay to Buyer, the Company, and the other Indemnified Persons the amount of,
any Damages (including costs of cleanup, containment, or other remediation)
arising, directly or indirectly, from or in connection with:
26
<PAGE>
(a) any Environmental, Health, and Safety Liabilities arising
out of or relating to: (i) (A) the ownership, operation, or condition at any
time on or prior to the Closing Date of the Facilities or any other properties
and assets (whether real, personal, or mixed and whether tangible or intangible)
in which Sellers or the Company has or had an interest, or (B) any Hazardous
Materials or other contaminants that were present on the Facilities or such
other properties and assets at any time on or prior to the Closing Date; or (ii)
(A) any Hazardous Materials or other contaminants, wherever located, that were,
or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Sellers or the Company or by any other Person for whose
conduct they are or may be held responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Sellers or the Company or by any other Person for whose conduct
they are or may be held responsible; or
(b) any bodily injury (including illness, disability, and
death, and regardless of when any such bodily injury occurred, was incurred, or
manifested itself), personal injury, property damage (including trespass,
nuisance, wrongful eviction, and deprivation of the use of real property), or
other damage of or to any Person, including any employee or former employee of
Sellers or the Company or any other Person for whose conduct they are or may be
held responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Company prior to the Closing Date, or from
Hazardous Material that was (i) present or suspected to be present on or before
the Closing Date on or at the Facilities (or present or suspected to be present
on any other property, if such Hazardous Material emanated or allegedly emanated
from any of the Facilities and was present or suspec prior to the Closing Date)
or (ii) Released or allegedly Released by Sellers or the Company or any other
Person for whose conduct they are or may be held responsible, at any time on or
prior to the Closing Date.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following sentence, any other Proceeding with
respect to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.5 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 Indemnification and Payment of Damages by Buyer. Buyer will
indemnify and hold harmless Sellers, and will pay to Sellers the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach by Buyer of any covenant or obligation of Buyer in this Agreement, (b)
any claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the Contemplated Transactions, or (c) Buyer's operation of the Company
from and after the Closing.
10.5 Procedure for Indemnification; Third Party Claims.
27
<PAGE>
10.5.1 Promptly after receipt by an indemnified party under
Section 10.2, 10.4, or (to the extent provided in the last sentence of Section
10.3) Section 10.3 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
10.5.2 If any Proceeding referred to in Section 10.5.1 is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 10 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
28
<PAGE>
10.5.3 Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
10.5.4 Sellers hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Sellers with respect to such a
claim anywhere in the world.
10.6 Procedure for Indemnification; Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
10.7 Limit on Indemnification Responsibility. Except as to claims for a
breach of the representations and warranties set forth in Sections 3.3 or 3.10
of this Agreement, relating to capitalization and environmental matters,
respectively, for which there shall be no limit to Seller's indemnification
responsibilities, the maximum aggregate indemnification to which the Buyer shall
be entitled shall not exceed One Million Dollars ($1,000,000.00).
11. GENERAL PROVISIONS.
11.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Contemplated Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. Except as otherwise expressly
provided in this Agreement, Sellers will cause the Company not to incur any
out-of-pocket expenses in connection with this Agreement. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.2 Public Announcements. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines, in its sole and
absolute discretion. Unless consented to by Buyer in advance or required by
Legal Requirements, prior to the Closing Sellers shall, and shall cause the
Company to, keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person. Sellers and Buyer will consult with
each other concerning the means by which the Company's employees, customers, and
suppliers and others having dealings with the Company will be informed of the
Contemplated Transactions, and Buyer will have the right to be present for any
such communication.
29
<PAGE>
11.3 Compliance with Laws. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law, and whenever
there is a conflict between any term, condition or provision of this Agreement
and any present or future statute, law, ordinance or regulation contrary to
which the parties have no legal right to contract, the latter shall prevail, but
in such event the term, condition or provision of this Agreement affected shall
be curtailed and limited only to the extent necessary to bring it within the
requirement of the law, provided that such construction is consistent with the
intent of the parties as expressed in this Agreement.
11.4 Confidentiality. Between the date of this Agreement and the
Closing Date, Buyer and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Company to
maintain in confidence, any written, oral, or other information obtained in
confidence from another party or from he Company in connection with this
Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Sellers waive, and
will upon Buyer's request cause the Company to waive, any cause of action,
right, or claim arising out of the access of Buyer or its representatives to any
trade secrets or other confidential information of the Company except for the
intentional competitive misuse by Buyer of such trade secrets or confidential
information.
11.5 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
30
<PAGE>
If to Sellers: With copy to:
Flightways Manufacturing, Inc. Akre, Bryan & Chang
7660 Densmore Avenue 355 South Grand Avenue, Ste 4100
Van Nuys, California 91406 Los Angeles, California 90071
Attn: Chris Luhnow, President Attn: Steven K. Hazen, Esq.
Fax: (818) 908-2186 Fax: (213) 626-1428
If to Buyer:
Fields Aircraft Spares, Inc. Stein & Kahan, A Law Corporation
341 "A" Street 1299 Ocean Avenue, 4th Floor
Fillmore, California 93015-1931 Santa Monica, California 90401
Attn: Alan Fields Attn: Robert L. Kahan, Esq.
Fax (805) 583-0825 Fax: (310) 394-4759
11.6 Attorneys' Fees. In the event that any party to this Agreement
shall commence or otherwise be made a party to any suit, action, arbitration or
other proceeding to interpret this Agreement, or determine or enforce any right
or obligation created hereby, including but not limited to any action for
rescission of this Agreement or for a determination that this Agreement is void
or ineffective ab initio, the prevailing party in such action shall recover such
party's costs and expenses incurred in connection therewith, including
attorney's fees and costs of appeal, if any. Any court, arbitrator or panel of
arbitrators shall, in entering any judgement or making any award in any such
suit, action, arbitration or other proceeding, in addition to any and all other
relief awarded to such prevailing party, include in such judgement or award such
party's costs and expenses as provided in this Section 11.6.
11.7 Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of California, County of Los Angeles, or, if it has or can acquire jurisdiction,
in the United States District Court for the Central District of California, and
each of the parties hereto consents to the jurisdiction of such courts (and of
the appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.
11.8 Construction; Representation by Counsel. The parties to this
Agreement represent that they have been represented and advised by counsel in
connection with the negotiation and preparation of this Agreement, and this
Agreement shall be deemed to have been drafted jointly by the parties,
notwithstanding that one party or the other may have performed the actual
drafting hereof. This Agreement shall be construed and interpreted in accordance
with the plain meaning of its language, and not for or against either party, and
as a whole, giving effect to all of the terms, conditions and provisions hereof.
31
<PAGE>
11.9 Arbitration. The parties hereby agree that any and all disputes or
claims arising hereunder or relating hereto, or arising under or relating to any
document or instrument delivered pursuant hereto, including but not limited to
claims for rescission of this Agreement or that this Agreement is void or
ineffective ab initio, actions to interpret or construe this Agreement, or any
actions to determine the rights and obligations of any party to this Agreement
or to enforce any such rights or obligations, shall be submitted to arbitration
in accordance with the rules of the American Arbitration Association. The
parties expressly agree and acknowledge that any award rendered in such
arbitration shall be final, binding and conclusive, and judgement may be entered
in any court of competent jurisdiction upon any such award. Such arbitration
shall be held in Los Angeles, California.
11.10 Injunctive Relief; Specific Performance. The parties hereby agree
and acknowledge that a breach of any material term, condition or provision of
this Agreement would result in severe and irreparable injury to the other party,
which injury could not be adequately compensated by an award of money damages,
and the parties therefore agree and acknowledge that they shall be entitled to
injunctive relief in the event of any breach of any material term, condition or
provision of this Agreement, or to enjoin or prevent such a breach, including
without limitation an action for specific performance hereof, and the parties
hereby irrevocably consent to the issuance of any such injunction. The parties
further agree that no bond or surety shall be required in connection therewith.
11.11 Freedom to Enter into Agreement. Each party hereby expressly
represents and warrants that it is free to enter into this Agreement and that
such party has not made and will not hereafter make any agreement or commitment
in conflict with the provisions hereof, or which or might interfere with the
full and complete performance of such party's obligations hereunder.
11.12 Force Majeure. No party shall be liable for any failure of or
delay in performance of its obligations hereunder to the extent that such
failure or delay is due to circumstances beyond such party's control, including,
but not limited to, acts of God, acts of a public enemy, fires, floods,
earthquakes, storms, explosions, wars, civil disturbances, sabotage,
insurrections, blockades, embargoes, labor disputes, or acts of any governmental
body (collectively, "Force Majeure"), nor shall any such failure or delay give
any other party any right to terminate this Agreement or accelerate any
obligations hereunder. Each party shall use its best efforts to minimize the
duration and consequences of any failure or delay resulting from any Force
Majeure.
32
<PAGE>
11.13 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.14 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.15 Entire Agreement and Modification. This Agreement, including all
exhibit hereto, supersedes all prior agreements between the parties with respect
to its subject matter, and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
11.16 Exhibits to this Agreement.
11.16.1 The disclosures in the exhibits to this Agreement, and
those in any Supplement thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
11.16.2 In the event of any inconsistency between the
statements in the body of this Agreement and those in the exhibits to this
Agreement (other than an exception expressly set forth as such in the exhibits
to this Agreement with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will control.
11.17 Assignments, Successors, and No Third-party Rights. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, except that Buyer may assign any of its rights under this
Agreement to any Subsidiary of Buyer. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Notwithstanding
the foregoing, Sellers acknowledge that Buyer may transfer the
33
<PAGE>
Shares to their lender as collateral for Company's debts. Nothing expressed or
referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
11.18 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.19 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding "Section" or "Sections" of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
11.20 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
11.21 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
34
<PAGE>
11.22 Governing Law. This Agreement will be governed by the laws of the
State of California without regard to conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
"Buyer" "Sellers"
Fields Aircraft Spares, Inc., Beowulf Holdings Corp.
a Utah corporation
By: /s/ Alan M. Fields By: /s/ Phillip Hillhouse
--------------------------- ------------------------
Its: COO /s/ James Flynn
--------------------------- ------------------------
Ashtree Corporation
By: /s/ Mark Allison
------------------------
Naulty 1994 Living Trust
By: /s/ Richard Naulty
------------------------
Its: Trustee
------------------------
/s/ Christian Luhnow
------------------------
/s/ Frank Scalise
------------------------
/s/ Yung Ford
------------------------
/s/ William Lautman
------------------------
/s/ Keith Coleman
------------------------
Kenneth S. Koontz Trust
By: /s/ Kenneth S. Koontz
-----------------------
/s/ Kit Jennings
-----------------------
/s/ Alfonso Gimenez
-----------------------
/s/ Jim Tcheng
-----------------------
/s/ Jeffrey Moody
-----------------------
/s/ Shirley Moody
-----------------------
/s/ Donald Moody
-----------------------
/s/ Mike Marchetta
-----------------------
/s/ Dan Lautman
-----------------------
/s/ Edward Brown
-----------------------
/s/ Mark Evans
-----------------------
35
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE ("Covenant") is entered into as of the 2nd
day of January, 1998, by and among FIELDS AIRCRAFT SPARES, INC., a Utah
corporation ("Fields"), FLIGHTWAYS MANUFACTURING, INC., a California corporation
("Flightways"), and YUNG FORD, an individual ("Ford"), with reference to the
following facts:
A. Concurrently herewith, pursuant to that certain Stock Purchase
Agreement, of even date herewith, Fields has purchased all of the issued and
outstanding shares of common stock of Flightways, expressly including, but not
limited to, all of the issued and outstanding shares of common stock of
Flightways owned by Ford (the "Stock").
B. In connection with, and as a bargained-for element of the purchase
of the Stock, Ford has agreed not to compete with the business of Flightways,
all on the terms and conditions hereinafter set forth.
WHEREFORE, in consideration of the foregoing premises, the purchase by
Fields of the Stock, and the promises and covenants hereinafter set forth, the
parties hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms and phrases shall have the meanings
indicated:
(a) "Affiliate" means, (i) with respect to any corporation, any
officer, director or 10% or more shareholder of such
corporation, or (ii) with respect to any individual, any
partner or immediate family member of such individual or the
estate of such individual, or (iii) with respect to any
partnership, trust or joint venture, any partner, co-venturer
or trustee of such partnership, trust or joint venture, or any
beneficiary or owner having a 10% or more interest in the
equity, property or profits of such partnership, trust or
joint venture, or (iv) with respect to any person or entity,
any other person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with
such person or entity or any Affiliate of such person or
entity.
(b) "Business" means the types of business and business operations
currently conducted by Flightways, or conducted by Flightways
in the past.
(c) "Confidential Information" means any and all information
obtained by or disclosed to Ford or which Ford gained
knowledge of as a consequence of or through his Relationship
with Flightways (including information conceived, originated,
discovered or developed by Ford) about or regarding the
business, products, processes, and services of Flightways,
1
<PAGE>
including information relating to research, development,
inventions, manufacture, purchasing, accounting, engineering,
marketing, merchandising, selling, trade secrets, or customer
lists, which information Flightways maintains as confidential.
(d) "Conflicting Organization" means any person, business, company
or organization engaged in or about to become engaged in a
business or activity anywhere in the Territory which is
substantially similar to, or would reasonably be deemed to
compete with, the Business.
(e) "Fields" means and includes Fields Aircraft Spares, Inc., a
Utah corporation, and any subsidiaries or Affiliates of Fields
now in existence or hereafter created or acquired.
(f) "Relationship" means and includes any employment, consulting
or similar relationship with, acting as or being elected to a
position as an officer or director of, or being a shareholder,
officer, director, agent or employee of, any company or
person.
(g) "Territory" means and includes all geographical areas in which
Flightways conducts or has conducted the Business. Ford
expressly acknowledges and agrees that Flightways currently
does business around the world, including substantial business
in South America, Europe and Asia, as well as North America.
2. COVENANT OF CONFIDENTIALITY.
(a) Except with the express prior written consent of Flightways,
neither Ford nor any Affiliate of Ford will, directly or
indirectly or by action in concert with others, use for their
own benefit or the benefit of others, or disseminate,
disclose, lecture upon or publish articles concerning, any
Confidential Information at any time after the date of this
Agreement.
(b) All documents, papers, notes, notebooks, memoranda, computer
files, and other written or electronic records of any kind
made by Ford during and in connection with his Relationship
with Flightways shall remain the property of Flightways at all
times. Concurrently herewith, all documents, papers, notes,
notebooks, memoranda, computer files and other written or
electronic records in the possession of Ford or any Affiliate
of Ford, whether prepared by him or others, have been
surrendered to Flightways.
2
<PAGE>
3. NON-COMPETITION.
(a) During the Term of this Agreement, neither Ford nor any
Affiliate of Ford shall, directly or indirectly or by action
in concert with others, own an interest in, operate, join,
control, participate in, have a Relationship with or be
connected as an officer, employee, agent, independent
contractor, partner, shareholder, or principal of, any
Conflicting Organization. Ownership of less than five percent
(5%) of the common stock or equity interest of a public
corporation shall not be deemed in violation of this
provision.
(b) During the Term of this Agreement, neither Ford nor any
Affiliate of Ford shall, directly or indirectly or by action
in concert with others, undertake planning for or
organization of any Conflicting Organization or any business
activity materially competitive with the Business or combine
with other employees or representatives of Flightways or
Fields for the purpose of organizing any such Conflicting
Organization or materially competitive business activity.
(c) During the Term of this Agreement, and for a period of three
(3) years thereafter, neither Ford nor any Affiliate of Ford
shall, directly or indirectly or by action in concert with
others, shall induce or influence or seek to induce or
influence, any person who is engaged as an employee,
consultant, agent, independent contractor, or otherwise by
Flightways or Fields to terminate his or her employment or
engagement.
4. TERM OF COVENANT; TERMINATION.
(a) Except as otherwise expressly provided in Paragraphs 2(a),
3(c), 3(d) or 4(b) hereof, the term of the covenants contained
herein, and in particular the covenants set forth in
Paragraphs 3(a) and 3(b) hereof, shall continue for two (2)
years from the date hereof (the "Term").
(b) In the event that the employment of Ford by Flightways is
terminated (i) by Flightways other than for Good Cause (as
hereinafter defined), or (ii) by Ford with Reason (as
hereinafter defined), the Term of this Covenant shall end as
of the effective date of such termination.
(c) As used herein, "Good Cause" shall mean and include (i) Ford's
material failure to perform the duties of his position with
Flightways, which duties are reasonably consistent with the
duties currently performed by Ford, which failure continues
uncured for ten (10) business days following written notice of
such failure, or (ii) Ford's failure to perform the aforesaid
duties to the reasonable satisfaction of the Board of
Directors of Flightways, which failure continues uncured for
3
<PAGE>
thirty (30) days following written notice of such failure
(provided, however, that in the event the nature of such
failure is such that it cannot reasonably be cured in such
thirty (30) day period, such failure shall be deemed cured if
Ford undertakes such cure within such period and diligently
prosecutes such cure to completion), or (iii) Ford is
substantially unable, due to injury or illness, to perform the
aforesaid duties for a period of sixty (60) consecutive days,
or for a period of ninety (90) days in any twelve (12) month
period, or (iv) Ford's death, or (v) Ford's commission of any
felony, or (vi) Ford's commission of any material theft,
defalcation or other act of dishonesty in his performance of
the aforesaid duties.
(d) As used herein, "Reason" shall mean (i) a reduction of Ford's
base compensation from the level in effect as of the date
hereof, (ii) a material adverse change in the nature of the
duties assigned to Ford from those in effect as of the date
hereof, or (iii) a material adverse change in the nature or
type of the office, and secretarial and administrative
support, afforded to Ford from those afforded to Ford as of
the date hereof.
5. ACKNOWLEDGMENTS.
(a) Ford hereby expressly acknowledges that this Covenant Not to
Compete, and each term and provision hereof, were expressly
bargained for and given in exchange for the purchase by Fields
of his Stock. Ford further agrees and acknowledges that Fields
would not have agreed to the purchase of the Stock but for the
agreement by Ford to enter into and perform this Covenant Not
to Compete, and that the execution, delivery and performance
of this Covenant Not to Compete constituted a material
inducement to Fields to enter into the Stock Purchase
Agreement.
(b) Ford hereby expressly acknowledges and agrees that the terms
of this Covenant Not to Compete, expressly including, but not
limited to, the Term hereof and the Territory, are fair and
reasonable.
(c) Ford hereby expressly acknowledges and agrees that nothing
herein, expressly including but not limited to Paragraphs
4(b), 4(c) and 4(d), shall be deemed or construed to create a
contract of employment, or any right to continued employment,
between Ford and Flightways.
6. MISCELLANEOUS.
(a) Any notices to be given hereunder shall be in writing, sent by
registered or certified mail, postage prepaid, return receipt
requested, or through by telegram or facsimile followed by a
confirmation letter sent as provided above, addressed to such
party as follows:
4
<PAGE>
(i) Notices to Ford:
Yung Ford
-----------------------
-----------------------
Fax No. (___) ___-____
(ii) Notices to Fields:
Fields Aircraft Spares, Inc.
----------------------------
----------------------------
Attn: Alan Fields
Fax No. (___) ___-____
Notices sent in accordance with this Section shall be deemed
effective on the date of dispatch.
(b) This Covenant constitutes the entire understanding between the
parties, and supersedes all prior agreements and negotiations,
whether oral or written. There are no other agreements between
the parties, except as set forth herein. No supplement,
modification, waiver or termination of this Covenant shall be
binding unless in writing and executed by all parties hereto.
(c) This Covenant shall inure to the benefit of and be binding
upon all of the parties hereto and their respective executors,
administrators, successors and permitted assigns.
(d) In the event any of the provisions of this Covenant are found
by a court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected thereby.
(e) The covenants set forth herein shall be deemed to be and
construed as a series of separate covenants, one for each
country in the world, one for each state in the United States,
and one for each county in the State of California. In the
event that, notwithstanding the agreement of the parties and
the acknowledgments of Ford in Paragraph 5 hereof, any court
of competent jurisdiction determines that the geographic scope
of this Agreement is excessive, the Territory shall be deemed
to be reduced by striking therefrom the covenants relating
5
<PAGE>
only to those countries, states and/or counties that such
court determines must be stricken in order to render the
remainder of the covenants valid and enforceable.
(f) The headings of the Sections contained in this Covenant are
for reference purposes only, and shall not affect the meaning
or interpretation of this Covenant. The parties have been
advised by counsel in connection with this Covenant. This
Covenant shall be construed and interpreted in accordance with
the plain meaning of its language, and not for or against
either party, and as a whole, giving effect to all of the
terms, conditions and provisions hereof.
(g) This Covenant shall be governed by and construed in accordance
with the laws of the State of California.
(h) This Covenant may be executed in two or more counterparts,
which shall together constitute one and the same agreement.
(i) In the event that any party to this Covenant shall commence
any suit or action to interpret or enforce this Covenant, the
prevailing party in such action shall recover such party's
costs and expenses incurred in connection therewith, including
attorney's fees and costs of appeal, if any.
(j) Ford hereby expressly agrees and acknowledges that a breach of
any material term, condition or provision of this Covenant
would result in severe and irreparable injury to Fields and
Flightways, which injury could not be adequately compensated
by an award of money damages, and Ford therefore agrees and
acknowledges that Fields and/or Flightways, or both of them,
shall be entitled to injunctive relief in the event of any
6
<PAGE>
breach of any material term, condition or provision of this
Covenant, or to enjoin or prevent such a breach, including
without limitation an action for specific performance hereof.
Ford further agrees and acknowledges that, in the event of
such action for injunctive relief, a bond in the amount of One
Thousand Dollars ($1,000) shall be sufficient.
IN WITNESS WHEREOF, the parties have executed this Covenant Not to
Compete as of the date first written above.
FIELDS AIRCRAFT SPARES, INC.,
a Utah corporation
By: /s/ Alan M. Fields
---------------------
Its: COO
---------------------
FLIGHTWAYS MANUFACTURING, INC.,
a California corporation
By: /s/ Phillip Hillhouse
---------------------
Its: Secretary
---------------------
/s/ Yung Ford
------------------------
YUNG FORD
7
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE ("Covenant") is entered into as of the 2nd
day of January, 1998, by and among FIELDS AIRCRAFT SPARES, INC., a Utah
corporation ("Fields"), FLIGHTWAYS MANUFACTURING, INC., a California corporation
("Flightways"), and FRANK SCALISE, an individual ("Scalise"), with reference to
the following facts:
A. Concurrently herewith, pursuant to that certain Stock Purchase
Agreement, of even date herewith, Fields has purchased all of the issued and
outstanding shares of common stock of Flightways, expressly including, but not
limited to, all of the issued and outstanding shares of common stock of
Flightways owned by Scalise (the "Stock").
B. In connection with, and as a bargained-for element of the purchase
of the Stock, Scalise has agreed not to compete with the business of Flightways,
all on the terms and conditions hereinafter set forth.
WHEREFORE, in consideration of the foregoing premises, the purchase by
Fields of the Stock, and the promises and covenants hereinafter set forth, the
parties hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms and phrases shall have the meanings
indicated:
(a) "Affiliate" means, (i) with respect to any corporation, any
officer, director or 10% or more shareholder of such
corporation, or (ii) with respect to any individual, any
partner or immediate family member of such individual or the
estate of such individual, or (iii) with respect to any
partnership, trust or joint venture, any partner, co-venturer
or trustee of such partnership, trust or joint venture, or any
beneficiary or owner having a 10% or more interest in the
equity, property or profits of such partnership, trust or
joint venture, or (iv) with respect to any person or entity,
any other person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with
such person or entity or any Affiliate of such person or
entity.
(b) "Business" means the types of business and business operations
currently conducted by Flightways, or conducted by Flightways
in the past.
(c) "Confidential Information" means any and all information
obtained by or disclosed to Scalise or which Scalise gained
knowledge of as a consequence of or through his Relationship
with Flightways (including information conceived, originated,
discovered or developed by Scalise) about or regarding the
business, products, processes, and services of Flightways,
1
<PAGE>
including information relating to research, development,
inventions, manufacture, purchasing, accounting, engineering,
marketing, merchandising, selling, trade secrets, or customer
lists, which information Flightways maintains as confidential.
(d) "Conflicting Organization" means any person, business, company
or organization engaged in or about to become engaged in a
business or activity anywhere in the Territory which is
substantially similar to, or would reasonably be deemed to
compete with, the Business.
(e) "Fields" means and includes Fields Aircraft Spares, Inc., a
Utah corporation, and any subsidiaries or Affiliates of Fields
now in existence or hereafter created or acquired.
(f) "Relationship" means and includes any employment, consulting
or similar relationship with, acting as or being elected to a
position as an officer or director of, or being a shareholder,
officer, director, agent or employee of, any company or
person.
(g) "Territory" means and includes all geographical areas in which
Flightways conducts or has conducted the Business. Scalise
expressly acknowledges and agrees that Flightways currently
does business around the world, including substantial business
in South America, Europe and Asia, as well as North America.
2. COVENANT OF CONFIDENTIALITY.
(a) Except with the express prior written consent of Flightways,
neither Scalise nor any Affiliate of Scalise will, directly or
indirectly or by action in concert with others, use for their
own benefit or the benefit of others, or disseminate,
disclose, lecture upon or publish articles concerning, any
Confidential Information at any time after the date of this
Agreement.
(b) All documents, papers, notes, notebooks, memoranda, computer
files, and other written or electronic records of any kind
made by Scalise during and in connection with his Relationship
with Flightways shall remain the property of Flightways at all
times. Concurrently herewith, all documents, papers, notes,
notebooks, memoranda, computer files and other written or
electronic records in the possession of Scalise or any
Affiliate of Scalise, whether prepared by him or others, have
been surrendered to Flightways.
2
<PAGE>
3. NON-COMPETITION.
(a) During the Term of this Agreement, neither Scalise nor any
Affiliate of Scalise shall, directly or indirectly or by
action in concert with others, own an interest in, operate,
join, control, participate in, have a Relationship with or be
connected as an officer, employee, agent, independent
contractor, partner, shareholder, or principal of, any
Conflicting Organization. Ownership of less than five percent
(5%) of the common stock or equity interest of a public
corporation shall not be deemed in violation of this
provision.
(b) During the Term of this Agreement, neither Scalise nor any
Affiliate of Scalise shall, directly or indirectly or by
action in concert with others, undertake planning for or
organization of any Conflicting Organization or any business
activity materially competitive with the Business or combine
with other employees or representatives of Flightways or
Fields for the purpose of organizing any such Conflicting
Organization or materially competitive business activity.
(c) During the Term of this Agreement, and for a period of three
(3) years thereafter, neither Scalise nor any Affiliate of
Scalise shall, directly or indirectly or by action in concert
with others, shall induce or influence or seek to induce or
influence, any person who is engaged as an employee,
consultant, agent, independent contractor, or otherwise by
Flightways or Fields to terminate his or her employment or
engagement.
4. TERM OF COVENANT; TERMINATION.
(a) Except as otherwise expressly provided in Paragraphs 2(a),
3(c), 3(d) or 4(b) hereof, the term of the covenants contained
herein, and in particular the covenants set forth in
Paragraphs 3(a) and 3(b) hereof, shall continue for two (2)
years from the date hereof (the "Term").
(b) In the event that the employment of Scalise by Flightways is
terminated (i) by Flightways other than for Good Cause (as
hereinafter defined), or (ii) by Scalise with Reason (as
hereinafter defined), the Term of this Covenant shall end as
of the effective date of such termination.
(c) As used herein, "Good Cause" shall mean and include (i)
Scalise's material failure to perform the duties of his
position with Flightways, which duties are reasonably
consistent with the duties currently performed by Scalise,
which failure continues uncured for ten (10) business days
following written notice of such failure, or (ii) Scalise's
failure to perform the aforesaid duties to the reasonable
satisfaction of the Board of Directors of Flightways, which
failure continues uncured for thirty (30) days following
3
<PAGE>
written notice of such failure (provided, however, that in the
event the nature of such failure is such that it cannot
reasonably be cured in such thirty (30) day period, such
failure shall be deemed cured if Scalise undertakes such cure
within such period and diligently prosecutes such cure to
completion), or (iii) Scalise is substantially unable, due to
injury or illness, to perform the aforesaid duties for a
period of sixty (60) consecutive days, or for a period of
ninety (90) days in any twelve (12) month period, or (iv)
Scalise's death, or (v) Scalise's commission of any felony, or
(vi) Scalise's commission of any material theft, defalcation
or other act of dishonesty in his performance of the aforesaid
duties.
(d) As used herein, "Reason" shall mean (i) a reduction of
Scalise's base compensation from the level in effect as of the
date hereof, (ii) a material adverse change in the nature of
the duties assigned to Scalise from those in effect as of the
date hereof, or (iii) a material adverse change in the nature
or type of the office, and secretarial and administrative
support, afforded to Scalise from those afforded to Scalise as
of the date hereof.
5. ACKNOWLEDGMENTS.
(a) Scalise hereby expressly acknowledges that this Covenant Not
to Compete, and each term and provision hereof, were expressly
bargained for and given in exchange for the purchase by Fields
of his Stock. Scalise further agrees and acknowledges that
Fields would not have agreed to the purchase of the Stock but
for the agreement by Scalise to enter into and perform this
Covenant Not to Compete, and that the execution, delivery and
performance of this Covenant Not to Compete constituted a
material inducement to Fields to enter into the Stock Purchase
Agreement.
(b) Scalise hereby expressly acknowledges and agrees that the
terms of this Covenant Not to Compete, expressly including,
but not limited to, the Term hereof and the Territory, are
fair and reasonable.
(c) Scalise hereby expressly acknowledges and agrees that nothing
herein, expressly including but not limited to Paragraphs
4(b), 4(c) and 4(d), shall be deemed or construed to create a
contract of employment, or any right to continued employment,
between Scalise and Flightways.
6. MISCELLANEOUS.
(a) Any notices to be given hereunder shall be in writing, sent by
registered or certified mail, postage prepaid, return receipt
requested, or through by telegram or facsimile followed by a
confirmation letter sent as provided above, addressed to such
party as follows:
4
<PAGE>
(i) Notices to Scalise:
Frank Scalise
--------------------------
--------------------------
Fax No. (___) ___-____
(ii) Notices to Fields:
Fields Aircraft Spares, Inc.
----------------------------
----------------------------
Attn: Alan Fields
Fax No. (___) ___-____
Notices sent in accordance with this Section shall be deemed
effective on the date of dispatch.
(b) This Covenant constitutes the entire understanding between the
parties, and supersedes all prior agreements and negotiations,
whether oral or written. There are no other agreements between
the parties, except as set forth herein. No supplement,
modification, waiver or termination of this Covenant shall be
binding unless in writing and executed by all parties hereto.
(c) This Covenant shall inure to the benefit of and be binding
upon all of the parties hereto and their respective executors,
administrators, successors and permitted assigns.
(d) In the event any of the provisions of this Covenant are found
by a court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected thereby.
(e) The covenants set forth herein shall be deemed to be and
construed as a series of separate covenants, one for each
country in the world, one for each state in the United States,
and one for each county in the State of California. In the
event that, notwithstanding the agreement of the parties and
the acknowledgments of Scalise in Paragraph 5 hereof, any
court of competent jurisdiction determines that the geographic
scope of this Agreement is excessive, the Territory shall be
deemed to be reduced by striking therefrom the covenants
relating only to those countries, states and/or counties that
such court determines must be stricken in order to render the
remainder of the covenants valid and enforceable.
5
<PAGE>
(f) The headings of the Sections contained in this Covenant are
for reference purposes only, and shall not affect the meaning
or interpretation of this Covenant. The parties have been
advised by counsel in connection with this Covenant. This
Covenant shall be construed and interpreted in accordance with
the plain meaning of its language, and not for or against
either party, and as a whole, giving effect to all of the
terms, conditions and provisions hereof.
(g) This Covenant shall be governed by and construed in accordance
with the laws of the State of California.
(h) This Covenant may be executed in two or more counterparts,
which shall together constitute one and the same agreement.
(i) In the event that any party to this Covenant shall commence
any suit or action to interpret or enforce this Covenant, the
prevailing party in such action shall recover such party's
costs and expenses incurred in connection therewith, including
attorney's fees and costs of appeal, if any.
(j) Scalise hereby expressly agrees and acknowledges that a breach
of any material term, condition or provision of this Covenant
would result in severe and irreparable injury to Fields and
Flightways, which injury could not be adequately compensated
by an award of money damages, and Scalise therefore agrees and
acknowledges that Fields and/or Flightways, or both of them,
shall be entitled to injunctive relief in the event of any
6
<PAGE>
breach of any material term, condition or provision of this
Covenant, or to enjoin or prevent such a breach, including
without limitation an action for specific performance hereof.
Scalise further agrees and acknowledges that, in the event of
such action for injunctive relief, a bond in the amount of One
Thousand Dollars ($1,000) shall be sufficient.
IN WITNESS WHEREOF, the parties have executed this Covenant Not to
Compete as of the date first written above.
FIELDS AIRCRAFT SPARES, INC.,
a Utah corporation
By: /s/ Alan M. Fields
--------------------
Its: COO
--------------------
FLIGHTWAYS MANUFACTURING, INC.,
a California corporation
By: /s/ Phillip Hillhouse
---------------------
Its: Secretary
---------------------
/s/ Frank Scalise
---------------------
FRANK SCALISE
7
COVENANT NOT TO COMPETE
THIS COVENANT NOT TO COMPETE ("Covenant") is entered into as of the 2nd
day of January, 1998, by and among FIELDS AIRCRAFT SPARES, INC., a Utah
corporation ("Fields"), FLIGHTWAYS MANUFACTURING, INC., a California corporation
("Flightways"), and CHRISTIAN J. LUHNOW, an individual ("Luhnow"), with
reference to the following facts:
A. Concurrently herewith, pursuant to that certain Stock Purchase
Agreement, of even date herewith, Fields has purchased all of the issued and
outstanding shares of common stock of Flightways, expressly including, but not
limited to, all of the issued and outstanding shares of common stock of
Flightways owned by Luhnow (the "Stock").
B. In connection with, and as a bargained-for element of the purchase
of the Stock, Luhnow has agreed not to compete with the business of Flightways,
all on the terms and conditions hereinafter set forth.
WHEREFORE, in consideration of the foregoing premises, the purchase by
Fields of the Stock, and the promises and covenants hereinafter set forth, the
parties hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms and phrases shall have the meanings
indicated:
(a) "Affiliate" means, (i) with respect to any corporation, any
officer, director or 10% or more shareholder of such
corporation, or (ii) with respect to any individual, any
partner or immediate family member of such individual or the
estate of such individual, or (iii) with respect to any
partnership, trust or joint venture, any partner, co-venturer
or trustee of such partnership, trust or joint venture, or any
beneficiary or owner having a 10% or more interest in the
equity, property or profits of such partnership, trust or
joint venture, or (iv) with respect to any person or entity,
any other person or entity which, directly or indirectly,
controls, is controlled by, or is under common control with
such person or entity or any Affiliate of such person or
entity.
(b) "Business" means the types of business and business operations
currently conducted by Flightways, or conducted by Flightways
in the past.
(c) "Confidential Information" means any and all information
obtained by or disclosed to Luhnow or which Luhnow gained
knowledge of as a consequence of or through his Relationship
with Flightways (including information conceived, originated,
discovered or developed by Luhnow) about or regarding the
1
<PAGE>
business, products, processes, and services of Flightways,
including information relating to research, development,
inventions, manufacture, purchasing, accounting, engineering,
marketing, merchandising, selling, trade secrets, or customer
lists, which information Flightways maintains as confidential.
(d) "Conflicting Organization" means any person, business, company
or organization engaged in or about to become engaged in a
business or activity anywhere in the Territory which is
substantially similar to, or would reasonably be deemed to
compete with, the Business.
(e) "Fields" means and includes Fields Aircraft Spares, Inc., a
Utah corporation, and any subsidiaries or Affiliates of Fields
now in existence or hereafter created or acquired.
(f) "Relationship" means and includes any employment, consulting
or similar relationship with, acting as or being elected to a
position as an officer or director of, or being a shareholder,
officer, director, agent or employee of, any company or
person.
(g) "Territory" means and includes all geographical areas in which
Flightways conducts or has conducted the Business. Luhnow
expressly acknowledges and agrees that Flightways currently
does business around the world, including substantial business
in South America, Europe and Asia, as well as North America.
2. COVENANT OF CONFIDENTIALITY.
(a) Except with the express prior written consent of Flightways,
neither Luhnow nor any Affiliate of Luhnow will, directly or
indirectly or by action in concert with others, use for their
own benefit or the benefit of others, or disseminate,
disclose, lecture upon or publish articles concerning, any
Confidential Information at any time after the date of this
Agreement.
(b) All documents, papers, notes, notebooks, memoranda, computer
files, and other written or electronic records of any kind
made by Luhnow during and in connection with his Relationship
with Flightways shall remain the property of Flightways at all
times. Concurrently herewith, all documents, papers, notes,
notebooks, memoranda, computer files and other written or
electronic records in the possession of Luhnow or any
Affiliate of Luhnow, whether prepared by him or others, have
been surrendered to Flightways.
2
<PAGE>
3. NON-COMPETITION.
(a) During the Term of this Agreement, neither Luhnow nor any
Affiliate of Luhnow shall, directly or indirectly or by action
in concert with others, own an interest in, operate, join,
control, participate in, have a Relationship with or be
connected as an officer, employee, agent, independent
contractor, partner, shareholder, or principal of, any
Conflicting Organization. Ownership of less than five percent
(5%) of the common stock or equity interest of a public
corporation shall not be deemed in violation of this
provision.
(b) During the Term of this Agreement, neither Luhnow nor any
Affiliate of Luhnow shall, directly or indirectly or by action
in concert with others, undertake planning for or organization
of any Conflicting Organization or any business activity
materially competitive with the Business or combine with other
employees or representatives of Flightways or Fields for the
purpose of organizing any such Conflicting Organization or
materially competitive business activity.
(c) During the Term of this Agreement, and for a period of three
(3) years thereafter, neither Luhnow nor any Affiliate of
Luhnow shall, directly or indirectly or by action in concert
with others, shall induce or influence or seek to induce or
influence, any person who is engaged as an employee,
consultant, agent, independent contractor, or otherwise by
Flightways or Fields to terminate his or her employment or
engagement.
4. TERM OF COVENANT; TERMINATION.
(a) Except as otherwise expressly provided in Paragraphs 2(a),
3(c), 3(d) or 4(b) hereof, the term of the covenants contained
herein, and in particular the covenants set forth in
Paragraphs 3(a) and 3(b) hereof, shall continue for two (2)
years from the date hereof (the "Term").
(b) In the event that the employment of Luhnow by Flightways is
terminated (i) by Flightways other than for Good Cause (as
hereinafter defined), or (ii) by Luhnow with Reason (as
hereinafter defined), the Term of this Covenant shall end as
of the effective date of such termination.
(c) As used herein, "Good Cause" shall mean and include (i)
Luhnow's material failure to perform the duties of his
position with Flightways, which duties are reasonably
consistent with the duties currently performed by Luhnow,
which failure continues uncured for ten (10) business days
following written notice of such failure, or (ii) Luhnow's
failure to perform the aforesaid duties to the reasonable
satisfaction of the Board of Directors of Flightways, which
failure continues uncured for thirty (30) days following
3
<PAGE>
written notice of such failure (provided, however, that in the
event the nature of such failure is such that it cannot
reasonably be cured in such thirty (30) day period, such
failure shall be deemed cured if Luhnow undertakes such cure
within such period and diligently prosecutes such cure to
completion), or (iii) Luhnow is substantially unable, due to
injury or illness, to perform the aforesaid duties for a
period of sixty (60) consecutive days, or for a period of
ninety (90) days in any twelve (12) month period, or (iv)
Luhnow's death, or (v) Luhnow's commission of any felony, or
(vi) Luhnow's commission of any material theft, defalcation or
other act of dishonesty in his performance of the aforesaid
duties.
(d) As used herein, "Reason" shall mean (i) a reduction of
Luhnow's base compensation from the level in effect as of the
date hereof, (ii) a material adverse change in the nature of
the duties assigned to Luhnow from those in effect as of the
date hereof, or (iii) a material adverse change in the nature
or type of the office, and secretarial and administrative
support, afforded to Luhnow from those afforded to Luhnow as
of the date hereof.
5. ACKNOWLEDGMENTS.
(a) Luhnow hereby expressly acknowledges that this Covenant Not to
Compete, and each term and provision hereof, were expressly
bargained for and given in exchange for the purchase by Fields
of his Stock. Luhnow further agrees and acknowledges that
Fields would not have agreed to the purchase of the Stock but
for the agreement by Luhnow to enter into and perform this
Covenant Not to Compete, and that the execution, delivery and
performance of this Covenant Not to Compete constituted a
material inducement to Fields to enter into the Stock Purchase
Agreement.
(b) Luhnow hereby expressly acknowledges and agrees that the terms
of this Covenant Not to Compete, expressly including, but not
limited to, the Term hereof and the Territory, are fair and
reasonable.
(c) Luhnow hereby expressly acknowledges and agrees that nothing
herein, expressly including but not limited to Paragraphs
4(b), 4(c) and 4(d), shall be deemed or construed to create a
contract of employment, or any right to continued employment,
between Luhnow and Flightways.
6. MISCELLANEOUS.
(a) Any notices to be given hereunder shall be in writing, sent by
registered or certified mail, postage prepaid, return receipt
requested, or through by telegram or facsimile followed by a
confirmation letter sent as provided above, addressed to such
party as follows:
4
<PAGE>
(i) Notices to Luhnow:
Christian J. Luhnow
----------------------
----------------------
Fax No. (___) ___-____
(ii) Notices to Fields:
Fields Aircraft Spares, Inc.
--------------------------
--------------------------
Attn: Alan Fields
Fax No. (___) ___-____
Notices sent in accordance with this Section shall be deemed
effective on the date of dispatch.
(b) This Covenant constitutes the entire understanding between the
parties, and supersedes all prior agreements and negotiations,
whether oral or written. There are no other agreements between
the parties, except as set forth herein. No supplement,
modification, waiver or termination of this Covenant shall be
binding unless in writing and executed by all parties hereto.
(c) This Covenant shall inure to the benefit of and be binding
upon all of the parties hereto and their respective executors,
administrators, successors and permitted assigns.
(d) In the event any of the provisions of this Covenant are found
by a court of competent jurisdiction to be invalid, illegal or
unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected thereby.
(e) The covenants set forth herein shall be deemed to be and
construed as a series of separate covenants, one for each
country in the world, one for each state in the United States,
and one for each county in the State of California. In the
event that, notwithstanding the agreement of the parties and
the acknowledgments of Luhnow in Paragraph 5 hereof, any court
of competent jurisdiction determines that the geographic scope
of this Agreement is excessive, the Territory shall be deemed
to be reduced by striking therefrom the covenants relating
only to those countries, states and/or counties that such
court determines must be stricken in order to render the
remainder of the covenants valid and enforceable.
5
<PAGE>
(f) The headings of the Sections contained in this Covenant are
for reference purposes only, and shall not affect the meaning
or interpretation of this Covenant. The parties have been
advised by counsel in connection with this Covenant. This
Covenant shall be construed and interpreted in accordance with
the plain meaning of its language, and not for or against
either party, and as a whole, giving effect to all of the
terms, conditions and provisions hereof.
(g) This Covenant shall be governed by and construed in accordance
with the laws of the State of California.
(h) This Covenant may be executed in two or more counterparts,
which shall together constitute one and the same agreement.
(i) In the event that any party to this Covenant shall commence
any suit or action to interpret or enforce this Covenant, the
prevailing party in such action shall recover such party's
costs and expenses incurred in connection therewith, including
attorney's fees and costs of appeal, if any.
(j) Luhnow hereby expressly agrees and acknowledges that a breach
of any material term, condition or provision of this Covenant
would result in severe and irreparable injury to Fields and
Flightways, which injury could not be adequately compensated
by an award of money damages, and Luhnow therefore agrees and
acknowledges that Fields and/or Flightways, or both of them,
shall be entitled to injunctive relief in the event of any
6
<PAGE>
breach of any material term, condition or provision of this
Covenant, or to enjoin or prevent such a breach, including
without limitation an action for specific performance hereof.
Luhnow further agrees and acknowledges that, in the event of
such action for injunctive relief, a bond in the amount of One
Thousand Dollars ($1,000) shall be sufficient.
IN WITNESS WHEREOF, the parties have executed this Covenant Not to
Compete as of the date first written above.
FIELDS AIRCRAFT SPARES, INC.,
a Utah corporation
By: /s/ Alan M. Fields
--------------------
Its: COO
--------------------
FLIGHTWAYS MANUFACTURING, INC.,
a California corporation
By: /s/ Phillip Hillhouse
---------------------
Its: Secretary
---------------------
/s/ Christian J. Luhnow
------------------------
CHRISTIAN J. LUHNOW
7
