United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
February 4, 1999
(January 20, 1999)
(Date of Earliest Event Reported)
----------------
INDUSTRIAL RUBBER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 333-46643 41-1550505
(State or other Commission file (I.R.S. Employer
jurisdiction of number Identification No.)
incorporation or
organization)
3804 E. 13th St.
Hibbing, MN 55746
(Address of principal executive offices) (Zip Code)
(218) 263-8831
(Registrant's telephone number, including area code)
Not applicable
(Former, name, former address and former fiscal year,
if changes since last report)
Item 2. Acquisition or Disposition of Assets.
On January 20, 1999, Industrial Rubber Products, Inc. ("IRP")
through its wholly owned subsidiary, Industrial Rubber Products -
Utah, Inc., ("Subsidiary") acquired the physical and certain
intangible assets of Sonwill Products, Inc., d/b/a T.J. Products,
a Utah corporation ("TJP") relating to the business described
below. TJP produces rubber linings, rubber moldings and urethane
moldings for the mineral processing, electric power, paper, and
aerospace industries. The acquired assets consist of all
machinery, equipment, tools, molds, vehicles, furniture and
fixtures, supplies, leasehold improvements, and useable inventories
of finished goods and raw materials used in TJP's business. Also
purchased were certain prepaid expenses, and intangible assets
(including the name T.J. Products, trade secrets, customer lists,
existing contracts, and similar assets). The assets acquired are
being used to continue the business formerly conducted by TJP
through the Subsidiary.
The purchase price for the assets acquired was approximately
$2,260,000 in cash, consisting of $1,900,000 for the machinery,
equipment and intangible assets, approximately $350,000 for
inventory and approximately $10,000 for prepaid insurance. The
purchase price paid for the machinery and equipment was based upon
an appraisal of the assets, the inventory was valued at the lower
cost or market, and the prepaid expenses were based upon book
value. The balance of the purchase price was allocated to the
intangible assets. The source of funds to make the acquisition was
from a portion of the proceeds from IRP's Initial Public Offering,
which was completed on April 24, 1998. IRP is presently
negotiating for bank financing for approximately 50% of the
purchase price.
In connection with the acquisition, IRP also leased the land
and buildings previously leased by TJP to operate its business.
The lease is with DGW Enterprises, L.C., a Utah limited liability
company a majority of whose member interests is owned by Dean G.
Wilson. Mr. Wilson is the owner of all of the stock of TJP. IRP
intends to continue to utilize these facilities in essentially the
same manner as they have been used in the past. The terms of the
ten-year lease are based on market rates. IRP has the right to
terminate the lease at any time after four years, upon six months
prior written notice. Also, IRP has the option to purchase the
land and buildings for $1,100,000 during the first year or at its
appraised value thereafter during the term of the lease.
In connection with the acquisition, the Subsidiary has entered
into a three-year employment contract with the owner of TJP, Dean
G. Wilson. Under the terms of the agreement, Mr. Wilson will serve
as President and General Manager of the Western Division (including
the business of formerly conducted by TJP) and will be elected as
a Vice President of IRP. Mr. Wilson's base salary of $120,000 per
year, $360,000 total, was advanced to him at the date of closing.
Mr. Wilson's future compensation includes an annual performance
bonus and fringe benefits commensurate with other officers of IRP.
In connection with the acquisition, Dean G. Wilson, the owner
of TJP, has entered into a five-year non-competition covenant as
part of his employment contract. Under the terms of the non-
competition covenant, Mr. Wilson will receive $30,000 each year for
a period of five years.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
It is impossible to provide the required financial information
at the time of filing this report. The required financial
information will be filed by amendment to this Form 8-K not later
than April 5, 1999.
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the time of filing this report. The required pro
forma financial information will be filed by amendment to this Form
8-K not later than April 5, 1999.
(c) Exhibits
Exhibit Number Description
2.1 Purchase Agreement dated January 20,
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INDUSTRIAL RUBBER PRODUCTS, INC.
(Registrant)
Date: February 4, 1999 /s/ Daniel O. Burkes
------------------------------
Daniel O. Burkes
Chief Executive Offices.
<PAGE>
EXHIBIT 2.1
PURCHASE AGREEMENT
among
Industrial Rubber Products-Utah, Inc.
("Purchaser")
and
Industrial Rubber Products, Inc.
("Guarantor")
and
Sonwil Products, Inc., dba T.J. Products
("Seller")
and
Dean G. Wilson
("Stockholder")
January 20, 1999
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF ASSETS............................................1
1.1 Purchase and Sale of Assets...................................1
1.2 Assumption of Certain Liabilities...........................3
1.3 Other Liabilities Not Assumed...............................3
1.4 Assignment of Certain Contracts.............................4
1.5 Instruments of Conveyance, Assumption, or Assignment
...........................................................5
2. PURCHASE PRICE.......................................................5
2.1 Purchase Price..............................................5
2.2 Payment of Obligations......................................5
2.3 Adjustments.................................................5
3. CLOSING..............................................................6
3.1 Closing.....................................................6
4. TAXES AND PREPAID ITEMS..............................................6
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER.............6
5.1 Organization and Corporate Power............................6
5.2 Due Authorization; Effect of Transaction....................7
5.3 Financial Statements........................................7
5.4 Liabilities.................................................7
5.5 Subsidiaries................................................8
5.6 Real Property...............................................8
5.7 Leases......................................................8
5.8 Personal Properties.........................................8
5.9 Employment Arrangements.....................................9
5.10 Material Contracts and Arrangements.........................9
5.11 Ordinary Course of Business................................10
5.12 Litigation and Compliance with Laws........................12
5.13 Tax Returns................................................12
5.14 Environmental Matters......................................13
5.15 Trademarks, Licenses, Etc..................................14
5.16 Insurance Policies.........................................15
5.17 Extraordinary Events.......................................15
5.18 Adverse Restrictions.......................................15
5.19 Material Information.......................................15
5.20 Products in Warranty.......................................15
5.21 Certain Transactions.......................................15
5.22 No Governmental Authorizations or Approvals Required
..........................................................16
5.23 Employee Benefit Plans.....................................16
5.24 Continuing Representations.................................17
6. REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF PURCHASER
...................................................................17
6.1 Due Authorization; Effect of Transaction...................17
6.2 Organization and Corporate Power...........................18
6.3 Continuing Representations.................................18
7. COVENANTS AND AGREEMENTS............................................18
i
7.1 Ordinary Conduct...........................................18
7.2 Confidentiality............................................20
7.3 Insurance..................................................20
7.4 Other Transactions.........................................20
7.5 Supplemental Disclosure....................................20
8. CONDITIONS OF PURCHASER'S OBLIGATIONS...............................21
8.1 Opinion of Seller's Counsel................................21
8.2 No Opposition..............................................21
8.3 Consulting and Non-Competition Agreement...................21
8.4 Permits, Etc...............................................21
8.5 Insurance. ................................................22
8.6 Representations and Covenants..............................22
8.7 Instruments of Transfer....................................22
8.8 Tax Waiver.................................................22
8.9 Tax Allocation Agreement...................................22
8.10 Payments to Bank and Lender................................22
8.11 Assignment of Name.........................................22
9. CONDITIONS OF SELLER'S AND STOCKHOLDER'S OBLIGATIONS................22
9.1 Opinion of Purchaser's Counsel.............................22
9.2 Representations and Covenants..............................23
9.3 No Opposition..............................................23
9.4 Consulting and Non-Competition Agreement...................23
10. INDEMNIFICATION BY SELLER AND STOCKHOLDER...........................23
10.1 Indemnification............................................23
10.2 Notice of Claim............................................24
10.3 Set-Off or Reimbursement...................................25
10.4 Warranty Claims............................................25
11. BULK SALES ACT......................................................26
12. MUTUAL COVENANTS....................................................26
12.1 Cooperation................................................26
12.2 Publicity..................................................26
12.3 Best Efforts...............................................26
12.4 Records....................................................26
13. FURTHER ASSURANCES..................................................27
14. TERMINATION.........................................................27
15. NO THIRD-PARTY BENEFICIARIES........................................27
16. EXPENSES............................................................27
17. ATTORNEY FEES.......................................................27
18. BROKERAGE FEE.......................................................27
19. AMENDMENTS; WAIVERS.................................................27
20. ASSIGNMENT; SUCCESSORS AND ASSIGNS..................................28
ii
21. SEVERABILITY........................................................28
22. COUNTERPARTS........................................................28
23. INTERPRETATION......................................................29
24. NOTICES.............................................................29
25. LAW TO GOVERN.......................................................29
26. ARBITRATION.........................................................30
27. APPLIED COATINGS, L.C...............................................30
28. JOINDER OF STOCKHOLDER AND GUARANTOR................................30
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement"), entered into as
of the 20th day of January, 1999, by, between and among Industrial
Rubber Products-Utah, Inc., a Utah corporation ("Purchaser"),
Industrial Rubber Products, Inc., a Minnesota corporation
("Guarantor"), Sonwil Products, Inc., a Utah corporation, dba T.J.
Products ("Seller"), and Dean G. Wilson, an individual and sole
stockholder of Seller ("Stockholder");
W I T N E S S E T H T H A T:
WHEREAS, Purchaser desires to purchase and Seller desires to
sell and convey to Purchaser substantially all of the operating
assets of Seller relating to its business involving the manufacture
of rubber lined and rubber and urethane molded products, upon the
terms and subject to the conditions set forth herein;
WHEREAS, Purchaser is willing to assume certain specified
liabilities of Seller;
WHEREAS, Purchaser requires that Stockholder also execute this
Agreement for the purposes stated herein; and
WHEREAS, Seller and Stockholder require that Guarantor
guaranty the obligations of Purchaser herein;
NOW, THEREFORE, in consideration of the agreements of the
parties hereto, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Purchase and Sale of Assets. At the Closing (as defined
in Section 3), Seller agrees to sell, convey, transfer, assign, and
deliver to Purchaser, and Purchaser agrees to purchase from Seller,
for the purchase price hereinafter specified, all of Seller's
operating assets, properties, and business of every kind and
1
escription and wherever situated (the "Assets"), and specifically
excepting accounts receivable, cash, all of which excluded assets
are listed on the Schedule of Excluded Assets attached hereto,
which excluded assets are not to be acquired by the Purchaser as
and to the extent specifically stated in such Schedule. Without
limiting the generality of the foregoing, the Assets to be acquired
by Purchaser hereunder shall include:
(a) All of Seller's goodwill and business as a going
concern, including the name "T.J. Products" or any variation
thereof.
(b) All of Seller's useable inventories of finished
goods, raw materials, and other miscellaneous supplies and
materials (the most recent list is attached hereto and has
been prepared by Seller in accordance with its ordinary
practice).
(c) All of Seller's prepaid expenses (excluding those,
if any, pertaining to taxes, to pension or other benefits
plans, or to insurance policies that are listed on the
Schedule of Excluded Assets and will not be acquired by
Purchaser pursuant to this Agreement).
(d ) The lessee's leasehold interest under that certain
Lease Agreement, of even date herewith, between DGW
Enterprises, L.C., a Utah limited liability company, as lessor
("Lessor"), and Seller, as lessee, a copy of which has been
provided to Purchaser and which lease will be terminated upon
Closing.
(e) All machinery, equipment, tools, molds, motor
vehicles, transportation, packing and delivery equipment and
supplies, furniture and fixtures of every kind and description
owned by Seller or ordered by it (the most recent list is
attached hereto, contains at least all of the items appraised
by American Appraisal Associates in November, 1998, and has
been prepared by Seller in accordance with its ordinary
practice) on or before the Closing Date (as defined in Section
3).
(f) All of Seller's right, title, and interest of every
kind and description in and to the following assets:
(i) All of Seller's rights and privileges under
"Assigned Contracts" (as defined in Section 1.4) and
unfilled purchase and sales orders. The Assigned
Contracts are consistent with those in the list of such
contracts of Seller as of October 31, 1998, and already
provided to Purchaser.
(ii) All of Seller's rights to or under all
trademarks, service marks, certification marks, United
States and foreign trademark registrations and
applications, trade names, copyrights, United States and
2
foreign patents and patent applications, if any,
including international priority rights associated
therewith, and all patent and other license, trade
secrets, inventions, and royalties and rights to sue for
past infringements, including, without limitation, those
items listed or otherwise described on the Schedules
hereto.
(iii) All of Seller's customer lists, credit
files, payroll records, schedules of fixed assets, books
of account, contracts, sales representation agreements,
and sales agency agreements (if any), files, papers,
books, records, designs, drawings, specifications and
engineering data, and all other public or confidential
business records, all to the extent reasonably required
for the orderly continuation of the business operations
of Seller (excluding minute books and stock books of
Seller (collectively, the "Business Records")).
(g) Except as otherwise specified on the Schedules
hereto, all of Seller's causes of action, judgments, claims
and demands of whatever nature, memberships, agencies and
permits, claims for refunds and rights of offset and credits,
all to the extent that they are assignable by Seller.
(h) All of Seller's rights under employment contracts,
restrictive covenants, nondisclosure agreements, and similar
obligations of present and former officers and employees of
Seller, including, without limitation, those listed on the
Disclosure Schedule hereto.
1.2 Assumption of Certain Liabilities. Purchaser shall
assume as of the date of this Agreement those liabilities of Seller
specifically listed on the Schedule of Assumed Liabilities hereto
(the "Assumed Liabilities"), and Purchaser shall not assume, incur,
guarantee, or be otherwise obligated with respect to any liability
whatsoever of Seller other than as so stated. With respect to any
Assumed Liability, such assumption by Purchaser is for the benefit
only of the Seller and shall not expand, increase, broaden, or
enlarge the rights or remedies of any other party, nor create in
any other party any right against Purchaser that such party would
not have against Seller if this Agreement had not been consummated.
1.3 Other Liabilities Not Assumed. Purchaser shall not
assume any liabilities of Seller that are not listed on the
Schedule of Assumed Liabilities, and, with respect to each Assumed
Liability listed on the Schedule of Assumed Liabilities, Purchaser
does not assume and shall not have or be under any liability or
obligation over and above any amount, or after the occurrence of
any limitation or expiration date, of such liability or obligation
stated on such schedule. Without limiting the generality of the
foregoing and except as otherwise provided on the Schedule of
Assumed Liabilities, the Assumed Liabilities will not include, and
Purchaser shall not assume under this Agreement, any of the
following obligations or liabilities of Seller:
3
(a) Any cost, expense, or tax liability of Seller
arising from or growing out of the sale provided for by this
Agreement.
(b) Any debt, obligation, or liability to any employee,
agent, officer, director, or security holder of Seller or of
any entity owned or controlled in whole or in part by Seller
under any employment, sales, representation, or similar
agreement not identified as an Assigned Contract (as defined
below), or under any employee stock option plan, stock
purchase plan, bonus plan or arrangement, pension plan or
other benefit plan, health plan, or other employee welfare
plan or arrangement.
(c) Any debt, liability, or obligation of Seller (or
costs and expenses in connection therewith) to the extent that
such debt, liability, or obligation is actually satisfied or
paid on behalf of Seller by an insurer or insurers under a
policy issued to such Seller.
(d) Any liability or obligation arising from any
violation by Seller or by its officers, employees, or agents
of any statute (or rule or regulation thereunder) or executive
regulation of the United States or any State or any political
subdivision or agency thereof or any statutes (or rule or
regulation thereunder) or executive, administrative, or
quasi-judicial regulation of any foreign government.
(e) Any liability or obligation whose existence violates
or is contrary to any representation or warranty of Seller.
(f) Federal and other domestic or foreign income tax or
other tax liabilities known or unknown, existing, or arising
from operations prior to the Closing.
(g) Any liability or obligation for or arising under any
claim for workers'compensation or for any tort, breach of any
legal duty, breach or violation of any contract or violation
or breach of any law, statute, ordinance, rule, regulation,
injunction, or decree, or any liability or obligation for any
"product liability" or other claim connected in any manner
with any products, events, or activities produced or taking
place prior to the Closing.
1.4 Assignment of Certain Contracts. At the Closing,
Purchaser shall succeed to the rights and privileges of Seller, and
shall assume the express obligations of Seller performable after
the Closing pursuant to the Lease and to those leases, insurance
policies, contracts, and other agreements, and only those leases,
insurance policies, contracts, and other agreements of Seller that
are listed as "Assigned Contracts" on the Disclosure Schedule
hereto ("Assigned Contracts") as and in the form of the copies
thereof (or, if oral, as and in the form of the written statements
of the terms thereof) furnished or made available to Purchaser
pursuant to Sections 5.10, 5.12, 5.13, and 5.19 hereto. Without
4
limiting the generality of the foregoing, Purchaser shall not
assume and shall have no liability with respect to any obligations
of Seller under any Assigned Contract (a) required therein to be
performed by Seller at or prior to the Closing or (b) arising out
of any breach thereof not included in the copies (or written
statements of the terms) of such Assigned Contracts delivered or
made available to Purchaser pursuant hereto.
1.5 Instruments of Conveyance, Assumption, or Assignment.
The sale, conveyance, transfer, assignment, and delivery of the
Assets, the Assigned Contracts and the assumption of the Assumed
Liabilities, as herein provided, shall be effected by bills of
sale, endorsements, assignments, deeds, drafts, checks, stock
powers, or other instruments in such reasonable and customary form
as shall be requested by Purchaser, and Seller and Stockholder
shall at any time and from time to time after the Closing, upon
reasonable request, execute, acknowledge, and deliver such
additional bills of sale, endorsements, assignments, deeds, drafts,
checks, stock powers, or other instruments and take such other
actions as may be reasonably required to effectuate the
transactions contemplated by this Agreement.
2. PURCHASE PRICE.
2.1 Purchase Price. In consideration for the sale,
conveyance, transfer, and delivery of the Assets and the Assigned
Contracts and upon the terms and subject to the conditions set
forth in this Agreement, Purchaser shall assume the Assumed
Liabilities and shall pay to Seller the "Purchase Price", which
shall be:
(a) A cash payment of $2,249,390.95 (less any Assumed
Liabilities) and subject to adjustment as provided below.
2.2 Payment of Obligations. In consideration of the cash
payment made by Purchaser for the conveyance, transfer, and
delivery of the Assets and the Assigned Contracts and upon the
terms and subject to the conditions set forth in this Agreement,
Seller shall pay or otherwise satisfy all obligations of the
Seller not on the Schedule of Assumed Liabilities and will do so in
accordance with their payment terms so as to not adversely effect
the credit terms that Purchaser may obtain from the suppliers of
Seller.
2.3 Adjustments. In connection with the Closing, Purchaser
and Seller shall prepare an inventory setting forth Seller's
inventories as of the close of business on the Closing Date, in
accordance with inventory methods and procedures that Seller has
customarily used to value its inventories on a monthly basis (the
"Closing Inventory") .
The Purchaser's representative for the preparation of the
Closing Inventory shall be John Kokotovich, and the Seller's
representative shall be the Shareholder. Any disputes regarding
the value of the Closing Inventory not resolved by the
5
representatives shall be subject to arbitration under Paragraph 26
of this Agreement.
Subject to the procedures and time limits set forth in the
foregoing paragraph, if the Closing Inventory is less than
$349,390.95, Seller shall pay Purchaser the difference in
immediately available funds within 30 business days after the
Closing, and if the Closing Inventory figure is more than
$349,390.95, Purchaser shall pay Seller the difference in
immediately available funds within 30 business days after the
Closing. All amounts paid under the Statement shall be final and
binding on the parties. The amounts payable under this adjustment
provision shall bear interest at a rate equal to the prime rate of
interest from time to time published by Zions First National Bank,
calculated on the basis of the actual number of days elapsed over
365, from the Closing Date to the date of payment.
3. CLOSING.
3.1 Closing. The closing of the sale and purchase (the
"Closing") shall take place at the offices of Prince, Yeates &
Geldzahler in Salt Lake City, Utah, on January 20, 1999, or at such
other time and place as may be mutually agreed upon (the "Closing
Date"). At the Closing, Seller shall deliver to Purchaser such
bills of sale, endorsements, assignments, deeds, drafts, checks,
stock powers, or other instruments as shall be effective to vest in
Purchaser good and marketable title to the Assets subject to no
liens, encumbrances, or rights in any other party whatsoever,
except as are described in the Disclosure Schedule.
4. TAXES AND PREPAID ITEMS.
Except as otherwise provided herein, Seller will pay all
sales, use, franchise, and other taxes and charges, including,
without limitation, ad valorem, or other taxes on the Real Estate,
which may become payable in connection with the sale of the Assets
pursuant to the terms of this Agreement, and any and all other
taxes and charges accruing out of the operation of Seller's
businesses prior to the Closing Date.
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER.
Seller and Stockholder jointly and severally represent and
warrant, covenant and agree that:
5.1 Organization and Corporate Power. Seller is a
corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation in each
other jurisdiction in which it owns or leases properties, conducts
operations, or maintains a stock of goods, with full power and
authority (corporate and other) to carry on the business in which
it is engaged (a true and correct list of each such jurisdiction is
set forth in the Disclosure Schedule) and to execute and deliver
and carry out the transactions contemplated by this Agreement.
6
5.2 Due Authorization; Effect of Transaction. No provisions
of the Articles of Incorporation or By-Laws of Seller, or of any
agreement, instrument, or understanding, or any judgment, decree,
rule, or regulation, to which Seller is a party or by which Seller
is bound, has been or will be violated by the execution and
delivery by Seller of this Agreement or the performance or
satisfaction of any agreement or condition herein contained upon
its part to be performed or satisfied, and all requisite corporate
and other authorizations for such execution, delivery, performance,
and satisfaction have been duly obtained. Upon execution and
delivery, this Agreement will be a legal, valid, and binding
obligation of Seller and Stockholder, enforceable in accordance
with its terms. Seller is not in default in the performance,
observance, or fulfillment of any of the terms or conditions of its
Articles of Incorporation or By-Laws.
5.3 Financial Statements. Except as set forth on the
Disclosure Schedule, Seller has delivered to Purchaser the balance
sheets of Seller as at the close of its fiscal year for each of the
three years ending December 31,1995, 1996 and 1997, respectively,
together with related consolidated statements of operations,
consolidated statements of changes in stockholders' equity, and
consolidated statements of cash flows for the respective years then
ended. Seller has also delivered to Purchaser the balance sheets
of Seller as at September 30, 1998, together with related
consolidated statements of operations, and will deliver on or
before March 15, 1999, a balance sheet as of December 31, 1998.
The financial statements specified above, including in each
case the notes to such financial statements, are hereinafter
sometimes collectively referred to as the "Financial Statements."
All of the Financial Statements are true, correct, and complete,
have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods (except as
set forth in such notes or statements) and fairly present the
financial condition of Seller and the results of its operations as
at the dates thereof and throughout the periods covered thereby.
The Financial Statements reflect or provide for all claims against,
and all debts and liabilities of, Seller, fixed or contingent, as
at the dates thereof, and there has not been any change between the
date of the most recent Financial Statements and the date of this
Agreement that has materially or adversely affected the business
or properties or condition or prospects, financial or other, or
results of operations of Seller, and no fact or condition exists or
is contemplated or threatened, which might cause any such change at
any time in the future.
5.4 Liabilities. Seller has no liabilities of any nature,
whether accrued, absolute, contingent, or otherwise, except as set
forth in the most recent balance sheet included in the Financial
Statements, other than liabilities subsequently incurred in the
ordinary course of business and consistent with past practice since
the date of the most recent balance sheet Seller is not in breach
or default or in arrears in respect of the terms or conditions of
any such liabilities and no waiver or forbearance has been granted
7
by any holder of any such liability with respect to any such
liability. All liabilities of Seller, other than the Assumed
Liabilities, will be paid in full or otherwise satisfied on or
before the Closing Date or as provided in Section 2.2.
5.5 Subsidiaries. Seller does not own, directly or
indirectly, any of the capital stock of any corporation,
association, trust or similar entity, any interest in the equity of
any partnership or similar entity, any share in any joint venture,
or any other equity or proprietary interest in any entity or
enterprise, however organized and however such interest may be
denominated or evidenced.
5.6 Real Property. Lessor, in which Stockholder owns a 99%
interest, has good and marketable title in fee simple to the real
property covered by the lease, a copy of which is attached hereto
as Exhibit "B" (the "Lease"), free and clear of all mortgages,
liens, charges, encumbrances, easements, covenants, restrictions,
conditions and reservations of record, except (a) as indicated on
the Disclosure Schedule, (b) liens for taxes not yet due and
payable, (b) defects and irregularities of title and encumbrances
that do not interfere with the present operations on the real
property or such other real property and do not materially and
adversely affect the value thereof. The buildings and other
structures covered by the Lease are in good condition and the
conduct of Seller' businesses thereon prior to the Closing Date
conforms in all material respects to local zoning or similar land
use laws.
5.7 Leases. The lease described in Section 1.1(d) hereof and
the leases listed and described in the Disclosure Schedule and
constituting a portion of the Assigned Contracts constitute all the
leases of real or personal property under which Seller is bound or
to which Seller is a party. Each lease listed in the Disclosure
Schedule is valid, binding, subsisting, and enforceable in
accordance with its terms, and neither Seller nor any landlord or
lessor is in default or in arrears in the performance or
satisfaction of any agreement or condition on its part to be
performed or satisfied thereunder, and no waiver or indulgence has
been granted by any of the landlords or lessors under those leases.
Seller is not the landlord/tenant or lessor/lessee under any leases
of real or personal property except as disclosed in the Disclosure
Schedule.
5.8 Personal Properties. Seller owns and has good and
marketable title to all the tangible and intangible personal
property and assets, other than the leaseholds referred to in the
Disclosure Schedule, reflected upon the most recent balance sheet
included in the Financial Statements or used by Seller in its
business if not so reflected, free and clear of all mortgages,
liens, encumbrances, equities, claims, and obligations to other
persons, of whatever kind and character, except as set forth in the
Disclosure Schedule. The Disclosure Schedule contains an
identification of certain major items of fixed assets and machinery
and equipment. None of the fixed assets and machinery and
8
equipment is subject to contracts of sale, and none is held by
Seller as lessee or as conditional sales vendee under any lease or
conditional sales contract and none is subject to any title
retention agreement, except as set forth in the Disclosure
Schedule. The fixed assets and machinery and equipment, taken as
a whole, are in a state of good repair and maintenance and are in
good operating condition; inventory is up to normal commercial
standards and no inventory that is obsolete or unmarketable is
reflected in the most recent balance sheets included in the
Financial Statements. All items included in such inventory are
covered on the books of Seller, and are valued on the Financial
Statements at the lower of cost or market and, in any event, at not
greater than their net realizable value, on an item by item basis.
Upon the sale, assignment, transfer, and delivery of the Assets to
Purchaser hereunder, there will be vested in Purchaser good and
marketable title to the tangible and intangible personal property
constituting a part thereof, free and clear of all mortgages,
liens, encumbrances, equities, claims, and obligations to other
persons, of whatever kind and character, except for the rights of
third persons arising under contracts for the sale of inventory in
the ordinary course of business, each of which is listed in the
Disclosure Schedule.
5.9 Employment Arrangements. Except as set forth on the
Disclosure Schedule, Seller has no obligation, contingent or
otherwise, under any employment agreement, collective bargaining or
other labor agreement, any agreement containing severance or
termination pay arrangements, deferred compensation agreement,
retainer or consulting arrangements, pension or retirement plan,
bonus or profit-sharing plan, stock option or purchase plan, or
other employee contract or non-terminable arrangement (whether or
not that arrangement imposes a penalty for termination), group
life, health, medical or hospitalization insurance plan or program,
or other employee or fringe benefit plan, including vacation plans
or programs and sick leave plans or programs. The Disclosure
Schedule sets forth the basis of funding, and the current status
of, any past service liability with respect to any such plan or
agreement. Except as set forth on the Disclosure Schedule, Seller
or its employees are not now and for the past five years have not
been subject to or involved in or, to the best of Seller'
knowledge, threatened with any union elections, petitions therefor
or other organizational activities. Seller has performed all
obligations required to be performed under all such agreements,
plans, and arrangements and is not in breach of or in default or
arrears under the terms thereof.
5.10 Material Contracts and Arrangements. Except as set forth
in the Disclosure Schedule, Seller has no contract or arrangement,
including, without limitation, any commitments or obligations,
contingent or otherwise, under any contract or arrangement (i) for
the purchase or sale of inventory in excess of $15,000 in any one
instance, (ii) for the purchase or sale of supplies, services or
other items in excess of $15,000 in any one instance, (iii) for
the purchase, sale or lease of any equipment or machinery, (iv) for
the performance of service for others in excess of $15,000 in any
9
one instance, or (v) extending beyond December 31, 1999. All
contracts of less than $15,000 do not in the aggregate exceed
$100,000.00. To the best knowledge of Stockholder after due
inquiry, each of the contracts calling for the performance of
services or the sale of inventory can be satisfied or performed by
Seller without any loss to it.
The Disclosure Schedule contains a true and complete list of
all distributors and manufacturer's representatives who are parties
to contracts, or otherwise have arrangements, with the Seller. The
Disclosure Schedule sets forth the material terms of all
arrangements of the Seller with distributors and manufacturer'
representatives which are not set forth in written contracts listed
in the Disclosure Schedule pursuant to this Section.
Except as set forth in the Disclosure Schedule, all
agreements, contracts, leases, licenses, binding arrangements,
commitments or instruments, whether oral or written, of the Seller
listed are valid, binding and in full force and effect and are
enforceable by the Seller in accordance with their respective
terms. Except as set forth in the Disclosure Schedule, Seller has
performed all material obligations required to be performed by them
to date under the contracts and it is not (with or without the
lapse of time or the giving of notice, or both) in breach or
default in any respect under any contract and, to the knowledge of
Seller, no other party to any of the contracts is (with or without
the lapse of time or the giving of notice, or both) in breach or
default in any material respect thereunder. Seller has made
available to Purchaser true and correct copies of all the
contracts.
5.11 Ordinary Course of Business. Seller, from the date of
the balance sheet contained in the most recent Financial Statements
to the date hereof,
(a) has operated its business in the normal, usual, and
customary manner in the ordinary and regular course of
business;
(b) has not sold or otherwise disposed of any of its
properties or assets, other than inventory sold in the
ordinary course of business;
(c) except in each case in the ordinary course of
business,
(i) has not amended or terminated any outstanding
lease, contract, or agreement,
(ii) has not incurred any obligations or
liabilities (fixed, contingent, or other), and
(iii) has not entered any commitments;
10
(d) has not made any transactions outside the ordinary
course of business in its inventory or any additions to its
property or any purchases of machinery or equipment, except
for normal maintenance and replacements;
(e) has not discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or
contingent) other than current liabilities or obligations
under contracts then existing or thereafter entered into in
the ordinary course of business, and commitments under leases
existing on that date or incurred since that date in the
ordinary course of business;
(f) has not mortgaged, pledged, or subjected to lien or
any other encumbrances, any of its assets, tangible or
intangible;
(g) has not sold or transferred any tangible asset or
canceled any debts or claims except in each case in the
ordinary course of business;
(h) has not sold, assigned, or transferred any patents,
trademarks, trade names, trade secrets, copyrights, or other
intangible assets;
(i) has not increased the compensation payable or to
become payable to any of its officers, employees, or agents;
(j) has not suffered any material damage, destruction,
or loss (whether or not covered by insurance) or any
acquisition or taking of property by any governmental
authority;
(k) has not waived any rights that individually or in
the aggregate exceed $10,000;
(l) has not experienced any organized work stoppage or
industrial action; or
(m) has not entered into any other transaction or
transactions that individually or in the aggregate are
material to Seller, other than in the ordinary course of
business.
Seller shall cause its business to be conducted in the
ordinary course and in substantially the same manner as previously
conducted and has made all reasonable efforts consistent with past
practices to preserve the Seller' relationships with employees,
customers, suppliers and others with whom the Seller deals. Except
as set forth in the Disclosure Schedule, since the date of the most
recent balance sheet in the Financial Statements to the date of
Closing, the Seller will not take any action that, if taken after
the date of this Agreement, would constitute a breach of any of the
covenants set forth herein.
11
5.12 Litigation and Compliance with Laws. The Disclosure
Schedule contains a brief description of all litigation or legal or
other actions, suits, proceedings, or investigations, at law or in
equity or admiralty, or before any federal, state, municipal, or
other governmental department (including, without limitation, the
National Labor Relations Board and the Utah Anti-Discrimination
Division of the Utah Labor Commission), commission, board, agency,
or instrumentality, domestic or foreign, in which Seller or any of
its officers or directors, in such capacity, (a) has been engaged
in within two years of the date of this Agreement, (b) is presently
engaged in, or, (c) to the knowledge and belief of Seller and
Stockholder, with which Seller or any of its officers or directors
is threatened in connection with the business or affairs or
properties or assets of Seller. Seller is and at all times since
its inception has been in compliance with all laws and governmental
rules and regulations, domestic and foreign, and all requirements
of insurance carriers, applicable to its business or affairs or
properties or assets, including, without limitation, those relating
to environmental protection, water or air pollution, and similar
matters.
5.13 Tax Returns. Except for returns whose filing is not yet
due, Seller has filed, in accordance with applicable law, all
federal, state, county, and local income and franchise tax returns
and all sales and use, ad valorem, receipts, value added,
withholdings, profits, license, payroll, employment, excise,
customs, net worth, capital gains, transfer, documentary, stamp,
social security, environmental, alternative minimum, occupation,
real and personal property and other tax returns that are required
to be filed, and the provision for taxes shown on the most recent
balance sheet included in the Financial Statements is sufficient to
satisfy all taxes of any kind of Seller, including interest and
penalties in respect thereof, whether disputed or not, and whether
accrued, due, absolute, deferred, contingent, or other for all
periods ended on or prior to the date of such balance sheet. As of
the date hereof no tax liabilities have been assessed or proposed
that remain unpaid, and Seller has not signed any extension
agreement with the Internal Revenue Service or any state or local
taxing authority. Seller has paid all taxes that have become due
pursuant to such returns and has paid all installments of estimated
taxes due. All taxes and other assessments and levies that Seller
is required by law to withhold or to collect have been duly
withheld and collected, and have been paid over to the proper
governmental authorities to the extent due and payable. Seller
will file and pay any taxes required for the year ended, December
31, 1998 and will continue to file and pay any taxes required for
periods ending after December 31, 1998. From the end of its most
recent fiscal year to the date hereof Seller has not made any
payment of or on account of any federal, state, or local income,
franchise, or any sales and use, ad valorem, receipts, value added,
withholdings, profits, license, payroll, employment, excise,
customs, net worth, capital gains, transfer, documentary, stamp,
social security, environmental, alternative minimum, occupation,
real or personal, and other property taxes, except as set forth in
the Disclosure Schedule. Neither Seller nor Stockholder is aware
12
of any basis upon which any assessment for a material amount of
additional taxes could be made. The information shown on the
federal income tax returns of Seller heretofore delivered to
Purchaser is true, accurate, and complete and fairly presents the
information purported to be shown. No liens for taxes exist with
respect to any of the assets or properties of the Seller. No tax
returns of the Seller are under audit or examination and no taxing
authority has given notice, either orally or in writing that it
will commence any such audit or examination. There is no
agreement or other document extending, or having the effect of
extending, the period of assessment or collection of taxes and
there is no effective power of attorney with respect to taxes.
Seller is not a "foreign person" within the meaning of Section 1445
of the Internal Revenue Code.
5.14 Environmental Matters. Without limiting the generality
of Section 5.12:
(i) Seller is in compliance in all material respects
with all applicable Environmental Laws (as such term is
defined in Exhibit "A" hereto);
(ii) Seller has obtained all material permits and
approvals required under Environmental Laws, including,
without limitation, all material environmental, health and
safety permits, licenses, approvals, authorizations,
variances, agreements, and waivers of federal, state, and
local governmental authorities ("Permits") necessary for the
conduct of its business and the operation of its facilities,
and all such Permits are in good standing and Seller is in
compliance with all terms and conditions of such Permits;
(iii) Neither Seller nor any of its currently or
previously owned or leased property or operations has been
named as a potentially responsible party or is subject to any
outstanding written order or decree from or agreement with any
federal, state, or local governmental authority or other
person or is subject to any judicial or docketed
administrative proceeding respecting (x) Environmental Laws,
(y) Remedial Action (as such term is defined in Exhibit A
hereto), or (z) any material Environmental Liabilities and
Costs (as such term is defined in Exhibit A hereto);
(iv) Except as set forth on the Disclosure Schedule, and
to the best of Seller's and Stockholder's knowledge, there are
no conditions or circumstances associated with the currently
or previously owned or leased properties or operations of
Seller that may give rise to Environmental Liabilities and
Costs. Seller will order, at its expense, a Phase I
environmental site assessment for the real property that is
subject to the Lease within thirty (30) days of the Closing
Date and use its best efforts to have the same completed
within ninety (90) days of the Closing Date. Seller's only
obligation to Purchaser arising from that Phase I is to
provide Purchaser a copy of that Phase I assessment;
13
(v) Seller has not received any notice or claim to the
effect that it is or is reasonably expected to be liable to
any person as a result of a Release (as such term is defined
in Exhibit A hereto) or threatened Release or any notice
letter or request for information under CERCLA (as such term
is defined in Exhibit A hereto);
(vi) No Environmental Lien (as such term is defined in
Exhibit A hereto) and no unrecorded Environmental Lien of
which Seller has notice has attached to any property of
Seller;
(vii) There are no aboveground or underground storage
tanks on, under or about property owned, operated or leased by
the Seller, all vessels, systems and appurtenant piping that
are regulated as underground storage tanks pursuant to
Environmental Law have all required Permits, and any such
former tanks on such property have been removed in accordance
with Environmental Law and no residual contamination, if any,
remains at such property in excess of applicable standards
under Environmental Law; and
(viii) There are no polychlorinated biphenyls in excess
of 50 parts per million in any article, container or equipment
on, under or about property owned, operated or leased by the
Seller and there is no friable asbestos containing material
at, on, under or within such properties.
5.15 Trademarks, Licenses, Etc. The Disclosure Schedule sets
forth all of the trademarks, trade names, service marks, patents,
copyrights, registrations, or applications with respect thereto,
and licenses or rights under them and other intellectual property
and proprietary rights (the "Intellectual Property") owned, used,
or intended to be acquired or used by Seller, and, to the extent
indicated in the Disclosure Schedule, they have been duly
registered in such offices as are indicated therein. Seller is the
sole and exclusive owner of the Intellectual Property and all
information relating to the Seller' products, services, practices,
procedures, customers, and suppliers used by or for the Seller and
reflected in the drawings, specifications, reports, lists, computer
databases and the like prepared by or for the Seller (the "Know-
how"), all as set forth in the Disclosure Schedule. Seller has the
sole and exclusive right, except to the extent listed in the
Disclosure Schedule, to use the Intellectual Property and the Know-
how, and, except to the extent set forth on the Disclosure
Schedule, all of them are free and clear of any mortgages, liens,
encumbrances, equities, licenses, claims, and obligations to other
persons of whatever kind and character. The conduct of the
Seller's business as presently conducted does not violate, conflict
with or infringe the intellectual property of any other person.
There are no claims threatened or pending by any person with
respect to the ownership of the Intellectual Property or the Know-
how and the Seller has received no communications alleging that the
Seller has violated any rights relating to the intellectual
property of any person.
14
5.16 Insurance Policies. The insurance policies listed and
described briefly in the Disclosure Schedule constitute all of the
policies in force and effect in respect of the business, properties
and assets, including, without limitation, insurance on personnel,
of Seller. Seller is not in default under any such policy. Seller
has not been refused insurance by any insurance carrier to which it
has applied for insurance.
5.17 Extraordinary Events. From the end of its most recent
fiscal year to the date hereof, neither the business nor properties
nor condition, financial or other, nor results of operations of
Seller have been materially and adversely affected in any way as
the result of any fire, explosion, accident, casualty, labor
disturbance, requisition, or taking of property by any governmental
body or agency, flood, embargo, or Act of God or the public enemy,
or cessation, interruption, or diminution of operations, whether or
not covered by insurance.
5.18 Adverse Restrictions. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby are not events that of themselves or with the giving of
notice or the passage of time or both, could constitute, on the
part of Seller, a violation of or conflict with or result in any
breach of, or default under the terms, conditions, or provisions
of, any judgment, law, or regulation, or of the Articles of
Incorporation or By-Laws of Seller, any agreement or instrument to
which Seller is a party or by which it is bound, or result in the
creation or imposition of any lien, charge, or encumbrance of any
nature whatsoever on the property or assets of Seller and no such
event of itself or with the giving of notice or the passage of time
or both will result in the acceleration of the due date of any
obligation of Seller.
5.19 Material Information. Neither the Financial Statements
nor this Agreement (including the Schedules and Exhibits hereto)
nor any certificate or other information or document furnished or
to be furnished by either Seller or Stockholder to Purchaser
contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated
herein or therein or necessary to make the statements herein or
therein not misleading.
5.20 Products in Warranty. Attached as part of the Disclosure
Schedule are true and correct copies of Seller's standard warranty
agreements used in connection with its business operations.
Seller's standard warranty agreements apply to each product in
warranty except as otherwise indicated on the Disclosure Schedule.
Seller is not in violation in any material respect of any such
warranty agreement, except as set forth on the Disclosure Schedule.
5.21 Certain Transactions. Except as set forth in the
Disclosure Schedule, none of the officers, directors, or employees
of Seller is presently a party to any transaction with Seller
(other than for services as officers, directors, and employees),
including, without limitation, any contract, agreement, or other
15
arrangement providing for the furnishing of services to or by,
providing for rental of real or personal property to or from, or
otherwise requiring payments to or from, any officer, director, any
such employee, any member of a family of any officer, director, or
such employee or any corporation, partnership, trust, or other
entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee, or
partner.
5.22 No Governmental Authorizations or Approvals Required. No
authorization or approval of, or filing with, any governmental
agency, authority, or other body will be required in connection
with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
5.23 Employee Benefit Plans.
The Disclosure Schedule contains a true, correct, and complete
list of all pension, profit sharing, retirement, deferred
compensation, welfare, insurance disability, bonus, vacation pay,
severance pay, and other similar plans, programs, or agreements,
and every material personnel policy, whether reduced to writing or
not, relating to any persons employed by Seller and maintained at
any time by Seller or by any other member (hereinafter,
"Affiliate") of a controlled group of corporations, group of
trades, or businesses under common control or affiliated service
group that includes Seller (as defined for purposes of Section
414(b), (c), and (m) of the Code) (collectively, the "Plans").
Seller has made available to Purchaser true, correct, and complete
copies of all Plans that have been reduced to writing, together
with all documents establishing or constituting any related trust,
annuity contract, insurance contract, or other funding instrument,
and true, correct, and complete written summaries of those that
have not been reduced to writing. For each "defined benefit plan,"
Seller has made available a copy of the latest annual actuarial
report, and for all Plans the latest Forms 5500. Except as set
forth on the Disclosure Schedule, neither Seller nor any Affiliate
has any obligation or other employee benefit plan liability under
applicable law; nor has Seller or any Affiliate ever been obligated
to contribute to any "multi-employer plan," as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). Neither Seller nor any Affiliate has incurred
any "withdrawal liability" calculated under Section 4211 of ERISA
and there has been no event or circumstance that would cause them
to incur any such liability. Neither Seller nor any Affiliate has
ever maintained a Plan providing health or life insurance benefits
to former employees. No plan previously maintained by Seller or
its Affiliates that was subject to ERISA has been terminated; no
proceedings to terminate any such plan have been instituted within
the meaning of Subtitle C of Title IV of ERISA; and no reportable
event within the meaning of Section 4043 of Subtitle C has occurred
with respect to any such Plan, and no liability to the Pension
Benefit Guaranty Corporation has been incurred. For each Plan,
Seller and every Affiliate are in compliance with all requirements
prescribed by all statutes, regulations, orders, or rules currently
16
in effect, and they have in all respects performed all obligations
required to be performed by them. Neither Seller nor any
Affiliate, nor any of their directors, officers, employees, or
agents, nor any trustee or administrator of any trust created under
the Plans, have engaged in or been a party to any "prohibited
transaction" as defined in Section 4975 of the Code and Section 406
of ERISA that could subject Seller or Purchaser or their
affiliates, directors, or employees or the Plans or the trusts
relating thereto or any party dealing with any of the Plans or
trusts to any tax or penalty on "prohibited transactions" imposed
by Section 4975 of the Code. Except as set forth on the Disclosure
Schedule, neither the Plans nor the trusts created thereunder have
incurred any "accumulated funding deficiency," as such term is
defined in Section 412 of the Code and regulations issued
thereunder, whether or not waived.
Each Plan intended to qualify under Section 401(a) of the Code
has been determined by the Internal Revenue Service to so qualify,
and the trusts created thereunder have been determined to be exempt
from tax under Section 501(a) of the Code; copies of all
determination letters have been delivered to Purchaser; and
nothing has occurred since the date of such determination letters
that might cause the loss of such qualification or exemption. For
each funded Defined Benefit Plan, the present value of the
actuarial accrued liability, determined on a plan termination
basis, does not exceed the fair market value of the assets held
under such Plan, and there is no unpaid contribution for any Plan
year ended prior to the Closing Date as required under Section 412
of the Code. For each Plan that is a qualified profit sharing or
stock bonus plan, all employer contributions accrued for plan years
ending prior to the Closing Date under the Plan terms and
applicable law have been made.
Except as set forth on the Disclosure Schedule, all of the
liabilities with respect to all of the Plans are accurately
reflected in Seller's Financial Statements and Seller's Balance
Sheet.
5.24 Continuing Representations. The representations and
warranties of Seller and Stockholder herein contained (a) relating
to non-tax matters shall survive the Closing for a period of one
(1) year after the date on which the Employment Agreement
terminates, and (b) relating to tax matters shall survive the
Closing for the applicable statute of limitations.
6. REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF PURCHASER.
6.1 Due Authorization; Effect of Transaction. No provision
of Purchaser's Articles of Incorporation or By-Laws, or of any
agreement, instrument, or understanding, or any judgment, decree,
rule, or regulation, to which Purchaser is a party or by which it
is bound, has been, or will be violated by the execution by
Purchaser of this Agreement or the performance or satisfaction of
any agreement or condition herein contained upon its part to be
performed or satisfied, and all requisite corporate and other
17
authorizations for such execution, delivery, performance, and
satisfaction have been duly obtained. Upon execution and delivery,
this Agreement will be a legal, valid, and binding obligation of
Purchaser, enforceable in accordance with its terms. Purchaser is
not in default in the performance, observance, or fulfillment of
any of the terms or conditions of its Articles of Incorporation or
By-Laws.
6.2 Organization and Corporate Power. Purchaser is a
corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation in each
other jurisdiction in which it owns or leases properties, conducts
operations, or maintains a stock of goods, with full power and
authority (corporate and other) to carry on the business in which
it is engaged (a true and correct list of each such jurisdiction is
set forth in the Disclosure Schedule) and to execute and deliver
and carry out the transactions contemplated by this Agreement.
6.3 Continuing Representations. The representations and
warranties of Purchaser herein contained (a) relating to non-tax
matters shall survive the Closing for a period of one (1) year
after the date on which the Employment Agreement terminates, and
(b) relating to tax matters shall survive the Closing for the
applicable statute of limitations.
7. COVENANTS AND AGREEMENTS.
7.1 Ordinary Conduct. Except as expressly permitted by the
terms of this Agreement, for the period from November 1, 1998,
through the Closing, Seller has caused its business to be conducted
in the ordinary course of business in substantially the same manner
as previously conducted and has used its best efforts to preserve
its relationships with employees, customers, suppliers and others
with whom the Seller deals and to maintain the assets of the Seller
in good working order. Seller has not taken any action that would,
or that could reasonably be expected to, result in any of the
conditions to the purchase and sale of the Assets not be
satisfied. In addition, without limiting the generality of the
foregoing, except as otherwise expressly permitted by the terms of
this Agreement, Seller, except as has been disclosed to Purchaser:
(a) has operated its business in the normal, usual, and
customary manner in the ordinary and regular course of
business;
(b) has not sold or otherwise disposed of any of its
properties or assets, other than inventory of finished goods
sold in the ordinary course of business and other than
obsolete inventory;
(c) except in each case in the ordinary course of
business,
18
(i) did not amend or terminate any outstanding
lease, contract, or agreement,
(ii) did not incur any obligations or liabilities
(fixed, contingent, or other), and
(iii) did not enter into any commitments;
(d) did not make any unusual transactions in its
inventory or any additions to its property or any purchases of
machinery or equipment, except for normal maintenance and
replacements;
(e) did not discharge or satisfy any lien or encumbrance
or pay any obligation or liability (absolute or contingent)
other than current liabilities or obligations under contracts
now existing or hereafter entered into in the ordinary course
of business, and commitments under leases now existing;
(f) did not mortgage, pledge, or subject to lien or any
other encumbrances, any of its assets, tangible or intangible
unless such mortgage, pledge, lien, or encumbrance is
discharged before the Closing;
(g) did not sell or transfer any tangible asset or
cancel any debts or claims except in each case in the ordinary
course of business;
(h) did not sell, assign, or transfer any patents,
trademarks, trade names, trade secrets, copyrights, or other
intangible assets;
(i) did not increase the compensation payable or to
become payable to any of its officers, employees, or agents,
except as set forth on the Disclosure Schedule;
(j) did not suffer any material damage, destruction, or
loss (whether or not covered by insurance) or any acquisition
or taking of property by any governmental authority;
(k) did not waive any rights of substantial value;
(l) did not enter into any other transaction or
transactions that individually or in the aggregate are
material to Seller; or
(m) did not hire for employment or engage the services
of any person in addition to those persons employed by the
Seller on November 11, 1998, except as set forth on the
Disclosure Schedule.
Except as set forth in the Disclosure Schedule, since the date
of the most recent balance sheet in the Financial Statements to the
date of Closing, the Seller did not take any action that, if taken
19
after the date of this Agreement, would constitute a breach of any
of the covenants set forth herein.
7.2 Confidentiality. Seller shall keep confidential and
instruct its officers, directors, employees and advisors to keep
confidential, all information relating to the Purchaser and its
business, except as required by law or administrative process and
except for information which is available to the public on the
Closing Date, or thereafter becomes available to the public other
than as a result of a breach of this Section. Seller agrees that
Purchaser shall be entitled to specific performance and injunctive
relief as remedies for any violation of this Section. Such
remedies shall not be deemed the exclusive remedies for a breach of
this Section by Seller or any of its officers, directors, employees
and advisors, but shall be in addition to all other remedies
available in law or at equity.
7.3 Insurance. Seller shall keep, or cause to be kept, all
insurance policies set forth in the Disclosure Schedule, or
suitable replacements therefore, in full force and effect through
the close of business on the Closing Date. Purchaser desires to
keep such policies in place following the Closing. Because Seller
has already prepaid the annual premium for such insurance
policies, Purchaser shall rebate a prorated portion of such prepaid
premiums at the Closing.
7.4 Other Transactions. From the date of this Agreement to
the Closing, none of the Seller, the Stockholder, nor any affiliate
of Seller or the Stockholder shall, nor shall they permit any of
their respective officers, directors, employees, advisors or other
representatives to, directly or indirectly, encourage, solicit,
initiate or participate in discussions or negotiations with, or
provide any information or assistance to, any person or group
(other than Purchaser and its representatives) concerning any
merger, sale of securities, sale of substantial assets or similar
transaction involving the Seller. Without limiting the generality
of the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any officer,
director, stockholder or other representative of the Seller, the
Stockholder or any affiliate of the Seller or Stockholder whether
or not such person is purporting to act on behalf of any Seller,
the Stockholder or otherwise, shall be deemed to be a breach of
this Section by Seller. In the event that the Seller, the
Stockholder, or any affiliate of either receives a proposal
relating to any such transaction, Seller and Stockholder shall
promptly notify Purchaser of such proposal.
7.5 Supplemental Disclosure.
(a) Seller shall have the continuing obligation until
the Closing promptly to supplement or amend the Disclosure
Schedule hereto with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this
Agreement, would have been required to be set forth or
described in such Disclosure Schedule; provided, however, that
20
no supplement or amendment to such Disclosure Schedule shall
have any effect for the purpose of determining the
satisfaction of the conditions set forth in Section 8.6 or for
purposes of determining whether any person is entitled to
indemnification pursuant to Section 10.
(b) Seller shall cause to be prepared and shall deliver
or cause to be delivered to Purchaser prior to the Closing,
for any month ending after September 30, 1998, and prior to
the Closing Date, unaudited balance sheets and unaudited
statements of income for such months.
(c) Seller shall promptly notify Purchaser of, and
furnish Purchaser any information it may reasonably request
with respect to, the occurrence to Seller's knowledge of any
event or condition or the existence to Seller's knowledge of
any event or condition or the existence to Seller's knowledge
of any fact that would cause any of the conditions of
Purchaser's obligation to consummate the purchase and sale of
the Assets not to be fulfilled.
8. CONDITIONS OF PURCHASER'S OBLIGATIONS.
The obligations of Purchaser hereunder are subject to the
fulfillment to the reasonable satisfaction of the Purchaser, prior
to or at the Closing, of each of the following conditions:
8.1 Opinion of Seller's Counsel. Seller shall have furnished
Purchaser with an opinion, dated the Closing Date, of Prince,
Yeates & Geldzahler, counsel for Seller, in form and substance
reasonably satisfactory to the Purchaser and its counsel.
8.2 No Opposition. No suit, action, or proceeding shall be
pending or threatened at any time prior to or on the Closing Date
before or by any court or governmental body (a) seeking to restrain
or prohibit, or to obtain damages or other relief in connection
with, the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby; or (b) that
might materially and adversely affect the business or properties or
condition, financial or other, or results of operations of Seller.
8.3 Consulting and Non-Competition Agreement. The
Stockholder shall have executed and delivered to Purchaser an
Employment and Non-Competition Agreement, in the form of Exhibit
"C" (the "Employment Agreement") hereto, and the Lease.
8.4 Permits, Etc. Seller shall have assigned to Purchaser,
or Purchaser shall have obtained, all such permits, licenses,
approvals, authorizations, variances, agreements, and warranties
from federal, state, and local governmental authorities, which
Purchaser shall, in the exercise of its sole discretion, deem
necessary or desirable for the operation by Purchaser of the
businesses of Seller after the Closing.
21
8.5 Insurance. Seller shall have obtained appropriate
binders or consents as to policies of insurance to be assigned to
Purchaser hereunder.
8.6 Representations and Covenants. The representations and
warranties of Seller and Stockholder contained in this Agreement or
otherwise made in writing by it or him or on its or his behalf
pursuant hereto or otherwise made in connection with the
transactions contemplated hereby shall be true and correct at and
as of the Closing Date with the same force and effect as though
made on and as of such date; each and all of the covenants,
agreements, and conditions to be performed or satisfied by Seller
or Stockholder hereunder at or prior to the Closing Date shall have
been duly performed or satisfied; and Seller and Stockholder shall
have furnished Purchaser with such certificates and other documents
evidencing the truth of such representations and warranties and the
performance and satisfaction of such covenants, agreements, and
conditions as Purchaser shall have reasonably requested.
8.7 Instruments of Transfer. Seller shall have delivered to
Purchaser bills of sale, assignments, deeds, stock powers, and
other instruments of transfer and assignment in accordance with the
provisions hereof, transferring to Purchaser all of Seller's right,
title, and interest in and to the Assets, including the Assigned
Contracts, to be transferred, sold, assigned, and conveyed by
Seller to Purchaser pursuant to the provisions of this Agreement.
8.8 Tax Waiver. Seller shall have received copies of a
waiver of lien certificate from the appropriate tax authorities of
all applicable jurisdictions (other than the U.S. Internal Revenue
Service).
8.9 Tax Allocation Agreement. Each Seller and Purchaser
shall have executed and delivered a Tax Allocation Agreement in
substantially the form of Exhibit "D" hereto.
8.10 Payments to Bank and Lender. All obligations of Seller
to its secured lenders shall have been satisfied, and each of bank
and lender shall have released all security interests it may have
in the Assets.
8.11 Assignment of Name. Seller shall execute and deliver to
Purchaser such documents (Assignment to Use Name, Consent to Use
Name) to permit Purchaser to conduct business as T.J. Products.
9. CONDITIONS OF SELLER'S AND STOCKHOLDER'S OBLIGATIONS.
The obligations of Seller and Stockholder hereunder are
subject to the fulfillment to the reasonable satisfaction of Seller
and Stockholder prior to or at the Closing of each of the following
conditions:
9.1 Opinion of Purchaser's Counsel. Purchaser shall have
furnished Seller and Stockholder with an opinion, dated the Closing
Date, of Johnson, Killen, Thibodeau & Seiler, P.A., counsel for
22
Purchaser, in form and substance reasonably satisfactory to Seller,
Stockholder, and their counsel.
9.2 Representations and Covenants. The representations and
warranties of Purchaser contained in this Agreement or otherwise
made in writing by it or on its behalf pursuant hereto or otherwise
made in connection with the transactions contemplated hereby shall
be true and correct at and as of the Closing Date with the same
force and effect as though made on and as of such date; each of the
covenants, agreements, and conditions to be performed or satisfied
by Purchaser hereunder at or prior to the Closing Date shall have
been duly performed or satisfied; and Purchaser shall have
furnished Seller and Stockholder with such certificates or other
documents evidencing the truth of such representations and
warranties and the performance and satisfaction of such covenants,
agreements, and conditions as Seller and Stockholder shall have
reasonably requested.
9.3 No Opposition. No suit, action, or proceeding shall be
pending or threatened on the Closing Date before or by any court or
governmental authority seeking to restrain or prohibit the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
9.4 Consulting and Non-Competition Agreement. The Purchaser
shall have executed and delivered to Stockholder the fully
executed Employment Agreement, have made prepayment to Stockholder
of the annual salary for a three (3) year period in a lump sum
gross amount of $360,000 and executed and delivered the Lease.
10. INDEMNIFICATION BY SELLER AND STOCKHOLDER.
10.1 Indemnification.
(a) Seller and Stockholder (collectively, the "Selling
Parties") hereby agree jointly and severally to indemnify,
defend, and hold Purchaser and Industrial Rubber Products,
Inc., (collectively with Purchaser, the "Purchasing Parties")
harmless from and against the amount of any actual (or
potential in the case of any litigation or claims by any
person not a party to this Agreement) damage, loss, cost, or
expense (including reasonable attorneys' fees and settlement
costs) to Purchasing Parties ("Loss") occasioned or caused by,
resulting from, or arising out of:
(i) Any failure by a Selling Party to perform,
abide by, or fulfill any of the agreements, covenants, or
obligations set forth in or entered into, in connection
with this Agreement to be so performed or fulfilled by
such Selling Party.
(ii) Any material inaccuracy in or breach of any of
the representations or warranties set forth in this
Agreement, or any certificate or Schedule or other
writing furnished pursuant hereto.
23
(iii) Any failure on the part of Purchaser to
withhold from the Purchase Price any amount due by
Seller to any governmental authority or other person that
results in a loss to Purchaser.
(iv) Any claim, known or unknown, arising out of or
by virtue of or based upon any liability or obligation of
Seller that is not an Assumed Liability.
(v) Any claim, known or unknown, arising out of or
by virtue of or based upon any contract or agreement of
Seller that (i) is not an Assigned Contract, or (ii) is
connected with any breach by either Seller of an Assigned
Contract or any failure by Seller to have performed any
obligation or satisfied any liability thereunder to the
extent required to be performed or satisfied at or prior
to the Closing, or (iii) is not set forth (or described)
in writing and furnished or made available to Purchasing
Parties pursuant hereto.
(vi) Any liability or obligation for any tort or
any breach or violation of any contractual,
quasi-contractual, legal, fiduciary, or equitable duty by
any Selling Party, whether before, at, or after the
Closing.
The amount of any Loss shall be the amount of cash
reimbursement or set-off that, when received by the Purchasing
Party or Purchasing Parties incurring such loss, shall place
such Purchasing Party or Purchasing Parties in the same
financial position it or they would have been in if such Loss
has not occurred.
10.2 Notice of Claim. Purchasing Parties shall give prompt
written notice to Selling Parties of any claim (actual or
threatened) or other event that in the judgment of either
Purchasing Party might result or has resulted in a Loss by a
Purchasing Party hereunder, and Selling Parties shall have the
right to assume the defense of such claim or any litigation
resulting therefrom; provided that counsel for the Selling Parties,
who shall conduct the defense of such claim (actual, threatened, or
asserted) or litigation, shall be reasonably satisfactory to the
Purchasing Parties, and Purchasing Parties may participate in such
defense at their expense, and provided, further, that the omission
by Purchasing Parties to give notice as provided herein shall not
relieve Selling Parties of their obligations hereunder except to
the extent that the omission results in a failure of actual notice
to the Selling Parties and Selling Parties are damaged solely as a
result of the failure to give notice. No Selling Party, in the
defense of any such claim or litigation, shall, except with the
consent of each Purchasing Party, consent to the entry of any
judgment or decree or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant
or plaintiff to Purchasing Parties of a release from all liability
in respect to such claim or litigation, and no Selling Party shall
24
have liability with respect to any payment made by a Purchasing
Party in connection with the settlement, satisfaction, or
compromise of any claim unless the Selling Parties shall have
approved thereof in advance in writing, which approval shall not
unreasonably be withheld or delayed. If the Purchasing Parties
shall not have received notice that the Selling Parties shall
assume the defense of such claim within twenty (20) days after the
notice is sent to the Selling Parties of the existence of such
claim, the Purchasing Parties shall be free to proceed with the
defense of such claim. Each such notice shall be accompanied (or
followed as promptly as is reasonably practicable after the amount
of such Loss becomes determinable) by a certificate signed by the
President of Purchaser or Industrial Rubber Products, Inc., as the
case may be, and setting forth in reasonable detail the calculation
of the amount of such Loss in accordance with the provisions
hereof, and accompanied by copies of all relevant documents and
records. The omission to give such notice or provide such
certificate by Purchasing Parties shall not relieve Selling Parties
of their obligation under this Section 10.2 except to the extent
such omission results in a failure of actual notice to the Selling
Parties and Selling Parties are damaged solely by such failure to
give notice. No Loss shall be considered to have occurred with
respect to any payment made by any Purchasing Parties in
settlement, satisfaction, or compromise of any claim unless the
Selling Parties shall have approved thereof in advance and in
writing.
10.3 Set-Off or Reimbursement. Purchasing Parties shall have
the right to set-off against the payments of the Purchase Price
payable by Purchaser as provided for herein (or, if such amounts
have theretofore been paid, then to receive prompt reimbursement
from Seller of an amount equal to) the amount of all Losses
incurred by Purchasing Parties. Purchasing Parties shall deliver
to Selling Parties a written notice explaining the nature and
amount of each such set-off or required reimbursement as promptly
as is reasonably practicable after Purchasing Parties shall have
determined to make such set-off or to require such reimbursement.
Purchasing Parties may make such set-offs or require such
reimbursements in any order they choose. Notwithstanding anything
to the contrary contained in this Agreement or in Section 10
hereof, none of the Purchasing Parties shall be entitled to the
set-off rights set forth herein, unless, until, and only to the
extent that a Loss or Losses, in the minimum aggregate, exceed
$50,000. Further, the Selling Parties'reimbursement obligations
and/or the set-off rights permitted under this Section 10 shall in
no event exceed a total of $300,000, notwithstanding a Loss or
Losses in excess of that amount.
10.4 Warranty Claims. If any warranty claims are made against
Seller or Purchaser arising from work completed and shipped prior
to the Closing, Purchaser agrees, at Purchaser's expense, to
perform any required warranty work at Purchaser's actual cost to
perform the work. Provided however, that after Purchaser's total
actual cost for all such warranty claims exceeds $10,000, the
Seller shall be obligated to reimburse Purchaser for all amounts
25
Purchaser actually expends in excess of $10,000 for required
warranty work. Purchaser further agrees that it will be
responsible, at its expense and not at the expense of Seller, for
any warranty claims arising from work shipped after the date of
closing even though portions of the work may have been performed by
Seller before Closing.
11. BULK SALES ACT. Intentionally deleted.
12. MUTUAL COVENANTS.
Seller and Purchaser covenant and agrees as follows:
12.1 Cooperation. Purchaser and Seller shall cooperate with
each other, and shall cause their officers, employees, agents,
auditors and representatives to cooperate with each other, after
the Closing to ensure the orderly transition of the business of the
Seller from Seller to Purchaser and to minimize and disruption to
the respective business of the Seller that might result from the
transactions contemplated hereby. After the Closing, upon
reasonable written notice, Purchaser and Seller shall furnish or
cause to be furnished to each other and their employees, counsel,
auditors and representatives access, during normal business hours,
to such information and assistance relating to the Assets and the
business of the Seller as is reasonably necessary. Each party
shall reimburse the other for reasonable out-of-pocket costs and
expenses incurred in assisting the other pursuant to this Section.
Purchaser shall in no event be required by this Section to take any
action that would unreasonably interfere with the conduct of its
business or unreasonably disrupt its normal operations.
12.2 Publicity. Seller and Purchaser agree that, from the
date hereof through the Closing Date, no release, announcement or
disclosure to a third party or to the public generally concerning
the transactions contemplated hereby shall be issued by any party
hereto without the prior consent of the other party or parties
hereto, except as such release or announcement may be required in
the opinion of such party's independent counsel by law or the rules
or regulations of any relevant securities exchange, in which case
the party required to make the release or announcement shall allow
the other party reasonable time to comment on such release or
announcement in advance of such issuance.
12.3 Best Efforts. Subject to the terms and conditions of
this Agreement, each party shall use its best efforts to cause the
Closing to occur and to cause the representations and warranties
made by such party herein to be true and correct as of the Closing.
12.4 Records. On the Closing Date, Seller shall deliver or
cause to be delivered to Purchaser all original contracts,
documents, books, records and files, including records and files
stored on computer disks or tapes or any other storage medium, if
any, in the possession of Seller relating to the business and
operations of the Seller.
26
13. FURTHER ASSURANCES.
From time to time, as and when requested by any party hereto,
the other parties shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further or other actions
(subject to the provisions of Section 12.3), as such party may
reasonably deem necessary or appropriate in connection with the
consummation of the transactions contemplated by this Agreement.
14. TERMINATION. Intentionally deleted.
15. NO THIRD-PARTY BENEFICIARIES.
This Agreement is for the sole benefit of the parties hereto
and their permitted assigns and nothing herein expressed or implied
shall give or be construed to give to any person, other than the
parties hereto and such assigns, any legal or equitable rights
hereunder.
16. EXPENSES.
Whether or not the transactions contemplated hereby are
consummated, and except as otherwise specifically provided in this
Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs or expenses.
17. ATTORNEY FEES.
Should it become necessary for either party to enforce its
rights under this Agreement, whether in suit or otherwise, the
prevailing party shall be entitled to recover from the unsuccessful
party reasonable attorney's fees and costs, in addition to any
other relief to which the party attempting to enforce its rights
hereunder may be entitled.
18. BROKERAGE FEE.
Seller, Stockholder, Purchaser, and Guarantor each represent
that no broker has been involved in this transaction and each party
agrees to indemnify and hold the others harmless from payment of
any brokerage fee, finder's fee, or commission claimed by any party
who claims to have been involved because of association with such
party.
19. AMENDMENTS; WAIVERS.
This Agreement constitutes the entire agreement of the parties
related to the subject matter of this Agreement, supersedes all
prior or contemporary agreements, representations, warranties,
covenants, and understandings of the parties. This Agreement may
not be amended, nor shall any waiver, change, modification,
consent, or discharge be effected, except by an instrument in
writing executed by or on behalf of the party against whom
27
enforcement of any amendment, waiver, change, modification,
consent, or discharge is sought.
Any waiver of any term or condition of this Agreement, or of
the breach of any covenant, representation, or warranty contained
herein, in any one instance, shall not operate as or be deemed to
be or construed as a further or continuing waiver of such term,
condition, or breach of covenant, representation, or warranty, nor
shall any failure at any time or times to enforce or require
performance of any provision hereof operate as a waiver of or
affect in any manner such party's right at a later time to enforce
or require performance of such provision or of any other provision
hereof; and no such written waiver, unless it, by its own terms,
explicitly provides to the contrary, shall be construed to effect
a continuing waiver of the provision being waived and no such
waiver in any instance shall constitute a waiver in any other
instance or for any other purpose or impair the right of the party
against whom such waiver is claimed in all other instances or for
all other purposes to require full compliance with such provision.
20. ASSIGNMENT; SUCCESSORS AND ASSIGNS.
This Agreement shall not be assignable by any party without
the written consent of the others. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
21. SEVERABILITY.
If any provision or provisions of this Agreement shall be, or
shall be found to be, invalid, inoperative, or unenforceable as
applied to any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions or in all cases, because of
the conflict of any provision with any constitution or statute or
rule of public policy or for any other reason, such circumstance
shall not have the effect of rendering the provision or provisions
in question invalid, inoperative, or unenforceable in any other
jurisdiction or in any other case or circumstance or of rendering
any other provision or provisions herein contained invalid,
inoperative, or unenforceable to the extent that such other
provisions are not themselves actually in conflict with such
constitution, statute, or rule of public policy, but this Agreement
shall be reformed and construed in any such jurisdiction or case as
if such invalid, inoperative, or unenforceable provision had never
been contained herein and such provision reformed so that it would
be valid, operative, and enforceable to the maximum extent
permitted in such jurisdiction or in such case.
22. COUNTERPARTS.
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, and in
pleading or proving any provision of this Agreement it shall not be
necessary to produce more than one such counterpart.
28
Whenever used herein, the singular number shall include the
plural, the plural shall include the singular, and the use of any
gender shall include all genders.
23. INTERPRETATION.
The headings contained in this Agreement are for reference
purposes only and shall not in any way effect the meaning or
interpretation of this Agreement.
24. NOTICES.
All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered or mailed, postage prepaid, certified mail,
return receipt requested:
(a) TO SELLER OR STOCKHOLDER: If to Seller or
Stockholder:
Dean G. Wilson
Sonwil Products, Inc.
5574 Leo Park Road
West Jordan, UT 84088
with a copy to:
Carl W. Barton, Esq.
Prince, Yeates & Geldzahler
City Center 1, Suite 900
175 E. 400 South
Salt Lake City, UT 84111
(b) TO PURCHASER: If to Purchaser, to:
Industrial Rubber Products - Utah, Inc.
3804 East 13th Avenue
Hibbing, MN 55746
Attn: Daniel O. Burkes
with a copy to:
Johnson, Killen, Thibodeau & Seiler, P.A.
811 Norwest Center
230 West Superior Street
Duluth, MN 55802
and/or to such other person(s) and address(es) as either party
shall have specified in writing to the other.
25. LAW TO GOVERN.
This Agreement shall be governed by and construed and enforced
in accordance with the law (other than the law governing conflict
of law questions) of Minnesota. Any action to enforce, arising out
29
of, or relating in any way to, any of the provisions of this
Agreement may be brought and prosecuted in such court or courts
located in the state of Minnesota as is provided by law.
26. ARBITRATION.
If the parties hereto are unable to resolve any dispute with
respect to claims arising hereunder within 30 days of written
notice of such dispute by one party to the others, the parties
first agree to arbitration by a panel of three arbitrators in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, subject to the parties' rights to appeal
or otherwise pursue this matter through the courts in accordance
with the terms hereof.
27. APPLIED COATINGS, L.C.
The parties expressly acknowledge and agree that Stockholder
owns 96% of Applied Coatings, L.C., a Utah limited liability
company ("Applied Coatings"). Further, the assets, liabilities,
ownership, management, and operation of Applied Coatings is
expressly excluded in all respects from the transaction
contemplated by this Agreement. Applied Coatings operates a spray
coating business using poly urea and other compounds, and it does
not produce or sell molded or hand-laid rubber linings or cast
polyurethane. The Stockholder has engaged personnel to manage and
operate Applied Coatings on a separate site and as a business
separate from the operations of Seller. Purchaser and Guarantor
acknowledge the existence of Applied Coatings and agree that the
Stockholder's ownership and the operation of Applied Coatings, as
described herein, does not constitute a breach of the non-
competition covenant set forth in the Employment Agreement.
Purchaser agrees that Applied Coatings shall have a period of up to
sixty (60) days after the Closing to relocate the Applied Coatings
equipment. Until such relocation, Applied Coatings may leave its
equipment on the real property covered by the Lease at no charge to
Seller or Stockholder.
28. JOINDER OF STOCKHOLDER AND GUARANTOR.
The Stockholder and Guarantor have executed this Agreement for
the purposes of joining in and guarantying the obligations of
Seller and Purchaser respectively under this Agreement.
IN WITNESS WHEREOF, Seller, Stockholder, Purchaser and
Guarantor have caused this Agreement to be executed as of the date
first above written.
Industrial Rubber Products-
Utah, Inc.
By: s/ Daniel O. Burkes
Name: Daniel O. Burkes
Title: Chairman
Sonwil Products, Inc., dba T.J.
Products
By: s/ Dean G. Wilson
Name: Dean G. Wilson
Title: President
30
s/Dean G. Wilson
Dean G. Wilson
Industrial Rubber Products,
Inc.
By: s/ Daniel O. Burkes
Name: Daniel O. Burkes
Title: President-CEO
EXHIBIT A
Certain Defined Terms
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.),
as amended or supplemented from time to time.
"Contaminant" means any waste, pollutant, hazardous material,
hazardous substance, toxic substance, hazardous waste, special
waste, petroleum, or petroleum-derived substance or waste, or any
constituent of any such pollutant material, substance or waste,
including, without limitation, any pollutant material, substance,
or waste regulated under any Environmental Law.
"Environmental Laws" means all federal, state, local, and
foreign laws or regulations, codes, orders, decrees, judgments, or
injunctions issued, promulgated, approved, or entered thereunder
relating to pollution or protection of the environment or
occupational health and safety, including, releases or threatened
releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances, materials, or wastes (including,
without limitation, oil, asbestos, and radiation) into the
environment (including, without limitation, ambient air, surface
water, ground water, land surface, or subsurface strata) or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals or industrial, toxic, or
hazardous substances, material, or wastes. Environmental Laws
shall include, without limitation, Title 19 of the Utah Code
Annotated known as the Utah Environmental Quality Act, CERCLA, the
Hazardous Material Transportation Act (49 U.S.C. Section 1801 et
seq.), the Solid Waste Disposal Act (42 U.S.C. Section 6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section
1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.),
the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.),
the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7
U.S.C. Section 136 et seq.), the Food, Drug, and Cosmetic Act (21
U.S.C. Section 301 et seq.), the Medical Waste Tracking Act of
1988, Pub. L. No. 100-582, 102 Stat. 2950 (1988), as such laws have
been amended or supplemented from time to time, and any analogous
future federal, or present or future state, local, or foreign,
statutes, ordinances, or bylaws.
31
"Environmental Liabilities and Costs" means, as to the Seller,
all liabilities, obligations, responsibilities, remedial actions,
losses, damages, punitive damages, consequential damages, treble
damages, costs, and expenses (including, without limitation, all
reasonable fees, disbursements and expenses of counsel, expert and
consulting fees, and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand, by any corporation, partnership,
trust, individual, or other entity ("Person"), whether based in
contract, tort, implied or express warranty, strict liability,
criminal or civil statute, including, without limitation, any
Environmental Law, permit, order, approval, authorization, license,
variance, or agreement with a federal, state, or local governmental
authority or other person, arising from environmental, health, or
safety conditions or a Release or threatened Release resulting from
the past operations of the Seller (or any of its predecessors in
interest), or any release for which the Seller is otherwise
responsible under any Environmental Law.
"Environmental Lien" means any lien or similar interest in
favor of any federal, state, or local governmental authority for
Environmental Liabilities and Costs.
"Release" means, as to the Seller, any release, spill,
emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, pouring, emptying, escaping, dumping,
discarding, leaching, or migration of a Contaminant into the indoor
or outdoor environment or into or out of any property owned,
leased, or controlled by Seller, including, without limitation, the
movement of Contaminants through or in the air, soil, surface
water, groundwater, or property, including, without limitation, the
abandonment or discarding of barrels, containers, and other closed
receptacles containing any contaminant.
"Remedial Action" means all actions necessary to (i) clean up,
remove, treat, or in any other way address Contaminants in the
indoor or outdoor environment, (ii) prevent a Release or condition
that is reasonably likely to result in a Release or minimize
further release of Contaminants so they do not migrate or endanger
or threaten to endanger present or future public health or welfare
or the indoor or outdoor environment, or (iii) perform pre-remedial
studies and investigations and post-remedial monitoring and care.
EXHIBIT B
LEASE AGREEMENT
This Lease Agreement (the "Lease") is made effective as of the
___ day of ____________, 1999, between DGW Enterprises, L.C., a
Utah limited liability company ("Lessor"), and Industrial Rubber
Products-Utah, a Utah corporation ("Lessee").
RECITALS:
32
A. Lessor is the owner of certain real property located in
Salt Lake County, Utah, at 5574 Leo Park Road, West Jordan, and
four (4) buildings located on such real property (collectively, the
"Buildings").
B. Lessee desires to lease the Premises, as defined herein,
from Lessor upon the terms and conditions set forth below.
NOW THEREFORE, In consideration of the mutual covenants
contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged,
Lessor and Lessee hereby agree as follows:
SECTION ONE
1.1 PREMISES: Lessor hereby leases to Lessee and Lessee
hereby rents from Lessor the real property that is more
particularly described and depicted on the attached Exhibit "A" and
the Buildings and other improvements located thereon (the
"Premises").
1.2 CONDITION. Lessor shall deliver the Premises to Lessee
on the Commencement Date, as defined herein, in their "as-is"
condition.
1.3 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges (a)
that it has inspected and hereby accepts the Premises in their "as-
is" "with-all-faults" condition; (b) that Lessee has made such
investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relates to
Lessee's occupancy of the Premises and/or for the term of this
Lease; and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties, implied or
express, with respect to the said matters other than as set forth
in this Lease.
SECTION TWO
2.1 TERM OF LEASE. The initial term of the Lease shall be for
a period of ten (10) years (the "Term"), commencing on January 20,
1999 (the "Commencement Date"), and terminating on January 19,
2008. Lessee shall surrender the Premises to Lessor immediately on
termination of the Lease. Further, Lessee shall have the right to
terminate this Lease upon at any time after January 19, 2003, upon
six (6) months' prior written notice to Lessor.
SECTION THREE
SIGNAGE: In the event that Lessee desires to affix any signage
to any part of the exterior of the Premises, such signage shall be
at Lessee's expense. Signage must comply with Lessor's master sign
plan and with all local ordinances and must be pre-approved in
writing by Lessor. Upon expiration or termination of the Lease,
33
Lessee shall remove any such signage at its sole cost and shall
repair any damage to the Premises or the Buildings.
SECTION FOUR
4.1 RENT: Lessee shall cause payment of Rent and charges, as
the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or
demand, except as set forth herein, on or before the day on which
it is due under the terms of this Lease. Rent and all other rent
and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of
Rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses
as Lessor may from time to time designate in writing to Lessee.
For purposes of this Lease, the term "Rent" shall include the
monthly rental amounts due hereunder and all other charges and
amounts due under this Lease. Lessee shall pay Rent in advance on
the first (lst) day of each month of the Term of this Lease as
follows: (a) $12,500.00 per month from January 1, 1999, through and
including December 31, 2000; (b) $13,000.00 per month from January
1, 2001, through and including December 31, 2003; (c) $13,500.00
per month from January 1, 2004, through and including December 31,
2005; and (d) $14,000.00 per month from January 1, 2006, through
and including December 31, 2008.
4.2 PAYMENTS: Rent payments shall be made to Lessor at the
address directed, from time to time, by Lessor. A payment shall be
delinquent if not paid and received by the tenth (10th) day of the
month in which it is due, at which time the late charges referred
to in Section 14 hereof shall apply and will be assessed against
Lessee. On Lessee's failure to pay the Rent when due, a Default
shall have occurred hereunder, and Lessor shall have the right to
damages for Default and to enforce the remedies permitted hereunder
and under applicable law.
4.3 INTENTIONALLY DELETED.
SECTION FIVE
5.1 USE OF PREMISES: Lessee agrees to use the Premises
hereunder for the sole purpose of providing, manufacturing, and
distributing protective rubber, urethane, and other abrasion
resistant products, coatings, and linings and related specialty
materials and products and certain painting. Lessee agrees that
the Premises shall not be used for any other purposes or for any
unlawful purpose, and Lessee agrees that Lessee shall not permit
any use of the Premises which is in violation of any law, ordinance
or regulation of any governmental authority, or any use which will
constitute a nuisance. Lessee further agrees that the Premises
shall not be used in any manner that will injure or impair the
structural strength or the integrity of the Buildings. Lessee
agrees not to sell or display any offensive or inappropriate
merchandise in or outside the Premises.
34
5.2 MAINTENANCE.
(a) Lessee shall, at Lessee's sole cost and expense and at
all times, keep, repair, and maintain the Premises and every part
thereof in good order, condition and repair, non-structural
(whether or not such portion of the Premises requiring repair and
maintenance, or the means of repairing and maintaining the same,
are reasonably or readily accessible to Lessee, and whether or not
the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the
Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such
as fans, plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired,
pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures,
interior walls, ceilings, floors, slab, windows, doors, plate
glass, stained glass, skylights, landscaping, driveways, parking
lots, fences, retaining walls, walls needing interior and/or
exterior paint, signs, sidewalks and parkways located in, on,
about, or adjacent to the Premises. Lessee shall not cause or
permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessee's expense,
take all investigatory and/or remedial action reasonably
recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security
and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination
of, and for the maintenance, security and/or monitoring of, the
Premises, the elements surrounding same, or neighboring properties,
that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage
tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices.
Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements
thereon or a part thereof in good order, condition and state of
repair. Lessor may require Lessee to repaint the exterior of the
Buildings on the Premises as reasonably required, but not more
frequently than once every five (5) years at Lessee's cost.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain contracts, with copies to Lessor, in customary form
and substance for, and with contractors specializing and
experienced in, the inspection, maintenance and service of the
following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment;
(ii) boiler, fired or unfired pressure vessels; (iii) fire
sprinkler and/or standpipe and hose or other automatic fire
extinguishing systems, including fire alarm and/or smoke detection;
(iv) landscaping and irrigation systems; (v) roof covering and
drain maintenance; and (vi) asphalt maintenance. Notwithstanding
35
the foregoing, Lessee may provide reasonable evidence of such
inspection, maintenance and service in lieu of outsource
contracting.
5.3 LESSOR OBLIGATIONS. It is intended by Lessor and Lessee
that Lessor have only the obligation to repair and maintain the
structural components of the Buildings. Specifically, Lessor shall
maintain and repair the foundations, roofs, and structural
components of the walls. Otherwise, Lessor shall have no
obligation, in any manner whatsoever, to repair or maintain the
Premises or the Buildings, the improvements located thereon, or the
equipment therein. Except as expressly set forth in this Section
5.3, all maintenance and repair obligations are intended to be that
of the Lessee's under Section 5.2 hereof. It is the intention of
the Lessor and Lessee that the terms of this Lease govern the
respective obligations of the Lessor and Lessee as to maintenance
and repair of the Premises.
5.4 INTENTIONALLY LEFT BLANK.
5.5 INTENTIONALLY LEFT BLANK
5.6 HAZARDOUS SUBSTANCES:
(a) The term "Hazardous Substance," as used in this Lease,
shall mean any product, substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence,
use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials
expected to be on the Premises, is either: (i) potentially
injurious to the public health, safety or welfare, the environment
or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or
common law theory. Hazardous Substance shall include, but not be
limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products, by-products or fractions thereof. Lessee shall not
engage in any activity in, on or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Law (as defined in Section 5.7). "Reportable
Use" shall mean (i) the installation or use of any above or below
ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's
being responsible for the presence in, on or about the Premises of
a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but in
compliance with all Applicable Law, use any ordinary and customary
materials reasonably required to be used by Lessee in the normal
36
course of Lessee's business permitted on the Premises, so long as
such use is not a Reportable Use and does not expose the Premises
or neighboring properties to any meaningful risk of contamination
or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity
or storage tank by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion,
deems necessary to protect itself, the public, the Premises, and
the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to
the Premises (such as concrete encasements) and/or the deposit of
an additional Security Deposit hereunder.
(b) If Lessee knows, or has reasonable cause to believe, that
a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. Lessee
shall also immediately give Lessor a copy of any statement, report,
notice, registration, application, permit, business plan, license,
claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or
occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or
contamination in, on, or about the Premises, including, but not
limited to, all such documents as may be involved in any Reportable
Use involving the Premises.
(c) Lessee shall indemnify, protect, defend and hold Lessor,
its agents, employees, lenders and ground Lessor, if any, and the
Premises harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses,
penalties, permits and attorneys' and consultant's fees arising out
of or involving any Hazardous Substance or storage tank brought
onto the Premises by or for Lessee or under Lessee's control.
Lessee's obligations under this Section 5.6 shall include, but not
be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee,
and the cost of investigation (including consultant's and
attorneys' fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this
Lease. No termination, cancellation or release agreement entered
into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Lessor in writing at the
time of such agreement.
5.7 LESSEE COMPLIANCE WITH LAW. Except as otherwise provided
in this Lease, Lessee shall, at Lessee's sole cost and expense,
fully, diligently and in a timely manner, comply with all
"Applicable Law," which term is used in this Lease to include all
37
laws, rules, regulations, ordinances, directives, covenants,
easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating
in any manner to the Premises (including, but not limited to,
matters pertaining to (i) industrial hygiene, (ii) environmental
conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation,
storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and
whether or not reflecting a change in policy from any previously
existing policy. Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all
documents and information, including, but not limited to, permits
registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by
Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened
or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to
comply with any Applicable Law.
5.8 INSPECTION/COMPLIANCE. It is recognized and acknowledged
that Lessor or an employee or agent of Lessor will be on the
premises working in the capacity of Lessee's general manager. In
consequence of that, Lessor acknowledges that it has continuous
opportunities to inspect and shall make itself aware of the
continuing condition of the Premises and shall promptly report any
changes, conditions or otherwise which may trigger rights or
obligations under this Lease. Mr. Dean G. Wilson owns and controls
Lessor and is currently employed by Lessee. If Mr. Wilson, in his
employment capacity with Lessee, directly causes Lessee to breach
the terms of this Lease, Lessee shall not be responsible,
financially or otherwise, for such breach.
SECTION SIX
6.1 TAXES AND ASSESSMENTS: This Lease is intended to be
absolutely net of all costs to Lessor.
(a) Payment of Taxes. Lessee shall pay the Real Property
Taxes, as defined in Section 6.2, applicable to the Premises during
the term of this Lease. Subject to Section 6.1(b), all such
payments shall be made at least ten (10) days prior to the
delinquency date of the applicable installment. Lessee shall
promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover
any period of time prior to or after the expiration or earlier
termination of the term hereof, Lessee's share of such taxes shall
be equitably prorated to cover only the period of time within the
tax fiscal year this Lease is in effect, and Lessor shall reimburse
Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and
Lessee shall reimburse Lessor therefor upon demand.
38
(b) Advance Payment. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor
reserves the right, during any period in which Lessee remains in
uncured default after applicable cure periods, to estimate the
current Real Property Taxes applicable to the Premises, and to
require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal
to the installment due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the
payment of the Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be that equal monthly amount
which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and
without interest thereon), would provide a fund large enough to
fully discharge before delinquency the estimated installment of
taxes to be paid. When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payment
shall be adjusted as required to provide the funds needed to pay
the applicable taxes before delinquency. If the amounts paid to
Lessor by Lessee under the provisions of this Section are
insufficient to discharge the obligations of Lessee to pay such
Real Property Taxes as the same become due, Lessee shall pay to
Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligations. All moneys paid to Lessor under this
Section may be intermingled with other moneys of Lessor and shall
not bear interest. In the event of a Breach by Lessee in the
performance of the obligations of Lessee under this Lease, then any
balance of funds paid to Lessor under the provisions of this
Section may, subject to proration as provided in Section 6.1(a), at
the option of Lessor, be treated as an additional Security Deposit
hereunder.
6.2 "REAL PROPERTY TAXES" As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any
license fee, commercial rental tax, improvement bond or bonds, levy
or tax (other than inheritance, personal income or estate taxes)
imposed upon the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any
legal or equitable interest of Lessor's in the Premises or in the
real property of which the Premises are a part, Lessor's right to
rent or other income therefrom, and/or Lessor's business of leasing
the Premises. The term "Real Property Taxes" shall also include
any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law
taking effect, during the term of this Lease, including, but not
limited to, a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not
contemplated by the Lessor and Lessee.
6.3 JOINT ASSESSMENT: If the Premises are not separately
assessed, Lessee's liability shall be an equitable proportion of
39
the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information as may be
reasonably available.
6.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to
delinquency all taxes assessed against and levied upon Lessee-owned
alterations, utility installations, Trade Fixtures, furnishings,
equipment and all personal property of Lessee contained in the
Premises or elsewhere. When possible, Lessee shall cause such
Trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real
property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay
Lessor the taxes attributable to Lessee within ten (10) days after
receipt of a written statement setting forth the taxes applicable
to Lessee's property or, at Lessor's option, as provided in Section
6.1(b).
6.5 INSURANCE:
(a) Payment for Insurance. Lessee shall obtain and pay for
all insurance required under this Section 6.5 (the "Insuring
Party"). Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to
the Lease term. Payment shall be made by Lessee to Lessor within
ten (10) days following receipt of an invoice for any amount due.
(b) Liability Insurance. Lessee shall obtain and keep in
force during the term of this Lease a Commercial General Liability
policy of insurance protecting Lessee and Lessor (as an additional
insured) against claims for bodily injury, personal injury and
property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all
areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence with such endorsements as
Lessor shall reasonably request. The policy shall not contain any
intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed
under this Lease as an "insured contract" for the performance of
Lessee's indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee
shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess
insurance only.
(c) Property Insurance--Buildings, Improvements and Rental
Value.
(i) Buildings and Improvements. The Insuring Party
shall obtain and keep in force during the term of this Lease a
40
policy or policies in the name of Lessor, with loss payable to
Lessor and to the holders of any mortgages, deeds of trust or
ground leases on the Premises ("Lender(s)"), insuring loss or
damage to the Premises. The amount of such insurance shall be
equal to the full replacement cost of the Premises, as the same
shall exist from time to time, or the amount required by Lenders,
but in no event more than the commercially reasonable and available
insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full
replacement cost. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood
and/or earthquake), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage
for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the
Premises required to be demolished or removed by reason of the
enforcement of any building, zoning, safety or land use laws, as
the result of a covered cause of loss. Said policy or policies
shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard
protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U. S.
Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(ii) Adjacent Premises. If the Premises are part of a
larger building, or if the Premises are part of a group of
buildings owned by Lessor which are adjacent to the Premises, the
Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
(iii) Tenant's Improvements. If the Lessor is the
Insuring Party, the Lessor shall not be required to insure Lessee
Owned Alterations and Utility Installations unless the item in
question has become the property of Lessor under the terms of this
Lease. If Lessee is the Insuring Party, the policy carried by
Lessee under this Section 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
(d) Lessee's Property Insurance. Subject to the requirements
of Section 6.5(e), Lessee at its cost shall either by separate
policy or, at Lessor's option, by endorsement to a policy already
carried, maintain insurance coverage on all of Lessee's personal
property, Lessee Owned Alterations and Utility Installations in,
on, or about the Premises similar in coverage to that carried by
the Insuring Party under 6.5(c). Such insurance shall be full
replacement cost coverage. The proceeds from any such insurance
shall be used by Lessee for the replacement of personal property or
the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Section 6.5(d) and shall provide
Lessor with written evidence that such insurance is in force.
41
(e) Insurance Policies. Insurance required hereunder shall
be in companies duly licensed to transact business in the state
where the Premises are located, and maintaining during the policy
term a "General Policyholders Rating" as may be required by a
Lender having a lien on the Premises, as set forth in the most
current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance
policies referred to in this Section 6.5. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor
certified copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No
such policy shall be cancelable or subject to modification except
after thirty (30) days' prior written notice to Lessor. Lessee
shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance
binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be
carried by the Insuring Party under this Section 6.5, the other
party hereto may, but shall not be required to, procure and
maintain the same, but at Lessee's expense. Notwithstanding any
provision herein to the contrary, Lessee may obtain insurance
coverages under so-called blanket basis policies which provide
insurance to other premises operated by Lessee or its affiliates,
which policies may contain such deductible and other features as
are determined by Lessee in the exercise of reasonable business
judgment.
(f) Waiver of Subrogation. Without affecting any other
rights or remedies, Lessee and Lessor ("Waiving Party") each hereby
release and relieve the other, and waive their entire right to
recover damages (whether in contract or in tort) against the other,
for loss of or damage to the Waiving Party's property, arising out
of or incident to the perils required to be insured against under
Section 6.5. The effect of such releases and waivers of the right
to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
(g) Indemnity. Except for Lessor's gross negligence and/or
breach of express warranties or breach of this Lease, Lessee shall
indemnify, protect, defend and hold harmless the Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders,
from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, attorney's and consultant's
fees, expenses and/or liabilities arising out of, involving, or in
dealing with, the occupancy of the Premises by Lessee, the conduct
of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default
or Breach by Lessee in the performance in a timely manner of any
obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein,
and whether or not (in the case of claims made against Lessor)
42
litigated and/or reduced to judgment, and whether well founded or
not. In case any action or proceeding be brought against Lessor by
reason of any of the foregoing matters, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified. Except for Lessee's gross
negligence and/or breach of express warranties or breach of this
Lease, Lessor shall indemnify, protect, defend and hold harmless
the Lessee and its agents from and against any and all claims,
damages, costs, liens, judgments, penalties, attorneys' and
consultants' fees, expenses and/or liabilities arising out of or
involving any act, omission or neglect by Lessor, its agents,
contractors, employees or invitees and out of any default or breach
by Lessor in the performance in a timely manner of any obligation
on Lessor's part to be performed under this Lease.
(h) Exemption of Lessor from Liability. Lessor shall not be
liable for injury or damage to the person or goods, wares,
merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers, or any other person in or about
the Premises, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether the said injury
or damage results from conditions arising upon the Premises or upon
other portions of the Buildings of which the Premises are a part,
or from other sources or places, and regardless of whether the
cause of such damage or injury or the means of repairing the same
is accessible or not unless caused by the gross negligence of
Lessor or its agents or employees or Lessor's breach of this Lease.
Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant of Lessor.
6.6 UTILITIES AND SNOW REMOVAL: Lessee shall arrange, fix and
bear the cost of gas, electrical, water, sewage and telephone
services furnished to the Premises during the Term and all renewals
thereof of this Lease. Lessee shall pay for all water, gas, heat,
light, power, telephone, trash disposal, snow removal, and other
utilities and services supplied to the Premises, together with any
taxes thereon. Lessee agrees to remove accumulations of snow and
ice, within a reasonable time after such removal becomes necessary,
from the front of the entire Buildings including the south doorway
and the full length of the sidewalk in order to allow easy access
to the Buildings and the Premises and to ensure safety.
SECTION SEVEN
7.1 ALTERATIONS/FIXTURES.
(a) Definitions/Consent Required. The term "Utility
Installations" is used in this Lease to refer to all carpeting,
window coverings, air lines, power panels, electrical distribution,
fire protection systems, lighting fixtures, heating, ventilating,
43
and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "Trade Fixtures" shall mean Lessee's
machinery and equipment that can be removed without doing material
damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than
Utility Installations or Trade Fixtures, whether by addition or
deletion. "Lessee Owned Alterations and/or Utility Installations"
are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor as defined in Section 7.2.
Lessee shall not make any Alterations or Utility Installations in,
on, under or about the Premises without Lessor's prior written
consent, which will not be unreasonably withheld or delayed.
Lessee may, however, make non-structural Utility Installations to
the interior of the Premises (excluding the roof), as long as they
are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cost
thereof during the term of this Lease as extended does not exceed
$50,000.
(b) Consent. Any Alterations that Lessee shall desire to
make shall be presented to Lessor in written form with proposed
detailed plans. All consents given by Lessor, whether by virtue of
Section 7.2(a) or by subsequent specific consent, shall be deemed
conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies
of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor
prior to commencement of the work thereon, and (iii) the compliance
by Lessee with all conditions of said permits in a prompt and
expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and
workmanlike manner, with good and sufficient materials, and in
compliance with all Applicable Law. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and
specifications therefor.
(c) Indemnification. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished
to or for Lessee at or for use on the Premises, which claims are or
may be secured by any mechanics' or materialmen's lien against the
Premises or any interest therein. Lessee shall give Lessor not
less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right
to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at
its sole expense, defend and protect itself, Lessor and the
Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor
shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times
the amount of such contested lien claim or demand, indemnifying
Lessor against liability for the same, as required by law for the
44
holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys'
fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
(d) Addition. Lessee has informed Lessor that it will
require an addition to one of the Buildings located on the Premises
to house the additional equipment, inventory, and supplied
currently located in Lessee's Clearfield, Utah, facility (the
"Addition"). Lessee shall bear the entire cost of the Addition,
and the planning and construction of the Addition shall be subject
to the terms of this Section 7.1 and to the other terms of this
Lease.
7.2 OWNERSHIP/REMOVAL/SURRENDER/RESTORATION:
(a) Ownership. Subject to Lessor's right to require their
removal as hereinafter provided in this Section 7.2, all Utility
Additions made to the Premises by Lessee shall be the property of
and owned by Lessor. Unless otherwise instructed per Section
7.2(b) hereof, all Utility Installations shall, at the expiration
or earlier termination of this Lease, become the property of Lessor
and remain upon and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or earlier termination
of this Lease, notwithstanding their installation may have been
consented to by Lessor provided that notice is given at least six
months prior to the termination of this Lease. Lessor may require
the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required
consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any
earlier termination date, with all of the improvements, parts, and
surfaces thereof clean and free of debris and in good operating
order, condition, and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified in writing by
Lessor, the Premises, as surrendered, shall include the Utility
Installations. The obligation of Lessee shall include the repair
of any damage occasioned by the installation, maintenance or
removal of Lessee's Trade Fixtures, furnishings, equipment, and
Alterations and/or Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water
contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease.
45
7.3 REPAIRS:
Lessee shall be responsible for the cost of making all routine
and extraordinary repairs and replacements of any non-structural
nature to the Buildings and the Premises, including, but not
limited to, plumbing, equipment, carpeting, lighting fixtures,
painting and the cost of all maintenance on the leased Premises.
Repairs and maintenance shall include work needed to maintain and
preserve all fixtures, glass, appurtenances, plumbing, electrical,
heating, ventilating and other equipment. Notwithstanding the
foregoing or any other provision to the contrary, Lessee shall be
responsible for the cost of any upgrades, replacements, changes, or
modifications to the Premises or to the Buildings, including
structural items required by any law, ordinance, code or regulation
promulgated by any federal, state or local authority and which
apply to the Lessee's use of the Premises or Buildings during the
term of this Lease and any extensions thereof. Any repair,
replacement, maintenance, upgrade, change or modification must be
done with the prior reasonable consent of Lessor in a manner
reasonably approved by Lessor and by contractors approved by
Lessor.
7.4 COMPLIANCE: Any work done at the request of or as part
of the responsibility of the Lessee, including all replacements,
must be completed in compliance with all applicable codes,
standards or regulations. If Lessee refuses or neglects to work on,
repair, replace, restore or maintain the Premises or the Buildings
as required hereunder, or commence such work within 60 days after
written demand by the Lessor, Lessor may make such repairs or
undertake the required work without liability to the Lessee for any
loss or damage to Lessee's merchandise, fixtures or other property,
or to Lessee's business, by reason of such work, and Lessee shall
on demand reimburse Lessor, upon Lessor providing a bill to Lessee,
all of Lessor's costs of such work. Late payments shall be subject
to the same provisions and penalties as set forth in Section 4.2
above.
SECTION EIGHT
LESSOR'S RIGHT TO ENTER: Lessee shall permit Lessor and
Lessor's agents to enter the Premises after reasonable notice to
Lessee to inspect the Premises; to post notices of non-liability
for alterations, additions, or repairs, or to place on the Premises
any usual or ordinary "For Sale" signs, without any rebate of Rent
to Lessee or damages for any loss of occupation or quiet enjoyment
of the Premises, provided such entry or activity by Lessor shall
not unreasonably interfere with or disrupt Lessee's business at the
Premises. Lessor retains the right to enter the Premises at any
time without notice to Lessee in the event of any emergency. Lessor
may, at any time within sixty (60) days prior to the expiration of
this Lease, place on the windows and doors of the Premises any
usual or ordinary "to Let" or "To Lease" signs. Lessor and
Lessor's agents may, during the last-mentioned period, enter on the
Premises at reasonable hours, and exhibit the same to prospective
tenants, provided such entry or activity by Lessor shall not
46
unreasonably interfere with or disrupt Lessee's business at the
Premises. This provision need only apply so long as Mr. Dean G.
Wilson is not permitted to enter the Premises in his employment
with Lessee.
SECTION NINE
REMOVAL OF LIENS BY LESSEE: Lessee will not permit any
mechanic's, materialman's, or other liens to stand against the
Premises or the Buildings for work or material contracted for by
Lessee. Should any liens be filed against the Premises or the
Buildings arising out of work performed or materials furnished at
the request of the Lessee, or because of any claim against Lessee,
Lessee shall cause the same to be canceled within ten (10) days
after notice by Lessor, subject to the terms of Section 7.1(c)
hereof. Lessee hereby indemnifies and holds Lessor harmless against
all loss, damages, expenses and costs, including attorney's fees,
on account of claims and/or liens based on work or material
furnished for Lessee or persons claiming under Lessee. In the event
that Lessee fails to have any lien removed, Lessor may satisfy such
lien and Lessee shall be responsible for all costs and expenses
incurred by Lessor in connection with such lien satisfaction and
removal, including attorney's fees.
SECTION TEN
INTENTIONALLY DELETED
SECTION ELEVEN
CONDEMNATION: If the Premises or any portion thereof are
taken under the power of eminent domain or sold under the threat of
the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken
as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of the
floor area of the Premises, or more than twenty-five percent (25%)
of the land area not occupied by any Buildings, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ninety (90) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such
notice, within ninety (90) days after the condemning authority
shall have taken possession) terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the
Premises remaining, except that the Rent shall be reduced in the
same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Buildings located on
the Premises. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be divided between
Lessor and Lessee in accordance with applicable Utah law; provided,
however, that Lessee shall be entitled to any compensation,
47
separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this
Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of its net severance damages received, over and
above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by
such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be
responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
SECTION TWELVE
DAMAGE OR DESTRUCTION.
12.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or
destruction to the improvements on the Premises, other than Lessee
Owned Alterations and Utility Installations, the repair cost of
which damage or destruction is less than 50% of the then
Replacement Cost of the Premises immediately prior to such damage
or destruction, excluding from such calculation the value of the
land and Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations
and Utility Installations the repair cost of which damage or
destruction is 50% or more of the then Replacement Cost of the
Premises immediately prior to such damage or destruction, excluding
from such calculation the value of the land and Lessee Owned
Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations
and Utility Installations, which was caused by an event required to
be covered by the insurance described in Section 6.5(c),
irrespective of any deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the
occurrence to their condition existing immediately prior thereto,
including demolition, debris removal and upgrading required by the
operation of applicable building codes, ordinances or laws, and
without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence
or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined herein in, on,
or under the Premises.
12.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall provide
Lessee with written notice of Lessor election to repair and restore
48
or to terminate this Lease within 30 days after the Insured Loss,
and Lessor shall, at Lessor's expense, repair such damage (but
not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) within 60 days of the occurrence and this Lease
shall continue in full force and effect. Notwithstanding the
foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as
and when required to complete said repairs. In the event, however,
the shortage in proceeds was due to the fact that, by reason of the
unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises
unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within thirty (30) days following
receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within
said thirty (30) day period, the party responsible for making the
repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within thirty (30)
days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in
proceeds, following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction, provided such funds are
actually expended in reconstruction. Premises Partial Damage due
to flood or earthquake shall be subject to Section 12.3 rather than
Section 12.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made
available for the repairs if made by either Lessor or Lessee.
12.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial
Damage that is not an Insured Loss occurs, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall
make the repairs at Lessee's expense and this Lease shall continue
in full force and effect, but subject to Lessor's rights under
Section 14), Lessor may elect to repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect. Lessor shall provide
Lessee with written notice of its election within 30 days after the
occurrence of such Premises Partial Damage.
12.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs (including any
destruction required by any authorized public authority), this
Lease shall terminate sixty (60) days following the date of such
Premises Total Destruction, whether or not the damage or
destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. Lessor shall have the election to repair
and restore the Premises or to terminate this Lease in the event of
49
such Premises Total Destruction, and Lessor shall provide Lessee
with written notice of its election within 30 days of such Premises
Total Destruction.
12.5 DAMAGE NEAR END OF TERM. If at any time during the last
six (6) months of the term of this Lease there is damage for which
the cost to repair exceeds one (1) month's Rent, whether or not an
Insured Loss, Lessor may, at Lessor's option, terminate this Lease
effective sixty (60) days following the date of occurrence of such
damage by giving written notice to Lessee of Lessor's election to
do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, within twenty
(20) days following the occurrence of the damage, or before the
expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (a) exercising such
option and (b) providing Lessor with any shortage in insurance
proceeds (or adequate assurance thereof) needed to make the
repairs. If Lessee duly exercises such option during said Exercise
Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall,
at Lessor's expense, repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or
assurance during said Exercise Period, then Lessor may at Lessor's
option terminate this Lease as of the expiration of said sixty (60)
day period following the occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within ten
(10) days after the expiration of the Exercise Period,
notwithstanding any term or provision in the grant of option to the
contrary.
12.6 ABATEMENT OF RENT/LESSEE REMEDIES:
(a) In the event of damage described in Section 12.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or
restores the Premises, the Rent, Real Property Taxes, insurance
premiums, and other charges, if any, payable by Lessee hereunder
for the period during which such damage, its repair or the
restoration continues, shall be abated in proportion to the degree
to which Lessee's use of the Premises is impaired. Except for
abatement of Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall
have no claim against Lessor for any damage suffered by reason of
any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Section 12 and shall not
commence, in a substantial and meaningful way, the repair or
restoration of the Premises within ninety (90) days after such
obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to
50
Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee
gives such notice to Lessor and such Lenders and such repair or
restoration is not commenced within thirty (30) days after receipt
of such notice, this Lease shall terminate as of the date specified
in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after receipt
of such notice, this Lease shall continue in full force and effect.
"Commence" as used in this Section shall mean either the
unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises,
whichever first occurs.
12.7 INTENTIONALLY DELETED
12.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Section 12, an equitable adjustment shall be
made concerning advance Rent and any other advance payments made by
Lessee to Lessor. Lessor shall, in addition, return to Lessee so
much of Lessee's Security Deposit as has not been, or is not then
required to be, used by Lessor under the terms of this Lease.
12.9 WAIVE STATUTES. Lessor and Lessee agree that the terms
of this Lease shall govern the effect of any damage to or
destruction of the Premises with respect to the termination of this
Lease and hereby waive the provisions of any present or future
statute to the extent inconsistent herewith.
12.10 LESSEE RIGHTS. In the event of any destruction -
whether partial, insured, uninsured, total or otherwise - in the
event Lessor is unable to rebuild or substantially restore the
premises to a tenantable condition within one hundred twenty (120)
days after the event giving rise to such damage or otherwise enter
into an Agreement to Lessee's satisfaction providing for the prompt
and timely repair and restoration, Lessee shall have the absolute
right to terminate this Lease and all rights and obligations
hereunder on not less than thirty (30) days' written notice to
Lessor.
SECTION THIRTEEN
ASSIGNMENT AND SUBLETTING.
13.1 CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber
(collectively, "assignment") or sublet all or any part of Lessee's
interest in this Lease or in the Premises without Lessor's prior
written consent given under and subject to the terms of Section 24.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. For purposes of this Lease,
a "change of control" shall mean a majority of the board of
51
directors or other governing body being elected during the term
hereof consisting of directors or members who are not members of
such board of directors or governing body at any time for at least
2 years prior to such election and who are not approved by the
majority of incumbent directors immediately prior to the change.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale,
acquisition, financing, refinancing, transfer, leveraged buy-out or
otherwise), whether or not a formal assignment or hypothecation of
this Lease or Lessee's assets occurs, which results or will result
in a reduction of the Net Worth of Lessee, as hereinafter defined,
by an amount equal to or greater than twenty-five percent (25%) of
such Net Worth of Lessee as it was represented to Lessor at the
time of the execution by Lessor of this Lease or at the time of the
most recent assignment to which Lessor has consented, or as it
exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this
Lease by Lessee to which Lessor may reasonably withhold its
consent. "Net Worth of Lessee" for purposes of this Lease shall be
the net worth of Lessee (excluding any guarantors) established
under generally accepted accounting principles consistently
applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at
Lessor's option, be a Default curable after notice per Section
14.1(c), or a noncurable Breach without the necessity of any notice
and grace period. If Lessor elects to treat such unconsented to
assignment or subletting as a noncurable Breach, Lessor shall have
the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly
Rent to fair market rental value or one hundred ten percent (110%)
of the Rent then in effect, whichever is greater. Pending
determination of the new fair market rental value, if disputed by
Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of
Rent coming due, and any underpayment for the period retroactively
to the effective date of the adjustment being due and payable
immediately upon the determination thereof. Further, in the event
of such Breach and market value adjustment, (i) the purchase price
of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction
for depreciation or obsolescence, and considering the Premises at
its highest and best use and in good condition), or one hundred ten
percent (110%) of the price previously in effect, whichever is
greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall
be increased in the same ratio as the new market rental bears to
52
the Rent in effect immediately prior to the market value
adjustment.
13.2 TERMS AND CONDITIONS:
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written
assumption by such assignee or sublessee of the obligations of
Lessee under this Lease, (ii) release Lessee of any obligations
hereunder, or (iii) alter the primary liability of Lessee for the
payment of Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee
under this Lease.
(b) Lessor may accept any Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of any Rent or
performance shall constitute a waiver or estoppel of Lessor's right
to exercise its remedies for the Default or Breach by Lessee of any
of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or
subletting by Lessee or to any subsequent or successive assignment
of subletting by the sublessee. However, Lessor may consent to
subsequent sublettings and assignments of the sublease or any
amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining
their consent, and such action shall not relieve such persons from
liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against
Lessee, any guarantors or any one else responsible for the
performance of the Lessee's obligations under this Lease, including
the sublessee, without first exhausting Lessor's remedies against
any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to
Lessor's determination as to the financial and operational
responsibility and appropriateness of the proposed assignee or
sublessee, including, but not limited to, the intended use and/or
required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the
current monthly Rent, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request
for consent. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease,
53
be deemed, for the benefit of Lessor, to have assumed and agreed to
conform and comply with each and every term, covenant, condition
and obligation herein to be observed or performed by Lessee during
the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provisions of
an assignment or sublease to which Lessor has specifically
consented in writing.
(g) The occurrence of a transaction described in Section
13.1(c) shall give Lessor the right (but not the obligation) to
require that the Security Deposit be increased to an amount equal
to six (6) times the then monthly Rent, and Lessor may make the
actual receipt by Lessor of the amount required to establish such
Security Deposit a condition to Lessor's consent to such
transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and
adjustment structure of the rent payable under this Lease be
adjusted to what is then the market value and/or adjustment
structure for property similar to the Premises as then constituted.
13.3 Additional Terms and Conditions Applicable to Subletting.
The following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly
incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent, rentals, and income arising from any
sublease of all or a portion of the Premises heretofore or
hereafter made by Lessee, and Lessor may collect such Rent and
income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Section 13.1)
shall occur in the performance of Lessee's obligations under this
Lease, Lessee may, except as otherwise provided in this Lease,
receive, collect and enjoy the Rents accruing under such sublease.
Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor, nor by reason of the collection of the Rent
from a sublessee, be deemed liable to the sublessee for any failure
of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the
performance of Lessee's obligations under this Lease, to pay to
Lessor the Rent and other charges due and to become due under the
sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor
without any obligation or right to inquire as to whether such
Breach exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim
against said sublessee, or, until the Breach has been cured,
against Lessor, for any such Rent and other charges so paid by said
sublessee to Lessor.
54
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without
any obligation to do so, may require any sublessee to attorn to
Lessor, in which event Lessor shall undertake the obligations of
the sublessor under such sublease from the time of the exercise of
said option to the expiration of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other
prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor
herein.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure
the Default of Lessee within the grace period, if any, specified in
such notice. The sublessee shall have a right of reimbursement and
offset from and against Lessee for any such Defaults cured by the
sublessee.
SECTION FOURTEEN
DEFAULT/BREACH/REMEDIES.
14.1 DEFAULT/BREACH: A "Default" is defined as a failure by
the Lessee after notice to observe, comply with, or perform any of
the terms, covenants, conditions, or rules applicable to Lessee
under this Lease. A "Breach" is defined as the occurrence of any
one or more of the following Defaults, and, where a grace period
for cure after notice is specified herein, the failure by Lessee to
cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth
in Sections 14.2 and/or 14.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Rent or any other
monetary payment required to be made by Lessee hereunder, whether
to Lessor or to a third party, as and when due, the failure by
Lessee to provide Lessor with reasonable evidence of insurance or
surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease, where such failure
continues for a period of ten (10) days for the payment of Rent and
thirty (30) days for any other Breach after such performance is
due.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with any documentation or
information which Lessor may reasonably require of Lessee under the
55
terms of this Lease, where any such failure continues for a period
of thirty (30) days following written notice by or on behalf of
Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease that are to be observed,
complied with or performed by Lessee, other than those described in
Sections 14 (a), (b), or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days
are reasonably required for its cure, then it shall not be deemed
to be a Breach of this Lease by Lessee if Lessee commences such
cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the
benefit of creditors; (ii) Lessee's becoming a "debtor" as defined
in 11 U.S.C. sec.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed
within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event
that any provision of this subsection (e) is contrary to any
applicable law, such provision shall be of no force or effect, and
not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement
given to Lessor by Lessee or any guarantor of Lessee's obligations
hereunder was materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a guarantor, (ii) the
termination of a guarantor's liability with respect to this Lease
other than in accordance with the terms of such guaranty, (iii) a
guarantor's becoming insolvent or the subject of a bankruptcy
filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory
breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any
such event, to provide Lessor with written alternative assurance or
security, which, when coupled with the then existing resources of
Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of
this Lease.
14.2 REMEDIES. If Lessee fails to perform any affirmative
duty or obligation of Lessee under this Lease, Lessor may at its
option (but without obligation to do so) perform such duty or
56
bligation on Lessee's behalf, including, but not limited to, the
obligation on Lessee's behalf, including, but not limited to, the
obtaining of reasonably required bonds, insurance policies, or
governmental licenses, permits or approvals. The costs and
expenses of any such performance by Lessor shall be due and payable
by Lessee to Lessor upon invoice therefor. If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is
drawn, Lessor, at its option, may require all future payments to be
made under this Lease by Lessee to be made only by cashier's check.
In the event of a Breach of this Lease by Lessee, as defined in
Section 14.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof
shall terminate and Lessee shall immediately surrender possession
of the Premises to Lessor. In such event Lessor shall be entitled
to recover from Lessee: (i) the worth at the time of the award of
the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the
Lessee proves could have been reasonably avoided; (iii) the worth
at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably
avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to
perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including,
but not limited to, the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the
unexpired term of this Lease. The worth at the time of award of
the amount referred to in provision (iii) of the prior sentence
shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Section. If termination of
this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding
the unpaid rent and damages as are recoverable therein, or Lessor
may reserve therein the right to recover all or any part thereof in
a separate suit for such rent and/or damages. If a notice and
grace period required under Section 14.1(b), (c), or (d) was not
previously given, a notice to pay rent or quit, or to perform or
quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall
also constitute the applicable notice for grace period purposes
required by Sections 14.1(b), (c) or (d). In such case, the
applicable grace period under Sections 14.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure
57
the Default within the greater of the two such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease
entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect after Lessee's Breach and abandonment and recover the rent
as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. See Sections 13
and 24 for the limitations on assignment and subletting, which
limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under
the Lease shall not constitute a termination of the Lessee's right
to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein
the Premises are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve
Lessee from liability under any indemnity provisions of this Lease
as to matters occurring or accruing during the term hereof or by
reason of Lessee's occupancy of the Premises.
14.3 INTENTIONALLY DELETED
14.4 LATE CHARGES: Lessee hereby acknowledges that late
payment by Lessee to Lessor of rent and other sums due hereunder
will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or
any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within ten (10) days after notice shall be due,
then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to five percent (5%) of such
overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late
charge by Lessor shall in no event constitute a waiver of Lessee's
Default or Breach with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of
Rent, then notwithstanding any other provision of this Lease to the
contrary, Rent shall, at Lessor's option, become due and payable
quarterly in advance.
14.5 BREACH BY LESSOR: Lessor shall not be deemed in breach
of this Lease unless Lessor fails within a reasonable time to
58
maintain the structural components of the Buildings asrequired
under Section 5.3 hereof. For purposes of this Section 14.5, a
reasonable time shall in no event be less than thirty (30) days
after receipt of notice by Lessor. If Lessor shall not commence
the diligent cure of such roof repair, after notice is provided for
above, Lessee shall have the right, on not less than ten (10) days'
notice to Lessor, to itself cure such structural component repairs
at the expense of Lessor and shall have the further right to offset
and charge against any monetary obligation subsequently due
hereunder.
SECTION FIFTEEN
BROKERS' FEES: Both Lessor and Lessee represent and warranty
to each other that no brokers, real estate or leasing agents are
entitled to any fee or commission in connection with the Premises
or this Lease. Further Lessor and Lessee hereby agree to indemnify
and hold the other harmless from and against any claims, damages,
actions, commissions, and/or costs (including attorney's fees)
arising in connection with any claim for a commission related to
the Premises and/or this Lease
SECTION SIXTEEN
16. OPTION TO PURCHASE:
16.1 GRANT OF OPTION. Lessor hereby grants to Lessee the
exclusive right and option, upon the terms and conditions
hereinafter set forth, to purchase the Premises from Lessor (the
"Option").
16.2 EXERCISE PERIOD. This Option shall be exercisable only as
follows: (1) for a period of one (1) year from the date hereof at
the Initial Purchase Price and for the balance of the Term of
this Lease at the Appraised Purchase Price. Notwithstanding any
other provisions set forth in this Agreement, the Option shall
automatically terminate upon Lessee's termination of this Lease
pursuant to Section 2.1 hereof or upon any other termination
hereof.
16.3 FAILURE TO EXERCISE OPTION. If Lessee does not exercise
this Option prior to the expiration of the exercise period referred
to in Section 16.2 hereof, all consideration paid for this Option
shall be retained by Lessor, this Agreement shall, without further
act of the parties hereto, become null and void and of no further
force or effect, and Lessee shall have no further rights or claims
against Lessor or the Premises.
16.4 EXERCISE OF OPTION. This Option may be exercised by
Lessee at any time during the exercise period referred to in
Section 16.2 above by written notice to Lessor delivered or sent in
any manner permitted in Section 21 below. If Lessee so exercises
this Option, then upon and subject to the terms and conditions of
59
this Agreement, Lessor agrees to sell the Premises to Lessee, and
Lessee agrees to purchase the Premises from Lessor. Said sale and
purchase shall be effected by use of a special warranty deed
(herein called the "Deed"), subject to the Permitted Exceptions as
hereinafter defined, which Deed Lessor shall execute, acknowledge,
and deliver to the Title Company prior to Closing
16.5 PURCHASE PRICE. The purchase price for the Premises
shall be $1,100,000.00 in cash or immediately available funds, if
Lessee exercises the Option on or before January 1, 2000 (the
"Initial Purchase Price"). If Lessee exercises the Option after
January 1, 2000, the purchase price for the Premises shall be equal
to the appraised value of the Premises in cash or immediately
available funds, prepared as soon as possible (but within 45 days
at the latest) after such exercise of the Option by Jonathan L.
Cook, MAI (the "Appraised Purchase Price"). If he is unwilling or
unable to do so, such appraisal shall be rendered and performed by
J. Philip Cook, MAI in accordance with this Section 16.5. If he is
unwilling or unable to do so, Lessor and Lessee may mutually select
an MAI appraiser to perform such appraisal within fifteen (15) days
after such exercise. If Lessor and Lessee cannot mutually agree on
such appraiser within such time, Lessor and Lessee shall each
select an MAI appraiser, and the 2 appraisers shall mutually select
a third MAI appraiser within 10 days after they are appointed. The
Appraised Purchase Price shall then become the average of those 3
appraisals. The Initial Purchase Price and the Appraised Purchase
Price, as appropriate used and applied in this Agreement, are
sometimes referred to as the "Purchase Price."
16.6 PAYMENT OF PURCHASE PRICE. Lessee shall pay the Purchase
Price in immediately available funds either by wire or in cash at
Closing.
16.7. CONDITION TO EXERCISE. Lessor's right to exercise
the Option is subject to the following conditions: Lessee shall not
be in monetary default under this Lease, and Lessee shall not have
failed to fully reimburse any and all funds requested by Lessor and
spent by Lessor to cure a breach of this Lease by Lessee.
16.8 OPENING TITLE COMPANY ACCOUNT. Within three (3) business
days after Lessee exercises this Option, Lessor and Lessee shall
open an account (the "Title Company Account") with a title company
selected by Lessor (the "Title Company") to consummate the sale and
purchase contemplated by this Agreement (herein called the
"Closing"), shall deposit with the Title Company one fully executed
counterpart of this Agreement.
16.9 CONDITIONS TO CLOSING. The Closing shall not occur
unless and until each and every of the following conditions
precedent to Closing have been satisfied; provided, how-ever, that
the party entitled to the benefit of any such condition may waive
the same by written notice to the Title Company and the other party
hereto:
60
(a) Upon Closing, the Title Company shall be ready, willing,
able and irrevocably committed to issue an American Land Title
Association (ALTA) owner's policy of title insurance, current
standard form for extended coverage, insuring Lessee's fee simple
ownership of the Premises in the amount of the Purchase Price,
subject only to the following Permitted Exceptions (herein called
the "Permitted Exceptions"): (i) nondelinquent taxes; (ii)
easements and rights-of-way; (iii) other non-financial matters of
record; and (iv) any exceptions created by Lessee.
(b) At Closing Lessor shall execute, acknowledge and deliver
to the Title Company a Non-Foreign Affidavit.
(c) Between the date of exercise of this Option and the
Closing, the Premises shall not have been materially adversely
affected in any way as the result of any legislative or regulatory
change, or any fire, explosion, earthquake, accident, casualty,
riot, civil commotion, condemnation, requisition, embargo, act of
God or of the public enemy or of the armed forces of the United
States, or otherwise, whether or not insured against.
16.10 BEST EFFORTS TO FULFILL CONDITIONS. Lessor and
Lessee agree to pursue diligently the satisfaction of and to use
their best efforts to satisfy each and every of the conditions to
Closing referred to in Section 16.9 hereof as soon as reasonably
possible and further agree to give Title Company and the other
party hereto written notice of the satisfaction, waiver or failure
of each such condition promptly after such satisfaction, waiver of
failure finally occurs.
16.11 FAILURE OF CONDITIONS. Should either party hereto
receive or give notice in accordance with Section 16.10 above,
either before or upon the date set for Closing, that any of the
conditions referred to in Section 16.9 above as to which such party
is entitled to the benefit will not be satisfied, and should such
party choose not to waive such condition, such party may, in its
sole and absolute discretion, terminate the Title Company Account
and this Agreement by written notice to Title Company and the other
party hereto, in which event Title Company shall return all
documents and funds deposited pursuant hereto to the party
depositing the same and neither party hereto shall have any further
liability to the other hereunder.
16.12 CLOSING. The Title Company shall close the sale and
purchase of the Premises contemplated hereunder as soon as
reasonably possible after the date upon which the last of the
conditions set forth in Section 16.9 hereof has been finally
satisfied or waived; provided, however, that unless the Closing
shall occur on or before the date which is thirty (30) days after
Lessee exercises this Option, the Title Company Account shall
terminate without further acts of the parties hereto, and in such
event the Title Company shall, unless Lessor refuses to close,
return all documents and funds deposited pursuant hereto to the
parties depositing the same and neither party shall have any
61
further liability to the other hereunder, except as otherwise
expressly provided in said Section 16.14 hereof.
When the Title Company is prepared to close the transaction
contemplated hereby, Title Company is authorized and instructed to
record the Deed in the Office of the County Recorder of Salt Lake
County, Utah.
16.13 PRORATIONS AND COSTS. All property taxes and all
other income and expenses with regard to the Premises shall be
prorated between Lessor and Lessee through the Title Company
Account as of the date of Closing. In the event the transaction
contemplated by this Agreement does not close for any reason other
than the default of Lessee, Lessor and Lessee shall equally share
and pay any and all cancellation fees charged by the Title Company.
16.14 REMEDIES. In the event of a default or breach by
Lessor or Lessee hereunder which prevents the Closing from taking
place in accordance with the terms of this Agreement, the
nondefaulting party shall have all the rights and remedies allowed
at law or in equity. Both parties agree that, should either party
default in any of the covenants or agreements herein contained, the
defaulting party shall pay all costs and expenses, including
without limitation, reasonable attorney's fees, which may arise or
accrue from enforcing or terminating this Agreement, or in pursuing
any remedy provided hereunder or allowed by applicable law. In the
event the Title Company is required to file an interpleader action
in court to resolve the dispute over the earnest money deposit
referred to herein or otherwise in connection with this Agreement,
Lessor and Lessee agree that the defaulting party shall pay the
court costs and reasonable attorney's fees incurred by the Title
Company in bringing such action.
16.15 OPTION NON-TRANSFERABLE: The Option is personal to
Lessee and may not be transferred, assigned, sold, or otherwise
conveyed to any entity or person.
SECTION SEVENTEEN
ATTORNEYS' FEES. In the event that either Lessor or Lessee
shall institute any action or proceeding against the other relating
to the provisions of this Lease, or any Default or Breach
hereunder, then, and in that event, the unsuccessful party in such
action or proceeding agrees to reimburse the successful party for
the reasonable expenses of such action including reasonable
attorneys' fees and disbursements incurred therein by the
successful party. Further, Lessee shall reimburse Lessor on demand
for any and attorney's fees and costs incurred in connection with
any efforts or actions, whether in suit or otherwise, taken by
Lessor to enforce the terms of this Lease
SECTION EIGHTEEN
HOLDING OVER: If Lessee holds possession of the Premises after
the Term, as applicable, Lessee shall become a tenant at will on
62
and subject to the terms herein specified, but at the monthly Rent
shall automatically increase to 150% of the then current monthly
Rent.
SECTION NINETEEN
SUBORDINATION/ATTORNMENT/NON-DISTURBANCE
19.1 SUBORDINATION: This Lease and any option granted hereby
shall be subject and subordinate to any ground lease, mortgage,
deed of trust, or other hypothecation or security device
(collectively, "Security Device"), now or hereafter placed by
Lessor upon the real property of which the Premises are a part, to
any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and
extensions thereof. Lessee agrees that the Lenders holding any
such Security Device shall have no duty, liability or obligation to
perform any of the obligations of Lessor under this Lease, but that
in the event of Lessor's Default with respect to any such
obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of
Lessor's Default and allow such Lender thirty (30) days following
receipt of such notice for the cure of said Default before invoking
any remedies Lessee may have by reason thereof. If any Lender
shall elect to have this Lease and/or any option granted hereby
superior to the lien of its Security Device and shall give written
notice thereof to Lessee, this Lease and such options shall be
deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recordation thereof.
19.2 ATTORNMENT: Subject to the non-disturbance provisions of
Section 19.3, Lessee agrees to attorn to a Lender or any other
party who acquires ownership of the Premises by reason of a
foreclosure of a Security Device, and that in the event of such
foreclosure, such new owner shall not: (a) be liable for any act
or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (b) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (c)
be bound by prepayment of more than one month's rent. By complying
with this Section 19.2, Lessee does not waive any claims it may
have against Lessor for breaches of this Lease.
19.3 NON-DISTURBANCE: With respect to the Security Devices
entered into by Lessor after the execution of this Lease, Lessee's
subordination of this Lease shall be subject to receiving assurance
(a "non-disturbance agreement") from the Lender that Lessee's
possession and this Lease, including any options to extend the term
hereof or purchase the Premises, will not be disturbed so long as
Lessee is not in Breach hereof and attorns to the record owner of
the Premises and such new Lessor agrees to be bound by and subject
to the terms of this Lease.
19.4 SELF-EXECUTING: The agreements contained in this Section
19 shall be effective without the execution of any further
documents; provided, however, that, upon written request from
63
Lessor or a Lender in connection with a sale, financing or
refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
SECTION TWENTY
QUIET ENJOYMENT: Lessor covenants, warrants and represents
that Lessor has full right and power to execute this Lease and to
grant the estate demised herein and, so long as Lessee is not in
Default or Breach under any of the terms and conditions of this
Lease, Lessee shall peaceably hold and quietly enjoy the Premises,
and shall have the right of ingress and egress to and from the
Premises. Lessee will not attach any stereo speakers to ceiling of
Premises and will not play music at an excessively high volume.
Lessor further warrants to Lessee that it is the owner in fee
simple absolute of the Premises leased hereunder and has good and
marketable title thereto subject to no encumbrances, restrictions,
covenants or conditions which would materially interfere with or
restrict Lessee's rights hereunder. Lessor shall provide to Lessee
prior to the commencement of this Lease a commitment for a lessee's
policy of title insurance evidencing Lessor's good and marketable
title to the Premises leased hereby at Lessee's cost.
SECTION TWENTY-ONE
NOTICE: All notices under this Lease must be in writing and
either hand delivered or sent by United States mail, certified
receipt requested, postage prepaid, addressed as follows, except
that any party may by written notice, given as aforesaid, change
its address for subsequent notice to be given hereunder:
Lessor: Dean G. Wilson
DGW Enterprises, L.C.
5577 West Leo Park Road
West Jordan Utah 84088
With a copy to:
Carl W. Barton, Esq.
Prince, Yeates & Geldzahler
175 East 400 South
Suite 900
Salt Lake City, Utah 84111
Lessee: Industrial Rubber Products - Utah, Inc.
3804 East 13th Avenue
Hibbing MN 55746
Attn:Daniel O. Burkes
64
With a copy to:
John N. Nys
Johnson, Killen, Thibodeau & Seiler, P.A.
811 Norwest Center
230 West Superior Street
Duluth, MN 55802
SECTION TWENTY-TWO
PARKING: It is expressly agreed and acknowledged by Lessee
shall have the exclusive right to use any and all parking located
on the Premises.
SECTION TWENTY-THREE
23.1 NO WAIVER: Lessor's acceptance of late rent or failure to
enforce any term of this Lease shall not be construed as a waiver
of any of Lessor's rights under this Lease. No payment by Lessor or
a receipt by Lessor of an amount less the monthly rent herein
stipulated shall be deemed to be other than on account of the
earliest stipulated rent, nor shall any endorsement or statement of
any check or any letter accompanying any check or payment be deemed
by itself as accord and satisfaction, and Lessor may accept such
check or payment without prejudice to Lessor's right to recover the
balance of such rent or pursue any other remedy.
23.2 BINDING EFFECT: The terms of this Lease shall apply to
and bind the heirs and assigns of the parties.
23.3 UNENFORCEABLE PROVISIONS: If any provision of this Lease
shall be declared invalid or unenforceable, the remainder of the
Lease shall continue in full force and effect.
23.4 GOVERNING LAW: This agreement is made in the State of
Utah and its validity and the rights and obligations to the parties
hereunder shall be determined in accordance with the laws of the
State of Utah.
23.5 HEADINGS: The section captions contained in this Lease
are for convenience only and shall not be considered in the
construction of interpretation of any provision hereof.
23.6 SEVERABILITY: The invalidity of any provision of this
Lease, as determined by a court of competent jurisdiction, shall in
no way affect the validity of any other provision hereof.
23.7 INTEREST ON PAST-DUE OBLIGATIONS: Any monetary payment
due, other than late charges, not received by a party within thirty
(30) days following the date on which it was due, shall bear
interest from the thirty-first (31st) day after it was due at the
rate of 12% per annum, but not exceeding the maximum rate allowed
by law, in addition to the late charge provided for herein.
65
23.8 TIME OF ESSENCE: Time is of the essence with respect to
the performance of all obligations to be performed or observed by
Lessor and Lessee under this Lease.
23.9 RENT DEFINED: All monetary obligations of Lessee to
Lessor under the terms of this Lease are deemed to be Rent.
23.10 NO PRIOR OR OTHER AGREEMENTS: This Lease contains
all agreements between Lessor and Lessee with respect to any matter
mentioned herein, and no other prior to contemporaneous agreement
or understanding shall be effective.
23.11 CUMULATIVE REMEDIES: No remedy or election
hereunder shall be deemed exclusive but shall, wherever possible,
be cumulative with all other remedies at law or in equity.
23.12 COVENANTS AND CONDITIONS: All provisions of this
Lease to be observed or performed by Lessee are both covenants and
conditions.
23.13 CHOICE OF LAW: This Lease shall be governed by the
laws of the State of Utah. Any litigation between the Lessor and
Lessee hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
23.14 AUCTIONS: Lessee shall not conduct, nor permit to
be conducted, either voluntarily or involuntarily, any auction upon
the Premises without first having obtained Lessor's prior written
consent. Notwithstanding anything to the contrary in this Lease,
Lessor shall not be obligated to exercise any standard of
reasonableness in determining whether to grant such consent.
23.15 TERMINATION/MERGER: Unless specifically stated
otherwise in writing by Lessor, the voluntary or other surrender of
this Lease by Lessee, the mutual termination or cancellation
hereof, or a termination hereof by Lessor for Breach by Lessee,
shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue
any one or all of any existing subtenancies. Lessor's failure
within ten (10) days following any such event to make a written
election to the contrary by written notice to the holder of any
such lesser interest, shall constitute Lessor's election to have
such event constitute the termination of such interest.
23.16 INTENTIONALLY DELETED
23.17 RESERVATIONS. Lessor reserves to itself the right,
from time to time, to grant, without the consent or joinder of
Lessee, such easements, rights and dedications that Lessor deems
necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps
and restrictions do not unreasonably interfere with the use of the
Premises by Lessee.
66
23.18 AUTHORITY. If any party hereto is a corporation,
trust, limited liability company, or general or limited
partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. If Lessee is a
corporation, limited liability company, trust, or partnership,
Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such
authority.
23.19 AMENDMENTS. This Lease may be modified only in
writing, signed by the parties in interest at the time of the
modification. The parties shall amend this Lease from time to time
to reflect any adjustments that are made to the Rent or other rent
payable under this Lease. As long as they do not materially change
Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be
reasonably required by an institutional, insurance company, or
pension plan Lender in connection with the obtaining of normal
financing or refinancing of the property of which the Premises are
a part.
23.20 MULTIPLE PARTIES. Except as otherwise expressly
provided herein, if more than one person or entity is named herein
as Lessee, the obligations of such multiple parties shall be the
joint and several responsibility of all persons or entities named
herein as such Lessee.
SECTION TWENTY-FOUR
INTENTIONALLY DELETED
SECTION TWENTY-FIVE
TENANCY STATEMENT. Each party hereto (as "Responding Party") shall
within ten (10) days after written notice from the other party
hereto (the "Requesting Party") execute, acknowledge and deliver to
the Requesting Party a statement in writing in form similar to the
then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
SECTION TWENTY-SIX
GUARANTOR.
26.1 If there are to be any guarantors of this Lease, the form
of the guaranty to be executed by each such guarantor shall be in
a form prepared by and acceptable to Lessor, and each said
guarantor shall have the same obligations as Lessee under this
67
Lease, including, but not limited to, the obligation to provide the
Tenancy Statement and information called for by Section 25.
26.2 It shall constitute a Default of the Lessee under this
Lease if any such guarantor fails or refuses, upon reasonable
request by Lessor to give; (a) evidence of the due execution of the
guaranty called for this Lease, including the authority of the
guarantor (and of the party signing on guarantor's behalf) to
obligate such guarantor on said guaranty, and including in the case
of a corporate guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty,
together with a certificate of incumbency showing the signatures of
the persons authorized to sign on its behalf, (b) current financial
statements of guarantor as may from time to time be requested by
Lessor, (c) a Tenancy Statement, or (d) written confirmation that
the guaranty is still in effect.
SECTION TWENTY-SEVEN
27.1 Force Majeure. Lessee shall be excused from the
performance of any duty or obligation incumbent upon it under the
Lease during any period in which Lessee shall be prevented from
completing or performing such duty by reason of strikes, walkouts,
labor troubles, restrictive governmental laws or regulations,
riots, insurrection or war or other reason of like nature not the
fault of Lessee. If Lessee cannot occupy substantially all of the
premises, there shall be a proportionate abatement of all charges
during such period of less than full occupancy. During any period,
all rent and other charges will abate on an equitable basis in
light of the extent to which Lessee can perform.
27.2 Recording. Lessor agrees to enter into a short form of
this Lease in recordable form recognizing Lessee's rights
hereunder, including its rights to purchase the Premises, and that
Lessee shall be entitled to record a copy of such short form lease
with Lessee to bear the costs of such recording.
IN WITNESS WHEREOF, the parties have executed this Lease on the
date and at the placed listed opposite their names.
LESSOR
DGW ENTERPRISES, L.C.
By__________________________
Dean G. Wilson, managing member
LESSEE
Industrial Rubber Products-
Utah, Inc., a Utah corporation
By__________________________
Its__________________________
68
EXHIBIT "A"
Legal Description
Parcel 1:
BEGINNING at a point which lies South 89.46'30" East 61.00 feet and
North 0.03' East 110.09 feet and South 89.57'00" East 183.72 feet
from the Southwest corner of Section 1, Township 3 South, Range 2
West, Salt Lake Base and Meridian, and running thence South
89.57'00" East 80.29 feet; thence North 0.03' East 120.00 feet;
thence South 27.08'50" East 366.27 feet to a point on the North
line of Leo Park Road; thence Southwesterly along a 943.90 foot
radius curve to the right (center is North 27.08'50" West 943.90
feet) 181.72 feet; thence North 16.07' West 284.06 feet to the
place of BEGINNING.
Parcel 2:
BEGINNING at a point which lies South 89.46'30" East 61.00 feet,
South 0.03'00" West 539.71 (South 0.03'00" East 539.71 feet in some
instruments of record) and North 71.44'06" East 295.70 feet from
the Northwest corner of Section 12, Township 3 South, Range 2 West,
Salt Lake Base and Meridian, and running thence North 13.13'00"
West 219.38 feet; thence Easterly 181.79 feet along the arc of a
1003.90 foot radius curve to the left, long chord bears North
71.35'44' East 181.55 feet; thence South 23.35'32" East 219.92
feet; thence South 71.44'06" West 221.27 feet to the point of
BEGINNING.
Parcel 4:
BEGINNING at a point which lies South 89.46'30" East 61.00 feet and
South 0.03' West 200.06 feet and Northeasterly along a curve to the
left (whose center is North 0.03' West 943.90 feet) 448.05 feet
from the Southwest corner of Section 1, Township 3 South, Range 2
West, Salt Lake Base and Meridian; and running thence Northeasterly
along said curve 95.01 feet; thence North 57.05'09" East 85.23
feet; thence North 32.54'51" West 407.89 feet; thence South 78.25'
West 101.24 feet; thence South 0.03' West 90.00 feet; thence South
27.08'50" East 366.27 feet to the point of BEGINNING.
EXHIBIT C
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of the ____ day of January 20, 1999, by and between
Industrial Rubber Products-Utah, Inc., a Utah corporation (the
"Company"), and Dean G. Wilson (the "Employee").
69
RECITALS:
A. The entity that owns all of the share of the Company has
entered into an agreement to purchase substantially all of the
assets of Sonwil Products, Inc., dba T.J. Products, an entity
wholly owned by Dean G. Wilson ("T.J. Products");
B. T.J. Products is in the business of producing and
applying various rubber linings, rubber moldings, and urethane
moldings;
C. The Employee has managed and directed T.J. Products for
a substantial period of time;
D. The Company has established its Western Division, as
more specifically defined herein, and desires to employ the
Employee to direct and manage the operation of the Company's
Western Division;
E. The Employee desires to accept such employment and
managerial duties.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, the Company and the Employee hereby agree as
follows:
ARTICLE I
DEFINITIONS
In addition to words and terms elsewhere defined herein, the
following words and terms as used herein shall have the following
meanings:
1.1 "Confidential Information" shall mean any proprietary
information of the Company disclosed to or known by the Employee,
whether directly or indirectly, in connection with the services
rendered under this Agreement or arising from Employee's employment
with Sonwil Products, Inc., including, without limitation,
information which relates to the Company's trade secrets,
technical, financial, marketing, operating, personnel, product, and
any other proprietary information relating to the Company's
products, processes, services, inventions, testing, manufacturing,
cost and price data, the identity and needs of the Company's
customers for the Western Division, and any information which is
not generally known or available to any person or entity with
competing interests to those of the Company.
1.2 "Company's Western Division" or "Western " shall mean
the operations, properties, equipment, and assets formerly known as
T.J. Products, as defined herein, and the Company's other
operations, properties, equipment, and assets in the State of Utah,
Nevada, Wyoming, Colorado, Montana, Arizona, and Idaho.
70
1.3 "Western Division Earnings" shall mean pre-tax operating
income of the Company's Western Division, less capital
expenditures, determined in accordance with generally accepted
accounting principles.
1.4 "Closing" shall mean the date on which the Company closes
the purchase of substantially all of the assets of T.J. Products.
1.5 "Incapacity" shall mean the inability of the Employee, as
a result of physical or mental disability, to substantially perform
his duties with the Company or its affiliates for a period of at
least three (3) consecutive months, as determined in writing by two
(2) physicians mutually selected by the Company and the Employee.
ARTICLE II
EMPLOYMENT
2.1 Title/Nature of Relationship. The Employee shall act in
and hold the position and title of vice president of the Company
and president and general manager of the Western Division. The
Employee will render services under this Agreement with the
authority and responsibility to direct and manage the Company's
Western Division as a separate and independent division of the
Company. The Employer will have decision and policy making
authority within the requirements of all Company policies of
general application, all governmental requirements, specifically
including the rules and regulations of the Securities and Exchange
Commission, and subject to the advice and consent of the Company's
President. Further, at the request of the Company and at the
Employee's convenience, the Employee shall participate in the
Company's management and board meetings at the Company's cost.
2.2 Duties of Employee. Throughout the term of this
Agreement, the Employee shall be an employee of the Company. His
duties shall include: (a) managing the day-to-day operations of
the Company's Western Division reporting directly to the Company's
President, and upon request, to the Company's Board of Directors;
(b) making and implementing decisions and policies as explained in
Section 2.1 above; (c) performance of such other services as the
Employee deems necessary to his management duties; and (d) such
other services as may be reasonably requested by the Company's
Board and President.
2.3 Full Time Employment. Throughout the term of this
Agreement, the Employee shall devote his full time and undivided
attention during normal business hours to the business and affairs
of the Company, except for reasonable vacation, illness, or
Incapacity.
ARTICLE III
COMPENSATION
71
3.1 Salary. Commencing on the date hereof, the Company will
pay the Employee a salary of One Hundred Twenty Thousand Dollars
($120,000.00) annually. The Company shall prepay all three-years'
worth of the Employee's salary upon the execution of this
Agreement. In addition, as additional compensation for the
Employee's services hereunder, the Company shall grant the Employee
an option to purchase 30,000 shares of the Company's common stock
at the price and in accordance with the terms of that certain
Incentive Stock Option Agreement under the Stock Option Plan of
Industrial Rubber Products, Inc., of even date herewith.
3.2 Performance Bonus. The Company shall pay the Employee an
incentive and performance bonus equal to ten percent (10%) of the
Western Division Earnings. The Company shall pay this bonus to
the Employee within sixty (60) days after the end of each calendar
year during the term of this Agreement.
3.3 Employee Benefits. The Employee shall be entitled to the
following benefits to be paid by the Company during the term of
this Agreement:
(a) Health and Dental Insurance. Full payment of premiums
for health insurance benefits, including dental coverage, for the
Employee, his spouse, and any dependents;
(b) Life Insurance. Full premium payments on a $100,000.00
term life insurance policy on the Employee's life with the
beneficiary to be determined exclusively by the Employee;
(c) Vacation. Four (4) weeks' paid vacation;
(d) Sick leave. Sick leave as needed with pay, for up
to twelve (12) days each year.
(e) Car. Exclusive and personal use of an automobile per
Company policy.
ARTICLE IV
TERM AND TERMINATION
4.1 Term. Unless terminated early pursuant to Section 4.2
hereof, this Agreement shall have a term of three (3) years. The
Employee and the Company may extend the initial 3-year term hereof
for additional 1-year periods upon the mutual agreement of the
parties.
4.2 Events of Termination. The Employee shall have the right
to terminate the Agreement at any time with or without Cause upon
thirty (30) days' prior written notice. The Company may terminate
this Agreement with Cause at any time upon thirty days' prior
written notice.
As used in this Agreement, the term "Cause," as applied to the
Company's ability to terminate, means (i) the Employee's breach of
72
any of his material duties or obligations under this Agreement,
other than an inability to perform those duties as a result of any
Incapacity; (ii) embezzlement or other misappropriation of property
of the Company; or (iii) conviction of a felony offense. The term
"Cause," as applied to the Employee's ability to terminate, means
(A) any decrease in an Employee's salary which is not consented to
by the Employee; (B) any decrease in the Employee's benefits
described below which is not consented to by the Employee; (C) any
assignment of duties to the Employee substantially different from
those described above; or (D) a sale of all or substantially all of
the assets, by merger, consolidation, or otherwise, of the Utah
location of the Western Division of the Company.
4.3 Effect of Termination. In the event of termination of
this Agreement by the Company without Cause or by the Employee
with Cause, the Company shall continue to pay the performance bonus
referred to in Section 3.2 hereof, and the Company shall pay within
ten (10) days after such termination hereof the aggregate unpaid
amount due hereunder in connection with the Employee's non-compete
covenant set forth in Article VI hereof. In the event of the
Employee's Incapacity, the Employee and the Company agree that the
Employee shall not be entitled to receive the performance bonus
referred to in Sectin 3.2 hereof for income received more than
thirty(30) days after such Incapacity, and the Commpany shall
continue to make the annual non-competition payments requred
hereunder. In the event of termination of this Agreement by the
Company with Cause or by the Employee without Cause, the Company
shall not be obligated to pay the performance bonus referred to in
Section 3.2 hereof, and the Company shall continue to make the
required annual payments in connection with the Employee's non-
compete covenant set forth in Article VI hereof. If a dispute
arises about whether a termination hereof is with or without Cause,
the Company may deposit the payments due hereunder into an escrow
approved by the Employee, and the escrow agent shall hold such
funds until the resolution of such dispute. The Company and the
Employee shall share the costs of such escrow equally.
ARTICLE V
CONFIDENTIALITY
The Employee agrees that he will carefully guard and keep
secret all Confidential Information and will not, directly or
indirectly, disclose to any person or entity without the express
written authorization from the Company, any Confidential
Information, which Confidential Information concerns the Company,
including, manufacturing and production secrets related to
producing rubber linings, rubber moldings, and urethane moldings.
ARTICLE VI
NON-COMPETITION COVENANT
6.1 Covenant. For the protection of Confidential
Information, the Company shall pay the Employee $30,000 each year
for a period of five (5) years, with the first $30,000 payment due
73
sixty (60) days from the date of Closing and continuing every
twelve (12) months thereafter for a total of five (5) payments. In
exchange for such annual payments, the Employee agrees to refrain
from directly or indirectly owning, managing, operating,
controlling, consulting with or to, or being connected in any way
with any person, organization, or entity with a business purpose
similar to or competing in any way with that of the Company. In
the event of the termination of this Agreement, the Company shall
be obligated to make such payments in accordance with Section 4.3
hereof.
6.2 Duration. This prohibition against competition by the
Employee shall commence on the date of this Agreement and shall
continue for five (5) years, independent of any earlier
termination of this Agreement, subject only to the payments
required under Section 6.1 above. If the Company fails to make the
payment or payments due under this Section 6.2, this non-
competition covenant shall terminate. This five-year non-compete
period, however, shall terminate upon the closing of the Company's
sale of all or substantially all of the assets of the Utah
location(s) portion of the Western Division, subject to the
Company's payment obligation of the entire $150,000.00 amount set
forth in Section 6.1 hereof and in accordance with Section 4.3
hereof.
6.3 Geographic Territory. This prohibition against
competition by the Employee shall cover the United States, Mexico,
and Canada.
6.4 Applied Coatings. The Company acknowledges and agrees
that the Employee owns Applied Coatings, L.C., a Utah limited
liability company ("Applied Coatings"). Applied Coatings operates
a spray coating business using poly urea and other compounds, and
it does not produce or sell molded or hand-laid rubber linings or
cast polyurethane. The Employee has engaged personnel to manage
and operate Applied Coatings on a separate site and as a business
separate from the operations of the Company. The Company
acknowledges the existence of Applied Coatings and agrees that the
Employee's ownership and the operation of Applied Coatings, as
described herein, does not constitute a breach of the non-
competition covenant set forth in this Agreement. Purchaser agrees
that Applied Coatings shall have a period of up to sixty (60) days
after the Closing to relocated the Applied Coatings equipment.
Until such reloaction, Applied Coatings may store and leave its
equipment on the Salt Lake County real property operated and leased
by the Company at no charge to Seller or Stockholder.
ARTICLE VII
MISCELLANEOUS
7.1 Notice. Any notice to a party required or permitted to
be given hereunder shall be in writing and shall be deemed given
when mailed, registered or certified mail, or delivered by hand or
by express courier, to such party at such party's address as
74
specified below, or any such other address as such party shall
specify by notice to the other:
If to the Company, to: Industrial Rubber Products - Utah, Inc.
3804 East 13th Avenue
Hibbing, MN 55746
Attn: Daniel O. Burkes
With a copy to: John N. Nys
Johnson, Killen, Thibodeau & Seiler
811 Norwest Center
Duluth, MN 55802
If to Employee, to: To Employee's
last address shown on the
records of the Company.
With a copy to: Carl W. Barton
Prince, Yeates & Geldzahler
175 East 400 South
Suite 900
Salt Lake City, Utah 84111
7.2 Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the Employee, his heirs and legal
representatives, and shall also be binding upon and inure to the
benefit of the Company and any successors or assigns of the
Company, including, without limitation, any corporation or entity
acquiring directly or indirectly all or substantially all of the
assets of the Company whether by merger, consolidation, sale, or
otherwise (and such successor shall thereafter be deemed "the
Company" for the purposes of this Agreement), but shall not
otherwise be assignable by the Company. In the event the Company
sells all or substantially all of the assets of its Western
Division prior to the termination of this Agreement, the non-
compete covenant set forth in Section 6.2 hereof shall be void as
of the closing date of such sale.
7.3 Headings. The titles to provisions and articles in this
Agreement are intended solely for convenience and no provision of
this Agreement is to be construed by reference to the title of any
article.
7.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
7.5 Waiver of Breach. Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any
breach by the other party hereto of any condition or provision of
this Agreement to be performed by such other party shall be deemed
a waiver of a subsequent breach of such condition or provision or
a waiver of a similar or dissimilar provision or condition at the
same or at any prior subsequent time.
75
7.6 Severability. In the event that any provision or portion
of this Agreement shall be determined to be invalid or
unenforceable for any reason, the remaining provisions and portions
of this Agreement shall be unaffected thereby and shall remain in
full force and effect to the fullest extent permitted by law.
7.7 Construction. As used in this Agreement, the masculine,
feminine, and neuter genders shall be deemed to include the other
unless the context requires otherwise. The singular shall include
the plural and the plural shall include the singular wherever the
context of this Agreement permits.
7.8 Modification. No waiver or modification of this
Agreement or any term or condition herein contained shall be valid,
unless in writing and duly executed by the parties hereto.
7.9 Integration. This Agreement constitutes the entire
agreement of the parties as to the employment relationship of the
Employee with the Company.
7.10 Attorney's Fees. Should suit be brought or should other
efforts or actions be made to enforce or interpret this Agreement,
whether in suit or otherwise, the prevailing party shall be
entitled to recover reasonable attorneys' fees, including without
limitation, costs, expenses, and fees at trial and on any appeal
and in any bankruptcy proceedings.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COMPANY: Industrial Rubber Products-Utah,
Inc. (Or appropriate entity)
By:__________________________
Daniel O. Burkes, President
EMPLOYEE: ______________________________
EXHIBIT D
TAX ALLOCATION AGREEMENT
For good and sufficient consideration, the receipt of which is
hereby acknowledged, and to induce Industrial Rubber Products-Utah,
Inc. ("Buyer"), and Sonwil Products, Inc. ("Seller") to consummate
the transactions contemplated by that certain Purchase Agreement
among them dated as of January 20, 1999 (the "Purchase Agreement"),
Buyer and Seller agree as follows:
76
1. The Purchase Price (as defined in Section 2.1 of the
Purchase Agreement) will for all purposes be allocated,
based on fair market value, by Buyer and Seller among the
various Assets (as defined in Section 1.1 of the Purchase
Agreement) and the other rights conferred on Buyer
pursuant to the Purchase Agreement, as specified on
Exhibit 1 to this Allocation Agreement. Such Exhibit 1
has been signed for identification by Buyer and Seller.
2. The parties to this Allocation Agreement will use the
allocation set forth on Exhibit 1 in all statements and
returns filed with any taxing authority and will promptly
notify the other party if any challenge to the allocation
set forth on Exhibit 1 is made by any taxing authority.
3. This Allocation Agreement shall be construed under and in
accordance with the laws of the State of Utah.
4. The date of this Allocation Agreement is January 20,
1999.
BUYER
Industrial Rubber
Products-Utah, Inc.
By_________________________
Its_____________
SELLER
Sonwil Products, Inc.
By_________________________
Its_____________
TAX PURCHASE PRICE SCHEDULE
Exhibit 1 to Allocation Agreement
ASSET TAX PURCHASE PRICE
1. Goodwill and name $ 114,525.00
2. Inventories (* subject to adjustment $ 349,390.95
per Purchase Agreement)
3. Prepaid expenses (See side letter re $ 9,649.45
vacation liability)
4. Leasehold interest $ 11,000.00
5. Property, plant and equipment $ 1,474,475.00
6. Other assets $ 50,000.00
a. Assigned contracts
b. Trademarks, etc. (know-how) $ 50,000.00
c. Customer lists, books and $ 100,000.00
records, etc.
77
7. Other rights NONE
8. Employment, nondisclosure rights $ 100,000.00
TOTAL TAX PURCHASE PRICE $ 2,259,040.40
Signed for identification:
BUYER
Industrial Rubber
Products-Utah, Inc.
By_________________________
Its___________
SELLER
Sonwil Products, Inc.
By_________________________
Its__________
Schedule 1.1
Excluded Assets
The following are the excluded assets, which assets are not to
be acquired by the Purchaser as and to the extent specifically
stated below:
9. Cash
10. Accounts Receivable
11. All assets associated with Applied Coatings, L.C. as follows:
a. Applied Coatings Trailer
b. 1993 Chevrolet Truck - Green-VIN# 1GCHK39F2PE195201
c. 1 PolyGriffith 300 lb. Sand Blaster and associated parts
& equipment
d. 1 Forced Air Propane Heater
e. 1 Binks 2000 Pressure Pot
f. 1 Wagner Paint Sprayer
g. Miscellaneous Spray Guns
h. 1 Honda Generator
i. 1 Rhino Pump & Material
j. Barrel Mixers
k. Condo Shed
l. Truck Dolly
m. 1 Computer
78
n. 1 HP 540 Desk Jet Printer
o. 1 Scanner
p. Furniture & Filing Cabinets in AC office
q. All Furniture, lamps, pictures in President's office not
included on T.J. Products asset list
Schedule 1.2
Assumed Liabilities
Purchaser shall assume those liabilities specifically listed
below:
TYPE PARTIES DATE LIABILITY
1 1995 GMC Truck --TJ Products May 1995 717.73 per
Lease for 60 month
--Great Way months
Finance, Inc.
2 Settlement and --TJ Products February --royalties
License Agreement 27, 1996 on sale of
--Gordon Belt conveyor
Scrapers and belt cleaner
--Arch blades
Environmental
Equipment
3 Warranties for --TJ Products various more than
all rubber and 100 jobs
urethane --All customers performed in
applications for previous
one year, year; thus
including the OMG over 100
tank warranty, warranties
subject to outstanding.
Section 10.4 of
the Purchase
Agreement.
4 Claims and --complaints N/A Purchaser is
Injuries relating from neighbors only
to Sand Blast (R.L. Swenson assuming
Dust and Sons) liability
for events
--TJ Products happening
after date
of Closing
79
Schedule 1.4
Assigned Contracts
Type Parties Date
1 Service Contract for --Tri-City Business 2/19/98 to
Panasonic 7722 Copier Products Inc. 2/29/99
--TJ Products
2 Monitoring Agreement --ADT Security Systems 9/7/93
for existing security
system --TJ Products
3 Lease Agreement for --Great Way Finance, May 1995 for
1995 GMC Truck Inc. 60 months
--Sonwil Products,
Inc. dba T.J. Products
4 Agreement to Provide --Bruce H. Mertz 11/19/98
Computer Services
(subject to amendment --T.J. Products
providing a
termination clause)
5 Cellular Phone --AT&T Wireless one year
Agreements for
Salesmen --T.J. Products
6 Settlement and --Sonwil Products, February 27,
License Agreement Inc. 1996
--Gordon Belt
Scrapers, Inc.
--Arch Environmental
Equipment, Inc.
7 See all insurance
contracts as listed
on Schedule 5.16,
which is incorporated
herein by this
reference
8 All outstanding
purchase orders
received on or before
date of Closing
