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
Date of Report (Date of earliest event reported): February 27, 1998
COMPASS PLASTICS & TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-23027 95-4611994
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
15730 South Figueroa Street, Gardena, California 90248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213) 770-
8771
CURRENT REPORT ON FORM 8-K
COMPASS PLASTICS & TECHNOLOGIES, INC.
February 27, 1998
Item 2. Acquisition or Disposition of Assets
On February 27, 1998, Compass Plastics & Technologies, Inc.
(the "Company") completed the acquisition from Werner H. Schulz and
Carolyn Schulz, co-trustees of the Schulz Family Living Trust, of
all of the outstanding shares of capital stock of M.O.S. Plastics,
Inc. ("M.O.S."), a San Jose, California-based injection-molding
company that specializes in producing turn-key plastics parts and
subassemblies. The purchase price of the acquisition was
approximately $17.4 million in cash, subject to adjustment based on
a percentage of any step-up in basis of any of the tangible assets
of M.O.S. The Company also issued to Werner H. Schulz and Carolyn
Schulz, co-trustees of the Schulz Family Living Trust, five-year
warrants to purchase 50,000 shares of the Company's common stock at
an exercise price of $10.80 per share, and entered into a one-year
employment agreement with Mr. Schulz, followed by a one-year
consulting agreement, for him to continue in the areas of sales,
engineering and tooling for M.O.S. Mr. Schulz will join the Board
of Directors of the Company. The information set forth above is
qualified in its entirety by reference to the Stock Purchase
Agreement, dated as of January 28, 1998, between the Company and
Werner H. Schulz and Carolyn Schulz, co-trustees of the Schulz
Family Living Trust, a copy of which is attached hereto as Exhibit
2.1.
In connection with the acquisition, the Company, its wholly-
owned subsidiary AB Plastics Corporation ("AB"), and M.O.S. entered
into a Commercial Loan Agreement with The Sumitomo Bank of
California ("Sumitomo") and Manufacturers Bank, pursuant to which
the Company and such subsidiaries (collectively, the "Borrowers")
obtained a $6,000,000 revolving credit commitment (with borrowings
thereunder limited to specified percentages of the Borrowers'
eligible accounts receivable and eligible inventory) maturing on
January 2, 2003, and an amortizing $14,000,000 term loan with final
maturity on January 2, 2003. Interest payable in respect of such
loans will vary depending on the Company's relative degree of
leverage from time to time, and such loans are secured by
substantially all of the non-real estate assets of the Borrowers.
In addition to scheduled amortization payments, the term loan is
subject to mandatory prepayment under certain circumstances,
including out of any new net debt proceeds, and specified portions
of future net equity proceeds and/or excess cash flow until such
time as the principal balance of the term loan is reduced to
$7,000,000. The proceeds of the term loan and initial revolving
credit borrowings were utilized to retire the outstanding revolving
credit borrowings under the Company's and AB's previous loan
facility with Sumitomo, to pay a portion of the purchase price for
the shares of capital stock of M.O.S., to retire certain secured
indebtedness of M.O.S., and to pay transaction expenses relating to
the acquisition.
Also in connection with the acquisition, the Company and AB
issued a $7,000,000 debenture to Sirrom Capital Corporation d/b/a
Tandem Capital ("Sirrom") and a $2,000,000 debenture to Pinecreek
Capital Partners, L.P. ("Pinecreek"), each of which debentures
bears interest at 12.25% per annum payable quarterly in arrears,
and matures as to all principal on February 27, 2003. The
Company's and AB's obligations under such debentures are secured by
second liens on substantially all of the Company's and AB's non-
real estate assets, and such obligations and liens are subordinated
to the liens securing the obligations under the Commercial Loan
Agreement described above. The net proceeds of such debentures
were used to pay a portion of the purchase price for the shares of
capital stock of M.O.S.
In conjunction with the issuance of such debentures, the
Company issued to Sirrom and Pinecreek five-year warrants to
purchase 420,000 shares and 120,000 shares of common stock of the
Company, respectively, at an exercise price of $6.75 per share. In
addition, in the event that any portion of their respective
debentures remain outstanding on February 27, 2000 and/or each
anniversary thereof, the Company has agreed to issue, on each such
date, to Sirrom an additional warrant for 140,000 shares of common
stock of the Company, and/or to Pinecreek an additional warrant for
40,000 shares of common stock of the Company, in each case at an
exercise price equal to the greater of $7.00 per share or 75% of
the average closing bid price of the Company's common stock for the
20 trading days preceding the required date of issuance of such
additional warrant. The Company has granted to Sirrom and
Pinecreek demand and piggyback registration rights in respect of
the shares underlying such warrants, and has granted, so long as
the debentures remain outstanding, observer rights for a
representative of each of Sirrom and Pinecreek to attend all
meetings of the Company's Board of Directors.
The acquisition will be accounted for under the purchase
method of accounting.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of Businesses Acquired.
In accordance with Item 7(a), the financial statements of
M.O.S. shall be provided by not later than May 12, 1998, 60 days
after the date that this Current Report is required to be filed.
(b) Pro Forma Financial Information.
In accordance with Item 7(b), the pro forma financial
information shall be provided by not later than May 12, 1998, 60
days after the date that this Current Report is required to be
filed.
(c) Exhibits.
2.1 Stock Purchase Agreement, dated as of January
28, 1998, between the Company and Werner H.
Schulz and Carolyn Schulz, co-trustees of the
Schulz Family Living Trust.
99.2 Press Release issued by the Company on March
3, 1998.
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.
COMPASS PLASTICS & TECHNOLOGIES, INC.
Date: March 4, 1998 By: /s/ Michael A. Gibbs
Michael A. Gibbs
President
EXHIBIT INDEX
Exhibit Number Description
2.1 Stock Purchase Agreement, dated as of January 28,
1998, between the Company and Werner H. Schulz and
Carolyn Schulz, co-trustees of the Schulz Family
Living Trust.
99.2 Press Release issued by the Company on March 3,
1998.
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), entered into as
of the 28th day of January, 1998, by and between COMPASS PLASTICS
& TECHNOLOGIES, INC., a Delaware corporation having offices at
15730 South Figueroa Street, Gardena, California 90248 (the
"Purchaser"), and WERNER H. SCHULZ and CAROLYN SCHULZ, co-trustees
of the Schulz Family Living Trust (collectively, the
"Stockholder"), having a residence address at 22646 San Juan Road,
Cupertino, CA 95014.
W I T N E S S E T H :
WHEREAS, the Stockholder is the record and beneficial owner of
all of the issued and outstanding shares of the capital stock of
M.O.S. Plastics, Inc., a California corporation (the "Company"),
which is engaged primarily in the business of manufacturing,
marketing, distributing and selling injection-molded plastic
products, tooling and related goods and services (the "Business");
and
WHEREAS, the Stockholder desires to sell to Purchaser all, and
not less than all, of the outstanding shares of capital stock of
the Company and the business of the Company as a going, concern,
and to consummate the other transactions contemplated by this
Agreement, all upon the terms and subject to the conditions set
forth in this Agreement; and
WHEREAS, Purchaser desires to purchase from the Stockholder
all, and not less than all, of the outstanding shares of capital
stock of the Company, and to consummate the other transactions
contemplated by this Agreement, all upon the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein set forth, the parties
hereby covenant and agree as follows:
1. SALE AND PURCHASE OF THE STOCK.
1.1 Sale and Purchase. At the time of the Closing on
the Closing Date (as hereinafter defined) and in accordance with
the provisions of this Agreement, Purchaser shall purchase from the
Stockholder all, and not less than all, of the outstanding shares
of the capital stock of the Company, consisting of an aggregate of
250 shares of common stock of the Company (the "Stock"); and the
Stockholder shall sell to Purchaser all, and not less than all, of
the Stock, against receipt by the Stockholder of the Consideration
set forth in Section 2 below.
1.2 Stock Certificates. On the Closing Date, the
Stockholder shall deliver to Purchaser, against receipt of the
Consideration described in Section 2 below, the certificate(s)
representing all of the shares of the Stock, duly endorsed for
transfer, or accompanied by duly executed stock powers, with the
signatures of each of the record owners appropriately witnessed and
notarized in a manner acceptable to Purchaser.
2. CONSIDERATION FOR THE STOCK.
In consideration for the delivery and transfer to
Purchaser of all of the issued and outstanding shares of the Stock
of the Company, on the Closing, Date, Purchaser shall pay and
deliver to the Stockholder the following consideration (the
"Consideration") specified in Sections 2.1 and 2.2 below:
2.1 Closing Payment. On the Closing Date, the Purchaser
shall pay to the Stockholder an amount equal to (i) Twenty-One
Million Four Hundred Forty-Five Thousand ($21,445,000) Dollars,
minus (ii) the aggregate outstanding amount (principal, accrued
interest, prepayment premiums on any amounts prepaid at the time of
Closing, and any and all other charges) of the Company's
indebtedness for money borrowed, notes payable, capitalized leases
and other long-term debt (including the current portion thereof)
and secured liabilities, exclusive of any financed capital
expenditures made in 1997 to the extent within the Company's
$681,000 capital expenditure budget for 1997 (collectively, the
"Debt"), plus (iii) 19% of the amount of any step-up in basis of
any of the tangible assets of the Company arising by reason of the
Section 338 Election (as such term is hereinafter defined), plus
(iv) an amount, not to exceed $332,228 in the aggregate, which
shall be the amount of the built-in federal and state tax on the
gain required to be recognized by the Stockholder as selling,
stockholder of a Subchapter S corporation (the foregoing net
aggregate amount referred to herein as the "Closing Payment").
Three Hundred Thousand ($300,000) Dollars of the foregoing Closing
Payment shall be paid by delivery at the Closing of the Purchaser's
8.5% promissory note (the "Note") which shall be (A) payable as to
interest only on a monthly basis, commencing on the last day of the
month immediately following the month in which the Closing shall
take place, (B) payable as to principal in three (3) equal annual
installments of $100,000 each, with the first such installment
payable on a date which shall be twelve (12) months from the
Closing Date, and (C) in form and content reasonably satisfactory
to counsel to the Stockholder. Except for the delivery of the Note,
the balance of the Closing Payment shall be made on the Closing
Date in cash in immediate available funds to a bank account
designated by the Stockholder reasonably prior to the Closing Date.
2.2 Warrants. Warrants, in substantially the form of
Exhibit "A" annexed hereto, pursuant to which the holder thereof
shall have the right to purchase, at any time and from time to time
during the five (5) year period from and after the Closing Date, an
aggregate of 5 0,000 shares of common stock of Purchaser at a price
of $10.80 per share, and otherwise on the terms and conditions of
such warrants (collectively, the "Warrants").
3. CONTRACT DEPOSIT.
As a good faith deposit against the Consideration,
Purchaser is delivering to Felice Accountancy (the "Escrow Agent"),
concurrently with the execution and delivery of this Agreement, a
check in the amount of $250,000 (the "Deposit"), which shall be
held by the Escrow Agent in a segregated interest-bearing escrow
account pending application or disbursement thereof in accordance
with this Agreement. At the time of the Closing, the amount of the
Deposit, together with all interest earned thereon, shall be paid
to the Stockholder and applied in partial payment of that portion
of the Consideration set forth in Section 2.1 above. In the event
that, for any reason other than (a) a material breach by the
Stockholder of any of his representations or warranties contained
in this Agreement, or (b) the failure of the Stockholder or the
Company to perform any material covenant or agreement on his or its
part to be performed hereunder on or prior to the Closing Date, the
Closing shall not have occurred and the Consideration paid in full
by the Outside Closing Date set forth in Section 11.1 (c) below,
then the Escrow Agent shall deliver the Deposit and all interest
earned thereon to the Stockholder as liquidated damages(for
Purchaser's failure to consummate the transactions hereunder. In
the event that this Agreement shall be terminated by Purchaser for
any of the reasons set forth in the foregoing clauses (a) and (b),
then the Escrow Agent shall immediately return the Deposit and all
interest earned thereon to Purchaser.
4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
The Stockholder (jointly and severally) hereby represents
and warrants to Purchaser as follows:
4.1 Title to the Stock. The Stockholder has good, valid
and marketable title to the all of the Stock, which consists of 250
shares of corm-non stock of the Company, all of which has been duly
authorized and validly issued and is fully paid and non-assessable,
and is (and on the Closing Date will be) owned beneficially and of
record of the Stockholder, free and clear of all pledges, liens,
claims, charges, options, calls, encumbrances, restrictions and
assessments whatsoever, except for (a) the pledge in favor of Horst
Kaiser disclosed in Schedule 4.6(d) (which pledge is to be released
prior to the Closing in accordance with Section 8.14 below), and
(b) any restrictions which may be created by operation of state or
federal securities laws. No person other than the Stockholder has
any claim or interest in or to any of the Stock.
4.2 Valid and Binding Agreement. The Stockholder has
full legal right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
This Agreement and, when executed and delivered by Werner H.
Schulz, the Employment/Consulting Agreement and the Non-Competition
Agreement (as such terms are hereinafter defined), constitutes and
will constitute the legal, valid and binding obligations of the
Stockholder and Mr. Schulz (as applicable), enforceable against the
Stockholder and Mr. Schulz (as applicable) in accordance with their
respective terms, except to the extent limited by bankruptcy,
insolvency, reorganization and other laws affecting creditors'
rights generally, and except that the remedy of specific
performance or similar equitable relief is available only at the
discretion of the court before which enforcement is sought.
4.3 Organization, Good Standing and Qualification. The
Company: (a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of California; (b) has
all necessary corporate power and authority to carry on its
business and to own, lease and operate its properties; and (c) is
qualified to do business as a foreign corporation in each foreign
jurisdiction listed on Schedule 4.3; being the only jurisdictions
where such qualification is required by law and where the failure
to be so qualified would have a material adverse effect on the
assets, business or financial condition of the Company. True and
complete copies of the Articles of Incorporation and By-Laws of the
Company (including all amendments' thereto), and a correct and
complete list of the officers and directors of the Company, are
annexed hereto as Schedule 4.3.
4.4 Capital Structure; Stock Ownership.
(a) The authorized capital stock of the Company is
as set forth in its Articles of Incorporation contained in Schedule
4.3, and the Stock constitutes all of the issued and outstanding
capital stock of the Company.
(b) There are no outstanding subscriptions,
options, rights, warrants, convertible securities or other
agreements or calls, demands or commitments obligating the Company
to issue, transfer or purchase any shares of its capital stock or
any rights to any shares of capital stock, or obligating the
Stockholder to transfer any of the Stock. No shares of capital
stock of the Company are reserved for issuance pursuant to stock
options, warrants, agreements or other rights to purchase or
acquire capital stock.
4.5 Subsidiaries and Investments. The Company does not
(a) own, directly or indirectly, any stock or other equity
securities of any corporation or entity, or (b) have any direct or
indirect equity or ownership interest in any person, firm,
partnership, corporation, venture or business other than the
business conducted by the Company.
4.6 Financial Statements and Financial Information.
(a) Annexed hereto as Schedule 4.6(a) are true,
correct and complete copies of.
(i) The balance sheets of the Company as of
December 31, 1995 and December 31, 1996, and the related statements
of income, shareholders' equity and cash flows of the Company for
the years then ended (collectively, the "Historical Financial
Statements"); and
(ii) The balance sheet of the Company as of
September 30, 1997 and the related statement of income of the
Company for the nine (9) months then ended (the "Interim Financial
Statements").
(b) The Historical Financial Statements: (i) were
reviewed (in the case of the statements as of and for the year
ended December 31, 1995), and compiled (in the case of the
statements as of and for the year ended December 31, 1996) by
Felice Accountancy Corporation; (ii) were prepared in accordance
with generally accepted accounting principles consistently applied,
subject to audit adjustments which would not (individually or in
the aggregate) be material, and subject to the absence of certain
footnote disclosures which would otherwise be required by generally
accepted accounting principles.; (iii) fairly present in all
material respects the Company's financial condition as at the dates
thereof, and the results of its operations for the fiscal years
then ended; (iv) contain and reflect all necessary material
adjustments and accruals for a fair presentation of the financial
condition and the results of operations as of the dates of and for
the fiscal years covered by such Historical Financial Statements;
and (v)make full and adequate, provision, subject to and in
accordance with generally accepted accounting principles, for the
various assets and liabilities of the Company, fixed or contingent,
and the results of its operations and transactions in its accounts,
as of the dates and for the periods referred to therein.
(c) Subject only to the absence of full footnote
disclosures and to yearend audit adjustments which would not,
individually or in the aggregate, be material, the Interim
Financial Statements: (1) were derived from the books and records
of the Company, which accurately and consistently reflect all
transactions to which the Company was and is a party; (ii) were
prepared in accordance with generally accepted accounting
principles, policies and practices of the Company consistently
applied; (111) fairly present in -all material respects the
Company's financial condition as at September 30, 1997 and the
results of its operations for the nine (9) months then ended; and
(iv) make full and adequate provision, subject to and in accordance
with generally accepted accounting principles, for the various
assets and liabilities of the Company, fixed or contingent, and the
results of its operations and transactions in its accounts, as of
the dates and for the periods referred to therein. Except as
expressly set forth in the Interim Financial Statements and/or
otherwise in the Schedules to this Agreement, or arising in the
normal course of the Company's business since September 30, 1997,
there are no liabilities or obligations (including, without
limitation, any tax liabilities or accruals) of the Company,
including any contingent liabilities, that are, in the aggregate,
material to the financial condition or business of the Company.
(d) Schedule 4.6(d) annexed hereto contains a true
and complete list of the outstanding principal balance of,
approximate accrued interest on, and all collateral security for
all Debt of the Company as of September 30, 1997, including but not
limited to any such Debt owed by the Company to the Stockholder
and/or any of the Stockholder's "Affiliates" (as such tern-i is
hereinafter defined). Wherever used in this Agreement, the term.
"Affiliates" or "Affiliate" means, as respects any person or
entity, any other person or entity that directly, or indirectly
through one or more intermediaries, controls, is controlled by, or
is under common control with the first person or entity.
(e) Schedule 4.6(e) annexed hereto contains: (1)
true and complete aging schedules of the accounts receivable and
accounts payable of the Company as of September 30, 1997; (ii) a
true and complete list of all obligations (other than obligations
disclosed in Schedule 4.6(d)) of the Company to the Stockholder
and/or any of the Stockholder's Affiliates on the date hereof,
(iii) a true and complete list of all obligations of the Company
guaranteed by the Stockholder on the date hereof, and the terms of
such guaranties; and (iv) a true and complete list reflecting the
nature and amount of all obligations owed to the Company on the
date hereof by the Stockholder and/or any of the Stockholder's
Affiliates.
4.7 No Material Changes.
(a) Since July 31, 1997, the Company has not made
any payments or distributions of cash or other property of any
kind, other than (i) normal operating expenses, (iii) its 1.5%
California state franchise taxes for current periods, (ii)
scheduled amortization payments on existing Debt, plus any
additional indebtedness or capital leases incurred to finance
capital expenditures within the Company's 1997 capital expenditure
budget, and (iv) cash distributions to the Stockholder in amounts
not in excess of the federal and state income taxes (calculated at
the highest marginal rates) payable by the Stockholder in respect
of the net income of the Company for 1997 periods from and after
August 1, 1997.
(b) Since September 30, 1997, the Business of the
Company has continued to be operated only in the ordinary course,
and there has not been:
(i) Any material adverse change in- the
financial condition, operations or business of the Company from
that shown on the Interim Financial Statements, or any material
transaction or commitment effected or entered into outside of the
normal course of the Company's business;
(ii) Any damage, destruction or loss, whether
covered by insurance or not, materially and adversely affecting the
business, operations, assets, properties, financial condition or
prospects of the Company; or
(iii) Except for permitted distributions
pursuant to Section 4.8(a) or Section 6.5(j) below, any
declaration, setting aside or payment of any dividend or other
distribution with respect to the Stock, any other payment of any
kind by the Company to the Stockholder or any of the Stockholder's
Affiliates outside of the ordinary course of business, any
forgiveness of any debt or obligation owed to the Company by the
Stockholder or any of the Stockholder's Affiliates, or any direct
or indirect redemption, purchase or other acquisition by the
Company of any capital stock of the Company.
4.8 Tax Returns and Tax Audits.
(a) Since January 1, 1995, the Company has elected
to be taxed as an electing small business (Subchapter S)
corporation under the provisions of Section 1371 et seq., of the
Internal Revenue Code of 1986, as amended (the "Code"). During the
1997 calendar year, the Company has not paid any dividends or made
any distributions to the Stockholder, other than cash distributions
not in excess of the maximum amounts permitted pursuant to Section
7.5(b) below.
(b) All federal, state and local tax returns and
tax reports required to be filed by the Company on or before the
date hereof have been timely filed with the appropriate
governmental agencies in all jurisdictions in which such returns
and reports are required to be filed; all federal, state and local
income, franchise, sales, use, property, excise, payroll and other
taxes (including interest and penalties and including estimated tax
installments where required to be filed and paid) due from or with
respect to the Company as of the date hereof have been fully paid,
and appropriate accruals have been made on the Company's books for
taxes not yet due and payable; all taxes and other assessments and
levies which the Company is required by law to withhold or to
collect have been duly withheld and collected, and have been paid
over to the proper governmental authorities to the extent due and
payable; and there are no outstanding or pending claims,
deficiencies or assessments for taxes, interest or penalties with
respect to taxable period of the Company.
(c) Neither the Company nor the Stockholder has
received notice of any pending audits with respect to any federal,
state or local tax returns of the Company, and no waivers of
statutes of limitations have been given or requested with respect
to any tax years or tax filings of the Company.
4.9 Personal Property; Liens. The Company has and owns
good and marketable title to all of its personal property, free and
clear of all liens, pledges, claims, security interests and
encumbrances whatsoever, except for: (a) liens securing the Debt,
pursuant to the security agreements listed in Schedule 4.9 annexed
hereto; (b) liens for tolerant taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings;
and (c) other liens, pledges, claims, security interests,
encumbrances, mortgages, conditions or restrictions which are not,
individually or in the aggregate, material in character or amount
and do not i interfere with the use made or presently proposed to
be made of any such property (collectively, "Permitted Liens"). All
material items of machinery, equipment, vehicles and other fixed
assets owned or leased by the Company are listed in Schedule 4.9
annexed hereto (with specific indication of those assets which are
owned and those assets which are leased), and, except as and to the
extent disclosed in Schedule 4.9, all of such fixed assets are in
good operating condition and repair (reasonable wear and tear
excepted) and are adequate for their use in the Company's business
as presently conducted.
4.10 Real Property.
(a) The Company does not own or have any interest
of any kind (whether ownership, lease or otherwise) in any real
property, except to the extent of the Company's interest as lessee
under the leases for the Company's business premises located at
2308 Zanker Road, San Jose, California and at 326 Charcot Avenue,
San Jose, California and as month-to-month tenant at office
premises located at Fourth No. 1, Langwedel, Germany (collectively,
the "Company Facilities"). True and complete copies of the lease
agreements in respect of the Company Facilities (including all
amendments thereto) are annexed hereto as Schedule 4.10(b)
(collectively, the "Leases"), except that there is no written lease
in respect of the Germany office. The Company is not a sublessor
with respect to any real property.
(b) The Company (and, to the best of the
Stockholder's knowledge, the landlords thereunder) is presently in
compliance with all of their respective obligations under the
Leases, and the Company Facilities are in good condition
(reasonable wear and tear excepted), and are adequate for the
operation of the Company's business as presently conducted. Except
as disclosed on Schedule 4.1(b) annexed hereto, no consent of the
landlord under either Lease will be required in order for the
Leases to remain in effect in accordance with their current terms,
after giving effect to the sale and transfer of the Stock pursuant
to this Agreement.
(c) The Company's use of the Company Facilities in
the normal conduct of the Business does not violate any applicable
building, zoning or other law, ordinance or regulation affecting
such real property, and no covenants, casements, rights of way or
other such conditions of record impair the Company's use of the
Company Facilities in the normal conduct of the Business.
(d) All of the buildings, fixtures and other
improvements located on or at the Company Facilities are accessible
by public roads, and during the two (2) year period prior to the
date hereof, the Company has not experienced any material
interruption in the delivery of adequate quantities of any
utilities or other public services required by the Company in the
normal operation of the Business.
4.11 Accounts Receivable.
(a) To the extent not already collected, all
accounts receivable shown on the Interim Financial Statements, and
all accounts receivable thereafter created or acquired by the
Company prior to the Closing Date (the "Accounts"), have arisen or
will arise in the ordinary course of the Company's business, and,
to the extent not already collected, represent and will represent
amounts owed to the Company by unaffiliated third party account
debtors in respect of .Goods, products or services provided to such
account debtors by the Company, subject to customary adjustments
which may be effected with customers in the ordinary course of
business (which adjustments are not and will not be, in the
aggregate, material to the financial condition and business of the
Company).
(b) The Stockholder has no knowledge of any
asserted counterclaims or set-offs in respect of any of such
Accounts, or any state of facts, events or occurrences which would
impair the collection of such Accounts in the ordinary course of
business, subject to customary adjustments which may be effected
with customers in the ordinary course of business (which
adjustments are not and will not be, in the aggregate, material to
the financial condition and business of the Company).
4.12 Inventories. Subject to those adjustments reflected
in Schedule 4.12 annexed hereto, all items of raw materials,
work-in-process and finished goods inventories which are owned by
the Company and reflected in the Interim Financial Statements have
been valued at the lower of cost or market, based on the
first-in-first-out method of accounting, and all items of obsolete
or slow-moving inventory have been written down to net realizable
or scrap value. Except as otherwise disclosed in Schedule 4.12,
such inventories, in the aggregate, consist, and at the Closing
Date will consist, of items which are of a quality and quantity
which are useable in the ordinary course of the Company's business.
The Stockholder is not aware of any government or governmental
agency approvals required to be obtained in respect of such
inventories, and to the best of the Stockholder's knowledge, all of
such inventories have been manufactured in accordance with and
comply in all material respects with all applicable laws and
regulations.
4.13 Insurance Policies. Schedule 4.13 annexed hereto
contains a true and correct schedule of all insurance coverage held
by the Company concerning its business and properties, including
the names of insurers, policy limits and deductibles. To the best
of the Stockholder's knowledge, the types and levels of such
insurance coverages are reasonable and customary for businesses of
comparable type, size and location.
4.14 Permits and Licenses. The Company possesses all
required permits, licenses and/or franchises, from whatever
governmental authorities or agencies (domestic and/or foreign)
requiring the same and having jurisdiction over the Company,
necessary in order to operate its Business in the manner presently
conducted, except for such permits and licenses the failure to
obtain which would not have a material adverse affect on the
business or financial condition of the Company. All of the
Company's permits, licenses and/or franchises are valid, current
and in full force and effect and none of such permits, licenses or
franchises will be voided, revoked or terminated, or voidable,
revocable or terminable, upon and by reason of the consummation of
the transactions contemplated by this Agreement.
4.15 Contracts and Commitments.
(a) Schedule 4.15 annexed hereto lists all real
property leases, personal property leases, commitments, loan
agreements, indentures, employment, consulting and shareholder
agreements, and all other contracts and agreements to which the
Company is a party and which are material to its business
(collectively, "Material Contracts"), except that Schedule 4.15
need not list any such contract or agreement that is listed on any
other Schedule hereto, or was entered into in the ordinary course
of the business of the Company and that, in any case: (i) is for
the purchase of supplies or other inventory items in the ordinary
course of business; (ii) is related to the purchase or lease of any
capital asset involving aggregate payments of less than $10,000 per
annum; or (iii) may be terminated without penalty', premium or
liability by the Company on not more than thirty (30) days' prior
written notice.
(b) Except as set forth in Schedule 4.15: (1) all
Material Contracts are in full force and effect; (ii) the Company
has not received any notice that any Material Contract is in
material breach or default or is now subject to any condition or
event which has occurred and which, after notice or lapse of time
or both, would constitute a material default by any party under any
such contract, lease, agreement or commitment; and (iii) none of
the Material Contracts will be voided, revoked or terminated, or
voidable, revocable or terminable, upon and by reason of the
consummation of the transactions contemplated by this Agreement.
(c) No purchase commitment by the Company is in
excess of the normal, ordinary and usual requirements of the
business of the Company.
(d) Except for powers of attorney granted to
customs brokers in the ordinary course of business, and powers of
attorney contained in outstanding loan agreements, there is no
outstanding power of attorney granted by the Company to any person,
firm or corporation for any purpose whatsoever.
4.16 Customers and Suppliers. Schedule 4.16 annexed
hereto sets forth a list of the names and addresses of those
customers and suppliers who accounted for 5% or more of the
Company's net sales and 5% or more of the Company's net purchases
of inventories and materials for the fiscal year ended December 31,
1996, and the dollar amount of net sales and purchases applicable
to each such material customer and supplier. The Company has not
received any notice of any existing, announced or anticipated
changes in the policies of any material customer, supplier or
referral source which will materially adversely affect the Business
presently being conducted by the Company.
4.17 Labor, Benefit and Employment Agreements.
(a) Except as set forth in Schedule 4.17 annexed
hereto, the Company is not a party to (i) any collective bargaining
agreement or other written agreement covering unionized employees,
(ii) any bonus, deferred compensation, stock option, stock
purchase, consulting, retirement, severance, welfare or incentive
plan, pension plan, profit sharing plan, retirement, or other such
benefit plan constituting an "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (collectively, an "Employee Plan"), or
(iii) any written agreement" with respect to the employment or
compensation of any non-hourly and/or non-union employee(s) which
is not terminable without penalty by the Company on not more than
thirty (30) days' prior written notice. Schedule 4.17 sets forth
the amount of all compensation or remuneration (including any
discretionary bonuses) paid or to be paid by the Company during the
1997 fiscal year to employees or consultants who presently receive
aggregate compensation or remuneration at an annual rate in excess
of $75,000.
(b) No union is now certified or has claimed in
writing the right to be certified as a collective bargaining agent
to represent any employees of the Company, and there are no
organizational activities or labor disputes existing or, to the
best of the Stockholder's knowledge, threatened, involving
organizational activities, picketing, strikes, slowdowns, work
stoppages, job actions or lockouts of any employees of the Company.
(c) Neither the Company nor the Stockholder has
received notice of any unfair labor practice charges or petitions
for election filed, pending or being litigated before the National
Labor Relations Board or any State labor relations board. The
Company has not received any written notice of any actual or
alleged violation of any law, regulation, order or contract term
affecting the collective bargaining rights of employees, equal
opportunity in employment, or employee health, safety, welfare, or
wages and hours.
(d) The Company (i) is not a party to any
"multiemployer plan" (as defined in Section 3(37) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), and
(ii) the Company has not, at any time on or after April 29, 1980,
suffered or caused any "complete withdrawal" or "partial
withdrawal" (as those terms are respectively defined in Sections
4203 and 4205 of ERISA) therefrom on its part.
(e) With respect to any and all Employee Plans
which the Company may previously have maintained or sponsored, such
Employee Plans were administered in compliance in all material
respects with all applicable statutes, rules and regulations.
(f) Except for the group medical insurance programs
and any other medical insurance listed in Schedule 4.17, the
Company does not maintain any medical, health, life or other
employee benefit insurance programs or any welfare plans (within
the meaning of Section 3(l) of ERISA) for the benefit of any
current or former employees, and, except as required by statute or
governmental regulation, the Company does not have any liability,
fixed or contingent, for health or medical benefit to any former
employee.
4.18 No Breach of Statute, Decree or Other Instrument.
Neither the execution and delivery of this Agreement by the
Stockholder, nor the performance of or compliance with the terms
and provisions of this Agreement on the part of the Company and/or
the Stockholder, will violate or conflict with any term of the
Articles of Incorporation or By-Laws of the Company or constitute
a material breach or violation of any statute, law, rule or
regulation of any governmental authority affecting the Company, or
will at the Closing Date conflict with, result in, a breach of, or
constitute a default under, any of the terms, conditions or
provisions of any judgment, order, award, injunction, decree,
contract, lease, agreement, indenture or other instrument to which
the Company or the Stockholder is a party or by which the Company
or the Stockholder is bound. No consent, authorization or approval
of or filing with any governmental authority or agency, or any
third party, will be required on the part of the Company or the
Stockholder in connection with the consummation of the transactions
contemplated hereby. To the best of the Stockholder's knowledge,
the Company will not be required, whether by law, regulation or
administrative practice, to reapply for or refile to obtain any of
the material licenses, permits or other authorizations presently
held by the Company and required for the operation of its business
as conducted on the date hereof.
4.19 Compliance with Laws. The representations and
warranties contained in this Section 4.19 relate to matters other
than "Environmental Laws," which are covered by Section 4.24 below.
(a) The Company is, and has been at all times
during the three (3) year period prior to the date hereof, in
compliance, in all material respects, with all domestic, foreign,
federal, state, local and municipal laws and ordinances and
governmental. rules and regulations, and all requirements of
insurance carriers, applicable to its business, affairs, properties
or assets.
(b) The Company has not received any notice of
default or violation, nor is the Company in default or violation,
with respect to any judgment, order, writ, injunction, decree,
demand or assessment issued by any court or any federal, state,
local, municipal or other governmental agency, board, commission,
bureau, instrumentality or department, domestic or foreign,
relating to any aspect of the Company's business, affairs,
properties or assets. The Company has not received any written
notice of or been charged with, and is not, to the best of the
Stockholder's knowledge, under investigation with respect to, any
violation of any provision of any federal, state, local, municipal
or other law or administrative rule or regulation, domestic or
foreign, relating to any aspect of the Company's business, affairs,
properties or assets, which violation would have a material adverse
effect on the business, financial condition or results of
operations of the Company.
4.20 Litigation. There is no suit, action, arbitration,
or legal, administrative or other proceeding, or governmental
investigation pending, or to the best knowledge of the Stockholder
threatened, by or against the Company or any of its assets or
properties. The Stockholder is not aware of any state of facts,
events, conditions or occurrences which would properly constitute
grounds for or the basis of any meritorious suit, action,
arbitration, proceeding or investigation against or with respect to
the Company.
4.21 Patents, Licenses and Trademarks. There are no. (a)
patents, patent applications, copyright registrations and
applications, registered trade names, and trademark registrations
and applications, both domestic and foreign, which are presently
owned, filed or held by the Company and/or the Stockholder or any
of the Company's directors, officers or employees and which in any
way relate to or are used in the business of the Company; (b)
licenses, both domestic and foreign, which are owned or controlled
by the Company or the Stockholder and/or any of the Company's
directors, officers or employees and which in any way relate to or
are used in the business of the Company; or (c) franchises,
licenses and/or similar arrangements granted to the Company by
others and/or to others by the Company.
4.22 Transactions with Affiliates. No material asset
employed in the business of the Company is owned by, leased from or
leased to the Stockholder, any of the Stockholder's Affiliates, any
member of the Stockholder's family or any partnership, corporation
or trust for their benefit, or any other officer or director of the
Company or any Affiliate of the Company.
4.23 Bank Accounts. Annexed hereto as Schedule 4.23 is
a correct and complete list of all bank accounts and safe deposit
boxes maintained by or on behalf of the Company, with indication of
all persons having signatory, access of other authority with
respect thereto.
4.24 Environmental Matters.
(a) As used in this Section 4.24: (i) the tern
"Environmental Laws" means all federal, state and local laws,
statutes, regulations, permits, orders, ordinances, codes, rules
and other governmental restrictions, requirements and duties,
including common law, relating to the treatment, storage, disposal
or release of air pollutants, water pollutants or processed waste
water or otherwise relating to human health, the environment or
hazardous substances, including but not limited to the Federal
Solid Waste Disposal Act; the Federal Clean Air Act (including,
without limitation, the Clean Air Act Amendments of 1990); the
Federal Water Pollution Control Act; the Hazardous Materials
Transportation Act; the Federal Toxic Substances Control Act; the
Federal Resource Conservation and Recovery Act of 1976; the
National Environmental Policy Act; the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and similar state laws, all amendments to any of the
foregoing statutes, and all regulations promulgated by any federal
or state agencies, including the Environmental Protection Agency,
regulations of the Nuclear Regulatory Agency, and regulations of
any state department of natural resources or state environmental
protection agency now or at any time hereinafter in effect; (ii)
the terms "hazardous substances", "release", "respond", "response",
and all variations and derivatives thereof shall mean and include,
without limitation, all radioactive materials, asbestos and
asbestos-containing materials, PCB's, petroleum products and
by-products, all solid, semi-solid, liquid or gaseous substances
which are toxic, ignitable, corrosive, carcinogenic or otherwise
dangerous to human, plant or animal health, and all substances
defined or listed as "hazardous substances", "toxic substances",
"hazardous waste", "toxic pollutants" in, or otherwise regulated
under any Environmental Law, including, without limitation, the
meanings ascribed to them in CERCLA.
(b) The Company has not received notice of any
pending or threatened litigation or administrative proceeding which
in any instance (i) asserts or alleges any violation of applicable
Environmental Laws on the part of the Company, (ii) asserts or
alleges that the Company is required to clean up, remove or
otherwise take remedial or other response action due to the
disposal, depositing, discharge, leaking or other release of any
hazardous substances or materials, or (iii) asserts or alleges that
the Company is required to pay all or any portion of the costs of
any past, present or future cleanup, removal or remedial or other
response action which arises out of or is related to the disposal,
depositing, discharge, leaking or other release of any hazardous
substances or materials by the Company. The Company is not subject
to any judgment, decree, order or citation related to or arising
out of any Environmental Laws. To the best of the Stockholder's
knowledge, the Company has not been named or listed as a
potentially responsible party by any governmental body or agency in
any matter arising under any Environmental Laws. The Company is not
a participant in, nor does the Stockholder have actual knowledge
of, any governmental investigation involving the Company Facility
or any other real estate now or heretofore owned or leased by the
Company.
(c) Neither the Company nor, to the best of the
Stockholder's knowledge, any other person, firm, corporation or
governmental entity has caused or permitted any hazardous
substances or other materials to be stored, deposited, treated,
recycled or disposed of on, under or at any real estate now or
heretofore leased by the Company, which materials, if known to be
present, may reasonably be expected owned or to require or
authorize cleanup, removal or other remedial action under any
applicable Environmental Laws.
(d) To the best of the Stockholder's knowledge,
there are not now nor have there ever been, any tanks or other
storage facilities on, under or at any real estate now or
heretofore owned or leased by the Company which contain or
contained hazardous substances or other materials which, if known
to be present in soils or ground water, may reasonably be expected
to require or authorize cleanup, removal or other remedial action
under any Environmental Laws.
(e) To the best of the Stockholder's knowledge, the
Company has in full force and effect all material permits, licenses
and approvals required to be maintained under any Environmental
Laws applicable to the Company or the Company Facility.
(f) The Stockholder is not aware of any monitoring
and testing equipment and records which are legally required to
assess environmental compliance in accordance with Environmental
Laws, and there are no conditions presently existing at any real
estate currently occupied by the Company which would subject the
Company to any damages, penalties, cleanup costs or other liability
under Environmental Laws, or which may reasonably be expected to
require cleanup, removal, remedial action or other response under
any applicable Environmental Laws.
4.25 Investment Decision. With respect to the receipt of
the Warrants, the Stockholder has obtained all such information as
the Stockholder has required in order to make an informed decision
with respect to the acceptance of an investment in such securities.
4.26 Schedules Incorporated by Reference. The making of
any recitation in any Schedule hereto shall be deemed to constitute
a representation and warranty that such recitation is an accurate
statement and disclosure of the information required by the
corresponding Section(s) of this Agreement, as, to the extent, and
subject to the qualifications and limitations, set forth in such
corresponding Section(s).
4.27 Disclosure and Duty of Inquiry. Purchaser is not
and will not be required to undertake any independent investigation
to determine the truth, accuracy and completeness of the
representations and warranties made by the Stockholder in this
Agreement. The Stockholder's representations and warranties herein
shall not be affected by any information which may come to the
attention of Purchaser during the course of any investigation
heretofore or hereafter made.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to the Stockholder as
follows:
5.1 Organization, Good Standing and Qualification.
Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all
necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder, and to consummate
the transactions contemplated hereby.
5.2 Authorization of Agreement. The execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby by Purchaser have been duly and
validly authorized by the Board of Directors of Purchaser; and
Purchaser has the full legal right, power and authority to execute
and deliver this Agreement, to perform its obligations hereunder,
and to consummate the transactions contemplated hereby. No further
corporate authorization is necessary on the part of Purchaser to
consummate the transactions contemplated hereby.
5.3 Valid and Binding Agreement. This Agreement and,
when executed and delivered by Purchaser, the Warrants, the
Employment/Consulting Agreement and the Non-Competition Agreement,
constitute and will constitute the legal, valid and binding
obligations of Purchaser, enforceable against Purchaser in
accordance with their respective term is, except to the extent
limited by bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally, and except that the remedy
of specific performance or similar equitable relief is available
only at the discretion of the court before which enforcement is
sought.
5.4 No Breach of Statute or Contract. Neither the
execution and delivery of this Agreement by Purchaser, nor
compliance with the terms and provisions of this Agreement on the
part of Purchaser, will: (a) violate the Certificate of
Incorporation or By-Laws of Purchaser, or any statute or regulation
of any governmental authority, domestic or foreign, which affects
and is material to the business of Purchaser; (b) require the
issuance to Purchaser of any authorization, license, consent or
approval of any federal or state governmental agency, except for
any required consent of the California Corporation Commission for
the transfer of the Stock to Purchaser; or (c) conflict with or
result in a breach of any of the terms, conditions or provisions of
any judgment, order, injunction, decree, note, indenture, loan
agreement or other agreement or instrument to which Purchaser is a
party, or by which Purchaser is bound, or constitute a default
thereunder.
5.5 Purchase of Stock for Investment. Purchaser will be
acquiring ownership of the Stock for its own account, for
investment purposes only, and not with a view to the resale or
distribution thereof in violation of any applicable securities
laws.
5.6 Disclosure and Duty of Inquiry. The Stockholder is
not and will not be required to undertake any independent
investigation to determine the truth, accuracy and completeness of
the representations and warranties made by Purchaser in this
Agreement. Purchaser's representations and warranties herein shall
not be affected by any information which may come to the attention
of the Stockholder during, the course of any investigation
heretofore or hereafter made.
6. THE STOCKHOLDER'S OBLIGATIONS BEFORE THE CLOSING DATE.
The Stockholder covenants and agrees that, from the date
hereof until the Closing Date:
6.1 Access to Information. The Company and the
Stockholder shall permit Purchaser and its counsel, accountants and
other representatives, upon reasonable advance notice to the
Company, during normal business hours and without undue disruption
of the business of the Company, to have reasonable access to all
properties, books, accounts, records, contracts, documents and
information relating to the Company, including (without limitation)
to permit any accountants selected by Purchaser to perform a review
(including access to accountants' work papers) of the Historical
Financial Statements and Interim Financial Statements. Purchaser
and its representatives shall also be permitted to freely consult
with the Company's counsel and accountants concerning the business
of the Company, and to conduct interviews with employees, customers
and suppliers of the Company.
6.2 Conduct of Business in Normal Course. The Company
shall carry on its business activities in substantially the same
manner as heretofore conducted, and shall not make or institute any
unusual or novel methods of service, sale, purchase, lease,
management, accounting or operation that will vary materially from
those methods used by the Company as of the date hereof, without in
each instance obtaining the prior written consent of Purchaser.
Without limitation of the foregoing, the Company shall not make any
payments in violation of Section 4.7(a) above.
6.3 Preservation of Business and Relationships. The
Company shall, without making or incurring any unusual commitments
or expenditures, use its best efforts to preserve its business
organization intact and to preserve its present relationships with
referral sources, clients, customers, suppliers and others having
business relationships with it.
6.4 Maintenance of Insurance. The Company shall
continue to carry its existing insurance, to the extent obtainable
upon reasonable terms.
6.5 Corporate Matters. The Company shall not, without
the prior written consent of Purchaser:
(a) amend its Articles of Incorporation or By-Laws;
(b) issue any shares of its capital stock;
(c) issue or create any warrants, obligations,
subscriptions, options, convertible securities or other commitments
under which any additional shares of its capital stock might be
directly or indirectly issued;
(d) amend, cancel or modify in any material respect
any Material Contract or enter into or modify any material new
agreement, commitment or transaction, except in each case in the
ordinary course of business;
(e) pay, grant or authorize any salary increases or
bonuses except in the ordinary course of business and consistent
with past practice, or enter into any employment agreement,
consulting agreement, management agreement or Employee Plan;
(f) make any change in its senior management
personnel;
(g) except pursuant to commitments in effect on the
date hereof and/or within the Company's 1997 capital expenditure
budget (to the extent disclosed in Schedule 6.5 annexed hereto),
make any capital expenditure(s) or commitment(s), whether by means
of purchase, lease or otherwise, or any operating lease
commitment(s), in excess of $20,000 in the aggregate;
(h) sell, assign or dispose of any capital asset(s)
with a net book value in excess of $10,000 as to any one item, or
$50,000 in the aggregate;
(i) materially change its method of collection of
accounts or notes receivable, accelerate or slow its payment of
accounts payable, or prepay any of its obligations or liabilities,
other than prepayments to take advantage of trade discounts not
otherwise inconsistent with or in excess of historical prepayment
practices;
(j) except as otherwise provided in Section 7.5
hereof, pay any dividends or distributions to the Stockholder,
whether in cash or other property, except for such amounts as shall
not exceed (when aggregated with all other dividends and
distributions in respect of such period) the Stockholder's personal
tax liabilities in respect of the net income of the Company for a
period from August 1, 1997 through and including the Closing Date;
(k) incur any liability or indebtedness except, in
each instance, in the ordinary course of business;
(l) subject any of its assets or properties to any
further liens or encumbrances, other than Permitted Liens;
(m) forgive any liability or indebtedness owed to
it by the Stockholder or any of his Affiliates; or
(n) agree to do, or take any action in furtherance
of, any of the foregoing.
7. ADDITIONAL AGREEMENTS OF THE PARTIES.
7.1 Confidentiality. Notwithstanding anything to the
contrary contained in this Agreement, and subject only to any
disclosure requirements which may be imposed upon Purchaser under
applicable state or federal securities or antitrust laws, it is
expressly understood and agreed by Purchaser, the Company and the
Stockholder that (a) this Agreement, the Schedules hereto, and the
conversations, negotiations and transactions relating hereto and/or
contemplated hereby, and (b) all financial information, business
records and other non-public information. concerning the Company or
Purchaser which any of Purchaser, the Company and the Stockholder
or their respective representatives has received or may hereafter
receive, shall be maintained in the strictest confidence by
Purchaser, the Company and the Stockholder and their respective
representatives, and shall not be disclosed to any person that is
not associated or affiliated with any of Purchaser, the Company and
the Stockholder and involved in the transactions contemplated
hereby, without the prior written approval of the Stockholder or
Purchaser, as applicable. The parties hereto shall use their best
efforts to avoid disclosure of any of the foregoing or undue
disruption of any of the business operations or personnel of the
Company or Purchaser. In the event that the transactions
contemplated hereby shall not be consummated for any reason, each
of Purchaser, the Company and the Stockholder covenants and agrees
that neither they nor their respective representatives shall retain
any documents, lists or other writings which they may have received
or obtained in connection. herewith or any documents incorporating
any of the information contained in any of the same (all of which,
and all copies thereof in the possession or control of themselves
or their representatives, shall be returned to the original source
of the material at issue).
7.2 Delivery of Unaudited Financial Statements. From
and after the date of this Agreement and through the Closing Date,
the Stockholder shall cause the Company to deliver to Purchaser or
its representative, as soon as available, but in no event later
than thirty (30) days after the end of the month in question, all
internally prepared unaudited monthly financial statements of the
Company consisting of statements of income and balance sheets, for
all months after September 1997.
7.3 Employment/Consulting Agreement. On the Closing
Date, Purchaser and Werner H. Schulz shall enter into an
employment/consulting agreement in the form of Exhibit "B" annexed
hereto (the "Employment Agreement").
7.4 Non-Competition Agreement. On the Closing Date,
Purchaser, the Company and Werner H. Schulz shall enter into a
non-competition and non-disclosure agreement in the form of Exhibit
"C" annexed hereto (the "Non-Competition Agreement").
7.5 Tax Accounting and Payments.
(a) The Stockholder covenants and agrees that all
cash distributions paid by the Company to the Stockholder or Werner
Schulz from and after January 1, 1997 were in connection with W-2
salary payments and additional amounts required to satisfy the
Stockholder's actual federal and state income tax obligations in
respect of the earnings and profits of the Company for periods from
and after January 1, 1997 and for no prior periods. The parties
hereby further confirm and consent that the Company's income in
respect of the 1998 fiscal year in which the Closing Date occurs
shall not be prorated as between the Stockholder (on the one hand)
and Purchaser (on the other hand), but shall be determined based on
actual income for that portion of the 1998 fiscal year through the
Closing Date and for that portion of the 1998 fiscal year
subsequent to the Closing Date, with the Company having been deemed
to have closed its books for these purposes on and as of the
Closing Date. The amounts required to be paid by the Stockholder in
respect of the Stockholder's allocable federal and state income tax
obligations in respect of the earnings and profits of the Company
during the period from January 1, 1997 through the Closing Date are
referred to herein as the "Tax Obligations."
(b) The Purchaser and the Stockholder acknowledge
and agree that the Company has distributed to the Stockholder
through November 30, 1997, sufficient cash to enable the
Stockholder to satisfy the Stockholder's Tax Obligations from
January 1, 1997 through November 30, 1997 (the "Eleven Month Tax
Payments"). In addition, the Purchaser acknowledges that an
additional distribution in respect of Tax Obligations was made in
January 1998. The Company and the Stockholder agree that no further
such distributions in respect of Tax Obligations shall be made
prior to the Closing Date.
(c) In the event that the Company shall have not
distributed to the Stockholder, on or before the Closing Date,
sufficient cash to enable the Stockholder to satisfy the
Stockholder's Tax Obligations for the period commencing December 1,
1997 and ending on the Closing Date (the "Last Quarter"), then, in
order to enable the Stockholder to pay the balance, if any, of such
Tax Obligations, not later than thirty (30) days after the Closing
Date, the Purchaser shall pay, arrange to pay, or cause the Company
to pay, to the Stockholder an amount equal to:
(A) that percentage of the net income of
the Company from December 1, 1997 through the Closing Date
equal to the highest combined marginal federal and California
personal income tax rate, minus
(B) the aggregate cash amounts, if any,
which have been actually distributed by the Company to the
Stockholder subsequent to December 1, 1997 and on or before
the Closing Date in respect of the Tax Obligations (the "Last
Quarter Tax Payments").
(d) In the event and to the extent that it is
determined that the sum of the Last Quarter Tax Payments made td
the Stockholder subsequent to December 1, 1997 shall have exceeded
the amount of the Tax Obligations actually incurred in respect of
the actual taxable earnings and profits of the Company for the Last
Quarter, then the Stockholder shall, within ten (10) days after
written demand therefor, refund to the Company the amount of any
such excess; provided, that for purposes of calculating, such
excess, no reduction in the Company's net income occasioned by
reason of any write-down or write-off in the value of its
inventories shall be considered.
7.6 No Shopping. Prior to any valid termination of '
this Agreement pursuant to Section 11 below, neither the
Stockholder nor any of the Stockholder's representatives (nor any
officers, directors, affiliates or representatives of the Company)
will solicit or otherwise entertain any offers or inquiries, or
negotiate with or enter into any discussions, commitments,
agreements or understandings with any person, firm or entity (other
than Purchaser) in respect of any sale or disposition in any manner
of any capital stock, assets or business (or any material portion
thereof) of the Company or any other transaction which, if
consummated, would frustrate the intent of this Agreement.
7.7 Non-Interference. None of the parties shall cause
to occur any act, event or condition which would cause any of their
respective representations and warranties made in this Agreement to
be or become untrue or incorrect in any material respect as of the
Closing Date, or would interfere with, frustrate or render
unreasonably expensive the satisfaction by the other party or
parties of any of the conditions precedent set forth in Sections 8
and 9 below.
8. CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE.
The obligations of Purchaser to consummate the
transactions contemplated by this Agreement are further subject to
the satisfaction, at or before the Closing Date, of all the
following conditions, any one or more of which may be waived in
writing by Purchaser:
8.1 Accuracy of Representations and Warranties. All
representations and warranties made by the Stockholder in this
Agreement, in any Schedule(s) hereto, and/or in any written
statement delivered to Purchaser under this Agreement shall be true
and correct in all material respects on and as of the Closing Date
as though such representations and warranties were made on and as
of that date.
8.2 Performance. The Stockholder shall have performed,
satisfied and complied with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by the Stockholder on or before the Closing Date,
including, without limitation, all covenants and agreements
described in Article 7 of this Agreement.
8.3 Certification. Purchaser shall have received a
certificate, dated the Closing Date, signed by the Stockholder,
certifying, in such detail as Purchaser and its counsel may
reasonably request, that the conditions specified in Sections 8.1
and 8.2 above have been fulfilled.
8.4 Good Standing Certificates. The Stockholder shall
have delivered to Purchaser a certificate or telegram issued by the
Secretary of State of the State of California, evidencing the good
standing, of the Company in such jurisdiction as of a date not more
than ten (10) calendar days prior to the Closing Date.
8.5 Absence of Litigation. No action, suit or
proceeding, by or before any court or any governmental body or
authority, against the Company or pertaining to the transactions
contemplated by this Agreement or their consummation, shall be
pending or threatened on the Closing Date, which action, suit or
proceeding would, if determined adversely, have a material adverse
effect on the business, financial condition, operations or
prospects of the Company, or impair the ability of the Stockholder
to transfer and deliver to Purchaser all of the Stock free and
clear of all pledges, liens, claims, charges, options, calls,
encumbrances, restrictions and assessments whatsoever (except any
restrictions which may be created by operation of state or federal
securities laws).
8.6 Consents. All necessary disclosures to and
agreements and consents of (a) Purchaser's lenders, (b) any parties
to any Material Contracts and/or any licensing authorities which
are material to the Company's business, and (c) the Commissioner of
Corporations of the State of California and any other governmental
authorities or agencies to the extent required in connection with
the transactions contemplated by this Agreement, shall have been
obtained and true and complete copies thereof delivered to
Purchaser.
8.7 Settlement of Affiliate Obligations. All debts,
liabilities and other monetary obligations owed to the Company on
the Closing Date by the Stockholder and/or any of the Stockholder's
Affiliates shall have been fully paid to the Company in immediately
available funds, such that no such Affiliate obligations shall be
outstanding on and after the Closing Date.
8.8 Condition of Property. Between the date of this
Agreement and the Closing Date, assets of the Company having an
aggregate fair market value of $25,000 or more, including any of
the Company Facilities and the inventories, supplies and machinery,
equipment and other fixed assets included therein, shall not have
been lost, destroyed or irreparably damaged by fire, flood,
explosion, theft or any other cause, whether or not covered by
insurance.
8.9 No Material Adverse Change. There shall not have
occurred any event or condition which could materially and
adversely affect the assets and properties, business, financial
condition, results of operations or business prospects of the
Company from those reflected in the Interim Financial Statements,
or disclosed in this Agreement or the Schedules hereto, except for
matters resulting from adverse changes in economic conditions
affecting businesses and economic conditions in the United States
generally.
8.10 Resignations; Banking Arrangements. The Stockholder
shall have delivered to the Company the written resignations, dated
and effective on the Closing Date, of such of the officers and
directors of the Company as may be requested by Purchaser. In
addition, to the extent requested by Purchaser, the Stockholder
shall have executed and delivered such certificates and documents
as may be necessary or appropriate to change the authorized
signatories on all bank accounts and/or safe deposit boxes
maintained by or in the name of the Company.
8.11 Execution and Delivery of Exhibits. On or before
the Closing Date, Werner H. Schulz shall have executed and
delivered to Purchaser and the Company (as applicable) the
Employment Consulting Agreement and the Non- Competition Agreement.
(This Agreement and the Employment/Consulting Agreement and the
Non-Competition Agreement are collectively referred to herein as
the "Transaction Documents".)
8.12 Customer Relationships. Prior to the Closing Date,
no customer who accounted for or who currently accounts for five (5
%) percent or more of (i) the Company's net sales in the fiscal
year ended December 31, 1996, (ii) the Company's net-sales in the
nine months ending September 30, 1997, or (iii) the Company's
backlog of orders as at the date hereof, shall have withdrawn or
terminated existing purchase orders in an amount which is
(individually or in the aggregate) material to the Company and is
not replaced by new purchase orders, or, in connection with such
customer's termination or material reduction of their business
relationship with the Company, shall have removed their tooling
from the Company Facility or other location under the Company's
control.
8.13 Consummation of Purchaser Financings. Purchaser
shall have raised and received the net proceeds from one or more
financings (the "Purchaser Financings"), either through existing or
new financing sources in accordance with the financing commitment
letter(s) previously supplied by Purchaser, or otherwise
satisfactory to Purchaser, in an aggregate amount which shall be
sufficient to enable Purchaser to: (a) pay the Purchase Price, (b)
retire or refinance the Company's outstanding Debt to the extent
required, under the existing terms thereof or the terms of the
Purchaser Financings, by reason of the consummation of the
transactions pursuant to this Agreement; and (c) provide the
Company with adequate working capital and liquidity at the Closing
Date for anticipated future operations.
8.14 Release of Pledge. The Company and the Stockholder
shall have received a written release, executed by Horst Kaiser or
other agent of such pledgee who shall be acceptable to Buyer's
counsel, of any pledge or security interest which Horst Kaiser may
claim in any capital stock of the Company, without incurring any
additional commitment or liability or making any prepayment of any
outstanding Debt owed to Mr. Kaiser.
8.15 Audits. Purchaser's independent accountants have:
(a) confirmed to Purchaser that they will be able to audit the
financial statements of the Company for the year ended December 31,
1996 (the "1996 Fiscal Audit") and, if necessary for Purchaser's
public reporting requirements, the year ended December 31, 1995
(the "1995 Fiscal Audit"), all in accordance with Regulation S-X
promulgated under the Securities Act of 1933, as amended; and (b)
commenced such 1996 Fiscal Audit and 1995 Fiscal Audit. The
Stockholder shall cause the Company and its employees and agents to
fully cooperate with Purchaser's accountants in facilitating such
audits, including furnishing all work papers and accounting
records, the execution of customary management representation
letters and such other matters as may be reasonably required by
Purchaser and its accountants. Furthermore, the results of the 1996
Fiscal Audit, the 1995 Fiscal Audit, and Purchaser's accountants'
financial due diligence review of the Interim Financial Statements
and other financial records shall not have indicated any material
difference or variation from the information contained in the
Historical Financial Statements and the Interim Financial
Statements.
8.16 Opinion of Counsel. The Purchaser shall have
received an opinion of Ronald S. Westphal, Esq., counsel to the
Company and the Stockholder, in substantially the form of Exhibit
"D" annexed hereto.
8.17 Proceedings and Instruments Satisfactory. All
proceedings, corporate or other, to be taken in connection with the
transactions contemplated by this Agreement, and all documents
incidental thereto, shall be reasonably satisfactory in form and
substance to Purchaser and its counsel. The Stockholder shall have
submitted to Purchaser or its representatives for examination the
originals or true and correct copies of all records and documents
relating to the business and affairs of the Company which Purchaser
may have requested in connection with said transactions.
9. CONDITIONS PRECEDENT TO THE STOCKHOLDER'S PERFORMANCE.
The obligations of the Stockholder to consummate the
transactions contemplated by this Agreement are further subject to
the satisfaction, at or before the Closing Date, of all of the
following conditions, any one or more of which may be waived in
writing by the Stockholder:
9.1 Accuracy of Representations and Warranties. All
representations and warranties made by Purchaser in this Agreement
and/or in any written statement delivered by Purchaser under this
Agreement shall be true and correct in all material respects on and
as of the Closing Date as though such representations and
warranties were made on and as of that date.
9.2 Performance. Purchaser shall have performed,
satisfied and complied with all covenants, agreements and
conditions required by this Agreement to be performed, satisfied or
complied with by Purchaser on or before the Closing Date, including
without limitation, satisfaction of all of Purchaser's covenants
and agreements contained in Section 7 of this Agreement.
9.3 Certification. The Stockholder shall have received
a certificate, dated the Closing Date, signed by Purchaser
certifying, in such detail as the Stockholder and their counsel may
reasonably request, that the conditions specified in Sections 9.1
and 9.2 above have been fulfilled.
9.4 Resolutions. The Stockholder shall have received
certified resolutions of the Board of Directors of Purchaser in
form. reasonably satisfactory to counsel for the Stockholder,
authorizing Purchaser's execution, delivery and performance of the
Transaction Documents and all other actions to be taken by
Purchaser hereunder.
9.5 Senior Management Arrangements. Purchaser shall
have entered into employment agreements with those members of the
Company's senior management designated in Schedule 9.5 annexed
hereto, and shall have established a bonus program pursuant to
which senior management of the Company shall have the right to
receive, on or about the first anniversary of the Closing Date, (a)
an aggregate of $500,000, which will be allocated and paid to
senior management and other key employees of the Company based on
achievement of those individual and team performance goals set
forth in Schedule 9.5, and (b) awards of incentive stock options to
purchase up to a maximum of 100,000 shares of common stock of
Purchaser, with specific amounts as shall be determined by the
Board of Directors of Purchaser in its discretion.
9.6 Opinion of Counsel. The Stockholder shall have
received an opinion of Messrs. Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, counsel to Purchaser, in substantially the form of
Exhibit "E" annexed hereto.
9.7 Proceedings and Instruments Satisfactory. All
proceedings to be taken in connection with the transactions
contemplated by this Agreement, and all documents incidental
thereto, shall be reasonably satisfactory in form and substance to
the Stockholder and their counsel.
10. CLOSING.
10.1 Place and Date of Closing. Unless this Agreement
shall be terminated pursuant to Section 11 below, the consummation
of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Westphal & Patrick, or such
other location as shall be agreed upon by the parties, at 10:00
A.M. local time, on February 27, 1998, or such later date (not
later than March 15, 1998, unless extended by mutual written
agreement of the parties) as may be reasonably agreeable to all
parties (the date of the Closing being referred to in this
Agreement as the "Closing Date").
10.2 Actions at Closing. On the Closing Date,
simultaneous with the Closing, the parties shall make all payments
and deliveries stated in this Agreement to be made at the Closing
and/or on or prior to the Closing Date, as set forth herein.
11. TERMINATION OF AGREEMENT.
11.1 General. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior
to the Closing:
(a) by the mutual written consent of Purchaser and
the Stockholder;
(b) by Purchaser, or by the Stockholder, if: (i) a
material breach shall exist with respect to the written
representations and warranties made by the other party, (ii) the
other party shall take any action prohibited by this Agreement, if
such actions shall or may have a material adverse effect on the
Company or on Purchaser, and/or the transactions contemplated
hereby, and shall not fully remedy same within ten (10) days after
written notice thereof to such party, (iii) the other party shall
not have furnished, upon reasonable notice therefor, such
certificates and documents required in cbnnecti4on with the
transactions contemplated hereby and matters incidental thereto as
it or lie shall have agreed to furnish, and it is reasonably
unlikely that the other party will be able to furnish such item(s)
prior to the Outside Closing Date specified below, or (iv) any
consent of any third party to the transactions contemplated hereby
(whether or not the necessity of which is disclosed herein or in
any Schedule hereto) is reasonably necessary to prevent a default
under any outstanding material obligation of either party hereto
and such consent is not obtainable without material cost or penalty
(unless the party not seeking to terminate this Agreement agrees or
agree to pay such cost or penalty); or
(c) by either Purchaser or the Stockholder, at any
time on or after March 15, 1998 (the "Outside Closing Date"), if
(i) the transactions contemplated hereby shall not have been
consummated prior thereto, or (ii) the Purchaser Financings shall
not have been completed by such Outside Closing, Date; provided,
that the party seeking to effect such termination of this Agreement
shall not then be in breach or default of any material
representation, warranty, covenant, agreement or obligation imposed
upon such party by this Agreement.
11.2 Effect of Termination. In the event of termination
of this Agreement pursuant to this Section 11, prompt written
notice shall be given by the terminating party to the other party,
and, unless the party seeking to terminate t1iis Agreement shall
have no right to do so, neither party to this Agreement shall have
any further liability to the other, except as provided in Section
7.1 above.
12. INDEMNIFICATION.
12.1 General.
(a) The Stockholder (jointly and severally) shall
defend, indemnify and hold harmless the Company and Purchaser from,
against and in respect of any and all claims, losses, costs,
expenses, obligations, liabilities, damages, recoveries and
deficiencies, including costs of investigation, interest, penalties
and reasonable attorneys' fees, that the Company and/or Purchaser
may incur, sustain or suffer (collectively "Purchaser Losses") as
a result of any breach of, or failure by the Stockholder to
perform, any of the representations, warranties, covenants or
agreements of the Stockholder contained in this Agreement or in any
Schedule(s) furnished by or on behalf of the Stockholder under this
Agreement.
(b) Purchaser shall defend, indemnify and hold
harmless the Stockholder from, against and in respect of any and
all claims, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies, including costs of
investigation, interest, penalties and reasonable attorneys' fees,
that the Stockholder may incur, sustain or suffer (collectively,
the "Stockholder Losses") as a result of any breach of, or failure
by Purchaser to perform, any of the representations, warranties,
covenants or agreements of Purchaser contained in this Agreement.
(c) Purchaser Losses or Stockholder Losses are
hereinafter referred to as "Losses", as they relate to the
applicable party or parties in Sections 12.3 and 12.4 above.
12.2 Limitations on Certain Indemnity; Right of Offset.
(a) Except with respect to any Purchaser Losses
involving proven fraud by the Stockholder, the Stockholder shall
not be liable to Purchaser or the Company with respect to Purchaser
Losses unless and until, and then only to the extent that, the
aggregate amount of all Purchaser Losses shall exceed the sum of
$100,000 (the "Basket"). The Stockholder (jointly and severally)
shall thereafter be liable for all Purchaser Losses in excess of
the Basket, up to the aggregate amount of the cash portion of the
Consideration set forth in Section 2.1 hereof
(b) Duration of Indemnity for Breach of Warranty.
The Company and Purchaser shall be entitled to indemnification by
the Stockholder for Purchaser Losses, and the Stockholder shall be
entitled to indemnification by Purchaser for Stockholder Losses,
only in respect of claims for which notice of claim shall have been
given on or before March 31, 1999; provided that:
(i) with respect to Purchaser Losses relating
to a breach of any warranties relating to tax
matters covered by Section 4.8 above, the duration
of such indemnity shall be with respect to claims
asserted prior to the expiration of the final
statute of limitations for those tax reports and
tax returns covered by the warranties under Section
4.8 above; and
(ii) neither Purchaser, the Company nor the
Stockholder shall be entitled to indemnification in
the event that the subject claim for
indemnification relates to a third-party claim and
the prospective indemnified party (as the case may
be) delayed giving notice thereof to such an extent
as to cause material prejudice to the defense of
such third party claim.
(c) Rights of Offset. In the event that the Company
or Purchaser shall suffer or incur any Purchaser Losses which are
established pursuant to a written settlement agreement,
arbitrators' decision or judicial determination, the Company and
Purchaser shall have the right (in addition to any and all other
rights and remedies, all of which may be exercised separately or
concurrently) to recover the amount of such Purchaser Losses by
means of offset against any payments then or thereafter payable
pursuant to the Employment/Consulting Agreement.
12.3 Resolution of Disputes; Binding Arbitration.
(a) Whenever a claim shall arise for which any
party shall be entitled to indemnification hereunder, the
indemnified party shall notify the indemnifying party in writing
within thirty (30) days of the indemnified party's first receipt of
notice of, or the indemnified party's obtaining actual knowledge
of, such claim, and in any event within such shorter period as may
be necessary for the indemnifying party to take appropriate action
to resist such claim. Such notice shall specify all facts known to
the indemnified party giving rise to such indemnity rights and
shall estimate (to the extent reasonably possible) the amount of
potential liability arising therefrom. If the indemnifying party
shall be duly notified- of such dispute, the parties shall attempt
to settle and compromise the same.
(b) In the event that any dispute relating to
indemnification hereunder or otherwise involving the interpretation
or application of this Agreement, any Schedule or Exhibit hereto or
any other Transaction Document cannot be settled or compromised, as
aforesaid, within twenty (20) days of receipt of the subject claim,
either the indemnified party or the indemnifying party shall
promptly thereafter submit the dispute to the American Arbitration
Association in Santa Clara County, California for final and binding
arbitration before a panel of three arbitrators (each of whom shall
be reasonably experienced and qualified in commercial
transactions), one of whom shall be selected by the indemnified
party, one of whom shall be selected by the indemnifying party and
the third of whom shall be selected by the other two arbitrators;
all of which panel of arbitrators shall be selected within twenty
(20) days of submission of such dispute to the American Arbitration
Association. The parties shall use their collective best efforts to
promptly schedule and conduct the hearings before such arbitrators,
with a view toward concluding such arbitration proceedings not
later than thirty (30) days from the first submission of the
dispute to arbitration. In addition to, and in lieu of, arbitration
as a means of dispute resolution hereunder, any party hereto shall
have the right to seek specific enforcement of this Agreement or
any Transaction Document, or other injunctive or equitable relief
or remedy before any court of competent jurisdiction.
(c) In connection with any arbitration pursuant to
this Section 12.3, the arbitrators shall, as part of their award,
allocate the fee of the American Arbitration Association, the cost
of any transcripts, and the parties' reasonable attorneys' fees,
based upon and taking into account the arbitrators' determination
of the merits and good faith of the parties' claims and defenses in
the subject proceeding
(d) The decision and award of the arbitrators shall
be final and binding upon the parties hereto and shall be
enforceable in any court of competent jurisdiction, including any
federal or state court in California.
(e) Any rights of indemnification established by
reason of such settlement, compromise, arbitration or litigation
shall promptly thereafter be satisfied by the indemnifying party in
such amount as shall be necessary to satisfy all applicable Losses
determined in accordance with such settlement and compromise, or by
final nonappealable order or judgment of the applicable judicial or
arbitration panel.
12.4 Defense and Settlement. In connection with the
defense of any third party claims for which claims for
indemnification have been made hereunder, each party will provide
reasonable access to its and the Company's books and records as and
to the extent required for the proper defense of such third party
claim. Neither party shall consent to any settlement or purport to
bind any other party to any settlement without the written consent
of the other party.
13. COSTS.
13.1 Finder's or Broker's Fees. Each of Purchaser (on
the one hand) and the Stockholder (on the other hand) represent and
warrants that neither it, he, she nor any of their respective
Affiliates have dealt with any broker or finder in connection with
any of the transactions contemplated by this Agreement, and no
broker or other person is entitled to any commission or finder's
fee in connection with any of the transactions contemplated hereby.
13.2 Closing Expenses. Each of Purchaser and the
Stockholder shall each pay all of their own respective professional
fees and other costs and expenses incurred or to be incurred by
them, respectively, in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by this
Agreement; provided, that nothing herein contained shall be defined
to prohibit the payment by the Company of professional fees and
other costs and expenses incurred or to be incurred by the Company
in the continuing course of its business.
14. POST-CLOSING COVENANTS.
14.1 Income Taxes.
(a) Purchaser shall not permit the Company, at any
time on or after Closing Date, to (i) amend any of the Company's
tax reports or tax returns with respect to periods prior the
Closing Date, except to the extent required by affirmative
determination of the applicable taxing authority, or (ii) grant any
waiver of any applicable statute of limitations with respect to any
tax report or tax return of the Company for any period prior to the
Closing Date, without the prior written consent of the Stockholder.
(b) In the event of any investigation or audit with
respect to any tax report or tax return of the Company for any
period prior to the Closing Date, Purchaser shall cause the Company
to give prompt written notice thereof to the Stockholder, and to
permit the Stockholder and his representatives to participate in
and receive copies of all notices and communications in connection
with any such investigation or audit. Similarly, in the event that
the Stockholder shall be apprised of any such investigation or
audit prior to the Company being apprised thereof, the Stockholder
shall give prompt written notice thereof to the Company, and shall
permit the Company and its representatives to participate therein
and receive copies of all notices and communications in connection
therewith. The Stockholder shall not, and Purchaser shall not
pen-nit the Company to, enter into any settlement of any such
investigation or audit unless (i) such settlement shall be approved
in writing by the Stockholder and the Company (such approval not to
be unreasonably withheld or delayed), or (ii) the Company shall
have agreed to indemnify the Stockholder in respect of any
additional tax obligations which would be imposed upon the
Stockholder by reason of the subject settlement. In connection with
any such investigation or audit, each party shall be responsible
for its own costs and expenses, except to the extent otherwise
agreed to in any written agreement hereafter entered into and
signed by the party to be charged therewith.
14.2 Benefit and Compensation Matters. From and after
the Closing Date, Purchaser will cause the Company to continue to
maintain its existing money purchase profit sharing plan, and to
honor its existing deferred compensation obligations to Paul
Hoefler and Richard Ellis (each of whom, the Stockholder represents
and warrants, is currently owed the net amount of approximately
$110,000).
14.3 Section 338. Election. Purchaser hereby confirms
its intention to make an election under Section 338(h)(10) of the
Code by reason of and in connection with the transactions hereunder
(the "Section 338 Election"). The Stockholder shall join in the
Section 338 Election and execute and deliver any and all such
agreements, instruments, certificates and other documents as may be
necessary or appropriate in order to give effect to the Section 338
Election.
14.4 Further Assurances. From time to time from and
after the Closing, the parties shall execute and deliver, or cause
to be executed and delivered, any and all such further agreements,
instruments, certificates and other documents, and shall take or
cause to be taken any and all such further action, as any of the
parties may reasonably deem necessary or desirable in order to
carry out the intent and purposes of this Agreement.
15. FORM OF AGREEMENT.
15.1 Effect of Headings. The Section headings used in
this Agreement and the titles of the Schedules hereto are included
for purposes of convenience only, and shall not affect the
construction or interpretation of any of the provisions hereof or
of the information set forth in such Schedules.
15.2 Entire Agreement; Waivers. This Agreement
(including the Schedules and Exhibits hereto) and the other
Transaction Documents constitute the entire agreement between the
parties pertaining to the subject matter hereof and thereof, and
supersede all prior agreements or understandings as to such subject
matter. No party hereto has made any representation or warranty or
given any covenant to the other except as set forth in this
Agreement and the Schedules and Exhibits hereto and the other
Transaction Documents. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any
other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
15.3 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall
be deemed an original, but all of which together shall constitute
one and the same instrument.
16. PARTIES.
16.1 Parties in Interest. Nothing in this Agreement,
whether expressed or implied, is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other
than the parties to it and their respective heirs, executors,
administrators, personal representatives, successors and permitted
assigns, nor is anything in this Agreement intended to relieve or
discharge the obligations or liability of any third persons to any
party to this Agreement, nor shall any provision give-any third
persons any right of subrogation. or action over or against any
party to this Agreement.
16.2 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing, and shall
be deemed to have been duly given (a) on the date of service, if
served personally on the party to whom notice is to be given, (b)
on the day after the date sent by recognized overnight courier
service with all charges prepaid or billed to the account of the
sender, (c) three (3) days after being deposited in the United
States mail if sent by first class mail, registered or certified,
postage prepaid, or (d) when sent by facsimile transmission, to the
party being notified at its address or facsimile number set forth
below or such other address or facsimile number as any party hereto
shall subsequently notify all other parties hereto in writing:
(i) If to Purchaser:
Compass Plastics & Technologies, Inc.
15730 South Figueroa Street
Gardena, California 90248
Attention: President
fax no. (310) 523-9859
with a copy to:
Private Equity Partners, L.L.C.
808 Lexington Avenue - 2nd Floor
New York, New York 10021
Attention: Geoffrey J. F. Gorman
fax no. (212) 755-1896
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel
200 Park Avenue - 15th Floor
New York, New York 10166
Attention: Stephen A. Weiss, Esq.
fax no. (212) 801-6400
(ii) If to the Stockholder:
c/o Werner H. Schulz
22646 San Juan Road
Cupertino, California 95014
fax no. (___) _______________
with a copy to:
Westphal & Patrick
1550 The Alameda, Suite 302
San Jose, California 95126
Attention: Ronald S. Westphal, Esq.
fax no. (408) 280-0660
or to such other address as either party shall have specified by
notice in writing given to the other party.
17. ESCROW AGENT.
17.1 Duties and Exculpation. In order to induce the
Escrow Agent to act in such capacity hereunder, the parties hereby
confirm that the Escrow Agent (a) shall not incur any liability for
any action taken by it hereunder, except to the extent that the
same constitutes gross negligence or willful misconduct by the
Escrow Agent, (b) shall be entitled to rely upon and assume to be
accurate all notices and advice given to the Escrow Agent hereunder
(absent specific knowledge to the contrary) and to rely upon any
document and/or signature believed by it in good faith to be
genuine and rendered by an authorized representative of the subject
person, (c) may resign at any time, provided that such resignation
shall not become effective until a substitute escrow agent is
appointed by mutual agreement of the Stockholder and Purchaser, and
the Escrow Agent has delivered to its successor all funds then held
in escrow hereunder, and (d) may, in the event of any dispute
hereunder, deposit any and all funds held in escrow hereunder into
a court of competent jurisdiction pending resolution of such
dispute, and thereby be relieved of its obligations as Escrow Agent
hereunder.
18. MISCELLANEOUS.
18.1 Amendments and Modifications. No amendment or
modification of this Agreement or any Exhibit or Schedule hereto
shall be valid unless made in writing and signed by the party to be
charged therewith.
18.2 Non-Assignability; Binding Effect. Other than an
assignment by Purchaser of its indemnification rights and remedies
to one or more of its financing institutions, neither this
Agreement, nor any of the rights or obligations of the parties
hereunder, shall be assignable by either party hereto without the
prior written consent of the other party. Otherwise, this Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
18.3 Entire Agreement. This Agreement represents the
entire agreement between the parties with respect to the subject
matter hereof, and supersedes all other agreements, written or
oral, between the parties with respect thereto.
18.4 Governing Law; Jurisdiction. This Agreement shall
be construed and interpreted and the rights granted herein governed
in accordance with the laws of the State of California applicable
to contracts made and to be performed wholly within such State.
Except as otherwise provided in Section 12.3 above, any claim,
dispute or controversy arising under or in connection with this
Agreement or any actual or alleged breach hereof shall be settled
exclusively by arbitration to be held before a single arbitrator in
Santa Clara County, California, or in any other locale or venue as
legal jurisdiction may otherwise be had over the party against whom
the proceeding is commenced, in accordance with the commercial
arbitration rules of the American Arbitration Association then
obtaining. As part of his or her award, the arbitrator shall make
a fair allocation of the fee of the American Arbitration
Association, the cost of any transcript, and the parties'
reasonable attorneys' fees, taking into account the merits and good
faith of the parties' claims and defenses. Judgment may be entered
on the award so rendered in any court having jurisdiction. Any
process or other papers hereunder may be served by registered or
certified mail, return. receipt requested, or by personal service,
provided that a reasonable time for appearance or response is
allowed.
IN WITNESS WHEREOF, the parties have executed this
Agreement on and as of the date first set forth above.
Purchaser: COMPASS PLASTICS & TECHNOLOGIES, INC.
By:/s/ Michael A. Gibbs
Michael A. Gibbs, President
Stockholder: /s/ Werner H. Schulz
WERNER H. SCHULZ
/s/ Carolyn Schulz
CAROLYN SCHULZ
Acknowledged and Confirmed,
for Purposes of Sections 3 and 17 only:
FELICE ACCOUNTANCY
as Escrow Agent
By:/s/ Russell C. Felice
Russell C. Felice
EXHIBIT 99.2
PRESS RELEASE
Compas Plastics & Technologies Completes $17.4 Million Acquisition
of MOS Plastics Inc.
March 3, 1998 8:02 AM EST
GARDENA, Calif. - (BUSINESS WIRE) - March 3, 1998 - Compass
Plastics & Technologies Inc. (Nasdaq:CPTI), Tuesday announced the
completion of its previously announced acquisition of San Jose,
Calif.-based MOS Plastics Inc. for approximately $17.4 million.
MOS Plastics' founder, Werner Schulz, will be joining Compass
Plastics' board of directors.
"We look forward to working with the team at MOS and building on
their existing engineering capabilities and customer
relationships," said Michael Gibbs, president and chief executive
officer of Compass Plastics.
"The management and employees of MOS are an integral part of our
growth strategy. In order to align their interests with those of
our shareholders, 29 key MOS employees have been granted stock
options in Compass Plastics & Technologies."
Gibbs added, "Werner Schulz has built a tremendous company and it
is our belief that he will continue to lead MOS' General Manager,
Paul Hoefler; Tooling Manager, Richard Ellis; and Design and
Engineering Manager, Olga Smelyanets, in realizing our vision of
Compass as a provider of value-added engineering and manufacturing
services."
Founded in 1974, MOS Plastics is an injection molding company that
specializes in producing turn-key plastics parts and subassemblies.
MOS has 150 employees and occupies a 60,000-square-foot
manufacturing plant and 26,500-square-foot-warehouse. The company
has 35 molding machines and state-of-the-art mold-making
capabilities.
The company's clients include Hewlett Packard, Apple Computer Inc.,
Silicon Graphics Inc., Lifescan Inc. (a subsidiary of Johnson &
Johnson Inc.), Nellcor Inc. and Rockshox Inc., among others. The
company achieved 1997 sales in excess of $18 million and EBITDA of
over $3 million.
Compass Plastics, through its wholly-owned subsidiary, AB Plastics
Corp., is a leading contract manufacturer and assembler of custom
injection-molded plastic components in the western United States
and Baja, Mexico. The company manufactures the plastic enclosures
for computer monitors, televisions and electronic keyboards.
In addition to injection-molded components, the company offers a
broad range of "value-added" services including painting,
decorating and assembly.
