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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN CUSTOM COMPONENTS, INC.
(Name of small business issuer in its charter)
NEVADA 81-0478643
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3310 W. MACARTHUR BOULEVARD
SANTA ANA, CALIFORNIA 92704
(Address of principal executive offices) (Zip code)
(714) 662-2080
(Registrant's telephone number, including area code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001
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Title of Class
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and Management.
Item 5 Directors, Executive Officers, Promoters and Control Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
1
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
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American Custom Components, Inc., a Nevada corporation, (the "Company") is
engaged in the business of designing and manufacturing electronic connectors for
computer, telecommunications, military, industrial and medical electronic
devices. The Company also undertakes electronic assembly on behalf of certain of
its customers. Management of the Company believes its competitive advantage is
improved turn around times as compared to competitors.
Connectors manufactured by the Company are communication devices between
electronic components which are essentially similar to an electronic plug from a
lamp into a wall socket. The Company's connectors are substantially more complex
and provide connection between numerous electronic devices such as computer hard
drives and the computer's motherboard.
The Company offers its technology customers a solution to many of their
electronic connector needs. The Company designs a connector to customer
specifications, using what management believes to be state of the art
engineering equipment, manufactures molds and other tooling; manufactures
components; and assembles the complete connector and/or cable assemblies.
Management of the Company strives to reduce engineering lead times for its
customers, which is critical in the rapidly changing electronics industry. To
date customers have included major disk drive manufacturers and defense
contractors.
The Company's strategy is to continue to expand its custom connector and
electronic assembly business in Santa Ana, California and to add manufacturing
capability in St. Lucia in the Caribbean (an island in the Windward Island group
located in the Caribbean Sea and a member of the Commonwealth of the United
Kingdom) and in Malaysia in order to service original equipment manufacturers
("OEM") in Eastern Asia. In September 1997 the Company acquired a 12,000 square
foot manufacturing facility in Vieux Fort, St. Lucia. In addition, in December
1997 the Company entered into a purchase agreement for the purchase and sale of
a factory located in Kulai, Malaysia (the greater Singapore business area).
According to the terms of the Agreement, the Company will lease the facility
from the seller for $800.00 per month for a period of twelve (12) months. At the
end of the lease term, the seller will have a one (1) month period within which
to exercise warrants to purchase 31,400 shares of the Company Common Stock. If
the seller does not exercise its warrants, then the Company has agreed to pay a
purchase price equal to One Hundred Ten Thousand Dollars ($110,000.00).
The corporate offices of the Company are located at 3310 W. MacArthur Boulevard,
Santa Ana, California 92704, and its telephone number is (714) 662-2080.
THE ELECTRONICS CONNECTOR MARKETPLACE
According to Ken Fleck in Electronic Buyers News, the worldwide electronic
connector sales by end-use equipment were approximately $23.4 billion in 1997
and will be approximately $24.9 billion in 1998. Virtually every electric or
electronic product utilizes electronic connectors of varying sophistication. To
date, the Company's principal activities in the electronic connector marketplace
have principally focused in the computer disk drive segment of that marketplace.
In recent years, this computer disk drive industry has been driven by extremely
high competitive pressures in terms of storage capacity, performance and
pricing, among other factors, and is characterized by frequent new product
introductions, short product life spans, and the need for high quality and
reliability. The Company seeks to address this market with quick response times,
which the Company also employs in other sectors such as industrial and
telecommunications components.
Electronic connectors are generally comprised of contact material, generally
metallic, to transmit electric current, and insulating materials such as nylon,
to hold the contact material in proper positioning, to link the connector to
another connector or component and to insulate the contact material. Connectors
must be designed to accommodate the number and size of electrical contacts to
be joined, voltage and current, and to fit space and other requirements. Precise
manufacturing tolerances and quality control are essential, since electrical
short circuits or open circuits caused by a connector can render equipment
inoperable or cause expensive damage.
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The Company's product cycle includes the following major stages: sales;
engineering and design; sourcing; tooling; manufacturing; packaging and
delivery, and to a lesser extent, contract customer service returns.
MARKETING AND SALES
The Company's sales efforts are primarily directed by its Chief Executive
Officer, Martin T. Walk, and initial sales have been substantially derived from
his experience of more than 30 years in the electronics industry, as well as by
John Groom, the Company's President. The Company's marketing strategy has been
based on providing rapid design, engineering, tooling, molding and assembly for
its clients' custom connector requirements. To date, the primary market for the
Company's products has been disk drive manufacturers, but the Company has also
diversified its marketing to aerospace firms building electronic assemblies for
the U.S. military, and is supplying its design and expertise and will
manufacture a computerized shelf tag system for retailers.
The Company also sells its products through numerous manufacturers
representatives, which can be terminated at any time. All sales orders are
subject to approval by the Company.
MANUFACTURING, PACKAGING AND DELIVERY
The connector manufacturing process primarily consists of injection molding and
assembly. Where possible, and to provide higher quality and output, the Company
manufactures its own packaging materials. Since most of the Company's products
are small, many shipments can be made via overnight delivery services or counter
to counter airline freight to non-local customers. The Company seeks to
manufacture its products to applicable specification requirements.
In September 1997 the Company acquired a 12,000 square foot assembly plant in
Vieux Fort, St. Lucia. The Company intends to use the St. Lucia plant to
assemble for worldwide customers. At the request of several customers, in the
first quarter of 1998 the Company entered into a lease and purchase agreement
for a 5,000 square foot manufacturing facility in Kulai, Malaysia. This site is
22 miles from Singapore and 8 miles from Senai Airport. The Company intends to
manufacture critical molds and tooling at the Santa Ana facility and ship them
to the Malaysian plant and the St. Lucia plant by overnight delivery service.
In addition to its own manufacturing requirements the Company also designs and
tools for outside customers.
The principal components of the Company's products include nylon and contact
materials such as brass, copper, nickel, gold, silver, aluminum, steel, tin,
solder, and nuts, screws and bolts. Prior to acceptance by the Company, all
materials and components undergo quality assurance procedures. All materials and
components used in the Company's products are available from several sources.
Although availability of such materials has been adequate to date, no assurance
can be given that cost increases or material shortages or allocations imposed by
suppliers in the future will not have a materially adverse effect on the
operations of the Company.
CUSTOMERS OF THE COMPANY
The Company currently has four customers that in the aggregate represent 65% of
the total sales for its last fiscal year. One of its four major customers filed
for protection under the federal bankruptcy laws subsequent to March 31, 1997.
The Company has collected substantially all of its open accounts receivable from
such customer. Although the Company is seeking to diversify its customer base,
the Company anticipates that it will continue to rely upon these customers
during the fiscal year ended 1998.
SIGNIFICANT ACQUISITIONS
In October 1997, the Company acquired ninety-eight percent (98%) of the issued
and outstanding stock of Caribbean Electronics, Ltd., a St. Lucian corporation,
for $25,000 cash, a $100,000 note payable, the assumption of certain accounts
payable of approximately $25,000, and 8,333 "restricted" shares of the Company's
common stock. Caribbean Electronics, Ltd. is an electronic connector assembly
business located on the island of St. Lucia. The acquisition was accounted for
as a purchase.
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Effective January 31, 1998 the Company acquired K5 Plastics, Inc. ("K5"), a
tooling and mold manufacturer through the purchase of one hundred percent (100%)
of its issued and outstanding shares of stock. The Company acquired K5 for
$42,000 in cash, a $50,000 note at an interest rate of 10% per annum, and 25,000
shares of "restricted" common stock. Also, the Company delivered 60,000 warrants
with an exercise price of $3.00. Of these warrants, 30,000 are exercisable at
any time in the next two to five years and the remaining 30,000 are exercisable
at any time in the next three to six years. The Company has also assumed a K5
note payable in the amount of approximately $52,000.
PATENTS
The Company generally owns the design rights for the connectors it manufactures,
but does not generally rely upon patent protection for its connectors but rather
believes that the short lifespan and time to market for products provides
sufficient intellectual property protection for its products. The Company does
have two patents on certain connector designs. There can be no assurance that
competitors of the Company do not have competing patents which may preclude
certain aspects of the Company's designs, that competitors may reverse engineer
and create competitive products to those of the Company or that other
technological protection can be obtained for the Company's products. No
assurance can be given that patents will be granted on pending or future patent
applications. The Company does not consider any one patent or its patents in the
aggregate to be material to its business at this time.
GOVERNMENT REGULATION
The Company believes it is in compliance with federal, state and local
regulations pertaining to environmental protection. The Company does not
anticipate that costs of compliance with such regulations will have a material
effect on its capital expenditures, earnings or competitive position.
EMPLOYEES
The Company and its subsidiaries have approximately 100 employees (42 of which
are primarily part-time), including 4 officers, 7 administrative personnel, 4 in
engineering, 77 in manufacturing, and 8 in quality control. Sales and marketing
is undertaken by four external sales representation firms.
RESEARCH AND DEVELOPMENT
The Company expended approximately $200,000 in the last fiscal year and
approximately $100,000 in the preceding fiscal year for research and development
activities related to its manufacturing processes. Of such amount, approximately
$50,000 was reimbursed to the Company from its customers.
COMPETITION
The electronic connector business is highly competitive, with a large number of
competitors of varying size, including AMP Corporation, Molex Corporation,
Augat, Ampherol, Hirose, JAE, ITT Cannon and Dupont Corporation. The Company's
market share of the electronics connector market is currently minuscule compared
to the total marketplace.
Most of the Company's competitors and potential competitors have substantially
greater financial, technical and marketing resources, longer operating
histories, greater name recognition and more established relationships with
nearly all the consumers in the electronic connector marketplace than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns and adopt more aggressive pricing policies than the Company. The
Company believes that in the market for smaller (under 2 million pieces per)
production lines, in which fast response time is essential, it has fewer
competitors. Competition advantages of the Company include, in the belief of
management, price, quality control, technology, and rapid design and tooling
time. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely effect the Company's
business, operating results or financial condition. Further, as a strategic
response to changes in the competitive environment, the Company may make certain
pricing, service or marketing decisions or enter into acquisitions or new
ventures that could have a material adverse effect on the Company's business,
operating results or financial condition.
4
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ITEM 2 - MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
OVERVIEW
The Company, together with its subsidiaries, has its primary operations located
in Santa Ana, California where it is currently engaged in the business of
designing and manufacturing electronic components and interconnect systems for
computers, disk drives, computer systems, military applications, medical,
telecommunications and certain industrial devices. In October 1997, the Company
acquired ninety-eight percent (98%) of the issued and outstanding stock of
Caribbean Electronics, Ltd. ("CEL"), an electronic components manufacturer,
housed in a leased 12,000 square foot assembly plant located on the island of
St. Lucia. As of January 31, 1998, the Company acquired one-hundred percent
(100%) of the issued and outstanding stock and assumed certain debts of K5
Plastics, Inc., a California corporation ("K5"), a mold and tooling manufacturer
and a previous vendor. K5 has been consolidated with the Company's Santa Ana
facility. The Company has also recently entered into a purchase contract for a
5,000 square foot manufacturing facility in Kulai, Malaysia.
RESULTS OF OPERATIONS
REVENUES
During the fiscal year ended March 31, 1997, the Company's revenues were derived
principally from the following products:
i. Electrical components for disk drives
ii. Military and industrial connectors
For the nine month period ending December 31, 1997, revenues were $2,153,090.
This is an increase of 41% from $1,527,153 recorded for the nine month period
ending December 31, 1996. This increase occurred during a time when the Company
was building its infrastructure through new product development and an increased
focus on diversification of its product line. For the fiscal year ended March
31, 1997, revenues were $2,473,085. This is an increase of 244% from $718,748
recorded for the fiscal year ended March 31, 1996.
GROSS MARGINS
The Company realized a gross margin of $1,053,854 reported for the nine month
period ending December 31, 1997. This is an increase of 55.1% over $681,296 for
the nine month period ending December 31, 1996. The gross margin as a percentage
of revenues was 49% for the nine month period ending December 31, 1997 and 45%
for the nine month period ending December 31, 1996. The Company realized a gross
margin of $719,652 for the fiscal year ended March 31, 1997. This is an increase
of 180% from $256,659 reported for the fiscal year ended March 31, 1996. The
gross margin as a percentage of revenues was 29% for the fiscal year ended March
31, 1997 and 36% for the fiscal year ended March 31, 1996.
Operating income was $151,665 for the nine month period ending December 31,
1997. This is an increase of 32% from $115,241 recorded for the nine month
period ending December 31, 1996. Operating income was $147,019 for the fiscal
year ended March 31, 1997. This is an increase of 305% from a negative $71,758
for the fiscal year ended March 31, 1996.
5
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OPERATING COSTS AND EXPENSE
Operating costs and expenses increased by $336,144 (59%) for the nine month
period ending December 31, 1997 as compared to the nine month period ending
December 31, 1996. The increase was due primarily to the hiring of additional
personnel for the Company's executive sales force. These new employees come from
some of the Company's largest customers, bringing with them certain knowledge
specific to the industry. Operating costs and expenses increased by $244,216
(74%) for the fiscal year ended March 31, 1997 as compared to the fiscal year
ended March 31, 1996.
OTHER OPERATING EXPENSE
Total other operating expenses increased by $49,329 (22%) for the nine month
period ending December 31, 1997 as compared to the nine month period ending
December 31, 1996. This increase was due in large part to the conversion of a
significant percentage of the Company's labor force from independent contractors
to Company employees. Total other operating expenses decreased by $11,555 (8%)
for the fiscal year ended March 31, 1997 as compared to the fiscal year ended
March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company (which at the time was designated Rainbow Bridge
Services, Inc., a Nevada corporation ("Rainbow")) acquired all of the
outstanding common stock of American Custom Components, Inc., a California
corporation ("ACC") in a business combination described as a "reverse
acquisition". For accounting purposes, the acquisition has been treated as the
acquisition of Rainbow (the Company) by ACC. Immediately prior to the
acquisition, Rainbow had 832,752 shares of stock outstanding. As part of the
reorganization, the Company issued 7,200,000 shares to the shareholders of ACC
in exchange for 7,200 shares of common stock in ACC. In addition, the Company
simultaneously issued options to purchase 1,500,000 shares of its common stock
to certain consultants and employees. The Company subsequently changed its name
from Rainbow to American Custom Components, Inc., a Nevada corporation. The
Company is currently experiencing growth beyond its financial resources. The
Company plans to acquire additional funds through establishing a bank lending
relationship and additional equity financing. There can be no assurance that the
Company will be successful in obtaining any such funding.
In October 1997, the Company acquired ninety-eight percent (98%) of the issued
and outstanding stock of Caribbean Electronics, Ltd., a St. Lucian corporation,
for $25,000 cash, a $100,000 note payable, the assumption of certain accounts
payable of approximately $25,000, and 8,333 shares of the Company's common
stock. Caribbean Electronics, Ltd. is an electronic connector assembly business
located on the island of St. Lucia. The acquisition was accounted for as a
purchase.
Effective January 31, 1998 the Company acquired K5 Plastics, Inc. ("K5"), a
tooling and mold manufacturer through the purchase of one hundred percent (100%)
of its issued and outstanding shares of stock. The Company acquired K5 for
$42,000 in cash, a $50,000 note at an interest rate of 10% per annum, and 25,000
shares of restricted common stock. Also, the Company delivered 60,000 warrants
with an exercise price of $3.00. Of these warrants, 30,000 are rateably
exercisable at any time in the next two to five years and the remaining 30,000
are exercisable at any time in the next three to six years. The Company has also
assumed a K5 note payable in the amount of approximately $52,000.
In connection with a private offering of securities which was made by the
Company in the third quarter of 1997, the Company entered into three (3) Note
Purchase Agreements under Rule 504 of Regulation D promulgated under the
Securities Exchange Act of 1934 wherein the purchasers purchased an aggregate of
$374,700 in Notes convertible at the greater of (i) 83% of the closing bid price
of the Company's common stock, or (i) $4.98. As of the date hereof, all of the
Notes have been converted into an aggregate of 75,241 shares of the Company's
Common Stock.
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In connection with a private offering of securities which was made by the
Company in the fourth Quarter of 1997 and the First Quarter of 1998, the Company
sold an aggregate of 245,000 "restricted" shares of Common Stock under Rule 506
of Regulation D and Section 4(2) of the Securities Exchange Act of 1934 at a
price of $1.75 per share, resulting in net proceeds to the Company of $428,750.
In addition to current liabilities of $401,951 at December 31, 1997, the Company
has $162,830 of long term debt. The December 31, 1997 outstanding debt had been
reduced by $194,410 since March 31, 1997.
During fiscal 1998, the Company intends to continue its management plan of
diversification of its product lines into emerging markets through continued
acquisitions and new products development. This plan is already underway with
the establishment of the St. Lucia and the Malaysian production facilities. The
objective of the expansion program is to achieve a geographic and economic
relationship with the emerging markets. While there can be no assurance that
such funding can be obtained, the Company plans to finance future acquisitions
through both capital raised from future private placements as well as through
the issuance of the Company's common stock.
PROPOSED FUTURE OPERATIONS
The Company has historically been engaged in the business of design and
manufacture of electronic components and interconnect systems for the computer
disk drive industry. The Company's Management has recently determined to broaden
the Company's business plan from a disk drive connector manufacturer to now
offering its technology customers a more complete solution to their interconnect
and systems integration needs and to penetrating additional market places. The
Company designs its products to customer specifications using sophisticated
engineering facilities; manufactures its molds and other necessary tooling; and
manufacturing components and assemblies.
FORWARD LOOKING STATEMENTS
Certain of the statements contained in this report involve risks and
uncertainties. The future results of the Company could differ materially from
those statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this report. While the
Company believes that these statements are accurate, the Company's business is
dependent upon general economic conditions and various conditions specific to
technology-based industries. Accordingly, future trends and results cannot be
predicted with certainty.
The Company expects production from the St. Lucia and Malaysian facilities. It
is imperative that the St. Lucia government continues to support business on the
island through training and assisting in appeasing union negotiators as well as
continues to make improvements to roads, communication and port facilities. In
Malaysia, the Company expects economic conditions to gradually improve and
demand for product in the electronic connector business to stabilize. Asian
economic volatility has currently slowed sales growth within the market.
While the Company plans to acquire/develop additional sales and gain synergy
from acquisitions, difficulties and expenses may be encountered in integrating
the newly acquired operations with those of the Company already in place.
The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact. However, no assurance can
be given that such risks and uncertainties will not affect the Company's future
results of operations or its financial position.
ITEM 3 - DESCRIPTION OF PROPERTY
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Effective November 1, 1995, the Company began leasing approximately 4,050 square
feet of administrative office and warehouse space in Anaheim, California at a
monthly rental rate of approximately $2,171.00. The premises is currently sublet
to a tenant in an amount equal to the Company's obligations under the lease. The
lease expires October 31, 1998, at which time the Company will have no further
obligations related to the Anaheim premises.
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Effective December 1, 1997, the Company began leasing approximately 12,185
square feet of administrative office, warehouse, and manufacturing space in
Santa Ana, California at a monthly rental rate of approximately $6,702.00 per
month. The rent increases to approximately $6,945 and $7,185 in years two and
three, respectively, of the lease. The lease expires November 30, 2000.
In September 1997 the Company acquired a 12,000 square foot manufacturing
facility in St. Lucia in connection with its acquisition of Caribbean
Electronics, Inc.
In December 1997 the Company entered into a purchase agreement for the purchase
and sale of a factory located in Kulai, Malaysia. According to the terms of the
Agreement, the Company will lease the facility from the seller for $800.00 per
month for a period of twelve (12) months. At the end of the lease term, the
seller will have a one (1) month period within which to exercise warrants to
purchase 31,400 shares of the Company Common Stock. If the seller does not
exercise its warrants, then the Company has agreed to pay a purchase price equal
to One Hundred Ten Thousand Dollars ($110,000.00).
In connection with the acquisition of K5 in January 1998, the Company assumed an
obligation for a lease of approximately 3,000 square feet in Huntington Beach,
California. The monthly rental is approximately $1,760 per month and runs
through February 2000. The Company is currently seeking to sublet or be released
from this obligation by the existing landlord.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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The following table sets forth, as of February 25, 1998, certain information
with respect to the Company's equity securities owned of record or beneficially
by (i) each Director of the Company; (ii) each person who owns beneficially more
than 5% of each class of the Company's outstanding equity securities; and (iii)
all Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Title Percent of
of Class Name and Address of Beneficial Owner Common Stock Outstanding
- -------- ------------------------------------ ------------ ------------
<S> <C> <C> <C>
Common Stock Martin Anthony Walk 6,477,000 66.8%
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock Inge M. Lundegaard 300,000 3.1%
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock John Groom 50,000(1) 0.5%
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock Michael Robert Orton 100,000(2) 1.0%
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock John Fritch 50,000(3) 0.5%
3301 W. MacArthur Blvd
Santa Ana, CA 92704
Common Stock The Michelson Group 639,500 6.5%
5000 Birch Street, West Tower
Suite 9600
Newport Beach, CA 92660
All Directors and Officers as a Group (5) 6,977,000 71.9%
========= =====
</TABLE>
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(footnotes on following page)
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(1) Includes 50,000 options out of the aggregate of 250,000 options to
which Mr. Groom is entitled to acquire Company Common Stock at an
exercise price of $3.50 per share. The options are exercisable for
a period of three (3) years from the time they vest, and vest
according to the following schedule: (i) 25,000 options on January
31, 1998, and (ii) 6,250 options per month of Mr. Groom's
employment for a period of thirty-six (36) months beginning on
January 31, 1998.
(2) Does not include 200,000 out of the 300,000 options to which Mr.
Orton is entitled to acquire Company Common Stock at an exercise
price of $0.01 per share. The options vest according to the
following schedule: (i) 100,000 options on November 20, 1997 (these
options have been exercised), (ii) 100,000 options on the one (1)
year anniversary of Mr. Orton's employment with the Company, which
is October 20, 1998, and (iii) 100,000 options on the two (2) year
anniversary of Mr. Orton's employment with the Company, which is
October 20, 1999.
(3) Includes 50,000 warrants to purchase Company Common Stock at an
exercise price of $3.50 per share, exercisable at any time until
January 6, 2001.
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with respect to
securities. Shares of stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
of computing the percentage of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any other
person.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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The following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. The directors serve one year terms
and until their successors are elected. The executive officers serve terms of
one year or until their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and executive
officers. In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was selected
as an executive officer.
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ---------
Martin Anthony Walk 53 Chairman of the Board, Chief Executive Officer
(1994)
John Groom 52 Director, President (1998)
Inge M. Lundegaard 27 Director, Chief Financial Officer, Secretary
(1994)
Michael Robert Orton 39 Director, Executive Vice President, General
Manager (1997)
John Fritch 51 Director (1998)
MARTIN ANTHONY WALK has over 30 year's experience in the electronics industry
and served as President of the Company from April 1994 until January 1998. From
May 1993 until April 1994, he was Global Sales Manager of Ranoda Electronics, a
connector manufacturer. Mr. Walk has also held various sales and marketing
positions with Amphanet, ITT Cannon, and Sourico (France). He holds a degree in
business education and psychology and an MBA from the University of California,
Los Angeles.
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JOHN GROOM joined the Company as its President in January 1998. From July 1996
until November 1997, Mr. Groom was Senior Vice President of Operations, Division
Plant Manager and Chief Technical Officer for CMC Industries, Inc., a
telecommunications manufacturing firm. From November 1995 until June 1996, Mr.
Groom was Executive Director, Operations of JTS Corp., a computer disk drive
designer and manufacturer. From April 1987 until November 1995, Mr. Groom held
numerous positions at Seagate Technology International, a disk drive
manufacturer, most recently holding the position of Senior Director of
Engineering after promotion from his position as Director of Engineering, Far
East Operations. Mr. Groom brings years of international management with
operations development experience and extensive business knowledge of Singapore,
Malaysia, Hong Kong, Indonesia, Taiwan, Japan, Korea and India.
INGE M. LUNDEGAARD has been Chief Financial Officer and Secretary since April
1994. From fall 1993 until April 1994, she was Operations Manager for Ranoda
Electronics. Prior to fall 1993 Ms. Lundegaard was a student in business and
accounting at Fullerton College.
MICHAEL ROBERT ORTON joined the Company as Executive Vice President in October
1997 and has served as a Director since January 1998. From August 1997 until
October 1997 Mr. Orton worked with CDI, a contract staffing firm, as a new
product launch manager for a project at IBM. From September 1995 until November
1996 and then again from April 1997 until August 1997, Mr. Orton was Director of
Worldwide Commodity Management at JTS Corporation, a designer and manufacturer
of computer disk drives. From December 1996 until April 1997, Mr. Orton was Vice
President of Materials at CMC Industries, a company engaged in manufacturing of
telecommunications equipment, and from January 1991 until September 1995, Mr.
Orton was Commodity Manager for Micropolis Corporation, a disk drive
manufacturer.
JOHN FRITCH joined the Company's Board of Directors in January of 1998. From
April 1997 until present he has been the Director of Materials at Hughes Data
Systems, a computer integration firm. From September 1996 until April 1997 Mr.
Fritch was Director of Corporate Materials for Sanmina Corporation, a contract
manufacturer in the telecommunications industry. From May 1995 until May 1996,
Mr. Fritch was Senior Vice President of JTS Corporation, a disk drive
manufacturer. From October 1994 until May 1995, Mr. Fritch was Vice President of
Commodity Management for Conner Peripherals, Inc., a disk drive manufacturer.
From June 1986 until October 1994, Mr. Fritch was Director of Commodity
Management for Western Digital Corporation, a disk drive manufacturer.
ITEM 6 - EXECUTIVE COMPENSATION
- -------------------------------
Mr. Walk is paid an annual salary of $30,000. John Groom is paid an annual
salary of $110,000, which will increase to $135,000 effective March 1, 1998
according to the terms of his employment contract. Ms. Lundegaard is currently
paid an annual salary of $72,000 with scheduled annual increases of ten percent
(10%) per year according to the terms of her recently executed employment
contract. Mr. Orton receives an annual salary of $93,600, and increases are at
the discretion of the Company according to the terms of his employment contract.
Mr. Fritch received 50,000 warrants to purchase common stock of the Company at
$3.50 per share exercisable until January 6, 2001 for his services as a
director. No other Officer or Director receives or has received any compensation
from the Company, other than reimbursement for direct out-of-pocket expenses in
connection with attendance at meetings of the Board of Directors.
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the prior three (3) fiscal
years. Other than as set forth herein, no executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred.
10
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------------------------------- -------------------------------------------------------
Awards Payouts
------------------------ --------------------------
<CAPTION>
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Martin Anthony Walk 1998 28,500 -0- -0- -0- -0- -0- -0-
1997 20,485 -0- -0- -0- -0- -0- -0-
1996 31,500 -0- -0- -0- -0- -0- -0-
Inge Lundegaard 1998 74,500 -0- -0- -0- -0- -0- -0-
1997 19,696 -0- -0- -0- -0- -0- -0-
1996 27,393 -0- -0- -0- -0- -0- -0-
Michael Robert Orton 1998 7,090 -0- -0- -0- 100,000 -0- -0-
</TABLE>
COMPENSATION OF DIRECTORS
Mr. Fritch received 50,000 warrants to purchase common stock of the Company at
$3.50 per share exercisable until January 6, 2001 for his services as a
director. No other director has received compensation for service as directors.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
In August 1997, the Company (which at the time was designated Rainbow Bridge
Services, Inc., a Nevada corporation ("Rainbow")) acquired all of the
outstanding common stock of American Custom Components, Inc., a California
corporation ("ACC") in a business combination described as a "reverse
acquisition". For accounting purposes, the acquisition has been treated as the
acquisition of Rainbow (the Company) by ACC. Immediately prior to the
acquisition, Rainbow had 832,752 shares of stock outstanding. As part of the
reorganization, the Company issued 7,200,000 shares to the shareholders of ACC
in exchange for 7,200 shares of common stock in ACC. Such shares include the
shares owned by officers and directors of the Company as set forth in the
Section "Security Ownership of Certain Beneficial Owners and Management"
hereunder. In addition, the Company simultaneously issued options to purchase
1,500,000 shares of its common stock to certain consultants and employees,
including 900,000 options issued to The Michelson Group and 300,000 options
issued to Michael Robert Orton.
In August 1997 the Company entered into a consulting agreement with The
Michelson Group for financial consulting pursuant to which the Company issued to
The Michelson Group 900,000 options to purchase common stock and pays The
Michelson Group $6,000 per month in consulting fees through the period ending
August 1998. The consulting agreement requires that the Company obtain the
consent of The Michelson Group for the issuance of additional shares or the
incurrence of additional indebtedness other than in the ordinary course of
business.
In the fourth quarter of 1997, the Company issued an additional 247,000 shares
to Inge Lundegaard in connection with a settlement between shareholders.
11
<PAGE>
ITEM 8 - DESCRIPTION OF SECURITIES
- ----------------------------------
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of 24,000,000
shares of Common Stock, $0.001 par value per share, of which 9,695,826 shares
were outstanding as of February 25, 1998. Holders of shares of Common Stock are
entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of Common Stock have no cumulative voting rights. Holders
of shares of Common Stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of shares of Common Stock
are entitled to share pro rata all assets remaining after payment in full of all
liabilities. Holders of Common Stock have no preemptive rights to purchase the
Company's common stock. There are no conversion rights or redemption or sinking
fund provisions with respect to the common stock. All of the outstanding shares
of Common Stock are, and the shares offered by the Company pursuant to this
Memorandum will be, when issued and delivered, fully paid and non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 1,000,000
shares of preferred stock, $0.001 par value, none of which are issued and
outstanding. The Company's Board of Directors has authority, without action by
the shareholders, to issue all or any portion of the authorized but unissued
preferred stock in one or more series and to determine the voting rights,
preferences as to dividends and liquidation, conversion rights, and other rights
of such series.
The Company intends to furnish holders of its common stock annual reports
containing audited financial statements and to make public quarterly reports
containing unaudited financial information.
TRANSFER AGENT
The transfer agent for the Common Stock is Alpha Tech Stock Transfer, 4505 S.
Wasatch Boulevard, Suite 205, Salt Lake City, Utah 84124.
12
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
- ----------------------------------------------------------------------------
OTHER SHAREHOLDER MATTERS
- -------------------------
MARKET INFORMATION
From July 1997, the Company's Common Stock was quoted without price (name only)
under the symbol "RBBS" on the Nasdaq Electronic Bulletin Board. On October 20,
1997, following the acquisition of American Custom Components, Inc., a
California corporation, by Rainbow Bridge Services, Inc., a Nevada corporation,
the Company's Common Stock began trading under the symbol "ACCM".
The following table sets forth the high and low bid prices for shares of the
Company Common Stock for the periods noted, as reported by the National Daily
Quotation Service and the NASD Non-NASDAQ Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
BID PRICES
YEAR PERIOD HIGH LOW
---- ------ ---- ----
1997 Third Quarter.................................. 11.625 3.00
Fourth Quarter................................. 9.5 5.00
1998 First Quarter.................................. 5.5 4.125
(through February 25, 1998)
STOCKHOLDERS
As of February 25, 1998, the Company had 9,695,826 shares of Common Stock
outstanding and held by 67 shareholders of record, not including the holders
that have their shares held in a depository trust in "street" name.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past and does
not anticipate doing so in the foreseeable future.
ITEM 2 - LEGAL PROCEEDINGS
- --------------------------
The Company is presently, has been, and may from time to time be involved in
various claims, lawsuits, disputes with third parties, actions involving
allegations of discrimination, or breach of contract actions incidental to the
operation of its business. The Company is not currently involved in any such
litigation which it believes could have a materially adverse effect on its
financial condition or results of operations.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
- ------------------------------------------------------
Effective October 24, 1997, Kelly & Company, Certified Public Accountants, were
engaged by the Company as their principal accountant to audit the Company's
financial statements. There have been no changes in accountants or disagreements
of the type required to be reported under this Item 8 between the Company and
its independent auditors since their date of engagement.
13
<PAGE>
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
- ------------------------------------------------
In connection with a private offering of securities which was made by the
Company in the third quarter of 1997, the Company entered into three (3) Note
Purchase Agreements under Rule 504 of Regulation D promulgated under the
Securities Exchange Act of 1934 wherein the purchasers purchased an aggregate of
$374,700 in Notes convertible at the greater of (i) 83% of the closing bid price
of the Company's common stock, or (i) $4.98. As of the date hereof, all of the
Notes have been converted into an aggregate of 75,241 shares of the Company's
Common Stock.
In connection with a private offering of securities which was made by the
Company in the fourth Quarter of 1997 and the First Quarter of 1998, the Company
sold an aggregate of 245,000 "restricted" shares of Common Stock under Rule 506
of Regulation D and Section 4(2) of the Securities Exchange Act of 1934 at a
price of $1.75 per share, resulting in net proceeds to the Company of $428,750.
In August 1997, the Company acquired all of the outstanding common stock of ACC
in a business combination described as a "reverse acquisition". As part of the
reorganization, the Company issued 7,200,000 shares to the shareholders of ACC
in exchange for 7,200 shares of common stock in ACC. Such shares include the
shares owned by officers and directors of the Company as set forth in the
Section "Security Ownership of Certain Beneficial Owners and Management"
hereunder. In addition, the Company simultaneously issued options to purchase
1,500,000 shares of its common stock to certain consultants and employees,
including 900,000 options issued to The Michelson Group and 300,000 options
issued to Michael Robert Orton.
In the fourth quarter of 1997, the Company issued an additional 247,000 shares
to Inge Lundegaard in connection with a settlement between shareholders.
In December 1997, the Company issued 8,333 shares of "restricted" common stock
to George Kimble in connection with the acquisition of Caribbean Electronics,
Ltd. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
In January 1998, the Company issued 25,000 shares of "restricted" common stock
to Steve Kakuk in connection with the acquisition by the Company of K5 Plastics,
Inc. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
In January 1998, the Company issued 3,500 shares of "restricted" common stock to
Hal Gardner in consideration for the cancellation of note indebtedness.
In January 1998, the Company issued 10,000 shares of "restricted" common stock
to Frank Liger for services in connection with introducing the Company to new
technology clients.
In February 1998, the Company issued 10,000 shares of "restricted" common stock
to MRC Legal Services Corporation, the Company's securities counsel, in
consideration for certain legal services.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
- --------------------------------------------------
The Corporation Laws of the State of Nevada and the Company's Bylaws provide for
indemnification of the Company's Directors for liabilities and expenses that
they may incur in such capacities. In general, Directors and Officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, the best interests of the Company, and
with respect to any criminal action or proceeding, actions that the indemnitee
had no reasonable cause to believe were unlawful. Furthermore, the personal
liability of the Directors is limited as provided in the Company's Articles of
Incorporation.
Beginning in December, 1997, the Company maintains a policy of Directors and
Officers Liability Insurance with an aggregate coverage limit of $1,000,000.
14
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the end of this
report beginning on Page F-1.
PART III
ITEM 1 - INDEX TO EXHIBITS
- --------------------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(2) Agreement and Plan of Reorganization
(3.1) Articles of Incorporation
(3.2) Certificate of Amendment of Articles of Incorporation
(3.3) Bylaws
(4.1) Agreement for the Sale of Convertible Notes to
Generation Capital Associates and Waiver
(4.2) Escrow Agreement for the Convertible Notes issued to
Generation Capital Associates
(4.3) Convertible Note issued to Generation Capital
Associates dated October 6, 1997
(4.4) Convertible Note issued to Generation Capital
Associates dated October 10, 1997
(4.5) Convertible Note issued to Generation Capital
Associates dated October 20, 1997
(10.1) Standard Industrial/Commercial Multi-Tenant Lease
dated October 19, 1995 for premises located at 1515
S. Sunkist Street, Suites E & F, Anaheim, CA.
(10.2) Commercial Lease subleasing Anaheim property to
Com-Quest dated November 25, 1997.
(10.3) Promissory Note issued to Don Furness dated December
1, 1995
(10.4) Michelson Group Corporate Development Agreement dated
July 30, 1997
(10.5) Two (2) Option Agreements to the Michelson Group
dated August 22, 1997
(10.6) Agreement with Greg Bogart dated August 15, 1997
(10.7) Promissory Note to George Kimble dated October 30,
1997 related to Caribbean Electronics, Inc.
Acquisition
(10.8) Settlement Agreement and General Mutual Release with
Charles L. Rosenblum dated October 13, 1997
(10.9) Standard Industrial/Commercial Single-Tenant Lease
dated October 16, 1997 for the premises located at
3310 W. MacArthur Boulevard, Santa Ana, California.
(10.10) Employment Agreement for Michael R. Orton dated
October 20, 1997
(10.11) Engagement Agreement for Alpha Tech Stock transfer
dated October 24, 1997
(10.12) Agreement for the Purchase and Sale of Factory in
Malaysia dated December 11, 1997
(10.13) Employment Agreement for John Groom dated January 1,
1998
(10.14) Promissory Note to Steve Kakuk dated January 31, 1998
related to K5 Acquisition
(10.15) Escrow Agreement dated January 31, 1998 related to K5
Acquisition
(10.16) Warrant issued to Steve Kakuk dated January 31, 1998
related to K5 Acquisition
(10.17) Warrant issued to Steve Kakuk dated January 31, 1998
related to K5 Acquisition
(10.18) Employment Agreement for Steve Kakuk dated January
31, 1998
(10.19) Employment Agreement for Inge Lundegaard dated
February 4, 1998
(10.20) Warrant issued to Ronald J. Richard dated February 6,
1998
(10.21) Warrant issued to John Fritch dated February 25, 1998
(10.22) Stock Purchase Agreement for Acquisition of Caribbean
Electronics, Inc.
(10.23) Stock Purchase Agreement for Acquisition of K5
Plastics, Inc.
(21) List of Subsidiaries
(23) Consent of Kelly & Company, Inc., Independent Public
Accountants
ITEM 2 - DESCRIPTION OF EXHIBITS
- --------------------------------
Not applicable
15
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN CUSTOM COMPONENTS, INC.
Date: February 26, 1998 By:/s/ Martin Anthony Walk
--------------------------
Martin Anthony Walk
Chief Executive Officer
16
<PAGE>
AMERICAN CUSTOM COMPONENTS, INC.
FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED
MARCH 31, 1997
F-1
<PAGE>
AMERICAN CUSTOM COMPONENTS, INC.
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Report of Independent Auditors................................................1
Financial Statements of American Custom Components, Inc.:
Balance Sheet, March 31, 1997........................................2
Statement of Operations for the year ended
March 31, 1997.....................................................3
Statement of Shareholders' Deficit for the year ended
March 31, 1997.....................................................4
Statement of Cash Flows for the year ended
March 31, 1997.....................................................5
Notes to Financial Statements.................................................7
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------------
To the Board of Directors
American Custom Components, Inc.
We have audited the accompanying balance sheet of American Custom Components,
Inc. as of March 31, 1997, and the related statements of operations,
shareholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Custom Components,
Inc. as of March 31, 1997 and the results of its operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the financial statements, the Company operates in an
industry that has experienced a large failure rate among start-up entities and
in which sales volumes may be adversely affected by foreign as well as domestic
events.
/s/ Kelly & Company
Kelly & Company
Newport Beach, California
January 9, 1998
F-3
<PAGE>
American Custom Components, Inc.
Balance Sheet
March 31, 1997
- -------------------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable $432,577
Inventories 75,410
---------------
Total current assets 507,987
Property and equipment, net 245,556
Other assets 5,602
---------------
Total assets $759,145
===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $238,708
Bank overdraft 47,735
Notes payable, current 147,793
---------------
Total current liabilities 434,236
Notes payable, net of current portion 357,040
---------------
Total liabilities 791,276
---------------
Commitments and contingencies
Shareholders' deficit:
Common stock with no stated value; 100,000
shares authorized, 7,200 shares subscribed
but not issued as of March 31, 1997 18,414
Additional paid-in capital 117,106
Accumulated deficit (167,651)
---------------
Total shareholders' deficit (32,131)
---------------
Total liabilities and shareholders' deficit $759,145
===============
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
American Custom Components, Inc.
Statement of Operations
For the Year Ended March 31, 1997
- -------------------------------------------------------------------------------
Net sales $2,473,085
Cost of sales 1,753,433
-------------
Gross profit 719,652
-------------
Operating costs and expenses:
Wages and salaries 296,670
Selling and promotion 69,489
Insurance 27,929
Professional fees 27,891
Depreciation and amortization expense 19,404
Other operating expenses 131,250
-------------
572,633
-------------
Income from operations 147,019
Other expense:
Interest expense 68,877
-------------
Income before provision for taxes 78,142
Provision for income taxes 800
-------------
Net income $77,342
=============
Earnings per common share, primary and fully diluted $10.74
=============
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
American Custom Components, Inc.
Statement of Shareholders' Deficit
For the Year Ended March 31, 1997
- -------------------------------------------------------------------------------
<CAPTION>
Common Common
Shares Stock Paid-in Accumulated
Subscribed Subscribed Capital Deficit Total
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 7,200 $18,414 - ($244,993) ($226,579)
Contributed capital - - $117,106 - 117,106
Net income - - - 77,342 77,342
------------ ------------ ------------ ------------ ------------
Balance, March 31, 1997 7,200 $18,414 $117,106 ($167,651) ($32,131)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
American Custom Components, Inc.
Statement of Cash Flows
For the Year Ended March 31, 1997
- -------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $77,342
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation and amortization expense 73,065
Decrease (increase) in assets:
Accounts receivable (397,095)
Inventories (64,100)
Other assets 300
Increase in liabilities:
Accounts payable 91,164
-----------
Cash used in operating activities (219,324)
-----------
Cash flows used in investing activities:
Acquisition of property and equipment (120,734)
-----------
Cash used in investing activities (120,734)
-----------
Cash flows provided by (used in) financing activities:
Principal reduction of notes payable (164,212)
Proceeds from notes payable 342,143
Shareholder contribution to
additional paid-in capital 117,106
-----------
Cash provided by financing activities 295,037
-----------
Net decrease in cash (45,021)
Bank overdraft, beginning of year (2,714)
-----------
Bank overdraft, end of year ($47,735)
===========
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
American Custom Components, Inc.
Statement of Cash Flows, Continued
For the Year Ended March 31, 1997
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flows Information
Cash paid during the year:
State minimum income tax $800
Interest $68,877
Supplemental Schedule of Non-Cash Investing Activities
Loss due to obsolescence of tooling and molds $29,905
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
Operations and Revenue Recognition
American Custom Components, Inc. was incorporated in the State of
California in 1994. The Company is a designer and manufacturer of
electronic components and interconnection systems for technology-based
customers. Revenue is recognized at the time goods are shipped.
Cash and Equivalents
The Company invests portions of its excess cash in highly liquid
investments. Cash and equivalents include time deposits and commercial
paper with original maturities of three months or less. The Company
maintains its cash balances in a bank which is insured by the Federal
Deposit Insurance Corporation.
Accounts Receivable
Outstanding trade accounts receivable are primarily due from
technology-based customers. The Company has four customers which
individually represented in excess of 10% and in the aggregate 68% of
the Company's outstanding trade accounts receivable at March 31, 1997.
The Company periodically reviews outstanding customer trade accounts
receivable to ensure that the balances represent their estimated fair
values and closely monitors the extension of credit (see Note 8 -
Concentrations Concentration of Sales).
The Company uses the direct write off method for uncollectible accounts
receivable. Bad debt expense of $25,652 is included in other operating
expenses for the year ended March 31, 1997.
Inventories
Inventories are stated at the lower of cost or market. The Company
maintains its inventories at low levels in order to respond to
constantly changing industry technology and market demands. This
practice has significantly reduced risk related to obsolescence.
Management regularly monitors inventories for excess or obsolete items
and makes any valuation corrections when such adjustments are needed.
F-9
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Property and Equipment
Property and equipment are recorded at cost and are depreciated using
the straight-line method over the expected useful lives noted below.
Expenditures for normal maintenance and repairs are charged to
operations. Renewals and betterments that materially extend the life of
the assets are capitalized. The cost and related accumulated
depreciation of assets are removed from the accounts upon retirement or
other disposition; any resulting profit or loss is reflected in the
statement of operations. Leasehold improvements are amortized over their
estimated useful lives or the term of the related leases, whichever is
shorter.
Estimated
Useful Life
-----------
Machinery and equipment 7 years
Tooling and molds 4 years
Office furniture and equipment 7 years
Leasehold improvements 20 years
Income Taxes
Deferred income taxes are computed based on the tax liability or benefit
in future years of the reversal of temporary differences in the
recognition of income or deduction of expenses between financial and tax
reporting purposes. The net difference between tax expense and taxes
currently payable would be reflected, if present, on the balance sheet
as deferred taxes. Deferred assets and liabilities are classified as
current and non-current based on the classification of the related asset
or liability for financial reporting purposes, or based on the expected
reversal date for deferred taxes that are not related to an asset or
liability (Note 4 - Income Taxes).
Earnings per Common Share
Primary earnings per common share is computed by dividing net income by
the weighted average number of shares of common stock outstanding. There
are no common share equivalents. Fully diluted earnings per common share
is the same as the primary earnings per common share as there are no
securities outstanding that have future rights to fully participate in
the Company's earnings.
F-10
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
Research and Development Costs
Research and development costs are charged to operations in the year
incurred. The cost of equipment used in research and development
activities which has alternative uses is capitalized as tooling and
molds and not treated as an expense of the period. Such equipment is
depreciated over estimated lives of 4 years.
Advertising Costs
Advertising costs are expensed as they are incurred. Advertising expense
was $23,442 for the year ended March 31, 1997.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
2. Property and Equipment
----------------------
Property and equipment consist of the following at March 31, 1997:
Machinery and equipment $119,081
Tooling and molds 194,500
Office furniture and equipment 30,752
Leasehold improvements 9,416
---------
353,749
Less: accumulated depreciation
and amortization (108,193)
---------
Total property and equipment $245,556
=========
Depreciation and amortization expense related to plant and equipment was
$73,064 in 1997.
F-11
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
3. Notes Payable
-------------
Notes payable consist of the following at March 31, 1997:
Note payable to an individual, with monthly
principal and interest payments of $6,000, with an
interest rate of 10% per annum. The unamortized
portion of the note was due in August 1997 and was
paid in full subsequent to year end. $52,414
Note payable to an individual, with a principal payment of
$50,000 that was due in October 1997, with the remaining balance
of $250,000
to be paid in twenty-four equal monthly principal
payments of $10,412 plus interest of 12% per
annum. This payment stream was contingent
upon the Company meeting certain public
reporting objectives by October 1997. The
Company has yet to achieve these goals and, as
agreed upon, is making required interest only payments
of $2,600 a month until the public offering objectives
are achieved. The note is unsecured. 300,000
Note payable to an individual, with monthly principal and
interest payments of $1,500 with an interest of 9% per annum,
maturity in
December 2001. The note is currently in default. 70,114
Note payable to an individual, with monthly principal and
interest payments of $4,000, with an interest rate of 10% per
annum. The unamortized portion of the note was due in September
1997 and
paid in full subsequent to year end. 24,183
Note payable to an individual, with an interest rate
of 15% per annum, payable on demand in 1998.
The note was paid in full subsequent to year end. 13,123
F-12
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
3. Notes Payable, Continued
------------------------
Note payable to an individual, with an interest
rate of 15% per annum. The unamortized portion of
the note was due in April 1997 and paid in full
subsequent to year end. $33,395
Note payable to an individual, with an interest rate of
20% per annum. The unamortized portion of the note
was due on demand during 1998 and was paid in full
subsequent to year end. 6,604
Note payable to an individual, with an interest rate of 15% per
annum. The unamortized portion of the note was payable on demand
in 1998 and was paid in full subsequent to year end.
The note was unsecured. 5,000
---------
504,833
Less: current portion 147,793
---------
Notes payable, long term $357,040
=========
Maturities of notes payable for the years ending March 31:
1998 $147,793
1999 313,362
2000 14,614
2001 15,985
2002 and thereafter 13,079
F-13
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
4. Income Taxes
------------
The components of the provision for income taxes for the year ended
March 31, 1997 are:
Current expense:
Federal -
State $800
----
800
----
Deferred expense:
Federal -
State -
----
-
----
Total provision $800
====
Significant components of the Company's deferred income tax assets and
liabilities are as follows at March 31, 1997:
Deferred income tax assets:
State taxes $272
Depreciation 1,425
Net operating loss 65,708
--------
Total deferred income tax asset 67,405
Valuation allowance (67,405)
--------
Net deferred income liability -
========
The effective income tax rate differs from the expected federal
statutory rate as follows:
Federal statutory rate 34.0%
Change in federal valuation allowance (34.0)
Other 1.0
------
Effective tax rate 1.0%
======
The federal and state net operating loss carryforwards are $152,266 and
$149,866, respectively. The federal and state net operating loss
carryforwards will begin to expire in 2111 and 2001, respectively.
F-14
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
5. Financing Agreement
-------------------
In June 1996, the Company entered a financing (factoring) agreement to
receive cash advances not to exceed 91 percent of the eligible accounts
receivable. The financing fee was 1% of each individual account
receivable factored for every 10-day period or fraction thereof that the
balance was outstanding. The cumulative maximum amount to be advanced
based on the financing agreement could not exceed $150,000. The term of
this financing agreement was for three months with automatic three month
renewals subject to the Company's continued compliance with the
financing agreement covenants. The agreement was terminated by the
Company on January 30, 1997.
6. Commitments
-----------
Operating Leases
The Company has operating leases for its facility. Future minimum lease
payments at March 31, 1997 are as follows:
1998 $18,126
1999 -
2000 -
2001 -
-------
Total minimum lease payments $18,126
=======
Rental expense for the year ended March 31, 1997 was $29,511.
7. Contingencies and Other Factors That Could Affect Future Results
----------------------------------------------------------------
Lack of Insurance Coverage
The Company operated from its inception in 1994 through September 1997
without the benefit of general and product liability insurance coverage.
If the Company is held responsible for acts or events that are normally
covered by general and product liability insurance that occurred during
the uninsured period, it could have an adverse effect on operating
results. Management has no knowledge of the existence of any such act or
event that may have occurred during the uninsured period. The at-risk
period varies by state based on each state's statute of limitation
period.
F-15
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
7. Contingencies and Other Factors That Could Affect Future Results,
-----------------------------------------------------------------
Continued
---------
Factors That Could Affect Future Results
A substantial portion of the Company's revenues each year are generated
from the development, manufacture and rapid release of certain connector
parts and assemblies for use in high technology products newly
introduced to the consumer market during the year. In the extremely
competitive industry environment in which the Company operates,
processes are uncertain and complex, requiring accurate prediction of
market trends and demand as well as successful management of various
manufacturing risks inherent in the production of such products.
Additionally, the Company's marketing strategy relies on the ability of
its customers to effectively support sales channels to the end users. In
light of these dependencies, it is reasonably possible that failure to
successfully manage the production process or the marketing process a
portion of which is not within the Company's control, could have a
severe near-term impact on the Company's sales order growth, revenue
growth, or results of operations.
A combination of the industry wide downward pressure on the prices of
personal computer products due to high inventory levels and the slowdown
in the Asian and Pacific Rim economies, the possible loss of sales or
product margin could affect operating results adversely. Management
believes that its marketing plan and the marketing plans of its major
customers are well positioned to deal with any such uncertainties.
8. Concentrations
--------------
Concentration of Source of Supply
The Company currently buys 74% of its production materials from three
manufacturers. Although there are a limited number of manufacturers of
certain particular production materials, management believes that other
suppliers could provide the materials on comparable terms. A change in
suppliers, however, could cause a delay in manufacturing and a possible
loss of sales which would affect operating results adversely.
Concentration of Sales
The Company currently has four customers that in the aggregate represent
65% of the total sales for the fiscal year ended March 31, 1997. One of
the four major customers filed for protection under the federal
bankruptcy act subsequent to year end. The Company has collected
substantially all of its open account receivable from the bankrupt
company.
F-16
Continued
<PAGE>
American Custom Components, Inc.
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
9. Subsequent Events
-----------------
Capital Transaction - Reverse Acquisition
On August 15, 1997, Rainbow Bridge Services, Inc. a Nevada corporation
("Rainbow Bridge") acquired all of the outstanding common stock of
American Custom Components, Inc. ("ACC"). For accounting purposes, the
acquisition has been treated as the acquisition of Rainbow by ACC with
ACC as the acquiror (a reverse acquisition). As part of the reverse
acquisition, the Company effected a 1,000-for-1 stock split whereby
7,200 shares of common stock in American Custom Components, Inc., a
California corporation became 7,200,000 shares of common stock of
American Custom Components, Inc., a Nevada corporation.
Acquisition of Caribbean Electronics, Ltd.
On October 15, 1997, the Company acquired 98 percent of Caribbean
Electronics, Ltd., a St. Lucian corporation, (St. Lucia is a
Commonwealth country located in the Windward Islands of the Caribbean
Sea) for $137,000 of cash, promissory notes, the assumption of certain
debts, and 8,333 shares of the Company's common stock. Caribbean
Electronics, Ltd. is an electronic connector assembly business located
on the island of St. Lucia. It is anticipated that the acquisition will
be accounted for as a purchase.
F-17
<PAGE>
American Custom Components, Inc.
Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
------ ------------- -------------
Current Assets
- --------------
Cash in bank $123,421 $0
Accounts receivable 479,877 334,801
Inventories 180,946 36,291
------------- -------------
Total Current Assets 784,244 371,092
------------- -------------
Property and Equipment, Net 466,665 242,806
- --------------------------- ------------- -------------
Other Assets 198,857 5,922
- ------------ ------------- -------------
Total Assets $1,449,766 $619,820
============= =============
Liabilities and Stockholders' Equity 1997 1996
------------------------------------ ------------- -------------
Current Liabilities
- -------------------
Accounts payable 254,158 278,731
Bank overdraft 0 33,081
Notes payable, current 120,424 147,793
------------- -------------
Total Current Liabilities 374,582 459,605
------------- -------------
Notes Payable, net of current portion 260,000 208,707
- ------------------------------------- ------------- -------------
Stockholders' Equity (Deficit)
- ------------------------------
Common stock, $.001 par value;
24,000,000 shares authorized,
8,032,752 shares issued and
outstanding 8,033 8,033
Additional paid-in capital 868,472 127,487
Accumulated deficit (61,321) (184,012)
------------- -------------
Total Stockholders' Equity (Deficit) 815,184 (48,492)
------------- -------------
Total Liabilities and Stockholders' Equity $1,449,766 $619,820
============= =============
F-18
<PAGE>
American Custom Components, Inc.
Statements of Operations
For the Nine Months Ended
December 31, 1997 and 1996
1997 1996
-------------- -------------
Net Sales $2,153,090 $1,527,153
- --------
Cost of Sales 1,099,236 845,857
- ------------- -------------- -------------
Gross Profit 1,053,854 681,296
-------------- -------------
Operating Costs and Expenses
- ----------------------------
Wages and salaries 389,892 200,919
Insurance 51,505 16,300
Selling and promotion 51,796 53,284
Professional fees 83,653 20,181
Depreciation and amortization 55,448 54,795
Other operating expenses 269,905 220,576
-------------- -------------
Total Operating Expenses 902,199 566,055
-------------- -------------
Operating Income 151,655 115,241
Interest Expense, Net 44,525 53,460
- --------------------- -------------- -------------
Income Before Provision for Taxes 107,130 61,781
Provision for Taxes 800 800
- ------------------- -------------- -------------
Net income $106,330 $60,981
============== =============
Earnings Per Common Share $1 $1
- -------------------------
F-19
<PAGE>
<TABLE>
American Custom Components, Inc.
Statements of Stockholders' Equity (Deficit)
For the Nine Months Ended
December 31, 1997 and 1996
<CAPTION>
ACC, Inc. ACC, Inc.
(A California Corp) (A Nevada Corp)
Common Common Common Common
Shares Stock Shares Stock
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, March 31, 1996 as previously
reported 7,200 $18,414
Shares outstanding prior to reverse
acquisition 832,752 $833
Shares issued in reverse acquisition
of ACC, Inc. (a Nevada corp) (7,200) (18,414) 7,200,000 7,200
------------ ----------- ------------- ------------
Balance, March 31, 1996, as restated 0 0 8,032,752 8,033
------------ ----------- ------------- ------------
Balance, December 31, 1997 and 1996 0 $0 8,032,752 $8,033
============ =========== ============= ============
</TABLE>
<TABLE>
<CAPTION>
Paid-in Accumulated
Capital Deficit Total
----------- ------------- ------------
<S> <C> <C> <C>
Balance, March 31, 1996 as previously
reported $0 ($244,993) ($226,579)
Shares outstanding prior to reverse
acquisition (833) 0
Shares issued in reverse acquisition
of ACC, Inc. (a Nevada corp) 11,214 0 0
----------- ------------- ------------
Balance, March 31, 1996, as restated 10,381 (244,993) (226,579)
Contributed capital 117,106 0 117,106
Net income - current period 0 60,981 60,981
----------- ------------- ------------
Balance, December 30, 1996 127,487 (184,012) (48,492)
Net income - current period 0 16,361 16,361
----------- ------------- ------------
Balance, March 31, 1997 127,487 (167,651) (32,131)
Contributed capital 740,985 0 740,985
Net income - current period 0 106,330 106,330
----------- ------------- ------------
Balance, December 31, 1997 $868,472 ($61,321) $815,184
=========== ============= ============
</TABLE>
F-20
<PAGE>
American Custom Components, Inc.
Statements of Cash Flows
For the Nine Months Ended
December 31, 1997 and 1996
1997 1996
------------ -----------
Cash Flows From Operating Activities
- ------------------------------------
Net income $106,330 $60,981
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 55,448 54,795
Gain (loss) on disposition of assets (1,600) 18,271
(Increase) decrease in:
Accounts receivable (47,300) (299,319)
Inventories (105,536) (24,981)
Increase (decrease) in:
Accounts payable 15,450 144,752
------------ -----------
Net Cash Provided by Operating Activities 22,792 (45,501)
------------ -----------
Cash Flows From Investing Activities
- ------------------------------------
Acquisition of property and equipment (276,556) (116,432)
Increase in other assets (193,255) 160
Proceeds from sale of assets 1,600 0
------------ -----------
Net Cash Used by Investing Activities (468,211) (116,272)
------------ -----------
Cash Flows From Financing Activities
- ------------------------------------
Proceeds from notes payable 146,125 71,000
Shareholder contributions to
additional paid-in capital 740,985 117,106
Principal reduction of notes payable (270,535) (56,700)
------------ -----------
Net Cash Provided by Financing Activities 616,575 131,406
------------ -----------
Net Increase (Decrease) in Cash 171,156 (30,367)
Cash at April 1, 1997 and 1996 (47,735) (2,715)
============ ===========
Cash at December 31, 1997 and 1996 $123,421 ($33,082)
============ ===========
Supplemental Disclosures of Cash Flow Information
- --------------------------------------------------
Cash paid during the year for:
Interest $46,125 $35,189
Income taxes $800 $800
F-21
<PAGE>
American Custom Components, Inc.
Notes of Financial Statements
December 31, 1997 and 1996
Note 1 - Earnings per Common Share
- ----------------------------------
The computation of both primary and fully diluted earnings per common and common
equivalent share are computed based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year.
Note 2 - Major Customer
- -----------------------
One of the Company's major customers filed for protection under the federal
bankruptcy act. The Company has collected substantially all of its open accounts
receivable from the bankrupt company.
Note 3 - Lack of Insurance Coverage
- -----------------------------------
The Company operated from its inception in 1994 through September 1997 without
the benefit of general and product liability insurance coverage. If the Company
is held responsible for acts or events that are normally covered by general and
product liability insurance that occurred during the uninsured period, it could
have an adverse effect on operating results. Management has not knowledge of the
existence of any such act or event that may have occurred during the uninsured
period. The at-risk period varies by state based on each state's statute of
limitation period.
Note 4 - Payoff of Certain Notes Payable
- ----------------------------------------
In anticipation of the reverse capital acquisition of Rainbow Bridge, Inc. on
August 15, 1997, certain notes payable were paid in full during the period.
Note 5 - Operating Leases
- -------------------------
In December 1997, the Company moved its facilities to a new location. Future
minimum lease payments at December 31, 1997 for its new facility are as follows:
1998 $20,106
1999 80,424
2000 80,424
2001 80,424
2002 80,424
--------
Total minimum lease payments $341,802
========
F-22
<PAGE>
American Custom Components, Inc.
Notes of Financial Statements
December 31, 1997 and 1996
Note 6 - Capital Transaction - Reverse Acquisition
- --------------------------------------------------
On August 15, 1997, Rainbow Bridge Services, Inc., a Nevada corporation
("Rainbow") acquired all of the outstanding common stock of American Custom
Components, Inc. ("ACC"). For accounting purposes, the acquisition has been
treated as the acquisition of Rainbow by ACC with ACC as the acquiror (a reverse
acquisition). As part of the reverse acquisition, the Company effected a
1,000-for-1 stock split whereby 7,200 shares of common stock in American Custom
Components, Inc., a California corporation became 7,200,000 shares of common
stock of American Custom Components, Inc., a Nevada corporation.
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is dated
August 15, 1997, and is by and between Rainbow Bridge Services, Inc., a Nevada
corporation (the "Company") and American Custom Components, Inc., a California
corporation ("ACC").
R E C I T A L S
WHEREAS, the shareholders of ACC ("Shareholders") own the shares of
capital stock of ACC as set forth in Schedule 1 attached hereto, constituting
all of the issued and outstanding stock of ACC (the "ACC Shares");
WHEREAS, the Company is a public company, whose common stock is listed
on the Electronic Bulletin Board.
WHEREAS, the Company desires to acquire all of the ACC Shares, and the
Shareholders desire to exchange all of the ACC Shares for shares of voting
common stock of the Company, in a transaction that qualifies under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code").
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in reliance upon the representations and warranties
hereinafter set forth, the parties agree as follows:
I. EXCHANGE OF THE SHARES AND CONSIDERATION
1.01. SHARES BEING EXCHANGED. Effective at the closing of this Agreement
(the "Closing"), and subject to the terms and conditions of this Agreement the
Shareholders shall assign, transfer and deliver to the Company all of the ACC
Shares which they own.
1.02. CONSIDERATION. Subject to the terms and conditions of this
Agreement, and in consideration of the assignment and delivery of ACC Shares to
the Company, and the conversion of outstanding options of ACC, the Company shall
at Closing issue to the Shareholders a number of shares of voting common stock
of the Company, $.001 par value per share (the "Company Shares"), equal to the
number of shares set forth opposite the Shareholder's name on Schedule 1
attached hereto, or a total of 7,200,000 Company Shares to the Shareholders, and
shall issue options to purchase 1,300,000 shares to the person set forth in
Exhibit 2.02 (b).
1.03. CLOSING. The Closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at the offices of Hand & Hand on or
before August 20, 1997.
1.04. DELIVERIES. Within 5 days of the execution and delivery of this
Agreement, the parties are delivering the following documents:
1.04(a). The items and documents set forth in Sections 1.01 and
1.02.
<PAGE>
1.04(b). The Company Shares described in Section 1.02
1.04(c). The Company shall deliver the resignations of all of its
current officers and directors, and a board resolution electing Inge
Lundegaard, Martin T. Walk and Charles Rosenblum to the Board of
Directors of the Company and Martin T. Walk as President and Inge
Lundegaard as Chief Executive Officer, Chief Financial Officer and
Secretary.
1.05. FILINGS. Following with the Closing, the Company shall file the
following documents:
1.05(a). A Certificate of Amendment to the Articles of
Incorporation of the Company with the Nevada Secretary of State changing
the name of the Company to "American Custom Components, Inc." or a
similar name.
II. REPRESENTATIONS AND WARRANTIES OF ACC
ACC represents and warrants to the Company as follows, as of the date of
this Agreement and as of the Closing:
2.01. ORGANIZATION
2.01(a). ACC is a corporation duly organized, validly existing
and in good standing under the laws of the State of California; ACC has
the corporate power and authority to carry on its business as presently
conducted; and ACC is qualified to do business in all jurisdictions
where the failure to be so qualified would have a material adverse
effect on its business.
2.02. CAPITALIZATION.
2.02(a). The authorized capital stock and the issued and
outstanding shares of ACC is 100,000 shares of common stock, of which
60,000 shares are outstanding. All of the issued and outstanding shares
of ACC are duly authorized, validly issued, fully paid and
nonassessable.
2.02(b). Except as set forth in Exhibit 2.02(b) there are no
outstanding options, warrants, or rights to purchase any securities of
ACC.
2.03. SUBSIDIARIES AND INVESTMENTS. ACC does not own any capital stock
or have any interest in any corporation, partnership or other form of business
organization, except as described in Exhibit 2.03 hereto.
2.04. FINANCIAL STATEMENTS. The unaudited financial statements of ACC as
of and for the period inception to March 31, 1997, including the unaudited
balance sheet as of March 31, 1997 and the related unaudited statement of
operations for the period then ended (the "Financial Statements") present fairly
the financial position and results of operations of ACC, on a consistent basis.
The financial records of ACC are of such a character and quality that an
unqualified (except as to going concern) audit of the ACC Financial Statements
may be performed within 75 days of the Closing.
2
<PAGE>
2.05. NO UNDISCLOSED LIABILITIES: Other than as described in Exhibit
2.05 attached hereto, ACC is not subject to any material liability or obligation
of any nature, whether absolute, accrued, contingent, or otherwise and whether
due or to become due, which is not reflected or reserved against in the
Financial Statements, except those incurred in the normal course of business.
2.06. ABSENCE OF MATERIAL CHANGES. Since March 31, 1997, except as
described in any Exhibit attached hereto or as required or permitted under this
Agreement, there has not been:
2.06(a). any material adverse change in the condition (financial
or otherwise) of the properties, assets, liabilities or business of ACC,
except changes in the ordinary course of business which, individually
and in the aggregate, have not been materially adverse;
2.06(b). any redemption, purchase or other acquisition of any
shares of the capital stock of ACC, or any issuance of any shares of
capital stock or the granting, issuance or exercise of any rights,
warrants, options or commitments by ACC relating to their authorized or
issued capital stock; or
2.06(c). any change or amendment to the Articles of Incorporation
of ACC.
2.07. LITIGATION. Except as set forth in Exhibit 2.07 attached hereto,
there is no litigation, proceeding or investigation pending or threatened
against ACC affecting any of its properties or assets against any officer,
director, or stockholder of ACC that might result, either in any case or in the
aggregate, in any material adverse change in the business, operations, affairs
or condition of ACC or its properties or assets, or that might call into
question the validity of this Agreement, or any action taken or to be taken
pursuant hereto.
2.08. TITLE TO ASSETS. ACC has good and marketable title to all of its
assets and properties now carried on its books including those reflected in the
balance sheets contained in the Financial Statements, free and clear of all
liens, claims, charges, security interests or other encumbrances, except as
described in Exhibit 2.08 attached hereto or any other Exhibit.
2.09. TRANSACTIONS WITH AFFILIATES. DIRECTORS AND SHAREHOLDERS. Except
as set forth in Exhibit 2.09 attached hereto, there are and have been no
contracts, agreements, arrangements or other transactions between ACC, and any
officer, director, or stockholder of ACC, or any corporation or other entity
controlled by the Shareholders, a member of the Shareholders' families, or any
affiliate of the Shareholders.
2.10. NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any term or provision of, or constitute a default under,
the Articles of Incorporation or Bylaws of ACC, or any agreement, contract or
instrument to which ACC is a party or by which it or any of its assets are
bound.
3
<PAGE>
2.11. DISCLOSURE. To the actual knowledge of ACC, neither this
Agreement, the Financial Statements nor any other agreement, document,
certificate or written or oral statement furnished to the Company by or on
behalf of ACC in connection with the transactions contemplated hereby, contains
any untrue statement of a material fact or when taken as a whole omits to state
a material fact necessary in order to make the statements contained herein or
therein not misleading.
2.12. AUTHORITY. ACC has full power and authority to enter into this
Agreement and to carry out the transactions contemplated herein. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, have been duly authorized and approved by the Board of
Directors of ACC and no other corporate proceedings on the part of ACC are
necessary to authorize this Agreement and the transactions contemplated hereby.
2.13 INTELLECTUAL PROPERTY RIGHTS. ACC owns or has valid right or
license to use all patents, patent rights, trade secrets, trademarks, trademark
rights, trade names, trade name rights, copyrights and other intellectual
property rights (collectively referred to as "Intellectual Property Rights")
which are necessary to operate its business as now operated and as now proposed
to be operated. A brief description of such Intellectual Property Rights is set
forth on Exhibit 2.13 attached hereto. ACC does not have any obligation to
compensate any person, firm, corporation or other entity for the use of any such
Intellectual Property Rights, nor has ACC granted to any person, firm,
corporation or other entity any license or other rights to use in any manner, or
waived its rights with respect to any Intellectual Property Rights of ACC.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to ACC as follows, as of the
date of this Agreement and as of the Closing:
3.01. ORGANIZATION.
3.01(a). The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Nevada;
has the corporate power and authority to carry on its business as
presently conducted; and is qualified to do business in all
jurisdictions where the failure to be so qualified would have a material
adverse effect on the business of the Company.
3.01(b). The copies of the Articles of Incorporation, of the
Company, as certified by the Secretary of State of Nevada, and the
Bylaws of the Company are complete and correct copies of the Articles of
Incorporation and the Bylaws of the Company as amended and in effect on
the date hereof. All minutes of meetings and actions in writing without
a meeting of the Board of Directors and shareholders of the Company are
contained in the minute book of the Company and no minutes or actions in
writing without a meeting have been included in such minute book since
such delivery to ACC that have not also been delivered to ACC.
4
<PAGE>
3.02. CAPITALIZATION OF THE COMPANY. The authorized capital stock of
the Company consists of 20,000,000 shares of Common Stock, par value $.001 per
share, of which 500,000 shares are outstanding, and 1,000,000 shares of
preferred stock, none of which is outstanding. All outstanding shares are duly
authorized, validly issued, fully paid and non-assessable. Following the
issuance of Company Shares set forth herein and a forward stock split described
in Section 6.01, the capitalization of the Company shall be 8,000,000 shares of
common stock and options to purchase 1,500,000 additional shares.
3.03. SUBSIDIARIES AND INVESTMENTS. The Company does not own any
capital stock or have any interest in any corporation, partnership, or other
form of business organization.
3.04. AUTHORITY. The Company has full power and authority to enter into
this Agreement and to carry out the transactions contemplated herein. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, and the issuance of the Company Shares in accordance with
the terms hereof, have been duly authorized and approved by the Board of
Directors of the Company and no other corporate proceedings on the part of
Company are necessary to authorize this Agreement, the transactions contemplated
hereby and the issuance of the Company Shares in accordance with the terms
hereof.
3.05. NO UNDISCLOSED LIABILITIES. Other than as described in Exhibit
3.05 attached hereto, the Company is not subject to any material liability or
obligation of any nature, whether absolute, accrued, contingent, or otherwise
and whether due or to become due.
3.06. LITIGATION. There is no litigation, proceeding or investigation
pending or to the knowledge of the Company, threatened against the Company
affecting any of its properties or assets, or, to the knowledge of the Company,
against any officer, director, or stockholder of the Company that might result,
either in any case or in the aggregate, in any material adverse change in the
business, operations, affairs or condition of the Company or any of its
properties or assets, or that might call into question the validity of this
Agreement, or any action taken or to be taken pursuant hereto.
3.07. TITLE TO ASSETS. The Company has good and marketable title to all
of its assets and properties now carried on its books including those reflected
in the balance sheet contained in the Company's financial statements, free and
clear of all liens, claims, charges, security interests or other encumbrances,
except as described in the balance sheet included in the Company s financial
statements or on any Exhibits attached hereto.
3.08. CONTRACTS AND UNDERTAKINGS Exhibit 3.08 attached hereto contains
a list of all contracts, agreements, leases, licenses, arrangements, commitments
and other undertakings to which the Company is a party or by which it or its
property is bound. Each of said contracts, agreements, leases, licenses,
arrangements, commitments and undertakings is valid, binding and in full force
and effect. The Company is not in material default, or alleged to be in material
default, under any contract, agreement, lease, license, commitment, instrument
or obligation and, to the knowledge of the Company, no other party to any
contract, agreement, lease, license, commitment, instrument or obligation to
which the Company is a party is in default thereunder nor, to the knowledge of
the Company, does there exist any condition or event which, after notice or
lapse of time or both, would constitute a default by any party to any such
contract, agreement, lease, license, commitment, instrument or obligation.
5
<PAGE>
3.09. UNDERLYING DOCUMENTS. Copies of all documents described in any
Exhibit attached hereto (or a summary of any such contract, agreement or
commitment, if oral) have been made available to ACC and are complete and
correct and include all amendments, supplements or modifications thereto.
3.10. TRANSACTIONS WITH AFFILIATES, DIRECTORS AND SHAREHOLDERS. Except
as set forth in Exhibit 3.10 hereto, there are and have been no contracts,
agreements, arrangements or other transactions between the Company, and any
officer, director, or 5% stockholder of the Company, or any corporation or other
entity controlled by any such officer, director or 5% stockholder, a member of
any such officer, director or 5% stockholder's family, or any affiliate of any
such officer, director or 5% stockholder.
3.11. NO CONFLICT. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with or
result in a breach of any term or provision of, or constitute a default under,
the Certificate of Incorporation or Bylaws of the Company, or any agreement,
contract or instrument to which the Company is a party or by which it or any of
its assets are bound.
3.12. DISCLOSURE. To the actual knowledge of the Company, neither this
Agreement nor any other agreement, document, certificate or written, or oral
statement furnished to ACC and the Shareholders by or on behalf of the Company
in connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or when taken as a whole omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
3.13. LIABILITIES AT CLOSING. At Closing Company shall have no
significant assets and no liabilities, and the outstanding note receivables from
shareholders shall be forgiven.
3.14. ABSENCE OF MATERIAL CHANGES. Since June 30, 1997, except as
described in any Exhibit hereto or as required or permitted under this
Agreement, there has not been:
3.14(a). any material change in the condition (financial or
otherwise) of the properties, assets, liabilities or business of
Company, except changes in the ordinary course of business which,
individually and in the aggregate, have not been materially adverse.
3.14(b). any redemption, purchase or other acquisition of any
shares of the capital stock of Company, or any issuance of any shares of
capital stock or the granting, issuance or exercise of any rights,
warrants, options or commitments by ACC relating to their authorized or
issued capital stock.
3.14(c). any amendment to the Articles of Incorporation of
Company.
6
<PAGE>
IV. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants of the Company and ACC
contained herein shall survive the consummation of the transactions contemplated
herein and remain in full force and effect.
V. CONDITIONS TO CLOSING
5.01. CONDITIONS TO OBLIGATION OF ACC. The obligations of ACC under this
Agreement shall be subject to each of the following conditions:
5.01(a). The representations and warranties of Company herein
contained shall be true in all material respects at the Closing with the
same effect as though made at such time. Company shall have performed in
all material respects all obligations and complied in all material
respects, to its actual knowledge, with all covenants and conditions
required by this Agreement to be performed or complied with by it at or
prior to the Closing.
5.01(b). No injunction or restraining order shall be in effect,
and no action or proceeding shall have been instituted and, at what
would otherwise have been the Closing, remain pending before a court to
restrain or prohibit the transactions contemplated by this Agreement.
5.01(c). All statutory requirements for the valid consummation
by Company of the transactions contemplated by this Agreement shall have
been fulfilled. All authorizations, consents and approvals of all
governments and other persons required to be obtained in order to permit
consummation by Company of the transactions contemplated by this
Agreement shall have been obtained.
5.02. CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of Company
under this Agreement shall be subject to the following conditions:
5.02(a). The representations and warranties of ACC herein
contained shall be true in all material respects as of the Closing, and
shall have the same effect as though made at the Closing; ACC shall have
performed in all material respects all obligations and complied in all
material respects, to its actual knowledge, with all covenants and
conditions required by this Agreement to be performed or complied with
by it prior to the Closing.
5.02(b). No injunction or restraining order shall be in effect
prohibiting this Agreement, and no action or proceeding shall have been
instituted and, at what would otherwise have been the Closing, remain
pending before the court to restrain or prohibit the transactions
contemplated by this Agreement.
5.02(c). All statutory requirements for the valid consummation by
ACC of the transactions contemplated by this Agreement shall have been
fulfilled. All authorizations, consents and approvals of all governments
and other persons required to be obtained in order to permit
consummation by ACC of the transactions contemplated by this Agreement
shall have been obtained.
7
<PAGE>
VI. CERTAIN AGREEMENTS
6.01. REGISTRATION RIGHTS. The shares issuable upon exercise of the
option to The Michelson Group shall be issuable pursuant to Section 701 of the
Securities Act of 1933 and the Company shall file an S-8 Registration Statement
within six months of the Closing covering such shares.
6.02. FORWARD STOCK SPLIT. Immediately prior to Closing the Company
shall effect a 1.3 for 1 forward stock split, resulting in approximately 800,000
Shares outstanding.
6.03. REPORTING REQUIREMENTS. The Company will become a reporting issuer
under Section 13(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") as soon as practicable. The Company shall file all reports
required by Section 13 of the Securities Exchange Act of 1934 and shall maintain
its books and records in accordance with Sections 12 and 13 thereof. The parties
agree that the failure of the Company to make such filings with the Securities
and Exchange Commission or to so maintain its books and records shall constitute
a material breach of this Agreement.
VII. MISCELLANEOUS
7.01. FINDER'S FEES, INVESTMENT BANKING FEES. Neither ACC nor the
Company have retained or used the services of any person, firm or corporation in
such manner as to require the payment of any compensation as a finder or a
broker in connection with the transactions contemplated herein.
7.02. TAX TREATMENT. The transaction contemplated hereby is intended to
qualify as a so-called "tax-free" reorganization under the provisions of Section
368 of the Internal Revenue Code. The Company and ACC acknowledge, however, that
they each have been represented by their own tax advisors in connection with
this transaction; that neither has made any representation or warranty to the
other with respect to the treatment of such transaction or the effect thereof
under applicable tax laws, regulations, or interpretations; and that no
attorney's opinion or private revenue ruling has been obtained with respect to
the effects thereof under the Internal Revenue Code of 1986, as amended.
7.03. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each of the parties will execute and
deliver to the others such documents and take such action as the other party may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
7.04. PARTIES IN INTEREST. Except as otherwise expressly provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective heirs,
beneficiaries, personal and legal representatives, successors and assigns of the
parties hereto.
8
<PAGE>
7.05. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the
Schedules, Exhibits and other documents and writings referred to herein or
delivered pursuant hereto, which form a part hereof, contains the entire
understanding of the parties with respect to its subject matter. There are no
restrictions, agreements, promises, warranties, covenants or undertakings other
than those expressly set forth herein or therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument duly
executed by the parties or their respective successors or assigns.
7.06. HEADINGS, ETC. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretations of this Agreement.
7.07. PRONOUNS. All pronouns and any variations thereof shall be deemed
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
7.08. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7.09. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California (excluding conflicts of laws principles) applicable to
contracts to be performed in the State of California.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as the date first above written.
RAINBOW BRIDGE AMERICAN CUSTOM
SERVICES, INC. COMPONENTS, INC.
By: /s/ Mary Peterson By: /s/ Martin T. Walk
--------------------- --------------------
Name: Mary Peterson Name: Martin T. Walk
Title: President Title: President
9
<PAGE>
SCHEDULE 1
NUMBER OF SHARES NUMBER OF
OF ACC SHARES OF
COMMON STOCK COMPANY
NAMES OF OWNED AND COMMON STOCK
SHAREHOLDERS TO BE DELIVERED TO BE RECEIVED
- -------------- --------------- --------------
Inge Lundegaard 5,695 5,695,000
Bill Harper 90 90,000
Frank Bower 90 90,000
Greg Bogart 325 325,000
Martin T. Walk 1,000 1,000,000
10
<PAGE>
ACC EXHIBIT 2.02(B)
OPTIONS AND WARRANTS
Charles Rosenblum has an option to purchase 5% of ACC for $.01 per share,
with anti-dilution rights.
The Michelson Group has an option to purchase 7% of ACC for $.01 per
share, with anti-dilution rights.
Michael Orton has an option to purchase 3% of ACC for $.01 per share,
which option is assignable to Mr. Walk, with anti-dilution rights.
Each of these person has agreed that their anti-dilution rights are only
effective up to the first 10 million in outstanding shares, and the Company has
agreed to fix the number of options converted into a number based on 10 million
outstanding.
<PAGE>
COMPANY EXHIBIT 3.08
CONTRACTS
The company has a contract with Alpha Tech Stock Transfer, as transfer agent.
The transfer agent is entitled to charge for services, such as file maintenance,
mailings, copies of shareholder lists, etc.
<PAGE>
ACC EXHIBIT 2.03
None
<PAGE>
ACC EXHIBIT 2.05
UNDISCLOSED LIABILITIES
None
<PAGE>
ACC EXHIBIT 2.07
LITIGATION
None
<PAGE>
ACC EXHIBIT 2.08
TITLE TO ASSETS
None
<PAGE>
ACC EXHIBIT 2.09
INTERESTED TRANSACTIONS
None
<PAGE>
COMPANY EXHIBIT 3.05
UNDISCLOSED LIABILITIES
None
<PAGE>
COMPANY EXHIBIT 3.10
INTERESTED TRANSACTIONS
<PAGE>
LETTER OF INTENT
This of Intent ("LOI") is dated August ____, 1997 between
American Custom Components, a California corporation ("ACC") and Rainbow
Bridge Services, Inc., a Nevada corporation (the "Company"), with
respect to the acquisition of all of the outstanding shares of ACC by
the Company (the "Acquisition").
1. ACQUISITION The Company will acquire all of the outstanding
shares of capital stock of ACC in exchange for a total of 7,500,000
shares of Company common stock. There are currently authorized
25,000,000 shares of Company Common Stock, of which approximately
800,000 shares of Common Stock will be outstanding after giving effect
to a forward stock split. In addition, in connection with the
Acquisition the Company shall issue 500,000 shares to Chuck Rosenbloom
and will issue options to purchase 700,000 shares at $.01 per share to
The Michelson Group.
2. TERMS AND CONDITIONS OF THE ACQUISITION. The Acquisition is
subject to the following terms and conditions:
a. ACC and Company shall have received all permits,
authorizations, regulatory approvals and third party consents
necessary, and all applicable legal requirements shall have been
satisfied.
b. A definitive agreement satisfactory to ACC and
Company shall be executed as soon as practicable, and shall
contain terms, conditions, representations, warranties and
covenants normal and appropriate for a transaction of the type
contemplated, including, without limitation, those summarized in
this LOI. Representations and warranties will survive
consummation of the transaction, unless otherwise agreed to in
the definitive agreement. The definite agreement will be
prepared immediately and will be executed by August 31, 1997.
c. Pending the closing, each party and their agents,
attorneys and representatives shall have full and free access to
the properties, books and records or the other party (the
confidentiality of which the party to whom disclosed agree to
retain) for purposes of conducting investigations with copies of
articles of incorporation, bylaws, minute book, business plans
and shareholder list and other documents requested of each of
ACC and Company.
d. The substance of any public announcement with respect
to the Acquisition, other than notices required by law, shall be
approved in advance by all parties.
e. Concurrently with the closing of the Acquisition, the
Company will change its name to one chosen by ACC management.
Company represents that its shareholders have already approved a
name change.
<PAGE>
f. Concurrently with the closing of the Acquisition, the
Company Board of Directors will be reconstituted to be
comprised of persons nominated by the management of ACC.
g. Pending the closing of the Acquisition, ACC shall
refrain from any discussions with other parties regarding the
sale of ACC shares or assets.
3. BROKERS. There are no brokers or finders involved with this
transaction.
4. EXPENSES. In the event of the termination of the Acquisition,
including, upon the failure of the parties to execute a definite
agreement by August 31, 1997, ACC and Company will each bear their
respective costs and none of the parties shall have liability to any
other party for any expense of any other party.
5. CONDUCT OF BUSINESS OF ACC AND COMPANY PENDING CLOSING.
Until consummation or termination of the Acquisition, ACC and the
Company will conduct business only in the ordinary course and none of
the assets of ACC or Company shall be sold or disposed of except in
the ordinary course of business.
6. NON-ENFORCEABLE AGREEMENT; COMPLIANCE WITH APPLICABLE LAWS.
This LOI (except for Sections 2.c., 2.d, 2.g and 5) shall not
constitute an enforceable agreement between the parties until such
time as the definitive agreement is executed by the parties. All
matters referred to in this LOI are conditioned upon compliance with
federal and state securities laws and other applicable laws.
7. COUNTERPARTS. This LOI may be executed in any number of
counterparts and each such counterpart shall be deemed to be an
original instrument, all of such counterparts together shall
constitute but one agreement.
The undersigned concur with the matters set forth in the
foregoing LOI.
AMERICAN CUSTOM COMPONENTS
By: /s/signature
------------------------------
RAINBOW BRIDGE SERVICES. INC.
By:
------------------------------
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
DEC 31 1991
ARTICLES OF INCORPORATION
OF
RAINBOW BRIDGE SERVICES, INC.
The undersigned, desiring to form a corporation for profit under the
General Corporation Law of Nevada, does hereby certify:
FIRST: The name of the corporation shall be Rainbow Bridge Services,
Inc.
SECOND: The place in the State of Nevada where its principal office
is to be located is 3276 Kitchen Drive, Carson City, Nevada, and the
resident agent in charge thereof is State Agent & Transfer Syndicate, Inc.
THIRD: The purpose for which the corporation is formed is to engage
in any lawful activity.
FOURTH: The maximum number of shares of all classes which the
corporation is authorized to have outstanding is Twenty Five Million
(25,000,000) shares, consisting of Twenty Four Million (24,000,000) shares
of Common Stock, all par value $.001 and One Million (1,000,000) shares of
Preferred Stock, all par value $.001. The holders of preferred stock shall
have such rights, preferences, and privileges as may be determined, prior to
the issuance of such shares, by the Board of Directors.
FIFTH: The members of the governing body shall be styled directors
and the names and post office addresses of the first member of the Board of
Directors, to serve until his successors are elected and qualified, is as
follows:
1. Jehu Hand, 29691 Monarch Drive, San Juan Capistrano, California
92672.
The corporation shall initially have one member of the Board of
Directors; the number of directors may be increased or decreased pursuant to
the provisions of the corporation's bylaws and chapter 78 of the Nevada
Revised Statues.
SIXTH: No capital stock issued by the corporation shall be
assessable following payment of the subscription price or par value
therefor.
-1-
<PAGE>
SEVENTH: The name and business address of the incorporator is as
follows:
1. Jehu Hand, 29691 Monarch Drive, San Juan Capistrano, California
92675.
EIGHTH: The corporation shall have perpetual existence.
NINTH: A director or officer of the corporation shall not be
disqualified by his office from dealing or contracting with the corporation
as a vendor, purchaser, employee, agent or otherwise.
No transaction, contract or act of the corporation shall be void or
voidable or in any way affected or invalidated by reason of the fact that
any director or officer of any corporation is a member of any firm, a
shareholder, director or officer of the corporation or trustee or
beneficiary of any trust that is in any way interested in such transaction,
contract or act. No director or officer shall be accountable or responsible
to the corporation for or in respect to any transaction, contract or act of
the corporation for any gain or profit directly or indirectly realized by
him by reason of the fact that he or any firm in which he is a member or any
corporation of which he is a trustee, or beneficiary, is interested in such
transaction, contract, or act; provided the fact that such director or
officer or such firm, corporation or trust is so interested shall have been
disclosed or shall have been known to the members of the Board of Directors
as shall be present at any meeting at which action upon such contract,
transaction or act shall have been taken. Any director may be counted in
determining the existence of a quorum at any meeting of the Board of
Directors which shall authorize or take action in respect to any such
contract, transaction or act, and may vote thereat to authorize, ratify or
approve any such contract, transaction or act, and any officer of the
corporation may take any action within the scope of his authority,
respecting such contract, transaction or act, and any officer of the
corporation of which he is a shareholder, director or officer, or any trust
of which he is a trustee or beneficiary, were not interested in such
transaction, contract or act. Without limiting or qualifying the foregoing,
if in any judicial other inquiry, suit, cause or proceeding, the question or
whether a director or officer of the corporation has acted in good faith is
material, and notwithstanding any statute or rule of law or equity to the
contract (if any there to), his good faith shall be presumed in the absence
of proof to the contrary by clear and convincing evidence.
TENTH: No shareholder of the corporation shall have any preemptive
rights.
-2-
<PAGE>
ELEVENTH: No director or officer of the corporation shall be held
personally liable to the corporation or to its stockholders for damages due
to breach of fiduciary duty as a director or officer. This provision is to
be interpreted such as to include all acts or omissions by a director or
officer except for those specifically excluded in chapter 78 of the Nevada
Revised Statues.
The corporation shall indemnify any director or officer who was or
is to be a party, or is threatened to be made a party, to any proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact that such person was or is a director or officer of the corporation,
against all expenses incurred in connection with such action.
Dated this 30th day of December, 1991.
/s/ Jehu Hand
--------------------------
Jehu Hand, Incorporator
STATE OF CALIFORNIA )
) ss
COUNTY OF ORANGE )
On December 30, 1991, before me, the undersigned, a Notary Public in and for
said State, personally appeared Jehu Hand, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same.
WITNESS my hand and official seal.
[notary public seal here]
/s/Kimberly Peterson
- --------------------------
Signature
-3-
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE
STATE OF NEVADA
SEP 30 1997
No. C12248-91
- -----------------
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
RAINBOW BRIDGE SERVICES, INC.
Rainbow Bridge Services, Inc., a Nevada corporation (the "Corporation")
does hereby certify as follows:
1. The Articles of Incorporation of the Corporation shall he amended by
revising Article FIRST to read in full as follows:
FIRST: The name of the Corporation shall be American Custom Components.
Inc.
2. The foregoing amendment has been duly authorized and approved by the
Board of Directors of the Corporation.
3. The foregoing amendment has been duly adopted and approved by the
written consent of the stockholders holding no less than a majority of the
Corporation's outstanding stock entitled to vote thereon.
Dated: August 22, 1997 RAINBOW BRIDGE SERVICES, INC.
/s/ Martin T. Walk
---------------------------------
Martin T. Walk, President
/s/ Inge Lundegaard
----------------------------------
Inge Lundegaard, Secretary
STATE OF CALIFORNIA )
} ss.
COUNTY OF ORANGE )
On August 22, 1997, before me, ____________________ a notary public in and
for said state, personally appeared Martin T. Walk and Inge Lundegaard,
personally known to me to be the persons whose name is subscribed to the within
instrument and acknowledged to me that they executed the same in their
respective authorized capacities, and that by their signature on the instrument
the entity upon behalf of which the persons acted, executed the instrument.
WITNESS my hand and official seal.
Signature_______________________________ (Seal)
<PAGE>
BYLAWS
OF
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada corporation
<PAGE>
BYLAWS
OF
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada corporation
ARTICLE I
OFFICES..................................................................... 1
Section 1. Principal Office.....................................1
Section 2. Other Offices........................................1
ARTICLE II
DIRECTORS - MANAGEMENT.......................................................1
Section 1. Powers, Standard of Care.............................1
A. Powers.................................................................1
B. Standard of Care; Liability............................................1
C. Exception for Close Corporation........................................2
Section 2. Number and Qualification of Directors................2
-------------------------------------
Section 3. Election and Term of Office of Directors.............2
----------------------------------------
Section 4. Vacancies............................................2
---------
Section 5. Removal of Directors.................................3
--------------------
Section 6. Place of Meetings....................................3
-----------------
Section 7. Annual Meetings......................................4
---------------
Section 8. Other Regular Meetings...............................4
----------------------
Section 9. Special Meetings/Notices.............................4
------------------------
Section 10. Waiver of Notice.....................................5
----------------
Section 11. Quorums..............................................5
-------
Section 12. Adjournment..........................................5
-----------
Section 13. Notice of Adjournment................................5
---------------------
Section 14. Board of Directors Provided by Articles or Bylaws....5
-------------------------------------------------
Section 15. Directors Action by Unanimous Written Consent........5
---------------------------------------------
Section 16. Compensation of Directors............................6
-------------------------
Section 17. Committees...........................................6
----------
Section 18. Meetings and Action of Committees....................6
---------------------------------
Section 19. Advisory Directors...................................6
------------------
ARTICLE III
OFFICERS.....................................................................6
Section 1. Officers.............................................6
--------
Section 2. Election of Officers.................................7
--------------------
Section 3. Subordinate Officers, Etc............................7
-------------------------
Section 4. Removal and Resignation of Officers..................7
-----------------------------------
Section 5. Vacancies............................................7
---------
Section 6. Chairman of the Board................................7
---------------------
Section 7. President and Chief Executive Officer................7
-------------------------------------
Section 8. Vice President.......................................8
--------------
<PAGE>
Section 9. Secretary............................................8
---------
Section 10. Chief Financial Officer..............................8
-----------------------
ARTICLE IV
SHAREHOLDERS' MEETINGS.......................................................9
Section 1. Place of Meetings....................................9
-----------------
Section 2. Annual Meeting.......................................9
--------------
Section 3. Special Meetings.....................................9
----------------
Section 4. Notice of Meetings - Reports........................10
----------------------------
Section 5. Quorum..............................................11
------
Section 6. Adjourned Meeting and Notice Thereof................11
------------------------------------
Section 7. Waiver or Consent by Absent Shareholders............11
----------------------------------------
Section 8. Maintenance and Inspection of Bylaws................12
------------------------------------
Section 9. Annual Report to Shareholders.......................12
-----------------------------
Section 10. Financial Statements................................13
--------------------
Section 11. Annual Statement of General Information.............13
---------------------------------------
ARTICLE IX
AMENDMENTS TO BYLAWS........................................................14
Section 1. Amendment by Shareholders...........................14
-------------------------
Section 2. Amendment by Directors..............................14
----------------------
Section 3. Record of Amendments................................14
--------------------
ARTICLE X
MISCELLANEOUS...............................................................14
Section 1. Shareholders' Agreements............................14
------------------------
Section 2. Effect of Shareholders' Agreements..................14
----------------------------------
Section 3. Subsidiary Corporations.............................15
-----------------------
Section 4. Accounting Year.....................................15
---------------
Section 5. Form................................................15
----
iii
<PAGE>
BYLAWS
OF
AMERICAN CUSTOM COMPONENTS, INC.
A NEVADA CORPORATION
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction
of business of the Corporation is hereby fixed and located at 3310 W. MacArthur
Boulevard, Santa Ana, CA 92704. The location may be changed by the Board of
Directors in their discretion, and additional offices may be established and
maintained at such other place or places, either within or outside of Nevada, as
the Board of Directors may from time to time designate.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time
be established by the Board of Directors at any place or places where the
Corporation is qualified to do business.
ARTICLE II
DIRECTORS - MANAGEMENT
Section 1. POWERS, STANDARD OF CARE.
A. POWERS: Subject to the provisions of the Nevada Corporations
Code (hereinafter the "Act"), and subject to any limitations in the Articles of
Incorporation of the Corporation relating to action required to be approved by
the Shareholders, or by the outstanding shares, the business and affairs of the
Corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the Board of Directors. The Board of Directors may
delegate the management of the day-to-day operation of the business of the
Corporation to a management company or other persons, provided that the business
and affairs of the Corporation shall be managed, and all corporate powers shall
be exercised, under the ultimate direction of the Board.
B. STANDARD OF CARE; LIABILITY:
(i) Each Director shall exercise such powers and otherwise
perform such duties, in good faith, in the matters such Director believes to be
in the best interests of the Corporation, and with such care, including
reasonable inquiry, using ordinary prudence, as a person in a like position
would use under similar circumstances.
1
<PAGE>
(ii) In performing the duties of a Director, a Director
shall be entitled to rely on information, opinions, reports, or statements,
including financial statements and other financial data, in which case prepared
or presented by:
(a) One or more officers or employees of the
Corporation whom the Director believes to be reliable and competent in the
matters presented,
(b) Counsel, independent accountants or other persons
as to which the Director believes to be within such person's professional or
expert competence, or
(c) A Committee of the Board upon which the Director
does not serve, as to matters within its designated authority, which committee
the Director believes to merit confidence, so long as in any such case the
Director acts in good faith, after reasonable inquiry when the need therefor is
indicated by the circumstances and without knowledge that would cause such
reliance to be unwarranted.
C. EXCEPTION FOR CLOSE CORPORATION. Notwithstanding the
provisions of Section 1 of this Article, in the event that the Corporation shall
elect to become a close corporation, its Shareholders may enter into a
Shareholders' Agreement. Said Agreement may provide for the exercise of
corporate powers and the management of the business and affairs of the
Corporation by the Shareholders; provided, however, such agreement shall, to the
extent and so long as the discretion or powers of the Board of Directors in its
management of corporate affairs is controlled by such agreement, impose upon
each Shareholder who is a party hereof, liability for managerial acts performed
or omitted by such person pursuant thereto otherwise imposed upon Directors; and
the Directors shall be relieved to that extent from such liability.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of Directors of the Corporation shall be at least one (1) but not more than
seven (7) until changed by a duly adopted amendment to the Articles of
Incorporation or by an amendment to this Section 2 of Article II of these
Bylaws, adopted by the vote or written consent of Shareholders entitled to
exercise majority voting power as provided in the Act.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the Shareholders to hold office until the next
annual meeting. Each Director, including a Director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. VACANCIES.
A. Vacancies on the Board of Directors may be filled by a
majority of the remaining Directors, though less than a quorum, or by a sole
remaining Director, except that a vacancy created by the removal of a Director
by the vote or written consent of the Shareholders, or by a court order, may be
filled only by the vote of a majority of the shares entitled to vote,
represented at a duly held meeting at which a quorum is present, or by the
2
<PAGE>
written consent of holders of the majority of the outstanding shares entitled to
vote. Each Director so elected shall hold office until the next annual meeting
of the Shareholders and until a successor has been elected and qualified.
B. A vacancy or vacancies on the Board of Directors shall be
deemed to exist in the event of the death, resignation or removal of any
Director, or if the Board of Directors by resolution declares vacant the office
of a Director who has been declared of unsound mind by an order of court or
convicted of a felony.
C. The Shareholders may elect a Director or Directors at any
time to fill any vacancy or vacancies not filled by the Directors, but any such
election by written consent shall require the consent of a majority of the
outstanding shares entitled to vote.
D. Any Director may resign, effective on giving written notice
to the Chairman of the Board, the President, the Secretary, or the Board of
Directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a Director is effective at a future
time, the Board of Directors may, prior to the effective date of a Director's
resignation, elect a successor to take office when the resignation becomes
effective.
E. No reduction of the authorized number of Directors shall
have the effect of removing any Director before that Director's term of office
expires.
Section 5. REMOVAL OF DIRECTORS.
A. The entire Board of Directors, or any individual Director,
may be removed from office as provided by the Act. In such case, the remaining
members, if any, of the Board of Directors may elect a successor Director to
fill such vacancy for the remaining unexpired term of the Director so removed.
B. No Director may be removed (unless the entire Board is
removed) when the votes cast against removal or not consenting in writing to
such removal would be sufficient to elect such Director if voted cumulatively at
an election at which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote, were voted) and
the entire number of Directors authorized at the time of the Directors most
recent election were then being elected; and when by the provisions of the
Articles of Incorporation the holders of the shares of any class or series
voting as a class or series are entitled to elect one or more Directors, any
Director so elected may be removed only by the applicable vote of the holders of
the shares of that class or series.
Section 6. PLACE OF MEETINGS. Regular meetings of the Board of
Directors shall be held at any place within or outside the state that has been
designated from time to time by resolution of the Board. In the absence of such
resolution, regular meetings shall be held at the principal executive office of
the Corporation. Special meetings of the Board shall be held at any place within
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or outside the state that has been designated in the notice of the meeting, or,
if not stated in the notice or there is no notice, at the principal executive
office of the Corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
Directors participating in such meeting can hear one another, and all such
Directors shall be deemed to have been present in person at such meeting.
Section 7. ANNUAL MEETINGS. Immediately following each annual meeting
of Shareholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, the election of officers and the transaction of other
business. Notice of this meeting shall not be required. Minutes of any meeting
of the Board, or any committee thereof, shall be maintained as required by the
Act by the Secretary or other officer designated for that purpose.
Section 8. OTHER REGULAR MEETINGS.
A. Other regular meetings of the Board of Directors shall be
held without call at such time as shall from time to time be fixed by the Board
of Directors. Such regular meetings may be held without notice, provided the
time and place of such meetings has been fixed by the Board of Directors, and
further provided the notice of any change in the time of such meeting shall be
given to all the Directors. Notice of a change in the determination of the time
shall be given to each Director in the same manner as notice for such special
meetings of the Board of Directors.
B. If said day falls upon a holiday, such meetings shall be
held on the next succeeding day thereafter.
Section 9. SPECIAL MEETINGS/NOTICES.
A. Special meetings of the Board of Directors for any purpose
or purposes may be called at any time by the Chairman of the Board or the
President or any Vice President or the Secretary or any two Directors.
B. Notice of the time and place for special meetings shall be
delivered personally or by telephone to each Director or sent by first class
mail or telegram, charges prepaid, addressed to each Director at his or her
address as it is shown in the records of the Corporation. In case such notice is
mailed, it shall be deposited in the United States mail at least four days prior
to the time of holding the meeting. In case such notice is delivered personally,
or by telephone or telegram, it shall be delivered personally or be telephone or
to the telegram company at least 48 hours prior to the time of the holding of
the meeting. Any oral notice given personally or by telephone may be
communicated to either the Director or to a person at the office of the Director
who the person giving the notice has reason to believe will promptly communicate
same to the Director. The notice need not specify the purpose of the meeting,
nor the place, if the meeting is to be held at the principal executive office of
the Corporation.
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Section 10. WAIVER OF NOTICE.
A. The transactions of any meeting of the Board of Directors,
however called, noticed, or wherever held, shall be as valid as though had at a
meeting duly held after the regular call and notice if a quorum be present and
if, either before or after the meeting, each of the Directors not present signs
a written waiver of notice, a consent to holding the meeting or an approval of
the minutes thereof. Waivers of notice or consent need not specify the purposes
of the meeting. All such waivers, consents and approvals shall be filed with the
corporate records or made part of the minutes of the meeting.
B. Notice of a meeting shall also be deemed given to any
Director who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such Director.
Section 11. QUORUMS. A majority of the authorized number of Directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 12 of this Article II. Every act or decision done or made by
a majority of the Directors present at a meeting duly held at which a quorum was
present shall be regarded as the act of the Board of Directors, subject to the
provisions of the Act. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of Directors, if
any action taken is approved by at least a majority of the required quorum for
that meeting.
Section 12. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and place.
Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of the
holding of an adjourned meeting need not be given, unless the meeting is
adjourned for more than 24 hours, in which case notice of such time and place
shall be given prior to the time of the adjourned meeting to the Directors who
were not present at the time of the adjournment.
Section 14. BOARD OF DIRECTORS PROVIDED BY ARTICLES OR BYLAWS. In the
event only one Director is required by the Bylaws or the Articles of
Incorporation, then any reference herein to notices, waivers, consents, meetings
or other actions by a majority or quorum of the Board of Directors shall be
deemed or referred as such notice, waiver, etc., by the sole Director, who shall
have all rights and duties and shall be entitled to exercise all of the powers
and shall assume all the responsibilities otherwise herein described, as given
to the Board of Directors.
Section 15. DIRECTORS ACTION BY UNANIMOUS WRITTEN CONSENT. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting and with the same force and effect as if taken by a unanimous vote of
Directors, if authorized by a writing signed individually or collectively by all
members of the Board of Directors. Such consent shall be filed with the regular
minutes of the Board of Directors.
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Section 16. COMPENSATION OF DIRECTORS. Directors, and members as such,
shall not receive any stated salary for their services, but by resolution of the
Board of Directors, a fixed sum and expense of attendance, if any, may be
allowed for attendance at each regular and special meeting of the Board of
Directors; provided, however, that nothing contained herein shall be construed
to preclude any Director from serving the Corporation in any other capacity as
an officer, employee or otherwise receiving compensation for such services.
Section 17. COMMITTEES. Committees of the Board of Directors may be
appointed by resolution passed by a majority of the whole Board. Committees
shall be composed of two or more members of the Board of Directors. The Board
may designate one or more Directors as alternate members of any committee, who
may replace any absent member at any meeting of the committee. Committees shall
have such powers as those held by the Board of Directors as may be expressly
delegated to it by resolution of the Board of Directors, except those powers
expressly made non- delegable by the Act.
Section 18. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article II, Sections 6, 8, 9, 10, 11, 12, 13 and 15, with such
changes in the context of those Sections as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that the time of the regular meetings of the committees may be determined by
resolution of the Board of Directors as well as the committee, and special
meetings of committees may also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
Section 19. ADVISORY DIRECTORS. The Board of Directors from time to
time may elect one or more persons to be Advisory Directors, who shall not by
such appointment be members of the Board of Directors. Advisory Directors shall
be available from time to time to perform special assignments specified by the
President, to attend meetings of the Board of Directors upon invitation and to
furnish consultation to the Board of Directors. The period during which the
title shall be held may be prescribed by the Board of Directors. If no period is
prescribed, the title shall be held at the pleasure of the Board of Directors.
ARTICLE III
OFFICERS
Section 1. OFFICERS. The principal officers of the Corporation shall be
a President, a Vice President, a Secretary, and a Chief Financial Officer who
may also be called Treasurer. The Corporation may also have, at the discretion
of the Board of Directors, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
3 of this Article III. Any number of offices may be held by the same person.
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Section 2. ELECTION OF OFFICERS. The principal officers of the
Corporation, except such officers as may be appointed in accordance with the
provisions of Section 3 or Section 5 of this Article, shall be chosen by the
Board of Directors, and each shall serve at the pleasure of the Board of
Directors, subject to the rights, if any, of an officer under any contract of
employment.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may
appoint such other officers as the business of the Corporation may require, each
of whom shall hold office for such period, have such authority and perform such
duties as are provided in the Bylaws or as the Board of Directors may from time
to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS.
A. Subject to the rights, if any, of an officer under any
contract of employment, any officer may be removed, either with or without
cause, by a majority of the Directors at that time in office, at any regular or
special meeting of the Board of Directors, or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
B. Any officer may resign at any time by giving written notice
to the Board of Directors. Any resignation shall take effect on the date of the
receipt of that notice or at any later time specified in that notice; and,
unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the Corporation under any contract to which
the officer is a party.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for regular appointments to that office.
Section 6. CHAIRMAN OF THE BOARD.
A. The Chairman of the Board, if such an officer be elected,
shall, if present, preside at the meetings of the Board of Directors and
exercise and perform such other powers and duties as may, from time to time, be
assigned by the Board of Directors or prescribed by the Bylaws. If there is no
President, the Chairman of the Board shall, in addition, be the Chief Executive
Officer of the Corporation and shall have the powers and duties prescribed in
Section 7 of this Article III.
Section 7. PRESIDENT AND CHIEF EXECUTIVE OFFICER. Subject to such
supervisory powers, if any, as may be given by the Board of Directors to the
Chairman of the Board, if there is such an officer, the President along with the
Chief Executive Officer of the Corporation shall, subject to the control of the
Board of Directors, have general supervision, discretion and control of the
business and officers of the Corporation. The President or the Chief Executive
Officer shall preside at all meetings of the Shareholders and, in the absence of
the Chairman of the Board, or if there be none, at all meetings of the Board of
Directors. The President and Chief Executive Officer, jointly, shall
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have the general powers and duties of management usually vested in the office of
President and Chief Executive Officer of a corporation, each shall be ex officio
a member of all the standing committees, including the Executive Committee, if
any, and shall have such other powers and duties as may be prescribed by the
Board of Directors or the Bylaws.
Section 8. VICE PRESIDENT. In the absence or disability of the
President or Chief Executive Officer, the Vice Presidents, if any, in order of
their rank as fixed by the Board of Directors, or if not ranked, the Vice
President designated by the Board of Directors, shall perform all the duties of
the President or Chief Executive Officer, as the case may be, and when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the President or the Chief Executive Officer. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them, respectively, by the Board of Directors or the Bylaws, the
President, the Chief Executive Officer, or the Chairman of the Board.
Section 9. SECRETARY.
A. The Secretary shall keep, or cause to be kept, a book of
minutes of all meetings of the Board of Directors and Shareholders at the
principal office of the Corporation or such other place as the Board of
Directors may order. The minutes shall include the time and place of holding the
meeting, whether regular or special, and if a special meeting, how authorized,
the notice thereof given, and the names of those present at Directors' and
committee meetings, the number of shares present or represented at Shareholders'
meetings and the proceedings thereof.
B. The Secretary shall keep, or cause to be kept, at the
principal office of the Corporation or at the office of the Corporation's
transfer agent, a share register, or duplicate share register, showing the names
of the Shareholders and their addresses; the number and classes or shares held
by each; the number and date of certificates issued for the same; and the number
and date of cancellation of every certificate surrendered for cancellation.
C. The Secretary shall give, or cause to be given, notice of
all the meetings of the Shareholders and of the Board of Directors required by
the Bylaws or by law to be given. The Secretary shall keep the seal of the
Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the Bylaws.
Section 10. CHIEF FINANCIAL OFFICER OR TREASURER.
A. The Chief Financial Officer shall keep and maintain, or
cause to be kept and maintained, in accordance with generally accepted
accounting principles, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, earnings (or
surplus) and shares issued. The books of account shall, at all reasonable times,
be open to inspection by any Director.
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B. The Chief Financial Officer shall deposit all monies and
other valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the Board of Directors. The Chief Financial
Officer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, shall render to the President and Directors, whenever they
request it, an account of all of the transactions of the Chief Financial Officer
and of the financial condition of the Corporation, and shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors or the Bylaws.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. Meetings of the Shareholders shall be
held at any place within or outside the state of Nevada designated by the Board
of Directors. In the absence of any such designation, Shareholders' meetings
shall be held at the principal executive office of the Corporation.
Section 2. ANNUAL MEETING.
A. The annual meeting of the Shareholders shall be held, each
year, as follows:
Time of Meeting: 10:00 A.M.
Date of Meeting: Second Tuesday in January
B. If this day shall be a legal holiday, then the meeting
shall be held on the next succeeding business day, at the same time. At the
annual meeting, the Shareholders shall elect a Board of Directors, consider
reports of the affairs of the Corporation and transact such other business as
may be properly brought before the meeting.
C. If the above date is inconvenient, the annual meeting of
Shareholders shall be held each year on a date and at a time designated by the
Board of Directors within ninety days of the above date upon proper notice to
all Shareholders.
Section 3. SPECIAL MEETINGS.
A. Special meetings of the Shareholders for any purpose or
purposes whatsoever, may be called at any time by the Board of Directors, the
Chairman of the Board, the President, or by one or more Shareholders holding
shares in the aggregate entitled to cast not less than 10% of the votes at any
such meeting. Except as provided in paragraph B below of this Section 3, notice
shall be given as for the annual meeting.
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B. If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board, the
President, any Vice President or the Secretary of the Corporation. The officer
receiving such request shall forthwith cause notice to be given to the
Shareholders entitled to vote, in accordance with the provisions of Sections 4
and 5 of this Article, indicating that a meeting will be held at the time
requested by the person or persons calling the meeting, not less than 35 nor
more than 60 days after the receipt of the request. If the notice is not given
within 20 days after receipt of the request, the person or persons requesting
the meeting may give the notice in the manner provided in these Bylaws. Nothing
contained in this paragraph of this Section shall be construed as limiting,
fixing or affecting the time when a meeting of Shareholders called by action of
the Board of Directors may be held.
Section 4. NOTICE OF MEETINGS - REPORTS.
A. Notice of any Shareholders meetings, annual or special,
shall be given in writing not less than 10 days nor more than 60 days before the
date of the meeting to Shareholders entitled to vote thereat by the Secretary or
the Assistant Secretary, or if there be no such officer, or in the case of said
Secretary or Assistant Secretary's neglect or refusal, by any Director or
Shareholder.
B. Such notices or any reports shall be given personally or by
mail or other means of written communication as provided in the Act and shall be
sent to the Shareholder's address appearing on the books of the Corporation, or
supplied by the Shareholder to the Corporation for the purpose of notice, and in
the absence thereof, as provided in the Act by posting notice at a place where
the principal executive office of the Corporation is located or by publication
at least once in a newspaper of general circulation in the county in which the
principal executive office is located.
C. Notice of any meeting of Shareholders shall specify the
place, the day and the hour of meeting, and (i) in case of a special meeting,
the general nature of the business to be transacted and that no other business
may be transacted, or (ii) in the case of an annual meeting, those matters which
the Board of Directors, at the date of mailing of notice, intends to present for
action by the Shareholders. At any meetings where Directors are elected, notice
shall include the names of the nominees, if any, intended at the date of notice
to be presented for election.
D. Notice shall be deemed given at the time it is delivered
personally or deposited in the mail or sent by other means of written
communication. The officer giving such notice or report shall prepare and file
in the minute book of the Corporation an affidavit or declaration thereof.
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E. If action is proposed to be taken at any meeting for
approval of (i) contracts or transactions in which a Director has a direct or
indirect financial interest, (ii) an amendment to the Articles of Incorporation,
(iii) a reorganization of the Corporation, (iv) dissolution of the Corporation,
or (v) a distribution to preferred Shareholders, the notice shall also state the
general nature of such proposal.
Section 5. QUORUM.
A. The holders of a majority of the shares entitled to vote at
a Shareholders' meeting, present in person, or represented by proxy, shall
constitute a quorum at all meetings of the Shareholders for the transaction of
business except as otherwise provided by the Act or by these Bylaws.
B. The Shareholders present at a duly called or held meeting
at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by a
majority of the shares required to constitute a quorum.
Section 6. Adjourned Meeting and Notice Thereof.
A. Any Shareholders' meeting, annual or special, whether or
not a quorum is present, may be adjourned from time to time by the vote of the
majority of the shares represented at such meeting, either in person or by
proxy, but in the absence of a quorum, no other business may be transacted at
such meeting.
B. When any meeting of Shareholders, either annual or special,
is adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than 45 days from the date set for
the original meeting, in which case the Board of Directors shall set a new
record date. Notice of any adjourned meeting shall be given to each Shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Section 4 of this Article. At any adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 7. WAIVER OR CONSENT BY ABSENT SHAREHOLDERS.
A. The transactions of any meeting of Shareholders, either
annual or special, however called and noticed, shall be valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each of the
Shareholders entitled to vote, not present in person or by proxy, sign a written
waiver of notice, or a consent to the holding of such meeting or an approval of
the minutes thereof.
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B. The waiver of notice or consent need not specify either the
business to be transacted or the purpose of any regular or special meeting of
Shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in Section E of Section 4 of this
Article, the waiver of notice or consent shall state the general nature of such
proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
C. Attendance of a person at a meeting shall also constitute a
waiver of notice of such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters not included
in the notice. A Shareholder or Shareholders of the Corporation holding at least
5% in the aggregate of the outstanding voting shares of the Corporation may (i)
inspect, and copy the records of Shareholders' names and addresses and
shareholdings during usual business hours upon five days prior written demand
upon the Corporation, and/or (ii) obtain from the transfer agent by paying such
transfer agent's usual charges for such a list, a list of the Shareholders'
names and addresses who are entitled to vote for the election of Directors, and
their shareholdings, as of the most recent record date for which such list has
been compiled or as of a date specified by the Shareholders subsequent to the
day of demand. Such list shall be made available by the transfer agent on or
before the later of five days after the demand is received or the date specified
therein as the date as of which the list is to be compiled. The record of
Shareholders shall also be open to inspection upon the written demand of any
Shareholder or holder of a voting trust certificate, at any time during usual
business hours, for a purpose reasonably related to such holder's interest as a
Shareholder or as a holder of a voting trust certificate. Any inspection and
copying under this Section may be made in person or by an agent or attorney of
such Shareholder or holder of a voting trust certificate making such demand.
Section 8. MAINTENANCE AND INSPECTION OF BYLAWS. The Corporation shall
keep at its principal executive office, or if not in this state, at its
principal business office in this state, the original or a copy of the Bylaws
amended to date, which shall be open to inspection by the Shareholders at all
reasonable times during office hours. If the principal executive office of the
Corporation is outside the state and the Corporation has no principal business
office in this state, the Secretary shall, upon written request of any
Shareholder, furnish to such Shareholder a copy of the Bylaws as amended to
date.
Section 9. ANNUAL REPORT TO SHAREHOLDERS.
A. Provided the Corporation has 100 Shareholders or less, the
Annual Report to Shareholders referred to in the Act is expressly dispensed
with, but nothing herein shall be interpreted as prohibiting the Board of
Directors from issuing annual or other period reports to Shareholders of the
Corporation as they deem appropriate.
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B. Should the Corporation have 100 or more Shareholders, an
Annual Report to Shareholders must be furnished not later than 120 days after
the end of each fiscal period. The Annual Report to Shareholders shall be sent
at least 15 days before the annual meeting of the Shareholders to be held during
the next fiscal year and in the manner specified in Section 4 of Article V of
these Bylaws for giving notice to Shareholders of the Corporation. The Annual
Report to Shareholders shall contain a Balance Sheet as of the end of the fiscal
year and an Income Statement and Statement of Changes in Financial Position for
the fiscal year, accompanied by any report of independent accountants or, if
there is no such report, the certificate of an authorized officer of the
Corporation that the statements were prepared without audit from the books and
records of the Corporation.
Section 10. FINANCIAL STATEMENTS.
A. A copy of any annual financial statement and any Income
Statement of the Corporation for each quarterly period of each fiscal year, and
any accompanying Balance Sheet of the Corporation as of the end of each such
period, that has been prepared by the Corporation shall be kept on file at the
principal executive office of the Corporation for 12 months from the date of its
execution, and each such statement shall be exhibited at all reasonable times to
any Shareholder demanding an examination of such statement or a copy shall be
made for any such Shareholder.
B. If a Shareholder or Shareholders holding at least 5% of the
outstanding shares of any class of stock of the Corporation make a written
request to the Corporation for an Income Statement of the Corporation for the
three month, six month or nine month period of the then current fiscal year
ended more than 30 days prior to the date of the request, and a Balance Sheet of
the Corporation at the end of such period, the Chief Financial Officer shall
cause such statement to be prepared, if not already prepared, and shall deliver
personally or mail such statement or statements to the person making the request
within 30 days after the receipt of such request. If the Corporation has not
sent to the Shareholders its Annual Report for the last fiscal year, this report
shall likewise be delivered or mailed to such Shareholder or Shareholders within
30 days after such request.
C. The Corporation also shall, upon the written request of any
Shareholder, mail to the Shareholder a copy of the last annual, semi-annual or
quarterly Income Statement which it has prepared and a Balance Sheet as of the
end of such period. This quarterly Income Statement and Balance Sheet referred
to in this Section shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the Corporation or the certificate of
authorized officer of the Corporation such that financial statements were
prepared without audit from the books and records of the Corporation.
Section 11. ANNUAL STATEMENT OF GENERAL INFORMATION. The Corporation
shall, in a timely manner, in each year, file with the Secretary of State of
Nevada, on the prescribed form, the statement setting forth the authorized
number of Directors, the names and complete business or residence addresses of
all incumbent Directors, the names and complete business or residence addresses
of the Chief Executive Officer, Secretary and Chief Financial Officer, the
street address
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of its principal executive office or principal business office in this state and
the general type of business constituting the principal business activity of the
Corporation, together with a designation of the agent of the Corporation for the
purpose of the service of process, all in compliance with the Act.
ARTICLE IX
AMENDMENTS TO BYLAWS
Section 1. AMENDMENT BY SHAREHOLDERS. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the Articles of Incorporation of the Corporation set forth the
number of authorized Directors of the Corporation, the authorized number of
Directors may be changed only by amendment to the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
Shareholders to adopt, amend or repeal the Bylaws, as provided in Section 1 of
this Article IX, and the limitations of the Act, the Board of Directors may
adopt, amend or repeal any of these Bylaws other than an amendment to the Bylaws
changing the authorized number of Directors.
Section 3. RECORD OF AMENDMENTS. Whenever an amendment or new Bylaw is
adopted, it shall be copies in the corporate book of Bylaws with the original
Bylaws, in the appropriate place. If any Bylaw is repealed, the fact of repeal
with the date of the meeting at which the repeal was enacted or written assent
was filed shall be stated in the corporate book of Bylaws.
ARTICLE X
MISCELLANEOUS
Section 1. SHAREHOLDERS' AGREEMENTS. Notwithstanding anything contained
in this Article X to the contrary, in the event the Corporation elects to become
a close corporation, an agreement between two or more Shareholders thereof, if
in writing and signed by the parties thereto, may provide that in exercising any
voting rights, the shares held by them shall be voted as provided therein or in
the Act, and may otherwise modify the provisions contained in Article IV, herein
as to Shareholders' meetings and actions.
Section 2. EFFECT OF SHAREHOLDERS' AGREEMENTS. Any Shareholders'
Agreement authorized by the Act, shall only be effective to modify the terms of
these Bylaws if the Corporation elects to become a close corporation with the
appropriate filing of an amendment to its Articles of Incorporation as required
by the Act and shall terminate when the Corporation ceases to be a close
corporation. Any other provisions of the Act or these Bylaws may be altered or
waived thereby, but to the extent they are not so altered or waived, these
Bylaws shall be applicable.
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Section 3. SUBSIDIARY CORPORATIONS. Shares of the Corporation owned by
a subsidiary shall not be entitled to vote on any matter.
Section 4. ACCOUNTING YEAR. The accounting year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 5. FORM. The corporate seal shall be circular in form, and
shall have inscribed thereon the name of the Corporation, the date of its
incorporation, and the word "Nevada" to indicate the Corporation was
incorporated pursuant to the laws of the State of Nevada.
15
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, certify that:
1. I am the duly elected and acting secretary of American Custom
Components, Inc., a Nevada corporation; and
2. The foregoing Bylaws, consisting of 16 pages, are the Bylaws
of this Corporation as adopted by the Board of Directors in
accordance with the Nevada Business Corporation Act and that
such Bylaws have not been amended and are in full force and
effect.
IN WITNESS WHEREOF, I have subscribed my name and affixed the
seal of this Corporation on February 1, 1998.
/s/ Inge Lundegaard
--------------------------
Inge Lundegaard, Secretary
16
<PAGE>
AGREEMENT
This Agreement is made by and between American Custom Components, Inc.,
a Nevada corporation (the "Company") and Generation Capital Associates, a New
York limited partnership (the "Investor") effective as of September 29, 1997.
The parties hereto agree as follows:
The Company is hereby offering to Investor the opportunity to purchase
securities, consisting of the Company's Convertible Notes (the "Notes"),
issuable in amounts not less than $100,000 per Note unless the purchase bringing
the total to $1,000,000 requires a lower amount (with the first such Note
subscribed at not less than $200,000 principal amount). Each of the Notes shall
be convertible into Shares of Common Stock at a conversion price equal to the
greater of: (i) Eighty Three Percent (83%) of the Closing Bid Price of the
Common Stock on the business date immediately preceding the Conversion Date, or
(ii) Four Dollars and Ninety Eight Cents ($4.98). The Notes shall be in
substantially the form attached hereto as Exhibit A, the terms of which are
hereby incorporated herein as if such Note were fully set forth herein. Terms
not otherwise defined herein shall be as set forth in the Note. The Company
hereby acknowledges and agrees that Investor shall have 20 trading days after
the date of this Agreement to purchase up to an aggregate of $1,000,000
principal amount of Notes. The Company further acknowledges and agrees that
Investor has no obligation to purchase any amount of Notes pursuant to this
Agreement until and at such time that it agrees in writing to do so and
purchases a Note or Notes from the Company.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto
have executed this Agreement as of September 29, 1997.
AMERICAN CUSTOM COMPONENTS, INC.
By: /s/Martin Tony Walk
---------------------------------
Martin Tony Walk, Chief Executive Officer
GENERATION CAPITAL ASSOCIATES
By: /s/ Frank E. Hart
---------------------------------
Frank Hart, General Partner
<PAGE>
WAIVER
In connection with that certain agreement (the "Agreement") dated as of
September 29, 1997 between American Custom Components, Inc. ("ACC") and
Generation Capital Associates ("GCA"), the undersigned on behalf of ACC hereby
waives the requirement in the Agreement that the initial Convertible Note be in
an original principal amount of not less than $200,000.00 and amends such
provision to require the initial Convertible Note to be in an original principal
amount of not less than $74,000.00. Except as otherwise amended herein, the
terms of the Agreement shall remain in full force and effect and this waiver
shall not constitute a waiver of any other term or condition in the Agreement.
this waiver is effective as of this 6th day of October 1997.
AMERICAN CUSTOM COMPONENTS, INC.
By: /s/ Inge Lundegaard
-----------------------------
Inge Lundegaard
Chief Financial Officer
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Escrow Agreement") is entered into as of this
29th day September, 1997 between American Custom Components, Inc., a Nevada
corporation (the "COMPANY"), Generation Capital Associates (the "PURCHASER"),
and MRC Legal Services Corporation, as escrow agent (the "Escrow Agent"). The
COMPANY, PURCHASER, and the Escrow Agent shall from time to time be referred to
herein as the "Parties."
R E C I T A L S
A. The COMPANY has agreed to sell, and PURCHASER to purchase, a Convertible
Promissory Note or Notes (the "Notes") in the original aggregate principal
amount of up to $1,000,000.00, convertible by its terms into the common stock of
the COMPANY ("Common Stock") at such Conversion Percentage (as specified in the
Conversion Notice) of the greater of (i) 83% of the closing bid price of the
stock for the date immediately preceding the Effective Date of the Conversion
Notice (defined below) or (ii) $4.98, subject to adjustment, as further set
forth in the Note. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Note and, in turn, the Conversion Notice attached
thereto and the terms and provisions of which are incorporated herein by
reference.
B. The COMPANY and PURCHASER have delivered to the Escrow Agent the Note or
Notes to be held, in escrow under the terms hereof.
C. As a condition to the Notes, the COMPANY has agreed to deposit with the
Escrow Agent 201,000 shares of Common Stock, subject to adjustment (the
"Conversion Shares"), for delivery to PURCHASER upon any partial or total
conversion of the Notes.
D. Escrow Agent has agreed to act as the escrow agent hereunder, in
accordance with the terms and conditions set forth in this Escrow Agreement
NOW THEREFORE, for and in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. RECITALS. The Recitals set forth above are true and correct and
incorporated herein by this reference.
2. APPOINTMENT OF ESCROW AGENT. The Parties hereby mutually appoint and
designate the Escrow Agent to receive, hold and release, as escrow agent the
Conversion Shares and the Escrow Agent hereby accepts such appointment and
designation.
3. ESCROW DELIVERY. Within three business days from the date of the
issuance and delivery to the Escrow Agent of the Note; the COMPANY shall deliver
or cause to be delivered certificates representing the Conversion Shares to the
Escrow Agent, in increments to enable Escrow Agent to meet its obligations
hereunder.
<PAGE>
4. CONDITIONS OF ESCROW.
4.1. THE ESCROW DEPOSIT. Escrow Agent shall hold and release the
Conversion Shares as follows:
a. RELEASE FROM ESCROW. The Escrow Agent shall release and
distribute the Conversion Shares as follows:
i. To PURCHASER or COMPANY, as the case may be, pursuant to,
and upon receipt by Escrow Agent of, joint written
instructions executed by PURCHASER and the COMPANY; or
ii. To PURCHASER, not later than one business day after
receipt from PURCHASER of such notice via overnight
courier for next day delivery, such number of Conversion
Shares equal to such amount of the outstanding principal
of, and accrued but unpaid interest on, the Note, in
whole or in part, as specifically provided by PURCHASER
in a Notice of Conversion which complies with the terms
of, and the form of which is attached to, the Note, which
notice is delivered to the Escrow Agent at the time and
as further set forth in the Note, at a conversion price
set forth in the Note; provided that, the parties agree
that PURCHASER shall specify, and Escrow Agent shall
send, such number of additional Conversion Shares with
respect to the accrued interest converted under the Note
as necessary to round up to the nearest even multiple of
1000 (the "Excess Conversion Shares") and Purchaser shall
thereafter promptly send to the COMPANY such Excess
Conversion Shares. PURCHASER may continue to convert such
amounts outstanding under the Note until the maturity
thereof (as may be extended by PURCHASER in accordance
with the terms of the Note), resulting from the
conversion of all remaining principal amount of the Note;
Escrow Agent agrees to insert on the Principal Reduction
Grid such outstanding amounts converted and the
outstanding amount remaining under the Note in accordance
with the amounts so provided to Escrow Agent by PURCHASER
as reflected in each Conversion Notice, as further set
forth in the Note and deliver to Purchaser a copy of such
revised Principal Reduction Grid; Escrow Agent also
agrees as soon as reasonably practicable after receipt of
the Conversion Notice, the Escrow Agent will transmit by
facsimile a copy of such Conversion Notice; or
2
<PAGE>
iii. To the COMPANY, the balance of any remaining Conversion
Shares upon presentation of evidence satisfactory to the
Escrow Agent that (i) the principal amount of the Note as
well as any and all accrued but unpaid interest has been
fully convened or paid in cash by the Company, as the
case may be, pursuant to the terms thereof or (ii) the
Note has been repaid by the COMPANY to PURCHASER pursuant
to the terms thereof.
b. CONFLICTING INSTRUCTIONS. If a controversy arises between the
Parties concerning the release of the Conversion Shares
hereunder, they shall notify the Escrow Agent. In that event (or,
in the absence of such notification, if in the sole and exclusive
judgment of the Escrow Agent such controversy exists, including,
without limitation, a controversy concerning the Note or this
Escrow Agreement or the rights and obligations or the propriety
of any action contemplated by the Escrow Agent hereunder), the
Escrow Agent shall not be required to resolve such controversy or
take an action but may, in its sole discretion, be entitled to
await resolution of the controversy by joint instructions from
the Parties or by receipt of an order, decree, writ, judgment or
other paper from a court of competent jurisdiction directing
disposition of the Conversion Shares. Upon receipt of written
instructions from any of PURCHASER or the COMPANY, the Escrow
Agent may, in its sole discretion, also institute an interpleader
action in the Superior Court of Orange County, California (the
"Court") or in a federal court in the State of California. If a
suit is commenced against the Escrow Agent, it may answer by way
of interpleader and name, PURCHASER and COMPANY, as additional
parties to such action, and the Escrow Agent may tender the
Conversion Shares into such court for determination of the
respective rights, titles and interests of the PURCHASER and the
COMPANY. Upon such tender, the Escrow Agent shall be entitled to
receive from the Company its reasonable attorneys' fees and
expenses incurred in connection with said interpleader action or
in any related action or suit (including appeal). As between
PURCHASER and COMPANY, such fees, expenses and other sums shall
be paid by the party which fails to prevail in the proceedings
brought to determine the appropriate distribution of the
Conversion Shares. If and when the Escrow Agent shall so
interplead such Parties, or either of them, and deliver the
Conversion Shares to the clerk of such court, all of its duties
hereunder shall cease, and it shall have no further obligation in
this regard. Nothing herein shall prejudice any right or remedy
of the Escrow Agent. The exclusive venue for all actions under
this Escrow Agreement shall be Orange County, California.
3
<PAGE>
5. CONCERNING ESCROW AGENT.
5.1. ESCROW AGENT'S DUTIES.
a. ESCROW AGENT'S RIGHT TO RELY: DUTIES. The Escrow Agent may act
in reliance upon any writing or instrument or signature which it,
in its sole discretion, believes to be genuine, including
facsimile signatures; may assume the validity and accuracy of any
statements or assertions contained in such writing or instrument;
and may assume that any person purporting to give any writing,
notice, advice or instruction in connection with the provisions
hereof, has been duly authorized to do so. The Escrow Agent shall
not be liable in any manner or otherwise be responsible to any
party to this Escrow Agreement, or to any other individual or
entity, including, without limitation, the COMPANY or PURCHASER,
(i) for the sufficiency or correctness as to form, manner of
execution, or validity of any written instructions delivered to
it, including without limitation, the number of Conversion Shares
specified by Purchaser in the Conversion Notice to be issued
pursuant to such request (for which the Parties expressly agree
Escrow Agent shall have no liability to such Parties), nor (ii)
as to the identity, authority, or rights of any person executing
the same, nor (iii) for the period of time, including without
limitation any delay which occurs as a result of the transfer
agent, to send and/or transfer to Purchaser certificates
representing Conversion Shares; provided that, Escrow Agent will
send such certificates to PURCHASER or the transfer agent, as the
case may be, no later than one business day after receipt from
PURCHASER of the Conversion Notice via overnight courier for next
day delivery as soon as reasonably practicable as stated
elsewhere herein. The Escrow Agent undertakes to perform only
such duties as are expressly set forth herein, and no implied
duties or obligations shall be read into this Escrow Agreement as
against the Escrow Agent. PURCHASER acknowledges that the Escrow
Agent has represented COMPANY and its affiliates on numerous
matters and by signing this Escrow Agreement below hereby
acknowledges and consents to the continued representation by the
Escrow Agent of COMPANY and its affiliates, including, if
necessary and without limitation, the Escrow Agent's
representation of COMPANY in connection with the Agreement, the
Notes and this Escrow Agreement.
b. INDEMNIFICATION. The Escrow Agent may consult with counsel of
its own choice and shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in
good faith and in accordance with the opinion of such counsel.
The Escrow Agent shall otherwise not be liable for any mistakes
of fact or error of judgment, or for any acts or omissions of any
kind unless caused by its willful misconduct or gross negligence
and each of the COMPANY and
4
<PAGE>
PURCHASER jointly and severally agrees to indemnify and hold
harmless the Escrow Agent from any claims, demands, causes of
action, liabilities, damages or judgments, including the cost of
defending any action against it, together with any reasonable
attorneys' fees of any nature (including appeal) incurred
therewith in connection with Escrow Agent's undertakings pursuant
to the terms and conditions of this Escrow Agreement, unless such
act or omission is a result of the willful misconduct or gross
negligence of the Escrow Agent.
c. NO IMPLIED DUTIES. Escrow Agent shall have no implied
obligations or responsibilities hereunder, nor shall it have any
obligation or responsibility to collect funds or seek the deposit
of money or property, nor is the Escrow Agent a party to any
other agreement entered into among PURCHASER and/or the COMPANY,
except for additional escrow agreements, the terms and conditions
of which are identical to those set forth herein ("Additional
Escrow Agreements").
5.2. OTHER MATTERS. Escrow Agent (and any successor escrow agent or agents)
reserves the right to resign as the Escrow Agent at any time, provided fifteen
(15) days' prior written notice is given to the other parties hereto. If a
notice of appointment of a successor escrow agent is not delivered to the Escrow
Agent within thirty (30) days after notice of resignation, the Escrow Agent may
petition any court of competent jurisdiction to name a successor escrow agent,
and the Escrow Agent herein shall be fully relieved of all liability to any and
all parties upon the transfer of all cash or property in its possession under
the Escrow Agreement to the successor escrow agent either designated or
appointed by such court. The Parties reserve the right to jointly remove the
Escrow Agent at any time, provided fifteen (15) days' prior written notice is
given to the Escrow Agent. In the event or litigation of dispute by the Parties
in which the performance of the duties of the Escrow Agent is at issue, the
Escrow Agent shall take no action until such action is agreed in writing by the
Parties or if it is agreed in writing by the parties or directed by receipt of
an order, decree, writ, judgment or other paper from a court of competent
jurisdiction.
6. TERMINATION. This Escrow Agreement shall be terminated upon the release
of the Conversion Shares in accordance with the terms and conditions of Section
4 hereof, or otherwise by written mutual consent signed by all parties hereto.
7. NOTICE. Notices to be given hereunder shall be in writing and shall be
deemed to have been sufficiently given if delivered personally or sent by
overnight courier or messenger or sent by registered or certified mail (air mail
if overseas), return receipt requested, or by telex, facsimile transmission,
telegram or similar means of communication. Notice shall be deemed to have been
received on the date and time of personal delivery, telex, facsimile
transmission, telegram or similar means of communication, or if sent by
overnight courier or messenger, shall be deemed to have been received on the
next delivery day after deposit with the courier or messenger, of if sent by
certified or registered mail, return receipt requested, shall be deemed to
5
<PAGE>
have been received on the third business day after the date of mailing.
Notices shall be given to the following addresses:
If to the Company:
American Custom Components, Inc.
1515 South Sunkist Street
Anaheim, California 92806
Facsimile No.: (714) 978-0488
If to the Purchaser:
Generation Capital Associates, Inc.
617 West End Avenue
New York, NY 10024
Facsimile No.: (404) 255-2218
If to the Escrow Agent:
Law offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: (714) 719-1988
8. BENEFIT AND ASSIGNMENT. This Escrow Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns as permitted hereunder. No person or entity other than the parties
hereto is or shall be entitled to bring any action to enforce any provision in
this Escrow Agreement. Such Escrow Agreement shall be solely for the benefit of,
and shall be enforceable only by, the parties hereto or their respective
successors and assigns.
9. ENTIRE AGREEMENT, AMENDMENT. This Escrow Agreement contains the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior oral or written agreements, commitments or understandings
with respect to such matters; provided that as between the COMPANY and Escrow
Agent, the Parties recognize and agree that there will exist from time to time
Additional Escrow Agreements. This Escrow Agreement may not be changed orally,
but only by an instrument in writing signed by the party against whom
enforcement of any waiver, change modification, extension or discharge is
sought.
10. GOVERNING LAW; VENUE. This Escrow Agreement shall be governed and
construed under and in accordance with the laws of the State of California. Each
of COMPANY and PURCHASER hereby irrevocably and unconditionally: (a) submits for
itself and its property in any legal action or proceeding relating to this
Escrow Agreement, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive jurisdiction of any Federal or State courts
located in Orange County, California, and appellate courts from any thereof; (b)
consents that any such action or proceeding may be brought in such courts and
waives any
6
<PAGE>
objection that it may now or hereafter have to the venue of any such action or
proceeding in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same; (c) agrees that
service of process in any such action or proceeding may be effected by mailing a
copy thereof by registered or certified mail (or any substantially similar form
of mail), postage prepaid, to it at its address set forth herein or at such
other address of which Escrow Agent shall have been notified pursuant thereto;
and (d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction.
11. WAIVERS OF JURY TRIAL. THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS ESCROW AGREEMENT OR FOR ANY COUNTERCLAIM THEREIN.
12. SIGNATURE IN COUNTERPARTS. This Escrow Agreement may be executed in
separate counterparts, none of which need contain the signature of all parties,
each of which shall be deemed to be an original and all of which taken together
constitute one and the same instrument. It shall not be necessary in making
proof of this Escrow Agreement to producer or account for more than the number
of counterparts containing the respective signatures of, or on behalf of, all of
the parties hereto. Facsimile signatures shall be considered as original
signatures for purposes hereof
13. ATTORNEY'S FEES. Should any action be commenced between the parties to
this Escrow Agreement concerning the matters set forth in this Escrow Agreement
or the right and duties of either in relation thereto, the prevailing party in
such action shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum as and for its Attorney's Fees and Costs.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Escrow Agreement to
be duly executed and delivered in its came and on its behalf, all as of
September 29, 1997.
AMERICAN CUSTOM COMPONENTS, INC.
By: /s/ Martin Tony Walk
------------------------------
Martin Tony Walk,
Chief Executive Officer
GENERATION CAPITAL ASSOCIATES
By: /s/ Frank Hart
-----------------------------
Frank Hart, General Partner
ESCROW AGENT:
MRC LEGAL SERVICES CORPORATION
By: /s/ M. Richard Cutler
-----------------------------
M. Richard Cutler, President
8
<PAGE>
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH TRANSFER.
AMERICAN CUSTOM COMPONENTS, INC.
--------------------------------
CONVERTIBLE NOTE
----------------
$74,700.00 New York, New York
October 6, 1997
FOR VALUE RECEIVED, the undersigned, American Custom Components, Inc.,
a Nevada corporation (the "Company"), hereby promises to pay to the order of
Generation Capital Associates, a New York limited partnership, or its lawful
assigns (the "Purchaser"), in lawful money of the United States of America, and
in immediately available funds, the principal sum of SEVENTY- FOUR THOUSAND
SEVEN HUNDRED DOLLARS ($74,700.00). The principal hereof and any unpaid accrued
interest thereon shall be due and payable on or before 5:00 p.m., Eastern
Standard Time, on October 5, 1998 (unless the payment date is accelerated as
provided in Section 7 hereof, extended as provided in Section 2 hereof, or
unless this Note is converted as set forth in paragraph 1 hereof). Payment of
all amounts due hereunder shall be made at the address of the Purchaser provided
for in Section 8 hereof. The Company further promises to pay interest at the
rate of 5.97% percent per annum on the outstanding principal balance hereof,
such interest to be payable quarterly in arrears on the 1st day of each quarter,
commencing January 1, 1998.
This Note is issued by the Company in accordance with the provisions of
Rule 504 ("Rule 504") of Regulation D of the rules and regulations promulgated
under the provisions of the Securities Act of 1933, as amended, and the issuance
of this Note and the shares of common stock of the Company (the "Common Stock")
issuable upon conversion of this Note (the "Conversion Shares", as set forth in
Section 1 hereof) is consequently exempt from registration thereunder. The Note
and the Conversion Shares shall be issued under the Act without any restrictive
legend regarding the transfer of this Note or the Conversion Shares.
In connection with any conversion of the Note into any Conversion
Shares (as defined herein), the Company has placed into escrow with the Law
Offices of M. Richard Cutler, Esq. an aggregate of 201,000 shares of Common
Stock of the Company, issued in accordance with Rule 504 hereunder, pursuant to
the terms of an Escrow Agreement of even date herewith. THE PROVISIONS OF THE
ESCROW AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.
1
<PAGE>
1. CONVERSION. The Purchaser of this Note is entitled, at its option,
at any time and in whole or in part, until maturity hereof (as extended by
Purchaser) to convert the principal amount of this Note or any portion of the
principal amount hereof into Shares of Common Stock at a conversion price for
each share of Common Stock equal to the greater of: (i) Eighty Three Percent
(83%) of the Closing Bid Price of the Common Stock on the business date
immediately preceding the conversion date, or (ii) Four Dollars and Ninety Eight
Cents ($4.98). For purposes of this Section 1, the Closing Bid Price shall be
the closing bid price of the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), or the
closing bid price in the over-the-counter market or, in the event the Common
Stock is listed on a stock exchange, the closing bid price value per share shall
be the closing price on the exchange, as reported in the Wall Street Journal.
The shares of Common Stock issued upon conversion of the principal of the Note
are herein referred to as "Principal Conversion Shares" or sometimes the
"Conversion Shares." Such conversion shall be effectuated by surrendering the
Note to be converted to the Escrow Agent, with the form of Conversion Notice
attached hereto as Exhibit A, executed by the Purchaser of this Note evidencing
such Purchaser's intention to convert this Note or a specified portion hereof
(as above provided). The "Conversion Date" is the date upon which a duly
executed Conversion Notice, together with this Note, is delivered to the Escrow
Agent, or, if earlier, the date set forth in such Conversion Notice if the Note
and Conversion Notice is received by the Escrow Agent within five business days
after the date set forth in the Conversion Notice. The Company and Purchaser
acknowledge and agree that the Conversion Notice may be forwarded by confirmed
facsimile to the Escrow Agent at its facsimile number (714) 719-1988.
Upon recording the amount converted and amount of indebtedness
remaining under the Note, set forth in the Conversion Notice on the grid
comprising the last page of the Note ("Principal Reduction Grid"), the Escrow
Agent will send a copy of the revised Principal Reduction Grid to the Company
and will send a copy of the revised Principal Reduction Grid to the Purchaser
together with the certificate or certificates representing the Conversion
Shares.
The Company has authorized and has reserved and covenants to continue
to reserve, free of preemptive rights and other similar contractual rights of
stockholders, a sufficient number of its authorized but unissued shares of its
Common Stock to satisfy the rights of conversion of the holder of this Note.
Any certificates representing Conversion Shares transferred to
Purchaser which are not registered for resale without restriction under the
Securities Act or applicable state securities laws shall be endorsed with the
following legend:
2
<PAGE>
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT
BE TRANSFERRED UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR SUCH APPLICABLE SECURITIES LAWS, OR (II)
IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY
REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
2. EXTENSION OF MATURITY DATE. Purchaser shall have the right, in its
sole discretion, to extend the maturity of this Note for up to six (6) 30 day
periods, each such extension exercisable only by the Purchaser by delivering to
the Company and the Escrow Agent written notice of such extension at any time
prior to the maturity date then in effect.
3. PREPAYMENT. This Note shall not be prepaid, in whole or in part,
without the prior written consent of the Purchaser.
4. TRANSFERABILITY. Subject to the provisions of Paragraph 8 hereto,
this Note shall be freely transferable by the Purchaser provided such transfer
is in compliance with applicable federal and state securities laws.
5. RULE 504 ISSUANCE. Prior to Closing, the Company shall have prepared
and filed any and all filings and other documents required to qualify the
issuance of this Note and the issuance of the Conversion Shares upon conversion
of this Note in accordance with Rule 504 with the Securities and Exchange
Commission, the State of New York and the NASD, if applicable, in accordance
with their requirements, and shall have taken all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of this Note and the Conversion
Shares to the Purchaser or subsequent holders. The Company represents and
warrants that the issuance of this Note and the Conversion Shares may be issued
as securities without restrictive legend or other restriction on transfer
pursuant to Rule 504. The Company represents and warrants that prior to the
issuance of this Note it has not issued any other securities or undertaken any
other issuance which would be aggregated with the sale of the securities
hereunder. The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Purchaser set forth herein in order to determine the applicability of such
exemptions and the suitability of Purchaser to acquire this Note and the
Conversion Shares.
3
<PAGE>
Prior to Closing, the Company shall have delivered to Purchaser and
counsel for the Purchaser a copy of an opinion of counsel to the Company stating
that "[such counsel is] of the opinion that, as of the date hereof, the issuance
of the Note and the Conversion Shares is exempt from registration under Rule 504
of Regulation D of the rules and regulations promulgated under the Securities
Act of 1933, as amended (the "Act"), exempt from qualification under the
provisions of the applicable New York securities laws (the "Law"), and the Note
and the Conversion Shares may be issued under the Act and under the Law without
any restrictive legend regarding transfer." Such counsel shall also have
provided an opinion in form and content satisfactory to Purchaser and its
counsel as to the matters set forth in Paragraph 10(c) hereof.
6. DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default:
(a) The non-payment, when due, of any principal or interest
pursuant to this Note;
(b) The material breach of any representation or warranty in
this Note or in the Escrow Agreement. In the event the Purchaser becomes aware
of a breach of this Section 7(b), the Purchaser shall notify the Company in
writing of such breach and the Company shall have five business days after
notice to cure such breach;
(c) The breach of any covenant or undertaking in this Note or
in the Escrow Agreement, not otherwise provided for in this Section 7;
(d) A default shall occur in the payment when due (subject to
any applicable grace period), whether by acceleration or otherwise, of any
indebtedness of the Company or an event of default or similar event shall occur
with respect to such indebtedness, if the effect of such default or event
(subject to any required notice and any applicable grace period) would be to
accelerate the maturity of any such indebtedness or to permit the holder or
holders of such indebtedness to cause such indebtedness to become due and
payable prior to its express maturity;
(e) The commencement by the Company of any voluntary
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect; or the adjudication of
the Company as insolvent or bankrupt by a decree of a court of competent
jurisdiction; or the petition or application by the Company for, acquiescence
in, or consent by the Company to, the appointment of any receiver or trustee for
the Company or for all or a substantial part of the property of the Company; or
the assignment by the Company for the benefit of creditors; or the written
admission of the Company of its inability to pay its debts as they mature; or
(f) The commencement against the Company of any proceeding
relating to the Company under any bankruptcy, reorganization, arrangement,
insolvency, adjustment of debt, receivership, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, provided,
however, that the commencement of such a proceeding shall not constitute an
Event of Default unless the Company consents to the same or admits in writing
the material allegations of same, or said proceeding shall remain
4
<PAGE>
undismissed for 20 days; or the issuance of any order, judgment or decree for
the appointment of a receiver or trustee for the Company or for all or a
substantial part of the property of the Company, which order, judgment or decree
remains undismissed for 20 days; or a warrant of attachment, execution, or
similar process shall be issued against any substantial part of the property of
the Company.
Upon the occurrence of any Default or Event of Default, the Purchaser
may, by written notice to the Company, declare all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
immediately due and payable, in which event it shall immediately be and become
due and payable, provided that upon the occurrence of an Event of Default as set
forth in paragraph (e) or paragraph (f) hereof, all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
shall immediately become due and payable without any such notice.
7. NOTICES. Notices to be given hereunder shall be in writing and shall
be deemed to have been sufficiently given if delivered personally or sent by
facsimile transmission. Notice shall be deemed to have been received on the date
and time of personal delivery or facsimile transmission.
Notices shall be given to the following addresses:
If to the Company:
American Custom Components, Inc.
1515 South Sunkist Street
Anaheim, CA 92806
Attn: Martin Tony Walk
Facsimile No.: 714-978-0488
If to the Purchaser:
Generation Capital Associates
617 West End Avenue
New York, New York 10024
Attn: Frank Hart
Facsimile No.: 404-255-2218
With a copy to:
The Law Offices of M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: 714-719-1988
5
<PAGE>
8. LIMITATION. Notwithstanding any other provision of this Note
(including, without limitation, all Exhibits hereto) to the contrary, no
individual Purchaser or holder of this Note or any portion of this Note shall be
required or permitted to exercise any of the conversion rights to receive
securities of the Company if such action by Purchaser or such holder would
result in the Purchaser or such holder converting into and/or otherwise becoming
at any particular time the beneficial owner of an aggregate of more than 5% of
the then outstanding Common Stock of the Company, as calculated pursuant to
Section 13 of the Exchange Act and Regulation 13D-G promulgated thereunder. The
foregoing shall not prohibit the Purchaser or such holder from receiving any
remaining amounts owed under this Note to such Purchaser or such holder from the
Company, or to receive in the aggregate securities exceeding such amount, so
long as Purchaser or such holder does not have beneficial ownership of an
aggregate of more than 5% of the outstanding Common Stock at any given time.
9. REPRESENTATIONS AND WARRANTIES. The Company hereby makes the
following representations and warranties to the Purchaser:
a. ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly exiting and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted.
b. AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Note and the Escrow
Agreement and to issue and sell this Note and the Conversion Shares in
accordance with the terms hereof. The execution, delivery and performance of
this Note and the Escrow Agreement by the Company and the consummation by it of
the Transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Note and the Escrow Agreement have been duly executed and
delivered by the Company. Each of this Note and the Escrow Agreement
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
c. CAPITALIZATION. The authorized capital stock of the Company
consists of 25,000,000 authorized shares of Common Stock, of which 8,350,000 are
issued and outstanding as of the date hereof, and 1,000,000 shares of preferred
stock, none of which are issued and outstanding. All of the outstanding shares
of the Company's securities have been duly and validly authorized and issued and
are fully paid and nonassessable. No securities of the Company are entitled to
preemptive rights or registration rights and, except for a total of 700,000
shares issuable upon the exercise of options issued to the Michelson Group
exercisable at $.01 per share which have certain registration rights, there are
no outstanding options, warrants, scrip, rights to subscribe to, call or
6
<PAGE>
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, securities or rights convertible into shares of capital stock of the
Company, or commitments to purchase or acquire, any shares, or securities or
rights convertible into shares of capital stock of the Company.
d. ISSUANCE OF NOTE AND CONVERSION SHARES. The Note and the
Conversion Shares to be issued upon conversion of the Note have been duly
authorized by all necessary corporate action and, when paid for or issued in
accordance with the terms hereof, will be validly issued and outstanding, fully
paid and non-assessable and entitled to the rights and preferences set forth
herein.
e. DISCLOSURE. Neither this Note, the Escrow Agreement, nor
any other document, certificate or instrument furnished to the Purchaser by or
on behalf of the Company in connection with the transactions contemplated by
this Note or the Escrow Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under which they were
made herein or therein, not misleading.
Purchaser hereby makes the following representations and warranties to
the Company:
i. ACQUISITION FOR INVESTMENT. Purchaser is purchasing the
Note solely for its own account for the purpose of investment and not with a
view to or for sale in connection with a distribution. Purchaser does not have a
present intention to sell the Note or the Conversion Shares nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Note or the Conversion Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Purchaser does not agree to hold the Note or the Conversion Shares for any
minimum or other specific term and reserves the right to dispose of the Note and
the Conversion Shares at any time in accordance with Federal securities laws
applicable to such disposition. Such Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Note and the
Conversion Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary and appropriate to conduct its due
diligence investigation.
ii. ACCREDITED PURCHASERS. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
10. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Company
consents to the jurisdiction of any court of the State of New York and of any
federal court located in New York. The Company waives personal service of any
summons, complaint or other process in connection with any such action or
proceeding and agrees that service thereof may be made, as the Purchaser may
7
<PAGE>
elect, by certified mail directed to the Company at the location provided for in
Section 8 hereof, or, in the alternative, in any other form or manner permitted
by law.
11. GOVERNING LAW. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK
AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES OR PRINCIPLES OF CONFLICTS
OF LAW.
12. ATTORNEYS FEES. In the event the Purchaser or any holder hereof
shall refer this Note to an attorney for collection, the Company agrees to pay
all the costs and expenses incurred in attempting or effecting collection
hereunder or enforcement of the terms of this Note, including reasonable
attorney's fees, whether or not suit is instituted.
13. CONFORMITY WITH LAW. It is the intention of the Company and of the
Purchaser to conform strictly to applicable usury and similar laws. Accordingly,
notwithstanding anything to the contrary in this Note, it is agreed that the
aggregate of all charges which constitute interest under applicable usury and
similar laws that are contracted for, chargeable or receivable under or in
respect of this Note, shall under no circumstances exceed the maximum amount of
interest permitted by such laws, and any excess, whether occasioned by
acceleration or maturity of this Note or otherwise, shall be canceled
automatically, and if theretofore paid, shall be either refunded to the Company
or credited on the principal amount of this Note.
IN WITNESS WHEREOF, the Company has signed and sealed this Note and
delivered it in New York, New York as of October 6, 1997.
AMERICAN CUSTOM COMPONENTS, INC.
/s/ Inge Lundegaard
-----------------------------
Inge Lundegaard
Chief Financial Officer
8
<PAGE>
<TABLE>
PRINCIPAL REDUCTION GRID
------------------------
<CAPTION>
Date Principal Principal Adjusted Conversion
Converted Principal Shares Issued
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
October 6, 1997 $74,700 - 0 - $74,700 - 0 -
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
$74,700
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
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</TABLE>
1
<PAGE>
EXHIBIT A
CONVERSION NOTICE
(To be executed upon Conversion of Note)
To:
The Law Offices of M. Richard Cutler, Esq. ("Escrow Agent")
and to American Custom Components, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right, represented by
that certain Convertible Note dated October 6, 1997 (the "Note"), attached
hereto, to convert $_______________ in outstanding principal amount of the Note
and/or accrued but unpaid interest on the Note into ___________ shares (the
"Shares") of Common Stock of the Company (determined at a per share price which
is the greater of: (i) 83% of the closing bid price on the Conversion Date
(defined below) or (ii) $4.98, as more fully set forth in the Note) and herewith
authorizes the Escrow Agent to reduce the principal amount of the Note and/or
accrued but unpaid interest on such Note in such amount. The undersigned
requests that certificates for such Shares be registered in the name of
Generation Capital Associates whose address is 617 West End Avenue, New York,
New York 10024 and that such certificates be delivered to David Rapaport whose
address is 1085 Riverside Trace, Atlanta, GA 30328. If said number of Shares is
less than all of the Shares issuable upon conversion in full of the Note, the
undersigned requests that a new Convertible Note reduced by the conversion price
hereof be registered in the name of Generation Capital Associates and that such
replacement Convertible Note be delivered to David Rapaport at the address set
forth above. The "Conversion Date" is the date upon which this duly executed
Conversion Notice, together with the Note, is delivered to the Escrow Agent or,
if earlier, the date set forth in such Conversion Notice if the Note and
Conversion Notice is received by the Escrow Agent within five business days
after the date set forth in this Conversion Notice.
Conversion Date:__________________
Signature:________________________
(Signature must conform in all respects to name of holder as specified on a the
face of the Note)
Previous Day's Bid Price:
______
Conversion Price:
______x
2
<PAGE>
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH TRANSFER.
AMERICAN CUSTOM COMPONENTS, INC.
--------------------------------
CONVERTIBLE NOTE
----------------
$175,000.00 New York, New York
October 10, 1997
FOR VALUE RECEIVED, the undersigned, American Custom Components, Inc.,
a Nevada corporation (the "Company"), hereby promises to pay to the order of
Generation Capital Associates, a New York limited partnership, or its lawful
assigns (the "Purchaser"), in lawful money of the United States of America, and
in immediately available funds, the principal sum of ONE HUNDRED SEVENTY-FIVE
THOUSAND DOLLARS ($175,000.00). The principal hereof and any unpaid accrued
interest thereon shall be due and payable on or before 5:00 p.m., Eastern
Standard Time, on October 9, 1998 (unless the payment date is accelerated as
provided in Section 7 hereof, extended as provided in Section 2 hereof, or
unless this Note is converted as set forth in paragraph 1 hereof). Payment of
all amounts due hereunder shall be made at the address of the Purchaser provided
for in Section 8 hereof. The Company further promises to pay interest at the
rate of 5.97% percent per annum on the outstanding principal balance hereof,
such interest to be payable quarterly in arrears on the 1st day of each quarter,
commencing January 1, 1998.
This Note is issued by the Company in accordance with the provisions of
Rule 504 ("Rule 504") of Regulation D of the rules and regulations promulgated
under the provisions of the Securities Act of 1933, as amended, and the issuance
of this Note and the shares of common stock of the Company (the "Common Stock")
issuable upon conversion of this Note (the "Conversion Shares", as set forth in
Section 1 hereof) is consequently exempt from registration thereunder. The Note
and the Conversion Shares shall be issued under the Act without any restrictive
legend regarding the transfer of this Note or the Conversion Shares.
In connection with any conversion of the Note into any Conversion
Shares (as defined herein), the Company has placed into escrow with the Law
Offices of M. Richard Cutler, Esq. an aggregate of 201,000 shares of Common
Stock of the Company, issued in accordance with Rule 504 hereunder, pursuant to
the terms of an Escrow Agreement of even date herewith. THE PROVISIONS OF THE
ESCROW AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.
1
<PAGE>
1. CONVERSION. The Purchaser of this Note is entitled, at its option,
at any time and in whole or in part, until maturity hereof (as extended by
Purchaser) to convert the principal amount of this Note or any portion of the
principal amount hereof into Shares of Common Stock at a conversion price for
each share of Common Stock equal to the greater of: (i) Eighty Three Percent
(83%) of the Closing Bid Price of the Common Stock on the business date
immediately preceding the conversion date, or (ii) Four Dollars and Ninety Eight
Cents ($4.98). For purposes of this Section 1, the Closing Bid Price shall be
the closing bid price of the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), or the
closing bid price in the over-the-counter market or, in the event the Common
Stock is listed on a stock exchange, the closing bid price value per share shall
be the closing price on the exchange, as reported in the Wall Street Journal.
The shares of Common Stock issued upon conversion of the principal of the Note
are herein referred to as "Principal Conversion Shares" or sometimes the
"Conversion Shares." Such conversion shall be effectuated by surrendering the
Note to be converted to the Escrow Agent, with the form of Conversion Notice
attached hereto as Exhibit A, executed by the Purchaser of this Note evidencing
such Purchaser's intention to convert this Note or a specified portion hereof
(as above provided). The "Conversion Date" is the date upon which a duly
executed Conversion Notice, together with this Note, is delivered to the Escrow
Agent, or, if earlier, the date set forth in such Conversion Notice if the Note
and Conversion Notice is received by the Escrow Agent within five business days
after the date set forth in the Conversion Notice. The Company and Purchaser
acknowledge and agree that the Conversion Notice may be forwarded by confirmed
facsimile to the Escrow Agent at its facsimile number (714) 719-1988.
Upon recording the amount converted and amount of indebtedness
remaining under the Note, set forth in the Conversion Notice on the grid
comprising the last page of the Note ("Principal Reduction Grid"), the Escrow
Agent will send a copy of the revised Principal Reduction Grid to the Company
and will send a copy of the revised Principal Reduction Grid to the Purchaser
together with the certificate or certificates representing the Conversion
Shares.
The Company has authorized and has reserved and covenants to continue
to reserve, free of preemptive rights and other similar contractual rights of
stockholders, a sufficient number of its authorized but unissued shares of its
Common Stock to satisfy the rights of conversion of the holder of this Note.
Any certificates representing Conversion Shares transferred to
Purchaser which are not registered for resale without restriction under the
Securities Act or applicable state securities laws shall be endorsed with the
following legend:
2
<PAGE>
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (1) THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION
UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
2. EXTENSION OF MATURITY DATE. Purchaser shall have the right, in its
sole discretion, to extend the maturity of this Note for up to six (6) 30 day
periods, each such extension exercisable only by the Purchaser by delivering to
the Company and the Escrow Agent written notice of such extension at any time
prior to the maturity date then in effect.
3. PREPAYMENT. This Note shall not be prepaid, in whole or in part,
without the prior written consent of the Purchaser.
4. TRANSFERABILITY. Subject to the provisions of Paragraph 8 hereto,
this Note shall be freely transferable by the Purchaser provided such transfer
is in compliance with applicable federal and state securities laws.
5. RULE 504 ISSUANCE. Prior to Closing, the Company shall have prepared
and filed any and all filings and other documents required to qualify the
issuance of this Note and the issuance of the Conversion Shares upon conversion
of this Note in accordance with Rule 504 with the Securities and Exchange
Commission, the State of New York and the NASD, if applicable, in accordance
with their requirements, and shall have taken all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of this Note and the Conversion
Shares to the Purchaser or subsequent holders. The Company represents and
warrants that the issuance of this Note and the Conversion Shares may be issued
as securities without restrictive legend or other restriction on transfer
pursuant to Rule 504. The Company represents and warrants that prior to the
issuance of this Note it has not issued any other securities or undertaken any
other issuance which would be aggregated with the sale of the securities
hereunder. The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Purchaser set forth herein in order to determine the applicability of such
exemptions and the suitability of Purchaser to acquire this Note and the
Conversion Shares.
3
<PAGE>
Prior to Closing, the Company shall have delivered to Purchaser and
counsel for the Purchaser a copy of an opinion of counsel to the Company stating
that "[such counsel is] of the opinion that, as of the date hereof, the issuance
of the Note and the Conversion Shares is exempt from registration under Rule 504
of Regulation D of the rules and regulations promulgated under the Securities
Act of 1933, as amended (the "Act"), exempt from qualification under the
provisions of the applicable New York securities laws (the "Law"), and the Note
and the Conversion Shares may be issued under the Act and under the Law without
any restrictive legend regarding transfer." Such counsel shall also have
provided an opinion in form and content satisfactory to Purchaser and its
counsel as to the matters set forth in Paragraph 10(c) hereof.
6. DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default:
(a) The non-payment, when due, of any principal or
interest pursuant to this Note;
(b) The material breach of any representation or warranty in
this Note or in the Escrow Agreement. In the event the Purchaser becomes aware
of a breach of this Section 7(b), the Purchaser shall notify the Company in
writing of such breach and the Company shall have five business days after
notice to cure such breach;
(c) The breach of any covenant or undertaking in this Note or
in the Escrow Agreement, not otherwise provided for in this Section 7;
(d) A default shall occur in the payment when due (subject to
any applicable grace period), whether by acceleration or otherwise, of any
indebtedness of the Company or an event of default or similar event shall occur
with respect to such indebtedness, if the effect of such default or event
(subject to any required notice and any applicable grace period) would be to
accelerate the maturity of any such indebtedness or to permit the holder or
holders of such indebtedness to cause such indebtedness to become due and
payable prior to its express maturity;
(e) The commencement by the Company of any voluntary
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect; or the adjudication of
the Company as insolvent or bankrupt by a decree of a court of competent
jurisdiction; or the petition or application by the Company for, acquiescence
in, or consent by the Company to, the appointment of any receiver or trustee for
the Company or for all or a substantial part of the property of the Company; or
the assignment by the Company for the benefit of creditors; or the written
admission of the Company of its inability to pay its debts as they mature; or
(f) The commencement against the Company of any proceeding
relating to the Company under any bankruptcy, reorganization, arrangement,
insolvency, adjustment of debt, receivership, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, provided,
however, that the commencement of such a proceeding shall not constitute an
Event of Default unless the Company consents to the same or admits in writing
the material
4
<PAGE>
allegations of same, or said proceeding shall remain undismissed for 20 days; or
the issuance of any order, judgment or decree for the appointment of a receiver
or trustee for the Company or for all or a substantial part of the property of
the Company, which order, judgment or decree remains undismissed for 20 days; or
a warrant of attachment, execution, or similar process shall be issued against
any substantial part of the property of the Company.
Upon the occurrence of any Default or Event of Default, the Purchaser
may, by written notice to the Company, declare all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
immediately due and payable, in which event it shall immediately be and become
due and payable, provided that upon the occurrence of an Event of Default as set
forth in paragraph (e) or paragraph (f) hereof, all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
shall immediately become due and payable without any such notice.
7. NOTICES. Notices to be given hereunder shall be in writing and shall
be deemed to have been sufficiently given if delivered personally or sent by
facsimile transmission. Notice shall be deemed to have been received on the date
and time of personal delivery or facsimile transmission.
Notices shall be given to the following addresses:
If to the Company:
American Custom Components, Inc.
1515 South Sunkist Street
Anaheim, CA 92806
Attn: Martin Tony Walk
Facsimile No.: 714-978-0488
If to the Purchaser:
Generation Capital Associates
617 West End Avenue
New York, New York 10024
Attn: Frank Hart
Facsimile No.: 404-255-2218
With a copy to:
The Law Offices of M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: 714-719-1988
5
<PAGE>
8. LIMITATION. Notwithstanding any other provision of this Note
(including, without limitation, all Exhibits hereto) to the contrary, no
individual Purchaser or holder of this Note or any portion of this Note shall be
required or permitted to exercise any of the conversion rights to receive
securities of the Company if such action by Purchaser or such holder would
result in the Purchaser or such holder converting into and/or otherwise becoming
at any particular time the beneficial owner of an aggregate of more than 5% of
the then outstanding Common Stock of the Company, as calculated pursuant to
Section 13 of the Exchange Act and Regulation 13D-G promulgated thereunder. The
foregoing shall not prohibit the Purchaser or such holder from receiving any
remaining amounts owed under this Note to such Purchaser or such holder from the
Company, or to receive in the aggregate securities exceeding such amount, so
long as Purchaser or such holder does not have beneficial ownership of an
aggregate of more than 5% of the outstanding Common Stock at any given time.
9. REPRESENTATIONS AND WARRANTIES. The Company hereby makes the
following representations and warranties to the Purchaser:
a. ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly exiting and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted.
b. AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Note and the Escrow
Agreement and to issue and sell this Note and the Conversion Shares in
accordance with the terms hereof. The execution, delivery and performance of
this Note and the Escrow Agreement by the Company and the consummation by it of
the Transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Note and the Escrow Agreement have been duly executed and
delivered by the Company. Each of this Note and the Escrow Agreement
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
c. CAPITALIZATION. The authorized capital stock of the Company
consists of 25,000,000 authorized shares of Common Stock, of which 8,350,000 are
issued and outstanding as of the date hereof, and 1,000,000 shares of preferred
stock, none of which are issued and outstanding. All of the outstanding shares
of the Company's securities have been duly and validly authorized and issued and
are fully paid and nonassessable. No securities of the Company are entitled to
preemptive rights or registration rights and, except for a total of 700,000
shares issuable upon the exercise of options issued to the Michelson Group
exercisable at $.01 per share which have certain registration rights, there are
no outstanding options, warrants, scrip, rights to subscribe to,
6
<PAGE>
call or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, securities or rights convertible into shares of capital stock of the
Company, or commitments to purchase or acquire, any shares, or securities or
rights convertible into shares of capital stock of the Company.
d. ISSUANCE OF NOTE AND CONVERSION SHARES. The Note and the
Conversion Shares to be issued upon conversion of the Note have been duly
authorized by all necessary corporate action and, when paid for or issued in
accordance with the terms hereof, will be validly issued and outstanding, fully
paid and non-assessable and entitled to the rights and preferences set forth
herein.
e. DISCLOSURE. Neither this Note, the Escrow Agreement, nor
any other document, certificate or instrument furnished to the Purchaser by or
on behalf of the Company in connection with the transactions contemplated by
this Note or the Escrow Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under which they were
made herein or therein, not misleading.
Purchaser hereby makes the following representations and warranties to
the Company:
i. ACQUISITION FOR INVESTMENT. Purchaser is purchasing the
Note solely for its own account for the purpose of investment and not with a
view to or for sale in connection with a distribution. Purchaser does not have a
present intention to sell the Note or the Conversion Shares nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Note or the Conversion Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Purchaser does not agree to hold the Note or the Conversion Shares for any
minimum or other specific term and reserves the right to dispose of the Note and
the Conversion Shares at any time in accordance with Federal securities laws
applicable to such disposition. Such Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Note and the
Conversion Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary and appropriate to conduct its due
diligence investigation.
ii. ACCREDITED PURCHASERS. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
10. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Company
consents to the jurisdiction of any court of the State of New York and of any
federal court located in New York. The Company waives personal service of any
summons, complaint or other process in connection with any such action or
proceeding and agrees that service thereof may be made, as the Purchaser may
7
<PAGE>
elect, by certified mail directed to the Company at the location provided for in
Section 8 hereof, or, in the alternative, in any other form or manner permitted
by law.
11. GOVERNING LAW. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK
AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES OR PRINCIPLES OF CONFLICTS
OF LAW.
12. ATTORNEYS FEES. In the event the Purchaser or any holder hereof
shall refer this Note to an attorney for collection, the Company agrees to pay
all the costs and expenses incurred in attempting or effecting collection
hereunder or enforcement of the terms of this Note, including reasonable
attorney's fees, whether or not suit is instituted.
13. CONFORMITY WITH LAW. It is the intention of the Company and of the
Purchaser to conform strictly to applicable usury and similar laws. Accordingly,
notwithstanding anything to the contrary in this Note, it is agreed that the
aggregate of all charges which constitute interest under applicable usury and
similar laws that are contracted for, chargeable or receivable under or in
respect of this Note, shall under no circumstances exceed the maximum amount of
interest permitted by such laws, and any excess, whether occasioned by
acceleration or maturity of this Note or otherwise, shall be canceled
automatically, and if theretofore paid, shall be either refunded to the Company
or credited on the principal amount of this Note.
IN WITNESS WHEREOF, the Company has signed and sealed this Note and
delivered it in New York, New York as of October 10, 1997.
AMERICAN CUSTOM COMPONENTS, INC.
/s/ Inge Lundegaard
----------------------------------
Inge Lundegaard
Chief Financial Officer
8
<PAGE>
<TABLE>
PRINCIPAL REDUCTION GRID
------------------------
<CAPTION>
Date Principal Principal Adjusted Conversion
Converted Principal Shares Issued
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
October 10, 1997 $175,000 - 0 - $175,000 - 0 -
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
October 10, 1997 $175,000 $149,400 $25,600 30,000
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
October 13, 1997 $25,600 $24,900 $700 5,000
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
October 20, 1997 $700 $700 $0 141
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
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- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
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- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
</TABLE>
1
<PAGE>
EXHIBIT A
CONVERSION NOTICE
(To be executed upon Conversion of Note)
To:
The Law Offices of M. Richard Cutler, Esq. ("Escrow Agent")
and to American Custom Components, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right, represented by
that certain Convertible Note dated October 10, 1997 (the "Note"), attached
hereto, to convert $_______________ in outstanding principal amount of the Note
and/or accrued but unpaid interest on the Note into ___________ shares (the
"Shares") of Common Stock of the Company (determined at a per share price which
is the greater of: (i) 83% of the closing bid price on the Conversion Date
(defined below) or (ii) $4.98, as more fully set forth in the Note) and herewith
authorizes the Escrow Agent to reduce the principal amount of the Note and/or
accrued but unpaid interest on such Note in such amount. The undersigned
requests that certificates for such Shares be registered in the name of
Generation Capital Associates whose address is 617 West End Avenue, New York,
New York 10024 and that such certificates be delivered to David Rapaport whose
address is 1085 Riverside Trace, Atlanta, GA 30328. If said number of Shares is
less than all of the Shares issuable upon conversion in full of the Note, the
undersigned requests that a new Convertible Note reduced by the conversion price
hereof be registered in the name of Generation Capital Associates and that such
replacement Convertible Note be delivered to David Rapaport at the address set
forth above. The "Conversion Date" is the date upon which this duly executed
Conversion Notice, together with the Note, is delivered to the Escrow Agent or,
if earlier, the date set forth in such Conversion Notice if the Note and
Conversion Notice is received by the Escrow Agent within five business days
after the date set forth in this Conversion Notice.
Conversion Date:__________________
Signature:________________________
(Signature must conform in all respects to name of holder as specified on a the
face of the Note)
Previous Day's Bid Price:
______
Conversion Price:
______
2
<PAGE>
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH TRANSFER.
AMERICAN CUSTOM COMPONENTS, INC.
--------------------------------
CONVERTIBLE NOTE
----------------
$125,000.00 New York, New York
October 20, 1997
FOR VALUE RECEIVED, the undersigned, American Custom Components, Inc.,
a Nevada corporation (the "Company"), hereby promises to pay to the order of
Generation Capital Associates, a New York limited partnership, or its lawful
assigns (the "Purchaser"), in lawful money of the United States of America, and
in immediately available funds, the principal sum of ONE HUNDRED TWENTY FIVE
THOUSAND DOLLARS ($125,000.00). The principal hereof and any unpaid accrued
interest thereon shall be due and payable on or before 5:00 p.m., Eastern
Standard Time, on October 19, 1998 (unless the payment date is accelerated as
provided in Section 7 hereof, extended as provided in Section 2 hereof, or
unless this Note is converted as set forth in paragraph 1 hereof). Payment of
all amounts due hereunder shall be made at the address of the Purchaser provided
for in Section 8 hereof. The Company further promises to pay interest at the
rate of 5.97% percent per annum on the outstanding principal balance hereof,
such interest to be payable quarterly in arrears on the 1st day of each quarter,
commencing January 1, 1998.
This Note is issued by the Company in accordance with the provisions of
Rule 504 ("Rule 504") of Regulation D of the rules and regulations promulgated
under the provisions of the Securities Act of 1933, as amended, and the issuance
of this Note and the shares of common stock of the Company (the "Common Stock")
issuable upon conversion of this Note (the "Conversion Shares", as set forth in
Section 1 hereof) is consequently exempt from registration thereunder. The Note
and the Conversion Shares shall be issued under the Act without any restrictive
legend regarding the transfer of this Note or the Conversion Shares.
In connection with any conversion of the Note into any Conversion
Shares (as defined herein), the Company has placed into escrow with the Law
Offices of M. Richard Cutler, Esq. an aggregate of 201,000 shares of Common
Stock of the Company, issued in accordance with Rule 504 hereunder, pursuant to
the terms of an Escrow Agreement of even date herewith. THE PROVISIONS OF THE
ESCROW AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.
1
<PAGE>
1. CONVERSION. The Purchaser of this Note is entitled, at its option,
at any time and in whole or in part, until maturity hereof (as extended by
Purchaser) to convert the principal amount of this Note or any portion of the
principal amount hereof into Shares of Common Stock at a conversion price for
each share of Common Stock equal to the greater of: (i) Eighty Three Percent
(83%) of the Closing Bid Price of the Common Stock on the business date
immediately preceding the conversion date, or (ii) Four Dollars and Ninety Eight
Cents ($4.98). For purposes of this Section 1, the Closing Bid Price shall be
the closing bid price of the Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq"), or the
closing bid price in the over-the-counter market or, in the event the Common
Stock is listed on a stock exchange, the closing bid price value per share shall
be the closing price on the exchange, as reported in the Wall Street Journal.
The shares of Common Stock issued upon conversion of the principal of the Note
are herein referred to as "Principal Conversion Shares" or sometimes the
"Conversion Shares." Such conversion shall be effectuated by surrendering the
Note to be converted to the Escrow Agent, with the form of Conversion Notice
attached hereto as Exhibit A, executed by the Purchaser of this Note evidencing
such Purchaser's intention to convert this Note or a specified portion hereof
(as above provided). The "Conversion Date" is the date upon which a duly
executed Conversion Notice, together with this Note, is delivered to the Escrow
Agent, or, if earlier, the date set forth in such Conversion Notice if the Note
and Conversion Notice is received by the Escrow Agent within five business days
after the date set forth in the Conversion Notice. The Company and Purchaser
acknowledge and agree that the Conversion Notice may be forwarded by confirmed
facsimile to the Escrow Agent at its facsimile number (714) 719-1988.
Upon recording the amount converted and amount of indebtedness
remaining under the Note, set forth in the Conversion Notice on the grid
comprising the last page of the Note ("Principal Reduction Grid"), the Escrow
Agent will send a copy of the revised Principal Reduction Grid to the Company
and will send a copy of the revised Principal Reduction Grid to the Purchaser
together with the certificate or certificates representing the Conversion
Shares.
The Company has authorized and has reserved and covenants to continue
to reserve, free of preemptive rights and other similar contractual rights of
stockholders, a sufficient number of its authorized but unissued shares of its
Common Stock to satisfy the rights of conversion of the holder of this Note.
Any certificates representing Conversion Shares transferred to
Purchaser which are not registered for resale without restriction under the
Securities Act or applicable state securities laws shall be endorsed with the
following legend:
2
<PAGE>
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED UNLESS (1) THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION
UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
2. EXTENSION OF MATURITY DATE. Purchaser shall have the right, in its
sole discretion, to extend the maturity of this Note for up to six (6) 30 day
periods, each such extension exercisable only by the Purchaser by delivering to
the Company and the Escrow Agent written notice of such extension at any time
prior to the maturity date then in effect.
3. PREPAYMENT. This Note shall not be prepaid, in whole or in part,
without the prior written consent of the Purchaser.
4. TRANSFERABILITY. Subject to the provisions of Paragraph 8 hereto,
this Note shall be freely transferable by the Purchaser provided such transfer
is in compliance with applicable federal and state securities laws.
5. RULE 504 ISSUANCE. Prior to Closing, the Company shall have prepared
and filed any and all filings and other documents required to qualify the
issuance of this Note and the issuance of the Conversion Shares upon conversion
of this Note in accordance with Rule 504 with the Securities and Exchange
Commission, the State of New York and the NASD, if applicable, in accordance
with their requirements, and shall have taken all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of this Note and the Conversion
Shares to the Purchaser or subsequent holders. The Company represents and
warrants that the issuance of this Note and the Conversion Shares may be issued
as securities without restrictive legend or other restriction on transfer
pursuant to Rule 504. The Company represents and warrants that prior to the
issuance of this Note it has not issued any other securities or undertaken any
other issuance which would be aggregated with the sale of the securities
hereunder. The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Purchaser set forth herein in order to determine the applicability of such
exemptions and the suitability of Purchaser to acquire this Note and the
Conversion Shares.
3
<PAGE>
Prior to Closing, the Company shall have delivered to Purchaser and
counsel for the Purchaser a copy of an opinion of counsel to the Company stating
that "[such counsel is] of the opinion that, as of the date hereof, the issuance
of the Note and the Conversion Shares is exempt from registration under Rule 504
of Regulation D of the rules and regulations promulgated under the Securities
Act of 1933, as amended (the "Act"), exempt from qualification under the
provisions of the applicable New York securities laws (the "Law"), and the Note
and the Conversion Shares may be issued under the Act and under the Law without
any restrictive legend regarding transfer." Such counsel shall also have
provided an opinion in form and content satisfactory to Purchaser and its
counsel as to the matters set forth in Paragraph 10(c) hereof.
6. DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default:
(a) The non-payment, when due, of any principal or
interest pursuant to this Note;
(b) The material breach of any representation or warranty in
this Note or in the Escrow Agreement. In the event the Purchaser becomes aware
of a breach of this Section 7(b), the Purchaser shall notify the Company in
writing of such breach and the Company shall have five business days after
notice to cure such breach;
(c) The breach of any covenant or undertaking in this Note or
in the Escrow Agreement, not otherwise provided for in this Section 7;
(d) A default shall occur in the payment when due (subject to
any applicable grace period), whether by acceleration or otherwise, of any
indebtedness of the Company or an event of default or similar event shall occur
with respect to such indebtedness, if the effect of such default or event
(subject to any required notice and any applicable grace period) would be to
accelerate the maturity of any such indebtedness or to permit the holder or
holders of such indebtedness to cause such indebtedness to become due and
payable prior to its express maturity;
(e) The commencement by the Company of any voluntary
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect; or the adjudication of
the Company as insolvent or bankrupt by a decree of a court of competent
jurisdiction; or the petition or application by the Company for, acquiescence
in, or consent by the Company to, the appointment of any receiver or trustee for
the Company or for all or a substantial part of the property of the Company; or
the assignment by the Company for the benefit of creditors; or the written
admission of the Company of its inability to pay its debts as they mature; or
(f) The commencement against the Company of any proceeding
relating to the Company under any bankruptcy, reorganization, arrangement,
insolvency, adjustment of debt, receivership, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, provided,
however, that the commencement of such a proceeding shall not constitute an
Event of Default unless the Company consents to the same or admits in writing
the material
4
<PAGE>
allegations of same, or said proceeding shall remain undismissed for 20 days; or
the issuance of any order, judgment or decree for the appointment of a receiver
or trustee for the Company or for all or a substantial part of the property of
the Company, which order, judgment or decree remains undismissed for 20 days; or
a warrant of attachment, execution, or similar process shall be issued against
any substantial part of the property of the Company.
Upon the occurrence of any Default or Event of Default, the Purchaser
may, by written notice to the Company, declare all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
immediately due and payable, in which event it shall immediately be and become
due and payable, provided that upon the occurrence of an Event of Default as set
forth in paragraph (e) or paragraph (f) hereof, all or any portion of the unpaid
principal amount due to Purchaser, together with all accrued interest thereon,
shall immediately become due and payable without any such notice.
7. NOTICES. Notices to be given hereunder shall be in writing and shall
be deemed to have been sufficiently given if delivered personally or sent by
facsimile transmission. Notice shall be deemed to have been received on the date
and time of personal delivery or facsimile transmission.
Notices shall be given to the following addresses:
If to the Company:
American Custom Components, Inc.
1515 South Sunkist Street
Anaheim, CA 92806
Attn: Martin Tony Walk
Facsimile No.: 714-978-0488
If to the Purchaser:
Generation Capital Associates
617 West End Avenue
New York, New York 10024
Attn: Frank Hart
Facsimile No.: 404-255-2218
With a copy to:
The Law Offices of M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: 714-719-1988
5
<PAGE>
8. LIMITATION. Notwithstanding any other provision of this Note
(including, without limitation, all Exhibits hereto) to the contrary, no
individual Purchaser or holder of this Note or any portion of this Note shall be
required or permitted to exercise any of the conversion rights to receive
securities of the Company if such action by Purchaser or such holder would
result in the Purchaser or such holder converting into and/or otherwise becoming
at any particular time the beneficial owner of an aggregate of more than 5% of
the then outstanding Common Stock of the Company, as calculated pursuant to
Section 13 of the Exchange Act and Regulation 13D-G promulgated thereunder. The
foregoing shall not prohibit the Purchaser or such holder from receiving any
remaining amounts owed under this Note to such Purchaser or such holder from the
Company, or to receive in the aggregate securities exceeding such amount, so
long as Purchaser or such holder does not have beneficial ownership of an
aggregate of more than 5% of the outstanding Common Stock at any given time.
9. REPRESENTATIONS AND WARRANTIES. The Company hereby makes the
following representations and warranties to the Purchaser:
a. ORGANIZATION, GOOD STANDING AND POWER. The Company is a
corporation duly incorporated, validly exiting and in good standing under the
laws of the State of Nevada and has the requisite corporate power to own, lease
and operate its properties and assets and to conduct its business as it is now
being conducted.
b. AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and perform this Note and the Escrow
Agreement and to issue and sell this Note and the Conversion Shares in
accordance with the terms hereof. The execution, delivery and performance of
this Note and the Escrow Agreement by the Company and the consummation by it of
the Transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Note and the Escrow Agreement have been duly executed and
delivered by the Company. Each of this Note and the Escrow Agreement
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
c. CAPITALIZATION. The authorized capital stock of the Company
consists of 25,000,000 authorized shares of Common Stock, of which 8,350,000 are
issued and outstanding as of the date hereof, and 1,000,000 shares of preferred
stock, none of which are issued and outstanding. All of the outstanding shares
of the Company's securities have been duly and validly authorized and issued and
are fully paid and nonassessable. No securities of the Company are entitled to
preemptive rights or registration rights and, except for a total of 700,000
shares issuable upon the exercise of options issued to the Michelson Group
exercisable at $.01 per share which have certain registration rights, there are
no outstanding options, warrants, scrip, rights to subscribe to,
6
<PAGE>
call or commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, securities or rights convertible into shares of capital stock of the
Company, or commitments to purchase or acquire, any shares, or securities or
rights convertible into shares of capital stock of the Company.
d. ISSUANCE OF NOTE AND CONVERSION SHARES. The Note and the
Conversion Shares to be issued upon conversion of the Note have been duly
authorized by all necessary corporate action and, when paid for or issued in
accordance with the terms hereof, will be validly issued and outstanding, fully
paid and non-assessable and entitled to the rights and preferences set forth
herein.
e. DISCLOSURE. Neither this Note, the Escrow Agreement, nor
any other document, certificate or instrument furnished to the Purchaser by or
on behalf of the Company in connection with the transactions contemplated by
this Note or the Escrow Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
made herein or therein, in the light of the circumstances under which they were
made herein or therein, not misleading.
Purchaser hereby makes the following representations and warranties to
the Company:
i. ACQUISITION FOR INVESTMENT. Purchaser is purchasing the
Note solely for its own account for the purpose of investment and not with a
view to or for sale in connection with a distribution. Purchaser does not have a
present intention to sell the Note or the Conversion Shares nor a present
arrangement (whether or not legally binding) or intention to effect any
distribution of the Note or the Conversion Shares to or through any person or
entity; provided, however, that by making the representations herein, such
Purchaser does not agree to hold the Note or the Conversion Shares for any
minimum or other specific term and reserves the right to dispose of the Note and
the Conversion Shares at any time in accordance with Federal securities laws
applicable to such disposition. Such Purchaser acknowledges that it is able to
bear the financial risks associated with an investment in the Note and the
Conversion Shares and that it has been given full access to such records of the
Company and the subsidiaries and to the officers of the Company and the
subsidiaries as it has deemed necessary and appropriate to conduct its due
diligence investigation.
ii. ACCREDITED PURCHASERS. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
10. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Company
consents to the jurisdiction of any court of the State of New York and of any
federal court located in New York. The Company waives personal service of any
summons, complaint or other process in connection with any such action or
proceeding and agrees that service thereof may be made, as
7
<PAGE>
the Purchaser may elect, by certified mail directed to the Company at the
location provided for in Section 8 hereof, or, in the alternative, in any other
form or manner permitted by law.
11. GOVERNING LAW. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK
AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES OR PRINCIPLES OF CONFLICTS
OF LAW.
12. ATTORNEYS FEES. In the event the Purchaser or any holder hereof
shall refer this Note to an attorney for collection, the Company agrees to pay
all the costs and expenses incurred in attempting or effecting collection
hereunder or enforcement of the terms of this Note, including reasonable
attorney's fees, whether or not suit is instituted.
13. CONFORMITY WITH LAW. It is the intention of the Company and of the
Purchaser to conform strictly to applicable usury and similar laws. Accordingly,
notwithstanding anything to the contrary in this Note, it is agreed that the
aggregate of all charges which constitute interest under applicable usury and
similar laws that are contracted for, chargeable or receivable under or in
respect of this Note, shall under no circumstances exceed the maximum amount of
interest permitted by such laws, and any excess, whether occasioned by
acceleration or maturity of this Note or otherwise, shall be canceled
automatically, and if theretofore paid, shall be either refunded to the Company
or credited on the principal amount of this Note.
IN WITNESS WHEREOF, the Company has signed and sealed this Note and
delivered it in New York, New York as of October 20, 1997.
AMERICAN CUSTOM COMPONENTS, INC.
/s/ Inge Lundegaard
---------------------------------
Inge Lundegaard
Chief Financial Officer
8
<PAGE>
<TABLE>
PRINCIPAL REDUCTION GRID
------------------------
<CAPTION>
Date Principal Principal Adjusted Conversion
Converted Principal Shares Issued
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
October 20, 1997 $125,000 - 0 - $125,000 - 0 -
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
October 20, 1997 $125,000 $125,000 - 0 - 25,100
- ------------------------ ----------------------- ----------------------- ------------------------ -----------------------
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</TABLE>
1
<PAGE>
EXHIBIT A
CONVERSION NOTICE
(To be executed upon Conversion of Note)
To:
The Law Offices of M. Richard Cutler, Esq. ("Escrow Agent")
and to American Custom Components, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right, represented by
that certain Convertible Note dated October 20, 1997 (the "Note"), attached
hereto, to convert $_______________ in outstanding principal amount of the Note
and/or accrued but unpaid interest on the Note into ___________ shares (the
"Shares") of Common Stock of the Company (determined at a per share price which
is the greater of: (i) 83% of the closing bid price on the Conversion Date
(defined below) or (ii) $4.98, as more fully set forth in the Note) and herewith
authorizes the Escrow Agent to reduce the principal amount of the Note and/or
accrued but unpaid interest on such Note in such amount. The undersigned
requests that certificates for such Shares be registered in the name of
Generation Capital Associates whose address is 617 West End Avenue, New York,
New York 10024 and that such certificates be delivered to David Rapaport whose
address is 1085 Riverside Trace, Atlanta, GA 30328. If said number of Shares is
less than all of the Shares issuable upon conversion in full of the Note, the
undersigned requests that a new Convertible Note reduced by the conversion price
hereof be registered in the name of Generation Capital Associates and that such
replacement Convertible Note be delivered to David Rapaport at the address set
forth above. The "Conversion Date" is the date upon which this duly executed
Conversion Notice, together with the Note, is delivered to the Escrow Agent or,
if earlier, the date set forth in such Conversion Notice if the Note and
Conversion Notice is received by the Escrow Agent within five business days
after the date set forth in this Conversion Notice.
Conversion Date:__________________
Signature:________________________
(Signature must conform in all respects to name of holder as specified on a the
face of the Note)
Previous Day's Bid Price:
______
Conversion Price:
______
2
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STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, )
October 19, 1995, is by and between RREEF USA FUND-II, INC., a Delaware
Corporation ("LESSOR") and AMERICAN CUSTOM COMPONENTS, INC., a California
Corporation ("LESSEE") (Collectively the "PARTIES", or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this lease
commonly known by the street address of 1515 S. Sunkist St., Suites E & F,
located in the City of Anaheim, County of Orange, State of California, with zip
code 92806, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building), a portion of a
concrete tilt up building consisting of approximately 4,050 square feet. In
addition to Lessee's rights to use and occupy the Premises as hereinafter
specified. Lessee shall have non-exclusive rights to the Common Area defined in
Paragraph 2.7 below as hereinafter specified, but shall not have any rights to
the roof, exterior walls, or utility raceways of the Building or to other
buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other building and
improvements thereon, are herein collectively referred to as the "Industrial
Center". (Also see Paragraph 2).
1.2(b) PARKING: Eight unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and ----------- reserved vehicle parking spaces ("Reserved
Parking Spaces"). ( Also see Paragraph 2.6.)
1.3 TERM: Three years and --- months ("Original Term") commencing
November 1, 1995 ("Commencement Date") and ending October 31, 1998 ("Expiration
Date"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: -----------------------("Early Possession"). (Also
see Paragraph 3.2. and 3.3).
1.5 BASE RENT: $2,014.00 per month ("BASE RENT"), payable on the first
day of each month commencing November 1, 1995. (Also see Paragraph 4.) [x] If
this box is checked, this Lease provides for the Base Rent to be adjusted per
Addendum 1/1, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $2,041.00 as Base Rent for the
period 11/01/95 through 11/30/95.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 56/100 percent
(.56%). ("Lessee's Share") as determined __ pro rata square footage of the
Premises as compared to the total square footage of the Building or _x_ other
criteria as described in Addendum 1/3.
1.7 SECURITY DEPOSIT: $2,280.00 ("Security Deposit"). ( Also see
Paragraph 5).
1.8 PERMITTED USE: Administrative offices and warehouse for the
wholesale distribution and light manufacturing of disc drive connectors and for
no other purpose. ("Permitted Use"). ( Also see Paragraph 6).
1.9 INSURING PARTY. Lessor in the "Insuring Party." (Also see Paragraph
8).
1.10(a)REAL ESTATE BROKERS. The following real estate broker (s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction are consented to by the Parties (check applicable boxes):
_X_ Grubb & Ellis represents Lessor exclusively ("LESSOR'S BROKER"); _X_
Grubb & Ellis represents Lessor exclusively ("LESSEE'S BROKER"); or ___
represents both Lessor and Lessee ("DUAL AGENCY"). (Also see Paragraph
15).
1.10(b)PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
they may mutually designate in writing, a fee as set forth in a separate written
agreement between Lessor and said Broker(s) (or in the event there is separate
written agreement between Lessor and said Broker(s), the sum of $4,680.35 for
brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by Martin Tony Walk ("Guarantor"). (Also see Paragraph 37).
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 4 and Exhibit A through D, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify saying that Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants
to Lessee that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Lessee will put the Premises or to any Alterations or
Utility Installation (as defined in Paragraph 7.3 (a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If appointment lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (Including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefore as of same relate to Lessee's occupancy of the Premises and/or lower
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
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2.6 ___________________________________________________________________________
1.2 (b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than number. Said
parking spaces shall be used for parking by vehicles no larger than full-size
passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations defined in
Paragraph 40) issued by Lessor. (Also see Paragraph 2.9).
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities described
in this Paragraph 2.6, then Lessor shall have the right, without notice,
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS' is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
Industrial Center and interior utility raceways within the Premises that are
provided and designated by the Lessor from time to time for general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors, and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways. and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any not deemed to include the right
to store any property, temporarily or permanently, in the Common Areas. Any such
storage shall be permitted only by the Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control of management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereof in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employer rules and regulations by other lessees of
the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveway entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways.
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available.
(c) To designate other land outside the boundaries of the Industrial Center
to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas; (e)
To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in, to or
with respect to the Common Areas and Industrial Center. Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
3. TERM
3.1 TERM The Commencement Date, Expiration Date and Original Term of this
Lease are specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the periods of such early possession. All other terms of this Lease,
however, shall be in effect during such period. Any such early possession shall
not affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of
the Premises as agreed herein by the Early Possession Date if one is specified
in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liabilities therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent for perform any
other obligation of Lessee under of terms of this Lease until Lessor delivers
possession of Premises to Lessee. If possession of the Premises is not delivered
to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event of Parties shall be discharged from all obligations
hereunder; provided, however, that if such written notice by Lessee is not
received by Lessor within said ten (10) days, Lessee's right to cancel this
Lease shall terminate and be of no further notice or affect. Except as may be
otherwise provided, and regardless of when the term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to what Lessee
would otherwise have enjoyed under the terms hereof, but minus any base of delay
caused by the acts, changes or omissions of Lessee.
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor act its address stated herein or to such other persons
or at such other addresses as Lessor may from time to time designate in writing
to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share (as specified in Paragraph
1.6(b)) of all Common Area Operating Expenses, as hereinafter defined, during
each calendar year of the term of this Lease, in accordance with the following
provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service the
Common Areas.
(iii) Trash disposal, property management and security services and
the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Any increase above the Base Real Property Taxes (as defined in
Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with respect to the
Common Areas.
(viii) any deductible portion of an insured loss concerning the
Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to such other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless
the Industrial Center already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. if Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain all
or any portion of said Security Deposit, for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall; upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those melts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
paid by Lessee under this Lease.
6. USE
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparative thereto and for no
other purpose. Lessee shall not use or permit the use of Premises in a manner
that creates waste or a nuisance, or that disturbance owners and/or occupants
of, or causes damage to, neighboring premises or properties.
(b)Lessor hereby agrees to not unreasonably withhold or delay its consent
to any written request by Lessee, Lessees assignee or subtenants, and by
prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, is not significantly more burdensome to the Premises and the
Improvements thereon, and is otherwise permissible pursuant to this Paragraph 6.
If Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as used
in this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacturer, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either; (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law, Hazardous Substance
shall include, but not be limited to hydrocarbons, petroleum, gasoline, crude
oil or any products, by-products or fractions thereof. Lessee shall not engage
in any accuracy in, on or about the Premises which constitutes a Reportable Use
(as hereinafter defined) of Hazardous Substances without the expense prior
written consent of Lessor and compliance in a timely manner (at Lessee's sole
cost and expense) with all Applicable Law (as defined in Paragraph 6.3).
"REPORTABLE USE" shall mean (I) the installation or use of any above or below
ground storage tank, (II) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filled with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Success with respect to which any Applicable Law
requires that unnoticed be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use of any Hazardous Substance, activity or
storage tank by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or injury
and/or liability therefrom or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to buy Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim action or proceeding given to, or received from, any governmental
authority or private party, or persons entering or occupying the Premises,
concerning the presence, spill, release, discharge of, or exposure to, any
Hazardous Substance or contamination in, on, or about the Premises, including
but not limited to all such documents as may be involved in any Reportable Uses
Involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on under, or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders, and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgements, costs, claims, liens, expenses, penalties, permit and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control, Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration, and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing that the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Except as otherwise provided in
this Lease, Lessee, shall at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "Applicable Law," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, assessments and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (I)
industrial hygiene, (II) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (III) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request that are, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor and Lessor's agents, employees,
contractors and designated representatives, and the holders of mortgages, deeds
of trust or ground leases on the Premises ("Lenders") shall have the right to
enter the Premises at any time. in case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable Laws
(as defined in Paragraph 6.3), and to employee experts and/or consultants in
connection therewith and/or to advise Lessor with respect to Lessee's
activities, including but not limited tune the installation, operation, use,
monitoring, maintenance, or removal of any Hazardous Substance or storage tank
on or from the Premises. The cost and expenses of any such inspections shall be
paid by the party requesting same, unless a Default or Breach of this Lease,
violation of Applicable Law, or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expensive of such inspections.
7.MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance
with Covenants, Restrictions and Building Code), 7.2 (Lessor's Obligations), 9
(Damage or Destruction, and 14 (Condemnation), Lessee shall, at Lessee's sole
cost and expense and at all times keep the Premises and every part therein good
order, condition and repair, (whether or not that portion of the Premises
requiring repair, or the met of any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks,
and parkways located in, on, about, or adjacent to the Process, but excluding
foundations, the exterior of and the structural aspects of the Premises. Lessee
shall not cause or permits any Hazardous Substance to be spilled or police in,
on, under or about the Premises (including through the plumbing or sanitary
sewer system) and shall promptly, at Lessee's excess, take all investigatory
and/or remedial action reasonably recommended, whether or not formally ordered
or required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to involving any Hazardous Substance and/or storage tank brought
onto the appointment Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacement or renewals when necessary to keeping the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for and with a
contractor specializing and experienced in, the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for the heating, air conditioning and ventilating
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Premises after ten (10) days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on Lessee's behalf, and put the
Premises in good order, condition and repair, in accordance with Paragraph 13.2
below.
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7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraph 2.2
(Condition, 2.3(Compliance with Covenants, Restrictions and Building Code), 4.2
(Common Area Operating Expense, 6 (Use), 7.1 (Lessee's Obligations, 9 (Damage or
Destruction) and 14 (Condemnation, Lessor, subject to reimbursement pursuant to
Paragraph 4.2. shall keep in good order, condition and repair the foundation,
exterior walls, structural condition of interior beam walls, exterior roof, fire
sprinkler and/or standpipe and hose (if located in the Common Areas) or other
automatic fire extinguishing system including fire alarm. Upon receipt of
written notice of the need for such repairs and subject to Paragraph 13.5,Lessor
shall, at Lessor's expense keep the foundations, exterior roof and structural
aspects of the Premises in good order, condition and repair, Lessor shall not,
however be obligated to paint the exterior surface of the exterior walls or to
maintain the windows, doors or fate last or the interior surface of exterior
walls. Lessor shall not, in any event, have any obligation to make any repairs
until Lessor receives written notice of the need for such repairs. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repairs of the Presses. Lessee
and Lessor expressly waived the benefit of any statute now or hereafter in
effect to the extent it is inconsistent with the terms of this Lease with
respect to, or which affords Lessee the right to make repairs at the expense of
Lessor or to terminate this Lease by reason of any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used
in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication system, lighting fixtures, heating, ventilating, and air
conditioning prevent, plumbing and fencing in, or on or about the Premises. The
term " TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4 (a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. In Paragraph 7.4 (a), Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended as not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $2,500.00 or more upon Lessee's providing Lessor will a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsiblity in or on the Premises as provided by law. If Lessee
shall, in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense, defend and protect itself, Lessor and
the Premises against the same and shall pay and satisfy any such adverse
judgement that may be rendered thereon before the enforcement thereof against
the Lessor or the Premises. If Lessor shall require, Lessee shall furnish Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or become
the owner thereof as hereinafter provided in this Paragraph 7.4 all Alterations
and Utility Additions made to the Premises by Lessee shall be the property of
and owned by Lessee, but considered a part of the Premises. Lessor may, at any
time and at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, with all of
the Improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE COST
INCREASE") occurring during the term of this Lease. "INSURANCE COST INCREASE" is
defined as any increase in the actual cost of the insurance required under
Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"), over and above the
Base Premium, as hereinafter defined, calculated on an annual basis. "INSURANCE
COST INCREASE" shall include, but not be limited to, increases resulting from
the nature of Lessee's occupancy, any act or omission of Lessee, requirements of
the holder of a mortgage or deed of trust covering the Premises, increased
valuation of the Premises, and/or a premium rate increase. If the parties insert
a dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." In lieu thereof, if the Premises have been previously occupied, the
"Bin Premium" shall be the annual premium applicable to the most recent
occupancy, if the Premises have never been occupied, the "Base Premium" shall be
the lowest annual premium reasonably obtainable for the Required Insurance as of
the commencement of the Original Term, assuming the most nominal use possible
of. the Premises. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b) (Liability Insurance
Carried By Lessor).
(b) Lessee shall pay any such insurance Cost to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to extending beyond,
the term of this Lease shall be prorated to coincide with the corresponding
Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE. See Addendum 1.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lessee Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
the single limit coverage in an amount not less than $1,000,000 per occurrence
with an "ADDITIONAL INSURED MANAGERS OR LESSORS OF PREMISES" Endorsement and
contain the "AMEND POLLUTION EXCLUSION" for damage caused by smoke or fumes from
a hostile fire. The policy shall not contain any Intra-Insured exclusions as
between insured persons or organization, but shall include coverage for
liability assumed under this Lease as an "insured contract" for the performance
of Lessee's indemnity obligations under this Lease. The limits of said insurance
required by this Lease as carried by Lessee shall not, however limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee, shall be primary to and not contributory with
any similar insurance carried by Lessor, whose Insurance shall be considered
excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above in
addition to and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to the holders of any mortgages, deeds of trust
or ground leases on the Premises ("LENDER(S)"), insuring lot or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by Lenders, but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age of
the improvements involved, such latter amount is less than full replacement
cost. Lessee Owned Alterations and Utility Installations shall be insured by
Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for an additional costs resulting from
debris removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any undamaged
sections of the Premises required to be demolished or removed by reason of the
enforcement of any building, zoning safety or land use laws as the result of a
covered cause of loss, but not including plate glass insurance. Said policy or
policies shall also contain a agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) yet
(including all real estate taxes, insurance costs, and any scheduled rental
Increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Common Area Operating
Expenses shall include any deductible amount in the event of a loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the premiums
for the property insurance of such building and for the Common Area and other
buildings in the Industrial Center if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
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(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5
Lessee at its cost shall either by separate policy or, at Lessor's option by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
insuring party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B +, V. or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the. expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employee or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed undo this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon ether portions of the building of which the Premises are a
part of from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act of neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alteration and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installation the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto. including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinance or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of
a condition involving the presence of, or a contamination by a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage
that is an insured loss occurs, then Lessor shall, at lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing, if the
required insurance was not in force or the insurance proceeds are not sufficient
to effect such repair, the Insuring Party shall promptly contribute the shortage
in proceeds as and when required to complete said repairs. In the event,
however, the shortage in proceeds was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance coverage was
not commercially reasonable and available; Lessor shall have no obligation to
pay for the shortage in insurance proceeds or to fully restore the unique
aspects of the premises unless Lessee provides Lessor with the funds to cover
the same, or adequate assurance thereof, within ten (10) days following receipt
of written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof, within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonable
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee with ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If in such case Lessor does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2 notwithstanding that their
may be some insurance coverage, but the net proceeds of any such occurrence
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge the occurrence of such
damage at Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's Intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's as commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above this Lease shut terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, its
Premises Total Destruction occurs (including any destruction required by or
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was cause by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lease may preserve this
Lease by within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (I) exercising such option and (II)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect If Lessee fails to exercise the option and
provide such funds or assurance during such period, than this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEES REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is not legally responsible, the Base Rent, Common
Area Operating Expenses, and other charges, if any, payable by Lessee hereunder
for the period during which such damage, its repair or the restoration continues
(not to exceed the period for which rental value insurance is required under
Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's
use of the Premises Is Impaired. Except for abatement of Base Rent, Real
Property Taxes insurance premiums, and other charges, if any as aforesaid, all
other obligations of Lessee hereunder shall be performed by Lessee, and Lessee
shall have no claim against Lessor for any damage suffered by reason of any such
repair or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration Is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs,
unless Lessee is legally responsible therefor (in which case Lessee shut make
the investigation and remediation thereof required by Applicable Law and this
Lease shall continue in full force and effect, but subject to Lessor's rights
under Paragraph 13), Lessor may at Lessor's option either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue In full
force and effect, or (ii) if the estimated cost to investigate and remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment in
such event this Lease shall continue in full force and effect, and Lessor shut
proceed to make such Investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided In Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant to
this Paragraph 9, an equitable adjustment shall be made concerning advance Base
Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or destruction of the Premises with respect
to the termination of this Lease and hereby waive the provisions of any present
or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined in
Paragraph 10.2(a), applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any increases in such amounts over the Base Real
Property Taxes shall be included in the calculation of Common Area Operating
Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any form
of real estate tax or assessment, general, special, ordinary, extraordinary, and
any license fee, commercial rental tax, improvement bond or bonds, levy or tax
(other than inheritance, personal income or estate tax) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center, or
any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "REAL PROPERTY TAX" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable taking effect,
during the term of this Lease, including but not limited to a change in the
ownership of the Industrial Center or in the improvements thereon, execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the amount
of Real Property Taxes, which are assessed against Premises, Building or Common
Areas in the calendar year during which the Lease is executed. In calculating
Real Property Taxes for any calendar year, Real Property Taxes for any real
estate tax year shall be included in the calculation of Real Property Taxes for
such calendar year based upon the number days which such calendar year and tax
year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not include
Real Property Taxes specified in the tax assessor's records and sheets as being
caused by additional improvements placed upon the Industrial Center by other
lessees or by Lessor for the exclusive enjoyment of such other lessee.
Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to Lessor at
the time Common Area Operating Expenses are payable under Paragraph 4.2,
entirety of any increase in Real Property Taxes if assessed solely by reason of
Alterations, Trade fixtures or Utility Installations placed upon the Premises by
Lessee or Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respect
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee-owned Alterations and Utility
Installations, Trade fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, together with any taxes thereon. If any such utilities
or services are not separately metered to the Premises or separately billed to
Premises, Lessee shall pay to Lessor a reasonable proportion, to be determined
by Lessor of all charges jointly metered or billed with other premises in
Building, in the manner and within the time periods set forth in Paragraph
4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively "assignment") sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms Paragraph
36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or-otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessees interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be Default
curable after notice per Paragraph 13.1, or a non-curable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (II) upon their (30) days
written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent to fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base Index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not:
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lease or to
any subsequent or successive assignment or subletting by the subleasee. However,
Lessor may consent to subsequent sublettings and assignment of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
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(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantor or any one
else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor remedies against
any other person or entity responsible therefor to Lessor, or any security held
by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(g) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then
constitutionally determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessees obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublease, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any at Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee or until the Breach has been cured, against Lessor, for any such
rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may required any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted
by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "DEFAULT" by Lessee is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions, or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
Insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, If applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b). (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs 13.1(a). (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor' as defined in 11 U.S. Code, Section 101 or any
successor statute thereto (unless, in the case of a petition flied against
Lessee, the same is dismissed within sixty (60) days); (iii) me appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at me Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessees assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days: provided, however, in the
event that any provision of this subparagraph (5) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect me validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor. (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at me time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice). Lessor may at its option (but
without obligation to do so). perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. in me event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall Immediately surrender possession of me Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (I) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at me time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for me balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, Including but not limited to the cost of recovering possession of me
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorney's fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at me time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rats
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. if termination of this Lease is obtained through me provisional
remedy of unlawful detainer, Lessor shall have me right to recover in such
proceeding me unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any pert thereof in a separate suit
for such rent and/or damages. if a notice and grace period required under
subparagraph. 13.1(b). (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as me case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b). (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b). (c) or (d) and under me unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
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(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for me limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or me appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of me Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or Judicial decisions of me state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during me
term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free
or abated rent or other charges applicable to the Premises, or for the giving or
paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be Immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated me operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, me exact amount of which will be extremely difficult
to ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be Imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge be Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor falls within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of writing for such purpose, of written notice specifying wherein
such obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or a on thereof are taken under the power of
eminent domain or sold under the threat of the exercise of said power (all of
which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of the floor area of the
Premises, or more than twenty-five percent (25%) of the land area not occupied
by any building, Is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days alter Lessor shall have given Lessee
written notice of such taking (or In the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession, if Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain In full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced In the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the building located on the Premises. No reduction of Base Rent shall occur
if the only portion of the Premises taken Is land on which there Is no building.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the properly of Lessor, whether such award shall be made in
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation separately awarded to Lessee for Lessees relocation expenses
and/or loss of Lessee's `Trade Fixtures. In the event that this Lease Is not
terminated by reason of such condemnation, Lessor shall to the extent of its net
severance damages received, over and above the legal and other expenses incurred
by Lessor In the condemnation matter, repair any damage to the Premises caused
by such condemnation, except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall be responsible for the
payment of any amount In excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring causes of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option defined in
Paragraph 30.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining the
Premises and/or any adjacent property in which Lessor has an interest, or (e) if
Base rent is increased, whether by agreement or operation of an escalated clause
herein, then as to any of said transactions, Lessor shall pay said Broker(s) a
fee in accordance with the schedule of said Broker(s) in effect at the time of
the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATION. Any buyer or transferee of Lessors interest in
this Lease, whether such transfer is by agreement or by operation of law, shall
be deemed to have assumed Lessor's obligation under this Paragraph 15. Each
Broker shall be a third party beneficiary of the provisions of this Paragraph 15
to the extent of its Interest in any commission arising from this Lease and may
enforce that right directly against Lessor and Its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder (other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Brokers is entitled to any commission or finder's fee In
connection with Said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
Inform similar to the then most current "TENANCY STATEMENT" form published by
the American industrial Real Estate Association, plus such additional
Information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell the
Premises, any part thereof, or the building of which the Premises are a part,
Lessee and all guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements of
Lessee and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. AK such financial statements shall be received by Lessor
and such lender or purchaser In confidence and shall be used only for the
purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, If this is
a sublease, of the Lessee's interest in the prior lease. in the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15.3, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the Largest state chartered bank in the state in which
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, Its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered In person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mall or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission,
and shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes. Either
Party may by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or it no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the United States Postal Service or Courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone confirmation of receipt of the transmission
thereof, provided a copy Is also delivered via delivery or mail, If notice is
received on a Sunday or legal holiday, It shall be deemed received on the next
business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or a
termination of this Lease shall be increased to two hundred percent (200%) of
the Base Rent applicable during the month immediately preceding expiration or
earlier termination. Nothing contained herein shall be construed as a consent by
Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address hay been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
if any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of Its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquire ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defense which Lessee
might have against any prior lessor or (iii) be bound by prepayment of more than
one (1) month's rent.
30.3 NON-DISTURBANCES. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "NON-DISTURBANCE agreement") from the Lender
that Lessee's possession and this Lease, including any option to extend the term
hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Part) (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered In a separate suit, whether or not such action or
proceeding Is pursued to decision or judgment. The term "PREVAILING PARTY" shall
Include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be. whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of the Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary `For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent Notwithstanding anything to the contrary
In this Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably Interfere with the conduct of
Lessee's business. Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination, of such interest.
36. CONSENTS,
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, ass
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each said Guarantor shall have the same obligations as
Lessee under this Lease, including but not limited to the obligation to provide
the Tenancy Statement and Information called for by Paragraph 18.
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37.2 It shall constitute a Default of the Lessee under this Lease if any such
Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of Incumbency showing the signature of the persons authorized to
sign on Its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) `a Tenancy Statement, or (d) written
confirmation that the guaranty Is still in effect
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions Lessee's part to be observed and performed under this Lease, Lease
shall have quite possession of the Premises for the entire term hereof subject
to provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter assign
or subletting. The Options, if any herein granted to Lessee are not assignable,
either as a part of an assignment of this Lease or separately or apart
therefrom, and no Option may be separated from this Lease in any manner by
reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) In the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or the Defaults are
cured, during the twelve (12) month period immediately preceding the exercise of
the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee' inability to exercise Option because
of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessees due timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee falls to pay to Lessor a monetary obligation of Lessor for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor g to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) Lessee
commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") Lessor
may make from time to time for the management, safety, care, and cleanliness of
the grounds, the parking and unloading of vehicles and preservation of good
order, as well as for the convenience of other occupants or tenants of the
Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right. from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such suit. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust. or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessors agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. The Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend the
Lease from time to time to reflect any adjustments that are made to the Base
Rent or other rent payable under this Lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
46. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES, NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Anaheim, California Executed at: Anaheim, California
on ______________________________ on: 10/23/95
Authorized above by Martin Walk
by LESSOR: by LESSEE:
RREEF USA FUND-II, INC., a DE corp. AMERICAN CUSTOM COMPONENTS, INC.
By: ------------------------------ By: /s/ Martin Tony Walk
Name Printed: -------------------- Name Printed: Martin Tony Walk
Title: --------------------------- Title: President
By: /s/ Michael F. Severson By: -------------------------------------
Name Printed: Michael F. Severson Name Printed: ---------------------------
Title: District Manager Title: ----------------------------------
Address: 1630 South Sunkist Street, Address: 1515 S. Sunkist Street, Suites
Suite A Anaheim, California 92806 E & Anaheim, California 92806
Telephone (714) 634-4664---------- Telephone: (714) 632-1411
Facsimile:(714) 634-2680---------- Facsimile: (714) 632-1772
Initials /s/
/s/
11
<PAGE>
ADDENDUM 1
To that Lease Agreement dated October 19, 1995, between RREEF USA FUND-II, INC.,
a Delaware corporation, as Lessor and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation, as Lessee.
1. RENT SCHEDULE
Rent for the period 11/01/95 through 11/30/95 shall be $2,014.00.
Rent for the period 12101/95 through 12/31/95 shall be rent free.
Rent for the period 01/01/96 through 10/31/96 shall be $2,014.00 per month.
Rent for the period 11/01/96 through 11/30/96 shall be rent free.
Rent for the period 12/01/96 through 10/31/97 shall be $2,086.00 per month.
Rent for the period 11/01/97 through 10/31/98 shall be $2,171.00 per month.
No minimum base monthly rent shall be payable for the following months (the
"Abatement Months"):
12/95 & 11/96
The entire minimum base rent otherwise due and payable for the abatement month
shall become due and payable upon the occurrence of an event of default by
Lessee.
2. LIABILITY INSURANCE
Pursuant to Section 8.2(a) of this Lease, Lessee's liability insurance shall
contain an annual aggregate limit of not less that $2,000,000. Lessee shall
provide evidence of Business Auto Liability covering owned, non-owned and hired
vehicles with a limit 0 not less than $1,000,000 per accident; insurance
protecting against liability under Workman's Compensation Laws with limits a
least as required by statute; (a) Employers Liability with limits of $500,000
each accident, $500,000 disease policy limit, $500,00( disease - each employee;
(b) All Risk or Special Form coverage protecting Lessee against loss of or
damage to Lessee's alterations additions, improvements, carpeting, floor
coverings, panelings, decorations, fixtures, inventory and other business
personal property situated in or about the premises to the full replacement
value of the property so insured; and, (c) Business Interruption Insurance with
limit of liability representing loss of at least approximately six months of
income.
Whenever Lessee shall undertake any alterations, additions or improvements into
or about the Premises ("Work"), the aforesaid insurance protection must extend
to and include injuries to persons and damage to property arising in connection
with such Work, without limitation including liability under any applicable
structural work act, and such other insurance as Lessor shall require and the
policies of our certificates evidencing such insurance must be delivered to
Lessor prior to the commencement of any such Work.
3. LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES
"Lessee's Share" is determined by prorata square footage of the Premises as
compared to the total square footage of the Industrial Park except for (v) Real
Property Taxes are determined by the pro-rata square footage of the Premises as
compared to the total square footage of the tax parcel. Lessee's Share of the
Real Property Taxes is 2.18%.
4. LIMITATION OF LESSOR'S LIABILITY
Redress for any claim against Lessor under this lease shall be limited to and
enforceable only against and to the extent of lessor's interest in the Building.
The obligations of Lessor under this Lease are not intended to and shall not be
personally binding on, nor shall any resort be had to the private properties of,
any of it's trustees or board of directors and officers, as the case may be,
it's investment manager, the general partners thereof, or any beneficiaries,
stockholders, employees or agents of Lessor, or the investment manager.
LESSOR: RREEF USA FUND-II, INC. LESSEE: AMERICAN CUSTOM COMPONENTS, INC.
a Delaware corporation a California corporation
BY: RREEF MANAGEMENT COMPANY,
a California corporation
BY: /s/ Michael F. Severson BY: /s/ Martin Tony Walk
-------------------------- --------------------------
Michael F. Severson Martin Tony Walk
TITLE: District Manager TITLE: President
DATED: 10/25/95 DATED: 10.23.95
ADDRESS: 1630 S. Sunkist Street ADDRESS: 1515 South Sunkist Street
Suite A Suite E & F
Anaheim, CA 92806 Anaheim, CA 92806
<PAGE>
EXHIBIT A
Exhibit A to that Lease dated October 19, 1995, between RREEF USA FUND-II, INC.,
a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC. a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806
[graphic of STADIUM PLAZA BUSINESS PARK here]
This site plan is intended only to show the general layout of the property or a
part thereof. Lessor reserves the right to alter, add to or omit in whole or in
part any structures, and/or improvements, and/or common areas and/or land area
shown on this plan. All measurements and distances are approximate. This plan is
not to be scaled.
<PAGE>
EXHIBIT A-1
Exhibit A-1 to that Lease dated October 19, 1995, between RREEF USA FUND-II,
INC., a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC. a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806
[graphic of floor plan here]
<PAGE>
EXHIBIT B
Exhibit B to that Lease dated October 19, 1995, between RREEF USA FUND-II, INC.,
a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806.
Lessee accepts premises in as-is" condition except as noted below:
Lessor shall provide a tenant improvement allowance of $7,250.00 for interior
tenant improvements, plans and permits pursuant to the attached Exhibit B-I and
B-1A. All work is to be completed by Tri-Tower, Inc.
Lessee shall provide Lessor with plans prior to construction for Lessor's
written approval.
Upon completion of Tenant Improvements, Lessee shall supply Lessor with copies
of plans, permits, signed off cards, final approval inspection card and lien
releases.
Upon receipt of the aforementioned documents, Lessor shall reimburse Lessee
within thirty (30) days of receipt.
In no event shall Lessor be responsible for any other tenant improvement costs
other than the $7,250.00 referenced above. Any tenant improvement costs
exceeding $7,250.00, shall be the sole responsibility of Lessee and shall be
paid directly by Lessee.
<PAGE>
Exhibit B-1 to that Lease dated October 19, 1995, between RREEF USA FUND-II,
INC., a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806.
PROPOSAL
Tri-Tower. Inc.
1938 N. Batavia Suite K
Orange, Ca. 92665
Voice (714)283-4095 Fax (714) 283-3815
The Rreef Funds Date: October 10, 1995
1630 S. Sunkist Suite A Job #: IOSA.:2
Anaheim, Ca. 92806 Re: 1515 S. Sunkist Suite E & F
Attn: Eileen Pinkerton Anaheim, Ca.
Subject: Suite modifications for proposed tenant:
OFFICES: (north center (2) utility rooms)
1. Demo existing wail dividing both rooms (to enlarge (or single use); to
include necessary electrical; remove (2) door locations.
2. Demo north room T-bar ceiling system; install new T-bar system and tie
into south side to make uniform.
3. Reinstall (1) light fixture and tie Into south side light switching.
4. Relocate (1) H.V.A.C. air supply and eliminate (1) air return duct.
5. Repair V.C.T. flooring to make uniform.
6. Fill in (2) door openings - match wall finishes.
7. Repair all wall scars caused by demo; repaint room complete and
outside walls -corner to corner at removed door openings.
WAREHOUSE:
1. Construct approx. (62) lln. Ft. of full height wail per drawing; wall
to be constructed with steel studs; fully Insulated with R-11
insulation for sound control; install 5/8" type axa drywall both sides
finished and painted to match; install additional insulation and
drywall cover at root line to glue lam beam for sound control.
2. Remove and relocate (2) existing light fixtures; re-work electrical
wiring to open area.
3. Install (2) additional 2-tube 8 light fixtures and install separate
light circuit and light switching for now area.
4. Texture and paint to match all new walls and affected areas.
5. Clean up and detail complete suite at completion.
TOTAL COST OF THE ABOVE . . . . . . . . . . . . . . . . . .. . . $6,574.O0
/s/ Mike Keller
- ----------------------------
MIKE KELLER- PRESIDENT
<PAGE>
Exhibit B-1A to that Lease dated October 19, 1995, between RREEF USA FUND-II,
INC., a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806.
[graphic of PROPOSED floor plan]
<PAGE>
EXHIBIT C
Exhibit C to that Lease dated October 19, 1995, between RREEF USA FUND-II, INC.,
a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806.
SIGNAGE
Your identification sign must conform to the Stadium Plaza Business Park
standard.
ANAHEIM BUSINESS PARK
SIGN CRITERIA
ANAHEIM, CA
The intent of this sign criteria is to establish and maintain guidelines
consistent with the signage policies of the Lessor. Each tenant shall re-face
the existing wall sign as per the specifications below:
A) Sign faces shall be 3/16" white acrylic.
B) All copy shall be dark gray vinyl 3M #772541 (Helvetica Medium only)
C) Suite letter shall be 7 1/2" high.
D) Tenant copy height to be:
One Line: 6" max. (4 1/2")
Two Lines : 3" (1 1/2" space between lines)
[graphic of signs here]
<PAGE>
EXHIBIT D
Exhibit D to that Lease dated October 19, 1995, between RREEF USA FUND-II, INC.,
a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation ("Lessee") for the premises commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806.
CONTINUING LEASE GUARANTEE
(Individual)
In consideration of the making of the Lease Agreement and for the purpose of
inducing Lessor to enter into and make the Lease, the undersigned hereby
unconditionally guarantees the full and prompt payment of rent and all other
sums required to be paid by Lessee under the Lease ("Guaranteed Payments") and
the full and faithful performance of all terms, conditions, covenants,
obligations an agreements contained in the Lease on the Lessee's part to be
performed ("Guaranteed Obligations") and the undersigned further promises to pay
all of Lessor's costs and expenses (including reasonable attorney's fees)
incurred in endeavoring to collect the Guaranteed Payments or to enforce the
Guaranteed Obligations or incurred in enforcing this Guarantee as well as all
damage which Lessor may suffer in consequence of any default or breach under the
Lease or this Guaranty.
1. Lessor may at any time and from time to time, without notice to the
undersigned, take any or all of the following actions without affecting
or impairing the liability and obligations of the undersigned on this
Guaranty:
a. grant an extension or extensions of time of payment of any
Guaranteed Payment or time for performance of any Guaranteed
Obligation;
b. grant an indulgence or indulgences in any Guaranteed Payment or in
the performance of any Guaranteed Obligation;
c. modify or amend the Lease or any term thereof, or any obligation
of Lessee arising thereunder;
d. consent to any Assignment or Assignments, Sublease or Subleases
and successive Assignments or Subleases by Lessee's assigns or
sublessees or a change or different use of the leased Premises;
e. consent to an Extension or Extensions of the term of the Lease;
f. accept other guarantors; and/or
g. release any person primarily or secondarily liable.
2. The liability of the undersigned under this Guaranty shall in no way be
affected or impaired by any failure or delay in enforcing any Guaranteed
Payment or Guaranteed Obligation or this Guaranty or any security
therefor or in exercising any right or power in respect thereto or by any
compromise, waiver, settlement, change, subordination, modification or
disposition of any Guaranteed Payment or Guaranteed Obligation or any
security therefore. In order to hold the undersigned liable hereunder,
there shall be no obligation on the part of Lessor, at any time, to
resort for payment to Lessee or any other Guaranty or to any security or
other rights and remedies, and Lessor shall have the right to enforce
this Guaranty irrespective of whether or not other proceedings or steps
are pending or being taken seeking resort to or realization upon or from
any of the foregoing.
3. The undersigned waives all diligence in collection or in protection of
any security, presentment, protest, demand, notice of dishonor or
default, notice of acceptance of this Guaranty, notice of any extensions
granted or other action taken in reliance hereon and all demands and
notices of any kind in connection with this Guaranty or any Guaranteed
Payment or Guaranteed Obligation.
4. The undersigned hereby acknowledges full and complete notice and
knowledge of all of the terms, conditions, covenants, obligations and
agreements of the Lease.
5. The payment by the undersigned of any amount pursuant to this Guaranty
shall not in any way entitle the undersigned to any right, title or
interest (whether by subrogation or otherwise) of the Lessee under the
Lease or to any security being held for any Guaranteed Payment or
Guaranteed Obligation.
6. This Guaranty shall be continuing, absolute and unconditional and remain
in full force and effect until all Guaranteed Payments are made, all
Guaranteed Obligations are performed, and all obligations of the
undersigned under this Guaranty are fulfilled.
<PAGE>
7. This Guaranty shall also bind the heirs, personal representatives and
assigns of the undersigned and inure to the benefit c Lessor, its
successors and assigns. This Guaranty shall be construed according to the
laws of CALIFORNIA, in which state it shall be performed by the
undersigned.
8. If this Guaranty is executed by more than one person, all singular nouns
and verbs herein relating to the undersigned shall include the plural
number and the obligations of the several guarantors shall be joint and
several.
9. The Lessor and the undersigned intend and believe that each provision of
this Guaranty comports with all applicable law. However, if any provision
of this Guaranty is found by a court to be invalid for any reason, the
parties intend that the remainder of this Guaranty shall continue in full
force and effect and the invalid provision shall be construed as if it
were not contained herein.
10. GUARANTOR:
Martin Tony Walk
BUSINESS ADDRESS:
1515 South Sunkist Street. Suite E & F
Anaheim, California 92806 RESIDENCE ADDRESS:
1965 Sherington Place
Newport Beach, California 92663
RESIDENCE TELEPHONE NUMBER:
714/722-4695
SOCIAL SECURITY NUMBER:
###-##-####
IN WITNESS WHEREOF, the undersigned has executed this Guaranty this 23 day
of OCT 1995
/s/ Martin Tony Walk
- --------------------------------
Martin Tony Walk
<PAGE>
Form A140
COMMERCIAL LEASE
This lease is made between Inge M. Lundegaard of American Custom
Components, Inc. herein called Lessor, and Marlon Harris, of Com-Quest, herein
called Lessee.
Lessee hereby offers to lease from Lessor the premises situated in the
City of Anaheim, County of Orange, State of California, described as 1515 S.
Sunkist Street, Suite E & F (see Exhibit B-1A), upon the following TERMS and
CONDITIONS:
1. TERM AND RENT. Lessor demises the above premises for a term of 10 months
commencing Dec. 8, 1997, and terminating on October 31, 1998 or sooner as
provided herein at the annual rental of One Thousand Nine Hundred five Dollars
and 75 cents Dollars ($1,905.75), payable in equal installments in advance on
the first day of each month for that month's rental, during the term of this
lease. All rental payments shall be made to Lessor, at the address specified
above.
2. USE. Lessee shall use and occupy the premises for Electronics
Distributorship. The premises shall be used for no other purpose. Lessor
represents that the premises may lawfully be used for such purpose.
3. CARE AND MAINTENANCE OF PREMISES. Lessee acknowledges that the premises are
in good order and repair, unless otherwise indicated herein. Lessee shall, at
his own expense and at all times, maintain the premises in good and safe
condition, including plate glass, electrical wiring, plumbing and heating
installations and any other system or equipment upon the premises and shall
surrender the same, at termination hereof, in as good condition as received,
normal wear and tear excepted. Lessee shall be responsible for all repairs
required, excepting the roof, exterior walls, structural foundations,
and:____________, which shall be maintained by Lessor. Lessee shall also
maintain in good condition such portions adjacent to the premises, such as
sidewalks, driveways, lawns and shrubbery, which would otherwise be required to
be maintained by Lessor.
4. ALTERATIONS. Lessee shall not, without first obtaining the written consent of
Lessor, make any alterations, additions, or improvements, in, to or about the
premises.
5. ORDINANCES AND STATUTES. Lessee shall comply with all statutes, ordinances
and requirements of all municipal, state and federal authorities now in force,
or which may hereafter be in force, pertaining to the premises, occasioned by or
affecting the use thereof by Lessee.
6. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this lease or sublet any
portion of the premises without prior written consent of the Lessor, which shall
not be unreasonably withheld. Any such assignment or subletting without consent
shall be void and, at the option of the Lessor, may terminate this lease.
7. UTILITIES. All applications and connections for necessary utility services on
the demised premises shall be made in the name of Lessee only, and Lessee shall
be solely liable for utility charges as they become due, including those for
sewer, water, gas, electricity, and telephone services.
8. ENTRY AND INSPECTION. Lessee shall permit Lessor or Lessor's agents to enter
upon the premises at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, and will permit Lessor at any time within sixty
(60) days prior to the expiration of this lease, to place upon the premises any
usual "To Let" or "For Lease" signs, and permit persons desiring to lease the
same to inspect the premises thereafter.
9. POSSESSION. If Lessor is unable to deliver possession of the premises at the
commencement hereof, Lessor shall not be liable for any damage caused thereby,
nor shall this lease be void or voidable, but Lessee shall not be liable for any
rent until possession is delivered. Lessee may terminate this lease if
possession is not delivered within 6 days of the commencement of the term
hereof.
10. INDEMNIFICATION OF LESSOR. Lessor shall not be liable for any damage or
injury to Lessee, or any other person, or to any property, occurring on the
demised premises or any part thereof, and Lessee agrees to hold Lessor harmless
from any claims for damages, no matter how caused.
11. INSURANCE. Lessee, at his expense, shall maintain plate glass and public
liability insurance including bodily injury and property damage insuring Lessee
and Lessor with minimum coverage as follows:
Lessee shall provide Lessor with a Certificate of Insurance showing
Lessor as additional insured. The Certificate shall provide for a ten-day
written notice to Lessor in the event of cancellation or material change of
coverage. To the maximum extent permitted by insurance policies which may be
owned by Lessor or Lessee, Lessee and Lessor, for the benefit of each other,
waive any and all rights of subrogation which might otherwise exist.
<PAGE>
<PAGE>
12. EMINENT DOMAIN. If the premises or any part thereof or any estate therein,
or any other part of the building materially affecting Lessee's use of the
premises, shall be taken by eminent domain, this lease shall terminate on the
date when title vests pursuant to such taking. The rent, and any additional
rent, shall be apportioned as of the termination date, and any rent paid for any
period beyond that date shall be repaid to Lessee. Lessee shall not be entitled
to any part of the award for such taking or any payment in lieu thereof, but
Lessee may file a claim for any taking of fixtures and improvements owned by
Lessee, and for moving expenses.
13. DESTRUCTION OF PREMISES. In the event of a partial destruction of the
premises during the term hereof, from any cause, Lessor shall forthwith repair
the same, provided that such repairs can be made within sixty (60) days under
existing governmental laws and regulations, but such partial destruction shall
not terminate this lease, except that Lessee shall be entitled to a
proportionate reduction of rent while such repairs are being made, based upon
the extent to which the making of such repairs shall interfere with the business
of Lessee on the premises. If such repairs cannot be made within said sixty (60)
days, Lessor, at his option, may make the same within a reasonable time, this
lease continuing in effect with the rent proportionately abated as aforesaid,
and in the event that Lessor shall not elect to make such repairs which cannot
be made within sixty (60) days, this lease may be terminated at the option of
either party. In the event that the building in which the demised premises may
be situated is destroyed to an extent of not less than one-third of the
replacement costs thereof, Lessor may elect to terminate this lease whether the
demised premises be injured or not. A total destruction of the building in which
the premises may be situated shall terminate this lease.
14. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of rent, or
any additional rent, or defaults in the performance of any of the other
covenants or conditions hereof, Lessor may give Lessee notice of such default
and if Lessee does not cure any such default within 15 days, after the giving of
such notice (or if such other default is of such nature that it cannot be
completely cured within such period, if Lessee does not commence such curing
within such 15 days and thereafter proceed with reasonable diligence and in good
faith to cure such default), then Lessor may terminate this lease on not less
than THREE days' notice to Lessee. On the date specified in such notice the term
of this lease shall terminate, and Lessee shall then quit and surrender the
premises to Lessor, but Lessee shall remain liable as hereinafter provided. If
this lease shall have been so terminated by Lessor, Lessor may at any time
thereafter resume possession of the premises by any lawful means and remove
Lessee or other occupants and their effects. No failure to enforce any term
shall be deemed a waiver.
15. SECURITY DEPOSIT. Lessee shall deposit with Lessor on the signing of this
lease the sum of One Thousand Nine Hundred Five Dollars and 75 cents Dollars
($1,905.75) as security for the performance of Lessee's obligations under this
lease, including without limitation the surrender of possession of the premises
to Lessor as herein provided. If Lessor applies any part of the deposit to cure
any default of Lessee, Lessee shall on demand deposit with Lessor the amount so
applied so that Lessor shall have the full deposit on hand at all times during
the term of this lease.
16. TAX INCREASE. In the event there is any increase during any year of the term
of this lease in the City, County or State real estate taxes over and above the
amount of such taxes assessed for the tax year during which the term of this
lease commences, whether because of increased rate or valuation, Lessee shall
pay to Lessor upon presentation of paid tax bills an amount equal to 50% of the
increase in taxes upon the land and building in which the leased premises are
situated. In the event that such taxes are assessed for a tax year extending
beyond the term of the lease, the obligation of Lessee shall be proportionate to
the portion of the lease term included in such year.
17. COMMON AREA EXPENSES. In the event the demised premises are situated in a
shopping center or in a commercial building in which there are common areas,
Lessee agrees to pay his pro-rata share of maintenance, taxes, and insurance for
the common area. N/A
18. ATTORNEY'S FEES. In case suit should be brought for recovery of the
premises, or for any sum due hereunder, or because of an act which may arise out
of the possession of the premises, by either party, the prevailing party shall
be entitled to all costs incurred in connection with such action, including a
reasonable attorney's fee.
19. WAIVER. No failure of Lessor to enforce any term hereof shall be deemed to
be a waiver.
20. NOTICES. Any notice which either party may or is required to give, shall be
given by mailing the same, postage prepaid, to Lessee at the premises, or Lessor
at the address shown below, or at such other places as may be designated by the
parties from time to time.
21. HEIRS, ASSIGNS, SUCCESSORS. This lease is binding upon and inures to the
benefit of the heirs, assigns and successors in interest to the parties.
22. OPTION TO RENEW. Provided that Lessee is not in default in the performance
of this lease, Lessee shall have the option to renew the lease directly through
Spieker Properties.
23. SUBORDINATION. This lease is and shall be subordinated to all existing and
future liens and encumbrances against the property.
24. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement between the
parties and may be modified only by a writing signed by both parties. The
following Exhibits, if any, have been made a part of this lease before the
parties' execution hereof:
Signed this 25th day of November, 1997
Marlon Harris Inge Lundegaard
----------------------- -----------------------
By: /ss Marlon Harris By: /s/ Inge Lundegaard
Lessee Lessor
<PAGE>
COM-QUEST
WIRELESS DISTRIBUTORS
BUSINESS: ELECTRONICS DISTRIBUTOR
OWNER: MARLON HARRIS
HOME: 616 S. PINE AVE, BREA, CA 92821
BUSINESS ESTABLISHED 1995
BANK: CALIFORNIAL STATE BANK
BREA, CA
714-990-6066
ACC# 006-608806
ATTN: CINDY AVG BAL - LOW 6
CURRENT LANDLORD: ECKHOFF PARK
714-637-3321
TRADE REFERENCES:
PACKAGING EFFECTS ANDREW TOSH 714-756-0323
IDEAL DISTRIBUTING KRISTIE 916-966-2103
ORIENT IMPORTS MANUEL LIM 562-402-7327
INTELLICELL MIKE ABRAMOV 800-536-7977
/S/ M. Harris
644 N. Poplar St. "B", Orange CA 92868 * (714) 978-9330 Fax (714) 978-9360
<PAGE>
EXHIBIT B-1A
Exhibit B-1A to that Lease dated October 19, 1995, between RREEF USA FUND-II,
INC., a Delaware corporation ("Lessor") and AMERICAN CUSTOM COMPONENTS, INC., a
California corporation ("Lessee") for the premise commonly known as 1515 South
Sunkist Street, Suites E & F, Anaheim, California 92806.
[diagram/layout of leased premises here]
<PAGE>
Witness Guarantor
PROMISSORY NOTE
$ 75,000 Dated: DECEMBER 1, 1995
Principal Amount State of CALIFORNIA
FULL RELEASE OF ANY AND ALL TOOLING AND SERVICES RENDERED FOR THE BENEFIT
OF AMERICAN CUSTOM COMPONENTS.
FOR VALUE RECEIVED, the undersigned hereby jointly and severally promise
to pay to the order of
DON FURNESS , the sum of
Dollars ($ 75,000.00 ), together with interest thereon at the rate of 9% per
annum on the unpaid balance. Said sum shall be paid in the manner following:
$ 3000.00 UPON SIGNING AND A MINIMUM OF $ 1500.00 PER MONTH PAID ON THE
FIRST BUSINESS DAY OF EACH MONTH. PAYMENT TO BEGIN MAY 1, 1996.
AMERICAN CUSTOM COMPONENTS HAS THE RIGHT TO PREPAY WITH OUT PENALTY.
All payments shall be first applied to interest and the balance to
principal. This note may be prepaid, at any time, in whole or in part, without
penalty. All prepayments shall be applied in reverse order of maturity.
This note shall at the option of any holder hereof be immediately due
and payable upon the failure to make any payment due hereunder within days of
its due date.
In the event this note shall be in default, and placed with an attorney
for collection, then the undersigned agree to pay all reasonable attorney fees
and costs of collection. Payments not made within five (5) days of due date
shall be subject to a late charge of %________ of said payment. All payments
hereunder shall be made to such address as may from time to time be designated
by any holder hereof.
The undersigned and all other parties to this note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully paid and waive demand, presentment and protest and all
notices thereto and further agree to remain bound, notwithstanding any
extension, renewal, modification, waiver, or other indulgence by any holder or
upon the discharge or release of any obligor hereunder or to this note, or upon
the exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by any holder hereof shall be binding
unless in writing; and any indulgence on any one occasion shall not be an
indulgence for any other or future occasion. Any modification or change of
terms, hereunder granted by any holder hereof, shall be valid and binding upon
each of the undersigned, notwithstanding the acknowledgement of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to each
of the others a power of attorney to enter into any such modification on their
behalf. The rights of any holder hereof shall be cumulative and not necessarily
successive, This note shall take effect as a sealed instrument and shall be
construed, governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note as
principals and not as sureties.
AMERICAN CUSTOM COMPONENTS
Signed in the presence of:
/s/ signature
- ----------------------------- ------------------------------
Witness Borrower
- ----------------------------- -------------------------------
Witness Borrower
GUARANTY
We the undersigned jointly and severally guaranty the prompt and punctual
payment of all monies due under the aforesaid note and agree to remain bound
until fully paid.
In the presence of:
/s/ signature
- ----------------------------- -------------------------------
Witness Guarantor
- ----------------------------- -------------------------------
Witness Guarantor
<PAGE>
MICHELSON GROUP CORPORATE DEVELOPMENT AGREEMENT
This Agreement (the "Agreement") is entered into as of this 30th day of
July, 1997, by and between The Michelson Group, Inc., a Nevada corporation
("Michelson"), with its principal place of business at 5000 Birch Street, Suite
9600, Newport Beach, CA 92660, and American Custom Components with its principal
place of business at 1515 S. Sunkist St., Anaheim, CA 92806 (the "Company").
RECITALS
WHEREAS, Company intends to be a public company which is required to
file periodic and other reports under section 13 or 15(d) of the Securities
Exchange Act of 1934 and envisions that it will need the services of corporate
development activities of Michelson; and
WHEREAS, Company desires to engage Michelson to perform corporate
development services on behalf of Company; and
WHEREAS, Michelson has the ability and knowledge necessary for the
performance of such services; and
WHEREAS, Michelson and Company desire, pursuant to the terms of this
Agreement, to set forth the terms and conditions pursuant to which Michelson
will perform corporate development services on behalf of Company.
WHEREAS, as used herein, "Applicable Date" means August 15, 1997 if
Michelson does not terminate this Agreement as provided in Section 1.2.6.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and adequate consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
SCOPE OF SERVICES
1.1 Michelson agrees to perform for the Company the corporate development
services describe as follows:
1.1.1 REFERRALS; KEY EMPLOYEES. Michelson shall advise the Company on
the selection of professionals and Company agrees to meet and
retain such professionals provided that the compensation to such
professionals is at or less than market rate and that such
professionals and their compensation are mutually agreed upon by
the Company and Michelson. Company will name one designee of
Michelson to its Board of Directors and recommend said designee to
its shareholders for election as a director at future shareholder
meetings of the Company. Michelson recognizes that the
shareholders may not cast their votes for such designee and such
failure shall not constitute a breach of this Agreement.
<PAGE>
1.1.2 STOCK OPTION PLAN. Michelson recognizes that having management own
a significant ownership position in the Company is a valuable tool
for focusing their attention on increasing shareholder value.
Accordingly, Michelson recommends that the Board of Directors put
into effect within the next 12 months a stock option plan to be
used for acquiring additional management as well as incentivizing
current management if one is not already in effect.
1.1.3 CAPITALIZATION. Michelson shall make all reasonable efforts to
help Company reach the business objectives to be mutually agreed
upon at a later date.
1.1.4 THE SUPPORT SYSTEM. Michelson will develop, implement and maintain
an ongoing stock market support system with the general objective
of expanding stockbroker awareness of the Company's activities,
and hence to generate commensurate interest in the Company's
stock.
1.2 Company acknowledges as follows:
1.2.1 NO GUARANTEES. Michelson makes no guarantees, representations or
warranties as to the particular results from Michelson corporate
development services, the response and timeliness of action by the
stockholder and brokerage community, including but not limited to
guarantees, representations or warranties as to fixture stock
price of Company.
1.2.2 REVIEW RESPONSIBILITY. Company understands that the accuracy and
completeness of any document prepared by Michelson or its advisers
is dependent upon Company's alertness to assure that such document
contains all material facts which might be important and that all
such documents must not contain any misrepresentation of a
material fact nor omit information necessary to make the
statements therein not misleading. To that end, Company agrees to
review, and confirm to Michelson in writing that you have
reviewed, all materials for their accuracy, and completeness prior
to any use thereof. Company also acknowledges that this
responsibility continues in the event that the materials become
deficient in this regard.
1.2.3 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to Michelson that all information provided prior to the
execution of this Agreement, in writing or otherwise, is true and
complete. In the event that such information is determined to be
inaccurate, incomplete or otherwise misleading, this Agreement may
be immediately terminated, at the sole discretion of Michelson.
1.2.4 ISSUANCE OF ADDITIONAL SECURITIES/INDEBTEDNESS. Commencing with
the execution of this Agreement and ending two years from the date
of the Agreement, the Company will not issue any additional
securities (except Securities issued in connection with the
currently proposed private securities offerings and Securities
issuable upon the exercise or conversion of existing warrants,
options or other convertible securities, or those issuable upon
presently existing employee stock option plans) or incur and
additional indebtedness (except in the ordinary course of business
of to an aggregate of $100,000.00) without the prior written
consent of Michelson.
<PAGE>
1.2.5 OFFICER COMPENSATION. Commencing with the execution of this
Agreement and ending two years from the date of the Agreement, no
offer or director of the Company will receive more that $____.00
per month in cash compensation without the prior written consent
of Michelson. It is contemplated that the officers of the Company
will participate in the stock compensation plan, the terms of
which will be mutually agreed upon by the Parties.
1.2.6 The contract is subject to Michelson completing its due diligence
by August 15, 1997. If Michelson is not satisfied for any reason,
Michelson may terminate this contract with no obligation to
Michelson by August 15, 1997.
ARTICLE II
COMPENSATION FOR SERVICES
2.1 In consideration for entering into this Agreement and performing the
services described immediately above, Company agrees to compensate
Michelson as follows:
2.1.1 CASH COMPENSATION. Company agrees to pay to Michelson a monthly
fee of $6,000.00, to be paid on the 1st of each month beginning
upon execution of this agreement. Michelson agrees to defer
payment of fees to be paid when the company breaks escrow on it's
bridge financing.
2.1.2 STOCK COMPENSATION. Commencing on the Applicable Date, Company
agrees to issue to Michelson warrants to purchase that number of
shares of common stock of the Company (the "Warrants") which
would, upon exercise, result in Michelson holding of 7.0% of the
outstanding shares of the Company upon completion of the proposed
bridge financing and reverse merger. Such Warrants shall be
exercisable for a period of five years from the Applicable Date at
an initial price of $.01 per share. The Company shall execute and
deliver a customary Warrant Agreement evidencing the Warrants.
Michelson acknowledges that the Warrants and the shares issuable
upon exercise of the Warrants (the "Shares") will initially be
"restricted securities" (as such term is define in Rule 144
promulgated under the Securities Act of 1933, as amended ("Rule
144"), that the Warrants and Shares will include a restrictive
legend, and that the Warrants and Shares cannot be sold unless
registered with the United States Securities and Exchange
Commission ("SEC") and qualified by appropriate state securities
regulators, or unless Michelson complies with an exemption from
such registration and qualification (including without limitation,
compliance with Rule 144).
Company shall issue the stock certificate for the Shares within
five (5) days after the exercise of any Warrants.
<PAGE>
Within 30 days of any shares of the Company becomes publicly
traded, the Company will use its best efforts to cause all the
Shares (whether or not the Warrants have been exercised) to be
registered under the Securities Act of 1933 on Form 5-8 or other
appropriate form, all the extent requisite to permit the sale of
other disposition by the prospective sellers of the shares of
Common Stock so registered.
Company agrees to issue to Michelson 350,000 warrants upon
execution date of this contract. Company will issue an additional
350,000 warrants to Michelson when Company reaches a $30 million
public market valuation for sixty (60) days.
2.1.3 ANTIDILUTION. It is the intention of the parties hereto that upon
completion of the bridge financing, the number of warrants to be
held by Michelson shall equal 7.0% of the then issued and
outstanding shares of stock. This 7.0% is to be calculated on a
fully diluted basis assuming that the entire bridge financing and
reverse merger is completed. The Company agrees that it shall
issue additional warrants to Michelson, if necessary, in order to
assure that Michelson receives this 7.0%. Michelson shall be
diluted in the same manner that all other shareholders of the
Company are diluted, in all offerings occurring subsequent to the
completion proposed bridge financing.
2.1.4 EXPENSES. Company agrees to pay all incidental costs and expenses
associated with services provided by Michelson, such costs to be
covered by funds including but not limited to funds in the Escrow
Account in excess of funds needed to pay Michelson's monthly fees.
Such expenses are separate from cash compensation as set out
above, and include but not limited to such incidental costs and
expenses as travel and lodging, copying charges, printing charges,
long distance telephone charges, facsimile charges, postage,
special mailings and other reasonable expenses. Such expense shall
in every instance be reasonable and verifiable with appropriate
back-up documentation.
ARTICLE III
TERM OF THE AGREEMENT
3.1 This Agreement shall commence upon execution of this Agreement and
continue during the two year period of time following the date of this
Agreement. Renewal shall be determined by a vote of the Board of
Directors of the Company. Notwithstanding the foregoing, the Company or
Michelson, as the case may be, may terminate this Agreement immediately
upon written notice to such party upon the occurrence of any of the
following: (a) the other party shall become insolvent or make an
assignment for the benefit of Creditors; and (b) the other party shall
breach any of the material terms of this Agreement. If this Agreement is
terminated on or before the termination date of this Agreement (as set
forth above) for any reason other than a default by Michelson, the
entire cash fee shall immediately become due and payable, shall be
deemed to be earned as of such date, and no offset, refund or reduction
of payments shall be attributable to such termination. The provisions of
Article II shall survive the termination of this Agreement.
<PAGE>
ARTICLE IV
STATUS OF PARTIES
4.1 Nothing contained in this Agreement shall be construed to imply that
either Michelson, the Company, or any employee, agent or other
authorized representative of any such party, is a partner, joint
venturer, agent officer or employee of the other. Neither party hereto
shall have any authority to bind the other in any respect vis a vis any
third party, it being intended that each shall remain an independent
contractor and responsible only for its own actions. The Company and
Michelson are independent contractors, each responsible for its own
actions, costs and expenses. Neither Michelson nor the Company shall
have any right to, and shall not, commit the other party to any
agreement, contract, or undertaking or waive or compromise any of such
other party's rights against customers or other parties. All
compensation paid to Michelson shall constitute earnings from
self-employment income, and the Company shall not withhold any amounts
therefrom as federal or state income tax withholding from wages or as
employee contributions under the Federal Insurance Contribution Act
(Social Security) or any similar federal or state law applicable to
employers and employees.
ARTICLE V
INDEMNIFICATION
5.1 Company acknowledges that Michelson must at all times rely upon the
accuracy and completeness of information and documents supplied to
Michelson by the Company's officers, directors, agents and employees.
Consequently, Company and the entities affiliated with Company agree to
indemnify and hold harmless Michelson, its officers, directors,
employees and agents (collectively, the "Indemnitees") against and from
any and all losses, claims, damages or liabilities, joint or several,
which Indemnitees or any of them may become subject, and to reimburse
Indemnitees or any of them for any legal or other expenses (including
the cost of any investigation and preparation) incurred by Indemnitees
or any of them, arising out of or in connection with any inquiry,
litigation or other proceeding, whether or not resulting in any
liability, insofar as such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, (i) any act taken or omitted
to be taken by Indemnitee's services hereunder, or (ii) any untrue
statement or alleged untrue statement of a material fact contained in
any information (written or oral) furnished by you to Indemnitees or the
omission or alleged omission to state therein a material fact necessary
to make the statements therein not misleading.
<PAGE>
ARTICLE VI
CONFIDENTIALITY
6.1 Michelson agrees not at any time (during or after the term of this
Agreement) to disclose or use, except in pursuit of the business of the
Company (for purposes of this Article, "the Company" shall include the
Company and any affiliate of the Company), and Proprietary Information
of the Company acquired during the term of this Agreement. For Purposes
of this Agreement the phrase "Proprietary Information" means all
information which is known or intended to be known only to Michelson or
employees of the Company any document, record or other information of
the Company or others in a confidential relationship with the Company
and relates to specific business matters such as patents, patent
applications, trade secrets, secret processes, proprietary know-how,
information of the Company's business, and identity of suppliers or
customers or accounting procedures of the Company or relates to other
business of the Company. Michelson agrees not to remove from the
premises of the Company except in the pursuit of business of the Company
any document, record or other information of the Company. Michelson
recognizes that all such documents, records or other information,
whether developed by Michelson or by someone else for the Company are
the exclusive property of the Company, as the case may be.
ARTICLE VII
MISCELLANEOUS
7.1 WAIVER. No waiver of any breach of default of this Agreement by
Michelson shall be considered to be a waiver of any other breach or
default of this Agreement.
7.2 SEVERABILITY. If any portion of this Agreement is found by a court of
competent jurisdiction to be void or unenforceable, that portion hereof
shall be deemed to be reformed to the extent necessary to cause such
portion to be enforceable and the same shall not affect the remainder of
this Agreement, which shall be given full force and effect without
regard to the invalid or unenforceable portions.
7.3 ENTIRE AGREEMENT. This Agreement, which may be signed in duplicate or
counterparts, replaces and supersedes all previous Agreements between
Michelson and the Company, contains the entire understanding between the
parties, and may not be changed, altered, amended, or modified, except
in writing, duly executed by each of the parties.
7.4 ASSIGNMENT. This Agreement may not be assigned or transferred by either
party hereto without the prior written consent of the other.
7.5 GOVERNING LAW. This Agreement shall be governed by the laws of the State
of California.
<PAGE>
7.6 ATTORNEY'S FEES. Should any action be commenced between the parties to
this Agreement concerning the matters set forth in this Agreement or the
right and duties of either in relation thereto, the prevailing party in
such action shall be entitled, in addition to such other relief as may
be granted, to a reasonable sum as and for its Attorney's Fees and
Costs.
7.7 ARBITRATION AND VENUE. Any controversy arising out of or relating to
this Agreement or any modification or extension thereof, including any
claim for damages and/or recision, shall be settled by arbitration in
Orange County, California in accordance with the Commercial Arbitration
Rules of the American Arbitration Association before one arbitrator. The
arbitrator sitting in any such controversy shall have no power to alter
or modify any express provisions of this Agreement or to render any
award which by-its terms effects any such alteration, or modification.
The parties consent to the jurisdiction of the Superior Court of
California, and of the United States District Court for the Central
District of California for all purposes in connection with such
arbitration including the entry of judgment on any award. The parties
consent that any process or notice of motion or other application to
either of said courts, and any paper in connection with arbitration, may
be served by certified mail or the equivalent, return receipt requested,
or by personal service or in such manner as may be permissible under the
rules of the applicable court or arbitration tribunal, provided a
reasonable time for appearance is allowed. The parties further agree
that arbitration proceedings must be instituted within one year after
the claimed breach occurred, and that such failure to institute
arbitration proceedings within such period shall constitute an absolute
bar or the institution of any proceedings and a waiver of all claims.
This section shall survive the termination of this Agreement.
7.8 FACSIMILE SIGNATURE. Any signature on a facsimile copy of the Agreement
shall be binding and valid as if made on the original copy of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first written above.
MICHELSON GROUP, INC.
By: /s/ Bruce Berman
-------------------------
Bruce Berman, President
"COMPANY"
By: /s/signature
--------------------------
Its: CEO
<PAGE>
RAINBOW BRIDGE SERVICES, INC.
OPTION AGREEMENT
Dated August 22, 1997
RECITALS
WHEREAS, The Michelson Group, Inc. (the "Holder") has an option
(the "ACC Option") to purchase 7% of the common stock of American Custom
Components, a California corporation, ("ACC") at a price of $.0l per share;
and
WHEREAS, the terms of such option gives Holder certain anti-dilution
rights which are not thought to be beneficial in the event of public
financing; and
WHEREAS, concurrently herewith, ACC is entering into an Agreement and
Plan of Reorganization with Rainbow Bridge Services, Inc. a public
corporation, (the "Company"), and the Company, ACC and the Holder wish to
provide for the mutually satisfactory conversion of the ACC Options (with
anti-dilution rights) into an option to purchase Company common stock, on the
premise that anti-dilution rights will only extend up to the first 10,000,000
shares of the Company common stock outstanding.
NOW THEREFORE, in consideration of the foregoing, the Company hereby
grants to Holder a option (the "Option") to purchase 700,000 shares of the
Company's Common Stock (the "SHARES") at the purchase price and on the terms
set forth herein. The Holder agrees that an acceptance hereof any ACC Option
is terminated.
1. EXERCISE.
(a) PURCHASE PRICE. This Option, or any portion hereof, is
exercisable at a purchase price of $0.01 per Share (the "Purchase Price").
(b) TIME OF EXERCISE. Subject to Section 2(c), this Option may
be exercised in whole or in part (but not as to a fractional shares) at the
office of the Company, at any time or from time to time, commencing on the
date first written above, provided, however, that this Option shall expire
and be null and void if not exercised in the manner herein provided, by 5:00
p.m., local time, three years from the date of this Option (the "Expiration
Date").
(c) MANNER OF EXERCISE. This Option is exercisable at the
Purchase Price, payable, in cash or by check, to the or4er of the Company,
subject to adjustment as provided in Section 2 hereof. Upon surrender of this
Option, or a portion hereof, with the annexed Subscription Form duly
executed, together with payment of the Purchase Price for the Shares
purchased (and any applicable transfer taxes) at the Company's principal
executive offices, the Holder shall be entitled to receive a certificate or
certificates tar the Shares so purchased.
<PAGE>
(d) DELIVERY OF STOCK CERTIFICATES. As soon as practicable, but
not exceeding 30 days, after complete or partial exercise of this Option, the
Company, at its expense, shall cause to be issued in the name of the Holder
(or upon payment by the Holder of any applicable transfer taxes, the Holder's
assigns) a certificate or certificates for the number of fully paid and
non-assessable Shares to which the Holder shall be entitled upon such
exercise, together with such other stock or securities or property or
combination thereof to which the Holder shall be entitled upon such exercise,
determined in accordance with Section 2 hereof.
(e) RECORD DATE OF ISSUANCE OF SHARES. Irrespective of the date
of issuance and delivery of certificates for any stock or securities issuable
upon the exercise of this Option, or any portion hereof, each person
(including a corporation or partnership) in whose name any such certificate
is to be issued shall for all purposes be deemed to have become the holder of
record of the stock or other securities represented thereby immediately prior
to the close of business on the date on which a duly executed Subscription
Form containing notice of exercise of this Option, or any portion hereof, and
payment of the Purchase Price is received by the Company.
2. ADJUSTMENTS.
(a) ADJUSTMENT FOR SUBDIVISIONS COMBINATIONS OR DIVIDENDS. In
case the Company shall, at any time or from time to time, subdivide or
combine the outstanding shares of Common Stock or declare a dividend payable
in Common Stock, the exercise price of this Option in effect immediately
prior to the subdivision, combination or record date for such dividend
payable in Common Stock shall forthwith be proportionately increased, in the
case of combination, or decreased, in the case of subdivision or d4vidend
payable in Common Stock, and each share of Common Stock purchasable upon
exercise of the Option shall be changed to the number determined by dividing
the then current exercise price by the exercise price as adjusted after the
subdivision, combination or dividend payable in Common Stock.
(b) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Company, at any time or from time to time makes or fixes a record
date f or the determination of holders of Common Stock, entitled to receive a
dividend or other distribution payable in securities of the Company, other
than shares of Common Stock, then and in each such event provisions shall be
made so that the Holder shall receive upon exercise of the Option, or any
portion hereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company which the
Holder would have received had its Option, or any portion hereof, been
exercised into common Stock on the date of such event and had it thereafter,
during the period from the date of such event to and including the date of
exercise, retained such securities receivable by it as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 2 with respect to the rights of the Holder of the Option.
2
<PAGE>
(c) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If the Common Stock issuable upon the exercise of the Option, or any portion
hereof, is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 2), then and in any such event the,
Holder shall have the right thereafter, upon exercise of the Option, or any
portion hereof, to receive the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or other
change, in an amount equal to the amount that the Holder would have been
entitled to had the Holder exercised the Option, or any portion hereof,
immediately prior to such recapitalization. reclassification or other change,
but only to the extent the Option, or any portion hereof, is actually
exercised, all subject to further adjustment as provided herein.
(d) REORGANIZATIONS MERGERS CONSOLIDATIONS OR SALES OF ASSETS.
If at any time or from time to time there is a capital reorganization of the
Common Stock (other than a subdivision, combination, recapitalization,
reclassification or exchange of the Common Stock provided for elsewhere in
this Section 2) or merger or consolidation of the Company with. or into
another corporation, or a sale of all or substantially all of the Company's
properties and assets to any other person then, as a. part of such
reorganization, merger, consolidation or sale, provision shall be made so
that the Holder shall thereafter be entitled to receive, upon exercise of the
Option, or any portion hereof, (and only to the extent the Option is
exercised), the number of shares of stock or other securities or property of
the Company, or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock, or other
securities1 deliverable upon the exercise of this Option, or any portion
hereof, would otherwise have been entitled on such capital reorganization,
merger, consolidation, or sale.
3. RESTRICTION ON TRANSFER.
(a) The Holder, by its acceptance hereof, represents,
warrants, covenants and agrees that (i) the Holder has knowledge of the
business and affairs of the Company, and (ii) this Option and the Shares
issuable upon the exercise of this Option, or any portion hereof, are being
acquired for investment and not with a view to the distribution hereof, and
that absent an effective registration statement under the Securities Act of
1933 ("Act"), covering the disposition of this Option, or any portion
hereof, or the Shares issued or issuable upon exercise of this Option, or any
portion hereof. they will nor he sold. transferred. assigned. hypothecated or
otherwise disposed of without first providing the Company with an opinion of
counsel (which may be counsel for the Company) or other evidence, reasonably
acceptable to the Company, to the effect that such sale, transfer,
assignment, hypothecation or other disposal will be exempt from the
registration and prospectus delivery requirements of the Act. The Holder
consents to the making of a notation in the Company's records or giving to
any transfer agent of the Option or the Shares an order to implement such
restriction on transferability.
3
<PAGE>
This Option and the Shares issuable upon the exercise of this Option,
or any portion hereof, shall bear the following legend or a legend of similar
import, provided, however, that such legend shall be removed, or not placed
upon the Option or the certificate or other instrument representing the
Shares, as the case may be, if such legend is no longer necessary to assure
compliance with the Act:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER SECTION 4(2)
OF THE ACT. THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
4. PAYMENT OF TAXES. All Shares issued upon the exercise of this
Option, or any portion hereof, shall be validly issued, fully paid and
non-assessable and the Company shall pay all taxes and other governmental
charges (other than income tax) that may be imposed in respect of the issue
or delivery thereof. The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for Shares in any name other than that of the Holder
surrendered in connection with the purchase of such Shares, and in such case,
the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to
the Company's satisfaction that no tax or other charge is due.
5. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Option, or any
portion hereof, such number of shares of Common Stock as shall be issuable
upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Option, or any portion hereof, and payment of the Purchase
Price thereof, all shares of Common Stock issuable upon such exercise shall
be duly and validly issued, fully paid and non-assessable.
6. NOTICES TO HOLDER. Nothing contained in this Option shall be
construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter or as having
any rights whatsoever as a shareholder of the Company. All notices, requests,
consents and other communications hereunder shall be in writing and shall be
deemed to have been duly made when delivered or mailed by registered or
certified mail, postage prepaid, return receipt requested:
4
<PAGE>
(a) If to the Holder, to the address of such Holder as shown
on the books of the Company; or
(b) If to the Company, to its address of its principal
executive offices.
7. REPLACEMENT OF OPTION. Upon receipt of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Option and (in case of loss, theft or
destruction) upon delivery of an indemnity agreement in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender
and cancellation of the mutilated Option, the Company will execute and
deliver, in lieu thereof, a new Option of like tenor.
8. REGISTRATION. The Company agrees to file a Form S-B Registration
Statement registering the Shares underlying the Options within 6 months of
the date hereof. In addition, the Company grants the following additional
registration rights:
(a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds any
Shares underlying the Options, by written notice ten days prior to the filing
of any Registration Statement or post-effective amendment thereto under the
Act covering any securities of the Company, for its own account or for the
account of others, and will until August 31, 2001, upon the request of the
Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Shares; provided, however, that if the managing underwriter of the
offering believes that the inclusion of the shares would materially adversely
effect the commercial feasibility of the offering. The Company shall not be
obligated to include the shares in such offering. The Company shall supply
prospectuses and such other documents as the Holder may request in order to
facilitate the public sale or other disposition of the Shares, use its best
efforts to register and qualify any of the Shares for sale in such states as
such Holder designates and do any and all other acts and things which may be
necessary or desirable to enable such Holders to consummate the public sale
or other disposition of the Shares. The Holder shall furnish information and
indemnification as set forth in Section 9.
(b) If any 50% holder (as defined below) shall give notice to
the company at any time to the effect that such Holder desires to register
under the Act the common Stock underlying the Option under such circumstances
that a public distribution (within the meaning of the Act) of any such
securities will be involved then the Company will promptly, but no later than
120 days after receipt of such notice, file a registration statement pursuant
to the Act, to the end that the Shares may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective (including the
taking of such steps as are necessary to obtain removal of any stop order);
provided, that such holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% holder may, at its option, request the filing of a
registration statement under the Act on one occasion. The cost of the
registration shall be borne by the Company.
5
<PAGE>
9. INDEMNIFICATION. The Distributing Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed said registration statement and such amendments and supplements
thereto, each person, if any, who controls the Company (within the meaning of
the Act) against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action.
10. SUCCESSORS. All the covenants, agreements, representations and
options contained in this Option shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
11. CHANGE; WAIVER. Neither this Option nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. HEADINGS. The section headings in this Option are inserted for
purposes of convenience only and shall have no substantive effect.
13. LAW GOVERNING. This Option shall for all purposes be construed and
enforced in accordance with, and governed by, the internal laws of the State
of California, without giving effect to principles of conflict of laws.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be signed
by its duly authorized officer and this Option to be dated as of the date
first above written.
RAINBOW BRIDGE SERVICES, INC.
By: /s/ Martin T. Walk
------------------------------
Name: Martin T. Walk
Title: President
Accepted by Holder as of the date
written above:
/s/ Bruce Benman
-------------------------------
Bruce Benman
President
7
<PAGE>
RAINBOW BRIDGE SERVICES. INC.
OPTION AGREEMENT #2
DATED AUGUST 22, 1997
RECITALS
WHEREAS, The Michelson Group, Inc. (the "Holder") has an option no. 2
(the "ACC Option") to purchase 2% of the common stock of American Custom
Components, a California corporation, ("ACC") at a price of $.01 per share;
and
WHEREAS, the terms of such option gives Holder certain anti-dilution
rights which are not thought to be beneficial in the event of public
financing; and
WHEREAS, concurrently herewith, ACC is entering into an Agreement and
Plan of Reorganization with Rainbow Bridge Services, Inc. a public
corporation, (the "Company"), and the Company, ACC and the Holder wish to
provide for the mutually satisfactory conversion of the ACC Options (with
anti-dilution rights) into an option to purchase Company common stock, on the
premise that anti-dilution rights will only extend up to the first 10,000,000
shares of the Company common stock outstanding.
NOW THEREFORE, in consideration of the foregoing, the Company hereby
grants to Holder a option (the "Option") to purchase 200,000 shares of the
Company's Common Stock (the "Shares") at the purchase price and on the terms
set forth herein. The Holder agrees that an acceptance hereof any ACC Option
is terminated.
1. EXERCISE.
(a) PURCHASE PRICE. This Option, or any portion hereof is
exercisable at a purchase price of $0.01 per Share (the "Purchase Price").
(b) TIME OF EXERCISE. Subject to Section 2(c), this Option may
be exercised in whole or in part (but not as to a fractional shares) at the
office of the Company, at any time or from time to time, commencing on the
date first written above, provided, however, that this Option shall expire
and be null and void if not exercised in the manner herein provided, by 5:00
p.m., local time, three years from the date of this Option (the "Expiration
Date").
(c) MANNER OF EXERCISE. This Option is exercisable at the
Purchase Price, payable, in cash or by check, to the order of the Company,
subject to adjustment as provided in Section 2 hereof. Upon surrender of this
Option, or a portion hereof, with the annexed Subscription Form duly
executed, together with parent of the Purchase Price for the Shares purchased
(and any applicable transfer taxes) at the Company's principal executive
offices, the Holder shall be entitled to receive a certificate or
certificates for the Shares so purchased.
<PAGE>
(d) DELIVERY OF STOCK CERTIFICATES. As soon as practicable, but
not exceeding 30 days, after complete or partial exercise of this Option, the
Company, at its expense, shall cause to be issued in the name of the Holder
(or upon payment by the Holder of any applicable transfer taxes, the Holder's
assigns) a certificate or certificates for the number of fully paid and
non-assessable Shares to which the Holder shall be entitled upon such
exercise, together with such other stock or securities or property or
combination thereof to which the Holder shall be entitled upon such exercise,
determined in accordance with Section 2 hereof.
(e) RECORD DATE OF ISSUANCE OF SHARES. Irrespective of the date
of issuance and delivery of certificates for any stock or securities issuable
upon the exercise of this Option, or any portion hereof, each person
(including a corporation or partnership) in whose name any such certificate
is to be issued shall for all purposes be deemed to have become the holder of
record of the stock or other securities represented thereby immediately prior
to the close of business on the date on which a duly executed Subscription
Form containing notice of exercise of this Option, or any portion hereof, and
payment of the Purchase Price is received by the Company.
2. ADJUSTMENTS.
(a) ADJUSTMENT FOR SUBDIVISIONS, COMBINATIONS OR DIVIDENDS. In
case the Company shall, at any time or from time to time, subdivide or
combine the outstanding shares of Common Stock or declare a dividend payable
in Common Stock, the exercise price of this Option in effect immediately
prior to the subdivision, combination or record date for such dividend
payable in Common Stock shall forthwith be proportionately increased, in the
case of combination, or decreased, in the case of subdivision or dividend
payable in Common Stock, and each share of Common Stock purchasable upon
exercise of the Option shall be changed to the number determined by dividing
the then current exercise price by the exercise price as adjusted after the
subdivision, combination or dividend payable in Common Stock.
(b) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Company, at any time or from time to time, makes or fixes a record
date for the determination of holders of Common Stock, entitled to receive a
dividend or other distribution payable in securities of the Company, other
than shares of Common Stock, then and in each such event provisions shall be
made so that the Holder shall receive upon exercise of the Option, or any
portion hereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company which the
Holder would have received had its Option, or any portion hereof, been
exercised into common Stock on the date of such event and had it thereafter,
during the period from the date of such event to and including the date of
exercise, retained such securities receivable by it as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 2 with respect to the rights of the Holder of the Option.
2
<PAGE>
(c) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.
If the Common Stock issuable upon the exercise of the Option, or any portion
hereof, is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 2), then and in any such event the,
Holder shall have the right thereafter, upon exercise of the Option, or any
portion hereof, to receive the kind and amount of stock and other securities
and property receivable upon such recapitalization, reclassification or other
change, in an amount equal to the amount that the Holder would have been
entitled to had the Holder exercised the Option, or any portion hereof,
immediately prior to such recapitalization, reclassification or other change,
but only to the extent the Option, or any portion hereof, is actually
exercised, all subject to further adjustment as provided herein.
(d) REORGANIZATIONS. MERGERS. CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time there is a capital reorganization
of the Common Stock (other than a subdivision, combination, recapitalization,
reclassification or exchange of the Common Stock provided for elsewhere in
this Section 2) or merger or consolidation of the Company with or into
another corporation, or a sale of all or substantially all of the Company's
properties and assets to any other person then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so
that the Holder shall thereafter be entitled to receive, upon exercise of the
Option, or any portion hereof, (and only to the extent the Option is
exercised), the number of shares of stock or other securities or property of
the Company, or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock, or other
securities, deliverable upon the exercise of this Option, or any portion
hereof, would otherwise have been entitled on such capital reorganization,
merger, consolidation, or sale.
3. RESTRICTION ON TRANSFER.
(a) The Holder, by its acceptance hereof, represents, warrants,
covenants and agrees that (i) the Holder has knowledge of the business and
affairs of the Company, and (ii) this Option and the Shares issuable upon the
exercise of this Option, or any portion hereof, are being acquired for
investment and not with a view to the distribution hereof, and that absent an
effective registration statement under the Securities Act of 1933 ("Act"),
covering the disposition of this Option, or any portion hereof, or the Shares
issued or issuable upon exercise of this Option, or any portion hereof, they
will not be sold, transferred. assigned. hypothecated or otherwise disposed
of without first providing the Company with an opinion of counsel (which may
be counsel for the Company) or other evidence, reasonably acceptable to the
Company, to the effect that such sale, transfer, assignment, hypothecation or
other disposal will be exempt from the registration and prospectus delivery
requirements of the Act. The Holder consents to the making of a notation in
the Company's records or giving to any transfer agent of the Option or the
Shares an order to implement such restriction on transferability.
3
<PAGE>
This Option and the Shares issuable upon the exercise of this Option1
or any portion hereof, shall bear the following legend or a legend of similar
import, provided, however, that such legend shall be removed, or not placed
upon the Option or the certificate or other instrument representing the
Shares, as the case may be, if such legend is no longer necessary to assure
compliance with the Act:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION ION OR THE SECURITIES COMMISSION OF
ANY STATE BECAUSE THEY ARE BELIEVED TO BE EXEMPT FROM REGISTRATION
UNDER SECTION 4(2) OF THE ACT. THE SECURITIES ARE "RESTRICTED AND MAY
NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER TEE SECURITIES
ACT OF 1933, AS AMENDED PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
4. PAYMENT OF TAXES. All Shares issued upon the exercise of this
Option, or any portion hereof, shall be validly issued, fully paid and
non-assessable and the Company shall pay all taxes and other governmental
charges (other than income tax) that may be imposed in respect of the issue
or delivery thereof. The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for Shares in any name other than that of the Holder
surrendered in connection with the purchase of such Shares, and in such case,
the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to
the Company's satisfaction that no tax or other charge is due.
5. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the exercise of this Option, or any
portion hereof such number of shares of Common Stock as shall be issuable
upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Option, or any portion hereof, and payment of the Purchase
Price thereof, all shares of Common Stock issuable upon such exercise shall
be duly and validly issued, fully paid and non-assessable.
6. NOTICES TO HOLDER. Nothing contained in this Option shall be
construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter or as having
any rights whatsoever as a shareholder of the Company. All notices, requests,
consents and other communications hereunder shall be in writing and shall be
deemed to have been duly made when delivered or mailed by registered or
certified mail, postage prepaid, return receipt requested:
4
<PAGE>
(a) If to the Holder, to the address of such Holder as shown on
the books of the Company; or
(b) If to the Company, to ITS address of its principal
executive offices.
7. REPLACEMENT OF OPTION. Upon receipt of evidence reasonably
satisfactory to the Company of the ownership of and the loss, theft,
destruction or mutilation of this Option and (in case of loss, theft or
destruction) upon delivery of an indemnity agreement in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender
and cancellation of the mutilated Option, the Company will execute and
deliver, in lieu thereof, a new Option of like tenor.
8. REGISTRATION. The Company agrees to file a Form S-B Registration
Statement registering the Shares underlying the Options within 6 months of
the date hereof. In addition, the Company grants the following additional
registration rights:
(a) The Company shall advise the Holder or its transferee,
whether the Holder holds the Option or has exercised the Option and holds any
Shares underlying the Options, by written notice ten days prior to the filing
of any Registration Statement or post-effective amendment thereto under the
Act covering any securities of the Company, for its own account or for the
account of others, and will until August 31, 2001, upon the request of the
Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Shares; provided, however, that if the managing underwriter of the
offering believes that the inclusion of the shares would materially adversely
effect the commercial feasibility of the offering. The Company shall not be
obligated to include the shares in such offering. The Company shall supply
prospectuses and such other documents as the Holder may request in order to
facilitate the public sale or other disposition of the Shares, use its best
efforts to register and qualify any of the Shares for sale in such states as
such Holder designates and do any and all other acts and things which may be
necessary or desirable to enable such Holders to consummate the public sale
or other disposition of the Shares. The Holder shall furnish information and
indemnification as set forth in Section 9.
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time to the effect that such Holder desires to register
under the Act the Common Stock underlying the Option under such circumstances
that a public distribution (within the meaning of the Act) of any such
securities will be involved then the Company will promptly. but no later than
120 days after receipt of such notice, file a registration statement pursuant
to the Act, to the end that the Shares may be publicly sold under the Act as
promptly as practicable thereafter and the Company will use its best efforts
to cause such registration to become and remain effective (including the
taking of such steps as are necessary to obtain removal of any stop order);
provided, that such holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% holder may, at its option, request the filing of a
registration statement under the Act on one occasion.
The cost of the registration shall be borne by the Company.
5
<PAGE>
9. INDEMNIFICATION. The Distributing Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed said registration statement and such amendments and supplements thereto,
each person, if any, who controls the company (within the meaning of the Act)
against any losses, claims, damages or liabilities to which the Company or any
such director, officer or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue or alleged untrue statement of any material fact
contained in said registration statement, said preliminary prospectus, said
final prospectus, or said amendment or supplement, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in said registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and in conformity
with written information furnished by such Distributing Holder for use in the
preparation thereof; and will reimburse the Company or any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
10. SUCCESSORS. All the covenants, agreements, representations and
options contained in this Option shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
11. CHANGE; WAIVER. Neither this Option nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. HEADINGS. The section headings in this Option are inserted for
purposes of convenience only and shall have no substantive effect.
13. LAW GOVERNING. This Option shall for all purposes be construed and
enforced in accordance with, and governed by the internal laws of the State
of California, without giving effect to principles of conflict of laws.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be signed by
its duly authorized officer and this Option to be dated as of the date first
above written.
RAINBOW BRIDGE SERVICES, INC.
By: /s/ Martin Tony Walk
-----------------------------------
Name: Martin Tony Walk
Title: President
Accepted by Holder as of the date written
above:
----------------------------------------
7
<PAGE>
AGREEMENT
The parties to this agreement are Greg Bogart (hereinafter "Bogart" ) and
American Custom Components, Inc. (hereinafter "ACC").
Whereas, ACC plans to be publicly traded in August 1997, and in consideration
for the release of Bogarts 40% Share of the company, ACC will issue to Bogart
325,000 shares of its common stock. Furthermore ACC guarantees the value of the
issued stock to be $3.00 per share (valued at $ 975,000 ) for the entire period
which Bogart holds the stock. In the event that the stock held by Bogart is
traded at a market value less than $3.00 per share, 18 months from this
agreement (April 1, 1999), Inge Lundegaard / Tony Walk will transfer sufficient
stock to Bogart bringing the value of his stock to a minimum value of $975,000
by April 1, 1999.
Whereas, ACC recognizes the sums which Bogart has loaned it, ACC will repay its
financial obligations of $300,000.00 structured as repayment of debt to Bogart
as follows: Bogart shall receive the sum of $50,000.00 cash on October 1, 1997,
with the balance of $250,000.00 to be paid in equal payments on the first of
each month over the next 2 years, including 12% annual interest. It is
understood that the balance is to be paid as soon as possible.
If for any reason the Public offering is delayed ACC agrees to continue payments
of $2,600 on the first of each month to cover the interest payments on company
debt in Bogarts name. Currently this arrangement is $3,600 in arrears with the
next payment due September 1, 1997.
ACC will continue to respond to and be responsible for any law suits, judgments
or litigation brought against Bogart relating to his involvement with ACC.
Whereas the parties to this agreement understand the public offering scheduled
on or before October 1, 1997 does not come to pass, all previous agreements will
stay in effect.
Dated: August 5, 1997
/s/ Gregory B. Bogart /s/ Martin T. Walk
- ---------------------------- --------------------------
Gregory B. Bogart Martin T. Walk
/s/ Inge Lundegaard
--------------------------
Inge Lundegaard
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR SUCH APPLICABLE SECURITIES LAWS, OR (II) IN THE OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE SECURITIES
ACT OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH TRANSFER.
AMERICAN CUSTOM COMPONENTS, INC.
--------------------------------
SECURED PROMISSORY NOTE
-----------------------
$100,000.00 Newport Beach, California
October 30, 1997
FOR VALUE RECEIVED, the undersigned, American Custom Components, Inc.,
a Nevada corporation (the "Company"), hereby promises to pay to the order of
George Kimble, as representative of the holders of 100% of the shares of common
stock of Caribbean Electronics, Ltd., or its lawful assigns (the "Purchaser"),
in lawful money of the United States of America, and in immediately available
funds, the principal sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00). The
principal hereof and any accrued interest shall be due and payable on or before
April 30, 2000. Payment of all amounts due hereunder shall be made at the
address of the Purchaser provided for herein. The Company further promises to
pay interest at the rate of 8.00% percent per annum on the outstanding principal
balance hereof, such interest to be payable quarterly in arrears on the 1st day
of each quarter, commencing January 1, 1998.
1. SECURITY. This Note is secured by and entitled to the benefits of a
certain Company Security Agreement (the "Company Security Agreement") dated as
of even date herewith, among the Company and the Purchaser.
2. EXTENSION OF MATURITY DATE. Purchaser shall have the right, in its
sole discretion, to extend the maturity of this Note, each such extension
exercisable only by the Purchaser by delivering to the Company written notice of
such extension at any time prior to the maturity date then in effect.
3. TRANSFERABILITY. Subject to the provisions of Paragraph 3 hereto,
this Note shall be freely transferable by the Purchaser provided such transfer
is in compliance with applicable federal and state securities laws.
1
<PAGE>
4. DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default:
(a) The non-payment, when due, of any principal pursuant
to this Note;
(b) The material breach of any representation or warranty in
this Note. In the event the Purchaser becomes aware of a breach of this Section
4(b), the Purchaser shall notify the Company in writing of such breach and the
Company shall have five business days after notice to cure such breach;
(c) The material breach of any covenant or undertaking in this
Note, not otherwise provided for in this Section 4;
(d) The commencement by the Company of any voluntary
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect; or the adjudication of
the Company as insolvent or bankrupt by a decree of a court of competent
jurisdiction; or the petition or application by the Company for, acquiescence
in, or consent by the Company to, the appointment of any receiver or trustee for
the Company or for all or a substantial part of the property of the Company; or
the assignment by the Company for the benefit of creditors; or the written
admission of the Company of its inability to pay its debts as they mature; or
(e) The commencement against the Company of any proceeding
relating to the Company under any bankruptcy, reorganization, arrangement,
insolvency, adjustment of debt, receivership, dissolution or liquidation law or
statute of any jurisdiction, whether now or hereafter in effect, provided,
however, that the commencement of such a proceeding shall not constitute an
Event of Default unless the Company consents to the same or admits in writing
the material allegations of same, or said proceeding shall remain undismissed
for 20 days; or the issuance of any order, judgment or decree for the
appointment of a receiver or trustee for the Company or for all or a substantial
part of the property of the Company, which order, judgment or decree remains
undismissed for 20 days; or a warrant of attachment, execution, or similar
process shall be issued against any substantial part of the property of the
Company.
Upon the occurrence of any Default or Event of Default, the Purchaser
may, by written notice to the Company, declare all or any portion of the unpaid
principal amount due to Purchaser immediately due and payable, in which event it
shall immediately be and become due and payable, provided that upon the
occurrence of an Event of Default as set forth in paragraph (d) or paragraph (e)
hereof, all or any portion of the unpaid principal amount due to Purchaser shall
immediately become due and payable without any such notice.
2
<PAGE>
IN WITNESS WHEREOF, the Company has signed and sealed this Note and
delivered it in Newport Beach, California as of October 30, 1997.
AMERICAN CUSTOM COMPONENTS, INC.
/s/ Tony Walk
--------------------------------
By: Tony Walk
Its: President
3
<PAGE>
SETTLEMENT AGREEMENT
AND GENERAL MUTUAL RELEASE
This Agreement and Release (hereinafter "the Agreement") is entered into by and
between Charles L. Rosenblum, Consultant, (hereinafter "Rosenblum") and American
Custom Components, Inc. (hereinafter, ACC) with reference to the following.
RECITALS
A. Rosenblum and ACC entered into a contract on July 7, 1997 wherein
Rosenblum was to act as a consultant for hire, and was to provide to ACC certain
services more specifically set forth in said contract. Said Contract is attached
hereto and made apart hereof as Exhibit A.
B. Rosenblum and ACC have jointly and collectively decided to terminate
all business and contractual relationships which now exists between them
specifically including the Exhibit A contract.
C. Therefore, Rosenblum and ACC hereto desire to enter into a settlement
upon the terms and conditions set forth hereafter, and in connection therewith
to release each other hereto from any further liability, except as such
liability is imposed upon a party under the terms of this agreement.
1
<PAGE>
NOW, THEREFORE, ROSENBLUM AND ACC HEREBY AGREE AS FOLLOWS:
1. PAYMENT BY ACC TO ROSENBLUM: (a) As and for the total consideration
due and owing to ROSENBLUM by ACC, ACC agrees to issue ONE HUNDRED THOUSAND
(100,000) Warrants to purchase common stock of American Custom Components, Inc.
Said warrants are to be purchased by Rosenblum from ACC for the total price of
$.01 each. Said warrants are to be purchased by Rosenblum no later than one (1)
year from the date of this agreement. Said warrants are valid for a term of
three (3) years from the date of their purchase and are transferrable and/or
assignable. ACC agrees to file a S8 Registration for the common stock to be
purchased through the Warrants by Rosenblum when ACC qualifies as a reporting
company.
(b) Rosenblum agrees that for a minimum of two (2) years (the "lock-Up
Period"), that he will not offer to sell, sell, contract to sell, grant any
option to purchase, make any short sale or otherwise dispose of any of the
shares of ACC common stock or any other ACC securities or securities that are
convertible into ACC common stock.
(c) The foregoing restriction is expressly agreed to preclude Rosenblum
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a sale or disposition of ACC
securities even if such securities would be disposed of by someone other than
the undersigned; however, after the S8 Filing becomes effective, Rosenblum would
be allowed to sell increments of ONE THOUSAND SHARES OF COMMON STOCK (1,000) in
any week in which 30,000 shares of ACC common stock are traded and for each
increment of 30,000 shares traded during said week. To accomplish all sales,
Rosenblum specifically agrees to place all of his common stock in a stock broker
account designated by ACC, and will provide ACC with a duplicate account status.
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(d) Furthermore, in consideration of the foregoing, Rosenblum and ACC
agree that it would be difficult to ascertain damages to ACC for a violation of
the above, and the parties agree to a liquidated damages provision for each and
every violation of this agreement to be the total amount received by Rosenblum
from the sale of ACC common stock by Rosenblum.
2. All sums previously paid to Rosenblum by ACC are deemed to be earned,
and no funds are to be refunded to ACC by Rosenblum.
3. The above constitutes the total consideration due each party by the
other party for all contractual effort performed by either party on behalf of
the other party.
4. RELEASE FROM LIABILITY: Rosenblum and ACC hereby releases acquits,
and forever discharges the other party and its present principals, officers,
agents, associates, representatives, directors, employees, predecessors,
successors and assigns and all persons acting by, through, under or in concert
with them, or any of them, jointly or individually, of and from any and all
claims demands, causes of action, obligations, damages and liabilities, whether
known or unknown, which such party has or may hereafter obtain or accrue against
the other party; PROVIDED, HOWEVER, that such release shall not extend to any
obligations performed or not paid pursuant to the terms of this Agreement.
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5. WAIVER OF CIVIL CODE SECT. 1542: Each party hereto understands and
expressly waives any and all rights and benefits conferred by the provisions of
Section 1542 of the CALIFORNIA CIVIL CODE which reads as follows:
"A General Release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him, must have
materially affected his settlement with the debtor.
6. NO ADMISSION OF LIABILITY: Nothing contained herein is to be
construed to be an admission of any liability by any party or any other party
hereto.
7. REVIEW BY LEGAL COUNSEL: Each party hereto further warrants and
represents that in executing this Agreement, such party has been represented by
and relied on legal advice from such party's own attorney, that the terms of
this Agreement and its consequences have been completely read and explained by
that attorney and that such party fully understands the terms of this Agreement.
8. RECOVERY OF LEGAL FEES AND COSTS: If any party hereto fails to comply
with any provision hereof and the other party institutes court proceedings in
order to enforce the terms hereof, the prevailing party therein shall be
entitled to recover its reasonable legal fees and costs.
9. CALIFORNIA LAW TO GOVERN: This Agreement is entered into in the State
of California and shall be governed by and construed under the laws of the State
of California to whose jurisdiction the parties hereto submit.
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10. WARRANTY OF AUTHORITY: Each party hereto warrants that it has full
authority to enter into this Agreement and, if a corporate or similar business
entity, that its entry into this Agreement has been properly authorized by such
persons or governing body as possess the right to so authorize such action; that
it has taken no action or entered into any agreement that would prevent or
interfere with its compliance with the terms hereof; and, that it has not sold
or assigned to any third party any claim which it waives or releases under the
terms hereof.
11. COUNTERPART COPIES: This agreement may be executed in multiple
originals and each multiple original or counterpart shall be deemed to
constitute an original of this Agreement at to any persons or entities whose
original signature, or their representative appears thereon. Facsimile copies of
original signatures are deemed as original if another party's original signature
appears thereon.
12. This Settlement Agreement is meant to be confidential. Neither
Rosenblum nor ACC desire that the terms of this agreement or the circumstances
which preceded it be disclosed to the public, nor any person who does not now
have knowledge of this agreement or the actions and circumstances which preceded
it. Therefore, both parties agree to its confidentiality; furthermore, both
parties agree that it would be difficult to ascertain damages as a result of the
disclosure of the terms of this Settlement Agreement.
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Therefore, both Rosenblum and ACC agree to liquidated damages in the amount of
TEN THOUSAND DOLLARS ($10,000.00) for each and every intentional disclosure of
the terms herein or the circumstances which preceded this agreement.
IN WITNESS WHEREOF, THE UNDERSIGNED HEREBY EXECUTE THIS AGREEMENT:
Dated: October 13, 1997 /s/ Charles Rosenblum
----------------------------------
Charles L. Rosenblum,
Individually as Consultant
Dated: October 13, 1997 /s/ Inge Lundegaard
-----------------------------------
American Custom Components, Inc.
by Inge Lundegaard
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AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This lease ("lease"), dated for reference purposes only, October
16, 1997, is made by and between Adams Properties ("Lessor") and American
Customer Components ("Lessee") (alike collectively the "Parties," or
individually a "Party").
1.2 PREMISES: That certain real property, including all improvements therein
or to be provided by lessor under the terms of this lease, and commonly known by
the street address of 3310 W. MacArthur located in the County of Orange, State
of California and generally described as (describe briefly the nature of the
property) an industrial building of approximately 12, 185 square (see 2. 1
"Letting" below)
1.3 TERM three (3) years and 0 months ("ORIGINAL TERM") commencing December 1,
1997 ("Commencement Date") and ending November 30, 2000 ("EXPIRATION DATE").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: per addendum #50 ("EARLY POSSESSION DATE"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $6,702.00 per month (" BASE RENT"), payable on the first (1st)
day of each month commencing December 1, 1997 (See Paragraph 4 for further
provisions.) [x] If this Box is checked, there are Provisions in this lease for
the base rent to the adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $6,702.00 as base rent for the period
December 1, 1997--December 31, 1997
1.7 SECURITY DEPOSIT:$6, 702.00 ( "SECURITY DEPOSIT" ). (See Paragraph 5 for
further provisions.)
1.8 PERMITTED USE: general office, warehousing and manufacturing of computer
related product (See paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $*_________ is the "BASE
PREMIUM." (See paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively, the
"BROKERS" ) and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):*1997 Base Year
Lee & Associates -- Sean Ahern/Jim Snyder represents
[x] Lessor exclusively ("LESSOR'S BROKER" ); [ ] both Lessor and Lessee, and
C. B. Commercial -- Larry Shuler represents
[x] Lessee exclusively ("LESSEE'S BROKER" ) ; [ ]both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by none (" GUARANTOR" ). ( See Paragraph 37 for further provisions.)
1.12 ADDENDS. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 54 and Exhibits A. all of which constitute a part of this
Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify saying that Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants
to Lessee that the improvements on the Premises comply with all applicable
covenants or restrictions of record and applicable building codes, regulations
and ordinances in effect on the Commencement Date. Said warranty does not apply
to the use to which Lessee will put the Premises or to any Alterations or
Utility Installation (as defined in Paragraph 7.3 (a)) made or to be made by
Lessee. If the Premises do not comply with said warranty, Lessor shall, except
as otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If appointment lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Brokers to satisfy itself with respect to the condition of the
Premises (Including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefore as of same relate to Lessee's occupancy of the Premises and/or lower
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM
3.1 TERM The Commencement Date, Expiration Date and Original Term of this
Lease are specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the periods of such early possession. All other terms of this Lease,
however, shall be in effect during such period. Any such early possession shall
not affect nor advance the Expiration Date of the Original Term.
Initials /s/
/s/
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of
the Premises as agreed herein by the Early Possession Date if one is specified
in Paragraph 1.4, or, if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liabilities therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent for perform any
other obligation of Lessee under of terms of this Lease until Lessor delivers
possession of Premises to Lessee. If possession of the Premises is not delivered
to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event of Parties shall be discharged from all obligations
hereunder; provided, however, that if such written notice by Lessee is not
received by Lessor within said ten (10) days, Lessee's right to cancel this
Lease shall terminate and be of no further notice or affect. Except as may be
otherwise provided, and regardless of when the term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to what Lessee
would otherwise have enjoyed under the terms hereof, but minus any base of delay
caused by the acts, changes or omissions of Lessee.
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor act its address stated herein or to such other persons
or at such other addresses as Lessor may from time to time designate in writing
to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain
all or any portion of said Security Deposit, for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall; upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those melts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not used
or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no
part of the Security Deposit shall be considered to be held in trust, to bear
interest or other increment for its use, or to be prepayment for any moneys to
paid by Lessee under this Lease.
6. USE
6.1 USE. Lessee shall use and occupy the Premises only for the purposes set
forth in Paragraph 1.8, or any other use which is comparative thereto and for no
other purpose. Lessee shall not use or permit the use of Premises in America
that creates waste or a nuisance, or that disturbance owners and/or occupants
of, or causes damage to, neighboring premises or properties. Lessor hereby
agrees to not unreasonably withhold or delay its consent to any written request
by Lessee, Lessees assignee or subtenants, and by prospective assignees and
subtenants of the Lessee, its assignees and subtenants, for a modification of
said permitted purpose for which the premises may be used or occupied, so long
as the same will not impair the structural integrity of the improvements on the
Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the Improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as used
in this Lease shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacturer, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either; (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law, Hazardous Substance
shall include, but not be limited to hydrocarbons, petroleum, gasoline, crude
oil or any products, by-products or fractions thereof. Lessee shall not engage
in any accuracy in, on or about the Premises which constitutes a Reportable Use
(as hereinafter defined) of Hazardous Substances without the expense prior
written consent of Lessor and compliance in a timely manner (at Lessee's sole
cost and expense) with all Applicable Law (as defined in Paragraph 6.3).
"REPORTABLE USE" shall mean (I) the installation or use of any above or below
ground storage tank, (II) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filled with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Success with respect to which any Applicable Law
requires that unnoticed be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use of any Hazardous Substance, activity or
storage tank by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or injury
and/or liability therefrom or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to buy Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim action or proceeding given to, or received from, any governmental
authority or private party, or persons entering or occupying the Premises,
concerning the presence, spill, release, discharge of, or exposure to, any
Hazardous Substance or contamination in, on, or about the Premises, including
but not limited to all such documents as may be involved in any Reportable Uses
Involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders, and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgements, costs, claims, liens, expenses, penalties, permit and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control, Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration, and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing that the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease,
Lessee, shall at Lessee's sole cost and expense, fully, diligently and in a
timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, assessments and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (I)
industrial hygiene, (II) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (III) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request that are, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3 (a)) shall have the right to enter the Premises at any time. In
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employee experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited tune the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The cost and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expensive of such
inspections.
Initials /s/
/s/
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7.MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
____________________________________________ and 14 (condemnation, Lessee
___________ at Lessee's sole cost and expense and at all times keep the Premises
and every part therein good order, condition and repair, (whether or not that
portion of the Premises requiring repair, or the met of any prior use, the
elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities serving
the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks, and parkways located in, on, about, or
adjacent to the Process, but excluding foundations, the exterior of and the
structural aspects of the Premises. Lessee shall not cause or permits any
Hazardous Substance to be spilled or police in, on, under or about the Premises
(including through the plumbing or sanitary sewer system) and shall promptly, at
Lessee's excess, take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the cleanup of any
contamination of, and for the maintenance, security and/or monitoring of the
Premises, the elements surrounding same, or neighboring properties, that was
caused or materially contributed to by Lessee, or pertaining to involving any
Hazardous Substance and/or storage tank brought onto the appointment Premises by
or for Lessee or under its control. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacement or
renewals when necessary to keeping the Premises and all improvements thereon or
a part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if located on the Premises:
(i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or
unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or
other automatic fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping, and irrigation system, (v) root covering and drain
maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for such
repairs and subject to Paragraph 13.5,Lessor shall, at Lessor's expense keep the
foundations, exterior roof and structural aspects of the Premises in good order,
condition and repair, Lessor shall not, however be obligated to paint the
exterior surface of the exterior walls or to maintain the windows, doors or fate
last or the interior surface of exterior walls. Lessor shall not, in any event,
have any obligation to make any repairs until Lessor receives written notice of
the need for such repairs. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repairs of the Presses. Lessee and Lessor expressly waived the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used
in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication system, lighting fixtures, heating, ventilating, and air
conditioning prevent, plumbing and fencing in, or on or about the Premises. The
term " TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4 (a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. In Paragraph 7.4 (a), Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended as not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor will a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee's posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided law. If Lessee
shall, in good faith, contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense defend and protect itself, Lessor and the
Premises against the same and shall pay and satisfy any such adverse judgment
that may be rendered thereon before the enforcement thereof against the Lessor
or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a
surety bond satisfactory to Lessor in an amount equal to one and one-half times
the amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises free
from the effect of such lien or claim. In addition Lessor may require Lessee to
pay Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's tight to require their removal or become
the owner thereof as hereinafter provided in this Paragraph 7.4 all Alterations
and Utility Additions made to the Premises by Lessee shall be the property of
and owned by Lessee, but considered a part of the Premises. Lessor may, at any
time and at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee Owned Alterations and Utility Installations. Unless
otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon and be
surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, with all of
the Improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("INSURANCE COST
INCREASE") occurring during the term of this Lease. "INSURANCE COST INCREASE" is
defined as any increase in the actual cost of the insurance required under
Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED INSURANCE"), over and above the
Base Premium, as hereinafter defined, calculated on an annual basis. "INSURANCE
COST INCREASE" shall include, but not be limited to, increases resulting from
the nature of Lessee's occupancy, any act or omission of Lessee, requirements of
the holder of a mortgage or deed of trust covering the Premises, increased
valuation of the Premises, and/or a premium rate increase. If the parties insert
a dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." In lieu thereof, if the Premises have been previously occupied, the
"Bin Premium" shall be the annual premium applicable to the most recent
occupancy, if the Premises have never been occupied, the "Base Premium" shall be
the lowest annual premium reasonably obtainable for the Required Insurance as of
the commencement of the Original Term, assuming the most nominal use possible
of. the Premises. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b) (Liability Insurance
Carried By Lessor).
(b) Lessee shall pay any such insurance Cost to Lessor within thirty (30)
days after receipt by Lessee of a copy of the premium statement or other
reasonable evidence of the amount due. If the insurance policies maintained
hereunder cover the property beside the Premises, Lessor shall also deliver to
Lessee a statement of the amount of such insurance Cost Increase attributable
only to the Premises showing in reasonable detail the manner in which such
amount was computed. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be provided to coincide with the
corresponding Commencement or Expiration of the Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lessee Commercial General Liability policy of insurance protecting
Lessee and Lessor (as an additional insured) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
the single limit coverage in an amount not less than $1,000,000 per occurrence
with an "ADDITIONAL INSURED MANAGERS OR LESSORS OF PREMISES" Endorsement and
contain the "AMEND POLLUTION EXCLUSION" for damage caused by smoke or fumes from
a hostile fire. The policy shall not contain any Intra-Insured exclusions as
between insured persons or organization, but shall include coverage for
liability assumed under this Lease as an "insured contract" for the performance
of Lessee's indemnity obligations under this Lease. The limits of said insurance
required by this Lease as carried by Lessee shall not, however limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee, shall be primary to and not contributory with
any similar insurance carried by Lessor, whose Insurance shall be considered
excess insurance only.
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(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above in
addition to and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to the holders of any mortgages, deeds of trust
or ground leases on the Premises ("LENDER(S)"), insuring lot or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by Lenders, but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age of
the improvements involved, such latter amount is less than full replacement
cost. Lessee Owned Alterations and Utility Installations shall be insured by
Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for an additional costs resulting from
debris removal and reasonable amounts of coverage for the enforcement of any
ordinance or law regulating the reconstruction or replacement of any undamaged
sections of the Premises required to be demolished or removed by reason of the
enforcement of any building, zoning safety or land use laws as the result of a
covered cause of loss, but not including plate glass insurance. Said policy or
policies shall also contain a agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) yet
(including all real estate taxes, insurance costs, and any scheduled rental
Increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISE. If the Premises are part of a larger building, or if
the Premises are part of a group of buildings owned by Lessor which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5
Lessee at its cost shall either by separate policy or, at Lessor's option by
endorsement to a policy already carried, maintain insurance coverage on all of
Lessee's personal property, Lessee Owned Alterations and Utility Installations
in, on, or about the Premises similar in coverage to that carried by the
insuring party under Paragraph 8.3. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B +, V. or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the. expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or broach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employee or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed undo this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury
or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon ether portions of the building of which the Premises are a
part of from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act of neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alteration and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installation the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto. including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinance or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an
insured loss occurs, then Lessor shall, at lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available; Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
premises unless Lessee provides Lessor with the funds to cover the same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds or
adequate assurance thereof, within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonable
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee with ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If in such case Lessor does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair
______________________________ damage due to flood or earthquake shall be
subject to Paragraph 9.3 rather than Paragraph 9.2 notwithstanding that their
may be some insurance coverage, but the net proceeds of any such occurrence
shall be made available for the repairs if made by either Party.
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9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act Lessee (in
which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge the occurrence of such
damage at Lessor's desire to terminate this Lease as of the date sixty (60) days
following the giving of such notice. In the event Lessor elects to give such
notice of Lessor's Intention to terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's commitment to pay for the repair of such damage
totally at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following Lessee's as commitment. In such event this Lease
shall continue In full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible and the required funds are available. If
Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above this Lease shut terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, its
Premises Total Destruction occurs (including any destruction required by or
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was cause by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of
the term of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lease may preserve this
Lease by within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (I) exercising such option and (II)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEES REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises Is
Impaired. Except for abatement of Base Rent, Real Property Taxes insurance
premiums, and other charges, if any as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior the the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration Is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs,
unless Lessee is legally responsible therefor (in which case Lessee shut make
the investigation and remediation thereof required by Applicable Law and this
Lease shall continue in full force and effect, but subject to Lessor's rights
under Paragraph 13), Lessor may at Lessor's option either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue In full
force and effect, or (ii) if the estimated cost to investigate and remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
and without reimbursement from Lessor except to the extent of an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment in
such event this Lease shall continue in full force and effect, and Lessor shut
proceed to make such Investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided In Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant to
this Paragraph 9, an equitable adjustment shall be made concerning advance Base
Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's Security Deposit as has not been,
or is not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall
govern the effect of any damage to or destruction of the Premises with respect
to the termination of this Lease and hereby waive the provisions of any present
or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES. Base Tax Year 1997
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any by which Real Property
Taxes applicable to the Premises increase over the fiscal tax year during which
the Commencement Date occurs ("TAX INCREASE"). Subject to Paragraph 10.1(b),
payment of any such Tax Increase shall be made by Lessee within thirty (30) days
after receipt of Lessor's written statement setting forth the amount due and the
computation thereof. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes to be paid by Lessee
shall cover any period of time prior to or after the expiration or earlier
termination of the term hereof, Lessee's share of such taxes shall be equitably
prorated to cover only the period of time within the tax fiscal year this Lease
is in effect, and Lessor shall reimburse Lessee for any overpayment after such
proration.
(b) ADVANCE PAYMENT In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax increase to be paid in advance
to Lessor by Lessee, either: (I) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (II)
monthly in advance with the payment of the Base Rent, if Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency, if the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alteration or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Premises by any authority having
the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against legal or equitable interest
of Lessor in the Premises or in the real property of which the Premises are a
part. Lessor's right to rent or other income therefrom, and/or Lessor's business
of leasing the Premises. The term "Real Property Taxes" shall also include any
tax, fee, levy assessment or charge, or any increase therein, imposed by reason
of event occurring, or changes in applicable law taking effect during the term
of this Lease, including but not limited to a change in the ownership of the
premises or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
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10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall, be the equitable proportion of the Real Property Taxes all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuation assigned In
the assessor's work sheets or such other information as may be reasonably
available. Lessors reasonable determination thereof, in go faith, shall be
conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lease. Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property
Lessee shall pay Lessor the taxes attributable to Lessee within (10) days after
receipt of a written statement setting forth the taxes applicable to Lessees
property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water. gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Less of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively "assignment") sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms Paragraph
38.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or-otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessees interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be Default
curable after notice per Paragraph 13.1(c), or a noncurable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a noncurable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (II) upon their (30) days
written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent to fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base Index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not:
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lease or to
any subsequent or successive assignment or subletting by the subleasee. However,
Lessor may consent to subsequent sublettings and assignment of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantor or any one
else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor remedies against
any other person or entity responsible therefor to Lessor, or any security held
by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessees obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublease, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any at Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee or until the Breach has been cured, against Lessor, for any such
rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may required any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessee to such sublessor or for any
other prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
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13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default and that Lessor may include the cost of any services and costs in said
notice as rent due and ________ to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply, and to perform any of the terms,
covenants, conditions, ______applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided In this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
Insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, If applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b). (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a). (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtor' as defined in 11 U.S.C. Sec. 101 or any successor
statute thereto (unless, in the case of a petition flied against Lessee, the
same is dismissed within sixty (60) days); (iii) me appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
me Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessees assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days: provided, however, in the event that any
provision of this subparagraph (5) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect me validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee or any Guarantor of Lessee's obligations hereunder was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor. (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at me time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice). Lessor may at its option (but
without obligation to do so). perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. in me event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall Immediately surrender possession of me Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (I) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at me time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for me balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all me detriment proximately
caused by the Lessee's failure to perform its obligations under this Lease or
which in the ordinary course of things would be likely to result therefrom,
Including but not limited to the cost of recovering possession of me Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorney's fees, and that portion of the leasing commission
paid by Lessor applicable to the unexpired term of this Lease. The worth at me
time of award of the amount referred to in provision (iii) of the prior sentence
shall be computed by discounting such amount at the discount rats of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph. if termination of this Lease is obtained through me provisional
remedy of unlawful detainer, Lessor shall have me right to recover in such
proceeding me unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any pert thereof in a separate suit
for such rent and/or damages. if a notice and grace period required under
subparagraph. 13.1(b). (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as me case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b). (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b). (c) or (d) and under me unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession In effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for me limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or me appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of me Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or Judicial decisions of me state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during me
term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free
or abated rent or other charges applicable to the Premises, or for the giving or
paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be Immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated me operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, me exact amount of which will be extremely difficult
to ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be Imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge be Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor falls within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of writing for such purpose, of written notice specifying wherein
such obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion
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14. CONDEMNATION. If the Premises or a on thereof are taken under the power of
eminent domain or sold under the threat of the exercise of said power (all of
which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of the floor area of the
Premises, or more than twenty-five percent (25%) of the land area not occupied
by any building, Is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days alter Lessor shall have given Lessee
written notice of such taking (or In the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession, if Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain In full force and effect as to the portion of the Premises remaining,
except that the Base Rent shall be reduced In the same proportion as the
rentable floor area of the Premises taken bears to the total rentable floor area
of the building located on the Premises. No reduction of Base Rent shall occur
if the only portion of the Premises taken Is land on which there Is no building.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the properly of Lessor, whether such award shall be made in
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation separately awarded to Lessee for Lessees relocation expenses
and/or loss of Lessee's `Trade Fixtures. In the event that this Lease Is not
terminated by reason of such condemnation, Lessor shall to the extent of its net
severance damages received, over and above the legal and other expenses incurred
by Lessor In the condemnation matter, repair any damage to the Premises caused
by such condemnation, except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall be responsible for the
payment of any amount In excess of such net severance damages required to
complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named In Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or In such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ per a2reement ) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed In writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined In Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) If Lessee acquires any rights to
the Premises or other premises described In this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered Into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or is
If Base Rent is increased, whether by agreement or operation of an escalation
clause herein, then as to any of said transactions, Lessor shall pay said
Brokers a fee in accordance with the schedule of said Brokers In effect at the
time of the execution of this Lease.
15.4 Any buyer or transferee of Lessors interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Each Broker shall be a third party
beneficiary of the provisions of this Paragraph 15 to the extent of its Interest
in any commission arising from this Lease and may enforce that right directly
against Lessor and Its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
If any named In Paragraph 1.10) In connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee In connection with Said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, Including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.8 Lessor and Lessee hereby consent to and approve all agency
relationships, Including any dual agencies, Indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing Inform
similar to the then most current "TENANCY STATEMENT" form published by the
American industrial Real Estate Association, plus such additional Information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. AK such financial statements shall be received by Lessor and such
lender or purchaser In confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, If this is
a sublease, of the Lessee's interest in the prior lease. in the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The Invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (3lst) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, In addition to the late charge
provided for In Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, Its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered In person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mall or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or it no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or Courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy Is also delivered via delivery or mail, If notice is received on
a Sunday or legal holiday, It shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has the right to retain possession of the
Premises or any party _____ beyond the expiration or earlier termination of this
Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject
and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address hay been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
if any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of Its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3,
Lessee agrees to attorn to a Lender or any other party who acquire ownership of
the Premises by reason of a foreclosure of a Security Device, and that in the
event of such foreclosure, such new owner shall not: (i) be liable for any act
or omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defense which Lessee
might have against any prior lessor or (iii) be bound by prepayment of more than
one (1) month's rent.
30.3 NON-DISTURBANCES. With respect to Security Devices entered into by Lessor
after the execution of this Lease, Lessee's subordination of this Lease shall be
subject to receiving assurance (a "NON-DISTURBANCE agreement") from the Lender
that Lessee's possession and this Lease, including any option to extend the term
hereof, will not be disturbed so long as Lessee is not in Breach hereof and
attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Part) (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered In a separate suit, whether or not such action or
proceeding Is pursued to decision or judgment. The term "PREVAILING PARTY" shall
Include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be. whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced In connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary `For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent Notwithstanding anything to the contrary
In this Lease, Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to Install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably Interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination, of such interest.
36. CONSENTS,
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, ass
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the Imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the
form of the guaranty to be executed by each such Guarantor shall be in the form
most recently published by the American Industrial Real Estate Association, and
each said Guarantor shall have the same obligations as Lessee under this Lease,
including but not limited to the obligation to provide the Tenancy Statement and
Information called for by Paragraph 18.
37.2 It shall constitute a Default of the Lessee under this Lease if any such
Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of Incumbency showing the signature of the persons authorized to
sign on Its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) `a Tenancy Statement, or (d) written
confirmation that the guaranty Is still in effect
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
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39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the _______ and without the intention of thereafter assign
or subletting. The Options, if any herein granted to Lessee are not assignable,
either as a part of an assignment of this Lease or separately or apart
therefrom, and no Option may be separated from this Lease in any manner by
reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) In the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or the Defaults are
cured, during the twelve (12) month period immediately preceding the exercise of
the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee' inability to exercise Option because
of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessees due timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee falls to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor g to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, Whether or not the Defaults are cured, or (iii) Lessee
commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
reasonable rules and regulations which Lessor may make from time to time for the
management, safety care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred In
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right. from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such suit. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust. or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions,
46. OFFER. Preparation of this Lease by Lessor or Lessors agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. The Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend the
Lease from time to time to reflect any adjustments that are made to the Base
Rent or other rent payable under this Lease. As long as they do not materially
change Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional, insurance company, or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises we a part.
46. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES, NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES: THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at _____________________ Executed at __________________________
on ______________________________ on ___________________________________
by LESSOR: Adams Properties by LESSEE: American Customer Components
- --------------------------------- --------------------------------------
By: /s/ James Adams By: /s/ Inge Lundegaard
Name Printed: James Adams Name Printed: Inge Lundegaard
Title: Partner Title: CEO
By: _____________________________ By: ___________________________________
Name Printed: ___________________ Name Printed: _________________________
Title: __________________________ Title: ________________________________
Address: ________________________ Address: 1515 S. Sunkist Street.
_________________________________ Anaheim, Ca 92906
Tel. No. (714) 957-8888 Tel. No. (714) 978-0484
Fax No. (714) 957-0416 Fax No. (714) 978-0488
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Addendum to Lease dated October 16, 1997
by and between Adams Properties (Lessor) and
American Customer Components (Lessee) for that real property commonly
known as 3310 W. MacArthur, Santa Ana, California
in the event of conflict of terms between the printed provisions of this Lease
Agreement and this Addendum, this Addendum shall prevail.
49. RENTAL SCHEDULE/MONTHLY RENT. Monthly rent shall be as follows:
12/1/1997 through 11/31/1998 $6,702.00
12/1/1998 through 11/31/1999 $6,945.00
12/1/1999 through 11/31/2000 $7,189.00
50. EARLY POSSESSION. Lessee will be granted early possession upon mutual
execution of lease documents first month's base rent and security
deposit and proof of insurance. Lessee understand s that Lessor is
currently (10/16/97) leasing a portion of the Premises to Destiny
Imports (Tenant). Lessor is required to five Destiny Imports thirty
(30) day written notice to vacate the Premises. Lessee's early
possession and access shall not interfere with nor delay Lessor's
facility improvement process. Such early occupancy and access shall be
at Lessee's sole risk and Lessee shall comply will all provisions of
the lease except the obligation to pay the base rent.
51. TENANT IMPROVEMENTS. Lessor shall, at Lessor's cost and expense, will
provide the following Lessee improvements:
1. New VCT floor tile in reception area and rest rooms (tile shall be
of standard commercial quality), Lessee to choose style/color. (See
exhibit "A"). *
2. New carpet in the office area and paint walls throughout the
premises. (See exhibit "A").
3. Repair or replace all damaged ceiling tiles. The ceiling tiles
throughout the office area shall be consistent in appearance and the
ceiling tiles in the manufacturing area shall be consistent in
appearance.
4. Renovate tile flooring in the manufacturing area, that there is
consistency in appearance. (See exhibit "A").
5. Flouresent lighting to be installed throughout the manufacturing
area evenly.
52 BUILDING SIGNAGE. Lessee at Lessee's sole cost and expense, shall have
the right to install building signage, building signage shall be
subject to review and approval of the City of Santa Ana. At the
expiration of Lease Term, Lessee at Lessee's expense shall remove
building signage, and repair any damage to the building caused by such
removal.
53. RIGHT TO SUBLEASE. Lessee may sublease the Premises to any subsidiary,
affiliate or parent company which shall not require Lessor's prior
written consent. Any profits would be shared by Lessor and Lessee on a
50/50% basis after subleasing expenses have been met.
* Lessee reserves the right to upgrade, at its sole cost, the
entry/reception area VCT floor tile by taking Lessor's allowance for
said floor covering and installation and applying it to the upgrade.
Initials: /S/
/S/
<PAGE>
LEE & ASSOCIATED NIFORM DISCLAIMER FORM
COMMERCIAL REAL ESTATE SERVICES LEASE FORM
1. LEGAL EFFECT. The lease shall be subject to Landlord's and Tenant's approval,
and only a fully executed and delivered lease shall constitute a legally binding
lease for the Premises. Broker makes no warranty or representation to Landlord
or Tenant that acceptance of this Proposal to Lease will guaranty the execution
of a lease for the Premises.
Landlord and Tenant acknowledge that Broker is not qualified to practice law,
nor authorized to five legal advice or counsel you as to any legal matters
affecting this document. Broker hereby advises Landlord and Tenant to consult
with their respective attorneys in connection with any questions each may have
as to legal ramifications or effects of this document, prior to its execution.
2. FORM OF LEASE. This proposed document is a standard form document, and Broker
makes no representations or warranties with respect to the adequacy of this
document for either Landlord's or Seller's particular purposes. broker has, at
the direction of Landlord and/or Tenant, "filled in the blanks" from information
provided to Broker based on prior correspondence, discussions of the parties
with respect to the Proposal to Lease, and subsequent counteroffers between the
parties hereto. By initialing this paragraph, Landlord and Tenant acknowledge
and agree that this document is delivered to each subject to the express
condition that Broker has merely followed the instructions of the parties in
preparing this document, and does not assume any responsibility for its
accuracy, completeness or form. Landlord and Tenant acknowledge and agree that
in providing this document, Broker has acted to expedite this transaction on
behalf of Landlord and Tenant, and has functioned within the scope of
professional ethics by doing so.
Landlord's Initials:/S/ Tenant's Initials:/S/
3. NO INDEPENDENT INVESTIGATION. Landlord and Tenant acknowledge and understand
that any financial statements, information reports, or written materials of any
nature whatsoever, as provided by the parties to Broker, and thereafter
submitted by Broker to either Landlord and/or Tenant, are so provided without
any independent investigation by Broker, as such Broker assumes no
responsibility or liability for the accuracy or validity of the same. Any
verification of such submitted documents is solely and completely the
responsibility of the party to whom such documents have been submitted.
4. NO WARRANTY. Landlord and Tenant acknowledge and agree that no warranties,
recommendations, or representations are made by the broker as to the accuracy,
the legal sufficiency, the legal effect of the tax consequences of any of the
documents submitted by Broker to Landlord and/or Tenant referenced in Paragraph
3 above, nor of the legal sufficiency, legal effect, or tax consequences of the
transactions contemplated thereby. Furthermore, Landlord and Tenant acknowledge
and agree that Broker has made no representations concerning the ability of the
Tenant to use the premises as intended, nor of the sufficiency or adequacy of
the Premises for their intended use, and the Tenant is relying solely on its own
investigation of the Premises in accepting this Proposal to Lease.
5. NOTICE REGARDING HAZARDOUS WASTES OR SUBSTANCES AND UNDERGROUND STORAGE
TANKS. Although Broker will disclose any knowledge it actually possesses with
respect to the existence of any hazardous wastes, substances, or underground
storage tanks at the Premises, Broker has not made any independent
investigations or obtained reports with respect thereto, except as may be
described in a separate written document signed by Broker. All parties hereto
acknowledge and understand that Broker makes no representations regarding the
existence or nonexistence of hazardous wastes, substances, or underground
storage tanks at the Premises. Each party should contact a professional, such as
a civil engineer, geologist, industrial hygienist or other persons with
experience in these matter s to advise you concerning this property.
6. DISCLOSURE RESPECTING AMERICANS WITH DISABILITIES ACT. The United State
Congress has recently enacted the Americans With Disabilities Act. Among other
things, this act is intended to make may business establishments equally
accessible to persons with a variety of disabilities, modifications to real
property may be required. State and local laws also may mandate changes. Broker
is not qualified to advise you as to what, if any, changes may be required now
or in the future. Broker recommends that you consult the attorney and qualified
design professions of your choice for information regarding these matters.
7. ATTORNEYS' FEES. In any action, proceeding or arbitration arising out of this
Agreement, the prevailing party shall be entitled to reasonable attorney's fees
and costs.
8. ENTIRE AGREEMENT. This document constitutes the entire agreement between
parties with respect to the subject matter contained herein and supersedes all
prior or contemporaneous agreements, representations, negotiations and
understandings of the parties, other than such writings as may be executed
and/or delivered by the parties pursuant hereto. There are no oral agreements or
implied covenants by the Seller or Buyer, or by their respective employees, or
other representatives.
Date: Date: 10/20/97
-------------------------- ----------------------------
Landlord: /S/ J. Adams Tenant:/s/ Inge Lundegaard
---------------------- --------------------------
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
Dated: October 16, 1997
By and Between (Lessor): Adams Properties
(Lessee): American Customer Components
Property Address: 3310 W. MacArthur, Santa Ana, CA
Paragraph 54
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for 1 additional 36 month period(s) commencing when the prior term expires
upon each and all of the following terms and conditions:
(i) Lessee fives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least 6 and not more than 9 months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to default
of Lessee set forth in paragraph 39.4 of this Lease are conditions of this
Option;
(iii) All of the terms and conditions of this Lease except where specifically
modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated as
follows, using the methods(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[ ] I Cost of Living Adjustment(s) (COL)
(a) On (Fill in COL Adjustment Date(s)):______________________ the
monthly rent payable under paragraph 1.5 ("Base rent") of the attached Lease
shall be adjusted by the change, if any, from the Base Month specified below, in
the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): ___CPIW (Urban Wage Earners and Clerical
Workers) or ____CPIU (All Urban Consumers), for (Fill in Urban
Area):______________. All items (1982-1984=100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph A1(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): ___ the first month of the
term of this Lese as set forth in paragraph 1.3 ("Base Month") or ___(Fill in
Other "base Month"):-------------. The sum so calculated shall constitute the
new monthly rent hereunder, but in on event, shall any such new monthly rent be
less than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be used
to make such calculation. In the event that Lessor and Lese cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
II. MARKET RENTAL VALUE ADJUSTMENT(S)(MRV)
(a) On (Fill in MRV Adjustment Date(s): December 1, 2000, the monthly
rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value(MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, the:
Initials:_______________ Initials:/S/
/S/
OPTION(S) TO EXTEND
Page 1 of 2
<PAGE>
EMPLOYMENT CONTRACT FOR SENIOR EXECUTIVE
AMERICAN CUSTOM COMPONENTS, INC., a California Corporation, located at
1515 S. Sunkist Avenue, Anaheim, CA 92806, hereinafter referred to as "ACC" and
MICHAEL R. ORTON, hereinafter referred to as "ORTON" in consideration of the
mutual promises made herein, agree as follows:
ARTICLE 1: TERM OF EMPLOYMENT
1.1 ACC hereby employs ORTON and ORTON hereby accepts employment with
ACC for a period of thirty-six (36) months commencing October 20, 1997.
1.2 This agreement may be terminated earlier as herein provided.
ARTICLE 2: DUTIES AND OBLIGATIONS OF EMPLOYEE
2.1 ORTON shall serve as Executive Vice President and General Manager of
ACC. In that capacity, he shall do and perform all services, acts and things
necessary or advisable to fulfill his duties. However, ORTON shall at all times
be subject to the direction of the president and to the policies established by
the Board of Directors of ACC.
2.2 ORTON agrees that he shall devote his entire productive time,
ability and attention to the business of ACC during the term of this agreement0
and shall not act in any commercial or professional capacity for any other
person or organization whether for compensation or otherwise without the express
written consent of ACC.
2.3 The parties acknowledge and agree that during the term of this
agreement and in the course of his duties at ACC, ORTON shall have access to and
become acquainted with information which is confidential and could be
constituted as ACC's trade secrets;
2.4 ORTON agrees that he shall not disclose any such trade secrets to
any person or any organization in any manner whatsoever except as required in
the course of his duties while employed at ACC.
<PAGE>
PAGE 2
2.5 ORTON hereby represents, and agrees that the services to be
performed under the terms of this contract are of a special, unique, unusual,
and intellectual character and as such, are of peculiar value, the loss of which
cannot be adequately compensated by damages in a court of law. ORTON therefore
expressly agrees that ACC, addition to any other rights and remedies which it
may possess, shall be entitled to injuctive and other equitable relief to
prevent or remedy a breach in this Contract by ORTON.
2.6 ORTON expressly agrees that in the event he terminates his
employment with ACC, he shall not work for, become employed, consult or in any
manner whatsoever provide his services or any information regarding ACC to any
organization which is in competition with ACC for a period of one (1) year after
termination.
ARTICLE 3: OBLIGATIONS OF EMPLOYER
3.1 ACC agrees to provide ORTON with the compensation, incentives,
benefits and business expense reimbursement specified elsewhere in this
agreement.
3.2 In the event of a dispute between the parties, ACC agrees to binding
arbitration before a member of the American Arbitration Association or other
similarly qualified panel. Said arbitration shall be commenced within sixty (60)
days of the dispute.
ARTICLE 4: COMPENSATION OF EMPLOYEE
4.1 As compensation for the services to be rendered by ORTON hereunder,
ACC shall pay ORTON a weekly salary of $1,800.00 per week. Said weekly sum shall
commence to be earned by ORTON on October 20, 1997 and shall be paid in
accordance with the payroll policies of ACC.
4.2 Increases to ORTON's salary shall be at the sole discretion of the
Board of Directors.
4.3 As additional compensation to ORTON, ACC agrees to transfer to ORTON
within thirty (30) days of the commencement of his employment an option to
purchase ONE HUNDRED THOUSAND SHARES (100,000) of ACC common stock at the price
of $.01 per share.
<PAGE>
Page 3
4.4 On the first and second anniversary of his employment with ACC, ACC
shall grant to ORTON an additional option to purchase ONE HUNDRED THOUSAND
SHARES (100,000) of ACC common stock at the price of $.01 per share.
4.5 ORTON shall be entitled to 10 days of paid vacation per year. This
vacation time may be accrued for the term of this contract. Accrued vacation
time may be exchanged for cash at the termination of this contract at the amount
equal to his pay rate.
4.6 ACC shall provide ORTON and his dependents with a fully paid medical
and dental insurance policy.
ARTICLE 5: TERMINATION OF EMPLOYMENT
5.1 ORTON may terminate this agreement at any time by rendering sixty
(60) days notice to ACC. ACC shall have the option of retaining the services of
ORTON for the sixty (60) day period, or immediately discharging him. In any
event, ACC shall be obligated to pay ORTON his salary for the sixty (60) day
period.
5.2 ACC may terminate this agreement for cause which shall include a
willful breach or neglect of professional duty and responsibility by ORTON under
this agreement, or, any act of fraud, misrepresentation or moral turpitude which
would prevent the effective performance of ORTON'S duties at ACC.
5.3 Any termination of this agreement by ACC shall be in writing and
shall states the grounds for termination.
5.4 ACC reserves the right to suspend ORTON from his duties. Notice of
any suspension shall be in writing and shall state the cause for suspension. In
the event, ACC suspends ORTON from his duties without terminating him, ACC shall
be obligated to continue ORTON's salary.
ARTICLE 6: MISCELLANEOUS PROVISIONS
6.1 In the event of ORTON's death, ACC agrees to pay to the designated
beneficiary or to ORTON's estate the remaining balance due for ORTONs salary
including all shares of stock on this contract.
<PAGE>
Page 4
6.2 In the event of merger of ACC with another business entity, or of
the sale of ACC, this contract shall survive and become the responsibility of
the surviving business entity.
6.3 If any provision in this agreement is held to be unenforceable in a
court of law, the remaining provisions shall nevertheless continue in full force
without being impaired or invalidated in any way.
6.4 The failure of either party to insist on strict compliance with any
of the terms or conditions of this agreement shall not be deemed a waiver or
relinquishment of any right, or power by that party.
6.5 This agreement shall be governed by the laws of the State of
California.
6.6 If any legal action is necessary to enforce the terms of this
agreement, the prevailing party shall be entitled to reasonable attorney's fees
and costs in addition to any other relief to which that party may be entitled.
6.7 This agreement supercedes any and all other agreements either oral
or in writing between the parties hereto and contains all of the covenants and
agreements between the parties with respect to the employment of ORTON by ACC.
6.8 Any modification of this agreement will be effective only it is in
writing and signed by the party to be charged.
6.9 Any dispute between the parties shall be subject to binding
arbitration
Date: Oct 20, 1997
/s/ Micheal R. Orton
------------------------------
Michael R. Orton
Date: 10-20-97
/s/ Martin T. Walk
------------------------------
American Custom Components, Inc.
Martin T. Walk, President
<PAGE>
ENGAGEMENT AGREEMENT
This agreement made and entered into the 24th day of October, 1997, by and
between Alpha Tech Stock Transfer, hereinafter referred to as Agent and
AMERICAN CUSTOM COMPONENTS whose address is 1515 S. Sunkist St. Suite E
Anaheim, CA 92806 hereinafter referred to as the Company.
WHEREFORE:
1. Agent shall be and is hereby appointed Transfer Agent and Registrar for
the securities of the Company.
2. An authorized officer of the Company shall file the following with
Agent before Agent commences to act as Transfer Agent: (Please note
that space is provided within this document for much of this
information)
a. A copy of the Articles of Incorporation of the Company and
all amendments thereto, and a copy of the Certificate of
Incorporation as issued by the State of Incorporation.
b. A copy of the by-laws of the Company incorporating all
amendments thereto.
c. Specimens of all forms of outstanding certificates for
securities of' the Company, in the forms approved by the
Board of Directors.
d. A list of all outstanding securities, together with a
statement that future transfers may be made without
restriction on all securities, except as to securities
subject to a restriction noted on the face of said securities
and in the corporate stock records.
c. A list of all shareholders deemed to be considered "insiders"
or "control persons" as defined in the Securities Act of 1933
and 1934 and other acts of Congress and rules and regulations
of the United States Securities and Exchange Commission when
applicable.
f The names and specimen signatures of all officers who are and
have been authorized to sign certificates for securities on
behalf of the Company and the names and addresses of any
other Transfer Agents or Registrars of the securities of the
Company.
g. A copy of the resolution of the Board of Directors of the
Company authorizing the execution of this Agreement and
approving the terms and conditions herein.
h. An official statement from the Company Secretary as to the
authorized and outstanding securities of the Company. its
address to which notices maybe sent, the names and specimen
signatures of the Company's officers who are authorized to
sign instructions or requests to the Transfer Agent on behalf
of this Company, and the name and address of legal counsel to
this Company.
i. In the event of any future amendment or change in respect of
any of the foregoing, prompt written notification of such
change, together with copies of all relevant resolutions,
instruments, proxies or other documents, specimen signatures,
certificates, opinions or the like as the Transfer Agent may
deem necessary or appropriate.
3. Agent, as Transfer Agent, shall make original issues of securities
upon the written request of the Company and upon being furnished with
a copy of a resolution of the Board of Directors of the Company
authorizing such issue certified by the Corporate Secretary.
<PAGE>
4. The Company hereby authorizes Agent to purchase from time to time,
certificates as may be needed by it to perform regular transfer
duties; not to exceed 5,000 without prior written approval of the
Company, which such costs being paid in advance by the Company. Such
certificates shall be signed manually or by facsimile signatures of
officers of the Company authorized by law or by the by-laws of the
Company to sign certificates and if required, shall bear the
corporate seal of the Company or a facsimile thereof.
5. Transfer of securities shall be made and effected by Agent and shall
be registered and new certificates issued upon surrender of the old
certificates, in form deemed by Agent properly endorsed for transfer,
with all necessary endorser's signatures guaranteed in such a manner
and form as Agent requires by a guarantor reasonably believed by
Agent to be responsible accompanied by such assurances as Agent shall
deem necessary or appropriate to evidence the genuineness and
effectiveness of such necessary endorsement, and satisfactory
evidence of compliance with all applicable laws relating to
collection of taxes, if any. That all transfer of securities and
issuance and certificates shall be at a fee chargeable by Alpha Tech,
at its discretion. Such fee is to be paid by such person, persons,
firms or corporations requesting such transfer.
6. In registering transfers, Agent may rely upon the Uniform Commercial
Code or any other statute which in the opinion of Counsel protects
Agent and the Company in not requiring complete documentation in
registering transfer without inquiry into adverse claims, in delaying
registration for purposes of such inquiry, or in refining
registration wherein its judgement and adverse claims require such
refusal. The company agrees to hold Agent harmless from any liability
resulting from instructions issued by the Company.
7. When mail is used for delivery of certificates, Agent shall forward
certificates in "non-negotiable" form by first class, registered or
certified mail.
8. Agent, as Transfer Agent, may issue new certificates in place of
certificates represented to have been lost, destroyed, or stolen,
upon receiving indemnity satisfactory to Agent, and may issue new
certificates in exchange for, and upon surrender of mutilated
certificates.
9. In case of any request of demand for the inspection of the records of
the Company held by Agent, Agent shall endeavor to notify the Company
and secure instructions as to permitting or refusing such inspection.
However, Agent may exhibit such records to any person in any case
where it is advised by its counsel that it may be held liable for
failure to do so
10. In case any officer of the Company who shall have signed manually or
whose facsimile signature shall have been affixed to blank
certificates shall die, resign, or be removed prior to the issuance
of such certificates, Agent may issue and register such certificates
as the certificates of the Company notwithstanding such death,
resignation, or removal; and the Company shall file promptly with
Agent such approval, adoption, or ratification as may be required by
law.
11. Agent shall maintain customary records in connection with its agency,
all of which shall be available for inspection by the Company at all
reasonable times.
12. Agent is authorized by the Company to use its own judgement in
matters affecting its duties as Transfer Agent, and in its discretion
may apply to and act upon instructions of its own counsel or of the
counsel of the Company in respect to any questions arising in
connection with such agency, all legal fees are to be at the expense
of the Company and Agent is hereby relieved of any responsibility to
the Company and is indemnified by the Company as to any
responsibility to third persons, for action taken in accordance with
advice of such counsel or its own judgement, remaining liable only
for its own willful default or misconduct.
13. Agent shall be indemnified by the Company for any acts of Agent based
upon:
a. Any paper or document reasonably believed by it to be genuine
and to have been signed by the proper person or persons; and
b. Its recognition of certificates which it reasonable believes
to bear the proper manual or facsimile signatures of the
officers of the Company and the proper counter-signature of
the Transfer Agent.
14. Company shall notice Agent of any change of authority of any officer,
employee or agent of the Company and any change in name, address,
phone and fax number, CUSIP number, authorized shares, stock splits
or any other material change in the Company. Agent shall not be held
to have notice of any such changes until receipt of written
notification thereof from the Company.
15. So long as Agent has acted in good faith and with due diligence and
without negligence, the Company shall assume full responsibility and
shall indemnify Agent and save it harmless from and again losses,
damages, costs, charges, counsel fees, payments, expenses and
liabilities arising directly or indirectly out of agency relationship
to the Company. Agent shall not be under any obligation to prosecute
any action or suit in respect of such agency relationship which, in
opinion of counsel, may involve it in expense or liability, unless
the Company shall, so often as reasonably requested, furnish Agent
with satisfactory indemnity against such expense or liability. Agent
shall be without liability to the Company, and is hereby indemnified
from any liability to third persons, from Alpha Tech's refusal to
perform any act in connection with this agency, wherein reliance upon
opinion of its counsel, Alpha Tech in good faith believes that such
act may subject it or its officers or employees to criminal liability
or injunctive sanctions under any law or any state or of the United
States, an in particular, under the Securities Acts of 1933 and 1934.
16. The Company may remove Agent as Transfer Agent at any time by giving
a 30 day written notice in the form of a resolution from the Board of
Directors calling for such removal (a copy of resolution shall be
furnished to Agent) and upon the payment of any and all reasonable
charges owing to Agent including all outstanding charges for services
and a termination fee as described below. Agent may resign as
Transfer Agent at any time giving written notice of such resignation
to the Company at its last known address, and thereupon its duties as
Transfer Agent shall cease. in the event the Agent resign's, the
termination fee is waived, but said resignation in no way relieves
the Company of its outstanding fees for services.
17. Termination fee equals to Five Dollars ($5.00) per certificate
outstanding at the time of termination. In the event that termination
is less than 30 days notice, the termination fee is treble.
18. This agreement may not be assigned by Agent without the express
written consent of the Company.
19. Agent may, at its sole discretion, pay a finders fee to any person,
persons or entity for referring the company to Agent. Any finders fee
agreement entered into by Agent, which is directly related to this
agreement between Agent and the company, will be made available to
the company for inspection upon written request.
20. Agent may increase its rates and fees as it deems necessary and
reasonable, without notification to client.
21. The Company was charted under the laws of the State of Nevada by
Certificate of Incorporation filed in the office of the
__________________ on the ________ day of _________, 19___. The
Company will supply a copy of its state charter.
22. The total number of each class of securities which the Company is now
authorized to issue and the number thereof now issued and outstanding
is
a. Class: Common Stock
b. Par Value: __________________________
c. Authorized:__________________________
d. Issued and Outstanding: 10,000,000
<PAGE>
23. The duly elected and qualified officers and directors of this
Corporation, all owners of more than 5% of the Company's outstanding
stock ("principal shareholders") and all affiliates, as defined in
SEC Rule 144(a)(1).
Title CEO Title President
Name, Address and Phone: Name, Address and Phone:
Inge Lundeguaard Tony Walk
177 Promonotory West 177 Promonotory West
N.B., CA N.B., CA
Signature (Required only for officers Signature (Required only for officers
and directors) and directors)
/s/ Inge Lundeguaard /s/ Tony Walk
--------------------------- ------------------------------
- --------------------------------------------------------------------------------
Title Vice President, Director Title ________________________
Name, Address and Phone: Name, Address and Phone:
Mike Orton (Michael Robert Orton) ________________________
1779 Verdite Street ________________________
Livermore, CA 94550 ________________________
Signature (Required only for officers Signature (Required only for officers
and directors) and directors)
/s/ Mike Orton
--------------------------- -----------------------------
- --------------------------------------------------------------------------------
Title Executive VP New Development Title ________________________
President
Name, Address and Phone: Name, Address and Phone:
John Groom ___________________________
110 1/2 S. Navarra Drive ___________________________
Scotts Valley, CA 95066 ___________________________
Signature (Required only for officers Signature (Required only for officers
and directors) and directors)
/s/ John Groom
-------------------------- -----------------------------
<PAGE>
23. The duly elected and qualified officers and directors of this
Corporation, all owners of more than 5% of the Company's outstanding
stock ("principal shareholders") and all affiliates, as defined in
SEC Rule 144(a)(1).
Title Account Manager Title ________________________
Name, Address and Phone: Name, Address and Phone:
Frank Liger __________________________
651 Springbrock No. __________________________
Irvine, CA 92714 __________________________
Signature (Required only for officers Signature (Required only for officers
and directors) and directors)
/s/ Frank Liger
--------------------------- ---------------------------------
- --------------------------------------------------------------------------------
Title Account Manager Title ________________________
Name, Address and Phone: Name, Address and Phone:
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
Signature (Required only for officers Signature (Required only for officers
and directors) and directors)
--------------------------- -----------------------------
- --------------------------------------------------------------------------------
Title Account Manager Title ________________________
Name, Address and Phone: Name, Address and Phone:
__________________________ ________________________
__________________________ ________________________
__________________________ ________________________
Signature (Required only for officers Signature (Required only for officers
and directors) and directors)
--------------------------- -----------------------------
- --------------------------------------------------------------------------------
<PAGE>
24. The CUSIP number and trading Symbol for the Company is:
CUSIP 025312109 Symbol ACCM
25. The Date and Ratio of all past forward and reverse splits are:
Date ____/____/____ Ratio ____ for _____ Split (F)___ (R)___
Date ____/____/____ Ratio ____ for _____ Split (F)___ (R)___
Date ____/____/____ Ratio ____ for _____ Split (F)___ (R)___
Date ____/____/____ Ratio ____ for _____ Split (F)___ (R)___
26. That the name, address, phone number and fax number of Counsel to the
Company is:
Richard Cutler, ESQ.
610 Newport Center Drive Suite 800 Newport Beach, CA 92660
27. The mailing address of the Company to which all written
communications are to be sent is:
1515 S. Sunkist St. Suite E Anaheim, CA 92806
28. The phone number(s) and fax number(s) of the Company are:
Telephone: (714) 978-0484
Fax: (714) 978-0488
29. That the names and addresses of all past and present Transfer Agents
(other than Agent) are:
None
Agreed and entered into the day and year first written above.
Company: AMERICAN CUSTOM COMPONENTS Alpha Tech Stock Transfer
By: MARTIN T. WALK By: __________________________
President James W. Farrell, Transfer Agent and Trustee
<PAGE>
EXHIBIT A
AMERICAN CUSTOM COMPONENTS
-----------------------------
(Company)
INCUMBENCY CERTIFICATE
I, Inge Lundegaard, Secretary of American Custom Components (the "Company"), a
(State) Corporation, do hereby certify that the persons named below are the duly
elected, qualified and acting incumbents of the Company's offices and Board of
Directors as set opposite their names:
NAME POSITION
INGE LUNDEGAARD Board Chairman
MARTIN T. WALK President, Director
INGE LUNDEGAARD Secretary
INGE LUNDEGAARD Treasurer
MIKE ORTON Vice President, Director
JOHN GROOM Director
JOHN FRENCH Director
Director
Director
Director
Director
Director
Director
Executed in (city, state) Anaheim, CA on this 24th day of October, 1997.
AMERICAN CUSTOM COMPONENTS
- -------------------------------
Company
By: /s/ Inge Lundegaard
-----------------------------
Inge Lundegaard
Secretary
<PAGE>
EXHIBIT B
SIGNATURE FORM FOR
COMPANY PRESIDENT
Date October 24, 1997
Company AMERICAN CUSTOM COMPONENTS
Name of Signatory MARTIN T. WALK
(Please Print name exactly as person signs)
A specimen of your signature is required to reproduce in facsimile form for the
stock certificates. Please affix your signature, USING BLACK INK, in the three
windows below.
[graphic of signatures here} [ 1 ]
[graphic of signatures here} [ 3 ]
[graphic of signatures here} [ 2 ]
NOTE: Please show your order of preference by numbering 1, 2, and 3 in the boxes
on the right of your signature.
<PAGE>
EXHIBIT C
SIGNATURE FORM FOR
COMPANY SECRETARY
Date October 24, 1997
Company AMERICAN CUSTOM COMPONENTS
Name of Signatory INGE LUNDEGAARD
(Please Print name exactly as person signs)
A specimen of your signature is required to reproduce in facsimile form for the
stock certificates. Please affix your signature, USING BLACK INK, in the three
windows below.
[graphic of signatures here} [ 3 ]
[graphic of signatures here} [ 1 ]
[graphic of signatures here} [ 2 ]
NOTE: Please show your order of preference by numbering 1, 2, and 3 in the boxes
on the right of your signature.
<PAGE>
AGREEMENT
This Agreement is made on December 11, 1997 between American Custom Components,
Inc., a Nevada Corporation in USA with its registered office at 3310 W.
MacARTHUR BLVD. Santa Ana, CA 92704, U.S.A. (hereafter called "ACC") AND Robert
Lim on No. 44 Jalan Besi Kawi, Coronation Park, 80200 Johor Bahru, Johor,
Malaysia (hereafter called "the Owner").
BOTH PARTIES HERETO AGREE AS FOLLOWS:
(1) SALE AND PURCHASE PRICE
The owner hereby agrees to sell and ACC agrees to purchase the One and Half
storey terrace factory at 95 Jalan Timur 4, Kawasan Perindustrian Kulai Timur,
81000 Kulai, Johor, Malaysia.
(Title No: HS(D) 208264).
Both parties agree the price at US$110,000.00
(2) SCHEDULE OF PAYMENT
ACC is hereby offering to the Owner an opportunity to purchase ACC's stocks of
31,400 shares at US$ 3.50 per share in exchange of the ownership of the above
said property. There will be a 12 months waiting period on this stock options
which expire on the 13th month from the date of this agreement. The waiting
period of 12 months is effective from the date of this agreement. The Owner has
ONE month to exercise this stock options agreement and give ACC title to the
above said property. In the event that the Owner does not exercise this stock
options, ACC shall pay US$110,000.00 to the Owner.
(3) RENTAL
ACC agree to rent the building at US$800.00 during this waiting period. The
rental shall be effective from the date of this agreement.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
executed this Agreement as of the date first above stated.
/s/ Robert Lim /s/ Martin Tony Walk
- --------------------------- ------------------------------------
SIGNED by ROBERT LIM SIGNED by MARTIN TONY WALK
(I.C. No. 650326-01-5101) on behalf of
AMERICAN CUSTOM COMPONENTS, INC.
in the presence of:-
/s/ Michael Robert Orton 9-Feb-98
------------------------------
MICHAEL ROBERT ORTON
<PAGE>
EMPLOYMENT CONTRACT
AMERICAN CUSTOM COMPONENTS, INC., a California Corporation, located at
3310 W. MacArthur Blvd., Santa Ana, CA 92704, hereinafter referred to as "ACC"
and JOHN GROOM, hereinafter referred to as "GROOM" in consideration of the
mutual promises made herein, agree as follows:
ARTICLE 1: TERM OF EMPLOYMENT
1.1 ACC hereby employs GROOM and GROOM hereby accepts employment with
ACC for a period of thirty-six (36) months commencing January 1, 1998.
1.2 This agreement may be terminated earlier as herein provided.
ARTICLE 2: DUTIES AND OBLIGATIONS OF EMPLOYEE
2.1 GROOM shall serve as President of ACC. In that capacity, he shall
do and perform all services, acts and things necessary or advisable to fulfill
his duties, including but not limited to the planning, direction and
implementation of worldwide operations for ACC. GROOM shall at all times be
subject to the direction of the policies established by the Board of Directors
of ACC.
2.2 GROOM agrees that he shall devote his entire productive time,
ability and attention to the business of ACC during the term of this agreement,
and shall not act in any commercial or professional capacity of any other person
or organization whether for compensation or otherwise without the express
written consent of ACC.
2.3 The parties acknowledge and agree that during the term of this
agreement and in the course of his duties at ACC, GROOM shall have access to and
become acquainted with information which is confidential and could be
constituted as ACC's trade secrets. GROOM agrees that during and after the term
of this Agreement, GROOM will not, directly or indirectly, disclose to any third
party, or use or authorize any third party to use, any information relating to
the business or interests of ACC that GROOM knows or has reason to know is
regarded as confidential and valuable to ACC. GROOM acknowledges that such
confidential information constitutes "trade secrets" of ACC as set forth in
Section 3126 of the California Civil Code which shall include, without
limitation, all methods, processes, formulae, compositions, inventions,
machines, computer programs, research projects, customer lists, pricing data,
sources of supply, marketing, production, merchandising systems or plans
associated with ACC's business and all information delivered to ACC or GROOM in
confidence by ACC's clients and customers. GROOM agrees to use his best efforts
and the utmost diligence to guard and protect such trade secrets and
confidential information. The parties acknowledge and agree that in determining
whether information is confidential information and/or a trade secret (as
defined herein), the fact that such information is not marked "confidential"
shall not adversely affect the confidentiality or trade secret status of the
same. GROOM agrees that if his relationship with ACC is terminated for
1
<PAGE>
any reason, GROOM will return to ACC all records and papers and all matter of
whatever nature which bears secret or confidential information of ACC. In the
event of a breach or threatened breach of Section of this Agreement, ACC shall
be entitled to an injunction restraining such breach, without the requirement of
posting bond; but nothing here shall be construed as prohibiting ACC from
pursuing any other remedy available to it as a result of such breach or
threatened breach.
2.4 GROOM hereby represents and agrees that the services to be
performed under the terms of this contract are of a special, unique, unusual,
and intellectual character and as such, are of peculiar value, the loss of which
cannot be adequately compensated by damages in a court of law. GROOM therefore
expressly agrees that ACC, in addition to any other rights and remedies which it
may possess, shall be entitled to injunctive and other equitable relief to
prevent or remedy a breach in this contract by GROOM.
2.5 GROOM agrees and covenants that for a period of three (3) years
following the termination of this Agreement, he shall not compete directly or
indirectly with ACC. Furthermore, GROOM agrees that he shall not directly or
indirectly induce or solicit, or directly or indirectly aid or assist any other
entity, person or otherwise to induce or solicit, current employees, salesmen,
agents, consultants, distributors, representatives, advisors, customers or
suppliers of ACC to terminate their employment or business relations with ACC.
Nothing contained in this Agreement shall prevent GROOM from purchasing less
than one percent (1%) of the issued and outstanding common stock of a
corporation which conducts such business if such stock is registered under the
Securities Act of 1933. GROOM hereby acknowledges and agrees that any violation
of this Section will cause damage to Company in an amount difficult to
ascertain. In the event of a breach or threatened breach of this Section, ACC
shall be entitled to an injunction restraining such breach; but nothing here
shall be construed as prohibiting ACC from pursuing any other remedy available
to it as a result of such breach or threatened breach.
ARTICLE 3: OBLIGATIONS OF EMPLOYER
3.1 ACC agrees to provide GROOM with the compensation, incentives,
benefits and business expense reimbursement specified elsewhere in this
agreement.
3.2 If a dispute or claim shall arise between the parties with respect
to any of the terms or provisions of this Agreement, or with respect to the
performance by any of the parties under this Agreement, then the parties agree
that the dispute shall be arbitrated in Orange County, California before a
single arbitrator, in accordance with the rules of either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services,
Inc./Endispute ("JAMS/Endispute"). The selection between AAA and JAMS/Endispute
rules shall be made by the claimant first demanding arbitration. The arbitrator
shall have no power to alter or modify any express provisions of this Agreement
or to render any award which by its terms affects any such alteration or
modification. The parties to the arbitration may agree in writing to use
different rules and/or arbitrator(s). In all other respects, the arbitration
shall be conducted in accordance with the California Code of Civil
2
<PAGE>
Procedure, or equivalent. The parties agree that the judgment award rendered by
the arbitrator shall be considered binding and may be entered in any court
having jurisdiction as stated elsewhere in this Agreement. The provisions of
this Paragraph shall survive the termination of this Agreement.
ARTICLE 4: COMPENSATION OF EMPLOYEE
4.1 Subject to the termination of this Agreement as provided herein, as
compensation for the services to be rendered by GROOM hereunder, ACC shall pay
GROOM an Annual Salary at the annual rates as set forth below. Said sum shall
commence to be earned by GROOM on January 1, 1998 and shall be paid in a timely
manner in accordance with the payroll policies of ACC, less normal payroll
deductions.
a. January 1, 1998 thru March 31, 1998: $110,000.00
b. March 31, 1998 thru June 30, 1998: $135,000.00
c. July 1. 1998 thru December 31, 1998: $175,000.00
4.2 Further increases to GROOM's salary beyond stated amounts shall be
at the sole discretion of the Board of Directors, and are subject to the cash
flow and profitability of ACC's operations.
4.3 As additional compensation to GROOM, ACC agrees to confirm a grant
to GROOM previously agreed upon in September, 1997, wherein GROOM is to receive,
within thirty (30) days of the commencement of his employment, an option to
purchase TWO HUNDRED FIFTY THOUSAND SHARES of ACC common stock at the price of
$3.50 per share. Of the options to purchase shares available to GROOM, 25,000
shall vest on January 31, 1998, and the remainder of said options to purchase
shares shall vest monthly at the rate of 6,250 shares per month for a period of
thirty-six months commencing on January 31, 1998. The options shall be
exercisable for a period of three years from vesting.
4.4 GROOM shall be entitled to 20 days of paid vacation per year to be
used by GROOM during the applicable annual period at the discretion of ACC. This
vacation time may be accrued for the term of this contract. Accrued vacation
time may be exchanged for cash at the termination of GROOM's employment with ACC
at the amount equal to his pay rate. GROOM shall be given reasonable time for
court related requirements and commitments.
4.5 ACC shall provide GROOM and his dependents with a fully paid
medical and dental insurance policy comparable to those provided to other
executives in ACC.
4.6 ACC shall provide to GROOM a life insurance policy during the term
of this Agreement in the amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000.00).
4.7 ACC shall pay all reasonable and necessary business expenses for
3
<PAGE>
GROOM including, but not limited to his current office expense in Santa Cruz,
California and relocation expenses if necessary. In reimbursing GROOM for
expenses, the ordinary and usual business guidelines and documentation
requirements shall be adhered to by ACC and GROOM.
4.8 ACC shall pay a bonus of THIRTY THOUSAND DOLLARS ($30,000.00) to
GROOM on March 31, 1998.
4.9 As additional compensation to GROOM, ACC shall pay to GROOM a
commission equal to three percent (3%) of the proceeds received by ACC as a
result of sales to Seagate Technologies and its subsidiaries. Said commission
shall be payable monthly. The terms of this paragraph 4.9 shall survive the
terms of this employment contract in that GROOM shall be entitled to the
commission set forth herein for as long as ACC continues to receive proceeds
from sales to Seagate Technologies and its subsidiaries.
ARTICLE 5: TERMINATION OF EMPLOYMENT
5.1 GROOM may terminate this agreement at any time by rendering sixty
(60) days notice to ACC. ACC shall have the option of retaining the services of
GROOM for such sixty (60) day period or immediately discharging him. In any
event, ACC shall be obligated to pay GROOM his salary for the sixty (60) day
period unless otherwise agreed to by GROOM.
5.2 ACC may terminate this agreement at any time for cause which shall
include a wilful breach or neglect of professional duty and responsibility by
GROOM under this agreement, or, any act of fraud, misrepresentation or moral
turpitude which would prevent the effective performance of GROOM's duties at
ACC.
5.3 Any termination of this agreement by ACC shall be in writing and
shall state the grounds for termination.
5.4 ACC reserves the right to suspend GROOM from his duties. Notice of
any suspension shall be in writing and shall state the cause for suspension. In
the event, ACC suspends GROOM from his duties without terminating him, ACC shall
be obligated to continue GROOM's salary.
ARTICLE 6: MISCELLANEOUS PROVISIONS
6.1 In the event of GROOM's death, ACC agrees to pay to the designated
beneficiary or to GROOM's estate the remaining balance due for GROOM's salary
for the following six months including all options to shares of stock due under
this contract which shall vest during such period.
6.2 In the event of merger of ACC with another business entity, or of
the sale of ACC, this contract shall survive and become the responsibility of
the surviving business entity. In such an event, if GROOM and other ACC
management are not in positions with the surviving business entity which are
substantially similar to their positions immediately prior to said event, and if
4
<PAGE>
GROOM elects to terminate this employment agreement following said event, then
ACC, or its surviving entity, shall pay to GROOM an amount equal to three (3)
times the remaining balance due for GROOM's salary hereunder for the remaining
term of this agreement.
6.3 If any provision in this agreement is held to be unenforceable in a
court of law, the remaining provisions shall nevertheless continue in full force
without being impaired or invalidated in any way.
6.4 The failure of either party to insist on strict compliance with any
of the terms or conditions of this agreement shall not be deemed a waiver or
relinquishment of any rights or power by that party.
6.5 This agreement shall be governed by the laws of the State of
California.
6.6 If any legal action is necessary to enforce the terms of this
agreement, the prevailing party shall be entitled to reasonable attorney's fees
and costs in addition to any other relief to which that party may be entitled.
6.7 This agreement supersedes any and all other agreements either oral
or in writing between the parties hereto and contains all of the covenants and
agreements between the parties with respect to the employment of GROOM by ACC.
6.8 Any modification of this agreement will be effective only if it is
in writing and signed by the party to be charged.
6.9 Any dispute between the parties shall be subject to binding
arbitration.
IN WITNESS WHEREOF, the parties hereto hereby execute this Agreement as
of the date first above written:
/s/ John Groom
--------------------------------
John Groom
/s/ Martin T. Walk
--------------------------------
American Custom Components, Inc.
Martin T. Walk, President
5
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
$50,000 Santa Ana, California
January 31, 1998
FOR VALUE RECEIVED, the undersigned, American Custom Components, Inc.,
a Nevada corporation ("Maker"), hereby promises to pay to the order of Steve
Kakuk, an individual, or assignee ("Payee"), at 26931 Vista Pointe, San Juan
Capistrano, CA 92675 or at such other place as Payee or any holder hereof may
from time to time designate, the principal sum of Fifty Thousand Dollars
($50,000.00), and to pay simple interest at said office or place from the date
hereof on the unpaid principal balance amount hereof at a rate of ten percent
(10%) per annum. All amounts outstanding under this Note, including the
principal balance and interest hereunder, shall be due and payable on or before
July 31, 1998. In no event shall the rate of interest hereunder exceed the
maximum interest rate permitted by applicable law.
Maker and all endorsers, guarantors and sureties hereof hereby
severally waive diligence, demand, presentment, protection and notice of any
kind, and assent to extensions of the time of payment, release, surrender or
substitution of security, or forbearance or other indulgence, without notice.
Maker may, at his option, at any time and from time to time, prepay all
or any part of the principal balance of this Note, without penalty or premium,
provided that concurrently with each such prepayment Maker shall pay accrued
interest on the principal so prepaid to the date of such prepayment.
This Note may not be changed, modified or terminated orally, but only
by an agreement in writing signed by the party to be charged.
In the event of any litigation with respect to this Note, Maker waives
the right to a trial by jury and all rights of setoff and rights to interpose
counterclaims and cross-claims. Maker hereby irrevocably consents to the
jurisdiction of the courts of the State of California in connection with any
action or proceeding arising out of or relating to this Note.
This Note shall be governed by California law, without reference to any
choice of law principles thereof. This note shall be secured by a pledge of
25,000 shares of common stock of ACC held in accordance with the terms of that
certain Escrow Agreement of even date herewith.
AMERICAN CUSTOM COMPONENTS, INC.
/s/ Martin Tony Walk
- --------------------------------
By: Martin Tony Walk
Its: President
<PAGE>
EXHIBIT "B"
ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Escrow Agreement") is entered into
effective as of January 31, 1998 by and between STEVE KAKUK, HELEN KAKUK,
CATHERINE A. GARCIE, STEPHEN J. KAKUK, and KRISTINA ANDERSON, on the one hand
(each a "Shareholder" and together the "Shareholders"), AMERICAN CUSTOM
COMPONENTS, INC., a Nevada corporation ("ACC"), on the other hand, and MRC LEGAL
SERVICES CORPORATION, a California corporation, as escrow agent ("Escrow
Agent").
R E C I T A L S
A. ACC and the Shareholders are parties to a Stock Purchase Agreement
dated as of even date herewith (the "Agreement").
B. As a condition to the Agreement, ACC has agreed to deposit with the
Escrow Agent a certificate or certificates representing 25,000 shares of
"restricted" ACC Common Stock (the "ACC Shares"), together with a Stock Power
sufficient to transfer all right, title and interest in the ACC Shares to the
Shareholders, or their designees, in form and substance satisfactory to the
Shareholders, as shall be effective to vest in the Shareholders all right, title
and interest in and to all of the ACC Shares. The purpose of this Escrow
Agreement is to (i) provide a method whereby ACC is compensated by withholding
delivery of the ACC Shares upon a breach of the Agreement, and (ii) provide a
method whereby the Shareholders are compensated by accelerating delivery of the
ACC Shares upon a breach of that certain Promissory Note executed by ACC of even
date herewith (the "Note") and/or a breach of the UBOC Debt as assumed by ACC in
accordance with Section 1.3.3.1 of the Agreement.
C. Escrow Agent has agreed to act as the escrow agent hereunder, in
accordance with the terms and conditions set forth in this Escrow Agreement.
NOW THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto hereby
agree as follows:
1. APPOINTMENT OF ESCROW AGENT. The Parties hereby mutually appoint and
designate the Escrow Agent to receive, hold and release, as escrow agent, the
ACC Shares and the Escrow Agent hereby accepts such appointment and designation.
2. ESCROW DELIVERY. On or before Closing Date as set forth in the
Agreement, ACC shall deliver or cause to be delivered a certificate or
certificates representing the ACC Shares, together with a Stock Power sufficient
to transfer all right, title and interest in the ACC Shares to the Shareholders,
in form and substance satisfactory to the Shareholders, as shall be effective to
vest in the Shareholders all right, title and interest in and to all of the ACC
Shares, to the Escrow Agent.
<PAGE>
3. CONDITIONS OF ESCROW.
3.1 THE ESCROW DEPOSIT. Escrow Agent shall hold and release
the ACC Shares as follows:
a. RELEASE OF THE ACC SHARES FROM ESCROW. The Escrow Agent
shall release and distribute the ACC Shares as follows:
i. The ACC Shares shall be released to the
Shareholders on or before January 31, 1999,
unless one of the three following events has
occurred: (A) ACC has given written notice
to the Shareholders and the Escrow Agent
prior to January 31, 1999 of a breach of the
Agreement, in which event the ACC Shares
described in this paragraph shall not be
released in accordance with this Section
3.1(a)(i) but instead in accordance with
Section 3.1(a)(ii); or (B) ACC has not made
payment under the terms of the Note within
fourteen (14) days of the date for delivery,
in which event the ACC Shares shall be
released to the Shareholders upon written
instructions from the Shareholders to do so;
or (C) ACC has defaulted on the UBOC Debt by
not making payment in a timely manner as set
forth in Section 1.3.3.1 of the Agreement,
or ACC has breached any other material term
of the Agreement, in which event the ACC
Shares shall be released to the Shareholders
upon written instructions from the
Shareholders to do so.
ii. All or any portion of the ACC Shares shall be
released to the Shareholders or ACC, as the case
may be, pursuant to (a) written instructions
executed by both the Shareholders and ACC, or (b)
any "final order" of a court of competent
jurisdiction, any such order being deemed to be
"final" if (i) such order has not been reserved,
stayed, enjoined, set aside, annulled or
suspended, (ii) no request for a stay, suspension
or an injunction, petition for reconsideration or
appeal, or sua sponte action with comparable
effect is sua sponte pending with respect to the
order, and (iii) the time for filing any such
request, petition or appeal or further taking of
any such sua sponte action has expired.
3.2 CONFLICTING INSTRUCTIONS. If a controversy arises between
the Parties concerning the release of the ACC Shares hereunder, they shall
notify the Escrow Agent. In that event (or, in the absence of such notification,
if in the good faith judgment of the Escrow Agent such controversy exists), the
Escrow Agent shall not be required to resolve such controversy or take an action
but shall be entitled to await resolution of the controversy by joint
<PAGE>
instructions from the Parties. The Escrow Agent may institute an interpleader
action in state or federal court in the State of California to resolve such
controversy. If a suit is commenced against the Escrow Agent, it may answer by
way of interpleader and name ACC and the Shareholders as additional parties to
such action, and the Escrow Agent may tender the ACC Shares into such court for
determination of the respective rights, titles and interests of the Parties.
Upon such tender, the Escrow Agent shall be entitled to receive from the Parties
its reasonable attorneys' fees and expenses incurred in connection with said
interpleader action or in any related action or suit. As between ACC and the
Shareholders, such fees, expenses and other sums shall be paid by the party
which fails to prevail in the proceedings brought to determine the appropriate
distribution of the ACC Shares. If and when the Escrow Agent shall so interplead
such Parties, or either of them, and deliver the ACC Shares to the clerk of such
court, all of its duties hereunder shall cease, and it shall have no further
obligation in this regard. Nothing herein shall prejudice any right or remedy of
the Escrow Agent.
4. CONCERNING ESCROW AGENT
4.1 DUTIES. Escrow Agent undertakes to perform all duties
which are expressly set forth herein; provided, however, that the Escrow Agent
shall not be required to make or be liable in any manner of its failure to make
any determination under the Agreement or any other agreement, including whether
ACC or the Shareholders are entitled to delivery of the ACC Shares under the
Agreement.
4.2 INDEMNIFICATION.
a. Escrow Agent may rely upon and shall be protected in acting
or refraining from acting upon any written notice,
instructions or request furnished to it hereunder and believed
by it to be genuine and authorized.
b. Escrow Agent shall not be liable for any action taken by it
in good faith and without gross negligence or wilful
misconduct, and believed by it to be authorized or within the
rights or powers conferred upon it by this Escrow Agreement,
and may consult with counsel of its own choice and shall have
full and complete authorization and protection for any action
taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel.
c. ACC and the Shareholders hereby agree to indemnify the
Escrow Agent for, and hold the Escrow Agent harmless against,
any loss, liability or expense incurred without gross
negligence or wilful misconduct or bad faith on the part of
the Escrow Agent, arising out of or in connection with the
Escrow Agent's entering into this Escrow Agreement and
carrying out the Escrow Agent's duties hereunder, including,
without limitation, costs and expenses of defending the Escrow
Agent against any claim or liability with respect thereto.
d. Escrow Agent shall have no implied obligations or
responsibilities hereunder, nor shall it have any obligation
or responsibility to collect funds or seek the deposit of
<PAGE>
money or property, nor is the Escrow Agent a party to any
other agreement entered into among ACC and the Shareholders.
4.3 OTHER MATTERS. Escrow Agent (and any successor escrow
agent or agents) reserves the right to resign as the Escrow Agent at any time,
provided fifteen (15) days' prior written notice is given to the other parties
hereto, and provided further that a mutually acceptable successor Escrow
Agent(s) within such fifteen (15) day period, the Escrow Agent may petition any
court in the State of California having jurisdiction to designate a successor
Escrow Agent. The resignation of the Escrow Agent (and any successor escrow
agent or agents) shall be effective only upon delivery of the ACC Shares to the
successor escrow agent(s). The Parties reserve the right to jointly remove the
Escrow Agent at any time, provided fifteen (15) days' prior written notice is
given to the Escrow Agent. In the event of litigation or dispute by the Parties
in which the performance of the duties of the Escrow Agent is at issue, the
Escrow Agent shall take no action until such action is agreed in writing by the
Parties, or until receipt of any order pursuant to 3.1(a)iii or 3.1(b)ii above
directing the Escrow Agent with respect to the action which is the subject of
such litigation or dispute.
5. TERMINATION. This Escrow Agreement shall be terminated upon the
release of the ACC Shares in accordance with the terms and conditions of Section
3 hereof, or otherwise by written mutual consent signed by all parties hereto.
6. NOTICE. All notices, demands, requests, or other communications
which may be or are required to be given, served or sent by any party to any
other party pursuant to this Escrow Agreement shall be in writing and shall be
hand delivered (including delivery by courier), sent by facsimile, or mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
TO ACC:
American Custom Components, Inc.
3310 W. MacArthur Blvd.
Santa Ana, CA 92704
Attn: Martin Tony Walk
Facsimile No.: 714-662-2081
with a copy to:
The Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile No.: 714-719-1988
<PAGE>
TO THE SHAREHOLDERS:
Steve Kakuk
26931 Vista Pointe
San Juan Capistrano, CA 92675
Facsimile No.: (714) 347-0738
with a copy to:
Bewley, Lassleben & Miller, LLP
13215 East Penn Street, Suite 510
Whittier, CA 90602
Attn: J. Terrence Mooschekian
Facsimile No.: 562-696-6357
TO THE ESCROW AGENT:
MRC Legal Services Corporation
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile (714) 719-1988
or such other address as the addressee may indicate by written notice to the
other parties. Each notice, demand, request or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it delivered to the addressee (with the
return receipt, the delivery receipt or the affidavit of messenger being deemed
conclusive but not exclusive evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
7. BENEFIT AND ASSIGNMENT. This Escrow Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns as permitted hereunder. No person or entity other than
the parties hereto is or shall be entitled to bring any action to enforce any
provision in this Escrow Agreement against any of the parties hereto, and the
covenants and agreements set forth in this Escrow Agreement shall be solely for
the benefit of, and shall be enforceable only by, the parties hereto or their
respective successors and assigns this Escrow Agreement or any rights hereunder
without the prior written consent of the parties hereto.
8. ENTIRE AGREEMENT; AMENDMENT. This Escrow Agreement and the Stock
Purchase Agreement executed simultaneously herewith contain the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior oral or written agreements, commitments or understandings with respect to
such matters. This Escrow Agreement may not be changed orally, but only by an
instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
<PAGE>
9. HEADINGS. The headings of the sections and subsections contained in
this Escrow Agreement are inserted for convenience only and do not form a part
or affect the meaning, construction or scope thereof.
10. GOVERNING LAW; VENUE. This Escrow Agreement shall be governed and
constructed under and in accordance with the laws of the State of California
(but not including the conflicts of laws and rules thereof). For purposes of any
action or proceeding involving this Escrow Agreement each of the parties to this
Escrow Agreement expressly submits to the jurisdiction of the federal and state
courts located in the State of California and consents to the service of any
process or paper by registered mail or by personal service within or without the
State of California in accordance with applicable law, provided a reasonable
time for appearance is allowed.
11. SIGNATURE IN COUNTERPARTS. This Escrow Agreement may be executed in
separate counterparts, none of which need contain the signature of all parties,
each of which shall be deemed to be an original and all of which taken together
constitute one and the same instrument. It shall not be necessary in making
proof of this Escrow Agreement to produce or account for more than the number of
counterparts containing the respective signatures of, or on behalf of, all of
the parties hereto.
12. ATTORNEY'S FEES. Should any action be commenced between the parties
to this Agreement concerning the matters set forth in this Agreement or the
right and duties of either in relation thereto, the prevailing party in such
action shall be entitled, in addition to such other relief as may be granted, to
a reasonable sum as and for its Attorney's Fees and Costs.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Escrow
Agreement to be duly executed and delivered in its name and on its behalf, all
as of the date and year first above written.
AMERICAN CUSTOM COMPONENTS, INC.
/s/ Martin Tony Walk
- --------------------------------
By: Martin Tony Walk
Its: President
K5 PLASTICS, INC.
/s/ Steve Kakuk
- --------------------------------
By: Steve Kakuk
Its: President
/s/ Steve Kakuk
- -------------------------------- /s/ Helen Kakuk
STEVE KAKUK, individually -----------------------------
HELEN KAKUK, individually
/s/ Catherine A. Garcie
- -------------------------------- /s/ Stephen J. Kakuk
CATHERINE A. GARCIE, individually ------------------------------
STEPHEN J. KAKUK, individually
/s/ Kristina Sanderson
- --------------------------------
KRISTINA SANDERSON, individually
"Escrow Agent"
MRC LEGAL SERVICES CORPORATION
/s/ M. Richard Cutler
- --------------------------------
By: M. Richard Cutler
Its: President
<PAGE>
EXHIBIT "C"
WARRANT
For the Purchase of 30,000
Shares of Common Stock
of
AMERICAN CUSTOM COMPONENTS, INC.
A Nevada Corporation
THIS CERTIFIES THAT, for value received, Steve Kakuk or his/her assigns
(the "Holder"), is entitled to, within the time frame set forth in Section 1
below ("Expiration Date"), but not thereafter, to subscribe for, purchase and
receive up to Thirty Thousand (30,000) fully paid and nonassessable shares of
the common stock (the "Common Stock"), of American Custom Components, Inc., a
Nevada corporation (the "Company"), at the initial price of $3.00 per share, but
subject to adjustment as provided in Section 2 below, (the "Exercise Price"),
upon payment by cashier's check or wire transfer of the Exercise Price for such
shares of the Common Stock to the Company at the Company's offices.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time between January 31, 1999 and January 31,
2002 at 5:00 p.m., California Time, by presentation and surrender hereof to the
Company of a notice of election to purchase duly executed and accompanied by
payment by cashier's check or wire transfer of the Exercise Price for the number
of shares specified in such election.
2. ADJUSTMENT IN NUMBER OF SHARES.
(A) ADJUSTMENT FOR RECLASSIFICATIONS. In case at any time or
from time to time after the issue date the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefore, other or additional stock or
other securities or property (including cash) by way of stock split, spinoff,
reclassification, combination of shares or similar corporate rearrangement
(exclusive of any stock dividend of its or any subsidiary's capital stock), then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property which such Holder would hold on the date of such
exercise if on the issue date he had been the holder of record of the number of
shares of Common Stock of the Company called for on the face of this Warrant and
had thereafter, during the period from the issue date, to and including the date
of such exercise, retained such shares and/or all other or additional stock and
other securities and property receivable by him as aforesaid during such period,
giving effect to all adjustments called for during such period. In the event of
any such adjustment, the Exercise Price shall be adjusted proportionally.
<PAGE>
(B) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. In
case of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of this
Warrant) after the issue date, or in case, after such date, the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities or property to which such Holder would be entitled
had the Holder exercised this Warrant immediately prior thereto, all subject to
further adjustment as provided herein; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such consummation.
3. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of common stock
solely for the purpose of effecting the exercise of this warrant such number of
its shares of common stock as shall from time to time be sufficient to effect
the exercise hereof.
4. REGISTRATION RIGHTS. If the Company at any time proposes to register
any of its securities under the Act, including under an SB-2 Registration
Statement or otherwise, it will each such time give written notice to all
holders of outstanding warrants of its intention so to do. Upon the written
request of a holder or holders of any such warrants given within 30 days after
receipt of any such notice, the Company will use its best efforts to cause all
shares underlying the exercise of such warrants to be registered under the Act
(with the securities which the Company at the time propose to register);
provided, however, that the Company may, as a condition precedent to its
effective such registration, require each Holder to agree with the Company and
the managing underwriter or underwriters of the offering to be made by the
Company in connection with such registration that such Holder will not sell any
securities of the same class or convertible into the same class as those
registered by the Company (including any class into which the securities
registered by the Company are convertible) for such reasonable period after such
registration becomes effective (not exceeding 90 days) as shall then be
specified in writing by such underwriter or underwriters if in the opinion of
such underwriter or underwriters the Company's offering would be materially
adversely affected in the absence of such an agreement. All expenses incurred by
the Company in complying with this Section, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of all independent accountants, or counsel for the Company and the
expense of any special audits incident to or required by any such registration
and the expenses of complying with the securities or blue sky laws of any
jurisdiction shall be paid by the Company.
5. NOTICES. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, to the address set forth in the records of the
Company.
6. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
<PAGE>
7. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with and governed by the laws of California. Any action or proceeding
arising under or pursuant to this Warrant shall be brought in the appropriate
court in the County of Orange, California.
8. ENTIRE AGREEMENT. This Warrant sets forth and includes the entire
obligation of the Company with respect to any warrants held or due to Holder as
of the date hereof, and any other agreement, arrangement, writing, contract,
letter, or agreement dated prior to or of even date herewith shall be null and
void upon execution of this Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed effective as of the 31st day of January, 1998.
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada Corporation
/S/ MARTIN TONY WALK
----------------------------------
By: Martin Tony Walk
Its: Chief Executive Officer
Acknowledged and Accepted:
/S/ STEVE KAKUK
- ---------------------------------
Steve Kakuk
<PAGE>
EXHIBIT "D"
WARRANT
For the Purchase of 30,000
Shares of Common Stock
of
AMERICAN CUSTOM COMPONENTS, INC.
A Nevada Corporation
THIS CERTIFIES THAT, for value received, Steve Kakuk or his/her assigns
(the "Holder"), is entitled to, within the time frame set forth in Section 1
below ("Expiration Date"), but not thereafter, to subscribe for, purchase and
receive up to Thirty Thousand (30,000) fully paid and nonassessable shares of
the common stock (the "Common Stock"), of American Custom Components, Inc., a
Nevada corporation (the "Company"), at the initial price of $3.00 per share, but
subject to adjustment as provided in Section 2 below, (the "Exercise Price"),
upon payment by cashier's check or wire transfer of the Exercise Price for such
shares of the Common Stock to the Company at the Company's offices.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time between January 31, 2000 and January 31,
2003 at 5:00 p.m., California Time, by presentation and surrender hereof to the
Company of a notice of election to purchase duly executed and accompanied by
payment by cashier's check or wire transfer of the Exercise Price for the number
of shares specified in such election.
2. ADJUSTMENT IN NUMBER OF SHARES.
(A) ADJUSTMENT FOR RECLASSIFICATIONS. In case at any time or from
time to time after the issue date the holders of the Common Stock of the Company
(or any shares of stock or other securities at the time receivable upon the
exercise of this Warrant) shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefore, other or additional stock or other
securities or property (including cash) by way of stock split, spinoff,
reclassification, combination of shares or similar corporate rearrangement
(exclusive of any stock dividend of its or any subsidiary's capital stock), then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property which such Holder would hold on the date of such
exercise if on the issue date he had been the holder of record of the number of
shares of Common Stock of the Company called for on the face of this Warrant and
had thereafter, during the period from the issue date, to and including the date
of such exercise, retained such shares and/or all other or additional stock and
other securities and property receivable by him as aforesaid during such period,
giving effect to all adjustments called for during such period. In the event of
any such adjustment, the Exercise Price shall be adjusted proportionally.
(B) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. In case of
any reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this
<PAGE>
Warrant) after the issue date, or in case, after such date, the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities or property to which such Holder would be entitled
had the Holder exercised this Warrant immediately prior thereto, all subject to
further adjustment as provided herein; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such consummation.
3. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of common stock
solely for the purpose of effecting the exercise of this warrant such number of
its shares of common stock as shall from time to time be sufficient to effect
the exercise hereof.
4. REGISTRATION RIGHTS. If the Company at any time proposes to register
any of its securities under the Act, including under an SB-2 Registration
Statement or otherwise, it will each such time give written notice to all
holders of outstanding warrants of its intention so to do. Upon the written
request of a holder or holders of any such warrants given within 30 days after
receipt of any such notice, the Company will use its best efforts to cause all
shares underlying the exercise of such warrants to be registered under the Act
(with the securities which the Company at the time propose to register);
provided, however, that the Company may, as a condition precedent to its
effective such registration, require each Holder to agree with the Company and
the managing underwriter or underwriters of the offering to be made by the
Company in connection with such registration that such Holder will not sell any
securities of the same class or convertible into the same class as those
registered by the Company (including any class into which the securities
registered by the Company are convertible) for such reasonable period after such
registration becomes effective (not exceeding 90 days) as shall then be
specified in writing by such underwriter or underwriters if in the opinion of
such underwriter or underwriters the Company's offering would be materially
adversely affected in the absence of such an agreement. All expenses incurred by
the Company in complying with this Section, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of all independent accountants, or counsel for the Company and the
expense of any special audits incident to or required by any such registration
and the expenses of complying with the securities or blue sky laws of any
jurisdiction shall be paid by the Company.
5. NOTICES. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, to the address set forth in the records of the
Company.
6. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
<PAGE>
7. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with and governed by the laws of California. Any action or proceeding
arising under or pursuant to this Warrant shall be brought in the appropriate
court in the County of Orange, California.
8. ENTIRE AGREEMENT. This Warrant sets forth and includes the entire
obligation of the Company with respect to any warrants held or due to Holder as
of the date hereof, and any other agreement, arrangement, writing, contract,
letter, or agreement dated prior to or of even date herewith shall be null and
void upon execution of this Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed effective as of the 31st day of January, 1998.
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada Corporation
/S/ MARTIN TONY WALK
---------------------------------
By: Martin Tony Walk
Its: Chief Executive Officer
Acknowledged and Accepted:
/S/ STEVE KAKUK
- ------------------------------
Steve Kakuk
<PAGE>
EXHIBIT "E"
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made, entered into, and
effective as of January 31, 1998 ("Effective Date"), by and between American
Custom Components, Inc., a Nevada corporation ("the "Company") and Steve Kakuk
("Employee").
RECITALS
--------
WHEREAS, COMPANY desires to benefit from Employee's expertise and
employ Employee and Employee is willing to accept such employment.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
---------
1. TERM AND DUTIES.
----------------
The Company hereby employs Employee as a Tooling Manager as of the
Effective Date for a period of three (3) years, at which time this Agreement
shall terminate unless extended by mutual agreement of the parties. Employee
shall faithfully and diligently perform all professional duties and acts as may
be reasonably requested of Employee by the Company or its officers consistent
with the function of a Tooling Manager in this or a similar company.
2. DUTIES.
-------
Employee agrees to perform Employee's services to the best of
Employee's ability. Employee agrees throughout the term of this Agreement to
devote sufficient time, energy and skill to the business of the Company and to
the promotion of the best interests of the Company. Employee will be provided
with appropriate equipment, secretarial help, supplies, and other facilities and
services suitable to Employee's position and adequate for the performance of his
duties. Employees duties shall include, but not be limited to, oversight of the
Company's K5 Plastics, Inc. subsidiary, and the planning, assignment and
direction of the functions of tool making and assembly process tools. He will be
responsible for business development, costs, budgeting, efficiency, and managing
the workforce.
1
<PAGE>
3. COMPENSATION.
-------------
3.1 Subject to the termination of this Agreement as provided herein,
the Company shall compensate Employee for his services hereunder at an annual
salary ("Salary") of Seventy Two Thousand Dollars ($72,000.00) payable in
semi-monthly installments in accordance with the Company's practices, less
normal payroll deductions.
3.2 In addition to the Salary as defined above, the Company agrees to
grant to Employee, upon the completion of twelve consecutive months of
employment, a one-time cash bonus in the amount of Fifteen Thousand Dollars
($15,000.00).
3.3 In addition to the compensation set forth above, the Company shall
periodically review Employee's performance and services rendered with a view to
paying discretionary bonuses based upon above-average or outstanding performance
for a prior period. Any such bonuses approved by the Company shall be paid to
Employee within 30 days of the grant thereof.
3.4 In addition to the Salary and bonuses stated above, commencing with
the Effective Date, Employee shall be eligible to participate in a health
insurance plan, including dependent coverage, supplied by the Company. Employee
shall be entitled to participate in any and all group life, workers'
compensation, health plan, or accidental insurance plans which are adopted by
the Company for the benefit of executive officers or employees. Employee shall
be entitled to such sick leave and paid holidays and to such other perquisites
of employment as customarily are extended by the Company to executive officers
or employees. In addition, Employee shall be entitled to such other benefits as
the Company may elect to provide generally, from time to time, to executive
officers or employees.
4. DISCLOSURE OF CONFIDENTIAL INFORMATION.
---------------------------------------
4.1 Employee shall not, during the term of this Agreement and
thereafter, communicate, divulge, or use for the benefit of himself or any other
person, partnership, association, or corporation, either directly or indirectly,
any information or knowledge concerning Company and any information, including
but not limited to pricing schedules, customer lists, communication techniques,
invoicing, billing, schematics, hardware and software designs and prototypes,
and software source code which may be communicated to Employee by Company during
the term of this Agreement.
4.2 Employee agrees that any and all products, formulas, inventions,
schematics, hardware and software designs, software source code, techniques, and
goods created by Employee while rendering services to Company shall be
considered the property of the Company which shall own all rights and interest
in the same.
4.3 Employee covenants and agrees that during the term of this
Agreement he will not do any act or fail to do any act which may be prejudicial
or injurious to the business and goodwill of Company.
2
<PAGE>
5. EXPENSES.
---------
The Company shall reimburse Employee for all reasonable business
related expenses incurred by Employee in the course of his normal duties on
behalf of the Company. In reimbursing Employee for expenses, the ordinary and
usual business guidelines and documentation requirements shall be adhered to by
the Company and Employee. Any expenses which, individually or in the aggregate,
exceed Five Hundred Dollars ($500.00) must be consented to by the Company in
writing prior to being incurred by Employee.
6. TERMINATION.
------------
6.1 TERMINATION BY THE COMPANY. The Company reserves the right to
terminate this Agreement at any time for "cause". For the purposes of this
Agreement, an event or occurrence constituting "cause" shall include, but not be
limited to:
6.1.1 Employee's failure or refusal, after notice thereof,
to perform specific directives of the Board of Directors of
the Company, when such directives are consistent with the
scope and nature of the Employee's duties and
responsibilities as set forth herein or the commission of
any intentional tort by the Employee against the Company, or
any breach by the Employee of any of the covenants set forth
in paragraphs 2, 4, 5, or 10 of this Agreement;
6.1.2 Drunkenness or use of drugs which interferes with the
performance Employee's obligations under this Agreement,
continuing after notice thereof;
6.1.3 Any act of dishonesty or moral turpitude by the
Employee which constitutes a crime under the laws of the
place where the act was committed;
6.1.4 Any willful or intentional act by Employee which,
although not a crime, is of such impropriety or magnitude
that it substantially adversely affects the business and the
reputation of the Company.
6.1.5 Any material breach by Employee of that certain Stock
Purchase Agreement dated as of January 30, 1998 by and
between American Custom Components, Inc., a Nevada
corporation, K5 Plastics, Inc., a California corporation,
and Steve Kakuk, Helen Kakuk, Catherine A. Garcie, Stephen
J. Kakuk, and Kristina Sanderson, as shareholders.
In the event Employee is terminated for cause as defined herein,
Employee shall not be entitled to any bonus, termination or severance payment of
any sort.
6.2 TERMINATION UPON DEATH OR DISABILITY. This Agreement shall be
terminated upon the death of the Employee or, at the Company's discretion, if
3
<PAGE>
the Employee suffers any physical or mental disability that would prevent the
performance of his duties under this Agreement. Such a termination, in the case
of disability, shall be effected by giving thirty (30) days written notice of
termination to Employee.
6.3 TERMINATION BY EMPLOYEE. This Agreement may be terminated by the
Employee by giving the Company at least thirty (30) days notice in advance. In
the event that this Agreement is terminated prior to the completion of the term
of employment specified herein, Employee shall be entitled to compensation
earned by and vested in him prior to the date of termination as provided for in
this Agreement, computed pro-rata up to and including that date.
6.4 This Agreement shall not be terminated by any voluntary or
involuntary dissolution of the Company resulting from either a merger or
consolidation in which the Company is not the consolidated or surviving
corporation, or a transfer of all or substantially all of the assets of the
Company.
7. BINDING EFFECT.
---------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto their respective devisees, legatees, heirs, legal
representatives, successors, and permitted assigns. The preceding sentence shall
not affect any restriction on assignment set forth elsewhere in this Agreement.
8. ARBITRATION.
------------
If a dispute or claim shall arise between the parties with respect to
any of the terms or provisions of this Agreement, or with respect to the
performance by any of the parties under this Agreement, then the parties agree
that the dispute shall be arbitrated in Orange County, California before a
single arbitrator, in accordance with the rules of either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services,
Inc./Endispute ("JAMS/Endispute"). The selection between AAA and JAMS/Endispute
rules shall be made by the claimant first demanding arbitration. The arbitrator
shall have no power to alter or modify any express provisions of this Agreement
or to render any award which by its terms affects any such alteration or
modification. The parties to the arbitration may agree in writing to use
different rules and/or arbitrator(s). In all other respects, the arbitration
shall be conducted in accordance with the California Code of Civil Procedure, or
equivalent. The parties agree that the judgment award rendered by the arbitrator
shall be considered binding and may be entered in any court having jurisdiction
as stated in Paragraph 11 of this Agreement. The provisions of this Paragraph
shall survive the termination of this Agreement.
9. NOTICES.
--------
Any notice, request, demand, or other communication given pursuant to
the terms of this Agreement shall be deemed given upon delivery, if hand
delivered or delivered via facsimile, or Forty-Eight (48) hours after deposit in
the United States mail, postage prepaid, and sent certified or
4
<PAGE>
registered mail, return receipt requested, correctly addressed to the addresses
of the parties indicated below or at such other address as such party shall in
writing have advised the other party.
If to the Company:
American Custom Components, Inc.
3310 W. MacArthur Blvd.
Santa Ana, CA 92704
Attn: Martin Tony Walk
Facsimile (714) 662-2081
with a copy to:
The Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile (714) 719-1988
If to Employee:
Steve Kakuk
26931 Vista Pointe
San Juan Capistrano, CA 92675
Facsimile (714) 347-0738
with a copy to:
Bewley, Lassleben & Miller, LLP
13215 East Penn Street, Suite 510
Whittier, CA 90602
Attn: J. Terrence Mooschekian
Facsimile (562) 696-6357
10. ASSIGNMENT.
-----------
Subject to all other provisions of this Agreement, any attempt to
assign or transfer this Agreement or any of the rights conferred hereby, by
judicial process or otherwise, to any person, firm, company, or corporation
without the prior written consent of the other party, shall be invalid, and may,
at the option of such other party, result in an incurable event of default
resulting in termination of this Agreement and all rights hereby conferred.
5
<PAGE>
11. CHOICE OF LAW.
--------------
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of California
including all matters of construction, validity, performance, and enforcement
and without giving effect to the principles of conflict of laws.
12. JURISDICTION.
-------------
The parties submit to the jurisdiction of the Courts of the State of
California or a Federal Court empaneled in the State of California for the
resolution of all legal disputes arising under the terms of this Agreement,
including, but not limited to, enforcement of any arbitration award.
13. ENTIRE AGREEMENT.
-----------------
Except as provided herein, this Agreement, including exhibits, contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
There are no representations, agreements, arrangements, or understandings, oral
or written, between and among the parties hereto relating to the subject matter
of this Agreement that are not fully expressed herein.
14. SEVERABILITY.
-------------
If any provision of this Agreement is unenforceable, invalid, or
violates applicable law, such provision, or unenforceable portion of such
provision, shall be deemed stricken and shall not affect the enforceability of
any other provisions of this Agreement.
15. CAPTIONS.
---------
The captions in this Agreement are inserted only as a matter of
convenience and for reference and shall not be deemed to define, limit, enlarge,
or describe the scope of this Agreement or the relationship of the parties, and
shall not affect this Agreement or the construction of any provisions herein.
16. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
6
<PAGE>
17. MODIFICATION.
-------------
No change, modification, addition, or amendment to this Agreement shall
be valid unless in writing and signed by all parties hereto.17
18. WAIVER.
-------
No waiver of any breach, covenant, representation, warranty or default
of this Agreement by any party shall be considered to be a waiver of any other
breach, covenant, representation, warranty or default of this Agreement.
19. INTERPRETATION
--------------
The terms and conditions of this Agreement shall be deemed to have been
prepared jointly by all of the Parties hereto. Any ambiguity or uncertainty
existing hereunder shall not be construed against any one of the drafting
parties, but shall be resolved by reference to the other rules of interpretation
of contracts as they apply in the State of California.
20. ATTORNEYS' FEES.
----------------
Except as otherwise provided herein, if a dispute should arise between
the parties including, but not limited to arbitration, the prevailing party
shall be reimbursed by the non-prevailing party for all reasonable expenses
incurred in resolving such dispute, including reasonable attorneys' fees.
21. TAXES.
------
Any income taxes required to be paid in connection with the payments
due hereunder, shall be borne by the party required to make such payment. Any
withholding taxes in the nature of a tax on income shall be deducted from
payments due, and the party required to withhold such tax shall furnish to the
party receiving such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax authority of
such required withholding.
22. NOT FOR THE BENEFIT OF CREDITORS OR THIRD PARTIES.
--------------------------------------------------
The provisions of this Agreement are intended only for the regulation
of relations among the parties. This Agreement is not intended for the benefit
of creditors of the parties or other third parties and no rights are granted to
creditors of the parties or other third parties under this Agreement. Under no
circumstances shall any third party, who is a minor, be deemed to have accepted,
adopted, or acted in reliance upon this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"Company" "Employee"
American Custom Components, Inc. Steve Kakuk
/S/ MARTIN TONY WALK /S/ STEVE KAKUK
- -------------------------------- --------------------------
By: Martin Tony Walk
Its: President
8
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made, entered into, and
effective as of February 4, 1998 ("Effective Date"), by and between American
Custom Components, Inc., a Nevada corporation ("the "Company") and Inge
Lundegaard ("Lundegaard").
RECITALS
--------
WHEREAS, COMPANY desires to benefit from Lundegaard's expertise and
employ Lundegaard and Lundegaard is willing to accept such employment.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
---------
1. TERM AND DUTIES.
----------------
The Company hereby employs Lundegaard as of the Effective Date and
Lundegaard agrees to enter into and remain in the employ of the Company until
five years from the date of this Agreement unless (i) this Agreement is
terminated as provided hereinbelow; or (ii) this Agreement is extended by mutual
agreement of the parties. Lundegaard shall faithfully and diligently perform all
professional duties and acts as may be reasonably requested of Lundegaard by the
Company or its officers.
2. COMPENSATION.
-------------
2.1 Subject to the termination of this Agreement as provided herein,
the Company shall compensate Lundegaard for her services hereunder at an annual
salary ("Salary") of Seventy-Two Thousand Dollars ($72,000.00) payable in
semi-monthly installments in accordance with the Company's practices, less
normal payroll deductions. Such Salary shall increase by 10% an each anniversary
of this Agreement.
2.2 In addition to the Salary stated above, commencing with the
Effective Date, Lundegaard shall be eligible to participate in a health
insurance plan, including dependent coverage, supplied by the Company.
Lundegaard shall be entitled to participate in any and all group life, workers'
compensation, health plan, or accidental insurance plans which are adopted by
the Company for the benefit of executive officers or employees. Lundegaard shall
be entitled to such sick leave and paid holidays and to such other perquisites
of employment, as customarily are
1
<PAGE>
extended by the Company to executive officers or employees. In addition,
Lundegaard shall be entitled to such other benefits as the Company may elect to
provide generally, from time to time, to employees.
3. BINDING EFFECT.
---------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto their respective devisees, legatees, heirs, legal
representatives, successors, and permitted assigns. The preceding sentence shall
not affect any restriction on assignment set forth elsewhere in this Agreement.
4. ARBITRATION.
------------
If a dispute or claim shall arise between the parties with respect to
any of the terms or provisions of this Agreement, or with respect to the
performance by any of the parties under this Agreement, then the parties agree
that the dispute shall be arbitrated in Orange County, California before a
single arbitrator, in accordance with the rules of either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services,
Inc./Endispute ("JAMS/Endispute"). The selection between AAA and JAMS/Endispute
rules shall be made by the claimant first demanding arbitration. The arbitrator
shall have no power to alter or modify any express provisions of this Agreement
or to render any award which by its terms affects any such alteration or
modification. The parties to the arbitration may agree in writing to use
different rules and/or arbitrator(s). In all other respects, the arbitration
shall be conducted in accordance with the California Code of Civil Procedure, or
equivalent. The parties agree that the judgment award rendered by the arbitrator
shall be considered binding and may be entered in any court having jurisdiction
as stated in Paragraph 15 of this Agreement. The provisions of this Paragraph
shall survive the termination of this Agreement.
5. NOTICES.
--------
Any notice, request, demand, or other communication given pursuant to
the terms of this Agreement shall be deemed given upon delivery, if hand
delivered or delivered via facsimile, or Forty-Eight (48) hours after deposit in
the United States mail, postage prepaid, and sent certified or registered mail,
return receipt requested, correctly addressed to the addresses of the parties
indicated below or at such other address as such party shall in writing have
advised the other party.
If to the Company:
American Custom Components, Inc.
3310 W. MacArthur Blvd.
Santa Ana, CA 92704
Facsimile No.: 714-662-2081
2
<PAGE>
If to Lundegaard:
Inge Lundegaard
=========================
Facsimile No.: _____________
6. ASSIGNMENT.
-----------
Subject to all other provisions of this Agreement, any attempt to
assign or transfer this Agreement or any of the rights conferred hereby, by
judicial process or otherwise, to any person, firm, company, or corporation
without the prior written consent of the other party, shall be invalid, and may,
at the option of such other party, result in an incurable event of default
resulting in termination of this Agreement and all rights hereby conferred.
7. CHOICE OF LAW.
--------------
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the State of California
including all matters of construction, validity, performance, and enforcement
and without giving effect to the principles of conflict of laws.
8. JURISDICTION.
-------------
The parties submit to the jurisdiction of the Courts of the State of
California or a Federal Court empaneled in the State of California for the
resolution of all legal disputes arising under the terms of this Agreement,
including, but not limited to, enforcement of any arbitration award.
9. ENTIRE AGREEMENT.
-----------------
Except as provided herein, this Agreement, including exhibits, contains
the entire agreement of the parties, and supersedes all existing negotiations,
representations, or agreements and all other oral, written, or other
communications between them concerning the subject matter of this Agreement.
There are no representations, agreements, arrangements, or understandings, oral
or written, between and among the parties hereto relating to the subject matter
of this Agreement that are not fully expressed herein.
10. SEVERABILITY.
-------------
If any provision of this Agreement is unenforceable, invalid, or
violates applicable law, such provision, or unenforceable portion of such
provision, shall be deemed stricken and shall not affect the enforceability of
any other provisions of this Agreement.
3
<PAGE>
11. COUNTERPARTS.
-------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
12. MODIFICATION.
-------------
No change, modification, addition, or amendment to this Agreement shall
be valid unless in writing and signed by all parties hereto.
13. WAIVER.
-------
No waiver of any breach, covenant, representation, warranty or default
of this Agreement by any party shall be considered to be a waiver of any other
breach, covenant, representation, warranty or default of this Agreement.
14. INTERPRETATION
--------------
The terms and conditions of this Agreement shall be deemed to have been
prepared jointly by all of the Parties hereto. Any ambiguity or uncertainty
existing hereunder shall not be construed against any one of the drafting
parties, but shall be resolved by reference to the other rules of interpretation
of contracts as they apply in the State of California.
15. ATTORNEYS' FEES.
----------------
Except as otherwise provided herein, if a dispute should arise between
the parties including, but not limited to arbitration, the prevailing party
shall be reimbursed by the non-prevailing party for all reasonable expenses
incurred in resolving such dispute, including reasonable attorneys' fees.
16. TAXES.
------
Any income taxes required to be paid in connection with the payments
due hereunder, shall be borne by the party required to make such payment. Any
withholding taxes in the nature of a tax on income shall be deducted from
payments due, and the party required to withhold such tax shall furnish to the
party receiving such payment all documentation necessary to prove the proper
amount to withhold of such taxes and to prove payment to the tax authority of
such required withholding.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the Effective Date.
"Company" "Lundegaard"
American Custom Components, Inc. Inge Lundegaard
By: /S/ MARTIN TONY WALK /S/ INGE LUNDEGAARD
- -------------------------------- -----------------------------
Martin Tony Walk, President
5
<PAGE>
WARRANT
-------
For the Purchase of 10,000
Shares of Common Stock
of
AMERICAN CUSTOM COMPONENTS, INC.
A Nevada Corporation
THIS CERTIFIES THAT, for value received, Ronald J. Richard or his/her
assigns (the "Holder"), is entitled to, within the time frame set forth in
Section 1 below ("Expiration Date"), but not thereafter, to subscribe for,
purchase and receive up to Ten Thousand (10,000) fully paid and nonassessable
shares of the common stock (the "Common Stock"), of American Custom Components,
Inc., a Nevada corporation (the "Company"), at the initial price of $2.00 per
share, but subject to adjustment as provided in Section 2 below, (the "Exercise
Price"), upon payment by cashier's check or wire transfer of the Exercise Price
for such shares of the Common Stock to the Company at the Company's offices.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time before February 6, 2000 and before 5:00
p.m., California Time, by presentation and surrender hereof to the Company of a
notice of election to purchase duly executed and accompanied by payment by
cashier's check or wire transfer of the Exercise Price for the number of shares
specified in such election.
2. ADJUSTMENT IN NUMBER OF SHARES.
-------------------------------
(A) ADJUSTMENT FOR RECLASSIFICATIONS. In case at any time or
from time to time after the issue date the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefore, other or additional stock or
other securities or property (including cash) by way of stock split, spinoff,
reclassification, combination of shares or similar corporate rearrangement
(exclusive of any stock dividend of its or any subsidiary's capital stock), then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property which such Holder would hold on the date of such
exercise if on the issue date he had been the holder of record of the number of
shares of Common Stock of the Company called for on the face of this Warrant and
had thereafter, during the period from the issue date, to and including the date
of such exercise, retained such shares and/or all other or additional stock and
other securities and property receivable by him as aforesaid during such period,
giving effect to all adjustments called for during such period. In the event of
any such adjustment, the Exercise Price shall be adjusted proportionally.
1
<PAGE>
(B) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. In
case of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of this
Warrant) after the issue date, or in case, after such date, the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities or property to which such Holder would be entitled
had the Holder exercised this Warrant immediately prior thereto, all subject to
further adjustment as provided herein; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such consummation.
3. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of common stock
solely for the purpose of effecting the exercise of this warrant such number of
its shares of common stock as shall from time to time be sufficient to effect
the exercise hereof.
4. REGISTRATION RIGHTS. If the Company at any time proposes to register
any of its securities under the Act, including under an SB-2 Registration
Statement or otherwise, it will each such time give written notice to all
holders of outstanding warrants of its intention so to do. Upon the written
request of a holder or holders of any such warrants given within 30 days after
receipt of any such notice, the Company will use its best efforts to cause all
shares underlying the exercise of such warrants to be registered under the Act
(with the securities which the Company at the time propose to register);
provided, however, that the Company may, as a condition precedent to its
effective such registration, require each Holder to agree with the Company and
the managing underwriter or underwriters of the offering to be made by the
Company in connection with such registration that such Holder will not sell any
securities of the same class or convertible into the same class as those
registered by the Company (including any class into which the securities
registered by the Company are convertible) for such reasonable period after such
registration becomes effective (not exceeding 90 days) as shall then be
specified in writing by such underwriter or underwriters if in the opinion of
such underwriter or underwriters the Company's offering would be materially
adversely affected in the absence of such an agreement. All expenses incurred by
the Company in complying with this Section, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of all independent accountants, or counsel for the Company and the
expense of any special audits incident to or required by any such registration
and the expenses of complying with the securities or blue sky laws of any
jurisdiction shall be paid by the Company.
5. NOTICES. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, to the address set forth in the records of the
Company.
2
<PAGE>
6. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
7. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with and governed by the laws of California. Any action or proceeding
arising under or pursuant to this Warrant shall be brought in the appropriate
court in the County of Orange, California.
8. ENTIRE AGREEMENT. This Warrant sets forth and includes the entire
obligation of the Company with respect to any warrants held or due to Holder as
of the date hereof, and any other agreement, arrangement, writing, contract,
letter, or agreement dated prior to or of even date herewith shall be null and
void upon execution of this Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed as of this 6th day of February, 1998.
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada Corporation
/S/ MARTIN TONY WALK
---------------------------------
By: Martin Tony Walk
Its: Chief Executive Officer
Acknowledged and Accepted:
/S/ RONALD J. RICHARD
- ------------------------------
Ronald J. Richard
3
<PAGE>
WARRANT
-------
For the Purchase of 50,000
Shares of Common Stock
of
AMERICAN CUSTOM COMPONENTS, INC.
A Nevada Corporation
THIS CERTIFIES THAT, for value received, John Fritch or his/her assigns
(the "Holder"), is entitled to, within the time frame set forth in Section 1
below ("Expiration Date"), but not thereafter, to subscribe for, purchase and
receive up to Fifty Thousand (50,000) fully paid and nonassessable shares of the
common stock (the "Common Stock"), of American Custom Components, Inc., a Nevada
corporation (the "Company"), at the initial price of $3.50 per share, but
subject to adjustment as provided in Section 2 below, (the "Exercise Price"),
upon payment by cashier's check or wire transfer of the Exercise Price for such
shares of the Common Stock to the Company at the Company's offices.
1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time before January 6, 2001 and before 5:00
p.m., California Time, by presentation and surrender hereof to the Company of a
notice of election to purchase duly executed and accompanied by payment by
cashier's check or wire transfer of the Exercise Price for the number of shares
specified in such election.
2. ADJUSTMENT IN NUMBER OF SHARES.
-------------------------------
(A) ADJUSTMENT FOR RECLASSIFICATIONS. In case at any time or
from time to time after the issue date the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefore, other or additional stock or
other securities or property (including cash) by way of stock split, spinoff,
reclassification, combination of shares or similar corporate rearrangement
(exclusive of any stock dividend of its or any subsidiary's capital stock), then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1, shall be entitled to receive the amount of stock and
other securities and property which such Holder would hold on the date of such
exercise if on the issue date he had been the holder of record of the number of
shares of Common Stock of the Company called for on the face of this Warrant and
had thereafter, during the period from the issue date, to and including the date
of such exercise, retained such shares and/or all other or additional stock and
other securities and property receivable by him as aforesaid during such period,
giving effect to all adjustments called for during such period. In the event of
any such adjustment, the Exercise Price shall be adjusted proportionally.
1
<PAGE>
(B) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER. In
case of any reorganization of the Company (or any other corporation the stock or
other securities of which are at the time receivable on the exercise of this
Warrant) after the issue date, or in case, after such date, the Company (or any
such other corporation) shall consolidate with or merge into another corporation
or convey all or substantially all of its assets to another corporation, then
and in each such case the Holder of this Warrant, upon the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities or property to which such Holder would be entitled
had the Holder exercised this Warrant immediately prior thereto, all subject to
further adjustment as provided herein; in each such case, the terms of this
Warrant shall be applicable to the shares of stock or other securities or
property receivable upon the exercise of this Warrant after such consummation.
3. RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of common stock
solely for the purpose of effecting the exercise of this warrant such number of
its shares of common stock as shall from time to time be sufficient to effect
the exercise hereof.
4. REGISTRATION RIGHTS. If the Company at any time proposes to register
any of its securities under the Act, including under an SB-2 Registration
Statement or otherwise, it will each such time give written notice to all
holders of outstanding warrants of its intention so to do. Upon the written
request of a holder or holders of any such warrants given within 30 days after
receipt of any such notice, the Company will use its best efforts to cause all
shares underlying the exercise of such warrants to be registered under the Act
(with the securities which the Company at the time propose to register);
provided, however, that the Company may, as a condition precedent to its
effective such registration, require each Holder to agree with the Company and
the managing underwriter or underwriters of the offering to be made by the
Company in connection with such registration that such Holder will not sell any
securities of the same class or convertible into the same class as those
registered by the Company (including any class into which the securities
registered by the Company are convertible) for such reasonable period after such
registration becomes effective (not exceeding 90 days) as shall then be
specified in writing by such underwriter or underwriters if in the opinion of
such underwriter or underwriters the Company's offering would be materially
adversely affected in the absence of such an agreement. All expenses incurred by
the Company in complying with this Section, including without limitation all
registration and filing fees, listing fees, printing expenses, fees and
disbursements of all independent accountants, or counsel for the Company and the
expense of any special audits incident to or required by any such registration
and the expenses of complying with the securities or blue sky laws of any
jurisdiction shall be paid by the Company.
5. NOTICES. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, to the address set forth in the records of the
Company.
2
<PAGE>
6. CHANGE; WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
7. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with and governed by the laws of California. Any action or proceeding
arising under or pursuant to this Warrant shall be brought in the appropriate
court in the County of Orange, California.
8. ENTIRE AGREEMENT. This Warrant sets forth and includes the entire
obligation of the Company with respect to any warrants held or due to Holder as
of the date hereof, and any other agreement, arrangement, writing, contract,
letter, or agreement dated prior to or of even date herewith shall be null and
void upon execution of this Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed as of this 23th day of February, 1998.
AMERICAN CUSTOM COMPONENTS, INC.
a Nevada Corporation
/S/ MARTIN TONY WALK
---------------------------------
By: Martin Tony Walk
Its: Chief Executive Officer
Acknowledged and Accepted:
/S/ JOHN FRITCH
- ------------------------------
JOHN FRITCH
3
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement"), dated October 30, 1997 by and
among American Custom Components, Inc., a Nevada corporation (hereinafter called
"ACC"), Caribbean Electronics, Ltd., a Saint Lucian corporation ("CEL" or the
"Company") and George Kimble as representative of the holders of 100% of the
shares of common stock of CEL ("Kimble", and collectively with such other
shareholders, the "Shareholders").
W I T N E S S E T H
WHEREAS, Kimble and the other Shareholders of CEL desire to sell 100%
of the shares of the common stock (the "CEL Shares") of CEL to ACC, consisting
of 100% of the issued and outstanding common stock of CEL, on the terms and
conditions set forth in this Stock Purchase Agreement (hereinafter called
"Agreement"); and
WHEREAS, ACC desires to acquire the CEL Shares pursuant to the terms
and conditions set forth in this Stock Purchase Agreement.
NOW THEREFORE, in consideration of the premises and respective mutual
agreements, covenants, representations and warranties herein contained, it is
agreed between the parties hereto as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES
1.1 SALE OF THE CEL SHARES. At the date of the signing of this
Agreement as provided in Section 3.1 hereto (the "Closing"), subject to the
terms and conditions herein set forth, and on the basis of the representations,
warranties and agreements herein contained, the Shareholders shall sell to ACC
and ACC shall purchase from the Shareholders, the CEL Shares.
1.2 INSTRUMENTS OF CONVEYANCE AND TRANSFER. At the Closing, the
Shareholders shall deliver certificates representing the CEL Shares, or an
affidavit or other evidence from the CEL Stock Minutes with respect to lost or
missing shares, together with appropriate stock powers, sufficient to transfer
the CEL Shares into ACC's name, in form and substance satisfactory to ACC as
shall be effective to vest in ACC all right, title and interest in and to all of
the CEL Shares.
1.3 CASH CONSIDERATION. At the Closing, ACC shall pay to Kimble on
behalf of the Shareholders an aggregate of $50,000 in immediately available
funds.
1.4 NOTE CONSIDERATION. At the Closing, ACC shall deliver to Kimble on
behalf of the Shareholders a Secured 8% Note in the original aggregate principal
amount of $100,000 (the "Note"). The Note shall be in the form attached hereto
as Exhibit A and incorporated herein by reference. Without limitation to the
terms of the Note as set forth therein, the Note shall be payable
1
<PAGE>
quarterly over two and one-half years, shall be secured by all of the assets of
CEL, but subordinated to any loans or leases in CEL's interest, and shall be
offset by any amounts payable by ACC for liabilities of CEL other than those
previously disclosed herein and assumed hereunder by ACC.
1.5 STOCK CONSIDERATION. Within 30 days of the Closing, ACC shall
deliver to Kimble an aggregate of 2% of the Stock of CEL (the "Initial Kimble
Shares"), together with appropriate Medallion Guaranteed stock powers,
sufficient to transfer the Initial Kimble Shares into Kimble's name, in form and
substance satisfactory to Kimble as shall be effective to vest in Kimble all
right, title and interest in and to all of the Initial Kimble Shares. Within 6
months of the Closing, ACC shall deliver to Kimble an aggregate of 3% of the
Stock of CEL (the "Subsequent Kimble Shares"), together with appropriate
Medallion Guaranteed stock powers, sufficient to transfer the Subsequent Kimble
Shares into Kimble's name, in form and substance satisfactory to Kimble as shall
be effective to vest in Kimble all right, title and interest in and to all of
the Subsequent Kimble Shares. Kimble shall receive an additional five percent
(5%) of the stock of CEL under the terms and conditions of a Sales Agency
Agreement by and between Kimble Associates and CEL and ACC (collectively called
"Principal") dated October 15, 1997.
1.6 CONSULTING FEE CONSIDERATION. As additional consideration, Kimble
shall receive a monthly fee of fifteen hundred dollars ($1,500.00) per month for
a period of three (3) years from the date of closing. Kimble's duties shall
include advising ACC and CEL on matters pertaining to doing business in St.
Lucia, contacts, customs and procedures in dealings with local and St. Lucian
government officials. In addition, all reasonable expenses of Kimble to provide
these consulting services shall be paid by ACC and CEL, including, but not
limited to air fare, hotel and meals, and incidental expenses.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF CEL AND THE SHAREHOLDERS. To
induce ACC to enter into this Agreement and to consummate the transactions
contemplated hereby, ACC represents and warrants, as of the date hereof and as
of the Closing, as follows:
2.1.1 CORPORATE EXISTENCE AND AUTHORITY OF CEL. CEL is a
limited corporation duly organized, validly existing and in good
standing under the laws of St. Lucia. It has all requisite corporate
power, franchises, licenses, permits and authority to own its
properties and assets and to carry on its business as it has been and
is being conducted. It is in good standing in each state, nation or
other jurisdiction in each state, nation or other jurisdiction wherein
the character of the business transacted by it makes such qualification
necessary.
2.1.2 CAPITALIZATION OF CEL. The authorized equity securities
of CEL consists of 250,000 shares of common stock, all of which George
Kimble has full power, control and voting rights. No other shares of
capital stock of CEL are issued and outstanding. All of the issued and
outstanding shares have been duly and validly issued in accordance and
2
<PAGE>
compliance with all applicable laws, rules and regulations and are
fully paid and nonassessable. There are no options, warrants, rights,
calls, commitments, plans, contracts or other agreements of any
character granted or issued by CEL which provide for the purchase,
issuance or transfer of any shares of the capital stock of CEL nor are
there any outstanding securities granted or issued by CEL that are
convertible into any shares of the equity securities of CEL, and none
is authorized. CEL is not obligated or committed to purchase, redeem or
otherwise acquire any of its equity. All presently exercisable voting
rights in CEL are vested exclusively in its outstanding shares of
common stock, each share of which is entitled to one vote on every
matter to come before it's shareholders, and other than as may be
contemplated by this Agreement, there are no voting trusts or other
voting arrangements with respect to any of CEL's equity securities.
2.1.3 SUBSIDIARIES. "Subsidiary" or "Subsidiaries" means all
corporations, trusts, partnerships, associations, joint ventures or
other Persons, as defined below, of which a corporation or any other
Subsidiary of such corporation owns not less than twenty percent
(20%)of the voting securities or other equity or of which such
corporation or any other Subsidiary of such corporation possesses,
directly or indirectly, the power to direct or cause the direction of
the management and policies, whether through ownership of voting
shares, management contracts or otherwise. "Person" means any
individual, corporation, trust, association, partnership,
proprietorship, joint venture or other entity. There are no
Subsidiaries of CEL.
2.1.4 EXECUTION OF AGREEMENT. The execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any right
to declare any default or acceleration upon notice or passage of time
or both), in whole or in part, any charter, article of incorporation,
bylaw, mortgage, lien, deed of trust, indenture, lease, agreement,
instrument, order, injunction, decree, judgment, law or any other
restriction of any kind to which either CEL or any of the Shareholders
is a party or by which either of them or any of their properties are
bound; (b) result in the creation of any security interest, lien,
encumbrance, adverse claim, proscription or restriction on any property
or asset (whether real, personal, mixed, tangible or intangible),
right, contract, agreement or business of CEL or any of such
Shareholders; (c) violate any law, rule or regulation of any federal or
state regulatory agency; or (d) permit any federal or state regulatory
agency to impose any restrictions or limitations of any nature on CEL
or any of the Shareholders or any of their respective actions.
2.1.5 TAXES.
2.1.5.1 No taxes, assessments, fees, penalties,
interest and other governmental charges with respect to CEL
have become due and payable as of the date hereof (including
without limitation, income, property, sales, use, franchise,
capital stock, excise, added value, employees' income
withholding, social security and unemployment taxes) in
accordance with the laws of St. Lucia. CEL is located in a tax
free, duty free zone.
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2.1.5.2 There are no agreements, waivers or other
arrangements providing for an extension of time with respect
to the assessment of any tax or deficiency against CEL, nor
are there any actions, suits, proceedings, investigations or
claims now pending against CEL, nor are there any actions,
suits, proceedings, investigations or claims now pending
against CEL in respect of any tax or assessment, or any
matters under discussion with any federal, state, local or
foreign authority relating to any taxes or assessments, or any
claims for additional taxes or assessments asserted by any
such authority, and there is no basis for the assertion of any
additional taxes or assessments against CEL, and
2.1.5.3 The consummation of the transactions
contemplated by this Agreement will not result in the
imposition of any additional taxes on or assessments against
CEL.
2.1.6 DISPUTES AND LITIGATION. There is no suit, action,
litigation, proceeding, investigation, claim, complaint, or accusation
pending, threatened against or affecting CEL or any of its properties,
assets or business or to which CEL is a party, in any court or before
any arbitrator of any kind or before or by any governmental agency
(including, without limitation, any federal, state, local, foreign or
other governmental department, commission, board, bureau, agency or
instrumentality), and there is no basis for such suit, action,
litigation, proceeding, investigation, claim, complaint, or accusation;
(b) there is no pending or threatened change in any environmental,
zoning or building laws, regulations or ordinances which affect or
could affect CEL or any of its properties, assets or businesses; and
(c) there is no outstanding order, writ, injunction, decree, judgment
or award by any court, arbitrator or governmental body against or
affecting CEL or any of its properties, assets or business. There is no
litigation, proceeding, investigation, claim, complaint or accusation,
formal or informal, or arbitration pending, or any of the aforesaid
threatened, or any contingent liability which would give rise to any
right of indemnification or similar right on the part of any director
or officer of CEL or any such person's heirs, executors or
administrators as against CEL.
2.1.7 COMPLIANCE WITH LAWS. CEL has at all times been, and
presently is, in full compliance with, and has not received notice of
any claimed violation of, any applicable federal, state, local, foreign
and other laws, rules and regulations. CEL has filed all returns,
reports and other documents and furnished all information required or
requested by any federal, state, local or foreign governmental agency
and all such returns, reports, documents and information are true and
complete in all respects. All permits, licenses, orders, franchises and
approvals of all federal, state, local or foreign governmental or
regulatory bodies required of CEL for the conduct of its business have
been obtained, no violations are or have been recorded in respect of
any such permits, licenses, orders, franchises and approvals, and there
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is no litigation, proceeding, investigation, arbitration, claim,
complaint or accusation, formal or informal, pending or threatened,
which may revoke, limit, or question the validity, sufficiency or
continuance of any such permit, license, order, franchise or approval.
Such permits, licenses, orders, franchises and approvals are valid and
sufficient for all activities presently carried on by CEL.
2.1.8 GUARANTIES. CEL has not guaranteed any dividend,
obligation or indebtedness of any Person; nor has any Person guaranteed
any dividend, obligation or indebtedness of CEL.
2.1.9 BOOKS AND RECORDS. CEL keeps its books, records and
accounts (including, without limitation, those kept for financial
reporting purposes and for tax purposes) in accordance with good
business practice and in sufficient detail to reflect the transactions
and dispositions of its assets, liabilities and equities. The minute
books of CEL contain records of its shareholders' and directors'
meetings and of action taken by such shareholders and directors. The
meeting of directors and shareholders referred to in such minute books
were duly called and held, and the resolutions appearing in such minute
books were duly adopted. The signatures appearing on all documents
contained in such minute books are the true signatures of the persons
purporting to have signed the same.
2.1.10 ABSENCE OF CERTAIN LIABILITIES. Since the date of the
financial statements of the CEL dated as of __________________, 1997,
and provided to ACC (the "Financial Statements"), CEL has incurred no
liabilities or obligations of any nature other than in the ordinary
course of business and consistent with past practice. CEL is not
directly or indirectly liable to (by discount, repurchase agreement or
otherwise), or obligated in any other way to provide funds in respect
of, or to guarantee or assume any debt or obligation of, any person in
any amount, except as arising in the normal course of business
subsequent to the Financial Statements date. All liabilities of CEL can
be prepaid in full without penalty at any time. CEL represents and
warrants that the only outstanding obligations of CEL as of the date
hereof are (i) $24,000 in outstanding rent, (ii) current utility
obligations and (iii) payroll for the period commencing
_______________, 1997. CEL hereby agrees to pay $12,000 towards the
rent obligation on or before the Closing hereunder. CEL acknowledges
and agrees that the balance of the rent will be paid by ACC to CEL's
present landlord in equal monthly installments over a 24 month period.
CEL represents and warrants that CEL's landlord has agreed to such
arrangement.
2.1.11 RECEIVABLES. All receivables on the books of CEL, to
and including the date of closing, shall be transferred to Kimble at
the time of closing.
2.2 REPRESENTATIONS AND WARRANTIES OF ACC. To induce the Shareholders
to enter into this Agreement and to consummate the transactions contemplated
hereby, ACC represents and warrants, as of the date hereof and as of the
Closing, as follows:
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2.2.1 CORPORATE EXISTENCE AND AUTHORITY OF ACC. ACC is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Nevada. It has all requisite corporate power,
franchises, licenses, permits and authority to own its properties and
assets and to carry on its business as it has been and is being
conducted. It is in good standing in each state, nation or other
jurisdiction in each state, nation or other jurisdiction wherein the
character of the business transacted by it makes such qualification
necessary.
2.2.2 EXECUTION OF AGREEMENT. The execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any right
to declare any default or acceleration upon notice or passage of time
or both), in whole or in part, any charter, article of incorporation,
bylaw, mortgage, lien, deed of trust, indenture, lease, agreement,
instrument, order, injunction, decree, judgment, law or any other
restriction of any kind to which ACC is a party or by which it or any
of its properties are bound; (b) result in the creation of any security
interest, lien, encumbrance, adverse claim, proscription or restriction
on any property or asset (whether real, personal, mixed, tangible or
intangible), right, contract, agreement or business of ACC; (c) violate
any law, rule or regulation of any federal or state regulatory agency;
or (d) permit any federal or state regulatory agency to impose any
restrictions or limitations of any nature on ACC or any of its actions.
ARTICLE 3
CLOSING AND DELIVERY OF DOCUMENTS
3.1 CLOSING. The Closing shall be deemed to have occurred as of the
date of signing of this Agreement. Subsequent to the signing, the following
shall occur as a single integrated transaction:
3.2 DELIVERY BY THE SHAREHOLDERS:
(a) The Shareholders shall deliver to ACC the stock
certificates and all instruments of conveyance and transfer required by
Section 1.1, except with respect to those shares of stock missing or
lost explained by affidavit or noted in the stock minute book (which
shall be canceled).
(b) Kimble and the Shareholders shall deliver, or cause to be
delivered, to ACC such instruments, documents and certificates as are
required to be delivered by Kimble and/or the Shareholders or their
representatives pursuant to the provisions of this Agreement.
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3.3 DELIVERY BY ACC:
(a) ACC shall deliver, or cause to be delivered, to Kimble the
Cash Consideration and the Note as required by Section 1.3 and 1.4.
Within 30 days of the closing hereof, ACC shall deliver the Initial
Kimble Shares and within 6 months of the closing hereof, ACC shall
deliver the Subsequent Kimble Shares, all as required by Section 1.5.
(b) ACC shall deliver, or cause to be delivered, to the
Shareholders and/or Kimble such instruments, documents and certificates
as are required to be delivered by ACC or its representatives pursuant
to the provisions of this Agreement, as well as the fee consideration
as set forth in paragraph 1.6 hereof.
ARTICLE 4
TERMINATION, AMENDMENT AND WAIVER
4.1 TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing by the
mutual consent of all of the parties;
4.2 WAIVER AND AMENDMENT. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be waived, but only
by a written instrument signed by the party entitled to the benefits thereof.
The failure or delay of any party at any time or times to require performance of
any provision hereof or to exercise its rights with respect to any provision
hereof shall in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any condition, or of
the breach of any term, provision, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such condition or breach
or waiver of any other condition or of the breach of any other term, provision,
covenant, representation or warranty. No modification or amendment of this
Agreement shall be valid and binding unless it be in writing and signed by all
parties hereto.
ARTICLE 5
COVENANTS
5.1 To induce ACC to enter into this Agreement and to consummate the
transactions contemplated hereby, and without limiting any covenant, agreement,
representation or warranty made hereunder, Kimble on behalf of the Shareholders
covenants and agrees as follows:
5.1.1 NOTICES AND APPROVALS. Kimble agrees: (a) to give all
notices to third parties which may be necessary or deemed desirable by
ACC in connection with this Agreement and the consummation of the
transactions contemplated hereby; (b) to use its best efforts to
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obtain all federal and state governmental regulatory agency approvals,
consents, permit, authorizations, and orders necessary or deemed
desirable by ACC in connection with this Agreement and the consummation
of the transaction contemplated hereby; and (c) to use its best efforts
to obtain all consents and authorizations of any other third parties
necessary or deemed desirable by ACC in connection with this Agreement
and the consummation of the transactions contemplated hereby.
5.1.2 INFORMATION FOR ACC'S STATEMENTS AND APPLICATIONS.
Kimble on behalf of the Shareholders and their employees, accountants
and attorneys shall cooperate fully with ACC in the preparation of any
statements or applications made by ACC to any federal or state
governmental regulatory agency in connection with this Agreement and
the transactions contemplated hereby and to furnish ACC with all
information concerning Kimble and the Shareholders necessary or deemed
desirable by ACC for inclusion in such statements and applications,
including, without limitation, all requisite financial statements and
schedules.
ARTICLE 6
MISCELLANEOUS
6.1 EXPENSES. Except as otherwise specifically provided for herein,
whether or not the transactions contemplated hereby are consummated, each of the
parties hereto shall bear all taxes of any nature (including, without
limitation, income, franchise, transfer and sales taxes) and all fees and
expenses relating to or arising from its compliance with the various provisions
of this Agreement and such party's covenants to be performed hereunder, and
except as otherwise specifically provided for herein, each of the parties hereto
agrees to pay all of its own expenses (including, without limitation, attorneys
and accountants' fees and printing expenses) incurred in connection with this
Agreement, the transactions contemplated hereby, the negotiations leading to the
same and the preparations made for carrying the same into effect, and all such
taxes, fees and expenses of the parties hereto shall be paid prior to Closing.
6.2 NOTICES. Any notice, request, instruction or other document
required by the terms of this Agreement, or deemed by any of the parties hereto
to be desirable, to be given to any other party hereto shall be in writing and
shall be given by prepaid telegram or delivered or mailed by registered or
certified mail, postage prepaid, with return receipt requested, to the following
addresses:
TO ACC:
American Custom Components, Inc.
1515 South Sunkist Street
Anaheim, CA 92806
Attn: Martin Tony Walk
Facsimile No.: 714-978-0488
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with a copy to:
Law offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile No.: 714-719-1988
TO CEL, KIMBLE OR THE SHAREHOLDERS:
George Kimble
67 Hemlock Road
P.O. Box 210
Roxbury, CT 06783
Facsimile No.: ______________________
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by delivery in accordance
with the provisions of this Section, said notice shall be conclusively deemed
given at the time of such delivery. If notice is given by mail in accordance
with the provisions of this Section, such notice shall be conclusively deemed
given forty-eight (48) hours after deposit thereof in the United States mail. If
notice is given by telegraph in accordance with the provisions of this Section,
such notice shall be conclusively deemed given at the time that the telegraphic
agency shall confirm delivery thereof to the addressee.
6.3 ENTIRE AGREEMENT. This Agreement, together with the Schedule and
exhibits hereto, sets forth the entire agreement and understanding of the
parties hereto with respect to the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understandings related to the
subject matter hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written or oral,
express or implied, whether by statute or otherwise, has been made by any party
hereto which is not embodied in this Agreement, or in the Schedule 1 or exhibits
hereto or the written statements, certificates, or other documents delivered
pursuant hereto or in connection with the transactions contemplated hereby, and
no party hereto shall be bound by or liable for any alleged understanding,
promise, inducement, statement, representation, warranty, covenant or condition
not so set forth.
6.4 SURVIVAL OF REPRESENTATIONS. All statements of fact (including
financial statements) contained in the Schedule, the exhibits, the certificates
or any other instrument delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, shall be deemed
representations and warranties by the respective party hereunder. All
representation, warranties agreements and covenants hereunder shall survive the
Closing and remain effective regardless of any investigation or audit at any
time made by or on behalf of the parties or of any information a party may have
in respect thereto. Consummation of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy possessed by
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any party hereto, notwithstanding that such party knew or should have known at
the time of Closing that such right or remedy existed.
6.5 INCORPORATED BY REFERENCE. The Schedule, the exhibits and all
documents (including, without limitation, all financial statements) delivered as
part hereof or incident hereto are incorporated as a part of this Agreement by
reference.
6.6 REMEDIES CUMULATIVE. No remedy herein conferred upon Purchaser is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
6.7 EXECUTION OF ADDITIONAL DOCUMENTS. Each party hereto shall make,
execute, acknowledge and deliver such other instruments and documents, and take
all such other actions as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby.
6.8 FINDERS' AND RELATED FEES. Each of the parties hereto is
responsible for, and shall indemnify the other against, any claim by any third
party to a fee, commission, bonus or other remuneration arising by reason of any
services alleged to have been rendered to or at the instance of said party to
this Agreement with respect to this Agreement or to any of the transactions
contemplated hereby.
6.9 GOVERNING LAW. This Agreement has been negotiated and executed in
the State of California and shall be construed and enforced in accordance with
the laws of such state.
6.10 FORUM. Each of the parties hereto agrees that any action or suit
which may be brought by any party hereto against any other party hereto in
connection with this Agreement or the transactions contemplated hereby may be
brought only in a federal or state court in Orange County, California.
6.11 BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, legal representatives and assigns.
6.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date first written hereinabove.
AMERICAN CUSTOM COMPONENTS, INC.
By: /S/ MARTIN TONY WALK
--------------------------
Martin Tony Walk
Chief Executive Officer
CARIBBEAN ELECTRONICS, LTD.
By: /S/ GEORGE KIMBLE
--------------------------
Name: George Kimble
GEORGE KIMBLE, INDIVIDUALLY, AND ON
BEHALF OF THE SHAREHOLDERS
/S/ GEORGE KIMBLE
-----------------------------------
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is dated as of January 30,
1998 by and between AMERICAN CUSTOM COMPONENTS, INC., a Nevada corporation
(hereinafter called "ACC"), K5 PLASTICS, INC., a California corporation ("K5" or
the "Company"), and STEVE KAKUK ("Kakuk"), HELEN KAKUK, CATHERINE A. GARCIE,
STEPHEN J. KAKUK, and KRISTINA SANDERSON as the holders of 100% of the issued
and outstanding shares of common stock of K5 (each a "Shareholder" and
collectively the "Shareholders"). Each of ACC, K5 and the Shareholders shall
hereafter be referred to as a "Party" and collectively as the "Parties."
W I T N E S S E T H
WHEREAS, the Shareholders desire to sell 100% of the issued and
outstanding shares of the common stock of K5 (the "K5 Shares") to ACC on the
terms and conditions set forth in this Stock Purchase Agreement; and
WHEREAS, ACC desires to acquire the K5 Shares pursuant to the terms and
conditions set forth in this Stock Purchase Agreement.
NOW THEREFORE, in consideration of the premises and respective mutual
agreements, covenants, representations and warranties herein contained, it is
agreed between the parties hereto as follows:
ARTICLE 1
SALE AND PURCHASE OF THE SHARES
1.1 SALE OF THE K5 SHARES. At the date of the Closing as provided in
Section 3.1 hereto (the "Closing"), subject to the terms and conditions herein
set forth, and on the basis of the representations, warranties and agreements
herein contained, the Shareholders shall sell to ACC and ACC shall purchase from
the Shareholders, the K5 Shares.
1.2 INSTRUMENTS OF CONVEYANCE AND TRANSFER. At the Closing, the
Shareholders shall deliver a certificate or certificates representing the K5
Shares, together with appropriate stock powers sufficient to transfer the K5
Shares into ACC's name, in form and substance satisfactory to ACC as shall be
effective to vest in ACC all right, title and interest in and to all of the K5
Shares.
1.3 CONSIDERATION TO BE PAID FOR THE K5 SHARES. At the Closing, ACC
shall pay and deliver the following consideration:
1.3.1 CASH CONSIDERATION. At the Closing, ACC will pay the sum
of Forty Two Thousand Dollars ($42,000.00) in immediately available
funds to the Shareholders, or their designee (the "Cash
Consideration"). The Parties hereto agree that Five Thousand Dollars
($5,000.00) of the Cash Consideration shall be allocated as payment for
the Covenant Not to Compete contained in Article 5 hereof.
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1.3.2 NOTE CONSIDERATION. At the Closing, ACC will execute and
deliver a note payable (the "Note Consideration") to the Shareholders
or their designee, in form and substance substantially similar to
Exhibit "A" attached hereto, in the principal amount of Fifty Thousand
Dollars ($50,000.00), said principal due and payable on or before July
31, 1998, and bearing interest at the rate of ten percent (10%) per
annum.
1.3.3 ASSUMPTION OF DEBT.
1.3.3.1 Effective as of the Closing, ACC will assume
and undertake to make payments on all of K5's obligations to
Union Bank of California (the "UBOC Debt"), which currently
have an aggregate outstanding principal balance of not more
than Fifty Two Thousand Dollars ($52,000.00). ACC will take
reasonable steps to cause Union Bank of California to release
K5 and/or Kakuk from any and all liability relating to the
UBOC Debt.
1.3.3.2 Effective as of the Closing, ACC will assume
all obligations under K5's existing lease of the premises
located at 15542 Computer Lane, Huntington Beach, California
(the "Premises"). ACC will take reasonable steps to cause the
lessor of the Premises to release K5 and/or Kakuk from any and
all liability relating to the lease thereof.
1.3.4 STOCK CONSIDERATION. Effective as of the Closing, ACC
shall cause to be delivered to MRC Legal Services Corporation, as
escrow agent, an aggregate of Twenty Five Thousand (25,000) shares of
the "restricted" (as that term is defined under Rule 144 of the
Securities Act of 1933) Common Stock of ACC (the "ACC Shares") to be
held and delivered according to the terms of that certain Escrow
Agreement ("Escrow Agreement") of even date herewith, a copy of which
is attached hereto as Exhibit "B".
1.3.5 WARRANT CONSIDERATION. At the Closing, ACC shall execute
and deliver to the Shareholders, or their designee, warrants to
purchase an aggregate of Sixty Thousand (60,000) shares of the
"restricted" shares of Common Stock of ACC (the "Warrants"). One- half
(1/2) of the Warrants shall be exercisable during that period which is
between one (1) and four (4) years from the date hereof, and the other
half of the Warrants shall be exercisable during that period which is
between two (2) and five (5) years from the date hereof. The Warrants
shall have an exercise price of Three Dollars ($3.00) per share. Two
forms of warrant have been attached hereto as Exhibits "C" and "D",
respectively.
1.4 ACCOUNTS RECEIVABLE. Effective as of the Closing, ACC will assume
all of K5's accounts receivable, which total an aggregate of not less than
Twenty Five Thousand Dollars ($25,000.00).
1.5 EMPLOYMENT AGREEMENT. Effective as of the Closing, Kakuk and ACC
shall enter into an employment agreement (the "Employment Agreement"), in form
and substance substantially similar to the Employment Agreement attached hereto
as Exhibit "E", wherein Kakuk shall receive an annual salary of Seventy Two
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Thousand Dollars ($72,000.00) for a period of three (3) years from the Closing.
The Employment Agreement shall contain provisions for a one-time cash bonus in
the amount of Fifteen Thousand Dollars ($15,000.00) in the event that Kakuk is
employed by ACC on January 31, 1999.
1.6 AUTOMOBILES. Prior to the closing, K5 shall transfer title to two
(2) automobiles which are currently owned by K5 to Kakuk or his designee.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF K5 AND THE SHAREHOLDERS. To
induce ACC to enter into this Agreement and to consummate the transactions
contemplated hereby, K5 and the Shareholders represent and warrant, as of the
date hereof and as of the Closing, as follows:
2.1.1 CORPORATE EXISTENCE AND AUTHORITY OF K5. K5 is a
corporation duly organized, validly existing and in good standing under
the laws of the State of California. It has all requisite corporate
power, franchises, licenses, permits and authority to own its
properties and assets and to carry on its business as it has been and
is being conducted. It is in good standing in each state, nation or
other jurisdiction in each state, nation or other jurisdiction wherein
the character of the business transacted by it makes such qualification
necessary.
2.1.2 CAPITALIZATION OF K5. The authorized equity securities
of K5 consists of 1,000 shares of common stock, over all of which the
Shareholders have full power, control and voting rights. No other
shares of capital stock of K5 are issued and outstanding. All of the
issued and outstanding shares have been duly and validly issued in
accordance and compliance with all applicable laws, rules and
regulations and are fully paid and nonassessable. There are no options,
warrants, rights, calls, commitments, plans, contracts or other
agreements of any character granted or issued by K5 which provide for
the purchase, issuance or transfer of any shares of the capital stock
of K5 nor are there any outstanding securities granted or issued by K5
that are convertible into any shares of the equity securities of K5,
and none is authorized. K5 is not obligated or committed to purchase,
redeem or otherwise acquire any of its equity. All presently
exercisable voting rights in K5 are vested exclusively in its
outstanding shares of common stock, each share of which is entitled to
one vote on every matter to come before it's shareholders, and other
than as may be contemplated by this Agreement, there are no voting
trusts or other voting arrangements with respect to any of K5's equity
securities.
2.1.3 SUBSIDIARIES. "Subsidiary" or "Subsidiaries" means all
corporations, trusts, partnerships, associations, joint ventures or
other Persons, as defined below, of which a corporation or any other
Subsidiary of such corporation owns not less than twenty percent (20%)
of the voting securities or other equity or of which such corporation
or any other Subsidiary of such corporation possesses, directly or
indirectly, the power to direct or cause the direction of the
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management and policies, whether through ownership of voting shares,
management contracts or otherwise. "Person" means any individual,
corporation, trust, association, partnership, proprietorship, joint
venture or other entity. There are no Subsidiaries of K5.
2.1.4 EXECUTION OF AGREEMENT. The execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any right
to declare any default or acceleration upon notice or passage of time
or both), in whole or in part, any charter, article of incorporation,
bylaw, mortgage, lien, deed of trust, indenture, lease, agreement,
instrument, order, injunction, decree, judgment, law or any other
restriction of any kind to which either K5 or any of its shareholders
is a party or by which either of them or any of their properties are
bound; (b) result in the creation of any security interest, lien,
encumbrance, adverse claim, proscription or restriction on any property
or asset (whether real, personal, mixed, tangible or intangible),
right, contract, agreement or business of K5 or any of its
shareholders; (C) violate any law, rule or regulation of any federal or
state regulatory agency; or (d) permit any federal or state regulatory
agency to impose any restrictions or limitations of any nature on K5 or
any of its shareholders or any of their respective actions.
2.1.5 FINANCIAL STATEMENTS. Attached as Exhibit "F" hereto are
the consolidated financial statements of the Corporation and
Subsidiaries (including, without limitation, statements of earnings,
balance sheets, statements of changes in financial position, statements
of shareholders' equity, and all notes relating hereto) as of December
31, 1997 and the year then ended (the "Balance Sheet Date"). All of the
Financial Statements referred to in this Section and all consolidated
and unconsolidated financial statements of the Corporation and
Subsidiaries included in any filing with any government agency,
including, without limitation, the United States Securities and
Exchange Commission, are true, correct and complete and present fairly
the financial condition of the Company and Subsidiaries and the results
of their operations at the dates and for the periods covered thereby.
Such Financial Statements have been prepared in conformity with all
applicable regulatory requirements and generally accepted accounting
principles applied on a consistent basis throughout the periods
involved, except as otherwise expressly disclosed in such financial
statements. For the periods covered by the Financial Statements neither
the Company nor any Subsidiary had any nonrecurring items of income.
2.1.6 ABSENCE OF CERTAIN LIABILITIES. Since the Balance Sheet
Date, neither the Company nor any Subsidiary has incurred liabilities
or obligations of any nature other than in the ordinary course of
business and consistent with past practice. Neither the Company nor any
Subsidiary is directly or indirectly liable to (by discount, repurchase
agreement or otherwise), or obligated in any other way to provide funds
in respect of, or to guarantee or assume any debt or obligation of, any
person in any amount, except as arising in the normal course of
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business subsequent to the Balance Sheet Date. All liabilities of the
Company and the Subsidiaries can be prepaid in full without penalty at
any time.
2.1.7 ABSENCE OF CHANGES. Since the Balance Sheet Date and
through the Closing, except as set forth in Schedule 2.1.7 attached
hereto, there has not been and there will not be:
2.1.7.1 Any change or aggregate of changes in the
condition (financial or otherwise), business, operations,
liquidity, property, assets, liabilities, obligations or
prospects of the Company and Subsidiaries resulting in a
reduction of five percent (5%) of the net worth of the Company
or any Subsidiary or three percent (3%) of the net income of
the Company or any Subsidiary, whichever is lesser at the time
of change;
2.1.7.2 Any change in the capitalization of the
Company or any Subsidiary, including, without limitation, the
issuance by the Company or any Subsidiary of any shares of
stock of any class, any subscriptions, options, warrants,
convertible securities, rights, calls, agreements, commitments
or rights affecting or relating in any manner whatsoever to
any equitable interest in the Company or any Subsidiary;
2.1.7.3 Any direct or indirect purchase, redemption
or other acquisition by the Company or any Subsidiary, or any
commitment, plan or agreement by the Company or any Subsidiary
to purchase, redeem or otherwise acquire any shares of its
capital stock or other equitable interest;
2.1.7.4 Any merger or consolidation or agreement to
merge or consolidate by the Company or any Subsidiary with
another Person, or any purchase of or investment in or
agreement in the business of another Person;
2.1.7.5 Any declaration, payment or setting aside by
the Company or any Subsidiary of any dividends or other
distributions of any assets of any kind whatsoever to its
shareholders or other equitable owners, except for ordinary
salary payments for services actually rendered;
2.1.7.6 Any amendment to the Articles of
Incorporation or Bylaws of the Company or any Subsidiary;
2.1.7.7 Any increase in the compensation or rate of
compensation or commission payable or to become payable by the
Company or any Subsidiary to any of their directors, officers,
salaried employees earning more that $20,000 per annum,
salesmen or agents, or any general increase in the
compensation or rate of compensation payable or to become
payable to any of their hourly employees or salaried employees
earning $20,000 per annum or less ("general increase" for
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purposes hereof shall mean any increase applicable to a class
or group of employees and does not include increases granted
to individual employees for merit, length of service, change
in position or responsibility or other reasons applicable to
specified employees and not generally to a class or group
thereof), or any hiring of any employee at a salary in excess
of $20,000 per annum, or any termination of any key employee
or any employee whose compensation was in excess of $20,000
per annum;
2.1.7.8 Any changes in any existing, or adoption of
or entering into any new, benefit plan or arrangement (whether
written or oral) affecting any of the officers, directors,
employees, salesmen or agents of the Company and the
Subsidiaries, including, without limitation, any bonus, profit
sharing, pension, deferred compensation, severance or
termination pay benefit, stock option, group life or health
insurance or other similar plans, agreements or arrangements;
2.1.7.9 Any release, cancellation, modification or
waiver of any obligation, indebtedness, liability, lien or
encumbrance held by the Company or any Subsidiary, unless such
obligation, indebtedness, liability, lien or encumbrance has
been paid in full at the time of release;
2.1.7.10 Any waiver, compromise or settlement by the
Company or any Subsidiary of any right or claim in excess of
ten thousand dollars ($10,000.00); or any institution or
settlement of or agreement to settle, any litigation, action
or proceeding before any court or governmental body relating
to the Company or any of its properties;
2.1.7.11 Any mortgage, pledge or other subjection to
any lien, claim, charge, option or encumbrance of any
property, asset, right or business of the Company or any
Subsidiary, other than liens for taxes not yet due and payable
and any continuing statutory landlord's lien;
2.1.7.12 Any incurrence of any indebtedness,
obligations or liabilities (whether absolute, accrued,
contingent, known or unknown, due or to become due) by the
Company or any Subsidiary except those arising in the ordinary
course of business and consistent with past practice, but in
no event in excess of ten thousand dollars ($10,000.00) when
all such indebtedness, obligations and liabilities are
aggregated;
2.1.7.13 Any assumptions, guarantees or endorsements
by the Company or any Subsidiary of the obligations of any
Person, except in the ordinary course of business and
consistent with past practice, but in no event in excess of
ten thousand dollars ($10,000.00) when all such assumptions,
guarantees and endorsements are aggregated;
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2.1.7.14 Any payment or satisfaction by the Company
or any Subsidiary of any liability, obligation or
indebtedness, other than those incurred since the Balance
Sheet Date in the ordinary course of business and consistent
with past practice;
2.1.7.15 Any loan or advance, any commitment to loan
or advance, or any renewal, refunding or extension of any
existing loan, made by the Company or any Subsidiary to any
Person, except in the ordinary course of business and
consistent with past practice, but in no event any loan or
advance, any commitment to loan or advance, or any renewal,
refunding or extension of any existing loan, by the Company or
any Subsidiary to any of its officers, directors or holders or
five percent (5%) or more of the capital stock or equitable
interest, or to any affiliate of any such officer, director or
holder, as the term "affiliate" is defined for purposes of the
1933 Act and the rules and regulations thereunder;
2.1.7.16 Any creation, renewal, change or
termination, or any notice of any proposed renewal, change or
termination of any contract, agreement, commitment,
obligation, lease or license involving more than five thousand
dollars ($5,000.00) or extending beyond six (6) months from
the date of this Agreement, to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary or any of their property is bound;
2.1.7.17 Any action or inaction which has caused or
will cause a breach or default in any contract, agreement,
obligation, lease or license to which the Company or any
Subsidiary is a party or by which the Company or any
Subsidiary or any of their property is bound;
2.1.7.18 Any sale, assignment, lease, abandonment or
other disposition by the Company or any Subsidiary of any real
property, or any sale, assignment, transfer, license, lease or
other disposition by the Company or any Subsidiary of any
patent, trademark, trade name, brand name, copyright (or
pending application for any patent, trademark or copyright),
invention, process, know-how, formula, trade secret or other
intangible asset;
2.1.7.19 Any sale, assignment or transfer of
contract, agreement, lease, of an asset by the Company or any
Subsidiary, except in the ordinary course of business and
consistent with past practice;
2.1.7.20 Any violation by the Company or any
Subsidiary of, or any charge against the Company or any
Subsidiary for alleged violations of, governmental laws,
regulations or standards, including, without limitation,
unlawful employment practices, occupational health and safety
standards, and environmental control standards;
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2.1.7.21 Any labor dispute, or threat of a labor
dispute, or any attempt or threat of any attempt by a union to
organize any employee of the Company or any Subsidiary who are
not now covered under an existing union or collective
bargaining agreement;
2.1.7.22 Any lapse in any insurance policy or
coverage of the Company or any Subsidiary;
2.1.7.23 Any damage, destruction or loss to the
business or properties of the Company or any Subsidiary;
whether or not covered by insurance, including, without
limitation, any damage, destruction or loss as a result of
fire, explosion, accident, earthquake, lightening, frost,
aircraft, vehicle, smoke, hail, flood, drought, storm, strike,
work stoppage, lockout, sabotage, embargo, condemnation, riot,
civil disturbance, vandalism or act of God or public enemy;
2.1.7.24 Any granting of powers of attorney by the
Company or any Subsidiary; any change in their banking or safe
deposit arrangements; any writing up or writing down of the
carrying value of any of their assets; any change in their
depreciation or amortization policies or rates heretofore
adopted; or any change in any basic policy or practice by the
Company or any Subsidiary with respect to liquidity management
and cash flow planning, lending, budgeting, pricing, profit
and tax planning, personnel practices and accounting
practices; and,
2.1.7.25 Any action or transaction entered into by
the Company or any Subsidiary other than in the ordinary
course of business.
2.1.8 TAXES. Except as set forth in Schedule 2.1.8
attached to this Agreement;
2.1.8.1 The Company and all Subsidiaries have duly
filed all required federal, state, local, foreign and other
tax returns, notices and reports (including, without
limitation, income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,
social security and unemployment tax returns, notices and
reports) heretofore due, and all such returns, notices and
reports are correct, accurate and complete in all respects;
2.1.8.2 All deposits required to be made by the
Company and all Subsidiaries with respect to any tax
(including, without limitation, estimated income, franchise
and employee withholding taxes) have been duly made;
2.1.8.3 All taxes, assessments, fees, penalties,
interest and other governmental charges with respect to each
of the Company and all Subsidiaries which have become due and
payable by its Balance Sheet Date have been paid in full or
adequately reserved against by the Company or the applicable
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Subsidiary, and all taxes, assessments, fees, penalties,
interest and other governmental charges which have become due
and payable subsequent to the Balance Sheet Date have been
paid in full or adequately reserved against on its books of
account and such books are sufficient for the payment of all
unpaid federal, state, local, foreign and other taxes, fees
and assessments (including without limitation, income,
property, sales, use, franchise, capital stock, excise, added
value, employees' income withholding, social security and
unemployment taxes), and all interest and penalties thereon
with respect to the periods then ended and for all periods
thereto;
2.1.8.4 There are no agreements, waivers or other
arrangements providing for an extension of time with respect
to the assessment of any tax or deficiency against the Company
or any Subsidiary, nor are there any actions, suits,
proceedings, investigations or claims now pending against the
Company or any Subsidiary, nor are there any actions, suits,
proceedings, investigations or claims now pending against the
Company or any Subsidiary in respect of any tax or assessment,
or any matters under discussion with any federal, state, local
or foreign authority relating to any taxes or assessments, or
any claims for additional taxes or assessments asserted by any
such authority, and there is no basis for the assertion of any
additional taxes or assessments against the Company or any
Subsidiary; and
2.1.8.5 The consummation of the transactions
contemplated by this Agreement will not result in the
imposition of any additional taxes on or assessments against
the Company or any Subsidiary.
2.1.9 DISPUTES AND LITIGATION. Except as set forth in Schedule
2.1.9 attached hereto, there is no suit, action, litigation,
proceeding, investigation, claim, complaint, or accusation pending,
threatened against or affecting the Company or any Subsidiary or any of
their properties, assets or business or to which the Company or any
Subsidiary is a party, in any court or before any arbitrator of any
kind or before or by any governmental agency (including, without
limitation, any federal, state, local, foreign or other governmental
department, commission, board, bureau, agency or instrumentality), and
there is no basis for such suit, action, litigation, proceeding,
investigation, claim, complaint, or accusation; (b) there is no pending
or threatened change in any environmental, zoning or building laws,
regulations or ordinances which affect or could affect the Company or
any Subsidiary or any of their properties, assets or businesses; and
(c) there is no outstanding order, writ, injunction, decree, judgment
or award by any court, arbitrator or governmental body against or
affecting the Company or any Subsidiary or any of their properties,
assets or business. There is no litigation, proceeding, investigation,
claim, complaint or accusation, formal or informal, or arbitration
pending, or any of the aforesaid threatened, or any contingent
liability which would give rise to any right of indemnification or
similar right on the part of any director or officer of the Company or
any Subsidiary or any such person's heirs, executors or administrators
as against the Company or any Subsidiary.
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2.1.10 COMPLIANCE WITH LAWS. The Company and all Subsidiaries
have at all times been, and presently are, in full compliance with, and
have not received notice of any claimed violation of, any applicable
federal, state, local, foreign and other laws, rules and regulations.
The Company and all Subsidiaries have filed all returns, reports and
other documents and furnished all information required or requested by
any federal, state, local or foreign governmental agency and all such
returns, reports, documents and information are true and complete in
all respects. All permits, licenses, orders, franchises and approvals
of all federal, state, local or foreign governmental or regulatory
bodies required of the Company or any Subsidiary for the conduct of
each of their respective business have been obtained, no violations are
or have been recorded in respect of any such permits, licenses, orders,
franchises and approvals, and there is no litigation, proceeding,
investigation, arbitration, claim, complaint or accusation, formal or
informal, pending or threatened, which may revoke, limit, or question
the validity, sufficiency or continuance of any such permit, license,
order, franchise or approval. Such permits, licenses, orders,
franchises and approvals are valid and sufficient for all activities
presently carried on by the Company and all Subsidiaries.
2.1.11 TITLE TO PROPERTIES. The properties and assets of the
Company and Subsidiaries consist of all of the properties and assets
reflected on the Financial Statements. The Company and Subsidiaries
have good and marketable title to all of their respective properties
and assets (whether real, personal, mixed, tangible or intangible),
rights contracts, agreements, goodwill and business, free and clear of
all adverse interests, security, interests, liens, encumbrances,
claims, proscriptions, restrictions, conditions, covenants and
easements, other than liens for taxes not yet due and payable and minor
imperfections of title encumbrances, if any, which do not interfere
with the present of proposed use of such property or otherwise
adversely affect the Company or the Subsidiaries in the conduct of
their respective businesses. There have not been filed any liens,
mortgages or financing statements under the Uniform Commercial Code or
other similar statute on the properties or assets, whether real,
personal or mixed, of the Company or any Subsidiary, nor has the
Company or any Subsidiary signed any security agreement or similar
agreement authorizing any secured party thereunder to file any such
lien, mortgage or financing statement.
2.1.12 REAL PROPERTY AND REAL PROPERTY LEASES. The Company and
Subsidiaries have all easements and rights, including easements for
power lines, water lines, roadways and other access, necessary to
conduct business they now conduct and enjoy peaceful and undisturbed
possession of all properties occupied by them. Neither the whole nor
any portion of any real property owned, occupied or leased to or by the
Company or any Subsidiary has been rezoned or condemned or otherwise
taken by any public authority and no such rezoning, condemnation or
other taking is threatened or contemplated. None of the real properties
owned, occupied or leased to or by the Company or any Subsidiary, or
the occupancy thereof, constitutes a nuisance or violation of any law
or any building, zoning or other ordinance, code or regulation or any
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private or public covenant or restriction, and no notice from any
governmental body or other Person has been served upon the Company or
any Subsidiary claiming any violation of any such law, ordinance, code,
regulation, covenant or restriction, or requiring or calling attention
to the need for any work, repairs, construction, alterations or
installations on or in connection with any of such properties which has
not been complied with. All leases of real property to which the
Corporation or any Subsidiary is a party are valid, binding and in full
force and effect, and there exists no default thereunder by any party
thereto, nor any events which, with notice or laps of time, or both,
would constitute a default, and all amounts heretofore payable under
such leases have been paid in full.
2.1.13 CONDITION OF TANGIBLE PROPERTY. With the exception of
the inventory, all tangible properties owned or used by the Company and
Subsidiaries, including, without limitation, all buildings, offices,
shops and other structures owned or occupied by the Company and
Subsidiaries and all machinery, equipment, tools, fixtures and motor
vehicles owned or used by them are in good operating condition and
repair, fit and usable for the purposes for which they are being
utilized, and sufficient for all current operations of the Company and
the Subsidiaries.
2.1.14 INVENTORY. The inventories of each of the Company and
Subsidiaries shown on its Balance Sheet and inventories acquired by it
subsequent to its Balance Sheet Date consist solely of items of a
quality and quantity usable and salable in the normal course of its
business, with the exception of obsolete materials and materials below
standard quality. The values at which all inventories are carried
reflect the customary inventory valuation consistently applied by the
Company and Subsidiaries of stating inventory at the lower of cost or
estimated realizable market value on a first-in, first-out basis, all
in accordance with generally accepted accounting principles. No items
including in the inventories of the Company and Subsidiaries are
pledged as collateral or are held by the Company or any Subsidiary on
consignment from others. Neither the Company nor any Subsidiary is
committed to purchase inventories in amounts greater than are required
in the ordinary course of business and in no event in amounts greater
that are required for one year's operations of its business at current
manufacturing and selling levels.
2.1.15 INTANGIBLE PERSONAL PROPERTY. Each of the Company and
Subsidiaries validly owns or is validly licensed under all intangible
properties which are required or necessary for the conduct of its
business as now conducted, and is the sole and exclusive owner of said
properties, free and clear of all liens and encumbrances of any nature
whatsoever, and has the unrestricted right to use said properties,
having not granted or entered into any agreement, covenant, license or
sublicense with respect thereto. No claims or demands have been
asserted against the Company or any Subsidiary with respect to any such
items of intangible property, and no proceedings have been instituted,
are pending or have been threatened which challenge the rights of the
Corporation or any Subsidiary with respect to any of such assets. The
businesses and operations of the Company and Subsidiaries, the
manufacture, use and sale by them of their products, the use of their
products by their customers for the purposes for which sold and
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the use or publication by them of their patents, trademarks, trade
names, brand names and advertising, technical or other literature and
other intangible personal properties do not involve infringement or
claimed infringement of any United States patent, trademark, trade
name, brand name or copyright.
2.1.16 AGREEMENTS. All material agreements of the Company and
Subsidiaries were entered into in the ordinary course of business, are
valid and binding, in full force and effect and enforceable in
accordance with their respective terms, and there exists no breach or
default, or any event which, with notice or laps of time or both, would
constitute a breach or default, by any party thereto.
2.1.17 RECEIVABLES. All notes and accounts receivable of the
Company and Subsidiaries shown on the Financial Statements and all
those arising since the Balance Sheet Date have arisen in the ordinary
course of business. As of the Closing, the notes and accounts
receivable of the Company and Subsidiaries will be collectible in the
ordinary course of business without resort to litigation or subjection
to counterclaim or offset in a total aggregate amount of not less than
as shown on the Financial Statements.
2.1.18 DEBTS TO AND FROM RELATED PARTIES. There presently are
not, and during the two years preceding the date of this Agreement
there have not been, any debts owing to the Company or any Subsidiary
by, or any contractual agreements or understandings between the Company
or any Subsidiary and, any shareholder, director or officer of the
corporation or of any Subsidiary, any member of their respective
families, or any affiliate or associate of any of the foregoing
individuals, as the term "affiliate" is defined for purposes of the
1933 Act and the rules and regulations thereunder, and none of the
foregoing individuals or any affiliate or associate of them owns any
property or rights, tangible or intangible (other than an equitable
interest), used in or related to the Company's or any Subsidiary's
business. Neither the Company nor any Subsidiary is indebted to any
shareholder, officer, director or employee of the Company or any
Subsidiary, or to any member of their respective families, or to any
affiliate or associate of any of the foregoing individuals, in any
amount whatsoever, other than for payment of salaries and compensation
for services actually rendered to the Company and Subsidiaries in the
ordinary course of their businesses.
2.1.19 GUARANTIES. Neither the Company nor any Subsidiary has
guaranteed any dividend, obligation or indebtedness of any Person; nor
has any Person guaranteed any dividend, obligation or indebtedness of
the Company or any Subsidiary.
2.1.20 BOOKS AND RECORDS. The Company and each Subsidiary
keeps its books, records and accounts (including, without limitation,
those kept for financial reporting purposes and for tax purposes) in
accordance with good business practice and in sufficient detail to
reflect the transactions and dispositions of its assets, liabilities
and equities. The minute books of the Company and each Subsidiary
contain records of its shareholders' and directors' meetings and of
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action taken by such shareholders and directors. The meetings of
directors and shareholders referred to in such minute books were duly
called and held, and the resolutions appearing in such minute books
were duly adopted. The signatures appearing on all documents contained
in such minute books are the true signatures of the persons purporting
to have signed the same.
2.2 REPRESENTATIONS AND WARRANTIES OF ACC. To induce the Shareholders
to enter into this Agreement and to consummate the transactions contemplated
hereby, ACC represents and warrants, as of the date hereof and as of the
Closing, as follows:
2.2.1 CORPORATE EXISTENCE AND AUTHORITY OF ACC. ACC is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Nevada. It has all requisite corporate power,
franchises, licenses, permits and authority to own its properties and
assets and to carry on its business as it has been and is being
conducted. It is in good standing in each state, nation or other
jurisdiction in each state, nation or other jurisdiction wherein the
character of the business transacted by it makes such qualification
necessary.
2.2.2 EXECUTION OF AGREEMENT. The execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated hereby will not: (a) violate, conflict with, modify or
cause any default under or acceleration of (or give any party any right
to declare any default or acceleration upon notice or passage of time
or both), in whole or in part, any charter, article of incorporation,
bylaw, mortgage, lien, deed of trust, indenture, lease, agreement,
instrument, order, injunction, decree, judgment, law or any other
restriction of any kind to which ACC is a party or by which it or any
of its properties are bound; (b) result in the creation of any security
interest, lien, encumbrance, adverse claim, proscription or restriction
on any property or asset (whether real, personal, mixed, tangible or
intangible), right, contract, agreement or business of ACC; (c) violate
any law, rule or regulation of any federal or state regulatory agency;
or (d) permit any federal or state regulatory agency to impose any
restrictions or limitations of any nature on ACC or any of its actions.
2.2.3 THE ACC SHARES. The ACC Shares have been duly authorized
by the appropriate corporate action of ACC. ACC shall transfer title,
in and to the ACC Shares, to the Shareholders free and clear of all
liens, security interests, pledges, encumbrances, charges,
restrictions, demands and claims, of any kind and nature whatsoever,
whether direct or indirect or contingent, except as set forth herein
and in the Escrow Agreement.
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ARTICLE 3
CLOSING AND DELIVERY OF DOCUMENTS
3.1 CLOSING. The Closing shall be deemed to have occurred on January
31, 1998. At or subsequent to the Closing, as the Parties shall agree, the
following shall occur as a single integrated transaction:
3.2 DELIVERY BY THE SHAREHOLDERS:
(a) The Shareholders shall deliver to ACC the stock
certificate or certificates and all instruments of conveyance and
transfer required by Section 1.2.
(b) The Shareholders shall deliver, or cause to be delivered,
to ACC such instruments, documents and certificates as are required to
be delivered by the Shareholders and or K5 or their representatives
pursuant to the provisions of this Agreement.
3.3 DELIVERY BY ACC:
(a) ACC shall deliver, or cause to be delivered, to the
Shareholders the Cash Consideration and the Note Consideration as
required by Sections 1.3.1 and 1.3.2. Within 45 days of the Closing
hereof, ACC shall deliver the ACC Shares as required by Section 1.3.4.
(b) ACC shall deliver, or cause to be delivered, to the
Shareholders such instruments, documents and certificates as are
required to be delivered by ACC or its representatives pursuant to the
provisions of this Agreement.
ARTICLE 4
TERMINATION, AMENDMENT AND WAIVER
4.1 TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, this Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing by the
mutual consent of all of the parties;
4.2 WAIVER AND AMENDMENT. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be waived, but only
by a written instrument signed by the party entitled to the benefits thereof.
The failure or delay of any party at any time or times to require performance of
any provision hereof or to exercise its rights with respect to any provision
hereof shall in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any condition, or of
the breach of any term, provision, covenant, representation or warranty
contained in this Agreement, in any one or more instances, shall be deemed to be
or construed as a further or continuing waiver of any such condition or breach
or waiver of any other condition or of the breach of any other term, provision,
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covenant, representationor warranty. No modification or amendment of this
Agreement shall be valid and binding unless it be in writing and signed by all
parties hereto.
ARTICLE 5
COVENANT NOT TO COMPETE
5.1 SCOPE. The parties hereto agree that during the period that Kakuk
is the owner, either directly or beneficially through his designee, of the ACC
Shares, and for a period of two (2) years after Kakuk ceases to be the owner of
the ACC Shares, either directly or beneficially through his designee, Kakuk
shall not, directly or indirectly, either as an employee, consultant, agent,
principal, shareholder, corporate officer, director, or in any other individual
or representative capacity engage in or render services to any similar type of
business at any location within the State of California.
5.2 CONSTRUCTION. The parties intend that the Covenant Not To Compete
contained in this Article shall be construed as a series of separate covenants.
Except for geographic coverage, each such separate covenant shall be deemed
identical in terms of the covenant contained in said paragraphs. If, in any
judicial proceeding, a court shall refuse to enforce any such separate
covenants, such unenforceable covenant shall be deemed eliminated from these
provisions for the purpose of those proceedings to the extent necessary to
permit the remaining separate covenants to be enforced.
5.3 ENFORCEMENT. The parties agree that a violation by Kakuk of any
covenant contained in this Article will cause such damage to ACC as will be
irreparable, and that ACC shall be entitled, as a matter of right, to any
injunction from any court of competent jurisdiction restraining any further
violation of said covenants by Kakuk. Such right to injunctive remedies shall be
in addition to and cumulative with any other rights and remedies ACC may have
pursuant to this Article or law, including specifically the recovery of monetary
damages, whether compensatory or punitive. The parties acknowledge and agree
that the covenants and agreements contained herein are minimum and reasonable in
scope as to both area and time, and are necessary to protect the legitimate
interests of ACC. Kakuk hereby waives any requirement for securing or posting a
bond in connection with the obtaining of injunctive or other equitable relief by
ACC hereunder.
ARTICLE 6
MISCELLANEOUS
6.1 EXPENSES. Except as otherwise specifically provided for herein,
whether or not the transactions contemplated hereby are consummated, each of the
parties hereto shall bear all taxes of any nature (including, without
limitation, income, franchise, transfer and sales taxes) and all fees and
expenses relating to or arising from its compliance with the various provisions
of this Agreement and such party's covenants to be performed hereunder, and
except as otherwise specifically provided for herein, each of the parties hereto
agrees to pay all of its own expenses (including, without limitation, attorneys
and accountants' fees and printing expenses) incurred in connection with this
Agreement, the transactions contemplated hereby, the negotiations leading to the
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same and the preparations made for carrying the same into effect, and all such
taxes, fees and expenses of the parties hereto shall be paid prior to Closing.
6.2 NOTICES. Any notice, request, instruction or other document
required by the terms of this Agreement, or deemed by any of the parties hereto
to be desirable, to be given to any other party hereto shall be in writing and
shall be given by prepaid telegram, facsimile, or delivered or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:
TO ACC:
American Custom Components, Inc.
3310 W. MacArthur Blvd.
Santa Ana, CA 92704
Attn: Martin Tony Walk
Facsimile No.: 714-662-2081
with a copy to:
The Law Offices of M. Richard Cutler
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Attn: M. Richard Cutler, Esq.
Facsimile No.: 714-719-1988
TO THE SHAREHOLDERS OR K5:
Steve Kakuk
26931 Vista Pointe
San Juan Capistrano, CA 92675
Facsimile No.: (714) 347-0738
with a copy to:
Bewley, Lassleben & Miller, LLP
13215 East Penn Street, Suite 510
Whittier, CA 90602
Attn: J. Terrence Mooschekian
Facsimile No.: 562-696-6357
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by delivery in accordance
with the provisions of this Section, said notice shall be conclusively deemed
given at the time of such delivery. If notice is given by mail in
16
<PAGE>
accordance with the provisions of this Section, such notice shall be
conclusively deemed given forty-eight (48) hours after deposit thereof in the
United States mail. If notice is given by telegraph in accordance with the
provisions of this Section, such notice shall be conclusively deemed given at
the time that the telegraphic agency shall confirm delivery thereof to the
addressee.
6.3 ENTIRE AGREEMENT. This Agreement together with the schedules and
exhibits hereto, sets forth the entire agreement and understanding of the
parties hereto with respect to the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understandings related to the
subject matter hereof. No understanding, promise, inducement, statement of
intention, representation, warranty, covenant or condition, written or oral,
express or implied, whether by statute or otherwise, has been made by any party
hereto which is not embodied in this Agreement, or in the Schedule 1 or exhibits
hereto or the written statements, certificates, or other documents delivered
pursuant hereto or in connection with the transactions contemplated hereby, and
no party hereto shall be bound by or liable for any alleged understanding,
promise, inducement, statement, representation, warranty, covenant or condition
not so set forth.
6.4 SURVIVAL OF REPRESENTATIONS. All statements of fact (including
financial statements) contained in the Schedule, the exhibits, the certificates
or any other instrument delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, shall be deemed
representations and warranties by the respective party hereunder. All
representation, warranties agreements and covenants hereunder shall survive the
Closing and remain effective regardless of any investigation or audit at any
time made by or on behalf of the parties or of any information a party may have
in respect thereto. Consummation of the transactions contemplated hereby shall
not be deemed or construed to be a waiver of any right or remedy possessed by
any party hereto, notwithstanding that such party knew or should have known at
the time of Closing that such right or remedy existed.
6.5 INCORPORATED BY REFERENCE. The Schedule, the exhibits and all
documents (including, without limitation, all financial statements) delivered as
part hereof or incident hereto are incorporated as a part of this Agreement by
reference.
6.6 REMEDIES CUMULATIVE. No remedy herein conferred upon Purchaser is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
6.7 EXECUTION OF ADDITIONAL DOCUMENTS. Each party hereto shall make,
execute, acknowledge and deliver such other instruments and documents, and take
all such other actions as may be reasonably required in order to effectuate the
purposes of this Agreement and to consummate the transactions contemplated
hereby.
6.8 FINDERS' AND RELATED FEES. Each of the parties hereto is
responsible for, and shall indemnify the other against, any claim by any third
party to a fee, commission, bonus or other remuneration arising by reason
17
<PAGE>
of any services alleged to have been rendered to or at the instance of said
party to this Agreement with respect to this Agreement or to any of the
transactions contemplated hereby.
6.9 GOVERNING LAW. This Agreement has been negotiated and executed in
the State of California and shall be construed and enforced in accordance with
the laws of such state.
6.10 FORUM. Each of the parties hereto agrees that any action or suit
which may be brought by any party hereto against any other party hereto in
connection with this Agreement or the transactions contemplated hereby may be
brought only in a federal or state court in Orange County, California.
6.11 ARBITRATION. If a dispute or claim shall arise between the parties
with respect to any of the terms or provisions of this Agreement, or with
respect to the performance by any of the parties under this Agreement, then the
parties agree that the dispute shall be arbitrated in Orange County, California,
before a single arbitrator, in accordance with the rules of either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services,
Inc./Endispute ("JAMS/Endispute"). The selection between AAA and JAMS/Endispute
rules shall be made by the claimant first demanding arbitration. The arbitrator
shall have no power to alter or modify any express provisions of this Agreement
or to render any award which by its terms affects any such alteration or
modification. The parties to the arbitration may agree in writing to use
different rules and/or arbitrator(s). In all other respects, the arbitration
shall be conducted in accordance with Part III, Title 9 of the California Code
of Civil Procedure. The parties agree that the judgment award rendered by the
arbitrator shall be considered binding and may be entered in any court having
jurisdiction as stated in Paragraph 5.10 of this Agreement. The provisions of
this Paragraph shall survive the termination of this Agreement.
6.12 BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, legal representatives and assigns.
6.13 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as
of the date first written hereinabove.
AMERICAN CUSTOM COMPONENTS, INC.
/S/ MARTIN TONY WALK
- ---------------------------------
By: Martin Tony Walk
Its: President
K5 PLASTICS, INC.
/S/ STEVE KAKUK
- ---------------------------------
By: Steve Kakuk
Its: President
/S/ STEVE KAKUK
- ---------------------------------- /S/ HELEN KAKUK
STEVE KAKUK, individually -----------------------------
HELEN KAKUK, individually
/S/ CATHERINE A. GARCIE
- ---------------------------------- /S/ STEPHEN J. KAKUK
CATHERINE A. GARCIE, individually -----------------------------
STEPHEN J. KAKUK, individually
/S/ KRISTINA SANDERSON
- ----------------------------------
KRISTINA SANDERSON, individually
19
<PAGE>
EXHIBIT "F"
K5 FINANCIAL STATEMENTS
20
<PAGE>
SCHEDULE 2.1.7
CHANGES
NONE.
21
<PAGE>
SCHEDULE 2.1.8
TAXES
NONE.
22
<PAGE>
SCHEDULE 2.1.9
DISPUTES AND LITIGATION
NONE.
23
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
1. American Custom Components, Inc., a California corporation, doing
business as American Custom Components, Inc.
2. Caribbean Electronics, Ltd., a St. Lucian corporation, doing business
as Caribbean Electronics, Ltd.
3. K5 Plastics, Inc., a California corporation, doing business as K5
Plastics, Inc.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement on Form 10 of our
report dated January 9, 1998, on our audit of the financial statements of
American Custom Components, Inc. for the year ended March 31, 1997. We also
consent to the references to our firm throughout the registration statement.
/s/ Kelly & Company
Kelly & Company
Newport Beach, California
February 27, 1998
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<PERIOD-END> MAR-31-1997 DEC-31-1997
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