<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to _________
Commission File Number 0-23705
Automotive Performance Group, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 86-0938742
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
7341 Anaconda Avenue, Garden Grove, California 92841
(Address of principal executive offices)
(714) 373-2837
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if
changed since last report.)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ ] No
[X]
On August 16, 1999, the Company filed a Current Report on Form 8-K
which disclosed the purchase of a 22% ownership position in PBT Brands, Inc. on
August 2, 1999. That Form 8-K indicated that the financial statements and pro
forma financial information were not available by August 16 and that those
documents would be filed by an amendment to that Form 8-K. The Company has not
received all of the required documents to date and will file the amendment when
it receives all required materials.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: On December 31, 1999 the
issuer had 12,404,071 outstanding shares of common stock, par value $.0001
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
<PAGE> 2
PART I.
FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
<PAGE> 3
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash $ 210 $ 1,829
Restricted cash -- 500
Accounts receivable, net of allowance for
doubtful accounts of $53 and $19, respectively -- 327
Other receivable 250 --
Inventories -- 907
Prepaid expenses and other 64 374
Net assets of discontinued automotive parts and
accessories subsidiaries 434 --
Notes receivable -- 600
-------- --------
Total current assets 958 4,537
PROPERTY, PLANT and EQUIPMENT, net 59 1,710
OTHER ASSETS
Net assets of discontinued automotive parts and
accessories subsidiaries 1,451 --
Investment in PBT Brands, Inc. 4,491 --
Other assets 1,875 20
-------- --------
$ 8,834 $ 6,267
======== ========
CURRENT LIABILITIES
Line of credit $ -- $ 876
Current maturities of long-term obligations -- 496
Current maturities of capital lease obligations -- 105
Notes payable 9 --
Accounts payable 1,572 1,440
Accrued liabilities 222 240
Net liabilities of discontinued automotive
parts and accessories subsidiaries including
provision for losses 2,370 --
-------- --------
Total current liabilities 4,173 3,157
LONG TERM OBLIGATIONS, less current maturities -- 944
LONG TERM CAPITAL LEASE OBLIGATIONS, less
current maturities -- 179
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock - authorized 13,000,000 shares,
$.0001 par value:
Series A - authorized 5,650,000 shares;
0 and 2,195,000 shares outstanding,
respectively -- --
Series B - authorized 7,000,000 shares;
3,480,000 and 0 shares outstanding,
respectively -- --
Common Stock - authorized 130,000,000 shares,
$.0001 par value, 12,404,071 and 6,239,956
shares outstanding, respectively 1 1
Additional contributed capital 62,566 38,418
Accumulated other comprehensive income 28 28
Accumulated deficit (57,934) (36,460)
-------- --------
4,661 1,987
-------- --------
$ 8,834 $ 6,267
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ --
Expenses
Selling, general and administrative 142 118 368 341
Salaries, payroll taxes and benefits 82 45 388 45
Professional expenses 138 535 869 535
Depreciation and amortization 5 -- 14 --
Write-off of goodwill -- -- 3,047 --
-------- -------- -------- --------
367 698 4,686 921
-------- -------- -------- --------
Operating loss (367) (698) (4,686) (921)
Other income (expense)
Equity in earnings of affiliate 141 -- 141 --
Interest expense (115) -- (364) --
Acquisition costs (2,067) -- (2,067) --
Financing costs (9,902) -- (9,902) --
Other income 60 -- 97 --
-------- -------- -------- --------
Loss from continuing operations
before discontinued operations
and extraordinary item (12,250) (698) (16,781) (921)
Discontinued operations
Loss from operations of discontinued
venue division and subsidiary -- -- -- (339)
Loss from operations of discontinued
race team subsidiary -- (890) -- (3,412)
Loss from operations of discontinued
specialty chemical subsidiary -- (711) (1,111) (2,256)
Loss from sale of discontinued
specialty chemical subsidiary
including operating losses during
phase-out period (622) -- (807) --
Loss from operations of discontinued
automotive parts and accessories
subsidiaries -- (1,288) (1,090) (3,929)
Loss from sale of discontinued
automotive parts and accessories
subsidiaries including provision
for operating losses during
phase-out period of $585 as of
September 30, 1999 -- -- (1,685) --
-------- -------- -------- --------
Loss from discontinued operations (622) (2,889) (4,693) (9,936)
-------- -------- -------- --------
Loss before extraordinary item (12,872) (3,587) (21,474) (10,857)
Extraordinary item
Gain from extinguishment of debt -- -- -- 259
-------- -------- -------- --------
NET LOSS $(12,872) $(3,587) $(21,474) $(10,598)
======== ======== ======== ========
Loss per common share basic and diluted
Loss before discontinued operations
and extraordinary item $ (1.14) $ (0.12) $ (2.14) $ (0.20)
Discontinued operations (0.06) (0.49) (0.60) (2.16)
Extraordinary item -- -- -- 0.06
-------- -------- -------- --------
$ (1.20) $ (0.61) $ (2.74) $ (2.30)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
Automotive Performance Group, Inc. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Nine Months ended
September 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities:
Net loss $(21,474) $(10,598)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 157 1,593
Deferred revenue -- (100)
Forgiveness of debt -- (288)
Equity in losses from affiliates 20 891
Equity in earnings of affiliate - PBT Brands, Inc. (141) --
Provision for losses on discontinued operations 1,159 (40)
Write-off of goodwill 3,047 759
Issuance of common stock for services 251 --
Issuance of warrants for financing costs 9,902 --
Issuance of warrants for acquisition costs 975 --
Issuance of stock options for acquisition costs 824 --
Loss on sale of assets of subsidiary 409 --
Loss (gain) on disposal of assets 43 (35)
Write-off of notes receivable 600 --
Changes in assets and liabilities:
Accounts receivable (261) 194
Inventories 15 68
Prepaid expenses and other assets 203 (224)
Accounts payable 267 724
Accrued liabilities 125 (116)
-------- --------
Net cash used in operating activities (3,879) (7,172)
Cash flows from investing activities:
Purchase of equipment (80) (97)
Investment in acquisitions -- 112
Investment in PBT Brands, Inc. (4,350) --
Investment in subsidiaries (1,194) --
Proceeds from sale of assets of subsidiary 461 --
Proceeds from disposition of equipment 11 1,974
-------- --------
Net cash provided by (used in) investing activities (5,152) 1,989
Cash flows from financing activities:
Payments on long-term obligations (265) (1,259)
Payments on capital leases (61) --
Proceeds from issuance of preferred stock 5,591 2,951
Proceeds from notes payable 2,023 --
Borrowings on line of credit, net 124 998
-------- --------
Net cash provided by financing activities 7,412 2,690
Net decrease in cash (1,619) (2,493)
Cash at beginning of period 1,829 3,511
-------- --------
Cash at end of period $ 210 $ 1,018
======== ========
Cash paid during the period for interest $ 176 $ 255
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The unaudited consolidated condensed financial statements and related notes
are presented as permitted by Form 10-QSB, and do not contain certain
information included in the Company's audited consolidated financial statements
and notes for the fiscal year ended December 31, 1998. The information furnished
reflects, in the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the results of the
interim periods presented. The results of operations for the interim periods are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1999. The accompanying unaudited consolidated condensed
financial statements and related notes should be read in conjunction with the
audited consolidated financial statements and the Form 10-KSB of Automotive
Performance Group, Inc. and subsidiaries (the "Company" or "APG") and notes
thereto, for its fiscal year ended December 31, 1998.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost, on a first-in, first-out
basis, or market and consisted of the following at:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Raw materials $ 203,000
Work in process -
Finished goods 704,000
-----------------
Total Inventories $ 907,000
=================
</TABLE>
Inventories totaling approximately $349,000 at September 30, 1999 are
included in net assets of discontinued automotive parts and accessories
subsidiaries. See note 5.
NOTE 3 - ACQUISITIONS AND MERGERS
Boyds Wheels, Inc. In April 1999, APG acquired 80% of the current
outstanding shares of the common stock of Boyds Wheels, Inc. out of bankruptcy
protection for a total cash purchase price of approximately $1,690,000 in
addition to 200,000 shares of the Company's common stock. The purchase was
accounted for under the purchase method of accounting. The excess of the total
acquisition cost over the fair value of net assets acquired in the amount of
$3,047,000 was written off in the second quarter of 1999 as the expected future
operating discounted cash flows of the acquired business are less than the
carrying value of goodwill. The bankruptcy agreement calls for the company to
invest up to an additional $2,000,000 in Boyds Wheels, Inc.
D'Artagnan Associates, Inc. In April 1999, APG formed a wholly-owned
subsidiary, D'Artagnan Associates, Inc., a Delaware corporation, for the purpose
of merging with a California corporation of the same name controlled by APG's
board chairman and chief executive officer, Dean M. Willard. On July 20, 1999,
the merger was consummated for a purchase price of 1,000,000 shares of
5
<PAGE> 7
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
APG's common stock, plus an additional 1,000,000 shares of APG's common stock
subject to certain restrictions. The Company has currently recorded an asset
estimated to be $1,875,000, which is the amount of the total acquisition cost.
The Company is in the process of obtaining an appraisal of the acquired assets
and will recognize the necessary adjustment upon receipt of the final appraisal.
Zeropaper.com, Inc. - On July 23, 1999, APG formed a wholly-owned
subsidiary, Zeropaper.com, Inc. (ZP), a Delaware corporation, whereby APG
received 1,000 shares of Zeropaper.com, Inc.'s common stock with a par value of
$.01. On July 29, 1999, ZP purchased all the outstanding shares of Klein Engines
and Competition Components, Inc. (Klein) and Automotive Specialty Chemicals
Group (ASCG), whereby ZP received a total of 100 shares of common stock of each.
ZP also purchased all of APG's ownership of Boyds Wheels, Inc., (BWI) consisting
of 102,629,814 shares of BWI's common stock, and ZP purchased all of APG's
ownership of D'Artagnan Associates, Inc. (DAI), consisting of 1,000 shares of
DAI's common stock. ZP also assumes all other past, present, and future
obligations of APG related to APG's motor vehicles parts and accessories and
specialty chemicals businesses, excluding PBT Brands, Inc.
NOTE 4 - INVESTMENT IN PBT BRANDS, INC.
In February 1999, the Company signed a Term Sheet and Option Agreement for
the acquisition of Ampersand Ventures' Advanced Chemistry & Technology, Inc. (AC
Tech) equity and debt. Concurrent with the execution of the Term Sheet and
Option Agreement, the Company made a non-refundable, $1,000,000 option payment
to Ampersand Ventures. Ampersand Ventures then invested this money as an
unsecured, subordinated loan to AC Tech. The Company's chairman and chief
executive officer at the time was also the chairman and chief executive officer
of AC Tech, as well as a minority shareholder of AC Tech. On August 2, 1999, the
Company contributed the Term Sheet and Option Agreement as partial payment on
the purchase of a 22% equity interest in PBT Brands, Inc.
On July 13, 1999 the Company entered into an agreement with the Jordan
Company (TJC) which would allow the Company to acquire a 22% equity ownership
position in PBT Brands, Inc. (PBT), a new company formed to acquire the
Automotive Aftermarket Business of Loctite Corporation (Permatex). Permatex
manufactures, distributes, and markets premium functional chemical products to
the automotive maintenance and repair markets under the Permatex, Right Stuff,
Fast Orange and other brand names. Permatex is majority owned by TJC and
affiliates. To implement this agreement with TJC, several collateral documents
were executed among the various parties involved. These collateral documents
allowed APG to acquire a 22% interest in the common stock of PBT as well as
shares of PBT's preferred stock, and require that options representing
approximately 18.5% of the outstanding common stock of APG as of the closing
date be held by PBT employees. On July 27, 1999, APG formed a wholly-owned
bankruptcy remote subsidiary, APG Special Purpose Sub, Inc., a Delaware
corporation, for the purpose of holding the investment in Permatex.
On August 2, 1999, APG completed its acquisition of 22% of the common stock
of PBT. This acquisition included the purchase of $110,000 in common stock of
PBT plus $3.25 million in series B junior redeemable preferred stock of PBT plus
$990,000 in series D junior redeemable preferred stock of PBT. PBT has the right
to buy back its stock from APG upon the occurrence of a change in control of APG
or a material breach by APG of the agreement between PBT and APG. APG also
acquired the preemptive right to maintain 22% of the equity in PBT's common
stock in the case of any future events that might otherwise dilute APG's
position, such as the sale of additional PBT stock to fund future
6
<PAGE> 8
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
acquisitions by PBT. Consideration included cash, the AC Tech Term Sheet and
Option Agreement discussed above, and certain fees paid in connection with the
acquisition. Additionally, PBT entered into an agreement to purchase 100% of AC
Tech.
Also on August 2, 1999, the Company authorized options for 2,325,000 shares
of APG's common stock to PBT employees to comply with the requirement that
options representing approximately 18.5% of the outstanding common stock of APG
as of the closing date be held by PBT employees. The agreement covering the
ownership by PBT employees of options in the Company obligates the Company to
issue the options under the 1998 Stock Option Plan. The Company subsequently
discovered that it could not issue options to PBT employees under the 1998 Stock
Option Plan because that plan is not available to PBT employees. The Company has
since reached an agreement with the parties concerned to issue the options under
a new option agreement specifically designed for the purpose of issuing the
required options in the Company to PBT employees. This new option agreement
calls for these options to have an exercise price equal to the fair market value
on the date of grant and a term of ten years from the date of grant. On January
12, 2000, options for 1,807,000 shares were granted under the new option
agreement with an exercise price of $0.60 per share.
The Company's investment in PBT is accounted for under the equity method.
As of September 30, 1999, the Company's investment in PBT totaled $4,491,000,
which includes approximately $141,000 of investment income resulting from the
Company's 22% equity interest in PBT. The Company also incurred acquisition
costs of $2,067,000 of which $975,000 was non-cash related to the issuance of
warrants as discussed in note 8, $824,000 was non-cash related to the issuance
of the options mentioned above, and the remaining $268,000 was incurred for
various other expenses.
Summarized unaudited financial information of PBT for the period August 1,
1999 through September 30, 1999 is as follows:
<TABLE>
<S> <C>
Net sales $ 21,529,000
Gross profit $ 9,333,000
Earnings $ 643,000
</TABLE>
NOTE 5 - DISCONTINUED OPERATIONS
During the second quarter of 1999, the Company decided to sell or spin off
substantially all of its operating subsidiaries. Accordingly as of September 30,
1999, these operations were considered discontinued and offered for sale. These
operations are reflected as discontinued operations in the Company's
Consolidated Condensed Statement of Operations for the three and nine months
ended September 30, 1999 and 1998.
Specialty Chemical Subsidiary - In July 1999, the Company completed the
sale of certain operating assets totaling approximately $870,000 of its Royal
Purple Motor Oil subsidiary (RPMO), which marketed and distributed a product
line of high performance synthetic oils and lubricants. The Company recorded a
loss on the sale of assets of $409,000 in addition to $398,000 of operating
losses incurred during the phase-out period. The provision of $185,000 recorded
in the second quarter for operating losses during the phase-out period was
applied to actual losses incurred during the third quarter.
7
<PAGE> 9
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The Company recorded losses from RPMO's operations of $711,000 for the
three months ended September 30, 1998 and $1,111,000 and $2,256,000 for the nine
months ended September 30, 1999 and 1998, respectively, as discontinued
operations. Losses for the three months ended September 30, 1999, are included
in the loss from the sale, as discussed above.
Automotive Parts and Accessories Subsidiaries - The Company has committed
itself to a formal plan of disposal of the Company's automotive parts and
accessories subsidiaries by either sale or abandonment. The Company has
identified net assets totaling approximately $1,885,000 and liabilities totaling
approximately $2,370,000, which includes a provision of $574,000 for estimated
losses on the sale or disposal of the subsidiaries and $585,000 for operating
losses during the phase-out period. For the nine months ended September 30,
1999, the Company has recorded operating losses during the phase-out period
totaling $526,000.
The Company recorded losses from operations of its automotive parts and
accessories subsidiaries of $1,288,000 for the three months ended September 30,
1998 and $1,090,000 and $3,929,000 for the nine months ended September 30, 1999
and 1998, respectively, as discontinued operations. Losses for the three months
ended September 30, 1999, are included in the loss from the sale as discussed
above.
NOTE 6 - LOSS PER COMMON SHARE
The Company accounts for loss per common share under Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," which established
standards for computing and presenting earnings per share. Loss per share is
based on the average number of shares outstanding during each period and income
available to common shareholders. The weighted average number of common shares
outstanding was 10,741,864 and 5,841,906 for the three months ended September
30, 1999 and 1998, respectively and was 7,828,763 and 4,589,314 for the nine
months ended September 30, 1999 and 1998, respectively. The computation for loss
per common share assuming dilution for the three months and for the nine months
ended September 30, 1999 and 1998 was anti-dilutive, and therefore, is not
included.
NOTE 7 - PREFERRED STOCK
During the nine months ended September 30, 1999, the Company issued
2,604,000 shares of series A preferred stock at $2.50 per share to accredited
investors in conjunction with a private placement of 4,000,000 preferred shares.
A total of 540,000 preferred shares had been issued in conjunction with this
placement prior to December 31, 1998. The preferred shares are convertible to
common shares of the Company at the rate of one share of common stock for each
share of preferred stock. On July 28, 1999, all the outstanding shares of the
Company's series A preferred shares were converted to common shares.
In July 1999, APG authorized 7,000,000 shares of series B preferred stock
to be partially issued for the purpose of converting approximately $1.5 million
in debt guaranteed by a majority shareholder of APG for approximately 1,480,000
shares. In addition, the Company converted the $2 million short-term borrowings
from May 1999 to 2,000,000 shares.
8
<PAGE> 10
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 8 - WARRANTS
In conjunction with the borrowings and conversion of $2 million of
short-term notes payable discussed in note 7, the Company issued warrants to
purchase 2,200,000 and 500,000 shares of common stock at an exercise price of
$2.00 and $0.01 per share, respectively. Also in conjunction with the conversion
of the Company's $1.5 million of guaranteed debt, the Company issued warrants to
purchase 500,000 shares of common stock at an exercise price of $0.01 per share.
The Company recognized financing costs of approximately $9,902,000 at the date
the notes and guaranteed debt were converted to preferred stock.
On July 30, 1999, the Company issued warrants to purchase 1,297,578 shares
of common stock at an exercise price of $1.156 per share for services rendered
in conjunction with the PBT acquisition discussed in note 4. The Company
recognized costs of approximately $975,000 for the fair value of the services
received.
NOTE 9 - CONTINGENCIES
The Company is involved in certain claims arising in the normal course of
business. An estimate of the possible loss resulting from these matters cannot
be made; however, with the exception of the subsequently disclosed cases, the
Company believes that the ultimate resolution of these matters will not have a
material effect on its financial position or results of operations.
FUSA, Ltd. (an Ohio limited liability company) has filed suit against
International Motor Sports Group, Inc. (a corporation and wholly-owned
subsidiary of the Company) and Road Atlanta, Ltd. (a corporation doing business
as Panoz Motorsports) on November 19, 1998. This suit is now pending in the U.S.
District Court for the Northern District of Ohio Eastern Division. FUSA alleges
that it contracted with IMSG to hold two events at a venue owned by IMSG that
IMSG sold to Road Atlanta prior to the events. The plaintiff further alleges
that Road Atlanta ratified the FUSA/IMSG contract but then refused to allow FUSA
to conduct the events. The plaintiff seeks $150,000 in damages.
Accurate Air Conditioning, Inc. (an Arizona corporation) has filed suit
against the Company, Thomas G. Klein and Jane Doe Klein, husband and wife, and
Klein Engines & Competition Components, Inc. (a Nevada corporation) on June 17,
1999. This suit is now pending in the Arizona Superior Court, Maricopa County.
Accurate alleges that it sold a building to Klein Engines for cash plus 26,400
shares of Klein Engines common stock and that Tom Klein, personally and as an
officer of Klein Engines, signed a Redemption Agreement guaranteeing to
repurchase the shares for $5 each. The plaintiff seeks $132,000 plus interest,
fees and costs.
Triumph Partners III, L.P. (a Delaware limited liability partnership),
Triumph III Advisors, L.P. (a Delaware limited liability partnership), and
Triumph Advisors, Inc. (a Delaware corporation) have filed suit against the
Company, Mr. Dean M. Willard (Chairman and CEO of both the Company and PBT), PBT
Brands, Inc., and The Jordan Company, LLC (a Delaware limited liability company)
in July 1999 (amended on August 18, 1999). This suit is now pending in the
Massachusetts Superior Court, County of Suffolk. Plaintiffs allege that the
Company entered into an exclusive agreement with Triumph to provide financing in
connection with the acquisition of Permatex and AC Tech. Because these
acquisitions were consummated with other financing (obtained from co-defendant
Jordan), plaintiffs are seeking $442,560.26 expense reimbursement, $120 million
to $160 million lost profits, $2 million or more lost fee
9
<PAGE> 11
Automotive Performance Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
income, not less than $1.2 million as a break-up fee, treble damages, and
reimbursement for legal fees and other expenses. The Company has indemnified Mr.
Willard from all claims in this matter.
Hermitage Capital Corp. (a Delaware corporation) has filed suit against the
Company, KSH Investment Group, Inc. (a Delaware corporation), and Cary W.
Sucoff, Managing Director of KSH on August 19, 1999. This suit is now pending in
the New York Supreme Court. Hermitage alleges that the Company sold its
preferred stock through private placements to accredited investors and used KSH
as its sole placement agent for these sales. Hermitage is a broker dealer who
participated in one of these placements under an agreement whereby Hermitage
received a portion of KSH's fees for bringing investors into the transaction.
These fees were a combination of cash and warrants to purchase additional
shares. A subsequent placement of APG stock was undertaken with KSH again acting
as sole placement agent. An investor brought to the earlier placement by
Hermitage also invested in this subsequent placement. Hermitage is seeking the
warrants it claims to have never received from the first placement. In addition,
Hermitage seeks fees for the later placement based on the additional amount
invested by the party it earlier introduced to APG and KSH. In total, Hermitage
is seeking warrants for 12,500 shares of Series A preferred stock at $2.00 per
share, warrants for an unspecified number of additional shares of Series A
preferred stock at $2.50 per share, cash in the aggregate amount of $915,000 or
more, unspecified additional compensation, punitive damages, fees, and interest.
KSH Investment Group, Inc. has indemnified Automotive Performance Group, Inc.
from all claims in this matter.
While it is too early to provide an evaluation of the above claims at this
time, it is possible that, due to the size of the claims asserted against the
Company, these matters, either individually or taken together, may have a
material adverse effect on the Company's financial position and results of
operations.
10
<PAGE> 12
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. All forward-looking statements are based on information available
to the Company on the date hereof, and the Company assumes no obligation to
update any such forward-looking statements. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including those set forth below.
The following discussion and analysis provides information that
management believes is relevant to an assessment and understanding of APG's
level of operation and financial condition. This discussion should be read with
the financial statements appearing in Part I, Item 1 of this report.
HISTORICAL
Automotive Performance Group, Inc. ("APG" or the "Company") was formed
to be the parent company for high performance automotive- and specialty
chemical-related operating subsidiaries. The objective of the Company was to
develop and successfully market a spectrum of integrated mutually supportive
brands of products and services for the high-performance automotive and
specialty chemicals industries. Specialty chemicals comprise an important part
of the overall automotive market as well as certain non-automotive market
niches.
NEW BUSINESS STRUCTURE
On August 4, 1999, APG announced a multi-faceted restructuring program
following its acquisition of a 22% equity ownership position in PBT Brands, Inc.
(PBT), a new company formed to acquire the Automotive Aftermarket Business of
Loctite Corporation (Permatex). Permatex manufactures, distributes and markets
premium functional chemical products to the automotive maintenance and repair
markets under the Permatex, Right Stuff, Fast Orange and other brand names. As a
result of this restructuring, APG's assets are now primarily made up of its
investment in PBT. APG has the preemptive right to maintain 22% of the equity in
PBT's common stock in the case of any future events that might otherwise dilute
APG's position, such as the sale of additional PBT stock to fund future
acquisitions by PBT. APG continues to seek additional acquisition opportunities
in areas that do not interfere with the business of PBT.
FINANCIAL STATEMENTS
As a result of these restructuring changes, which are explained in more
detail in the notes to the financial statements appearing in Part I, Item 1 of
this report, virtually all of APG's business activities that were extant a year
ago no longer exist as continuing operations. In addition, virtually all of
APG's business activities that will continue on a going-forward basis are new to
the Company. Because of this restructuring, management cautions the reader that
direct comparisons between current and historical statements or analyses may not
be meaningful, and may be misleading. Notes 3, 4 and 5 to the financial
statements provide details regarding these divestitures and acquisitions.
Balance Sheets - The September 1999 assets are comprised primarily of
the Company's investment in PBT (51% of total assets), excess of the total
acquisition cost over the estimated fair value of assets acquired in the
D'Artagnan acquisition (included in the caption "other assets") (21% of total
assets), and the remaining assets of discontinued subsidiaries pending their
disposal (21% of total assets). It is anticipated that the assets of
discontinued subsidiaries will decrease over the next several months, thereby
further increasing the concentration of the Company's assets in PBT and possible
other future investments. The September liabilities are comprised primarily of
the remaining liabilities related to discontinued subsidiaries (27% of total
assets) and accounts payable plus accrued liabilities (primarily for legal and
other professional fees related to the Company's restructuring efforts) (20% of
total assets). Equity represents 53% of total assets at September 30, 1999.
The September amounts have changed from those reported in June
primarily as a result of the business restructuring discussed elsewhere in this
report. In particular, the restricted cash and purchase option were converted to
the PBT investment and the notes payable were converted to equity. Additional
contributed capital
11
<PAGE> 13
increased primarily due to the issuance of warrants in conjunction with
obtaining debt financing and the subsequent conversion of that debt to equity
($9.9 million), the issuance of series B preferred stock in conjunction with the
conversion of debt to equity ($3.5 million), the acquisition of D'Artagnan
Associates, Inc. ($1.9 million), the issuance of warrants in conjunction with
the acquisition of PBT Brands, Inc. ($1.0 million), and the issuance of options
in conjunction with the acquisition of PBT Brands, Inc. ($0.8 million). The
accumulated deficit increased due to the net loss during the September quarter.
Statements of Operations - The operations during the September quarter
reflect a net loss of $12.9 million which is comprised of financing and
acquisition expenses as discussed below (93% of net loss), losses incurred
related to disposal of discontinued subsidiaries (4% of net loss) and the
operating loss before other income/expense (3% of net loss). It is anticipated
that the losses from discontinued subsidiaries will decrease as these business
elements are disposed of. It is expected that the restructuring expenses will
continue at a decreasing rate over the next few quarters as the remaining items
are completed. These items include various legal, accounting, audit, and
securities matters, including various filings with the Securities and Exchange
Commission. The September statement reflects two months of ownership in PBT's
operations, which resulted in $141,000 net income allocable to APG.
Financing expenses of $9,902,000 (77% of net loss) are the value of
common stock warrants issued as inducement to the parties involved to substitute
approximately $3.5 million in debt with an equivalent amount of equity. The
premium price paid for this conversion was due to a number of factors. First,
the Company had no continuing cash inflows that could support the required
payments on the debt. Second, the Company was required to eliminate the debt as
part of its involvement in the acquisition of its interest in PBT Brands, Inc.
Third, no cash or other assets were paid in issuing these warrants. Fourth,
these warrants are for the purchase of common stock that is restricted and
therefore has limited liquidity. Last, although significant efforts were made,
no other more economical source of financing could be found.
Acquisition expenses of $2,067,000 (16% of net loss) were primarily
incurred in connection with the PBT Brands, Inc. acquisition and consist of the
value of common stock warrants granted to one of the Company's advisers on the
PBT Brands, Inc. transaction ($975,000 non-cash), the value of common stock
options authorized for employees of PBT ($824,000 non-cash), and various other
expenses ($268,000).
LIQUIDITY AND CAPITAL RESOURCES
Since completing the restructuring of the business as discussed above,
the Company's assets are made up primarily of its investment in PBT. Although
temporarily the Company will not have any direct operations, it continues to
seek additional acquisition opportunities. Future acquisition activities are
expected to be financed through a combination of earnings from investments,
private placements of stock, and debt.
The Company believes that the existing structure will allow management
to minimize operating expenses, however, the Company does not currently have the
resources to meet all of its short term obligations. The Company is in the
process of selling certain assets that will provide additional working capital.
The Company is also starting to negotiate with its creditors to settle the
amounts outstanding by various methods including long term payment plans and
exchanging debt for equity.
RELATED PARTY TRANSACTIONS
As discussed in the notes to the financial statements, various
acquisitions (including the D'Artagnan acquisition and the AC Tech acquisition)
and debt refinancings involved related parties.
SEASONALITY
While the Company's former operating units were seasonally affected,
the ongoing investments are not expected to be materially affected by seasonal
trends. Divestiture efforts and the amounts finally realized from divestiture
may be adversely affected by the drop in fourth quarter revenues if the
divestiture activities are not completed in a timely manner.
12
<PAGE> 14
FORWARD-LOOKING STATEMENTS
Matters discussed herein contain forward-looking statements. The
Company's actual results may differ significantly from results indicated by
forward-looking statements. Factors that might cause some differences include,
but are not limited to, changes in the public's interest in racing, and shifts
in leisure time pursuit preferences; changes in government regulations affecting
racing, sponsors, customers, the Company, or its subsidiaries; risks generally
involved in the high performance automotive business including, but not limited
to, product liability risk as a result of high performance engines and certain
specialty chemicals which are intended to improve automotive performance,
sometimes in extreme or severe conditions; the ability of the Company to
continue to produce quality products at competitive prices in markets which are
historically intensely competitive; the Company's ability to raise sufficient
debt and equity capital to meet increased operating and acquisition
requirements; the Company's ability to recruit and retain key personnel;
unfavorable results in litigation which the Company is currently involved in, or
may become subject to; the ability to effectively integrate the personnel and
operations of acquired companies; the effect of the Company's investment on the
operations and reputation of Permatex; compliance with hazardous waste disposal
regulations and standards; and the Company's history of operating losses and
limited operating history.
13
<PAGE> 15
PART II.
OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
The Company is involved in certain claims arising in the normal course
of business. An estimate of the possible loss resulting from these matters
cannot be made; however, with the exception of the subsequently disclosed cases,
the Company believes that the ultimate resolution of these matters will not have
a material effect on its financial position or results of operations.
FUSA, Ltd. (an Ohio limited liability company) has filed suit against
International Motor Sports Group, Inc. (a corporation and wholly-owned
subsidiary of the Company) and Road Atlanta, Ltd. (a corporation doing business
as Panoz Motorsports) on November 19, 1998. This suit is now pending in the U.S.
District Court for the Northern District of Ohio Eastern Division. FUSA alleges
that it contracted with IMSG to hold two events at a venue owned by IMSG that
IMSG sold to Road Atlanta prior to the events. The plaintiff further alleges
that Road Atlanta ratified the FUSA/IMSG contract but then refused to allow FUSA
to conduct the events. The plaintiff seeks $150,000 in damages.
Accurate Air Conditioning, Inc. (an Arizona corporation) has filed suit
against the Company, Thomas G. Klein and Jane Doe Klein, husband and wife, and
Klein Engines & Competition Components, Inc. (a Nevada corporation) on June 17,
1999. This suit is now pending in the Arizona Superior Court, Maricopa County.
Accurate alleges that it sold a building to Klein Engines for cash plus 26,400
shares of Klein Engines common stock and that Tom Klein, personally and as an
officer of Klein Engines, signed a Redemption Agreement guaranteeing to
repurchase the shares for $5 each. The plaintiff seeks $132,000 plus interest,
fees and costs.
Triumph Partners III, L.P. (a Delaware limited liability partnership),
Triumph III Advisors, L.P. (a Delaware limited liability partnership), and
Triumph Advisors, Inc. (a Delaware corporation) have filed suit against the
Company, Mr. Dean M. Willard (Chairman and CEO of both the Company and PBT), PBT
Brands, Inc., and The Jordan Company, LLC (a Delaware limited liability company)
in July 1999 (amended on August 18, 1999). This suit is now pending in the
Massachusetts Superior Court, County of Suffolk. Plaintiffs allege that the
Company entered into an exclusive agreement with Triumph to provide financing in
connection with the acquisition of Permatex and AC Tech. Because these
acquisitions were consummated with other financing (obtained from co-defendant
Jordan), plaintiffs are seeking $442,560.26 expense reimbursement, $120 million
to $160 million lost profits, $2 million or more lost fee income, not less than
$1.2 million as a break-up fee, treble damages, and reimbursement for legal fees
and other expenses. The Company has indemnified Mr.
Willard from all claims in this matter.
Hermitage Capital Corp. (a Delaware corporation) has filed suit against
the Company, KSH Investment Group, Inc. (a Delaware corporation), and Cary W.
Sucoff, Managing Director of KSH on August 19, 1999. This suit is now pending in
the New York Supreme Court. Hermitage alleges that the Company sold its
preferred stock through private placements to accredited investors and used KSH
as its sole placement agent for these sales. Hermitage is a broker dealer who
participated in one of these placements under an agreement whereby Hermitage
received a portion of KSH's fees for bringing investors into the transaction.
These fees were a combination of cash and warrants to purchase additional
shares. A subsequent placement of APG stock was undertaken with KSH again acting
as sole placement agent. An investor brought to the earlier placement by
Hermitage also invested in this subsequent placement. Hermitage is seeking the
warrants it claims to have never received from the first placement. In addition,
Hermitage seeks fees for the later placement based on the additional amount
invested by the party it earlier introduced to APG and KSH. In total, Hermitage
is seeking warrants for 12,500 shares of Series A preferred stock at $2.00 per
share, warrants for an unspecified number of additional shares of Series A
preferred stock at $2.50 per share, cash in the aggregate amount of $915,000 or
more, unspecified additional compensation, punitive damages, fees, and interest.
KSH Investment Group, Inc. has indemnified Automotive Performance Group, Inc.
from all claims in this matter.
While it is too early to provide an evaluation of the above claims at
this time, it is possible that, due to the size of the claims asserted against
the Company, these matters, either individually or taken together, may
14
<PAGE> 16
have a material adverse effect on the Company's financial position and results
of operations.
ITEM 2. - CHANGES IN SECURITIES
Common Stock - During the second quarter of 1999, 200,000 shares of
common stock were issued in conjunction with the Boyds acquisition, and an
additional 15,115 shares were issued for services rendered at fair value.
On July 20, 1999, the Company issued 2,000,000 common shares to Dean M.
and Rebecca J. Willard in conjunction with the D'Artagnan acquisition. 1,000,000
of these shares are being held by an independent trust company and will be
released to the Willards if certain performance milestones are reached.
On July 28, 1999, the Company issued 4,799,000 shares of common stock
to the holders of the Company's outstanding series A preferred stock on a
one-to-one basis to effect the conversion of all the outstanding series A
preferred stock to common stock.
As of July 30, 1999, the Company issued 150,000 shares of common stock
to a broker as compensation for services rendered at fair value in connection
with the PBT acquisition.
The Company relied upon the exemptions provided by Section 4 of the
Securities Act and Regulation D promulgated thereunder in not registering any of
these shares.
Preferred Stock, Series A - During the first quarter of 1999, the
Company sold 2,574,000 shares of series A preferred stock at $2.50 per share,
raising approximately $6,400,000 gross proceeds. Net proceeds to the Company for
this period were $5,600,000.
During the second quarter of 1999, 30,000 shares of series A preferred
stock were issued to the underwriter, KSH Investment Group, Inc., as a placement
fee.
The Company relied upon the exemptions provided by Section 4 of the
Securities Act and Regulation D promulgated thereunder in not registering any of
these shares.
During the third quarter, all 4,799,000 outstanding shares of the
Company's existing series A preferred stock were converted to common stock on a
one-to-one basis, as mentioned above.
Preferred Stock, Series B - On July 29, 1999, the Company created a new
series of preferred stock, series B, with a par value of $0.0001 and a stated
value of $1.00. These shares provide for a cumulative dividend of 13%, paid in
additional series B shares, and are convertible to common stock in a ratio of
one share of common stock for each two shares of series B preferred stock. In
addition, holders of series B shares are entitled to vote on all stockholder
matters, except for the election of directors, as if the series B shares had
been converted to common stock. There are restrictions on the payment of
dividends, and the redemption or retirement of common stock, warrants, or
options as long as any series B shares are outstanding. In addition, no series A
preferred stock can be issued without the consent of the series B shareholders.
Series B preferred stock is redeemable by the Company at stated value after four
years from the date of issuance. 7,000,000 shares of series B preferred stock
were authorized.
3,480,000 shares have been issued to convert $3,480,000 in debt
obtained from unrelated parties to equity. On July 20, 2,000,000 shares were
issued to the original lender of $2,000,000 of debt. The other 1,480,000 shares
were issued on July 22 to a major shareholder of the Company who had guaranteed
the original $1,480,000 in loans and who paid off those loans in exchange for
the 1,480,000 shares. In addition to the issuance of these shares, warrants were
also issued as discussed below. The Company relied upon the exemptions provided
by Section 4 of the Securities Act and Regulation D promulgated thereunder in
not registering any of these shares.
15
<PAGE> 17
Warrants - In connection with the short-term borrowing of $2,000,000
from unrelated parties in the second quarter, the Company issued warrants for
2,200,000 shares of common stock with an exercise price of $2.00 per share.
These warrants expire on May 20, 2004. When those loans were converted to series
B preferred stock on July 20, warrants for an additional 500,000 shares of
common stock were issued to the original lenders, with an exercise price of
$0.01 per share and an expiration date of July 20, 2004.
On July 22, the Company issued warrants for 500,000 shares of common
stock in connection with the conversion of the Company's $1,480,000 in unsecured
short-term loans to series B preferred stock. These warrants have an exercise
price of $0.01 per share and an expiration date of July 22, 2004. These warrants
were issued to a major shareholder of the Company who guaranteed the original
loans.
On July 30, the Company issued warrants for 1,297,578 shares of common
stock to a broker as partial payment for services rendered in connection with
the PBT acquisition. These warrants have an exercise price of $1.156 per share
and an expiration date of July 20, 2004.
The Company relied upon the exemptions provided by Section 4 of the
Securities Act and Regulation D promulgated thereunder in not registering any of
these warrants.
Options - On August 2, the Company authorized options for 2,325,000
shares of common stock to PBT employees in connection with the PBT acquisition.
When granted, these options will have an exercise price equal to the fair market
value on the date of grant and will have a term of ten years from the date of
grant. These options will be fully vested on the date of grant but will not be
exercisable until the shares into which these options may be exercised have been
registered with the Securities and Exchange Commission. The Company has
committed to applying for that registration not later than five years after the
date of grant. The Company will rely upon the exemptions provided by Section 4
of the Securities Act and Regulation D promulgated thereunder in not registering
any of these options.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. - OTHER INFORMATION
The Company entered into letters of intent during the first quarter of
1999 to acquire Advanced Chemistry & Technology, Inc. and Permatex. These
companies fall within the Company's acquisition strategy, which is focused on
two primary market areas: specialty chemicals for aerospace and automotive
applications. These acquisitions were completed in the third quarter of 1999 as
described in note 4 to the financial statements and discussed in the paragraph
titled "New Business Structure" in Part I, Item 2, above.
During the second quarter of 1999, James Dunn, who was APG's Chief
Operating Officer, resigned from his position in the Company. In addition,
Jennifer Burns and Joe Marenda resigned as officers. The Company has no plans to
fill those positions. During the third quarter, Mr. Carl Walker resigned as
Chief Financial Officer and was succeeded by Mr. George Barraza. Mr. Walker
retained his position as Secretary. The Board of Directors is comprised of Dean
M. Willard, Chairman and Chief Executive Officer; George Barraza, Chief
Financial Officer; Carl Walker, Secretary; and Thomas Carmody.
16
<PAGE> 18
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 APG-IMSG Plan of Merger (2)
2.2 APG Subscription Agreement, dated as of July 30, 1999, by and among the
Company and PBT Brands, Inc. Pursuant to Item 601(b)(2) of Regulation
S-K, the Company agrees to furnish supplementally a copy of any
schedule or similar attachment to the Commission upon request.
2.3 Agreement and Plan of Merger dated as of May 1, 1999, by and among
D'Artagnan Associates, Inc. (a Delaware corporation), the Company,
D'Artagnan Associates, Inc. (a California corporation) and the
shareholders of D'Artagnan
2.4 Amendment, dated as of May 1, 1999, to the Agreement and Plan of Merger
filed as Exhibit 2.3
3.1 Certificate of Incorporation of APG (4)
3.2 Certificate of Amendment to Certificate of Incorporation (4)
3.3 Bylaws of Registrant (4)
4.1 Certificate of Designation with respect to Series A Preferred Stock of
APG (3)(*4)
4.2 Certificate of Designation with respect to Series B Preferred Stock of
APG
10.1 Loan and Options Agreement dated as of September 16, 1997, among
International Motor Sports Group, Inc., Andrew L. Evans, Klein Engines
& Competition Components, Inc., and Thomas G. Klein (1)(*10.1)
10.2 Form of Promissory Note to International Motor Sports Group, Inc.
(1)(*10.2)
10.3 Registration Rights Agreement dated as of , 1998, between
Klein Engines & Competition Components, Inc. and Thomas G. Klein
(1)(*10.3)
10.4 Deed of Trust dated November 29, 1996 between Klein Engineered
Competition Components, Inc. and Bank of Arizona (1)(*10.4)
10.5 Note dated November 29, 1996 from Klein Engineered Competition
Components, Inc., as borrower, to Bank of Arizona as lender (1)(*10.5)
10.6 Commercial Security Agreement dated November 29, 1996 between Klein
Engineered Competition Components, Inc. and Bank of Arizona (1)(*10.6)
10.7 Guaranty of Thomas G. Klein dated November 29, 1996 (1)(*10.7)
10.8 Deed of Trust dated June 30, 1997 between Klein Engines & Competition
Components, Inc. and Century Bank (1)(*10.8)
10.9 Promissory Note dated June 30, 1997, from Klein Engines & Competition
Components, Inc., as borrower, to Century Bank, as lender (1)(*10.9)
10.10 Business Loan Agreement dated June 30, 1997 between Klein Engines &
Competition Components, Inc., and Century Bank (1)(*10.10)
10.11 Commercial Guaranty of Thomas G. Klein dated June 30, 1997 (1)(*10.11)
10.12 License Agreement date July 29, 1997, between Fueling Advanced
Technologies, Inc. and Klein Engines & Competition Components, Inc.
(1)(*10.12)
10.13 $500,000 Loan Agreement for Royal Purple Motor Oil, Inc. with Keybank
dated June 15, 1998, and maturing December 15, 1998 (3)(*10)
10.14 $1,000,000 Loan Agreement for Automotive Specialty Chemicals Group,
Inc. (formerly International Motor Sports Group, Inc.) with First
Capital Bank of Arizona dated November 4, 1998 (5)(*10.14)
10.15 $1,000,000 Loan Agreement for Automotive Specialty Chemicals Group,
Inc. (formerly International Motor Sports Group, Inc.) with First
Capital Bank of Arizona dated May 3, 1999 (7)(*10.2)
10.16 $719,733 Commercial Installment Note for Team Scandia with National
City Bank of Indiana dated November 19, 1998 (5)(*10.15)
10.17 Boyds Agreement (5)(*10.16)
10.18 Agreement to acquire Ampersand's investment interest in AC Tech.
(7)(*10.1)
10.19 1998 Stock Option Plan as amended May 22, 1998 (6)
10.20 APG Agreement among the Company, PBT Brands, Inc., and the APG Parties
Named Herein (This exhibit is also referred to as Document "M" on page
3 of Exhibit 2.2.) Pursuant to Item 601(b)(2) of Regulation S-K, the
Company agrees to furnish supplementally a copy of any schedule or
similar attachment to the Commission upon request.
10.21 Employment and Non-Interference Agreement, dated as of July 30, 1999,
by and between Dean Willard and PBT Brands, Inc. (a Delaware
corporation) (This exhibit is also referred to as Document "P" on page
4 of Exhibit 2.2.)
17
<PAGE> 19
27.1 Financial Data Schedule
- ----------------------------------
(*) Exhibit Number of this document in original filing.
(1) Incorporated by reference to the Registration Statement on Form
10-SB filed by Klein Engines & Competition Components, Inc.
(predecessor to APG) on February 2, 1998.
(2) Incorporated by reference to the Current Report on Form 8-K/A
filed on July 1, 1998.
(3) Incorporated by reference to the Quarterly Report on Form 10-QSB
filed for the quarter ended June 30, 1998.
(4) Incorporated by reference to the Registration Statement on Form
SB-2 filed on December 16, 1998.
(5) Incorporated by reference to the Annual Report on Form 10-KSB for
the year ended December 31, 1998.
(6) Incorporated by reference to Appendix A of the Definitive
Information Statement on Form 14C filed on February 26, 1999.
(7) Incorporated by reference to the Quarterly Report on Form 10-QSB
filed for the quarter ended March 31, 1999.
(b) Reports on Form 8-K
On August 16, 1999, the Company filed a Current Report on Form 8-K.
This report disclosed the purchase of a 22% ownership position in PBT Brands,
Inc. ("PBT") on August 2, 1999. This acquisition included the purchase of
$110,000 in common stock of PBT plus $3.25 million in series B junior redeemable
preferred stock of PBT plus $990,000 in series D junior redeemable preferred
stock of PBT and the preemptive right to maintain 22% of the equity in PBT's
common stock in the case of any future events that might otherwise dilute APG's
position, such as the sale of additional PBT stock to fund future acquisitions
by PBT. That Form 8-K indicated that the financial statements and pro forma
financial information required to be filed as part of that Form 8-K were not
available by August 16 and that those documents would be filed by an amendment
to that Form 8-K. The Company has not received all of the required documents to
date and will file the amendment when it receives all required materials.
18
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AUTOMOTIVE PERFORMANCE GROUP, INC.
January 17, 2000 /s/ DEAN M. WILLARD
Dean M. Willard
Chairman of the Board and
Chief Executive Officer
January 17, 2000 /s/ GEORGE BARRAZA
George Barraza
Chief Financial Officer
19
<PAGE> 21
INDEX TO EXHIBITS
2.1 APG-IMSG Plan of Merger (2)
2.2 APG Subscription Agreement, dated as of July 30, 1999, by and among the
Company and PBT Brands, Inc. Pursuant to Item 601(b)(2) of Regulation
S-K, the Company agrees to furnish supplementally a copy of any
schedule or similar attachment to the Commission upon request.
2.3 Agreement and Plan of Merger dated as of May 1, 1999, by and among
D'Artagnan Associates, Inc. (a Delaware corporation), the Company,
D'Artagnan Associates, Inc. (a California corporation) and the
shareholders of D'Artagnan
2.4 Amendment, dated as of May 1, 1999, to the Agreement and Plan of Merger
filed as Exhibit 2.3
3.1 Certificate of Incorporation of APG (4)
3.2 Certificate of Amendment to Certificate of Incorporation (4)
3.3 Bylaws of Registrant (4)
4.1 Certificate of Designation with respect to Series A Preferred Stock of
APG (3)(*4)
4.2 Certificate of Designation with respect to Series B Preferred Stock of
APG
10.1 Loan and Options Agreement dated as of September 16, 1997, among
International Motor Sports Group, Inc., Andrew L. Evans, Klein Engines
& Competition Components, Inc., and Thomas G. Klein (1)(*10.1)
10.2 Form of Promissory Note to International Motor Sports Group, Inc.
(1)(*10.2)
10.3 Registration Rights Agreement dated as of , 1998, between
Klein Engines & Competition Components, Inc. and Thomas G. Klein
(1)(*10.3)
10.4 Deed of Trust dated November 29, 1996 between Klein Engineered
Competition Components, Inc. and Bank of Arizona (1)(*10.4)
10.5 Note dated November 29, 1996 from Klein Engineered Competition
Components, Inc., as borrower, to Bank of Arizona as lender (1)(*10.5)
10.6 Commercial Security Agreement dated November 29, 1996 between Klein
Engineered Competition Components, Inc. and Bank of Arizona (1)(*10.6)
10.7 Guaranty of Thomas G. Klein dated November 29, 1996 (1)(*10.7)
10.8 Deed of Trust dated June 30, 1997 between Klein Engines & Competition
Components, Inc. and Century Bank (1)(*10.8)
10.9 Promissory Note dated June 30, 1997, from Klein Engines & Competition
Components, Inc., as borrower, to Century Bank, as lender (1)(*10.9)
10.10 Business Loan Agreement dated June 30, 1997 between Klein Engines &
Competition Components, Inc., and Century Bank (1)(*10.10)
10.11 Commercial Guaranty of Thomas G. Klein dated June 30, 1997 (1)(*10.11)
10.12 License Agreement date July 29, 1997, between Fueling Advanced
Technologies, Inc. and Klein Engines & Competition Components, Inc.
(1)(*10.12)
10.13 $500,000 Loan Agreement for Royal Purple Motor Oil, Inc. with Keybank
dated June 15, 1998, and maturing December 15, 1998 (3)(*10)
10.14 $1,000,000 Loan Agreement for Automotive Specialty Chemicals Group,
Inc. (formerly International Motor Sports Group, Inc.) with First
Capital Bank of Arizona dated November 4, 1998 (5)(*10.14)
10.15 $1,000,000 Loan Agreement for Automotive Specialty Chemicals Group,
Inc. (formerly International Motor Sports Group, Inc.) with First
Capital Bank of Arizona dated May 3, 1999 (7)(*10.2)
10.16 $719,733 Commercial Installment Note for Team Scandia with National
City Bank of Indiana dated November 19, 1998 (5)(*10.15)
10.17 Boyds Agreement (5)(*10.16)
10.18 Agreement to acquire Ampersand's investment interest in AC Tech.
(7)(*10.1)
10.19 1998 Stock Option Plan as amended May 22, 1998 (6)
10.20 APG Agreement among the Company, PBT Brands, Inc., and the APG Parties
Named Herein (This exhibit is also referred to as Document "M" on page
3 of Exhibit 2.2.) Pursuant to Item 601(b)(2) of Regulation S-K, the
Company agrees to furnish supplementally a copy of any schedule or
similar attachment to the Commission upon request.
10.21 Employment and Non-Interference Agreement, dated as of July 30, 1999,
by and between Dean Willard and PBT Brands, Inc. (a Delaware
corporation) (This exhibit is also referred to as Document "P" on page
4 of Exhibit 2.2.)
<PAGE> 22
27.1 Financial Data Schedule
- ----------------------------------
(*) Exhibit Number of this document in original filing.
(1) Incorporated by reference to the Registration Statement on Form
10-SB filed by Klein Engines & Competition Components, Inc.
(predecessor to APG) on February 2, 1998.
(2) Incorporated by reference to the Current Report on Form 8-K/A
filed on July 1, 1998.
(3) Incorporated by reference to the Quarterly Report on Form 10-QSB
filed for the quarter ended June 30, 1998.
(4) Incorporated by reference to the Registration Statement on Form
SB-2 filed on December 16, 1998.
(5) Incorporated by reference to the Annual Report on Form 10-KSB for
the year ended December 31, 1998.
(6) Incorporated by reference to Appendix A of the Definitive
Information Statement on Form 14C filed on February 26, 1999.
(7) Incorporated by reference to the Quarterly Report on Form 10-QSB
filed for the quarter ended March 31, 1999.
<PAGE> 1
PBT BRANDS, INC.
APG SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT, dated July 30, 1999 (herein called this
"Agreement"), is made by and among PBT BRANDS, INC., a Delaware corporation
(herein called the "Company") whose address is c/o The Jordan Company, 767 Fifth
Avenue, 48th Floor, New York, New York 10153, APG Special Purpose Subsidiary,
Inc., a Delaware corporation ("APG Sub") and Automotive Performance Group, Inc.
a Delaware corporation ("APG Parent", and together with APG Sub, "APG").
1. Stock Subscriptions.
(a) APG Sub herewith subscribes for shares of the Company's
Common Stock, $0.01 par value (the "Common Stock,") as set forth on Schedule I
hereto, for a purchase price of $1.00 per share ("Original Common Cost") and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged.
(b) APG Sub herewith subscribes for shares of the Company's
Series B Junior Redeemable Preferred Stock, $0.01 par value (the "Series B
Junior Preferred Stock") as set forth on Schedule I hereto, for a purchase price
of $1,000 per share ("Original Series B Preferred Cost") and other good and
valuable consideration, the sufficiency of which is hereby acknowledged.
(c) APG Sub herewith subscribes for shares of the Company's
Series D Junior Redeemable Preferred Stock, $0.01 par value (the "Series D
Preferred Stock and, together with the Common Stock and the Series B Junior
Preferred Stock, the "Stock") as set forth on Schedule I hereto, for a purchase
price of $1,000 per share ("Original Series D Preferred Cost and together with
the Original Series B Preferred Cost, the "Preferred Cost") and other good and
valuable consideration, the sufficiency of which is hereby acknowledged.
(d) APG acknowledges to the Company and the other stockholders
of the Company that APG understands and agrees, as follows:
THE STOCK HAS NOT BEEN REGISTERED UNDER FEDERAL OR STATE
SECURITIES LAWS. THE STOCK IS VERY SPECULATIVE AND RISKY. THERE IS NO PUBLIC OR
OTHER MARKET FOR THE STOCK NOR IS ANY LIKELY TO DEVELOP. THE COMPANY HAS A
LIMITED FINANCIAL HISTORY AND THE COMPANY HAS BORROWED SUBSTANTIALLY ALL OF THE
FUNDS AVAILABLE TO IT TO OPERATE ITS BUSINESS. APG ACKNOWLEDGES THAT APG MAY AND
CAN AFFORD TO LOSE
<PAGE> 2
ITS ENTIRE INVESTMENT AND THAT APG UNDERSTANDS THAT IT MAY HAVE TO HOLD THIS
INVESTMENT INDEFINITELY.
(e) The Company covenants that upon issuance the Common Stock
subscribed for by APG Sub shall aggregate $110,000 in aggregate subscription and
purchase price.
(f) The Company covenants that upon issuance, the Series B
Junior Preferred Stock subscribed for by APG Sub shall aggregate $3,250,000 in
aggregate subscription and purchase price.
(g) The Company covenants that upon issuance, the Series D
Junior Preferred Stock subscribed for by APG Sub shall aggregate $990,000 in
aggregate subscription and purchase price.
(h) Each certificate evidencing Stock being issued pursuant to
this Agreement shall bear legends reflecting (i) this Agreement's existence, and
(ii) the fact that said Stock has not been registered under Federal or state
securities laws and is subject to limitations on transfer set forth herein and
in the Stockholders Agreement (as defined in Section 2(b)). APG acknowledges
that the effect of these legends, among other things, is or may be to limit or
destroy the value of the certificate for purposes of sale or for use as loan
collateral. APG consents that "stop transfer" instructions may be noted against
the Stock sold hereunder. APG acknowledges that it is required to become a party
to the Stockholders Agreement as a condition to APG Sub purchasing the Stock
hereunder.
2. Proposed Transactions.
(a) This Agreement summarizes certain pertinent documents as
well as applicable laws and regulations. While the Company believes that these
summaries fairly reflect and summarize such matters, APG acknowledges that such
summaries are not complete and are qualified by reference to the complete texts
thereof of the documents, laws and regulations so summarized.
(b) APG acknowledges to the Company and the other stockholders
of the Company that it has received or has had ample opportunity to review and
understand the current form of each of the following documents:
A. The Amended and Restated Certificate of Incorporation of the
Company which describes the securities of the Company;
B. The Amended and Restated By-laws of the Company;
C. The Asset Purchase Agreement (the "Asset Purchase Agreement"),
dated as of the date hereof, by and between Permatex, Inc.
("Permatex") and Loctite Corp. ("Loctite"), including all
exhibits and schedules thereto;
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<PAGE> 3
D. The Stock Purchase Agreement (the "Stock Purchase Agreement"),
dated as of the date hereof, by and between Permatex
Acquisition Corp. ("PAC") and Advanced Chemistry and
Technology, Inc. ("AC Tech"), including all exhibits and
schedules thereto;
E. The Revolving Credit and Term Loan Agreement, dated as of the
date hereof, between PAC, certain lenders and BankBoston N.A.
("BankBoston"), as Agent for itself and the other lenders
thereunder, including all exhibits and schedules thereto, as
amended or modified from time to time (the "Credit
Agreement");
F. The Stockholders Agreement, dated as of the date hereof, among
the Company and the stockholders named therein, including all
exhibits and schedules thereto (the "Stockholders Agreement");
G. The Purchase Agreement, dated as of the date hereof, between
the Company and JZ Equity Partners, PLC, including all
exhibits and schedules thereto (the "Securities Purchase
Agreement");
H. The Securities Purchase Agreement, dated as of the date
hereof, by and between PAC and BankBoston, including all
exhibits and schedules thereto (the "Mezzanine Purchase
Agreement");
I. The Jordan Investors Subscription Agreement, dated as of the
date hereof, among the Company and the investors named
therein, including all exhibit and schedules thereto (the
"Jordan Investors Subscription Agreement");
J. The Form of Management Subscription Agreement dated as of the
date hereof, by and among the Company and the stockholders
named therein, including all exhibits and schedules thereto
(the "Management Subscription Agreement");
K. The Subscription Agreement, dated as of the date hereof, by
and among the Company and FSC Corp. ("FSC"), including all
exhibits and schedules thereto (the "FSC Subscription
Agreement");
L. The Subscription Agreement, dated as of the date hereof, by
and between the Company and certain stockholders of AC Tech,
including all exhibits and schedules thereto (the "AC Tech
Investors Subscription Agreement");
M. The Agreement, dated as of the date hereof, by and among APG
Sub, APG Parent, the APG Investors and the Company, including
all exhibits and schedules hereto (the "APG Agreement");
N. The Management Consulting Agreement, dated as of the date
hereof, by and between the Company, Permatex Acquisition
Corp., Permatex, Inc. and TJC
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<PAGE> 4
Management Corp., including all exhibits and schedules thereto
(the "TJC Management Consulting Agreement");
O. The Transaction Advisory Agreement, dated as of the date
hereof, by and between the Company, Permatex Acquisition
Corp., Permatex, Inc. and TJC Management Corp., including all
exhibits and schedules thereto (the "TJC Transaction Advisory
Agreement");
P. The Employment Agreement, dated as of the date hereof, by and
between the Company and Dean Willard, including all exhibits
and certain schedules thereto (the "Employment Agreement");
and
Q. This Agreement and all exhibits and schedules hereto.
The documents referred to in A through Q are hereinafter collectively
referred to as the "Operative Documents" except that, for purposes of Section
8(f), this Agreement will not be considered an Operative Document.
The Company has afforded APG and its advisors, if any, the
opportunity to discuss an investment in the Stock and to ask questions of
representatives of the Company concerning the terms and conditions of the
offering of the Stock and the Operative Documents, and such representatives have
provided answers to all such questions concerning the offering of the Stock and
the Operative Documents. APG has consulted its own financial, tax, accounting
and legal advisors, if any, as to its investment in the Stock and the
consequences thereof and risks associated therewith and the Operative Documents.
Each of APG and its advisors, if any, have examined or have had the opportunity
to examine before the date hereof the Operative Documents and all information
that the advisor or APG deems to be material to an understanding of the Company,
the proposed business of the Company, and the offering of the Stock. APG also
acknowledges that there have been no general or public solicitations or
advertisements or other broadly disseminated disclosures (including, without
limitation, any advertisement, article, notice or other communication published
in any newspaper, magazine or similar media or broadcast over television or
radio, or any seminar or meeting whose attendees have been invited by any
general solicitation or advertising) by or on behalf of the Company regarding an
investment in the Stock.
3. Stockholder Representations and Warranties.
(a) APG represents to the Company and the other stockholders
of the Company that it is a sophisticated, experienced and professional
investor.
(b) APG represents that it has had an opportunity to select
and consult with such attorneys, business consultants and any other person(s)
APG wished to confer with since the time when the proposed transaction and APG
participation was first discussed with APG. APG acknowledges that the Company
has made available to APG prior to the signing of this
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<PAGE> 5
Agreement and sale of any Stock hereunder, the opportunity to ask questions of
any person authorized to act on behalf of the Company concerning any aspect of
the investment and to obtain any additional information, to the extent the
Company possesses such information or can acquire it without unreasonable effort
or expense, necessary to verify the accuracy of the information.
(c) Except as permitted under the Stockholders Agreement, APG
agrees that it will not directly or indirectly in one or a series of related
transactions transfer any Stock.
(d) APG represents to the Company and the other stockholders
of the Company that it knows and understands and has given full consideration to
and has had the opportunity to ask questions of any person authorized to act on
behalf of the Company concerning any aspect of the transactions with affiliates
being consummated by the Company in connection with the TJC Management
Consulting Agreement, the TJC Transaction Advisory Agreement, the APG Agreement
(including the APG stock option and restricted stock arrangements described
therein), the Employment Agreement and the Management Subscription Agreement,
including all agreements, obligations, covenants and arrangements contained
therein or contemplated thereby, including all exhibits and schedules thereto
(collectively, the "Affiliate Transaction Agreements").
4. Risk Factors.
(a) APG acknowledges to the Company and the other stockholders
of the Company that APG knows and understands that the Subsidiaries are the
Company's only material assets and that the Company borrowed a substantial
portion of the funds used to effect the purchase of the Subsidiaries. It is
unlikely that dividends will be paid on the Stock. There is no legal requirement
or promise made by the Company to declare or pay such dividends and such
dividends may not in any event be paid if such payment would violate any term of
the Operative Documents. Certain of the Operative Documents severely restrict
the ability of the Company to make any dividend or redemption payments in any
case and such payment may be restricted by future agreements or instruments
binding on the Company. Such dividends and redemption payments may be made,
subject to the Company's loan agreements, only from funds available for such use
as provided by applicable law.
(b) APG acknowledges to the Company and the other stockholders
of the Company that it knows and understands that an investment in the Stock of
the Company is a speculative investment which involves a high risk of loss and
that on and after the date hereof, there will be no public market for the Stock
and the Company does not contemplate that a public market will develop.
(c) APG acknowledges to the Company and the other stockholders
of the Company that it knows and understands and has given full consideration to
and has had the opportunity to ask questions of any person authorized to act on
behalf of the Company
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<PAGE> 6
concerning any aspect of the transactions with affiliates being consummated by
the Company in connection with the Affiliate Transaction Agreements.
(d) APG acknowledges to the Company and the other stockholders
of the Company that it knows and understands, and has given full consideration
to, the benefits and risks to APG of its investment in the Company, including,
without limitation, the payments , reimbursements, indemnities and releases in
the APG Agreement, and the repurchase provisions contained in Section 8 of this
Agreement.
5. Securities Law Matters.
(a) APG represents and warrants to the Company and the other
stockholders of the Company that APG used no "purchaser's representative" (as
that term is used in Regulation D as promulgated by the Securities and Exchange
Commission) in connection with this transaction. APG represents and warrants to
the Company and the other stockholders of the Company that neither The Jordan
Company nor any of its employees or affiliates has acted as a representative of
APG in the subject transaction. APG represents that it has substantial knowledge
and experience in financial, investment and business matters, and specifically
in the business of the Company, and has the requisite knowledge and experience
to evaluate the risks and merits of this investment. APG represents and warrants
that the decision of APG to purchase the Stock hereunder has been made by APG
independent of any other stockholder of the Company and independent of any
statements, disclosures or judgments as to the properties, business, prospects
or condition (financial or otherwise) of the Company which may have been made or
given by any Stockholder of the Company or other person. APG represents and
warrants to the Company and the other Stockholders of the Company that APG can
and will bear the economic risks of its investment in the Company and
acknowledges that it is able to hold the Company's unregistered Stock
indefinitely and is able to sustain a complete loss if the stock becomes
worthless.
(b) APG acknowledges to the Company and the other stockholders
of the Company that the Stock being purchased hereunder has not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), on the
ground that the sales of Common Stock pursuant to this Agreement are exempt
under Section 4(2) of the Securities Act as not constituting a distribution, and
that the Company's reliance on such exemption is predicated in part on APG's
representation which APG herewith makes that the Stock has been acquired solely
by and for the account of APG for investment purposes only, and is not being
purchased for subdivision, fractionalization, resale or distribution. APG has no
contract, undertaking, agreement or arrangement with any other stockholder to
sell, transfer or pledge to such other stockholder or anyone else the Stock (or
any part thereof) which APG has purchased hereunder. APG has no present plans or
intentions to enter into any such contract, undertaking, agreement or
arrangement. The Stock has not been registered or qualified for resale under
applicable securities laws, and may not be sold except pursuant to such
registration or qualification thereunder or an exemption therefrom. APG has
adequate means of providing for APG's current needs and possible contingencies
and has a net worth equal to at least three times its
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<PAGE> 7
investment in the Stock. APG further acknowledges to the Company that the Stock
being sold to APG must be held indefinitely unless it is subsequently registered
under the Securities Act or a transfer is made pursuant to an exemption from
such registration, for example, pursuant to Rule 144. APG further represents and
warrants to the Company and the other stockholders of the Company that its
financial condition is such that APG is not under any present necessity or
constraint, and does not foresee in the future any necessity or constraint, to
dispose of these shares to satisfy any existing or contemplated debt or
undertaking.
(c) In the event that in the future the Company engages in any
negotiation or transaction (including a merger or consolidation or other
reorganization by or of the Company) in which Regulation D promulgated by the
SEC may or will be available to the Company, APG, in the event it is not then a
professional investor, agrees irrevocably (and with the knowledge and intention
that the other holders of the Company's stock of all classes will rely thereon
in making their respective present investment decisions) that APG will, within 5
business days of notice from the Company, which may be given in the sole
discretion of the Company, appoint a purchaser's representative or
representatives who shall be qualified and acceptable to the Company and any
other person(s) who is (are) involved in the proposed transaction so that the
maximum benefits of Regulation D shall be available to the Company and all of
its stockholders. APG acknowledges that any stockholder of the Company who does
not perform this covenant shall be liable to the Company and all of the
Company's other stockholders for any damage or loss that may or might be
incurred thereby.
6. Registration Rights.
The Stock has not been registered under Federal or state
securities laws and, in consequence thereof, all of the Stock must be held
indefinitely unless (a) subsequently registered under applicable Federal and
state securities laws, or (b) exemptions from such registration are available at
the time of a proposed sale or transfer thereof. The Company has no agreements
in respect of a registration statement under either Federal or state law and the
Company has no present intention to file a registration statement under either
Federal or state law.
7. Legend.
All certificates representing shares of the Stock shall be
endorsed as follows:
"THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE
ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF A STOCKHOLDERS'
AGREEMENT, DATED JULY 30, 1999, AMONG THE COMPANY AND ITS
STOCKHOLDERS AND THE SUBSCRIPTION AGREEMENT(S), DATED JULY 30,
1999, AMONG THE COMPANY AND CERTAIN INVESTORS THEREIN.
REFERENCE ALSO IS MADE TO THE RESTRICTIVE PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BYLAWS OF THE COMPANY. COPIES
OF THE ABOVE REFERENCED AGREEMENTS ARE ON FILE AT THE OFFICE
OF THE
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<PAGE> 8
COMPANY AT 767 FIFTH AVENUE, 48TH FLOOR, NEW YORK, NEW YORK
10153.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION,
UNDER SAID ACT."
8. Repurchase Provisions
(a) Call Upon a Change of Control. Upon the occurrence of a
Change of Control (as defined in Section 11), the Company and/or the person
specified in Sections 8(c) and (d) (subject to Sections 8(a) and (b) may
repurchase (the "Change of Control Call Right") all or any portion of the shares
(the "Change of Control Repurchase Shares") of either or any of the:
(i) Common Stock purchased by APG pursuant to this
Agreement at a price per share equal to the Fair Market Value
of such shares; or
(ii) Preferred Stock purchased by APG pursuant to
this Agreement at a price per share equal to the Fair Market
Value of such shares.
The purchase price for any shares to be purchased pursuant to this
Section 8(a) is payable in cash.
(b) Call Upon a Material Breach. Upon the occurrence of a
Material Breach (as defined in Section 11), the Company and/or the person
specified in Sections 8(c) and (d) (subject Sections 8(a) and 8(b) may
repurchase (the "Material Breach Call Right") all or any portion of the shares
(the "Material Breach Repurchase Shares" and, together with the Change of
Control Repurchase Shares, the "Repurchase Shares") of either or any of the:
(i) Common Stock purchased by APG pursuant to this
Agreement at a price per share equal to the Original Common
Cost of such shares; provided, however, that in the event of
the occurrence of a Material Breach, the Material Breach Call
Right is exercisable only following the giving of written
notice (a "Material Breach Notice") by the Company of such
Material Breach and the subsequent failure of the breaching
party to cure such Material Breach within 30 days of delivery
of such notice (the "Material Breach Cure Period");or
(ii) Preferred Stock purchased by APG pursuant to
this Agreement at a price per share equal to the then
applicable Liquidation Value of such shares; provided,
however, that in the event of the occurrence of a Material
Breach, the Material Breach Call Right is exercisable only
following the giving of a Material
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<PAGE> 9
Breach Notice by the Company and the subsequent failure of the
breaching party to cure such Material Breach within the
Material Breach Cure Period.
The purchase price for any shares to be purchased pursuant to this
Section 8(b) is payable in cash.
(c) Participation of Management Stockholders. In the event
that the Company has exercised a Change of Control Call Right or a Material
Breach Call Right, each of the Management Stockholders set forth on Schedule II
hereto (each, a "Participating Management Stockholder") shall have the option to
participate in such repurchase to the extent of such Participating Management
Stockholder's direct and indirect ownership (through his ownership of the
capital stock of APG Sub) of the capital stock of the Company, and shall be
entitled to purchase that number of Repurchase Shares equal to the sum of (x)
the product of (A) the aggregate number of Repurchase Shares, and (B) such
Participating Management Stockholder's percentage ownership of the Company's
capital stock (calculated on a fully diluted basis assuming the exercise of all
outstanding options and other convertible instruments) plus (y) the product of
(A) the aggregate number of Repurchase Shares, and (B) the product of (1) a
fraction, the numerator of which is the aggregate number of shares of APG Parent
owned by such Participating Management Stockholder (calculated on a
fully-diluted basis assuming the exercise of all outstanding options and other
convertible instruments) and the denominator of which is the aggregate number of
outstanding shares of Common Stock of APG Parent (calculated on a fully-diluted
basis assuming the exercise of all outstanding options and other convertible
instruments), and (2) a fraction, the numerator of which is the aggregate number
of shares of Common Stock of the Company owned by APG Sub (calculated on a
fully-diluted basis assuming the exercise of all outstanding options and other
convertible instruments) and the denominator of which is the aggregate number of
outstanding shares of Common Stock of the Company (calculated on a fully-diluted
basis assuming the exercise of all outstanding options and other convertible
instruments); provided, however, that any Participating Management Stockholder
whose actions or failure to act contributed to or resulted in a Change of
Control or Material Breach shall not be entitled to exercise the rights
contained in this Section 8(c).
(d) Participation of Other Stockholders.
(i) In the event the Company does not or is unable to
exercise the rights contained in paragraphs (a) or (b) of this
Section 8, the Stockholders of the Company (other than the
Participating Management Stockholders) shall have the right to
purchase at the price set forth in paragraph (a) or (b) of
this Section 8, as the case may be, any portion of the
Repurchase Shares that otherwise would have been purchased by
the Company (the "Company Repurchase Shares") in the following
order of priority: first, the Jordan Investors shall have the
right to purchase the Company Repurchase Shares pro rata among
those of the Jordan Investors so electing, and thereafter, all
other Stockholders (other than the Participating Management
Stockholders) shall have the right to purchase the Company
Repurchase Shares pro rata among the Stockholders so electing
to
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<PAGE> 10
purchase (or in such percentages as such other Stockholders
may agree); provided, however, that nothing contained in this
subparagraph (i) shall be deemed to prevent or otherwise
interfere with the exercise of the rights of the Participating
Management Stockholders to participate in a repurchase of the
Repurchase Shares as set forth in Section 8(c); or
(ii) In the event a Participating Management
Stockholder does not or is not entitled to exercise the rights
contained in this Section 8(d), the Company and the other
Stockholders of the Company (other than the Participating
Management Stockholders) shall have the right to purchase at
the price set forth paragraph (a) or (b) of this Section 8, as
the case may be, any portion of the Repurchase Shares that
such Participating Management Stockholder would otherwise have
been entitled to purchase (the "Management Repurchase Shares")
in the following order of priority: first, the Company shall
have the right to purchase the Management Repurchase Shares,
second, the Jordan Investors shall have the right to purchase
the Management Repurchase Shares pro rata among those of the
Jordan Investors so electing, and thereafter, all other
Stockholders (other than the Participating Management
Stockholders) shall have the right to purchase the Management
Repurchase Shares pro rata among the Stockholders so electing
to purchase (or in such percentages as such other Stockholders
may agree).
(e) Expiration and Closing of Call Rights. The Stockholder
and/or the Company, upon becoming aware of a Change of Control or Material
Breach, will promptly notify the company and the Jordan Investors thereof. If
the Company and/or the other persons entitled thereto has not delivered to the
Stockholder written notice (a "Call Notice") of its intention to exercise the
Change of Control Call Right or the Material Breach Call Right within six months
of (i) the occurrence of a Change of Control, or (ii) the expiration of the
Material Breach Cure Period, such call rights shall automatically expire. The
closing of any purchase pursuant to such call rights shall take place at the
time and place designated by the Company in the Call Notice, which date, subject
to the final sentence of this Section 8(e), shall not be more than twelve (12)
months after the delivery of the notice. This Section 8 shall terminate in its
entirety upon a Sale of the Company (as defined in Section 11).
(f) Restrictions on Payments by the Company. Notwithstanding
anything to the contrary contained in this Agreement, all repurchases pursuant
to this Section 8, shall be subject to (i) applicable restrictions contained in
any applicable law, (ii) restrictions contained in the Company's and its
subsidiaries' debt and equity financing agreements, including the Credit
Agreement, the Securities Purchase Agreement and the Mezzanine Purchase
Agreement, each as amended and in effect from time to time, and (iii) the
availability of cash to make any lump sum cash payments.
(g) Timing of Payments. In the event the Company elects or is
obligated to make payments in cash pursuant to the provisions of Section 8, such
payments will be made within twelve months of the date of the call.
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<PAGE> 11
9. Non-Competition.
(a) As an inducement to the Company to enter into this
Agreement, APG, on behalf of itself, its management employees, its Subsidiaries
and its controlled entities (the "APG Control Parties") agrees that, for a
period of twelve years after the date hereof, no member of the APG Control
Parties will directly or indirectly, own, manage, operate, control, seek to
acquire, or participate in the ownership, management, operation or control of,
or be connected as an officer, employee, partner, director or otherwise with, or
have any financial interest in, or aid or assist anyone else in the conduct of,
any business, including any joint venture agreements or arrangements
("Competitive Business") that directly or indirectly competes with the Business
of the Company as at the date hereof or contemplated to be conducted by the
Company as of the date hereof, anywhere in the world; provided, however, that
each member of the APG Control Parties may continue operating its existing
businesses (the "APG Business") to the extent currently conducted as set forth
on the date hereof; provided, further, that the provisions of this Section 9(a)
shall terminate upon the second anniversary of the date upon which APG Sub
ceases to be a Stockholder of the Company.
(b) APG agrees that the violation or threatened violation of
any of the provisions of this Section 9 shall cause immediate and irreparable
harm to the Company and that the damage to the Company will be difficult or
impossible to calculate with precision. Therefore, in the event any of the APG
Control Parties violates this Section 9, an injunction restraining such APG
Control Party from such violation may be entered against such APG Control Party
in addition to any other relief available to the Company.
10. Confidentiality and Non-Solicitation. As an inducement to the
Company to enter into this Agreement, APG, on behalf of itself, its Affiliates
and the APG Parties (as defined in the APG Agreement)(the "APG Group") agrees
that, for a period of twelve years after the date hereof:
(a) No member of the APG Group will directly or indirectly in
one or a series of transactions, disclose to any person, or use or otherwise
exploit for their own benefit or for the benefit of anyone other than the
Company, Confidential Information (as defined in Section 11) and each member of
the APG Group shall use its best efforts to cause all persons or entities to
whom any Confidential Information has been disclosed to observe the terms and
conditions set forth herein as though each such person or entity was bound
hereby.
(b) Each member of the APG Group shall have no obligation
hereunder to keep confidential any Confidential Information if and to the extent
disclosure of any such Confidential Information is specifically required by law;
provided, however, that in the event disclosure is required by applicable law,
APG, on behalf of the APG Group, shall provide the Company with prompt notice of
such requirement, prior to making any disclosure, so that the Company may seek
an appropriate protective order.
(c) No member of the APG Group will without the express prior
written approval of the Board of Directors of the Company:
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<PAGE> 12
(i) directly or indirectly recruit, solicit or otherwise
induce or influence any employee, sales agent, joint venturer, lessor,
supplier, agent, representative or any other person that has or had
during (A) the two year period initially preceding the date hereof and
(B) the one year period following the date hereof, a business
relationship with the Company, to discontinue, reduce or adversely
modify such employment, agency or business relationship with the
Company to the extent such employment, agency or business relationship
pertains to the Business; or
(ii) employ or seek to employ or cause any Competitive
Business to employ or seek to employ any person or agent who is
employed or retained by the Company. Notwithstanding the foregoing,
nothing herein shall prevent officers of any member of the APG Group
from providing a letter of recommendation to an employee with respect
to a future employment opportunity.
(d) No member of the APG Group will without the express prior
written approval of the Board of Directors of the Company, directly or
indirectly, recruit, solicit or otherwise induce or influence any customer or
supplier of the Company to discontinue, reduce or modify such business
relationship with the Company to the extent such business relationship pertains
to the Business.
(e) APG agrees that the violation or threatened violation of
any of the provisions of this Section 10 shall cause immediate and irreparable
harm to the Company and that the damage to the Company will be difficult or
impossible to calculate with precision. Therefore, in the event any member of
the APG Group violates this Section 10, an injunction restraining such member of
the APG Group from such violation may be entered against such member of the APG
Group in addition to any other relief available to the Company.
11. Definitions
(a) "AC Tech Business" shall mean the development, manufacture
and marketing of aircraft sealants, including but not limited to products based
upon Morton International, Inc. supplied polysulfide chemicals and additional
core technologies in epoxy, silicone and urethane based sealants, adhesives and
coatings marketed into markets, including but not limited to, aircraft, space
marine, automotive, electronics and telecommunications.
(b) "Affiliate" shall mean with respect to any Person, (a) any
Person which directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person, or
(b) any Person who is a director or executive officer (i) of such Person, (ii)
of any Subsidiary of such Person, or (iii) of any Person described in clause (a)
above; provided, that any Affiliate of a corporation shall be deemed an
Affiliate of such corporation's stockholders. For purposes of this definition,
"control" of a Person shall mean the power, direct or indirect, (i) to vote or
direct the voting of more than 5% of the outstanding shares of voting stock of
such Person, or (ii) to direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
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<PAGE> 13
(c) "APG Investors" shall mean APG stockholders who are
parties to the APG Agreement.
(d) "APG Parent" shall mean Automotive Performance Group,
Inc., a Delaware corporation.
(e) "Business" shall mean the AC Tech Business and the
Permatex Business.
(f) "Change of Control" shall mean if (i) any person (other
than the APG Investors) acquires beneficially and of record, at least 51% of the
issued and outstanding capital stock of APG Parent (but not including for this
purpose, any warrants, options or convertible securities issued to the APG
Investors after the date hereof), (ii) any Person or group (within the meaning
of Section 13(d) or 14(d) of the Securities Exchange Act, as amended) shall
obtain the power (whether or not exercised) to elect a majority of APG Parent's
directors, or (iii) directors nominated by the APG Investors shall cease to
constitute a majority of the Board of Directors of APG Parent, or (iv) APG
Parent shall cease to own, beneficially and of record, 100% of the issued and
outstanding capital stock of APG.
(g) "Confidential Information" means any trade secret,
confidential study, data, calculations, software storage media or other
compilation of information, patent, patent application, copyright, trademark,
trade name, service mark, service name, "know-how", trade secrets, customer
lists, details of client or consultant contracts, pricing policies, sales
techniques, confidential information relating to suppliers, information relating
to the special and particular needs of the Business and its operational methods,
marketing plans or strategies, products and formulae, product development
techniques or plans, business acquisition plans or any portion or phase of any
scientific or technical information, ideas, discoveries, designs, computer
programs (including source of object codes), processes, procedures, research or
technical data, improvements or other proprietary or intellectual property of
the Business, whether or not in written or tangible form, and whether or not
registered, and including all files, records, manuals, books, catalogues,
memoranda, notes, summaries, plans, reports, records, documents and other
evidence thereof. The term "Confidential Information" does not include, and
there shall be no obligation hereunder with respect to, information that is or
becomes generally available to the public other than as a result of a disclosure
by Sellers.
(h) "Determination Period" shall mean the last four
consecutive completed fiscal quarters as set forth on the audited financial
statements of the Company immediately preceding the Change of Control Call Right
exercised pursuant to Section 8(a) for which Fair Market Value shall be used to
determine the Change of Control Call Right price.
(i) "EBITDA" shall mean shall mean for any period, the
consolidated net income (or loss) of the Company (after eliminating all
extraordinary or non-recurring items of income or loss), as reflected in the
Company's financial statements for such period, plus (i) interest and other
expense in respect of indebtedness for borrowed money and similar expense in
respect of capitalized leases, charged, accrued or otherwise allocated against
such net income (or loss), plus (ii) expenses for income taxes (whether paid,
accrued or deferred) charged or otherwise allocated against such net
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<PAGE> 14
income, plus (iii) depreciation and amortization of any assets or other non-cash
charges (including, without limitation, any depreciation, amortization and other
non-cash charges relating to purchase accounting adjustments, and any
amortization or writeoff or intangible assets, transaction costs or goodwill)
charged, allocated or otherwise accrued against such net income (or loss), plus,
without duplication, (iv) non-cash expenses attributable to the issuance of
stock, options or warrants by the Company to any of its directors, officer,
employees, dealers or others or the exercise thereof, charged, accrued or
allocated against such net income (or loss), minus (v) interest income and other
income, in each case, excluding any such interest, depreciation, amortization
costs and expenses previously taken into account in determining EBITDA during
any period preceding such period, all as determined in accordance with generally
accepted accounting principles, consistently applied.
(j) "Fair Market Value" shall mean, for any Determination
Period, the Quotient obtained by dividing (i) an amount equal to (A) 5.75
multiplied by EBITDA for the Determination Period less (B) the aggregate amount
of indebtedness for borrowed money and capitalized leases of the Company as of
the end of the Determination Period (including, without limitation, interest
accrued but unpaid as of the end of the Determination Period) less (C) the
aggregate liquidation value of shares of preferred stock of the Company
outstanding at the end of the Determination Period (including, without
limitation, dividends secured but unpaid in respect of such stock as of the end
of the Determination Period), less (D) the aggregate amount that would be
payable by the Company in respect of any equity appreciation or similar rights
outstanding as of the end of the Determination Period assuming the exercise in
full of any and all such rights (whether vested or not) as of such date, by (ii)
the aggregate number of shares of Common Stock issued and outstanding on a fully
diluted basis as of the date of the Change of Control giving rise to the
calculation of Fair Market Value; provided, however that in no event shall the
Fair Market Value be less than the Original Common Cost or the Original
Preferred Cost, as the case may be.
(k) "Jordan Investors" shall mean the Stockholders who are
parties to the Jordan Investors Subscription Agreement and JZEP.
(l) "JZEP" shall mean JZ Equity Partners PLC.
(m) "Liquidation Value" shall mean the per share Liquidation
Value of the Series B Redeemable Preferred Stock, and/or the per share
Liquidation Value of the Series D Redeemable Preferred Stock, each as defined in
the Company's Amended and Restated Certificate of Incorporation.
(n) "Material Breach" shall mean the breach in any material
respect of any of the representations, warranties, covenants, obligations and
agreements of APG, any of its Affiliates or any of the APG Parties (as defined
in the APG Agreement) under this Agreement, the Stockholders Agreement, the APG
Agreement or any other agreement to which APG or APG Parent is a party executed
in connection with the transactions contemplated under this Agreement, the
Stockholders Agreement or the APG Agreement.
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<PAGE> 15
(o) "Permatex Business" shall mean the development,
manufacture and distribution of functional chemical products to the automotive
maintenance and repair and consumer markets, including but not limited to
anaerobic threadlockers and liquid gaskets, silicone gasketing materials,
aerosol parts cleaners, waterless handcleaners, adhesives and a variety of
"Do-It-Yourself" fix and repair chemical products.
(p) "Person" shall mean an individual or a corporation,
association, partnership, joint venture, organization, business, trust, or any
other entity or organization, including a government or any subdivision or
agency thereof.
(q) "Sale of the Company" means the sale of the Company to an
independent third party or group of third parties pursuant to which such party
or parties acquire (i) capital stock of the Company possessing the voting power
under normal circumstances to elect a majority of the Company's Board of
Directors (whether by merger, consolidation or sale or transfer of the Company's
capital stock) or (ii) all or substantially all of the Company's assets
determined on a consolidated basis.
(r) "Three Year Junior Notes" shall mean a subordinated
promissory note of the Company in the form attached hereto as Exhibit A.
12 Miscellaneous Provisions and Definitions.
(a) Subject to the conditions of transfer of Stock contained
herein and in the Stockholders Agreement, this Agreement, including, without
limitation, the provisions of Section 8 of this Agreement, shall be binding upon
and shall inure to the benefit of APG and its respective successors and assigns,
by way of merger consideration or operation of law or otherwise and to the
Company and its respective successors and assigns, by way of merger,
consolidation or operation of law or otherwise. Once APG is no longer a
stockholder of the Company, all rights and benefits previously enjoyed by such
party pursuant to the terms of this Agreement shall automatically terminate with
respect to APG.
(b) Prior to consummation of any transfer of shares of Stock
held by APG permitted under the Stockholders Agreement, except for transfers
pursuant to Rule 144 or a public offering, such party shall cause the transferee
to execute an agreement in which the transferee agrees to be bound by the terms
of this Agreement.
(c) The language used in this Agreement will be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction will be applied against any person.
(d) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT
NO DOCTRINE OF CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF
NEW YORK, AND NO DEFENSE,
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<PAGE> 16
COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER STATE
OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR REPEAL OF ANY
LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN JURISDICTION, BE INTERPOSED
IN ANY ACTION HEREON. SUBJECT TO PARAGRAPH 12(e), EACH OF APG AND THE COMPANY
AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS AGREEMENT
OR ANY AGREEMENT RELATING TO OR CONTEMPLATED BY THIS AGREEMENT OR ANY OF THE
OPERATIVE DOCUMENTS MAY BE COMMENCED IN THE COURTS OF THE STATE OF NEW YORK OR
THE UNITED STATES DISTRICT COURTS IN NEW YORK, NEW YORK. EACH OF APG AND THE
COMPANY CONSENT TO SUCH JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH
COURTS AND WAIVE ANY OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF
FORUM SET FORTH IN THIS PARAGRAPH 12(d) SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS OR ANY AGREEMENT RELATING TO OR CONTEMPLATED BY THIS AGREEMENT OR ANY
OF THE OPERATIVE DOCUMENTS AGREEMENT TO ENFORCE SAME IN ANY OTHER JURISDICTION.
(e) EACH OF APG AND THE COMPANY AGREE THAT ANY DISPUTE BETWEEN
OR AMONG THE PARTIES TO THIS AGREEMENT OR RELATING TO OR IN RESPECT OF THIS
AGREEMENT, OR ANY AGREEMENT RELATING TO OR CONTEMPLATED BY THIS AGREEMENT OR ANY
OF THE OPERATIVE DOCUMENTS THEIR NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT
MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF
THIS AGREEMENT, OR ANY AGREEMENT RELATING TO OR CONTEMPLATED BY THIS AGREEMENT
OR ANY OF THE OPERATIVE DOCUMENTS SHALL BE SUBMITTED TO, AND RESOLVED
EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION
SHALL TAKE PLACE IN NEW YORK, NEW YORK AND SHALL BE SUBJECT TO THE SUBSTANTIVE
LAW OF THE STATE OF NEW YORK. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL BE
FINAL, CONCLUSIVE AND BINDING ON THE PARTIES SUBJECT TO CONFIRMATION,
MODIFICATION OR CHALLENGE PURSUANT TO 9 U.S.C. Section 1 ET SEQ. UPON THE
CONCLUSION OF ARBITRATION, APG OR THE COMPANY MAY APPLY TO ANY COURT OF THE TYPE
DESCRIBED IN PARAGRAPH 12(d) TO ENFORCE THE DECISION PURSUANT TO SUCH
ARBITRATION. IN CONNECTION WITH THE FOREGOING, THE PARTIES HEREBY WAIVE ANY
RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS
AGREEMENT OR ANY AGREEMENT RELATING TO OR CONTEMPLATED BY THIS AGREEMENT OR ANY
OF THE OPERATIVE DOCUMENTS.
(f) APG agrees and acknowledges that the Operative Documents
and any other agreement or instrument that may restrict the ability of the
Company to make any dividend or redemption payments may be created, amended,
modified or supplemented, from time to time, and
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<PAGE> 17
may be refinanced, extended or substituted, from time to time, without notice
to, or the consent or approval of, APG.
(g) All personal pronouns used in this Agreement, whether
masculine, feminine or neuter gender, shall include all other genders if the
context so requires; the singular shall include the plural, and vice versa.
(h) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) In case any one or more of the provisions or parts of a
provision contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or any other jurisdiction, but this
Agreement shall be reformed and construed in any such jurisdiction as if such
invalid or illegal or unenforceable provision or part of a provision had never
been contained herein and such provision or part shall be reformed so that it
would be valid, legal and enforceable to the maximum extent permitted in such
jurisdiction.
(j) This Agreement constitutes the entire agreement by and
among the parties with respect to the subject matter hereof and may not be
modified orally, but only by a writing subscribed by the party charged
therewith.
(k) Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action necessary
to effectuate the terms and purposes of this Agreement.
(l) Whenever notice is required to be given by any party
hereunder, such notice shall be deemed sufficient when delivered to the Company
at its address above which is also the address of The Jordan Company LLC and to
APG to such address as APG shall have furnished.
(m) Each party shall be entitled to rely conclusively upon any
notice received, or the failure to receive any notice, from any other party with
respect to rights and obligations under this Agreement.
(n) Each person who is entitled to participate in the
repurchase rights set forth in Section 8 are intended third party beneficiaries
thereof.
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<PAGE> 18
IN WITNESS WHEREOF, each of the undersigned has signed this Agreement
as of the date first above written:
PBT BRANDS, INC.
By: /s/ Douglas Zych
Name: Douglas Zych
Title: Vice President
<PAGE> 19
APG SPECIAL PURPOSE SUBSIDIARY, INC.
By: /s/ Dean M. Willard
Name:
Title:
<PAGE> 20
AUTOMOTIVE PERFORMANCE GROUP, INC.
By: /s/ Dean M. Willard
Name:
Title:
<PAGE> 21
SCHEDULE I
Stockholder Schedule
<TABLE>
<CAPTION>
Consideration Series B Junior Series D
Class A Paid for Common Preferred Junior Consideration Paid
Common Stock Stock Preferred for Preferred Stock
Stockholder Stock Stock
<S> <C> <C> <C> <C> <C>
APG Special Purpose 110,000 $110,000 3,250 990 $4,240,000
Subsidiary, Inc.
</TABLE>
<PAGE> 22
SCHEDULE II
Participating Management Stockholders
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered
into as of May 1, 1999, by and among D'ARTAGNAN ASSOCIATES, INC., a Delaware
corporation ("APG Sub"), AUTOMOTIVE PERFORMANCE GROUP, INC., a Delaware
corporation ("APG"), D'ARTAGNAN ASSOCIATES, INC., a California corporation
("D'Artagnan") and the shareholders of D'Artagnan (individually, a "Shareholder"
and collectively, the "Shareholders").
WITNESSETH
WHEREAS, pursuant to an agreement dated December 1, 1998 (the "Letter
Agreement"), APG and D'Artagnan agreed to the principal terms of a merger of
D'Artagnan into APG;
WHEREAS, in order to implement the merger contemplated by the Letter
Agreement, APG has caused APG Sub to be incorporated under the laws of the State
of Delaware as a wholly owned subsidiary of APG ("APG Sub") into which
D'Artagnan will be merged;
WHEREAS, the respective boards of directors of APG, APG Sub and
D'Artagnan have determined that the merger of D'Artagnan with and into APG Sub
(the "Merger"), upon the terms and subject to the conditions set forth in this
Agreement is advisable, and have approved the Merger in accordance with the
terms and conditions set forth herein; and
WHEREAS, APG, D'Artagnan and the Shareholders desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger; Effect of Merger. On the Effective Date (as hereinafter
defined), D'Artagnan shall merge with and into APG Sub pursuant to the
provisions of, and with the effect provided in, the Delaware General Corporation
Law (the "DGCL"). The separate corporate existence of D'Artagnan shall thereupon
cease and APG Sub shall become the owner, without other transfer, of all of the
assets, rights and property of D'Artagnan, and APG Sub shall become subject to
all the debts, obligations and liabilities of D'Artagnan in the same manner as
if APG Sub had itself incurred them. APG Sub shall be the surviving corporation
in the Merger ("Surviving Corporation"). The Surviving Corporation shall
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<PAGE> 2
continue to be governed by the DGCL, and its separate corporate existence and
all of its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger.
1.2 Closing. The closing of the Merger (the "Closing") shall take place
on (i) May 3, 1999, or, if later, the first business day on which the last to be
fulfilled or waived of the conditions set forth in Article VIII shall be
satisfied or waived in accordance with this Agreement or (ii) on such other date
as the parties hereto may agree in writing (the "Closing Date"). At the Closing,
(i) the Shareholders shall deliver to APG the certificates representing all of
the Common Stock of D'Artagnan and the other documents and instruments provided
for herein and (ii) APG shall deliver to the Shareholders (a) satisfactory
evidence of APG's delivery of instructions to the transfer agent for the APG
Common Stock ("Transfer Agent") instructing the Transfer Agent to issue to the
Shareholders certificates evidencing 1,000,000 shares of APG Common Stock as
provided in Section 3.1(a) of this Agreement, and to deliver to the Pledgeholder
(as hereinafter defined) certificates evidencing an additional 1,000,000 shares
of APG Common Stock issued to the Shareholders, as provided in Section 3.1(b) of
this Agreement, and (b) all other documents and instruments provided for herein.
1.3 Effective Date and Time. As soon as practicable following the
Closing, APG Sub and D'Artagnan shall cause (i) a Certificate of Merger (the
"Merger Certificate") to be executed, acknowledged and filed with the Secretary
of State of the State of Delaware (the "Secretary") as provided in Section 252
of the DGCL and (ii) the certificate and other documentation required by Section
1108 of the California Corporations Code (the "California Certificate") to be
executed and filed with the Secretary of State of the State of California. The
Merger shall become effective at the time the Secretary accepts for record the
Merger Certificate (the "Effective Date").
ARTICLE II
CHARTER, BYLAWS AND OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
2.1 Charter. The Certificate of Incorporation of APG Sub in effect on
the Effective Date shall be the charter of the Surviving Corporation (the
"Charter"), until duly amended as provided therein or by applicable law.
2.2 Bylaws. The Bylaws of APG Sub in effect on the Effective Date shall
be the Bylaws of the Surviving Corporation (the "Bylaws"), until thereafter
amended as provided therein or in the Charter or by applicable law.
2.3 Directors. The Directors of APG Sub on the Effective Date shall,
from and after the Effective Date, be the Directors of the Surviving
Corporation, until their successors have been duly elected or appointed and
qualified or until their death, resignation or removal in accordance with the
Charter and the Bylaws.
2
<PAGE> 3
2.4 Officers. The officers of APG Sub on the Effective Date shall, from
and after the Effective Date, be the officers of the Surviving Corporation,
until the their successors have been duly appointed and qualified or until their
earlier death, resignation or removal in accordance with the Charter and the
Bylaws.
ARTICLE III
MERGER CONSIDERATION; CONTINGENT STOCK; REGISTRATION RIGHTS
3.1 Merger Consideration. On the Effective Date, by virtue of the
Merger and subject to the conditions set forth in Article VIII hereof:
(a) The record shareholders of each of the outstanding shares
of D'Artagnan Common Stock shall become entitled to receive ten thousand
(10,000) shares of APG Common Stock, representing in the aggregate 1,000,000
shares of APG Common Stock.
(b) The record shareholders of each of the outstanding shares
of D'Artagnan Common Stock shall also become entitled to receive an additional
ten thousand (10,000) shares of APG Common Stock, representing in the aggregate
an additional 1,000,000 shares of APG Common Stock ("Contingent Stock"), subject
to the obligation (the "Return Obligation", which shall commence on the
Effective Date and continue in force as provided herein) of the Shareholders to
return to APG all or a portion of the Contingent Stock if the APG Common Stock
does not attain specified prices ("Trigger Prices," as set forth below) during
the two-year period beginning with the earlier of (1) one year after the
Effective Date or (2) the date on which the APG Common Stock is first listed on
a national securities exchange (the "Contingency Period"). The parties'
respective rights and obligations with respect to the Contingent Stock shall be
as set forth in this Section 3.1(b):
(i) The Contingent Stock shall be owned by the
Shareholders for all purposes from the Effective Date, subject to the Return
Obligation. The Shareholders' rights with respect to the Contingent Stock shall
include, without limitation, the right to vote the Contingent Stock and all
dividend rights with respect to the Contingent Stock. Any dividends paid with
respect to the Contingent Stock then subject to the Pledge Agreement (as
described below) shall also be held subject to the provisions of said Pledge
Agreement.
(ii) To secure APG's rights, and the Shareholders'
obligations, under the Return Obligation, the Contingent Stock shall be held by
U.S. Trust Company N.A. (the "Pledgeholder"), pursuant to a Pledge Agreement in
the form and content of Exhibit "A", attached hereto (the "Pledge Agreement").
(iii) Two hundred fifty thousand (250,000) shares of
Contingent Stock shall be deemed to have been released from the Return
Obligation (without any further action or consent of APG) upon the attainment of
each Trigger Price specified in Subparagraph 3.1
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<PAGE> 4
(b)(iv) below. Upon the attainment of each such Trigger Price, APG shall
instruct the Pledgeholder to release to the Shareholders certificates evidencing
two hundred fifty thousand (250,000) shares of APG Common Stock, to be issued to
the Shareholders pro-rata in accordance with their respective ownership of
D'Artagnan Common Stock. Any Contingent Stock that has not been released from
the Return Obligation at the end of the Contingency Period (the "Returnable
Shares") shall be deemed to have been returned to APG (without any further
action or consent of the Shareholders). To effect such return, the Shareholders
shall execute, in blank, a stock assignment separate from certificate and shall
deliver said stock assignment to the Pledgeholder. At the end of the Contingency
Period, the Shareholders shall instruct the Pledgeholder to return to APG the
certificates evidencing the Returnable Shares, together with the stock
assignment assigning the Returnable Shares to APG.
(iv) The Trigger Prices with respect to the
Contingent Stock shall be Five Dollars ($5.00), Seven Dollars and Fifty Cents
($7.50), Ten Dollars ($10.00) and Twelve Dollars and Fifty Cents ($12.50),
respectively. For purposes of this Agreement, a Trigger Price shall be deemed to
have been attained on the first date ("Trigger Date") on which the average price
of the APG Common Stock during the 125 trading days prior to and including the
Trigger Date ("Six Month Average") equals or exceeds the Trigger Price. The
price of the APG Common Stock on any date shall be the closing price at which
the stock is traded on such date. If the price of the APG Common Stock on a
Trigger Date is lower than a Trigger Price, but the Six Month Average of the APG
Common Stock as of such Trigger Date equals or exceeds the Trigger Price, the
Trigger Price shall be deemed to have been attained on such Trigger Date. If the
Six Month Average of the APG Common Stock on a Trigger Date equals or exceeds
more than one Trigger Price, all such Trigger Prices shall be deemed to have
been attained on such Trigger Date.
(v) Notwithstanding the foregoing provisions of this
Section 3.1(b), in the event of a sale or other disposition (whether by merger,
reorganization, liquidation or otherwise) of substantially all of the stock or
assets of APG ("Capital Event"), all Contingent Stock then remaining subject to
the Return Obligation shall be deemed to have been released from the Return
Obligation (without any further action or consent of APG) immediately prior to
the closing of the Capital Event; provided, however, that the greater of (1) the
price of the APG Common Stock immediately prior to the closing of the Capital
Event or (2) the price at which the APG Common Stock is valued for purposes of
the Capital Event, equals or exceeds $7.50 (the foregoing condition is
hereinafter referred to as the "Valuation Condition"). Prior to the closing of a
Capital Event with respect to which the Valuation Condition is satisfied, APG
shall instruct the Pledgeholder to release to the Shareholders the certificates
evidencing all of the shares of Contingent Stock then remaining subject to the
Return Obligation. If the shareholders of APG receive stock or securities in
exchange for the APG Common Stock ("Exchange Securities") in a Capital Event
with respect to which the Valuation Condition is not satisfied, the Shareholders
shall be entitled to exchange the Contingent Stock then remaining subject to the
Return Obligation for such Exchange Securities, upon the same basis as the other
APG shareholders. In such event, the Exchange Securities shall remain subject to
4
<PAGE> 5
the Return Obligation, but the Trigger Prices applicable to the Exchange
Securities shall be appropriately adjusted by taking into account the relative
prices of the APG Common Stock and the Exchange Securities as of the closing of
the Capital Event and the ratio at which the APG Common Stock was exchanged for
the Exchange Securities. Upon the occurrence of a Capital Event with respect to
which (a) the Valuation Condition is not satisfied and (b) the APG shareholders
receive consideration other than Exchange Securities, any Contingent Stock then
remaining subject to the Return Obligation shall be deemed to have been returned
to APG (without any further action or consent of the Shareholders) immediately
prior to the closing of the Capital Event.
(c) Each share (if any) of D'Artagnan Common Stock then held
in the treasury of D'Artagnan shall be cancelled, and no payment shall be paid
nor other consideration received with respect thereto.
(d) Each share of APG Common Stock and each share of the
common stock of APG Sub issued and outstanding on the Effective Date shall
remain issued and outstanding.
3.2 Procedure for Exchange of Certificates. Immediately after the
Effective Date, APG will furnish to the Transfer Agent a stock certificate,
issued in the name of the Transfer Agent or its nominee, evidencing 2,000,000
shares of APG Common Stock and will instruct the Transfer Agent to issue to each
Shareholder a certificate evidencing the number of shares of APG Common Stock to
which the Shareholder is entitled under Section 3.1 hereof and to deliver to the
Pledgeholder stock certificates issued to the Shareholders evidencing the
Contingent Stock.
3.3 Registration Rights. All APG Common Stock issued to the
Shareholders under Section 3.1 of this Agreement shall be subject to the
registration rights provided in a Rights Agreement in the form and content of
Exhibit "B", attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS AND D'ARTAGNAN
The Shareholders hereby represent and warrant to APG that:
4.1 Authority of Shareholders. Each Shareholder has the requisite power
and authority to execute this Agreement, perform the Shareholder's obligations
hereunder and consummate the transactions contemplated hereby. Each Shareholder
has duly executed and delivered this Agreement. This Agreement is a valid, legal
and binding obligation of the Shareholders enforceable against the Shareholders
in accordance with its terms. No other action will be necessary by the
Shareholders to authorize the execution and delivery of this
5
<PAGE> 6
Agreement and the consummation of the transactions contemplated hereby, except
as specifically provided herein.
4.2 No Conflict for Shareholders.
(a) The execution and delivery of this Agreement by each
Shareholder and the consummation of the transactions contemplated hereby do not,
and the performance of this Agreement and the transactions contemplated hereby
by each Shareholder will not, conflict with or violate any foreign, federal,
state or local law, statute, treaty, ordinance, rule, regulation, order, writ,
injunction, decree or judgment (individually, a "Law" and collectively, "Laws")
applicable to any Shareholder.
(b) The execution and delivery of this Agreement by each
Shareholder does not, and the performance of this Agreement by such Shareholder
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, either
domestic or foreign (individually, a "Governmental Entity" and collectively,
"Governmental Entities"), other than any such consents, approvals,
authorizations or permits that have been obtained or such filings or
notifications that have been made or will have been obtained or made as of the
Effective Date.
4.3 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Shareholders or D'Artagnan.
4.4 Title. Each Shareholder has title to the D'Artagnan Common Stock
set forth opposite such Shareholder's name on Schedule 4.4 attached hereto, and
full right, power and authority to sell, assign, transfer and deliver such
D'Artagnan Common Stock, free and clear of all voting trust arrangements, liens,
encumbrances, equities, security interests, restrictions and claims whatsoever
(other than those imposed by the Securities Act of 1933 and the securities or
Blue Sky laws of the State of California).
D'Artagnan hereby represents and warrants to APG that:
4.5 Organization and Qualification; Subsidiaries. D'Artagnan is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, having full power and authority to own its own
properties and to carry on its business as conducted.
4.6 Articles of Incorporation and Bylaws. D'Artagnan has heretofore
furnished to APG complete and correct copies of the Articles of Incorporation
and Bylaws of D'Artagnan, in each case as amended or restated (collectively,
"Organizational Documents"). The Organizational Documents are in full force and
effect. D'Artagnan is not in violation of any of the provisions of any of its
Organizational Documents.
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4.7 Capitalization; Title to Shares.
(a) The authorized capital stock of D'Artagnan consists of
10,000 authorized shares of D'Artagnan Common Stock, of which, as of the date
hereof 100 shares are issued and outstanding. All of the outstanding shares of
D'Artagnan Common Stock are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute,
D'Artagnan's Organizational Documents or any agreement to which D'Artagnan is a
party or is bound.
(b) There are no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments of any character
to which D'Artagnan is a party relating to the issued or unissued capital stock
of, or other equity interests in, D'Artagnan, or obligating D'Artagnan to grant,
issue or sell any shares of the capital stock of, or other equity interests in,
D'Artagnan, by sale, lease, license or otherwise. There are no obligations,
contingent or otherwise, of D'Artagnan to repurchase, redeem or otherwise
acquire any shares of D'Artagnan Common Stock. There are no voting trusts,
proxies or other agreements or understandings to which D'Artagnan is a party or
by which D'Artagnan is bound with respect to the voting of any shares of capital
stock of D'Artagnan.
4.8 Authority of D'Artagnan; Approval. D'Artagnan has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by D'Artagnan and the
consummation by D'Artagnan of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and no other corporate
proceedings on the part of D'Artagnan are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by D'Artagnan and constitutes the legal,
valid and binding obligation of D'Artagnan , enforceable against D'Artagnan in
accordance with its terms.
4.9 No Conflict of D'Artagnan.
(a) The execution and delivery of this Agreement by D'Artagnan
does not, and the performance of this Agreement and the Merger by D'Artagnan
will not, (i) conflict with or violate the Organizational Documents of
D'Artagnan, or (ii)conflict with or violate any Laws applicable to D'Artagnan or
by which any of its properties is bound or affected.
(b) The execution and delivery of this Agreement by D'Artagnan
does not, and the performance of this Agreement and the Merger by D'Artagnan
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entities, other than (i) any such
consents, approvals, authorizations or permits that have been obtained or such
filings or notifications that have been made or will have been obtained or made
as of the Closing Date, (ii) where the failure to obtain such consents,
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<PAGE> 8
approvals, authorizations or permits, or to make such filings or notifications,
would not, either individually or in the aggregate, prevent or delay
consummation of the transactions contemplated by this Agreement, or otherwise,
either individually or in the aggregate, prevent D'Artagnan and the Shareholders
from performing its and their obligations under this Agreement and could not
reasonably be expected to result in a Material Adverse Effect on APG or APG Sub,
and (iii) filing of the Merger Certificate with the Secretary and the California
Certificate with the Secretary of State of the State of California.
4.10 Books and Records; Balance Sheet. D'Artagnan has previously made
available to APG complete and correct copies of all of the books and records of
D'Artagnan. A true and correct balance sheet of D'Artagnan listing the assets
and liabilities of D'Artagnan as of the Closing Date is attached hereto as
Exhibit "C".
ARTICLE V
REPRESENTATION AND WARRANTIES OF APG
APG hereby represents and warrants to the Shareholders and D'Artagnan
that:
5.1 Organization and Qualification. APG is and, at the time of the
Merger APG Sub will be, a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, having full power and
authority to own its properties and to carry on its business as conducted.
5.2 Authority. APG has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by APG and the consummation by APG of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no other corporate proceedings on the part of APG are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by APG and constitutes the legal,
valid and binding obligation of APG enforceable against APG in accordance with
its terms. APG Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, having full power and
authority to own its properties, to carry on its business as conducted, and to
perform its obligations pursuant to this Agreement. At the time of the Merger,
APG Sub will have all requisite corporate power and authority to consummate the
transactions contemplated hereby, and the consummation by APG Sub of the
transactions contemplated hereby shall have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of APG
Sub shall be necessary to consummate the transactions contemplated hereby.
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5.3 No Conflict.
(a) The execution and delivery of this Agreement by APG does
not, and the performance of this Agreement and the Merger by APG will not, (i)
conflict with or violate the Organizational Documents of APG, (ii) conflict with
or violate any Laws applicable to APG or by which any of its properties is bound
or affected, (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of any encumbrance on any of the properties or assets
of APG pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which APG
is a party or any of its properties is bound or affected, except, in the case of
breaches, defaults, rights or encumbrances which could not reasonably be
expected to result, individually or in the aggregate, in a Material Adverse
Effect on APG.
(b) The execution and delivery of this Agreement by APG does
not, and the performance of this Agreement and the Merger by APG will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entities, other than (i) any such consents,
approvals, authorizations or permits that have been obtained or such filings or
notifications that have been made or will have been obtained or made as of the
Closing Date, (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
either individually or in the aggregate, prevent or delay consummation of the
transactions contemplated by this Agreement, or otherwise, either individually
or in the aggregate, prevent APG from performing its obligations under this
Agreement, and could not reasonably be expected to result in a Material Adverse
Effect on D'Artagnan, and (iii) filing of the Merger Certificate with the
Secretary and the California Certificate with the Secretary of State of the
State of California.
5.4 Articles of Incorporation and Bylaws. APG has heretofore furnished
to D'Artagnan complete and correct copies of its Certificate of Incorporation
and Bylaws, in each case as amended or restated as of the date hereof
(collectively, "APG Organizational Documents"), which are in full force and
effect. APG is not in violation of any of the provisions of any of the APG
Organizational Documents. APG has heretofore furnished to D'Artagnan copies of
the Certificate of Incorporation and Bylaws of APG Sub, in substantially the
form that will be effective immediately prior to the Merger.
5.5 Capital Stock. Immediately prior to the Closing, the authorized
capital stock of APG shall consist of 130,000,000 shares of common stock, $.0001
par value, of which 6,234,656 shares are issued and outstanding, and 13,000,000
authorized shares of preferred stock, $.0001 par value, of which 4,658,000
shares are issued and outstanding. Each of the outstanding shares of capital
stock of APG is duly authorized, validly issued, fully paid and
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<PAGE> 10
nonassessable and issued in full compliance with the preemptive rights of any
existing shareholder and in full compliance with all applicable federal and
state securities law.
5.6 Validity of Shares. The outstanding shares of APG Common Stock to
be delivered to the Shareholders pursuant to this Agreement, when issued in
accordance with the terms and provisions of this Agreement, will be validly
authorized, validly issued, fully paid, and nonassessable.
5.7 Broker. No broker, finder or investment banker is entitled to any
brokerage, finder's fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
APG.
5.8 Books and Records. APG has previously made available to D'Artagnan
and the Shareholders complete and accurate copies of all of the books and
records of APG.
ARTICLE VI
COVENANTS
6.1 Negative Covenants of D'Artagnan. Except as expressly contemplated
by this Agreement or otherwise consented to in writing by APG, from the date of
this Agreement until the Closing, D'Artagnan shall not:
(a) Take any action, or omit to take any action, the effect of
which would reasonably be expected to cause any of the representations and
warranties contained in Article IV of this Agreement to be inaccurate as of the
Closing or any time prior thereto;
(b) Declare, set aside or pay any dividend on the outstanding
shares of capital stock of D'Artagnan, or redeem, repurchase or otherwise
acquire any of its capital stock.
(c) (i) Issue, deliver, award, pledge, grant or sell, or
authorize or propose to enter into any contract, understanding, agreement or
arrangement with respect to the issuance, delivery, award, grant or sale
(including the grant of any security interests or other encumbrances) of, any
shares of any class of its capital stock (including shares held in treasury),
any securities convertible into or exercisable or exchangeable for any such
shares, or any rights, warrants or options to acquire any such shares, (ii)amend
or otherwise modify the terms of any such rights, warrants or options the effect
of which shall be to make such terms more favorable to the holders thereof, or
(iii) except for the transactions contemplated hereby, enter into any
arrangement, understanding or contract with respect to the purchase or voting of
shares of its capital stock;
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(d) Engage in any business other than the business in which it
is presently engaging or fail to continue its business in the ordinary course in
all material respects; or
(e) Sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets, except for dispositions of
immaterial assets in the ordinary course of business and consistent with past
practice (in amount and form).
6.2 Negative Covenants of APG. Except as expressly contemplated by this
Agreement or otherwise consented to in writing by D'Artagnan, from the date of
this Agreement until the Closing, APG shall not:
(a) Take any action, or omit to take any action, the effect of
which would reasonably be expected to cause any of the representations and
warranties contained in Article V of this Agreement to be inaccurate as of the
Closing or any time prior thereto;
(b) Declare, set aside or pay any dividend on, or make any
other distribution or payment (whether in cash, stock or property) in respect
of, the outstanding shares of capital stock of D'Artagnan, or redeem, repurchase
or otherwise acquire any of its capital stock;
(c) Except for proceeding with the Loctite acquisition and any
other transaction pending as of the date hereof, engage in any business other
than the business in which it is presently engaging; or
(d) Sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets, except for dispositions of
immaterial assets in the ordinary course of business and consistent with past
practice (in amount and form).
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Best Efforts; Consents; Filings. Subject to the terms and
conditions of this Agreement, APG, APG Sub, D'Artagnan and the Shareholders
shall use their reasonable best efforts to (i) take promptly, or cause to be
taken, all appropriate action, and to do promptly, or cause to be done, all
things necessary, proper or advisable under applicable Laws or otherwise to
consummate and make effective as soon as possible the transactions contemplated
by this Agreement, (ii) obtain from any Governmental Entities any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by APG, APG Sub, D'Artagnan or the Shareholders in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the transactions contemplated herein, (iii) make all necessary
filings, and thereafter make any other required submissions, notifications
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and filings with respect to this Agreement, provided, however, that APG, APG Sub
and D'Artagnan shall cooperate with each other in connection with the making of
all such filings, including, without limitation, providing copies of all such
documents to the non-filing party and its advisors prior to any filing and, if
requested, to accept all reasonable additions, deletions or changes suggested by
the non-filing party in connection therewith, (iv) satisfy the requirements of
any Laws, and (v) remove any injunctions or other impediments or delays, legal
or otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties hereto
all of the benefits contemplated by this Agreement. APG, APG Sub and D'Artagnan
shall furnish all information required for any application or other filing to be
made pursuant to the rules and regulations of any applicable Laws in connection
with the transactions contemplated by this Agreement.
7.2 Full Access. APG and D'Artagnan shall permit representatives of the
other to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the party being reviewed, to
all premises, properties, personnel, books and records (including tax records),
contracts and documents of or pertaining to the party being reviewed. Each party
shall treat and hold as such any confidential information it receives from the
other in the course of the reviews contemplated by this Section 7.2, and shall
not use any of the confidential information except in connection with the
Merger. From the date hereof and until the Closing, APG and D'Artagnan shall
give prompt notice to the other of any Material Adverse Change affecting said
party. No such disclosure, however, shall be deemed to amend or supplant any
provision of this Agreement or to prevent or cure any misrepresentation, breach
of warranty or breach of covenant. Each party shall also keep the other fully
informed of all aspects of its business.
ARTICLE VIII
CLOSING CONDITIONS
8.1 Additional Conditions to the Obligations of Each Party. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following conditions,
any or all of which may be waived, in whole or in part, to the extent permitted
by applicable law:
(a) No Order. No Governmental Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which restricts, prevents or prohibits consummation of this Agreement and the
transactions contemplated hereby.
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(b) Government Consents. All consents, waivers, approvals and
authorizations required to be obtained in order to consummate the Merger shall
have been obtained from all appropriate Governmental Entities.
(c) Required Shareholder Approvals. The Agreement and the
Merger shall have requisite shareholder approval for APG Sub, as required under
DGCL Section 251(c), and the requisite approval by the Shareholders of
D'Artagnan as required under Section 1201 of the California Corporations Code.
8.2 Additional Conditions to the Obligations of D'Artagnan and the
Shareholders.
The obligations of D'Artagnan and the Shareholders to effect
the Merger and the other transactions contemplated herein are also subject to
the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of APG contained in this Agreement shall be true
and correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct in all respects giving effect to such
standard) when made and as of the Closing Date as though made on and as of the
Closing Date.
(b) Agreements and Covenants. APG shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) Securities Act and "Blue Sky" Law Compliance. The offer,
sale, and delivery of the shares of APG Common Stock under the circumstances
contemplated by this Agreement are made in full compliance with all applicable
federal and state Securities laws.
(d) Bankruptcy. No case or proceeding shall have been
commenced under any federal or state bankruptcy or equivalent law by or against
APG or APG Sub.
8.3 Additional Conditions to Obligations of APG and APG Sub. The
obligation of APG and APG Sub to effect the Merger and the other transactions
contemplated by this Agreement is also subject to the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of D'Artagnan and the Shareholders contained in
this Agreement shall be true and correct in all material respects (except that
where any statement in a representation or warranty expressly includes a
standard of materiality, such statement shall be true and correct in all
respects giving effect to such standard) when made and as of the Closing Date,
as though made on and as of the Closing Date.
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(b) Agreements and Covenants. Each of D'Artagnan and the
Shareholders shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or complied
with by them on or prior to the Closing Date.
(c) Bankruptcy. No case or proceeding shall have been
commenced under any federal or state bankruptcy or equivalent law by or against
D'Artagnan.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered, mailed or transmitted, and shall be effective
upon receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the address
provided by the parties for purpose of notice (or at such other address for a
party as shall be specified by like changes of address) or sent by electronic
transmission (provided that a confirmation copy is sent by another approved
means) to the telecopier numbers specified by the parties.
9.2 Certain Definitions. For purposes of this Agreement, the term:
"APG Common Stock" shall mean the common stock of
APG, par value $.0001.
"APG Sub Common Stock" shall mean common stock of APG
Sub, par value $.0001.
"Affiliate" means a person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the first
mentioned person.
"D'Artagnan Common Stock" shall mean the common stock
of D'Artagnan, no par value.
"Encumbrances" shall mean, with respect to any real
or personal, tangible or intangible property, any lien,
charge, reservation, right of entry, possibility of reverter,
encroachment, easement, right of way, restrictive covenant,
lease, security interest (whether based on common law, statute
or contract and, including without limitation, any interest
arising from any capitalized lease, conditional sale, trust
receipt or deposit interest), option, right
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of first refusal, right of first offer or any other
imperfection of title or right by any person to assert a claim
with respect to such property.
"Knowledge" shall mean, with respect to any matter in
question, (i) actual knowledge or (ii) actual knowledge as
would be possessed of such matter if due diligence had been
conducted.
The term "Material Adverse Effect" as used in this
Agreement shall mean any change or effect that, individually
or when taken together with all other such changes or effects
of the same general type, is or is reasonably likely to be
materially adverse to the assets, financial condition,
business, operations or prospects of D'Artagnan or APG, as the
case may be.
"Person" means an individual, corporation,
partnership, association, trust, unincorporated organization,
other entity or group (as defined in Section 13(d) of the
Securities Exchange Act).
9.3 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
9.5 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior agreements and undertakings, both
written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
9.6 Successors and Assigns. Except as provided herein to the contrary,
this Agreement shall be binding upon and inure to the benefit of the parties,
their respective successors and permitted assigns. The rights and obligations of
the parties hereunder may not be assigned prior to the Closing Date.
9.7 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
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9.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
9.9 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware without regard to rules
respecting conflicts of law.
9.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
9.11 Construction. All Schedules, section and article references are to
this Agreement, unless otherwise expressly provided. As used in this Agreement,
(a) "hereof", "hereunder", "herein" and words of like import shall be deemed to
refer to this Agreement in its entirety and not just a particular section of
this Agreement and (b) unless the context otherwise requires, words in the
singular number or in the plural number shall each include the singular number
or the plural number, words of the masculine gender shall include the feminine
and neuter, and, when the sense so indicates, words of the neuter gender shall
refer to any gender.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, APG, D'Artagnan and the Shareholders have caused
this Agreement to be executed as of the date first written above by their
respective officers and representatives thereunto duly authorized.
AUTOMOTIVE PERFORMANCE GROUP, INC.
By:/s/ Carl Walker
-------------------------------
ATTEST: Its: Secretary
-------------------------------
/s/ George Barraza
- -------------------------------
D'ARTAGNAN ASSOCIATES, INC.,
a Delaware corporation
By:/s/ Carl Walker
-------------------------------
ATTEST: Its: Secretary
-------------------------------
/s/ George Barraza
- -------------------------------
D'ARTAGNAN ASSOCIATES, INC.,
a California corporation
By:/s/ Dean M. Willard
-------------------------------
Dean M. Willard
ATTEST: Its: President
-------------------------------
/s/ Rebecca J. Willard
- -------------------------------
Rebecca J. Willard, Secretary
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/s/ Dean M. Willard
----------------------------------
DEAN M. WILLARD
WILLARD CHILDREN'S TRUST
By:/s/ Dean M. Willard
-------------------------------
Dean M. Willard, Co-Trustee
By:/s/ Rebecca J. Willard
-------------------------------
Rebecca J. Willard, Co-Trustee
18
<PAGE> 1
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER ("Amendment") is made
and entered into as of May 1, 1999, by and among D'ARTAGNAN ASSOCIATES, INC., a
Delaware corporation ("APG Sub"), AUTOMOTIVE PERFORMANCE GROUP, INC., a Delaware
corporation ("APG"), D'ARTAGNAN ASSOCIATES, INC., a California corporation
("D'Artagnan") and the shareholders of D'Artagnan (individually, a "Shareholder"
and collectively, the "Shareholders").
WITNESSETH
WHEREAS, pursuant to that certain Agreement and Plan of Merger entered
into as of May 1, 1999 (the "Agreement"), D'Artagnan merged with and into APG
Sub, a wholly-owned subsidiary of APG;
WHEREAS, the respective boards of directors of APG, APG Sub and
D'Artagnan have determined that the amendment of certain provisions of the
Agreement, in order to more properly reflect the intentions of the parties and
upon the terms and subject to the conditions set forth in this Amendment, is
advisable, and have approved said amendments in accordance with the terms and
conditions set forth herein; and
WHEREAS, APG, D'Artagnan and the Shareholders desire to amend the
Agreement as hereinafter provided.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
A. Section 3.1 of the Agreement is hereby deleted in its entirety and the
following is hereby inserted in its place and stead:
3.1 Merger Consideration. On the Effective Date, by virtue of the
Merger and subject to the conditions set forth in Article VIII hereof:
(a) The record shareholders of each of the outstanding shares
of D'Artagnan Common Stock shall become entitled to receive ten thousand
(10,000) shares of APG Common Stock, representing in the aggregate 1,000,000
shares of APG Common Stock.
(b) The record shareholders of each of the outstanding shares
of D'Artagnan Common Stock shall also become entitled to receive an additional
ten thousand (10,000) shares of APG Common Stock, representing in the aggregate
an additional 1,000,000 shares of APG Common Stock ("Contingent Stock"), subject
to the following conditions:
<PAGE> 2
(i) A total of 250,000 shares of the Contingent Stock
(2,500 shares of APG Common Stock for each share of D'Artagnan Common Stock)
will become available for release to the Shareholders on each of August 1, 2000,
August 1, 2001, August 1, 2002 and August 1, 2003 (each a "Release Date" and
collectively the "Release Timetable").
(ii) Subject to the Release Timetable, the Contingent
Stock will be released to the Shareholders only if on any date after the date of
this Agreement, the closing price of APG Common Stock, as quoted on any
generally recognized exchange or quotation system that lists the APG Common
Stock, is at least $2.40 per share (the "Trigger Price"). If the Trigger Price
is attained on any date after any Release Date(s), then any shares subject to
such prior Release Date(s) shall be released to the Shareholders on the date the
Trigger Price is attained. Any shares subject to release on any Release Date(s)
after the date the Trigger Price is attained shall be released to the
Shareholders on such subsequent Release Date(s).
(iii) Notwithstanding the foregoing provisions of
this Section 3.1(b), in the event of a sale or other disposition (whether by
merger, reorganization, liquidation or otherwise) of substantially all of the
stock or assets of APG ("Capital Event"), all Contingent Stock shall be released
to the Shareholders immediately prior to the Capital Event.
(iv) Upon the satisfaction of any of the conditions
set forth in this Section 3.1(b), APG shall issue to the Shareholders, pro-rata
in accordance with their respective ownership of D'Artagnan Common Stock,
certificates evidencing the Contingent Stock so released.
(v) Notwithstanding any provisions of this Section
3.1(b) to the contrary, the Shareholders' rights with respect to the Contingent
Stock at all times after the date of this Agreement shall include, without
limitation, the right to vote the Contingent Stock and all dividend rights with
respect to the Contingent Stock, as if the Contingent Stock were fully released
and issued to the Shareholders pro-rata in accordance with their respective
ownership of D'Artagnan Common Stock. If APG pays any dividends with respect to
APG Common Stock prior to the actual release and issuance of all of the
Contingent Stock to the Shareholders, then APG shall deposit the Shareholders'
proportionate entitlement to such dividends with respect to any unreleased
Contingent Stock in a separate bank for the benefit of the Shareholders. Any
such dividends shall thereafter be released to the Shareholders in accordance
with the release of such unreleased Contingent Stock under the foregoing
provisions of this Section 3.1(b).
(c) Each share (if any) of D'Artagnan Common Stock then held
in the treasury of D'Artagnan shall be cancelled, and no payment shall be paid
nor other consideration received with respect thereto.
(d) Each share of APG Common Stock and each share of the
common stock of APG Sub issued and outstanding on the Effective Date shall
remain issued and outstanding.
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<PAGE> 3
B. Except as amended hereby, all other provisions of the Agreement are ratified
and confirmed.
C. This Amendment may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, APG, D'Artagnan and the Shareholders have caused
this Amendment to be executed as of the date first written above by their
respective officers and representatives thereunto duly authorized.
AUTOMOTIVE PERFORMANCE GROUP, INC.
By: /s/ Carl Walker
-----------------------------------------
Its: Secretary
-----------------------------------------
ATTEST:
- --------------------------------
D'ARTAGNAN ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Carl Walker
-----------------------------------------
ATTEST: Its: Secretary
-----------------------------------------
- --------------------------------
D'ARTAGNAN ASSOCIATES, INC.,
a California corporation
By:
-----------------------------------------
Dean M. Willard
ATTEST: Its: President
-----------------------------------------
- --------------------------------
Rebecca J. Willard, Secretary
3
<PAGE> 4
---------------------------------------------
DEAN M. WILLARD
WILLARD CHILDREN'S TRUST
By:
-----------------------------------------
Dean M. Willard, Co-Trustee
By:
-----------------------------------------
Rebecca J. Willard, Co-Trustee
4
<PAGE> 1
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION OF RIGHTS AND
PREFERENCES OF SERIES B PREFERRED STOCK OF
AUTOMOTIVE PERFORMANCE GROUP, INC.
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Automotive Performance Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that, pursuant to the authority conferred
upon the board of directors of the Corporation (the "Board of Directors") by its
Certificate of Incorporation, as amended (hereinafter referred to as the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
duly approved and adopted the following resolution (the "Resolution"):
RESOLVED, that, pursuant to the authority vested in the Board
of Directors by the Certificate of Incorporation, the Board of
Directors does hereby create, authorize and provide for the issuance of
7,000,000 shares of Preferred Stock, par value $.0001 per share, having
the designation, and relative rights, limitations and preferences set
forth herein:
1. DESIGNATION.
(a) There is hereby created out of the authorized and unissued
shares of Preferred Stock of the Corporation a class of Preferred Stock
designated as "Series B Preferred Stock". The number of shares
constituting such class shall be 7,000,000 and each share shall have a
stated value of $1.00.
(b) The Series B Preferred Stock shall, with respect to (i)
dividends, (ii) distributions upon liquidation, winding up and
dissolution of the Corporation, and (iii) distributions upon merger,
share exchange or a sale or other disposition of all or substantially
all of the assets of the Corporation, rank senior to all classes of
Common Stock of the Corporation and to each other series of Preferred
Stock of the Corporation other than the Series A Preferred Stock
referenced in the following sentence (the Common Stock and all series
of Preferred Stock other than the Series A Preferred Stock is
hereinafter referred to as "Junior Stock"). The Series B Preferred
Stock shall, with respect to (i) dividends, (ii) distributions upon
liquidation, winding up and dissolution of the
<PAGE> 2
Corporation, and (iii) distribution upon merger, share exchange or a
sale or other disposition of all or substantially all of the assets of
the Corporation, rank junior to the Series A Preferred Stock authorized
pursuant to the Certificate of Designation of Rights of Series A
Preferred Shares of Automotive Performance Group, Inc., dated August 4,
1998 ("Senior Stock").
2. DIVIDENDS.
(a) The holders of the then outstanding shares of Series B
Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available therefor,
dividends on each share of Series B Preferred Stock, at a rate per
annum equal to 13% of the stated value per share of the Series B
Preferred Stock. All dividends shall be cumulative on a daily basis
from the date of issuance of the Series B Preferred Stock and shall be
payable quarterly in arrears; when, as and if declared by the Board of
Directors, on March 31, June 30, September 30, and December 31 of each
year (each, a "Dividend Date"). Dividends shall be paid by the issuance
of additional shares of Series B Preferred Stock (including fractional
shares) having an aggregate stated value equal to the amount of each
dividend. Each dividend shall be payable, out of funds legally
available therefor, pro-rata to the holders of record of Series B
Preferred Stock as they appear on the stock books of the Corporation on
the date fifteen days preceding the Dividend Date for such dividend.
(b) So long as any share of the Series B Preferred Stock is
outstanding, the Corporation shall not declare, pay or set apart for
payment any dividend on any Junior Stock or make any payment on account
of, or set apart for payment money for a sinking or other similar fund
for, the purchase, redemption or other retirement of, any Junior Stock
or any warrants, rights, calls or options exercisable for or
convertible into any Junior Stock, whether in cash, obligations or
shares of the Corporation or other property, and shall not permit any
corporation or other entity directly or indirectly controlled by the
Corporation to purchase or redeem any Junior Stock or any such
warrants, rights, calls or options unless full cumulative dividends
determined in accordance herewith on the Series B Preferred Stock have
been paid in full.
(c) Dividends payable on the Series B Preferred Stock for any
period less than a year shall be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed in
the period for which payable.
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<PAGE> 3
3. LIQUIDATION PREFERENCE.
(a) Upon any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, the holders of shares
of Series B Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to
its stockholders, before any distribution or payment shall be made to
the holders of Junior Stock but after all required distributions or
payments have been made to the holders of Senior Stock, an amount (to
the extent possible, in cash) equal to the greater of (i) the stated
value of each share plus accumulated and unpaid dividends thereon to
the date fixed for liquidation, dissolution or winding up (including an
amount equal to a prorated dividend for the period from the last
Dividend Date to the date fixed for liquidation, dissolution or winding
up), and (ii) the amount that would be payable to the holders of the
Series B Preferred Stock if such holders had converted all outstanding
shares of Series B Preferred Stock into shares of Common Stock
immediately prior to such liquidation, dissolution or other winding up.
If such payment shall have been made in full to the holders of the
Series B Preferred Stock, the remaining assets and funds of the
Corporation shall be distributed among the holders of Junior Stock,
according to their respective shares and priorities. If, upon any such
liquidation, dissolution or other winding up of the affairs of the
Corporation, the net assets of the Corporation distributable among the
holders of all outstanding shares of the Series B Preferred Stock shall
be insufficient to permit the payment in full to such holders of the
preferential amounts to which they are entitled, then the entire net
assets of the Corporation shall be distributed among the holders of the
Series B Preferred Stock ratably in proportion to the full amounts to
which they would otherwise be respectively entitled.
(b) In the event of any merger or share exchange of the
Corporation, or a sale or other disposition of all or substantially all
of the assets of the Corporation ("Capital Transaction"), the holders
of the Series B Preferred Stock then outstanding shall be entitled to
receive, before any payment or declaration and setting apart for
payment of any amount shall be made in respect of Junior Stock, but
after all required distributions or payments have been made to the
holders of Senior Stock, for each share of Series B Preferred Stock so
held, in cash or securities (including, without limitation, debt
securities) received from the acquiring corporation at the closing of
any such Capital Transaction, an amount equal to the amount payable
with respect to each share of Series B Preferred Stock under Section
3(a) hereof had the Corporation been liquidated at the closing of any
such Capital Transaction. If the payment required under this Section
3(b) shall have been made in full to the holders of the Series B
Preferred Stock, the remaining assets and funds of the Corporation
shall be distributed among the holders of Junior Stock, according to
their respective
3
<PAGE> 4
shares and priorities. If the proceeds of a Capital Transaction shall
be insufficient to permit the payment in full to the holders of the
Series B Preferred Stock of the preferential amounts to which they are
entitled, then the entire proceeds of such transaction shall be
distributed among the holders of the Series B Preferred Stock ratably
in proportion to the full amounts to which they would otherwise be
respectively entitled.
(c) If non-cash assets are received in a Capital Transaction
with respect to which Section 3(b) applies, the assets received for
purposes of Section 3(b) shall be valued as follows:
(i) If the assets received are securities that are
listed on NASDAQ or an exchange, the value shall be deemed to be the
three day high average closing price (or average between bid/ask if
OTC) on such exchange or NASDAQ over the thirty day period prior to the
closing of the Capital Transaction in which the securities are
received.
(ii) If the assets received are of readily
ascertainable market value, then that value shall be used.
(iii) If the assets are unlisted securities or other
assets that do not have a readily ascertainable value, the Board of
Directors, in good faith, shall value said assets.
(iv) The fact that assets to be received in a Capital
Transaction may require a valuation process as described herein shall
not delay closing the transaction by which the assets are to be
received.
(d) With respect to any transaction which involves a merger or
exchange of shares, or a sale of substantially all of the assets of the
Corporation, the holders of the Series B Preferred Stock shall receive
not less than 10 days notice of the transaction and the terms and
conditions thereof.
4. REDEMPTION.
(a) The Corporation may, at its option, at any time on or
after the fourth anniversary of the date of issuance of Series B
Preferred Stock, redeem such Series B Preferred Stock, in whole or in
part, for a redemption price (the "Redemption Price") equal to the
stated value of the stock being redeemed, plus an amount equal to all
accumulated and unpaid dividends (including, but not limited to, an
amount equal to a prorated dividend for the period from the immediately
preceding Dividend Date to the redemption date) thereon.
4
<PAGE> 5
(b) At least thirty (30) days and not more than sixty (60)
days prior to the date fixed for any redemption of the Series B
Preferred Stock, written notice (the "Redemption Notice") shall be
given by first class mail, postage prepaid, to each holder of record on
the record date fixed for such redemption of the Series B Preferred
Stock ("Holder") at such Holder's address as it appears on the stock
books of the Corporation, provided that no failure to give such notice
nor any deficiency therein shall affect the validity of the procedure
for the redemption of any shares of Series B Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Corporation has
failed to give said notice or except as to the Holder or Holders whose
notice was defective. The Redemption Notice shall state:
(i) The redemption price;
(ii) Whether all or less than all the outstanding
shares of the Series B Preferred Stock are to be redeemed and the total
number of shares of the Series B Preferred Stock being redeemed
("Redeemed Shares");
(iii) The date fixed for redemption ("Redemption
Date");
(iv) That the Holder is to surrender to the
Corporation, in the manner, at the place or places and at the price
designated, his certificate or certificates representing the shares of
Series B Preferred Stock to be redeemed; and
(v) That dividends on the shares of the Series B
Preferred Stock to be redeemed shall cease to accumulate on such
Redemption Date unless the Corporation defaults in the payment of the
Redemption Price.
(c) Each Holder shall surrender the certificate or
certificates representing the Redeemed Shares to the Corporation, duly
endorsed (or otherwise in proper form for transfer, as determined by
the Corporation), in the manner and at the place designated in the
Redemption Notice, and on the Redemption Date the full redemption price
for such shares shall be payable in cash to the Holder thereof, and
each surrendered certificate shall be canceled and retired. In the
event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(d) On and after the Redemption Date, unless the Corporation
fails to make payment in full of the applicable Redemption Price,
dividends on the Series B Preferred Stock called for redemption shall
cease to accumulate and all rights of the Holders of Redeemed Shares
(including, without limitation, the
5
<PAGE> 6
conversion rights set forth in Section 5 hereof) shall terminate with
respect thereto, other than the right to receive the Redemption Price;
provided, however, that if a Redemption Notice shall have been given as
provided in Section (4)(a) above and the funds necessary for redemption
(including an amount in cash in respect of all dividends that will
accumulate to the Redemption Date) shall have been irrevocably
deposited in trust for the equal and ratable benefit of the Holders of
the shares to be redeemed, then, at the close of business on the day on
which such funds are segregated and set aside, all rights of the
Holders of the shares to be redeemed (including, without limitation,
the conversion rights set forth in Section 5 hereof) shall terminate.
5. CONVERSION RIGHTS. The Series B Preferred Stock shall be convertible
as follows:
(a) Subject to and upon compliance with the provisions of this
Section 5, the holder of any share of Series B Preferred Stock shall
have the rights, at such holder's option, to convert such share of
Series B Preferred Stock into fully paid and nonassessable shares of
Common Stock, in each case at the Conversion Price set forth in Section
5(b), below, in effect on the Conversion Date (as defined in Section
5(c) below). If the Series B Preferred Stock has been called for
redemption, such right of conversion shall terminate as provided in
Section 5(d) hereof.
(b) Each share of Series B Preferred Stock shall be converted
into a number of shares of Common Stock determined by dividing (i) the
stated value of such Series B Preferred Stock plus an amount equal to
the accumulated and unpaid dividends thereon to the Conversion Date
(including an amount equal to a prorated dividend for the period from
the last Dividend Date to the Conversion Date) by (ii) the "Conversion
Price." For purposes hereof, the Conversion Price shall initially be
Two Dollars ($2.00) per share and shall be subject to adjustment in
accordance with the provisions of Section 5(e) below.
(c) The holder of any shares of Series B Preferred Stock may
exercise the conversion right specified in Section 5(a) by surrendering
to the Corporation or any transfer agent of the Corporation the
certificate or certificates for the shares to be converted, accompanied
by written notice specifying the number of shares to be converted.
Conversion shall be deemed to have been effected on the date when
delivery of notice of an election to convert and certificates for
shares is received by the Corporation and such date is referred to
herein as the "Conversion Date." Subject to the provisions of
Subsection 5(e)(vii), as promptly as practicable thereafter, the
Corporation shall issue and deliver to or upon the written order of
such holder a certificate or certificates for the number of full shares
of Common Stock to which such holder
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<PAGE> 7
is entitled, and a check or cash with respect to any fractional
interest in a share of Common Stock, as provided in Section 5(d).
Subject to the provisions of Subsection 5(e)(vii),
the person in whose name the certificate or certificates for Common
Stock are to be issued shall be deemed to have become a holder of
record of such Common Stock, immediately prior to the close of business
on the Conversion Date. Upon conversion of only a portion of the number
of shares covered by a certificate representing shares of Series B
Preferred Stock surrendered for conversion, the Corporation shall issue
and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Series
B Preferred Stock representing the unconverted portion of the
certificate so surrendered.
(d) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. Instead of any
fractional shares of Common Stock that would otherwise be issuable upon
conversion of any shares of Series B Preferred Stock, the Corporation
shall pay a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of a share of Common Stock
multiplied by the then market price of each share.
(e) The Conversion Price shall be subject to adjustment from
time to time as follows:
(i) If the Corporation shall issue any Common Stock,
other than "Excluded Stock" (as defined below), without consideration
or for a consideration per share less than $2.00/share (other than
pursuant to a bona fide underwritten offering (including so-called Rule
144A offerings) or in connection with a bona fide acquisition of a
business or a line of business or division to be used in the operation
of the business of the Corporation (whether pursuant to a merger, asset
acquisition or otherwise)), the Conversion Price in effect immediately
prior to each such issuance shall immediately (except as provided
below) be reduced to the price determined by multiplying the Conversion
Price in effect immediately prior to such issuance by a fraction (A)
the numerator of which is the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such issuance and (2) the number
of shares of Common Stock that the aggregate consideration, if any,
received by the Corporation upon such issuance, would purchase at
$2.00/share and (B) the denominator of which is the total number of
shares of Common Stock outstanding immediately after such issuance.
7
<PAGE> 8
For purposes of this Section 5(e), "Excluded
Stock" means shares of Common Stock issued or reserved for issuance by
the Corporation (i) as a stock dividend payable in shares of Common
Stock, (ii) upon any subdivision or split up of the outstanding shares
of Common Stock, (iii) upon conversion of shares of preferred stock of
any class, (iv) pursuant to the Corporation's stock option plan, (v) in
a transaction that is addressed in this Section 5(e) (other than this
Subsection 5(e)(i)), or (vi) with respect to the exercise of warrants
issued to Lancer Offshore, Inc., the Orbiter Fund or Dominion Income
Management Corp. under Warrants all of which were issued on July 30,
1999.
For the purposes of any adjustment of the
Conversion Price pursuant to this Section 5(e), the following
provisions shall be applicable:
(A) In the case of the issuance of Common
Stock for cash, the amount of the consideration received by the
Corporation shall be deemed to be the amount of the cash proceeds
received by the Corporation for such Common Stock before deducting
therefrom any discounts, commissions, taxes or other expenses allowed,
paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(B) In the case of the issuance of Common
Stock (otherwise than upon the conversion of shares of capital stock or
other securities of the Corporation) for a consideration in whole or in
part other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair market
value thereof, irrespective of any accounting treatment.
(C) In the case of the issuance of (1)
options, warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (2) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at
the time so convertible or exchangeable) or options, warrants or rights
to purchase such convertible or exchangeable securities (whether or not
at the time exercisable):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options,
warrants or other rights to purchase or acquire Common Stock shall be
deemed to have been issued at the time such options, warrants or rights
were issued and for a consideration equal to the consideration
(determined in the manner provided in subclauses (A) and (B) above), if
any, received by the Corporation upon the issuance of such options,
warrants or rights plus the minimum purchase price
8
<PAGE> 9
provided in such options, warrants or rights for the shares of Common
Stock covered thereby;
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities, or upon the
exercise of options, warrants or other rights to purchase or acquire
such convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been issued at
the time such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the consideration,
if any, received by the Corporation for any such securities and related
options, warrants or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the additional
consideration (determined in the manner provided in subclauses (A) and
(B) above), if any, to be received by the Corporation upon the
conversion or exchange of such securities, or upon the exercise of any
related options, warrants or rights to purchase or acquire such
convertible or exchangeable securities and the subsequent conversion or
exchange thereof;
(3) On any change in the number of
shares of Common Stock deliverable upon exercise of any such options,
warrants or rights or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be
received by the Corporation upon such exercise, conversion or exchange,
including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price as then in
effect shall forthwith be readjusted to such Conversion Price as would
have been obtained had an adjustment been made upon the issuance of
such options, warrants or rights not exercised prior to such change, or
of such convertible or exchangeable securities not converted or
exchanged prior to such change, upon the basis of such change;
(4) On the expiration or
cancellation of any such options, warrants or rights that are
unexercised, or the termination of the right to convert or exchange
such convertible or exchangeable securities, if the Conversion Price
shall have been adjusted upon the issuance thereof, the Conversion
Price shall forthwith be readjusted to such Conversion Price as would
have been obtained had an adjustment been made upon the issuance of
such options, warrants, rights or such convertible or exchangeable
securities on the basis of the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
9
<PAGE> 10
(5) If the Conversion Price shall
have been adjusted upon the issuance of any such options, warrants,
rights or convertible or exchangeable securities, no further adjustment
of the Conversion Price shall be made for the actual issuance of Common
Stock upon the exercise, conversion or exchange thereof.
(ii) All shares of Excluded Stock which the
Corporation has reserved for issuance shall be deemed to be outstanding
for all purposes of computations under Subsection 5(e)(i).
(iii) If the Corporation shall (A) declare a dividend
or make a distribution on its Common Stock in shares of its Common
Stock, (B) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares, or (C) combine or reclassify the
outstanding Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so
that the holder of any shares of Series B Preferred Stock surrendered
for conversion after such date shall be entitled to receive the number
of shares of Common Stock that such holder would have owned or been
entitled to receive had such Series B Preferred Stock been converted
immediately prior to such date. Successive adjustments in the
Conversion Price shall be made whenever any event specified above in
this clause (iii) shall occur.
(iv) In case the Corporation shall fix a record date
for the making of a distribution (an "Extraordinary Distribution") to
all holders of shares of its Common Stock (A) of shares of any class
other than its Common Stock or (B) of evidences of indebtedness of the
Corporation or (C) of assets, including but not limited to, securities
issued by or others (excluding dividends or distributions referred to
in Subsection 5(e)(iii) above), or (D) of options, warrants or other
rights (excluding those referred to in Subsection 5(e)(i) above), then
in each such case either, at the option of the Corporation, (x) the
Corporation shall declare and distribute to each holder of shares of
Series B Preferred Stock a dividend or distribution in the same form
and kind, and at the same time, as the Extraordinary Distribution and
in an amount so that such holder shall receive the same dividend or
distribution as if such shares of Series B Preferred Stock had been
converted to Common Stock immediately prior to the record date for the
Extraordinary Distribution, or (y) the Conversion Price in effect
immediately prior thereto shall be reduced immediately thereafter to
the price determined by dividing (1) an amount equal to the difference
resulting from (A) the number of shares of Common Stock outstanding on
such record date multiplied by the Conversion Price per share on such
record date, less (B) the fair market value of said shares or evidences
of indebtedness or assets or
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<PAGE> 11
rights or warrants to be so distributed, by (2) the number of shares of
Common Stock outstanding on such record date. Such adjustment shall be
made successively whenever such a record date is fixed. In the event
that such distribution is not so made, the Conversion Price then in
effect shall be readjusted, effective as of the date when the Board of
Directors determines not to distribute such shares, evidences of
indebtedness, assets, rights or warrants, as the case may be, to the
Conversion Price which would then be in effect if such record date had
not been fixed.
(v) In case of any consolidation with or merger of
the Corporation with or into another corporation or entity, or in case
of any sale, lease or conveyance to another corporation of the assets
of the Corporation as an entirety or substantially as an entirety, each
share of Series B Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into
the number of shares of stock or other securities or property
(including cash) to which the Common Stock issuable (immediately prior
to the time of such consolidation, merger, sale, lease or conveyance)
upon conversion of such share of Series B Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or
conveyance; and in any such case, if necessary, the provisions set
forth herein with respect to the rights and interests thereafter of the
holders of the shares of Series B Preferred Stock shall be
appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to any shares of stock or other securities or property
thereafter deliverable on the conversion of the shares of Series B
Preferred Stock.
(vi) All calculations under this Section 5(e) shall
be made to the nearest cent or to the nearest one ten thousandth of a
share, as the case may be.
(vii) In any case in which the provisions of this
Section 5(e) shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of any
share of Series B Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock
issuable upon such conversion before giving effect to such adjustment
and (B) paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to Section 5(d); provided
that the Corporation, upon request, shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares, and such cash, upon the occurrence of
the event requiring such adjustment.
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<PAGE> 12
(f) Whenever the Conversion Price shall be adjusted, the
Corporation shall forthwith file, at the office of any transfer agent
for the Series B Preferred Stock and at the principal office of the
Corporation, a statement showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each
holder of shares of Series B Preferred Stock at its address appearing
on the Corporation's records. Where appropriate, such copy may be given
in advance and may be included as part of a notice required to be
mailed under the provisions of Section 5(g).
(g) In the event the Corporation shall propose to take any
action of the type described in clause (i) (but only if the action of
the type described in clause (i) would result in an adjustment in the
Conversion Price), (iii), (iv) or (v) of Section 5(e), the Corporation
shall give notice to each holder of shares of Series B Preferred Stock,
in the manner set forth in Section 5(f), which notice shall specify the
record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable upon conversion of
shares of Series B Preferred Stock. In the case of any action which
would require the fixing of a record date, such notice shall be given
at least ten days prior to the date so fixed, and in case of all other
action, such notice shall be given at least fifteen days prior to the
taking of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any such
action.
(h) For the purposes of this Section 5, the sale or other
disposition of any Common Stock theretofore held in the Corporation's
treasury shall be deemed to be an issuance thereof.
(i) The Corporation shall pay all documentary, stamp, transfer
or other transnational taxes attributable to the issuance or delivery
of shares of Common Stock, upon conversion of any shares of Series B
Preferred Stock; provided that the Corporation shall not be required to
pay any taxes which may be payable in respect of any transfer involved
in the issuance or delivery of any certificate for such shares in a
name other than that of the holder of the shares of Series B Preferred
Stock in respect of which such shares are being issued.
(j) The Corporation shall reserve at all times so long as any
shares of Series B Preferred Stock remain outstanding, free from
preemptive rights, out
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<PAGE> 13
of its treasury stock (if applicable) or its authorized but unissued
shares, or both, solely for the purpose of effecting the conversion of
the shares of Series B Preferred Stock, sufficient shares of Common
Stock to provide for the conversion of all outstanding shares of Series
B Preferred Stock.
(k) If, and so long as, any Common Stock into which the shares
of Series B Preferred Stock are then convertible is then listed on any
national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of such Common Stock issuable
upon conversion.
(l) All shares of Common Stock which may be issued upon
conversion of the shares of Series B Preferred Stock will upon issuance
by the Corporation be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect
to the issuance thereof, and the Corporation shall take no action which
will cause a contrary result (including without limitation, any action
which would cause the Conversion Price to be less than the par value,
if any, of the Common Stock).
6. REGISTRATION RIGHTS.
(a) If the holders of a majority of the Series B Preferred
Stock shall have given notice of election for a conversion as provided
in Section 5, said holders may request registration of the Common Stock
to be received on conversion in a single registration. Such
registration rights shall not apply, unless waived by the Corporation,
to Common Stock received upon prior conversions.
(b) Upon such a request being made by the holders of a
majority of the Series B Preferred Stock, the Corporation will notify
all of the remaining holders of Series B Preferred Stock, and they
shall be deemed to have requested the registration and shall be fully
subject thereto.
(c) The Corporation will use its best efforts to effect a
single public registration on the appropriate form available thereto of
all converted shares before delivery to the holders of the Series B
Preferred Stock so converted. The Corporation will be under no
obligation to secure an underwriter or other seller for the shares, and
sales of shares after the registration will be solely the
responsibility of said holders.
(d) To the extent required to effect the registration,
converting shareholders shall fully cooperate with the Corporation and
its counsel. Failure
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<PAGE> 14
to cooperate will entitle the Corporation to exclude a holder from the
registration.
(e) The Corporation may effect the registration required under
this Section 6 by piggyback registration on a Corporation offering if
it so elects, or a piggyback registration by another corporation, if
made in conjunction with an issuance of shares by that company to the
shareholders of the Corporation or if the Corporation is subject to an
acquisition, plan of reorganization, consolidation, exchange or merger,
and registered shares are to be issued in conjunction therewith.
7. VOTING RIGHTS.
(a) Each holder of Series B Preferred Stock shall be entitled
to vote on all matters, including election of the Board of Directors,
and, except as otherwise expressly provided herein, shall be entitled
to the number of votes equal to the number of shares of Common Stock
into which the holder's shares of Series B Preferred Stock could then
be converted.
(b) Unless otherwise required by law, the holders of Series B
Preferred Stock and the holders of Common Stock shall vote together on
all matters upon which shareholders are permitted to vote and not as
separate classes. In those cases where the holders of the Series B
Preferred Stock are required by law to vote as a separate class, the
vote required by said class for approval of the proposed action shall
be a simple majority of the class.
8. REISSUANCE OF SERIES B PREFERRED STOCK. Shares of Series B Preferred
Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with
any applicable provisions of the laws of Delaware) have the status of
authorized and unissued shares of Preferred Stock undesignated as to
series and may be redesignated and reissued as part of any series of
Preferred Stock, provided that any issuance of such shares of Preferred
Stock must be in compliance with the terms hereof.
9. SEC REPORTS. The Corporation will provide to the holders of the
Series B Preferred Stock within 15 days after it files them with the
Securities Exchange Commission ("Commission"), copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may by rules
and regulations prescribe) which the Corporation files with the
Commission pursuant to Section 13 or 15 (d) of the Exchange Act.
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<PAGE> 15
10. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Series B Preferred Stock shall not have any
preferences or relative, participating, optional or other special
rights, other than those specifically set forth in this Resolution (as
this Resolution may be amended from time to time) and in the
Corporation's Certificate of Incorporation. Shares of Series B
Preferred Stock shall have no preemptive or subscription rights.
11. MAJORITY CONSENT OF SERIES B PREFERRED STOCK HOLDERS REQUIRED
BEFORE ISSUANCE OF NEW SERIES A PREFERRED STOCK. Prior to the date
hereof, all of the outstanding shares of Series A Preferred Stock of
the Corporation have been converted into Common Stock of the
Corporation. The Corporation covenants and agrees that it shall not
issue any new or further shares of Series A Preferred Stock without the
prior written consent of the holders of a majority of the outstanding
shares of Series B Preferred Stock at such time.
12. SEVERABILITY OF PROVISIONS OF ANY RIGHT, PREFERENCE OR LIMITATION
OF THE SERIES B PREFERRED STOCK. If any provision set forth in this
Resolution (as this Resolution may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule
of law or public policy, all other rights, preferences and limitations
set forth in this Resolution (as so amended) which can be given effect
without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no
right, preference or limitation herein set forth shall be deemed
dependent upon any such other right, preference or limitation unless so
expressed herein.
IN WITNESS WHEREOF, said Automotive Performance Group, Inc. has caused
this Certificate of Designation to be signed by Carl Walker, its Secretary, this
29th day of July, 1999.
AUTOMOTIVE PERFORMANCE, GROUP, INC.
By: /s/ Carl Walker .
-----------------------------------------
Carl Walker, Secretary
15
<PAGE> 1
APG AGREEMENT
AMONG
AUTOMOTIVE PERFORMANCE GROUP, INC.,
PBT BRANDS, INC.,
AND
THE APG PARTIES NAMED HEREIN
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
SECTION 1.1 Definitions................................................... 1
</TABLE>
ARTICLE II
REPRESENTATIONS OF APG AND
THE APG PARTIES
<TABLE>
<S> <C>
SECTION 2.1 Due Incorporation............................................. 3
SECTION 2.2 Due Authorization............................................. 3
SECTION 2.3 Consents and Approvals; Authority Relative to This Agreement.. 4
SECTION 2.4 Brokers; Equity Participants.................................. 4
SECTION 2.5 Capitalization; Subsidiaries.................................. 4
SECTION 2.6 Accuracy of Information....................................... 5
SECTION 2.7 Other Matters................................................. 5
</TABLE>
ARTICLE III
COVENANTS AND AGREEMENTS
<TABLE>
<S> <C>
SECTION 3.1 Formation of Special Purpose Subsidiary....................... 6
SECTION 3.2 Subsidiary Contribution of All Existing Assets and Liabilities 7
SECTION 3.3 Redemption and Conversion of APG Preferred Stock.............. 7
SECTION 3.4 Exchange of Bridge Debt and Other Debt; Issuance of Preferred
Stock......................................................... 8
SECTION 3.5 Employment and Stock Matters.................................. 8
SECTION 3.6 APG Stock Option Grants....................................... 9
SECTION 3.7 Contingent Stock Grants and Amendments........................ 9
SECTION 3.8 Opinion of Counsel to APG..................................... 10
</TABLE>
ARTICLE IV
BENEFITS, RELEASE AND INDEMNITIES
<TABLE>
<S> <C>
SECTION 4.1 APG Reimbursements, Payments and Investment................... 10
SECTION 4.2 Release....................................................... 10
SECTION 4.3 Indemnification by APG........................................ 11
</TABLE>
-i-
<PAGE> 3
ARTICLE V
MISCELLANEOUS
<TABLE>
<S> <C>
SECTION 5.1 Expenses...................................................... 12
SECTION 5.2 Amendment..................................................... 12
SECTION 5.3 Notices....................................................... 12
SECTION 5.4 Waivers....................................................... 13
SECTION 5.5 Counterparts.................................................. 13
SECTION 5.6 Interpretation................................................ 13
SECTION 5.7 APPLICABLE LAW................................................ 13
SECTION 5.8 Binding Agreement............................................. 14
SECTION 5.9 Third Party Beneficiaries..................................... 14
SECTION 5.10 Entire Understanding.......................................... 14
SECTION 5.11 JURISDICTION OF DISPUTES; WAIVER OF JURY TRIAL................ 14
SECTION 5.12 Severability.................................................. 15
SECTION 5.13 Construction.................................................. 15
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
EXHIBIT A - APG Subscription Agreement
EXHIBIT B - APG Stockholders Agreement
EXHIBIT C - Form of Option Agreement
EXHIBIT D - Certified APG Board Resolutions
EXHIBIT E - Contingent Stock Arrangements
EXHIBIT F - Terms of Series B Preferred Stock
</TABLE>
<TABLE>
<CAPTION>
Schedules
<S> <C>
Schedule I - APG Parties
Schedule 2.3 - Consents, Filings
Schedule 2.4 - Brokers
Schedule 2.5 - Capitalization
Schedule 2.6 - SEC Filings
Schedule 3.3 - Preferred Stock
Schedule 3.4 - Bridge Debt
Schedule 3.5 - Shared Employees
Schedule 3.6 - Stock Option Grants
Schedule 4.1 - Reimbursed Expense Invoices
Schedule 6.4 - APG Parties Notice Information
</TABLE>
-ii-
<PAGE> 4
APG AGREEMENT
THIS APG AGREEMENT (this "Agreement"), is made as of August 2, 1999, by
and among Automotive Performance Group, Inc., a Delaware corporation ("APG"),
the shareholders of APG listed on Schedule I (the "APG Parties") and PBT Brands,
Inc., a Delaware corporation, together with its subsidiaries ("PBT").
R E C I T A L S
WHEREAS, APG and PBT are party to that certain Letter of Intent, dated
July 13, 1999, (the "PBT Letter of Intent") relating to the acquisition by PBT
of the net assets and business of the Automotive Aftermarket Division of Loctite
("Permatex");
WHEREAS, APG and Loctite are party to that certain Letter of Intent,
dated February 1999 (the "APG Letter of Intent") relating to the acquisition by
APG of Permatex;
WHEREAS, PBT's wholly-owned subsidiary Permatex Acquisition, Inc.
("Permatex Acquisition") has entered into that certain Asset Purchase Agreement,
dated the date hereof, with Loctite Corporation and Manco, Inc. (the "Permatex
Asset Purchase Agreement");
WHEREAS, APG has made certain loans and deposits in respect of certain
proposed transactions which in consideration of the agreements set forth herein,
PBT shall reimburse as set forth herein;
WHEREAS, as a condition to the closing of the transactions contemplated
by the PBT Letter of Intent and the Permatex Asset Purchase Agreement, PBT
requires that each of APG and the APG Parties provide a release in favor of PBT
and its affiliates for certain liabilities as set forth herein, that APG provide
an indemnity in favor of PBT as set forth herein, and agree to perform the
covenants set forth herein;
NOW, THEREFORE, in consideration of the agreements set forth herein,
including the release contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms shall have the following
meanings for the purposes of this Agreement:
"AC Tech" means Advanced Chemistry & Technology, Inc., a Delaware
corporation.
<PAGE> 5
"AC Tech Letter of Intent" means that certain letter dated February 8,
1999 between Ampersand and APG relating to the sale of the capital Stock of AC
Tech.
"AC Tech Stock Purchase Agreement" means the Stock Purchase Agreement,
dated as of the date hereof, among Permatex Acquisition, Advanced Chemistry &
Technology, Inc. ("AC Tech") and the stockholders named therein.
"Agreement" has the meaning set forth in the preamble.
"Ampersand" means Ampersand Specialty Materials and Chemicals III
Limited Partnership and Ampersand Specialty Materials and Chemicals III
Companion Fund Limited Partnership, their successors and assigns.
"APG" has the meaning set forth in the preamble.
"APG Newco" has the meaning set forth in Section 3.2.
"APG Reimbursement" has the meaning set forth in Section 4.1(a).
"APG Special Purpose Sub" has the meaning set forth in Section 3.1.
"APG Subscription Agreement" has the meaning set forth in Section 3.1.
"APG 1998 Stock Option Plan" means the 1998 Stock Option Plan of APG as
duly adopted by the board of directors and stockholders of APG as in effect on
the date hereof, a copy of which has been furnished to PBT.
"Bridge Notes" has the meaning set forth in Section 3.4.
"Closing" means the closing of PBT's acquisition of the Automotive
Aftermarket Division of Loctite Corporation and of Advanced Chemistry and
Technology, Inc. and related financing and transactions.
"Common Stock" means the Common Stock, par value $0.0001 per share, of
APG.
"Downstream Assets" has the meaning set forth in Section 4.2.
"Loctite" means Loctite Corporation, a Delaware corporation.
"Loss" or "Losses" shall mean any and all damages, liabilities,
judgments, penalties, fines, losses, taxes and reasonable costs and expenses,
including but not limited to, attorneys' fees and accounting fees, consulting
fees and related disbursements.
"Other Debt" has the meaning set forth in Section 3.4(c).
2
<PAGE> 6
"PBT" has the meaning set forth in the preamble.
"PBT Investment" has the meaning set forth in Section 2.7.
"PBT Letter of Intent" has the meaning set forth in the recitals.
"PBT Stockholders Agreement" has the meaning set forth in Section 4.1.
"Permatex" has the meaning set forth in the recitals.
"Permatex Acquisition" means PBT's acquisition of the Automotive
Aftermarket Division of Loctite Corporation.
"Permatex Asset Purchase Agreement" has the meaning set forth in the
recitals.
"Related Agreements" means, with respect to any party hereto, the
agreements which are exhibits hereto, together with all other agreements
contemplated hereby and thereby.
"Preferred Stock" means the Preferred Stock, par value of $0.0001 per
share, of APG.
"Series B Preferred Stock" means the Series B Convertible Redeemable
Preferred Stock, par value $0.0001 per share, of APG having the terms set forth
on Exhibit F hereto.
"Subsidiary Contribution" has the meaning set forth in Section 4.2.
ARTICLE II
REPRESENTATIONS OF APG AND
THE APG PARTIES
SECTION 2.1 Due Incorporation. APG is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with all requisite power and authority to own and operate its assets and
properties as they are now being owned and operated.
SECTION 2.2 Due Authorization. Each of APG and the APG Parties has full
power and authority to enter into this Agreement and its Related Agreements and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by each APG and the APG Parties of this Agreement and
its Related Agreements have been duly and validly approved by the board of
directors of APG, and equivalent body of the APG Parties, and no other corporate
or other actions or proceedings on the part of APG and the APG Parties are
necessary to authorize this Agreement, its Related Agreements and the
transactions contemplated hereby and thereby. Each of APG and the APG Parties
has duly and validly executed and delivered this Agreement and has duly and
validly executed and delivered its Related
3
<PAGE> 7
Agreements. This Agreement constitutes the legal, valid and binding obligation
of each of APG and the APG Parties and such party's Related Agreements, upon
execution and delivery by such party, will constitute legal, valid and binding
obligations of each of APG and the APG Parties, in each case, enforceable in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws in effect which affect the enforcement of creditors' rights
generally and by equitable principles.
SECTION 2.3 Consents and Approvals; Authority Relative to This
Agreement. The execution, delivery and performance by each of APG and the APG
Parties of this Agreement and its Related Agreements will not (i) violate any
law, regulation or order of any governmental authority applicable to such party;
(ii) except as set forth on Schedule 2.3 all of which have been made or will be
timely made, require any filing or registration by such party with, or consent
or approval with respect to such party of, any governmental authority; (iii)
violate or conflict with or result in a breach or default under any contract to
which such party is a party or by which such party or any of its assets or
properties are bound; or (iv) violate or conflict with their charter, by-laws or
other organizational documents.
SECTION 2.4 Brokers; Equity Participants.
(a) Neither APG nor any APG Party has used any broker or finder in
connection with the transactions contemplated by the PBT Letter of Intent, the
Permatex Asset Purchase Agreement, the AC Tech Stock Purchase Agreement, this
Agreement or the Related Agreements, nor entered into negotiations or agreements
with any equity participant other than those listed on Schedule 2.4 hereto, and
APG represents, warrants and confirms that neither PBT, nor any Released Party
(as defined in Section 4.2) has or shall have any liability or otherwise suffer
or incur any Loss as a result of or in connection with any brokerage, finder's
fee, other commission or other liability or payment of any Person retained by
APG or an APG Party in connection with any of the transactions contemplated by
the PBT Letter of Intent, this Agreement, the Permatex Acquisition, the AC Tech
Acquisition or the Related Agreements. Each of the brokers, finders and
financiers listed on Schedule 2.4 has executed and delivered a Pay-Off and
Release letter in form and substance satisfactory to PBT, unless and to the
extent waived by PBT. With regard to such brokers, finders and financiers, PBT
has either paid or will pay at the direction of APG, on behalf of APG, and/or
reimbursed APG for the amounts (collectively, the "Pay-Off Amount"), set forth
on Schedule 2.4, but in each such case only to the extent that Pay-Off and
Release letters in form and substance satisfactory to PBT have been executed and
delivered by such parties. The Pay-Off Amount shall not exceed $4.8 million in
the aggregate.
SECTION 2.5 Capitalization; Subsidiaries. Each beneficial holder of
Preferred Stock as of immediately prior to the date hereof is listed on Schedule
2.5. Schedule 2.5 lists entire authorized capital stock of the Company as of the
date immediately prior to the date hereof and, on a pro forma basis giving
effect to the conversion of Bridge Debt and Preferred Stock contemplated hereby.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights or other contracts or
commitments that would require APG to issue, sell, or otherwise cause to become
outstanding any of its capital
4
<PAGE> 8
stock other than set forth on Schedule 2.5, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to APG, there are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of capital stock of APG,
except in each such case as disclosed on Schedule 2.5. The beneficial ownership
percentage of all 5% or greater stockholders, officers, directors, including
Dean Willard and all recipients of stock options and restricted stock as
described in Sections 4.6 and 4.7 as of the date hereof, after giving effect to
the Transactions and the conversion of all outstanding shares of Preferred Stock
and Series B Preferred Stock are set forth on Schedule 2.5.
SECTION 2.6 Accuracy of Information. All forms, reports, statements
(including without limitation any financial statements and schedules) and
documents filed with the SEC by APG (the "SEC Documents"), have complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act, as applicable, and the laws, regulations and rules relating
thereto. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and none of the SEC Documents, at the time of their
filing, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The Company has timely filed all registration statements, reports
and other filings required to be filed with the Securities and Exchange
Commission under its rules and regulations except as set forth on Schedule 2.6.
No material developments have occurred since the date of APG's last report on
Form 10-Q which have not been disclosed to PBT, including any such material
development which would be required to be disclosed in a 10-Q or Report on 8-K.
SECTION 2.7 Other Matters.
(a) APG represents, warrants and confirms to PBT that it is not as of
the date hereof, or after giving effect to the transactions contemplated hereby,
by the Related Agreements and the Permatex Acquisition and the AC Tech
Acquisition (the "Transactions"), an affiliate, joint venturer or partner of PBT
or any of its subsidiaries or affiliates.
(b) Each of APG and the APG Parties acknowledges that such person has
received and has had ample opportunity to review and understand the current form
of this Agreement, all of the exhibits and schedules hereto, and all of its
Related Agreements including the terms of the investment by APG in PBT capital
stock (the "APG PBT Investment") pursuant to the APG Subscription Agreement,
including the PBT repurchase rights set forth therein, the PBT Stockholders
Agreement and the other documents made available pursuant to the PBT
Subscription Agreement (collectively, the "Operative Documents"). PBT has
afforded each of APG and each APG Party and such party's advisors, if any, the
opportunity to discuss the Transactions and to ask questions of representatives
of PBT concerning the terms and conditions of the Transactions and the Operative
Documents, and such representatives have provided answers to all such questions
concerning the Transactions and the Operative Documents satisfactory to such
party. Each of APG and the APG Parties has consulted its own financial,
5
<PAGE> 9
tax, accounting and legal advisors, if any, as to such party's participation in
the Transactions and the consequences thereof and risks associated therewith and
the Operative Documents. Each of APG and the APG Parties and such party's
advisors, if any, have examined or have had the opportunity to examine before
the date hereof the Operative Documents and all information that such party
deems to be material to an understanding of the Operative Documents and the
Transactions.
(c) APG certifies and acknowledges that its board of directors,
including its independent and disinterested director acting in accordance with
applicable law, have determined, after full deliberation that the Transactions
are fair to and in the best interest of APG and its stockholders and provide
fair and adequate consideration to APG, after taking into account the
transactions contemplated by the APG Letter of Intent and the AC Tech Letter of
Intent, the pace of such transactions, the status of financing, issues and
possibility of timely (if any) closure, and APG investment returns, among other
things. The resolutions, duly certified, of APG's board of directors to the
effect of the foregoing and to approve the Transactions are attached hereto as
Exhibit D.
ARTICLE III
COVENANTS AND AGREEMENTS
SECTION 3.1 Formation of Special Purpose Subsidiary.
(a) Prior to the date hereof, APG has formed a wholly-owned,
"bankruptcy remote", special purpose subsidiary, APG Special Purpose
Sub, under the laws of Delaware ("APG Special Purpose Sub"), pursuant
to a certificate of incorporation, by-laws, and other customary
organizational documents and resolutions in form and substance
reasonably satisfactory to PBT. APG's investment in PBT capital stock
as contemplated by the PBT Letter of Intent has been made by APG
Special Purpose Sub which, as of the date hereof, has executed and
delivered (i) the APG Subscription Agreement, dated the date hereof,
with PBT, substantially in the form attached as Exhibit A ("APG
Subscription Agreement"), and (ii) the PBT Stockholders Agreement,
dated the date hereof, substantially in the form attached as Exhibit B
("PBT Stockholders Agreement").
(b) APG represents, warrants, covenants and agrees to and with
PBT that APG Special Purpose Sub has and will have no obligations or
liabilities of any kind, directly or indirectly, except as set forth in
its organizational documents as of the date hereof and in the APG
Subscription Agreement and the PBT Stockholders Agreement and except as
arise by applicable law and that its only business will be to hold its
PBT Stock.
6
<PAGE> 10
(c) APG represents, warrants, covenants and agrees to and with
PBT that APG will not directly or indirectly, (i) amend or modify in
any respect the certificate of incorporation, by-laws or other
organizational documents of APG Special Purpose Sub, (ii) transfer,
sell or dispose any stock, ownership, interest or rights in respect of
APG Special Purpose Sub and its stock assets or rights, or (iii)
transfer, assign or contract the management or administration of APG
Special Purpose Sub, in each case, without the prior written approval
of PBT.
SECTION 3.2 Subsidiary Contribution of All Existing Assets and
Liabilities.
(a) APG has formed a wholly-owned subsidiary, zeropaper.com,
Inc., under the laws of Delaware ("APG Newco"), and has at its own
expense transferred all properties, assets, rights, obligations and
liabilities, and all contingent liabilities, known and unknown, of APG,
including, but not limited to, the stock of Klein Engines and
Competition Components, Inc., Automotive Specialty Chemicals Group,
Inc., Royal Purple Motor Oil, Inc., D3 Design Works, Inc., IMSG
Properties, D'Artagnan Associates, Inc. and Boyd's Wheels, Inc. and the
member interests of Cristen Powell Enterprises (the "Downstream
Assets"), to APG Newco (the "Subsidiary Contribution"), provided, that
the Subsidiary Contribution does not involve or transfer APG's
ownership of APG Special Purpose Sub. Upon completion of the Subsidiary
Contribution, APG represents, warrants and confirms to PBT that APG
will be a holding company, owning shares of APG Special Purpose Sub and
APG Newco, with no other properties, assets, rights, interests,
obligations or liabilities.
(b) APG represents, warrants and confirms to PBT that (i)
after the Subsidiary Contribution, APG will be solvent, and will have
sufficient cash, capital and financial resources to conduct its
business and pay its debts, obligations and liabilities when due, and
(ii) its determination to organize APG Newco and pursue the Subsidiary
Contribution has been separately considered, analyzed and pursued by
APG, apart from the other transactions contemplated by this Agreement,
and that PBT has not been involved with, participated in, structured or
directed the Subsidiary Contribution.
SECTION 3.3 Redemption and Conversion of APG Preferred Stock.
(a) APG has duly redeemed and converted in full its Series A
Preferred Stock from the holders thereof and will issue shares of
Common Stock in exchange for the redeemed and converted shares in the
amounts and to the persons set forth on Schedule 3.3. APG represents,
warrants and confirms to PBT that such redemption and conversion was
completed in accordance with the terms and provisions of the Series A
Preferred Stock and any agreements and instruments relating thereto and
applicable law.
(b) All APG Parties which were holders of Series A Preferred
Stock acknowledge and agree that they have received payment in full for
the Series A Preferred
7
<PAGE> 11
Stock and all rights with respect to the Series A Preferred Stock have
been terminated, including any rights pursuant to the terms of the
Series A Preferred Stock and under any agreements, instruments,
documents, commitments or promises relating thereto.
SECTION 3.4 Exchange of Bridge Debt and Other Debt; Issuance of
Preferred Stock.
(a) APG has duly redeemed and exchanged in full the $2 million
aggregate principal amount of bridge notes issued to the persons set
forth on Schedule 3.4 (the "Bridge Notes") from the holders thereof and
has issued shares of Series B Preferred Stock in exchange for the
redeemed and exchanged Bridge Notes in the amounts set forth in
Schedule 3.4. APG represents, warrants and confirms to PBT that such
exchange was completed in accordance with the terms and provisions of
the Bridge Notes and agreements and instruments relating thereto and
applicable law.
(b) All APG Parties which were holders of Bridge Notes
acknowledge and agree that they have received payment in full for the
Bridge Notes and all rights with respect to the Bridge Notes have been
terminated, including any rights pursuant to the terms of the Bridge
Notes and under agreements, instruments, documents, commitments or
promises relating thereto.
(c) APG has duly issued to Andy Evans in consideration of the
assumption of $1.48 million of indebtedness of APG (the "Other Debt"),
$1.48 million aggregate amount of its Series B Preferred Stock. APG
represents, warrants and confirms to PBT that the assumption of the
Other Debt was completed in accordance with the terms and provisions of
the Other Debt and agreements and instruments relating thereto and
applicable law.
SECTION 3.5 Employment and Stock Matters.
(a) APG acknowledges and agrees that certain of its officers and
employees, including Dean Willard and the employees listed on Schedule 3.5 (the
"Shared Employees"), will also be employed from the date hereof by, and will
receive compensation and benefits from, PBT and its subsidiaries, and in certain
cases, receive PBT employment agreements which have been separately disclosed to
APG. APG hereby consents to the employment and service of all such Shared
Employees for PBT and its subsidiaries. APG also acknowledges that substantially
all of the business time and efforts of the Shared Employees shall be devoted to
the business of PBT and its subsidiaries.
(b) APG acknowledges and agrees that Dean Willard and certain other
officers and employees of APG will (i) directly invest in PBT capital stock, as
contemplated by the PBT Stockholders Agreement, will own such PBT capital stock
in addition to and separate from their investment in APG, and (ii) will receive
options pursuant to Section 3.6 as an incentive for them in their capacity as
employees of PBT.
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<PAGE> 12
(c) APG acknowledges and agrees that PBT officers and employees who are
also associated with APG, including the recipients of the New Options referenced
below, will also have the right, under the APG Subscription Agreement, under
certain circumstances, to participate in the PBT repurchase and call rights in
respect of the PBT capital stock acquired by APG pursuant to the APG
Subscription Agreement.
SECTION 3.6 APG Stock Option Grants. APG has authorized and will grant
effective the close of business on Monday, August 2, 1999, options to purchase
an aggregate of 2,325,000 shares of Common Stock pursuant to the APG 1998 Stock
Option Plan to the persons set forth on Schedule 3.6 (the "New Options");
provided, however that the Option Agreements have not yet been executed by the
recipients thereof. The New Options are exercisable for shares of Common Stock,
which together with shares of Common Stock (including contingent stock) held by
Dean Willard, represent approximately 18.5% of the outstanding shares of Common
Stock on a fully diluted basis at the date hereof, giving effect to the exchange
and conversion of the Preferred Stock and the exchange of the Bridge Notes and
Other Debt contemplated by Sections 3.3 and 3.4. The grant of the options has
been duly authorized by APG and each New Option has been issued pursuant to an
Option Agreement in accordance with the APG 1998 Stock Option Plan and
substantially in the form of Exhibit C. The shares of Common Stock for which the
New Options may be exercised have been duly authorized by APG and when issued
upon the due exercise of the New Options will be fully paid and non-assessable.
APG agrees not to amend or modify, directly or indirectly, the terms and
provisions of the New Options or the terms of the APG 1998 Stock Option Plan in
any material respect or in any respect detrimental to the holders without the
written consent of PBT. APG shall not authorize for issuance under the APG 1998
Stock Option Plan additional shares of Common Stock or additional options if the
effect of any such issuance would alter the percentage ownership of the New
Options. APG covenants and agrees that if APG issues any capital stock or
instruments convertible into APG capital stock at an effective purchase price
below the exercise price of the New Options or below the then prevailing fair
market value of the Common Stock, it shall amend the terms of the New Options to
make equitable adjustments thereto in order to maintain the beneficial ownership
of the New Options.
SECTION 3.7 Contingent Stock Grants and Amendments. APG has duly issued
to Dean Willard contingent stock grants in respect of 2,000,000 shares of Common
Stock pursuant to contingent stock agreements attached hereto as Exhibit E and
all of such shares are subject to further restriction and vesting, as confirmed
in documentation also attached as Exhibit F hereto. APG agrees not to amend the
terms of the contingent stock issued to Dean Willard described herein in any
material respect or in any respect detrimental to Dean Willard without the
written consent of PBT. APG covenants and agrees that if APG issues any capital
stock or instruments convertible into APG capital stock at an effective purchase
price below the then prevailing fair market value of the Common Stock, it shall
amend the terms of the contingent stock granted to Dean Willard hereunder to
make equitable adjustments thereto in order to maintain the beneficial ownership
of APG of Dean Willard relating to the contingent stock on the date hereof.
9
<PAGE> 13
SECTION 3.8 Opinion of Counsel to APG. Counsel to APG has delivered to
PBT on the date hereof a legal opinion covering the legal matters set forth in
Sections 2.1, 2.2, 2.3 and 2.5 on behalf of APG in form reasonably acceptable to
PBT.
ARTICLE IV
BENEFITS, RELEASE AND INDEMNITIES
SECTION 4.1 APG Reimbursements, Payments and Investment.
(a) At the Closing, PBT will pay or arrange for the payment to
APG of (i) APG's $3 million deposit to CoAmerica, as escrow agent, in
connection with the proposed Permatex Acquisition, (ii) APG's $1
million deposit to Ampersand in connection with the proposed AC Tech
Acquisition, the proceeds of which were contributed to AC Tech by
Ampersand, (iii) up to $4.8 million in connection with the Pay-Off
Amount, (iv) reasonable and documented APG third party out-of-pocket
expenses (invoices of which have been delivered to PBT) incurred by APG
in connection with the Permatex Acquisition, the AC Tech Acquisition
and the APG investment contemplated by this Agreement, but no other
purpose, provided, that such expenses do not exceed $800,000 in the
aggregate (the amounts described in clauses (i) through (iv) are
referred to as the "APG Reimbursement"), and (v) reasonable and
documented APG third party out-of-pocket expenses in respect of
counsel, auditors and environmental consultants in excess of $800,000
incurred by APG in connection with the Permatex Acquisition by PBT and,
the AC Tech Acquisition by PBT, provided, that such expenses do not
exceed $880,400 in the aggregate.
(b) At the Closing, APG Special Purpose Sub will purchase PBT
capital stock pursuant to the APG Subscription Agreement and subject to
the PBT Stockholders Agreement.
SECTION 4.2 Release. In consideration of Section 4.1, the investment
opportunity in PBT, and the benefits and opportunities for APG contemplated
hereby, and as a condition of PBT entering into this Agreement and the
agreements and transactions contemplated hereby making the foregoing available
to APG and closing the Permatex Acquisition and the AC Tech Acquisition, each of
APG and the APG Parties hereby irrevocably and unconditionally releases, acquits
and forever discharges on behalf of itself and any person acting by, through, or
under or in concert with any of APG or the APG Parties and all persons acting
by, through, under or in concert with any of them (collectively the
"Releasees"), or any of them, each of PBT, The Jordan Company LLC, and Dean
Willard, and their respective subsidiaries, officers, directors, members,
partners, employees, agents, advisors, affiliates, stockholders, divisions,
predecessors, successors, assigns, representatives, attorneys, and all persons
acting by, through, under or in concert with any of them (collectively, the
"Released Parties") from any and all charges, complaints, claims, suits,
judgments, demands, actions, obligations or liabilities, damages, causes of
action (including attorneys' and litigation fees and costs) of any nature
whatsoever,
10
<PAGE> 14
including all Losses, known or unknown, emanating from, arising out of, or in
any way whatsoever arising or resulting from any action relating to APG, the PBT
Letter of Interest, the Permatex Acquisition, the AC Tech Letter of Intent, the
AC Tech Acquisition, the Operative Agreements and all transactions contemplated
hereby and thereby, including, without limitation, all Transactions, and all
historical and current activities of APG, including, without limitation, its
organization and formation, its business and operations, its investments, debt
and equity financing, acquisitions and related efforts and activities and all
transactions contemplated herein, or any action taken by, or any action failed
to be taken by the Released Parties or the Releasees in connection therewith,
and each of APG and the APG Parties agrees that neither it, nor any person
acting by, through, or under such party shall institute or pursue any action or
actions, cause or causes of action (in law or in equity), suits, or claims in
state or federal court against or adverse to the Released Parties, or directly
or indirectly assist or cooperate with any person to institute or pursue any
such action or proceeding, arising from or attributable to the Releasees in
connection with the foregoing.
SECTION 4.3 Indemnification by APG.
(a) APG agrees to indemnify and hold harmless, PBT, its
subsidiaries, The Jordan Company LLC and each of their respective
affiliates, and their respective officers, directors, members,
partners, employees, stockholders, representatives and agents, against,
and agree to hold it and them harmless from, any and all Losses
incurred or suffered by PBT or any of the foregoing persons (or any
combination thereof) arising out of or in connection with any of the
following: (i) any breach of or any inaccuracy in any representation or
warranty made by APG or the APG Parties pursuant to this Agreement or
any Related Agreement, (ii) any breach of or failure by APG or the APG
Parties to perform any covenant, agreement or obligation of such
parties in this Agreement or any Related Agreement, (iii) this
Agreement, the PBT Letter of Interest, the Permatex Acquisition, the AC
Tech Letter of Intent, the AC Tech Acquisition, the Operative
Agreements and all agreements, instruments and transactions
contemplated hereby or thereby, all historical and current activities
of APG, including, without limitation, its organization and formation,
its business and operations, its investments, debt and equity
financing, acquisitions and related efforts and activities and all
transactions contemplated herein, (iv) any lawsuits, claims or other
litigation, known or unknown, by, on behalf of or involving APG
stockholders, lenders, directors, officers, employees, advisors, agents
or other persons associated with APG, (v) any broker, finder, investor,
advisor or financier engaged by APG, AC Tech or the APG Parties,
including, without limitation, Wasserstein Perella & Co. and Inc., Wm.
Sword & Co., Inc., Triumph Capital Group, Inc. and Triumph Partners
III, L.P.
(b) In connection with the foregoing indemnification, counsel
selected by PBT will be entitled to conduct and lead the defense,
including any settlement or compromise, provided that subject to the
absence of any conflict or other ethical or professional reason, APG
may (at its own expense) designate counsel to participate in such
defense.
11
<PAGE> 15
(c) APG agrees to indemnify the Shared Employees to the
fullest extent permitted by Delaware law by reason of the fact that
such Shared Employee was serving as an officer, director, employee or
agent of APG.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Expenses. Except as expressly provided herein, each party
hereto shall bear its own expenses (including legal fees and expenses) with
respect to this Agreement and the transactions contemplated hereby; provided,
however, that if any party hereto incurs any legal fees, expenses or other
amounts to enforce the obligations of the other parties hereto, the losing
parties shall reimburse the prevailing parties for all such fees and expenses.
SECTION 5.2 Amendment. This Agreement may be amended, modified or
supplemented but only in writing signed by the APG, the APG Parties and PBT.
SECTION 5.3 Notices. Any notice, request, instruction or other document
to be given hereunder by a party hereto shall be in writing and shall be deemed
to have been given, (a) when received if given in person or by courier or a
courier service, (b) on the date of transmission if sent by telex, facsimile or
other wire transmission or (c) five Business Days after being deposited in the
U.S. mail, certified or registered mail, postage prepaid:
(i) If to PBT, addressed as follows:
c/o Jonathan F. Boucher
The Jordan Company
767 Fifth Avenue
48th Floor
New York, New York 10153
Facsimile No.: (212) 755-5263
with a copy to:
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019
Attention: James B. Carlson
Facsimile No.: (212) 262-1910
(ii) If to APG, addressed as follows:
c/o Dean Willard and Board of Directors
7341 Anaconda Avenue
12
<PAGE> 16
Garden Grove, CA 92841
Facsimile No.: (714) 373-1913
with a copy to:
DeCastro, West & Chodorow, Inc.
10960 Wilshire Blvd.
Suite 1400
Los Angeles, CA 90024
Attention: Menasche Nass
Facsimile No.: (310) 473-0123
(iii) If to an APG Party, addressed as set forth on Schedule 6.4.
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
SECTION 5.4 Waivers. The failure of a party hereto at any time or times
to require performance of any provision hereof shall in no manner affect its
right at a later time to enforce the same. No waiver by a party of any condition
or of any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
SECTION 5.5 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.
SECTION 5.6 Interpretation. The headings preceding the text of Articles
and Sections included in this Agreement and the headings to Sections of the
disclosure schedule are for convenience only and shall not be deemed part of
this Agreement or the disclosure schedules or be given any effect in
interpreting this Agreement or the Disclosure Schedule. The use of the
masculine, feminine or neuter gender herein shall not limit any provision of
this Agreement. The use of the terms "including" or "include" shall in all cases
herein mean "including, without limitation" or "include, without limitation,"
respectively. Underscored references to Articles, Sections, Paragraphs,
Subsections, Exhibits or Schedules shall refer to those portions of this
Agreement. Time is of the essence of each and every covenant, agreement and
obligation in this Agreement.
SECTION 5.7 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
13
<PAGE> 17
SECTION 5.8 Binding Agreement. This Agreement and the Related
Agreements shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns notwithstanding if certain APG
Parties listed on Schedule 1 hereto do not execute this Agreement on the date
hereof. No party may assign its rights or obligations under this Agreement
without the prior written consent of the other parties. The parties hereto agree
that each such party shall be entitle to equitable remedies, including specific
performance, of the obligations hereunder.
SECTION 5.9 Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and the Released Parties and no provision of this
Agreement shall be deemed to confer upon third parties any remedy, claim,
liability, reimbursement, cause of action or other right.
SECTION 5.10 Entire Understanding. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof. This Agreement and the Related Agreements set forth the entire
agreement and understanding of the parties hereto and supersede any and all
prior agreements, arrangements and understandings among the parties.
SECTION 5.11 JURISDICTION OF DISPUTES; WAIVER OF JURY TRIAL. IN THE
EVENT ANY PARTY TO THIS AGREEMENT COMMENCES ANY LITIGATION, PROCEEDING OR OTHER
LEGAL ACTION IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED
AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, WITH
RESPECT TO ANY OF THE MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, THE
PARTIES TO THIS AGREEMENT HEREBY (A) AGREE UNDER ALL CIRCUMSTANCES ABSOLUTELY
AND IRREVOCABLY TO INSTITUTE ANY LITIGATION, PROCEEDING OR OTHER LEGAL ACTION IN
A COURT OF COMPETENT JURISDICTION LOCATED WITHIN THE CITY OF NEW YORK, NEW YORK,
WHETHER A STATE OR FEDERAL COURT; (B) AGREE THAT IN THE EVENT OF ANY SUCH
LITIGATION, PROCEEDING OR ACTION, SUCH PARTIES WILL CONSENT AND SUBMIT TO
PERSONAL JURISDICTION IN ANY SUCH COURT DESCRIBED IN CLAUSE (A) OF THIS SECTION
AND TO SERVICE OF PROCESS UPON THEM IN ACCORDANCE WITH THE RULES AND STATUTES
GOVERNING SERVICE OF PROCESS (IT BEING UNDERSTOOD THAT NOTHING IN THIS SECTION
SHALL BE DEEMED TO PREVENT ANY PARTY FROM SEEKING TO REMOVE ANY ACTION TO A
FEDERAL COURT IN NEW YORK, NEW YORK); (C) AGREE TO WAIVE TO THE FULL EXTENT
PERMITTED BY LAW ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE
OF ANY SUCH LITIGATION, PROCEEDING OR ACTION IN ANY SUCH COURT OR THAT ANY SUCH
LITIGATION, PROCEEDING OR ACTION WAS BROUGHT IN AN INCONVENIENT FORUM; (D)
DESIGNATE, APPOINT AND DIRECT CT CORPORATION SYSTEM AS ITS AUTHORIZED AGENT TO
RECEIVE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS IN ANY LEGAL
PROCEEDING IN THE STATE OF NEW YORK; (E) AGREE TO NOTIFY THE OTHER PARTIES TO
THIS AGREEMENT IMMEDIATELY IF SUCH AGENT SHALL REFUSE TO ACT, OR BE
14
<PAGE> 18
PREVENTED FROM ACTING, AS AGENT AND, IN SUCH EVENT, PROMPTLY TO DESIGNATE
ANOTHER AGENT IN THE CITY OF NEW YORK, SATISFACTORY TO SELLERS AND PURCHASER, TO
SERVE IN PLACE OF SUCH AGENT AND DELIVER TO THE OTHER PARTY WRITTEN EVIDENCE OF
SUCH SUBSTITUTE AGENT'S ACCEPTANCE OF SUCH DESIGNATION; (F) AGREE AS AN
ALTERNATIVE METHOD OF SERVICE TO SERVICE OF PROCESS IN ANY LEGAL PROCEEDING BY
MAILING OF COPIES THEREOF TO SUCH PARTY AT ITS ADDRESS SET FORTH IN THIS
AGREEMENT FOR COMMUNICATIONS TO SUCH PARTY; (G) AGREE THAT ANY SERVICE MADE AS
PROVIDED HEREIN SHALL BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (H)
AGREE THAT NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY PARTY TO EFFECT SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY HERETO WAIVES THE
RIGHT TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION WITH OR RELATING TO THIS
AGREEMENT, ANY RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN
OR THEREIN, AND AGREE TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO
EFFECT SUCH WAIVER.
SECTION 5.12 Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity of enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other situation or in any other jurisdiction. If
the final judgement of a court of competent jurisdiction declares that any term
or provision hereof is invalid or unenforceable, the Parties agree that the
court making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
SECTION 5.13 Construction. The language used in this Agreement will be
deemed to be the language chosen by the Parties to express their mutual intent,
and no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.
15
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
AUTOMOTIVE PERFORMANCE
GROUP, INC.
By: /s/ Dean M. Willard
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
APG SPECIAL PURPOSE SUBSIDIARY, INC.
By: /s/ Dean M. Willard
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
ZEROPAPER.COM, INC.
By: /s/ Dean M. Willard
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
PBT BRANDS, INC.
By: /s/ Jonathan Boucher
-----------------------------------------
Name: Jonathan Boucher
---------------------------------------
Title: Vice President
--------------------------------------
APG Agreement
<PAGE> 20
APG PARTIES:
/s/ Andrew Evans
--------------------------------------------
Andrew Evans
/s/ Ann L. Evans
--------------------------------------------
Ann Evans
DOMINION INCOME
MANAGEMENT CORP.
By: /s Andrew L. Evans
-----------------------------------------
Name: Andrew L. Evans
---------------------------------------
Title: President
--------------------------------------
DOMINION INCOME MANAGEMENT CORP.
PROFIT SHARING PLAN
By: /s/ Andrew L. Evans
-----------------------------------------
Name: Andrew L. Evans
---------------------------------------
Title: CEO
--------------------------------------
MARITIME CAPITAL PARTNERS
By: /s/ Andrew L. Evans
-----------------------------------------
Name: Andrew L. Evans
---------------------------------------
Title: Managing Partner
--------------------------------------
APG Agreement
<PAGE> 21
LANCER OFFSHORE INC.
By: /s/ Michael Lauer
-----------------------------------------
Name: Michael Lauer
---------------------------------------
Title: Investment Manager
--------------------------------------
LANCER PARTNERS L.P.
By: /s/ Michael Lauer
-----------------------------------------
Name: Michael Lauer
---------------------------------------
Title: General Partner
--------------------------------------
LANCER VOYAGER FUND
By: /s/ Michael Lauer
-----------------------------------------
Name: Michael Lauer
---------------------------------------
Title: Investment Manager
--------------------------------------
/s/ Michael Lauer
--------------------------------------------
Michael Lauer
FOUNDERS MEZZANINE INC. III
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
APG Agreement
<PAGE> 22
FOUNDERS EQUITY GROUP, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
BEACON HOLDINGS
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
--------------------------------------------
Donald F. Moorehead
--------------------------------------------
George Moorehead
--------------------------------------------
Karen Mosley
--------------------------------------------
William J. Mosley
--------------------------------------------
Scotty D. Cook
--------------------------------------------
Scott Cook
--------------------------------------------
Svor Flannery
APG Agreement
<PAGE> 23
--------------------------------------------
Tim Schweizer
THE ORBITER FUND, LTD.
By: /s/ Michael Lauer
-----------------------------------------
Name: Michael Lauer
---------------------------------------
Title: Investment Manager
--------------------------------------
/s/ Dean Willard
--------------------------------------------
Dean Willard
APG Agreement
<PAGE> 1
EMPLOYMENT AND NON-INTERFERENCE AGREEMENT
This Employment and Non-Interference Agreement, dated as of July 30, 1999
(this "Agreement"), is by and between Dean Willard (the "Executive") and PBT
Brands, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company wishes to obtain the future services of the Executive
for the Company; and
WHEREAS, the Executive is willing, upon the terms and conditions herein set
forth, to provide services hereunder; and
WHEREAS, the Company wishes to secure the Executive's non-interference,
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Nature of Employment
Subject to Section 4, the Company hereby employs Executive, and Executive
agrees to accept such employment, during the Term of Employment (as defined in
Section 4(a)), as Chairman and Chief Executive Officer of the Company. The
Company shall also cause the Executive to be employed, and Executive hereby
agrees to be employed, during the Term of Employment by each of the companies
listed in Schedule 1 (which companies, together with the Company, shall be
referred to collectively as the "Company Group") , in each case as Chairman and
Chief Executive Officer of such company. The Executive's principal place of
residence shall be in the State of California.
2. Extent of Employment
(a) During the Term of Employment, the Executive shall perform his
obligations hereunder faithfully and to the best of his ability under the
direction of the Board of Directors of the Company to which the Executive shall
directly report, and shall abide by the rules, customs and usages from time to
time established by the Company.
<PAGE> 2
(b) During the Term of Employment, the Executive shall devote substantially
all of his business time, energy and skill to the performance of his duties,
responsibilities and obligations hereunder (except for vacation periods and
reasonable periods of illness or other incapacity), consistent with past
practices and norms in similar positions. The Executive will have such authority
and power as are inherent to the undertakings applicable to his office and
necessary to carry out his responsibilities an d the duties required of him
hereunder.
(c) Nothing contained herein shall require Executive to follow any
directive or to perform any act which would violate any laws, ordinances,
regulations or rules of any governmental, regulatory or administrative body,
agent or authority, any court or judicial authority, or any public, private or
industry regulatory authority (collectively "Regulations"). Executive will not
knowingly (i) breach or violate any provision of any Regulations in any material
respect or (ii) otherwise act in any manner which might reasonably be expected
to have a material adverse effect on the ongoing business, operations,
conditions, prospects or other business relationships or properties of any
company in the Company Group.
3. Compensation. During the Term of Employment, the Company shall pay
compensation to Executive as base compensation for his services hereunder, in
substantially equal bi-weekly installments, an annual base salary of $360,000.
The Board of Directors shall annually, and in its sole discretion, determine
whether the base salary should be increased and, if so, the amount of such
increase.
4. Term of Employment; Termination
(a) The "Term of Employment" shall commence on the date hereof and shall
continue for a period of three years; provided, that such term shall continue
for the twelve month period following such initial three year period, and for
each twelve month period thereafter, unless at least 90 days prior to the
scheduled expiration date, either the Executive or the Company notifies the
other of its decision not to continue such term. Should the Executive's
employment be earlier terminated by the Company pursuant to Section 4(b), by
the Executive pursuant to Section 4(c) or mutually by both parties pursuant to
Section 4(d), the Term of Employment shall end on the date of such earlier
termination. Nothing contained herein shall be deemed to be an obligation on the
part of the Company to extend the Term of Employment.
(b) Subject to the Company's obligations to make the payments contemplated
by Section 4(e), the Term of Employment may be terminated at any time by the
Company:
(i) upon the death of Executive;
(ii) in the event that because of physical or mental disability the
Executive is unable to perform, and does not perform, as certified by a
mutually agreeable
-2-
<PAGE> 3
competent medical physician, his material duties hereunder for 180 days in any
continuous 210 day period;
(iii) for Cause;
(iv) for any other reason not referred to in clauses (i) through (iii)
or no reason, and the Company shall not be required to specify a reason for
the termination, provided that termination of the Executive's employment by
the Company shall be deemed to have occurred under this clause (iv) only if
it is not for reasons described in clauses (i) though (iii) such that this
Agreement, subject to the provisions of Section 4(e), shall be construed as
terminable at will by the Company.
Executive acknowledges that no representations or promises have been made
concerning the grounds for termination or the future operation of the Company's
business, and that, except as set forth in the following sentence, nothing
contained herein or otherwise stated by or on behalf of the Company modifies or
amends the right of the Company to terminate Executive at any time, with or
without Cause. Termination shall become effective 30 days after, or, if for
Cause, upon the delivery by the Company to t he Executive of notice specifying
such termination and, if for Cause, the reasons therefor.
(c) Subject to the Company's obligations to make the payments contemplated
by Section 4(e), the Term of Employment may be terminated at any time by the
Executive:
(i) upon the death of Executive;
(ii) in the event that because of physical or mental disability the
Executive is unable to perform, and does not perform, as certified by a
mutually agreeable competent medical physician, his material duties
hereunder for 180 days in any continuous 210 day period;
(iii) voluntarily or for any reason or no reason not referred to in
clauses (i) and (ii) in each case, after 90 days' prior written notice to
the Company and its Board of Directors.
(d) Subject to the Company's obligations to make the payments contemplated
by Section 4(e), the Term of Employment may be terminated at any time by the
mutual agreement of the Company and the Executive. Any termination of the
Executive's employment by mutual agreement of the parties will be memorialized
by an agreement which is reduced to writing and signed by the Executive and a
duly appointed officer of the Company.
(e) If Executive's employment is terminated for any reason whatsoever, then
Executive shall be entitled to (i) accrued and unpaid base salary and benefits
(including sick pay, vacation pay and benefits under Section 6) with respect to
the period prior to
-3-
<PAGE> 4
termination, (ii) reimbursement for expenses under Section 5 with respect to
such period, and (iii) any other benefits (including COBRA) required by law to
be provided after termination of employment under the circumstances. Except as
may otherwise by expressly provided to the contrary in this Agreement, nothing
in this Agreement shall be construed as requiring the Executive to be treated as
employed by the Company for purposes of any employee benefit plan following the
date of the termination of the Executive's Term of Employment. In the event
Executive's employment is terminated pursuant to:
(i) Sections 4(b)(i), 4(b)(ii), 4(c)(i) or 4(c)(ii), the Company will
also pay to Executive (or his estate or representative) the Executive's
base salary for a six month period;
(ii) Section 4(b)(iii), 4(c)(iii) or 4(d), there will be no additional
amounts owing by the Company to Executive under this Agreement from and
after such termination; and
(iii) Section 4(b)(iv), the Company will pay to Executive (or his
estate or representative) the Executive's base salary for the balance of
the Term of Employment.
(f) (i) Termination of the Term of Employment will not terminate Sections
7, 8, 9, 10, 12 through 24, or any other provisions not associated specifically
with the Term of Employment.
(ii) In the event of termination, the Executive shall not have a duty
to mitigate the Company's payment obligations under Section 4(e) by seeking
alternative employment; provided, however, that if the Executive does accept
alternative employment, payment obligations under Section 4(e) shall be
terminated.
(g) Subject to the terms and conditions of this Agreement, during the
period beginning on the date of delivery of a notice by the Company or the
Executive, as the case may be, indicating that the Term of Employment is to be
terminated, and ending on the actual date the Term of Employment is terminated,
which, in any event, shall be no later than 90 days following the delivery of
such notice, the Executive shall continue to perform his duties as set forth in
this Agreement, and shall also perform such services for the Company as are
necessary and appropriate for a smooth transition to the Executive's successor,
if any. Notwithstanding the foregoing provisions of this Section 4(g), the
Company may suspend the Executive from performing his duties under this
Agreement following the delivery of a notice by the Executive providing for the
Executive's resignation, or delivery by the Company of a notice providing for
the Executive's termination of employment for any reason; provided, however,
that during the period of suspension (which shall end upon the actual date the
Term of Employment is terminated, which in any event shall be no later than 90
days following the delivery of such notice), the Executive shall
-4-
<PAGE> 5
continue to be treated as employed by the Company for other purposes, and his
rights to compensation or benefits shall not be reduced by reason of the
suspension.
5. Reimbursement of Expenses
During the Term of Employment, subject to the approval of the Board of
Directors, the Company shall reimburse Executive for reasonably documented
travel, entertainment and other expenses reasonably incurred by Executive in
connection with the performance of his duties hereunder and, in each case, in
accordance with the rules, customs and usages promulgated by the Company from
time to time in effect; provided, however that the Company shall not reimburse
Executive for any expenses, compensation or other costs relating to his
provision of services to APG.
6. Benefits
The Executive shall be entitled to participate in and be covered by any
insurance plan (including but not limited to medical, dental, health, accident,
hospitalization and disability), vacation, 401(k), profit sharing or other
employee benefit plan of the Company, to the same extent and on the same terms
as such benefits are or may be provided by the Company, at the sole discretion
of the Board of Directors, from time to time to other members of senior
management.
7. Confidential Information
During and after the Term of Employment, Executive will not, directly or
indirectly in one or a series of transactions, disclose to any person, or use or
otherwise exploit for the Executive's own benefit or for the benefit of anyone
other than the Company, any Confidential Information (as defined in Section 11),
whether prepared by Executive or not; provided, however, that any Confidential
Information may be disclosed (i) to officers, representatives, employees and
agents of the Company who need to know such Confidential Information in order
to perform the services or conduct the operations required or expected of them
in the Business (as defined in Section 11) and (ii) in good faith by the
Executive in connection with the performance of his duties hereunder. Executive
shall use his best efforts to prevent the removal of any Confidential
Information from the premises of the Company, except as required in his normal
course of employment by the Company. Executive shall use his best efforts to
cause all persons or entities to whom any Confidential Information shall be
disclosed by him hereunder to observe the terms and conditions set forth herein
as though each such person or entity was bound hereby. Executive shall have no
obligation hereunder to keep confidential any Confidential Information if and to
the extent disclosure of any thereof is specifically required by law; provided,
however, that in the event disclosure is required by applicable law, the
Executive shall provide the Company with prompt notice of such requirement,
prior to making any disclosure, so that the Company may seek an appropriate
protective order. At the request of the Company, Executive agrees to deliver to
the Company, at any time during the Term of Employment, or thereafter, all
Confidential
-5-
<PAGE> 6
Information which he may possess or control. Executive agrees that all
Confidential Information of the Company (whether now or hereafter existing)
conceived, discovered or made by him during the Term of Employment exclusively
belongs to the Company (and not to Executive). Executive will promptly disclose
such Confidential Information to the Company and perform all actions reasonably
requested by the Company to establish and confirm such exclusive ownership.
8. Non-Interference
Executive acknowledges that services to be provided give him the
opportunity to have special knowledge of the Company and its Confidential
Information and the capabilities of individuals employed by or affiliated with
the Company and that interference in these relationships would cause irreparable
injury to the Company. In consideration of this Agreement, Executive covenants
and agrees that:
(a) If Executive is terminated, for a period of two years from the date of
the final payment under Section 4(e), or if no payment is required to be made to
the Executive by the Company under Section 4(e), the date of termination of the
Term of Employment (the "Restricted Period"), Executive will not, without the
express written approval of the Board of Directors of the Company, anywhere in
the Market, directly or indirectly, in one or a series of transactions, own,
manage, operate, control, invest or acquire an interest in, or otherwise engage
or participate in, whether as a proprietor, partner, stockholder, lender,
director, officer, employee, joint venturer, investor, lessor, agent,
representative or other participant, in any business which competes, directly or
indirectly, with the Business in the Market ("Competitive Business") without
regard to (A) whether the Competitive Business has its office or other business
facilities within or without the Market, (B) whether any of the activities of
the Executive referred to above occur or are performed within or without the
Market or (C) whether the Executive resides, or reports to an office, within or
without the Market; provided, however, that (x) the Executive may, anywhere in
the Market, directly or indirectly, in one or a series of transactions, own,
invest or acquire an interest in up to two percent (2%) of the capital stock of
a corporation whose capital stock is traded publicly, (y) Executive may accept
employment with a successor company to the Company and (z) Executive may
continue to own up to that amount of the capital stock of APG (calculated on a
fully diluted basis assuming the exercise of all outstanding options and other
convertible securities) as he owns as of the date hereof.
(b) Without regard to the reason for Executive's termination, during the
Restricted Period (which shall not be reduced by (x) any period of violation of
this Agreement by Executive or (y) if the Company is the prevailing party in any
litigation to enforce its rights under this Section 8, the period which is
required for such litigation), Executive will not without the express prior
written approval of the Board of Directors of the Company (A) in one or a series
of transactions, recruit, solicit or otherwise induce or influence any
proprietor, partner, stockholder, lender, director, officer, employee, sales
agent, joint venturer, investor, lessor, customer, agent, representative or any
other person which has a
-6-
<PAGE> 7
business relationship with the Company Group or had a business relationship with
the Company Group within the twenty-four (24) month period preceding the date of
the incident in question, to discontinue, reduce or modify such employment,
agency or business relationship with the Company Group, or (B) employ or seek to
employ or cause any Competitive Business to employ or seek to employ any person
or agent who is then (or was at any time within twenty-four (24) months prior to
the date the Executive or the Competitive Business employs or seeks to employ
such person) employed or retained by the Company Group. Notwithstanding the
foregoing, nothing herein shall prevent the Executive from providing a letter of
recommendation to an employee with respect to a future or any other employment
opportunity.
(c) The scope and term of this Section 8 would not preclude Executive from
earning a living with an entity that is not a Competitive Business.
9. Non-Disparagement.
During and after the Term of Employment, the Executive agrees that he shall
not make any false, defamatory or disparaging statements about the Company, its
Subsidiaries and Affiliates, or the officers or directors of the Company and its
Subsidiaries and Affiliates. During and after the Term of Employment, the
Company agrees, on behalf of itself and its Subsidiaries and Affiliates, that
neither the officers nor the directors of the Company or its Subsidiaries and
Affiliates shall make any false, defamatory or disparaging statements about the
Executive.
10. Defense of Claims.
The Executive agrees that, for the period beginning on the date hereof, and
continuing for a reasonable period after termination of the Term of Employment,
the Executive will cooperate with the Company in defense of any claims that may
be made against the Company, and will cooperate with the Company in the
prosecution of any claims that may be made by the Company, to the extent that
such claims may relate to services performed by the Executive for the Company.
The Executive agrees to promptly inform the Company if he becomes aware of any
lawsuits involving such claims that may be filed against the Company. The
Company agrees to reimburse the Executive for all of the Executive's reasonable
out-of-pocket expenses associated with such cooperation, including travel
expenses. For periods during and following the Executive's employment with the
Company, the Company agrees to provide reasonable compensation to the Executive
for such cooperation in addition to reimbursement of expenses and his reasonable
attorneys' fees, if any.
-7-
<PAGE> 8
11. Definitions
"Business" means the development, manufacture and marketing of aircraft
sealants, including but not limited to products based upon Morton International,
Inc. supplied polysulfide chemicals and additional core technologies in epoxy,
silicone and urethane based sealants, adhesives and coatings marketed into
markets, including but not limited to, aircraft, space marine, automotive,
electronics and telecommunications.
"APG" means Automotive Performance Group, Inc. and all of its Affiliates.
"Authority" means any governmental, regulatory or administrative body,
agency or authority, any court or judicial authority, any public, private or
industry regulatory authority, whether national, Federal, state or local or
otherwise, or any Person lawfully empowered by any of the foregoing to enforce
or seek compliance with any applicable law, statute, regulation, order or
decree.
"Business" means the AC Tech Business and the Permatex Business.
"Cause" means any of the following:.
(i) Executive's conviction of, or plea of guilty or nolo contendere
to, a serious felony or a crime involving embezzlement, conversion of
property or moral turpitude;
(ii) a finding by a majority of the Board of Directors, acting
reasonably and in good faith, of Executive's fraud, embezzlement or
conversion of property;
(iii) Executive's conviction of, or plea of guilty or nolo contendere
to, a crime involving the acquisition, use or expenditure of federal, state
or local government funds;
(iv) an administrative or judicial determination that Executive
committed fraud or any other violation of law involving federal, state or
local government funds;
(v) a finding by a majority of the Board of Directors, acting
reasonably and in good faith, of Executive's knowing breach of any of his
fiduciary duties to any company in the Company Group or the Company's
stockholders or making of a misrepresentation or omission which breach,
misrepresentation or omission would reasonably be expected to materially
adversely affect the business, properties, assets, condition (financial or
other) or prospects of any company in the Company Group;
(vi) Executive's willful and continual neglect or failure to discharge
his material duties, responsibilities or obligations prescribed by this
Agreement or any other agreement between the Executive and any company in
the Company Group;
-8-
<PAGE> 9
provided, that the Executive has been given notice and 30 days from such
notice fails to cure the neglect or failure;
(vii) Executive's alcohol or substance abuse, which materially
interferes with Executive's ability to discharge his duties,
responsibilities and obligations prescribed by this Agreement; provided,
that Executive has been given notice and 30 days from such notice fails to
cure such abuse;
(viii) except with respect to his obligations under that certain
Services Agreement, dated November 5, 1997, between the Executive and
Advanced Chemistry and Technology, Inc. (the "AC Tech Services Agreement"),
any material violation, with the actual knowledge of Executive, of any
obligations imposed upon Executive, personally, as opposed to upon the
Company, whether as a stockholder or otherwise, under this Agreement, the
Certificate of Incorporation or By-Laws of the Company; or
(ix) Executive's personal (as opposed to the Company's) material and
knowing failure, to observe or comply with Regulations whether as an
officer, stockholder or otherwise, in any material respect or in any manner
which would reasonably be expected to have a material adverse effect in
respect of the Company Group's ongoing business, operations, conditions,
other business relationships or properties.
"Company" has the meaning set forth in the preamble.
"Company Group" has the meaning set forth in Section 1.
"Competitive Business" has the meaning set forth in Section 8(a)(i).
"Confidential Information" means any confidential information including,
without limitation, any study, data, calculations, software storage media or
other compilation of information, patent, patent application, copyright,
"know-how", trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans or any
portion or phase of any scientific or technical information, ideas,
discoveries, designs, inventions, creative works, computer programs (including
source of object codes), processes, procedures, formulae, improvements or other
proprietary or intellectual property of the Company Group, whether or not in
written or tangible form, and whether or not registered, and including all
files, records, manuals, books, catalogues, memoranda, notes, summaries, plans,
reports, records, documents and other evidence thereof. Notwithstanding the
foregoing, the term "Confidential Information" does not include, and there
shall be no obligation hereunder with respect to, information that is or becomes
generally available to the public other than as a result of a disclosure by the
Executive not permissible hereunder.
-9-
<PAGE> 10
"Executive" means Dean Willard or his estate, if deceased.
"knowing" and "knowledge" shall each refer to actual knowledge without any
duty of investigation.
"Market" means any county in the United States of America or any other
country in which the Business was conducted by or engaged in by the Company
Group prior to the date hereof or is conducted or engaged in by the Company
Group at any time during the Term of Employment.
"Permatex Business" means the development, manufacture and distribution of
functional chemical products to the automotive maintenance and repair and
consumer markets, including but not limited to anaerobic threadlockers and
liquid gaskets, silicone gasketing materials, aerosol parts cleaners, waterless
handcleaners, adhesives and a variety of "Do-It-Yourself" fix and repair
chemical products.
"Regulations" means any laws, statutes, regulations, rulings, rules, orders
or permits of, administered or enforced by or on behalf of any Authority, and
the Certificate of Incorporation and By-laws of the Company, as applicable.
"Restricted Period" has the meaning set forth in Section 8(a)(i).
"Term of Employment" has the meaning set forth in Section 4(a).
12. Notice
Any notice, request, demand or other communication required or permitted to
be given under this Agreement shall be given in writing and if delivered
personally, sent by certified or registered mail, return receipt requested, sent
by overnight courier or sent by facsimile transmission (with confirmation and a
copy sent by mail within one day) as follows (or to such other addressee or
address as shall be set forth in a notice given in the same manner):
If to Executive:
--------------------
--------------------
--------------------
Facsimile No.:
with a copy to:
--------------------
--------------------
--------------------
Attention:
Facsimile No.:
-10-
<PAGE> 11
If to the Company or
the Board of Directors: Permatex Brands and Technologies, Inc.
c/o The Jordan Company LLC7
67 Fifth Avenue, 48th Floor
New York, NY 10153
Attention: Jonathan F. Boucher
Facsimile No.: (212) 755-5263
Any such notices shall be deemed to be given on the date personally delivered or
sent by facsimile transmission or such return receipt is issued or the day after
if sent by overnight courier.
13. Executive's Representations
The Executive represents, warrants and covenants to the Company that:
(a) to the best of his knowledge and belief, and except as set forth in the
AC Tech Services Agreement, Executive is not a party to any written employment
contract or written agreement not to compete with any of his former employers,
including, but not limited to Courtaulds Aerospace plc, Products Research and
Chemical, Inc., Courtaulds plc, PRC-DeSoto International, Inc. (the "Former
Employers");
(b) to the best of his knowledge and belief, during his tenure with his
Former Employers, the Executive did not engage directly in any activity which
would give rise to any disciplinary or other similar proceeding before any
federal or state governmental agency or self-regulatory organization, and he has
not been subject to or involved in any such proceeding and no such proceeding is
threatened;
(c) he is knowledgeable and sophisticated as to business matters, including
the subject matter of this Agreement, and that prior to assenting to the terms
of this Agreement, or giving the representations and warranties herein, he has
been given a reasonable time to review it and has consulted with counsel of his
choice; and
(d) he will not knowingly breach or violate any provision of any
Regulations in any material respect or in any manner which might reasonably have
a material adverse effect in respect of the ongoing business, operations,
conditions, or other business relationships or properties of any of the
companies in the Company Group.
14. Company's Obligation; Taxes
Executive agrees and acknowledges that the obligations owed to Executive
under this Agreement are solely the obligations of the Company, and that none of
the Company's stockholders, directors, officers or lenders will have any
obligations or liabilities in respect
-11-
<PAGE> 12
of this Agreement and the subject matter hereof. Any amounts payable to the
Executive pursuant to this Agreement shall be subject to withholding and any
other applicable taxes.
15. Validity
If, for any reason, any provision hereof shall be determined to be invalid
or unenforceable, the validity and effect of the other provisions hereof shall
not be affected thereby.
16. Severability
Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein. If any court determines that any
provision of Section 7, 8, 9, 10 or any other provision hereof is unenforceable
and therefore acts to reduce the scope or duration of such provision, the
provision in its reduced form, shall then be enforceable.
17. Survival; Right to Withhold Payments
The terms of Sections 7, 8, 9 and 10 shall survive the termination of this
Agreement regardless of who terminates this Agreement, or the reasons therefor.
Upon the determination of a majority of the Board of Directors that the
Executive has breached his obligations in any material respect under Section 7,
8, 9 or 10, the Company, in addition to pursuing all available remedies under
this Agreement, at law or otherwise, and without limiting its right to pursue
the same, shall cease all payments to the Executive under this Agreement.
18. Waiver of Breach; Specific Performance
The waiver by the Company or Executive of a breach of any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other breach of such other party. Each of the parties (and third party
beneficiaries) to this Agreement will be entitled to enforce its rights under
this breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that the Company
would be irreparably injured by a violation of Section 7, 8, 9 or 10 of this
Agreement, that the provisions of such sections are reasonable and that the
Company could not adequately be compensated in monetary damages, in light of the
sensitivity of the non-public information of the Company to which the Executive
will be exposed and that any party (and third party beneficiaries) may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief, including temporary
restraining orders, preliminary injunctions and
-12-
<PAGE> 13
permanent injunctions in order to enforce or prevent any violations of the
provisions of such sections of this Agreement. In the event either party takes
legal action to enforce any of the terms or provisions of this Agreement, the
nonprevailing party shall pay the successful party's costs and expenses,
including but not limited to, reasonable attorneys' fees, incurred in such
action.
19. Assignment; Third Parties
Neither the Executive nor the Company may assign, transfer, pledge,
hypothecate, encumber or otherwise dispose of this Agreement or any of his or
its respective rights or obligations hereunder, without the prior written
consent of the other. The parties agree and acknowledge that each of the
Companies and the stockholders of, lenders to and investors therein are intended
to be third party beneficiaries of, and have rights and interests in respect of,
Executive's agreements set forth in Sections 7, 8, 9 and 10.
20. Amendment; Entire Agreement
This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. This Agreement constitutes the
entire agreement between the parties concerning the subject matter hereof and
supersedes all prior and contemporaneous agreements, if any, between the parties
relating to the subject matter hereof. The enforceability of this Agreement
shall not cease or otherwise be adversely affected by the termination of the
Executive's employment with the Company. The Executive and the Company agree
that the language used in this Agreement is the language chosen by the parties
to express their mutual intent, and that no rule of strict construction is to be
applied against any party hereto.
21. Litigation
(a) THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES
HERETO ACKNOWLEDGES AND AGREES THAT IN THE EVENT OF ANY BREACH OF THIS
AGREEMENT, THE NON-BREACHING PARTY WOULD BE IRREPARABLY HARMED AND COULD NOT BE
MADE WHOLE BY MONETARY DAMAGES, AND THAT, IN ADDITION TO ANY OTHER REMEDY TO
WHICH THEY MAY BE ENTITLED AT LAW OR IN EQUITY, THE PARTIES SHALL BE ENTITLED TO
SUCH EQUITABLE OR INJUNCTIVE RELIEF AS MAY BE APPROPRIATE. THE CHOICE OF FORUM
SET FORTH IN THIS SECTION 21 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF
ANY JUDGMENT OF A NEW YORK FEDERAL OR STATE COURT, OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SUCH A JUDGMENT, IN ANY OTHER APPROPRIATE
JURISDICTION.
-13-
<PAGE> 14
(b) IN THE EVENT ANY PARTY TO THIS AGREEMENT COMMENCES ANY LITIGATION,
PROCEEDING OR OTHER LEGAL ACTION IN CONNECTION WITH OR RELATING TO THIS
AGREEMENT, ANY RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN
OR THEREIN, THE PARTIES TO THIS AGREEMENT HEREBY (1) AGREE UNDER ALL
CIRCUMSTANCES ABSOLUTELY AND IRREVOCABLY TO INSTITUTE ANY LITIGATION, PROCEEDING
OR OTHER LEGAL ACTION IN A COURT OF COMPETENT JURISDICTION LOCATED WITHIN THE
SOUTHERN DISTRICT OF NEW YORK, WHETHER A STATE OR FEDERAL COURT; (2) AGREE THAT
IN THE EVENT OF ANY SUCH LITIGATION, PROCEEDING OR ACTION, SUCH PARTIES WILL
CONSENT AND SUBMIT TO THE PERSONAL JURISDICTION OF ANY SUCH COURT DESCRIBED IN
CLAUSE (1) OF THIS SECTION AND TO SERVICE OF PROCESS UPON THEM IN ACCORDANCE
WITH THE RULES AND STATUTES GOVERNING SERVICE OF PROCESS (IT BEING UNDERSTOOD
THAT NOTHING IN THIS SECTION SHALL BE DEEMED TO PREVENT ANY PARTY FROM SEEKING
TO REMOVE ANY ACTION TO A FEDERAL COURT IN THE SOUTHERN DISTRICT OF NEW YORK;
(3) AGREE TO WAIVE TO THE FULL EXTENT PERMITTED BY LAW ANY OBJECTION THAT THEY
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH LITIGATION, PROCEEDING OR
ACTION IN ANY SUCH COURT OR THAT ANY SUCH LITIGATION, PROCEEDING OR ACTION WAS
BROUGHT IN ANY INCONVENIENT FORUM; (4) AGREE, AFTER CONSULTATION WITH COUNSEL,
TO WAIVE ANY RIGHTS TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING
TO THIS AGREEMENT; (5) AGREE TO DESIGNATE, APPOINT AND DIRECT AN AUTHORIZED
AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS IN
ANY LEGAL PROCEEDING IN THE SOUTHERN DISTRICT OF NEW YORK; (6) AGREE TO PROVIDE
THE OTHER PARTIES TO THIS AGREEMENT WITH THE NAME, ADDRESS AND FACSIMILE NUMBER
OF SUCH AGENT; (7) AGREE AS AN ALTERNATIVE METHOD OF SERVICE TO SERVICE OF
PROCESS IN ANY LEGAL PROCEEDING BY MAILING OF COPIES THEREOF TO SUCH PARTY AT
ITS ADDRESS SET FORTH HEREIN FOR COMMUNICATIONS TO SUCH PARTY; (8) AGREE THAT
ANY SERVICE MADE AS PROVIDED HEREIN SHALL BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT; AND (9 ) AGREE THAT NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY
PARTY TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. TO THE
EXTENT PERMITTED BY LAW IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY
RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN,
AND AGREE TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH
WAIVER.
22. Further Action
Executive and the Company agree to perform any further acts and to execute
and deliver any documents which may be reasonable to carry out the provisions
hereof.
-14-
<PAGE> 15
23. Headings
The headings contained in this Agreement are for convenience only and shall
not affect in any way the meaning or interpretation of this Agreement.
24. 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.
[End of page]
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have set their hands as of the day
and year first written above.
EXECUTIVE:
/s/ Dean Willard
------------------------------
Name: Dean Willard
PBT BRANDS, INC.
By: /s/ Douglas Zych
--------------------------
Name: Douglas Zych
Title: Vice President
-16-
<PAGE> 17
Schedule 1
[Additional Companies in the Company Group]
Permatex Acquisition Corp.
Permatex, Inc.
Advanced Chemistry and Technology, Inc.
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from the
unaudited consolidated condensed financial statements of Automotive Performance
Group, Inc. and Subsidiaries for September 30, 1999 and is qualified in its
entirety by reference to such financial statements."
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 210
<SECURITIES> 0
<RECEIVABLES> 53
<ALLOWANCES> 53
<INVENTORY> 0
<CURRENT-ASSETS> 958
<PP&E> 72
<DEPRECIATION> 13
<TOTAL-ASSETS> 8,834
<CURRENT-LIABILITIES> 4,173
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 4,660
<TOTAL-LIABILITY-AND-EQUITY> 8,834
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 364
<INCOME-PRETAX> (16,640)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,781)
<DISCONTINUED> (4,693)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,474)
<EPS-BASIC> (2.74)
<EPS-DILUTED> (2.74)
</TABLE>
