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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 11, 1999
WESTMINSTER CAPITAL, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-4923 95-2157201
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
9665 Wilshire Boulevard, Suite M-10
Beverly Hills, California 90212
(Address of Principal Executive Offices)
(310) 278-1930
(Registrant's Telephone Number)
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ITEM 2. Acquisition or Disposition of Assets.
On January 11, 1999, Westminster Capital, Inc. (the "Registrant")
entered into a Membership Interest Purchase Agreement to acquire an 80%
interest in One Source Industries, LLC ("One Source") for cash consideration
of approximately $4.8 million paid at closing, plus up to an additional
$2.6 million in deferred contingent cash consideration that may be paid over
the next four years based on the performance of One Source during such
period. One Source provides turn-key packaging and point-of-sale displays
for a broad spectrum of consumer products ranging from computer software to
food products. Pursuant to the Membership Interest Purchase Agreement, the
Registrant acquired an 80% Membership Interest in One Source from One Source
Industries, Inc. The acquisition was financed through the Registrant's
existing cash reserves.
Reference is made to the press release of Registrant, issued on January 12,
1999, which is incorporated herein by this reference, relating to the
acquisition of the 80% interest in One Source by the Registrant. A copy of
the press release is attached to this Form 8-K as Exhibit 99.1. Certain
matters discussed in the above referenced press release include
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Act of
1934, as amended. All forward-looking statements are necessarily speculative
and readers are advised not to place undue reliance on any such
forward-looking statements which speak only as of the date made. Actual
results could vary materially from those anticipated for a variety of
reasons. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any statement herein or to
reflect any change in the Company's expectations or any change in events,
conditions or circumstances on which any such statement is based.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Financial statements of One Source are not
included with this filing on Form 8-K. If required to be filed, such
financial statements will be filed with the Commission by amendment to
this Form 8-K no later than March 26, 1999.
(b) Pro Forma Financial Information. Pro forma financial information
reflecting the acquisition of One Source is not included with this
filing on Form 8-K. If required to be filed, such pro forma financial
information will be filed with the Commission by amendment to this
Form 8-K no later than March 26, 1999.
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(c) Exhibits.
Exhibit 2.1 Membership Interest Purchase Agreement,
dated January 11, 1999. Pursuant to Item 601(b)(2),
the Registrant hereby agrees to furnish supplementally
to the Commission a copy of any exhibit or schedule
omitted from this filing upon request.
Exhibit 2.2 Amended and Restated Operating Agreement of
One Source Industries, LLC.
Exhibit 99.1 Press Release dated January 12, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
January 25, 1998 WESTMINSTER CAPITAL, INC.
By: /s/ Keenan Behrle
-------------------------------
Keenan Behrle
Executive Vice President
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER
- ------- -----------
<S> <C> <C>
2.1 Membership Interest Purchase Agreement,
dated January 11, 1999.
2.2 Amended and Restated Operating Agreement of
One Source Industries, LLC.
99.1 Press Release dated January 12, 1999.
</TABLE>
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
This Membership Interest Purchase Agreement (this "AGREEMENT") is made
and entered into as of the 11th day of January, 1999, by and among
Westminister Capital, Inc., a Delaware corporation ("PURCHASER"), One Source
Industries, LLC, a California limited liability company (the "COMPANY"), One
Source Industries, Inc., a California corporation ("SELLER"), Drew Sherline
and Cathy Sherline.
A. Seller and Drew Sherline formed the Company on December 31, 1998 in
order to conduct the business historically conducted by Seller. In
connection with forming the Company, Seller contributed all of its assets and
liabilities to the Company pursuant to the terms of a certain Operating
Agreement of One Source Industries, LLC, dated as of January 1, 1999.
B. Seller owns a 99% membership interest in the Company and Drew
Sherline owns a 1% membership interest in the Company.
C. On the terms and subject to the conditions of this Agreement,
Purchaser desires to purchase from Seller, and Seller desires to sell to
Purchaser, an 80% membership interest in the Company (the "PURCHASE
PERCENTAGE").
NOW, THEREFORE, with reference to the foregoing facts, and consideration
of the mutual covenants and agreements hereinafter set forth, Purchaser,
Seller, Drew Sherline, Cathy Sherline and the Company agree as follows:
1. DEFINITIONS.
As used in this Agreement and the exhibits and schedules attached
hereto, the following terms shall have the following meanings:
"1998 ADJUSTED EARNINGS" shall mean the net earnings of Seller
before income taxes for the 1998 calendar year as reflected in the Seller's
1998 financial statements prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the policies,
practices and procedures, and using the same classifications, judgments and
estimation methodologies, used in the preparation of the Seller Financial
Statements, but without deduction of cash compensation paid to Drew Sherline
in excess of $50,000 and subject to the adjustments reflected on EXHIBIT A
hereto.
"ACQUISITION" shall mean the purchase and sale of the Purchased
Membership Interest pursuant to this Agreement.
"ACTION" shall mean any lawsuit, litigation, action, demand, suit,
proceeding, inquiry, arbitration or claim before any court or Governmental
Authority, whether formal or
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informal, or civil, criminal, administrative, or investigative, and includes
mediation, arbitration, appellate, bankruptcy and judgment-execution
proceedings.
"ADJUSTED PURCHASE PRICE" shall mean the 1998 Adjusted Earnings
multiplied by 4 and then multiplied by the Purchase Percentage.
"AFFILIATE" shall mean, with respect to any specified Person: (a)
any other Person who, directly or indirectly, owns or controls, is under
common ownership or control with, or is owned or controlled by, such
specified Person; (b) any other Person who is a director, officer, partner or
trustee of the specified Person or a Person described in clause (a) of this
definition or any spouse of the specified Person or any such other Person;
(c) any relative of the specified Person or any other Person described in
clause (b) of this definition; or (d) any Person of which the specified
Person and/or any one or more of the Persons specified in clause (a),(b) or
(c) of this definition, individually or in the aggregate, beneficially own
10% or more of any class of voting securities or otherwise have a substantial
beneficial interest.
"AGREEMENT" shall mean this Agreement, as amended, supplemented or
modified from time to time in accordance with its terms.
"AMENDED AND RESTATED OPERATING AGREEMENT" shall mean the Amended
and Restated Operating Agreement of the Company entered into on or prior to
the Closing by and between Purchaser, Seller and Drew Sherline, which
agreement shall be substantially in the form of the Amended and Restated
Operating Agreement attached as EXHIBIT B to this Agreement.
"ANNUAL ADJUSTED EARNINGS" shall mean the net earnings of the
Company before income taxes for a Payment Year as reflected in the Company's
financial statements prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the policies,
practices and procedures, and using the same classifications, judgments and
estimation methodologies, used in the preparation of the Seller Financial
Statements, but without deduction for any and all fees paid by the Company to
Global Capital Markets in connection with the transaction which is the
subject of this Agreement. Notwithstanding the foregoing, in calculating
Annual Adjusted Earnings for a Payment Year, the amount of Company operating
expenses to be deducted for such Payment Year shall be limited to the lesser
of: (a) the Company's actual operating expenses for such Payment Year; or (b)
an amount equal to (i) the total revenues for such Payment Year multiplied by
the Operating Expense Percentage, plus (ii) 50% of the cash compensation paid
to the Company's Chief Executive Officer during such Payment Year.
"BEST KNOWLEDGE" with respect to any Person shall mean and include:
(a) actual knowledge of the Person, including, the actual knowledge of any of
the officers, directors, members or managers of such Person; and (b) that
knowledge which a prudent businessperson could have obtained in the
management of his business after making due inquiry, and after exercising due
diligence, with respect thereto.
"BUSINESS CONDITION" of any Person shall mean the condition
(financial or other), earnings, results of operations, business or properties
of such Person.
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"BUSINESS DAY" shall mean any day except a Saturday, Sunday or
other day on which commercial banks in the cities of Los Angeles, California
are authorized by Law to close.
"CHARTER DOCUMENTS" means (i) the Certificate or Articles of
Incorporation, Certificate or Articles of Organization or similar corporate
or limited liability company charter or other instrument of organization and
(ii) the Bylaws, operating agreement or similar instrument.
"CLOSING" shall mean the closing of the transactions contemplated
by this Agreement.
"CLOSING DATE" shall mean the date of the Closing.
"COMPANY" shall mean One Source Industries, LLC, a California
limited liability company.
"COMPANY CONTRACT" shall mean any Contract to which the Company is
a party or otherwise bound, or to which any asset or property of the Company
is subject.
"COMPANY DISCLOSURE SCHEDULE" shall mean the schedule of exceptions
to representations and warranties of Seller, Drew Sherline, Cathy Sherline
and the Company made pursuant to Section 3 hereof.
"COMPANY MEMBERSHIP INTEREST" shall mean an ownership interest in
the Company, which includes a Member's share of the profits and losses of the
Company, a Member's right to receive distributions of the Company's assets, a
Member's right to vote or participate in the management of the Company as
permitted under the Company's operating agreement, and a Member's right to
information concerning the business and affairs of the Company, as provided
in the Company's operating agreement and under the provisions of the
California Limited Liability Company Act.
"CONTINUING OBLIGATIONS" shall mean the obligations of the Company
to Drew Sherline or Cathy Sherline for salaries for the bi-monthly payment
period in which the Closing occurs.
"CONTRACT" shall mean any written or oral note, bond, debenture,
mortgage, license, agreement, commitment, document, instrument or contract.
"CURRENT BALANCE SHEET" shall mean the balance sheet of Seller as
of October 31, 1998.
"DEFERRED CONSIDERATION" shall mean the amount, if any, by which
the Adjusted Purchase Price exceeds $4,800,000.
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"EMPLOYEE PLAN" with respect to any Person shall mean any plan,
arrangement or Contract providing compensation or benefits to, for or on
behalf of employees and/or directors of such Person, including employment,
deferred compensation, retirement or severance Contracts; plans pursuant to
which Securities are issued, including stock purchase, stock option and stock
appreciation rights plans; bonus, thrift, pension, savings, insurance, profit
sharing, severance, loan guaranty, employee loan or incentive compensation
plans or arrangements; supplemental unemployment benefit, hospitalization or
other medical, life, dental, vision, health care or other insurance; and
ERISA Plans.
"EMPLOYMENT AGREEMENT" shall mean the Employment Agreement entered
into on or prior to the Closing by and between the Company and Drew Sherline,
which agreement shall be substantially in the form of the Employment
Agreement attached as EXHIBIT C to this Agreement.
"ENVIRONMENTAL LAW" shall mean any order, writ, injunction, decree,
judgment, ruling or Law of any Governmental Authority, or any binding
agreement with any such Governmental Authority, relating to pollution or
protection of the environment (including ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, the Resource Conservation and Recovery Act of 1976, as amended;
the Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended; the Superfund Amendments and Reauthorization Act of 1986,
as amended; the Toxic Substances Control Act of 1976, as amended; the
Occupational Safety and Health Act of 1970, as amended; the Emergency
Planning and Community Right-To-Know Act of 1986; the Federal Water Pollution
Control Act Amendments of 1972, as amended by the Clean Water Act of 1977 and
the Water Quality Act of 1987; and the Clean Air Act, as amended, and other
Laws relating to (a) emissions, discharges or releases of Polluting
Substances or (b) the handling, storage, disposal, reclamation, recycling or
transportation of Polluting Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and includes all rules and regulations promulgated under
that Act.
"ERISA PLANS" of any Person shall mean all "employee benefit
plans," within the meaning of Section 3(3) of ERISA maintained by,
contributed to (or required to be contributed to), or sponsored by such
Person.
"EXPLOIT" shall mean manufacture, advertise, license, market,
merchandise, promote, publicize, sell, use, market or distribute, and
"EXPLOITATION" shall have a correlative meaning.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof, a public body or authority, and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, whether domestic or
foreign or local, state, regional or national.
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"INCOME TAX" means any federal, state, local, or foreign income
tax, including any interest, penalties, and additions imposed with respect to
such taxes.
"INCOME TAX RETURN" means all returns, declarations, reports,
claims for refunds, information returns, statements, and other forms required
to be filed with respect to any Income Taxes, including any schedule or
attachment thereto, and including any amendments thereof.
"INDEBTEDNESS" of a Person shall mean: (a) indebtedness of such
Person for money borrowed, whether short-term or long-term and whether
secured or unsecured; (b) the undrawn face amount of, and unpaid
reimbursement obligations in respect of, all letters of credit issued for the
account of such Person; (c) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (d) all obligations of
such Person upon which interest charges are customarily paid; (e) obligations
of such Person to purchase, redeem, retire, defease or otherwise acquire for
value any capital stock or other equity interests of such Person or any
warrants, rights or options to acquire such capital stock or other equity
interests, (f) all indebtedness of the types referred to in clauses (a)
through (e) above of another Person which is guaranteed directly or
indirectly by such Person or secured by the assets of such Person and (g)
renewals, extensions, refundings, deferrals, restructurings, amendments and
modifications of any such indebtedness, obligation or guarantee.
"IP" shall mean patents, trademarks, service marks, trade names,
copyrights (which have been filed with the federal copyright authorities),
trade secrets, trade dress and other rights and property commonly referred to
as intellectual property, and rights or licenses to use the same, and any and
all applications therefor.
"IRC" shall mean United States Internal Revenue Code of 1986, as
amended and in effect from time to time (or any successor statute in effect
from time to time), and the rules and regulations promulgated thereunder.
"IRS" shall mean the United States Internal Revenue Service.
"LAW" shall mean any foreign, federal, state or local statute, law,
rule, regulation, ordinance, order, code, policy or rule of common law
arising from final nonappealable decisions of Governmental Authorities and
state and federal courts in the United States, now or hereafter in effect,
and in each case as amended, and any judicial or administrative
interpretation thereof by a Governmental Authority or otherwise, including
any judicial or administrative order, consent, decree or judgment arising
from final nonappealable decisions of Governmental Authorities and state and
federal courts in the United States.
"LIEN" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), or preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic
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effect as any of the foregoing, and the filing of any financing statement
under the Uniform Commercial Code or comparable Law of any jurisdiction to
evidence any of the foregoing).
"LOSSES" shall mean losses, liabilities, damages, claims, fines,
penalties, judgements, demands, assessments, levies, costs and expenses,
sustained or incurred by the party incurring such Losses, including without
limitation, reasonable attorneys', accountants', investigators' and experts'
fees and expenses, sustained or incurred in connection with the defense or
investigation of any Action, net of any insurance proceeds actually collected
in respect thereof (net of related expenses, including premium adjustments).
"MEMBERSHIP INTEREST EQUIVALENTS" shall mean options, warrants,
calls, rights, commitments, convertible securities and other securities
pursuant to which the holder, directly or indirectly, has the right to
acquire (with or without additional consideration) membership interests or
the right to receive any benefits or rights similar to any rights enjoyed by
or accruing to the holders of membership interests.
"OPERATING EXPENSE PERCENTAGE" shall mean the percentage resulting
from dividing (a) Seller's total operating expenses for the year ended
December 31, 1998, less cash compensation paid to Drew Sherline in excess of
$50,000, plus $75,000 and subject to the adjustments reflected on EXHIBIT A
hereto, by (b) Seller's total revenues for the year ended December 31, 1998,
as reflected in Seller's 1998 financial statements prepared in accordance
with generally accepted accounting principles applied on a basis consistent
with the policies, practices and procedures, and using the same
classifications, judgments and estimation methodologies, used in the
preparation of the Seller Financial Statements
"PAYMENT YEARS" shall mean the years ended December 31, 1999, 2000,
2001 and 2002.
"PERSON" shall mean an individual or a group, syndicate,
cooperative, joint venture, unincorporated organization, partnership,
corporation, trust, association, limited liability company, Governmental
Authority or other entity.
"POLLUTING SUBSTANCES" shall mean pollutants, contaminants,
chemicals, or industrial toxic or hazardous substances or wastes.
"PURCHASE PERCENTAGE" shall mean 80%.
"PURCHASE PRICE" shall mean $4,800,000.
"PURCHASED MEMBERSHIP INTEREST" shall mean the 80% Company
Membership Interest, including the 80% economic and percentage interest,
being purchased by Purchaser from Seller.
"PURCHASER" shall mean Westminster Capital, Inc., a Delaware
corporation.
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"SECURITIES" shall mean capital stock, Stock Equivalents,
membership interests and any other "security" as that term is defined under
the Securities Act.
"SECURITIES ACT" shall mean the United States Securities Act of
1933, as amended, or any successor federal statute, and the rules and
regulations of the SEC thereunder.
"SELLER" shall mean One Source Industries, Inc., a California
corporation.
"SELLER FINANCIAL STATEMENTS" shall mean: (i) the balance sheets of
Seller as of December 31, 1997 and December 31, 1996 and the related
statements of operations, shareholders' equity and cash flows for the years
then ended; and (ii) the balance sheet of Seller as of October 31, 1998 and
the related statements of operations, shareholders' equity and cash flows for
the 10 months then ended.
"SHERLINES" shall mean Drew Sherline and Cathy Sherline.
"SHORTFALL" shall mean: (a) for the Payment Year ended December 31,
1999, the amount, if any, by which the Annual Adjusted Earnings for such year
are less than $1,500,000; and (b) for each of the Payment Years ended
December 31, 2000, 2001 and 2002, the amount by which the Annual Adjusted
Earnings for such year minus the Shortfall for the immediately preceding
Payment Year, if any, is less than $1,500,000.
"SUBSIDIARY" when used in reference to any particular party, means
a corporation with respect to which the party either: (a) is required to
consolidate the reporting of its financial information in accordance with
generally accepted accounting principles; or (b) is a beneficial owner of
either at least 20% of any class of the corporation's securities or
securities of the corporation representing at least 20% of the voting power
of all the corporation's outstanding securities that are entitled to vote in
the election of its directors.
"TAX LIABILITIES" shall mean all liabilities related to Taxes.
"TAX RETURNS" shall mean all returns, declarations, reports, claims
for refunds or information returns or statements relating to Taxes, including
any schedule or attachment thereto, and including any amendments thereof.
"TAXES" shall mean all taxes, charges, fees, levies or other
governmental assessments, including, without limitation, all net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, unemployment, social
security (including any social security charge or premium) excise, estimated,
alternative minimum, severance, stamp, occupation, property or other taxes,
customs, dues, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority (federal, state, local or foreign).
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"TRANSFER" shall mean sell, assign, transfer, pledge, grant a
security interest in, license, sublicense or otherwise dispose of, with or
without consideration.
The masculine form of words includes the feminine and the neuter
and vice versa, and, unless the context otherwise requires, the singular form
of words includes the plural and vice versa. As used in this Agreement, the
word "including" is always without limitation. The words "herein," "hereof,"
"hereunder," and other words of similar import when used in this Agreement
refer to this Agreement as a whole, and not to any particular section or
subsection. Except as otherwise expressly provided in this Agreement,
accounting terms used, but not otherwise defined, in this Agreement are to be
construed and interpreted in accordance with "generally accepted accounting
principles" in effect on the date hereof, as described in Accounting
Standards Board SAS No. 69 and established by various pronouncements of the
Accounting Principles Board, the Financial Accounting Standards Board, and
the American Institute of Certified Public Accountants.
2. PURCHASE AND SALE; CLOSING; PURCHASE PRICE ADJUSTMENTS.
(a) PURCHASE AND SALE. On the terms and subject to the conditions
set forth in this Agreement, Purchaser shall purchase the Purchased
Membership Interest from Seller at the Closing, and Seller shall sell the
Purchased Membership Interest to Purchaser at the Closing.
(b) PURCHASE PRICE. The aggregate purchase price for the
Purchased Membership Interest (the "PURCHASE PRICE") shall be $4,800,000. In
order to facilitate the Closing, the Purchase Price has been based on the
parties estimate of 1998 Adjusted Earnings and is subject to adjustment after
determination of the actual 1998 Adjusted Earnings as set forth in Sections
2(d) and 2(e) below.
(c) THE CLOSING. The Closing shall take place at the offices of
Troop Steuber Pasich Reddick & Tobey, LLP, 2029 Century Park East, Los
Angeles, California 90067, on January 11, 1999 or such other date as may be
mutually agreed to by Seller and Purchaser. At the Closing, Seller shall
deliver to Purchaser the certificates, if any, evidencing the Purchased
Membership Interest, duly endorsed in blank for transfer, against delivery by
Purchaser of the Purchase Price by certified or bank cashiers check or by
wire transfer of funds to the account(s) designated by Seller.
(d) DETERMINATION OF 1998 ADJUSTED EARNINGS. Within 60 days
following Seller's 1998 fiscal year end, Seller shall deliver to Purchaser
its written determination of the 1998 Adjusted Earnings (the "DETERMINATION
NOTICE"), together with a copy of Seller's 1998 financial statements audited
by Fetta, Piper & Rossi, CPA's and such working papers as may be reasonably
requested by Purchaser. Purchaser shall advise Seller if Purchaser agrees or
disagrees with the Seller's determination of the 1998 Adjusted Earnings. If
Purchaser fails to so advise Seller within 20 days following the delivery of
the Determination Notice, it shall be deemed that Purchaser shall have
accepted the Seller's determination of the 1998 Adjusted Earnings. If
Purchaser disagrees with the Seller's determination, Purchaser shall give
notice of disagreement (a "DISAGREEMENT NOTICE"), which notice shall specify
Purchaser's determination of the 1998 Adjusted Earnings.
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If a Disagreement Notice shall be delivered, Purchaser and Seller shall
attempt to reach agreement on the 1998 Adjusted Earnings. If Purchaser and
Seller are unable to reach an agreement within 15 days, either Purchaser or
Seller may submit the disagreement to arbitration in accordance with the
following procedures. The arbitrator of any disagreement pursuant to this
Section 2(d) (or Section 2(f)) shall be a nationally recognized independent
accounting firm mutually acceptable to the parties, which firm shall not have
had a material relationship with either any of the Company, Seller, the
Sherlines or Purchaser within the two years preceding the appointment (the
"ARBITER"). If the parties cannot agree on the selection of the Arbiter, the
parties shall request the American Arbitration Association to appoint the
Arbiter, and such appointment shall be conclusive and binding upon the
parties. The Arbiter shall be instructed to determine, promptly, but no later
than 20 days after its acceptance of its appointment as Arbiter, based solely
on presentations by Seller and Purchaser, and not by independent review, only
those issues in dispute and the resulting computation of the 1998 Adjusted
Earnings (or Annual Adjusted Earnings), which shall be conclusive and binding
upon the parties. In resolving any disputed item, the Arbiter may not assign
a value to any item greater than the greater value for such item claimed by
either party or less than the smallest value for such item claimed by either
party. The fees, costs and expenses of the Arbiter shall be paid by the
party who's estimate of the 1998 Adjusted Earnings (or Annual Adjusted
Earnings) most differs from the 1998 Adjusted Earnings (or Annual Adjusted
Earnings) determined by the Arbiter. The Company, Seller, the Sherlines and
Purchaser shall each make available to the other their respective work papers
generated in connection with the preparation or review of the 1998 Adjusted
Earnings (or Annual Adjusted Earnings).
(e) ADJUSTMENT TO PURCHASE PRICE. Within 5 Business Days
following determination of the 1998 Adjusted Earnings (either by agreement or
by arbitration, as the case may be) an adjustment to the Purchase Price shall
be made as follows.
(i) If the Adjusted Purchase Price shall be less than the
Purchase Price, Seller shall pay an amount equal to such difference between
the Adjusted Purchase Price and the Purchase Price to Purchaser by certified
or bank cashiers check or by wire transfer of funds to the account(s)
designated by Purchaser.
(ii) If the Adjusted Purchase Price shall be greater than the
Purchase Price, such difference between the Adjusted Purchase Price and the
Purchase Price shall be deemed Deferred Consideration and will be payable to
Seller by Purchaser in accordance with Section 2(f) below.
(f) DEFERRED CONSIDERATION. Any Deferred Consideration shall be
paid by Purchaser to Seller in four installments, if earned, based the Annual
Adjusted Earnings of the Company for each of the years ended December 31,
1999, 2000, 2001 and 2002 (the "PAYMENT YEARS"). Within 90 days following the
end of each Payment Year, Purchaser shall deliver to Seller its written
determination of the Annual Adjusted Earnings for such Payment Year (the
"PURCHASER DETERMINATION NOTICE"), together with a copy of the Company's
financial statements for such Payment Year audited by the Company's
independent auditors and such working papers as may be reasonably requested
by Seller. Seller shall advise Purchaser if Seller agrees or disagrees with
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Purchaser's determination of the Annual Adjusted Earnings for each Payment
Year. If Seller fails to so advise Purchaser within 20 days following the
delivery of the Purchaser Determination Notice, it shall be deemed that
Seller shall have accepted Purchaser's determination of the Annual Adjusted
Earnings for such Payment Year. If Seller disagrees with Purchaser's
determination, Seller shall give notice of disagreement (a "SELLER
DISAGREEMENT NOTICE"), which notice shall specify the Seller's determination
of the disputed Annual Adjusted Earnings. If a Seller Disagreement Notice
shall be delivered, Purchaser and Seller shall attempt to reach agreement on
the disputed Annual Adjusted Earnings. If Purchaser and Seller are unable to
reach an agreement within 15 days, either Purchaser or Seller may submit the
disagreement to arbitration in accordance with the procedures set forth in
Section 2(d) above. Within 15 days following determination of the Annual
Adjusted Earnings for each Payment Year (either by agreement or by
arbitration, as the case may be), a Deferred Consideration installment shall
be paid, if earned, to Seller as follows.
(i) If the Annual Adjusted Earnings for a Payment Year minus
the Shortfall, if any, for the immediately preceding Payment Year are less
than or equal to $1,500,000, then the Deferred Consideration installment for
such Payment Year will not be due and no payment shall be made. If a
Deferred Consideration installment payment is not due with respect to any
Payment Year, then such Deferred Consideration installment payment will be
forfeited and not payable in an succeeding Payment Year, except as
specifically set forth below.
(ii) If the Annual Adjusted Earnings for a Payment Year minus
the Shortfall, if any, for the immediately preceding Payment Year are greater
than $1,500,000, Purchaser will pay to Seller, in full satisfaction of the
Deferred Consideration installment for such Payment Year, an amount equal to
the product of the Purchase Percentage multiplied by the remainder of (A) the
lesser of (x) the Annual Adjusted Earnings for such Payment Year minus the
Shortfall, if any, for the immediately preceding Payment Year and (y) the
1998 Adjusted Earnings, minus (B) $1,500,000.
Notwithstanding the foregoing, Purchasers will pay to Seller a
minimum Deferred Consideration installment for the Payment Year ended
December 31, 1999 of at least $196,000. If the Annual Adjusted Earnings for
the Payment Year ended December 31, 1999 is greater than the 1998 Adjusted
Earnings, then Purchaser will pay to Seller, in full satisfaction of the
Deferred Consideration installment for the Payment Year ended 1999, an amount
equal to the product of the Purchase Percentage multiplied by the remainder
of (A) the lesser of (x) the Annual Adjusted Earnings for such Payment Year
and (y) the 1998 Adjusted Earnings plus $245,000, minus (B) $1,500,000. The
determination of the Shortfall, if any, for the Payment Year ended December 31,
1999 shall not be affected by this paragraph.
If the Deferred Consideration installment payment for the Payment
Year ended December 31, 1999 is not paid in full (i.e. if the Annual Adjusted
Earnings for the Payment Year ended December 31, 1999 are less than the 1998
Adjusted Earnings), then the portion of such Deferred Consideration
installment payment not paid based on the Annual Adjusted Earnings for the
Payment Year ended December 31, 1999 shall be added to the Deferred
Consideration installment payment that may be earned for the Payment Year
ended December 31, 2000 (the
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"COMBINED DEFERRED CONSIDERATION INSTALLMENT"). In such event and if the
Annual Adjusted Earnings for the Payment Year ended December 31, 2000 minus
the Shortfall, if any, for the Payment Year ended December 1999 is greater
than $1,500,000, Purchaser will pay to Seller, in full satisfaction of the
Combined Deferred Consideration Installment, an amount equal to the product
of the Purchase Percentage multiplied by the remainder of (A) the lesser of
(x) the Annual Adjusted Earnings for the Payment Year ended December 31, 2000
minus the Shortfall, if any, for the Payment Year ended December 31, 1999,
and (y) the 1998 Adjusted Earnings plus the 1999 Carryforward Amount (as
defined below), minus (B) $1,500,000. Any amount payable to Seller pursuant
to the foregoing sentence that would not have been payable to Seller if
clause (y) of the above formula was amended to include only the 1998 Adjusted
Earnings, shall be reduced (but not below zero) by all amounts paid on
account of the Payment Year ended December 31, 1999. The "1999 CARRYFORWARD
AMOUNT" shall be an amount equal to the remainder of (1) the 1998 Adjusted
Earnings, minus (2) $1,500,000. Certain examples designed to provide
guidance in calculating Deferred Consideration are attached hereto as EXHIBIT D.
Seller acknowledges that: (i) the Company has complete control over
its business and operations, including whether to enter into or not enter
into contracts, the terms and conditions of any such contracts in the
development of new products, the timing of product introductions, marketing
of products, advertising and promotion of products, allocation of Company
resources and employment of personnel; and (ii) decisions made by the Company
may materially and adversely affect Annual Adjusted Earnings, which in turn
could affect the Deferred Consideration payable to Seller in any Payment
Year, subject to the formula of calculating Deferred Consideration payments
set forth above. Seller agrees that all decisions of the Company with
respect to its business and operations shall be final and binding on Seller,
and Seller shall have no claim against the Company or the Purchaser that the
amount of Deferred Consideration paid in any period would have been greater
if the Company had made different decisions.
3. REPRESENTATIONS AND WARRANTIES OF SELLER, THE SHERLINES AND THE
COMPANY.
Subject to the exceptions set forth in the Company Disclosure
Schedule dated the date hereof and delivered by Seller and the Company to
Purchaser concurrently with this Agreement, each of the Sherlines, Seller and
the Company represents and warrants to Purchaser as follows:
(a) ORGANIZATION AND CAPITALIZATION OF THE COMPANY.
(i) The Company is a limited liability company duly
organized, validly existing and in good standing under the laws of the State
of California and has the power and authority as a limited liability company
to own, lease and operate its properties and to carry on its business as it
is now conducted and has been conducted prior to the date of this Agreement.
Complete and correct copies of the Company's current Charter Documents have
been delivered to Purchaser or its attorneys.
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(ii) The Company is duly qualified or otherwise authorized as
a foreign company to transact business and is in good standing in every
jurisdiction where it owns or leases any property or its business activities
require it to so qualify.
(iii) Seller and Drew Sherline own of record and beneficially
all of the Company Membership Interests. The Company Disclosure Schedule
sets forth the Company Membership Interest owned by Seller and Drew Sherline.
The Purchased Membership Interest is not subject to any Lien and no Person
has any right or option to purchase or acquire, with or without
consideration, any of the Company Membership Interests. The Company
Membership Interests have not been issued in violation of applicable law or
the Charter Documents of the Company. Other than the Charter Documents of the
Company, the Company Membership Interests are not subject to any voting trust
agreement or any other Contract, arrangement, commitment or understanding
restricting or otherwise relating to the voting, dividend rights or
disposition of the Company Membership Interests.
(iv) There are no outstanding Membership Interest Equivalents
of the Company. The Company is not obligated to purchase or redeem any
Securities.
(v) The Company has not, either directly or through any
agent, offered any Securities to or solicited any offers to acquire any
Securities from, or otherwise approached, negotiated or communicated in
respect of any Securities with, any Person in such a manner as to require
that the offer or sale of such Securities be registered pursuant to the
provisions of Section 5 of the Securities Act and the rules and regulations
of the SEC thereunder or the securities Laws of any state. The Company has
complied with all federal and state securities and blue sky Laws in all
offers, sales and purchases of its Securities prior to the date hereof and
has not violated any applicable Law in making such issuances and purchases of
its Securities prior to the date hereof. Any notices required to be filed
under federal and state securities and blue sky Laws prior to the date hereof
have been filed on a timely basis prior to or as so required.
(vi) Drew Sherline and Cathy Sherline own of record all of
the issued and outstanding shares of capital stock of Seller.
(b) AUTHORITY; ENFORCEABILITY.
(i) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes
a valid and legally binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other
similar Laws relating to or affecting creditors' rights generally, or the
availability of equitable remedies.
(ii) The execution and delivery by the Company of this
Agreement do not, and compliance by the Company with the provisions hereof
will not: (A) conflict with or result in a breach or default under any of the
terms, conditions or provisions of the Charter
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Documents of the Company or any Company Contract; or (B) violate any Law
applicable to the Company; or (C) result in the creation or imposition of any
Lien on any asset of the Company.
(c) SUBSIDIARIES. The Company does not have and has never had any
Subsidiaries.
(d) FINANCIAL STATEMENTS. The Seller Financial Statements, a
predecessor to the Company, have been prepared from the books and records of
Seller in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except for changes
specified therein and except that unaudited financial statements are not
accompanied by notes, and present fairly the financial condition, results of
operations, shareholders' equity and cash flows of Seller as of the dates
thereof and for the periods specified therein.
(e) TAXES. For the purposes of this Section 3(e), the term the
"Company" shall include both One Source Industries, LLC, and its predecessor,
One Source Industries, Inc.
(i) The Company has filed, as of the date hereof, and will
have filed as of the Closing Date, all Tax Returns that it was required to
file for tax periods ending before those dates. All such Tax Returns were
correct and complete in all material respects. In particular, the foregoing
Tax Returns were not subject to penalties under IRC Section 6662, relating to
accuracy-related penalties (or any corresponding provision of the state,
local or foreign Tax Law) or any predecessor provision of Law, and the
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal
income Tax within the meaning of IRC Section 6662 (or any corresponding
provision of the state, local or foreign Tax Law) or any predecessor
provision of Law. The Company is not the beneficiary of any extension of
time within which to file any Tax Return. All Taxes due and owing by the
Company (whether or not shown on any Tax Return) have been paid, or will be
paid before the Closing Date. The Company has not requested, nor currently
is the beneficiary of, any extension of time within which to file any Tax
Return that has not been filed. No claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no Liens on any
of the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax other than Liens for current Taxes not yet
delinquent.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party
(including, without limitation, as required under IRC Sections 1441-1464, IRC
Sections 3401-3406, IRC Section 6041 and IRC Section 6049).
(iii) Neither Seller, the Sherlines nor the Company expect any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. To the Best Knowledge of each of Seller, the Sherlines and
the Company there is no dispute or claim concerning any Tax Liability of the
Company either claimed or raised by any Governmental Authority in writing or
upon personal contact with any agent of such authority. The Company
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Disclosure Schedule lists: (A) all Income Tax Returns filed with respect to
the Company; (B) indicates those Tax Returns listed in (A) that have been
audited; and (C) indicates those Tax Returns listed in (A) that currently are
the subject of audit. The Company has delivered to Purchaser complete copies
of all federal or state Income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company.
(iv) The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has never filed a consent under IRC
Section 341(f) (or any corresponding provision of state, local or foreign
income tax Law) concerning collapsible corporations or agreed to have IRC
Section 341(f)(2) (or any corresponding provision of state, local or foreign
income tax Law) apply to any disposition of any asset owned by it. The
Company has not made any payments, is not obligated to make any payments, and
is not a party to any Contract that under certain circumstances could
obligate it to make any payments that will not be deductible under IRC
Section 280G. The Company has not been a United States real property holding
corporation within the meaning of IRC Section 897(c)(2) during the applicable
period specified in IRC Section 897(c)(1)(A)(ii).
(vi) The Company is not a party to any Tax indemnity, Tax
sharing or Tax allocation agreement. The Company (A) has not been a member
of an affiliated group of corporations within the meaning of IRC Section 1504
within the four years preceding the date hereof, or (B) has no Tax Liability
for the Taxes of any Person under IRC Section 1.1502-6 (or any similar
provision of state, local, or foreign Law), as a transferee or successor, by
Contract, or otherwise.
(vii) The Company Disclosure Schedule sets forth the
following information with respect to the Company as of the most recent
practicable date: (A) the tax basis in its assets; and (B) the amount of any
net operating loss, net capital loss, unused investment or other credit,
unused foreign tax credit or excess charitable contribution allocable to the
Company.
(viii) The unpaid Taxes of the Company (A) did not, as of the
most recent calendar month end, exceed the reserve for Tax Liability (other
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Current Balance
Sheet of the Company (other than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time through the Closing in
accordance with the past custom and practice of the Company in filing its Tax
Returns.
(ix) Seller has been a validly electing "S corporation"
within the meaning of IRC Sections 1361 and 1362 since March 1, 1996.
(f) CUSTOMS MATTERS. The Company has all licenses, permits,
consents, orders, approvals and other authorizations necessary under the
customs and trade Laws of the United States of America, including without
limitation bilateral trade agreements, to carry on its
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business as currently being conducted. Each of the Company and Seller has
properly reported all goods imported into the United States, accurately
stated all dutiable costs thereof and paid all tariffs due thereon at the
time of entry.
(g) REAL PROPERTY AND ASSETS.
(i) The Company has good and transferable title to all of
its assets of material value to it whether real, personal, tangible or
intangible which are reflected on the Current Balance Sheet, free and clear
of all Liens except for: (A) Liens that are reflected in the Current Balance
Sheet; (B) Liens for current taxes not yet delinquent; (C) assets sold or
transferred in the ordinary course of business and consistent with prudent
business practice since the date of the Current Balance Sheet; and (D)
restrictions imposed by Law and easements and restrictions which are neither
individually nor in the aggregate material to the Company or its Business
Condition.
(ii) The Company Disclosure Schedule identifies each parcel
of real property that the Company owns or leases. The Company enjoys
peaceful and undisturbed possession under all material leases for the use of
real property under which it operates.
(iii) The Company owns all tooling, dies and other equipment
utilized by the Company (or, prior to December 31, 1998, by Seller) in
manufacturing its products. Material assets currently used by the Company
are in good operating condition and repair, normal wear and tear excepted.
(iv) All inventories are current and readily merchantable and
contain no amount of damaged, obsolete or unsalable product which have not
been written down or reserved to their market value.
(v) All accounts receivable reflected on the Current Balance
Sheet are stated in accordance with generally accepted accounting principles
and: (A) constitute bona fide and valid rights of the Company to collect
payments from other Persons; (B) represent credit extended in a manner
consistent with the Company's trade practices; (C) are not subject to any
defense, counterclaim or offset; and (D) except for reserves set forth in the
Current Balance Sheet, are fully collectable.
(vi) Neither Seller, the Sherlines nor any Affiliates thereof
(other than the Company), own or have any interest in any assets or property
which have been used within the past two years, are presently being used, or
are anticipated or necessary to be used in the business (including the
business of Seller prior to December 31, 1998) of the Company as presently or
proposed to be conducted.
(h) ENVIRONMENTAL LIABILITIES. For the purposes of this
Section 3(h), the term the "Company" shall include both One Source
Industries, LLC, and its predecessor, One Source Industries, Inc.
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(i) Subject to subsections (ii) and (iii) of this Section,
the Company has conducted and is conducting its business, and has used and is
using its properties, whether currently owned, operated or leased or owned,
operated or leased it any time in the past, in material compliance with all
applicable Environmental Laws.
(ii) Neither the Company nor any property currently owned,
operated or leased or which has been owned, operated or leased by the
Company, is subject to any pending or threatened investigation of which
Seller, the Sherlines or the Company has either actual knowledge or written
notice, or any pending or threatened action or proceeding, including any
notice of violation, of which Seller, the Sherlines or the Company has
knowledge, by any Governmental Authority regarding contamination of any part
of the property or infractions of any Environmental Law or any license or
permit issued by any Governmental Authority pursuant to any such Law.
(iii) No Polluting Substance is presently located on or under
any property which is currently owned, operated or leased by the Company,
except for office supplies, cleaning supplies, photocopying materials and
other materials of similar nature, kept by the Company in the ordinary course
of its business, or as indicated in any environmental reports, studies,
assessments or data listed on the Company Disclosure Schedule and delivered
to Buyer.
(i) LITIGATION AND PROCEEDINGS. There is no pending or, to the
Best Knowledge of Seller, the Sherlines or the Company, threatened Action (or
basis therefor) to which the Company or Seller is a party or otherwise
involving the Company or Seller, and neither the Company nor Seller is
subject to any judgment, order, writ, injunction, decree or regulatory
directive or agreement. The foregoing includes, without limiting its
generality, Actions (or any basis therefor known to Seller, the Sherlines or
the Company) involving the prior employment of any employees or currently
contemplated prospective employees of the Company or Seller or their use, in
connection with the business of the Company or Seller, of any information or
techniques which might be alleged to be proprietary to their former
employer(s).
(j) EMPLOYEE CONTRACTS AND ERISA PLANS. For the purposes of this
Section 3(j), the term the "Company" shall include both One Source
Industries, LLC, and its predecessor, One Source Industries, Inc.
(i) All Employee Plans which are now maintained by the
Company or have been maintained by the Company are identified in the Company
Disclosure Schedule. True and complete copies of all written documents
relating to Employee Plans listed on the Company Disclosure Schedule have
been furnished to Purchaser or its agents. The Company Disclosure Schedule
summarizes all significant oral agreements listed therein and the annual
compensation payable by the Company to each of its officers, employees,
agents or consultants, including salary, bonus and any other benefits.
(ii) Neither the Company nor any entity that is a member of a
"controlled group of corporations" or that is under "common control" with the
Company, within the meaning of IRC Section 414(b) or (c) (an "ERISA
AFFILIATE"), has ever maintained, con-
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tributed to (or been required to contribute to), or sponsored a
"multiemployer plan," within the meaning of ERISA Section 3(37)(a). The
Company has never maintained, contributed to (or been required to contribute
to), or sponsored a "defined benefit plan," within the meaning of ERISA
Section 3(35).
(iii) Any ERISA Plan maintained by the Company has been
administered in substantial compliance with ERISA, the IRC and the terms of
such ERISA Plan, and there is no pending or threatened litigation relating to
any ERISA Plan.
(iv) Any ERISA Plan maintained by the Company that is a
"pension plan" within the meaning of ERISA Section 3(2) (collectively, the
"PENSION PLANS") has received a favorable determination letter from the IRS
under IRC Section 401(a).
(v) Neither the Company nor any fiduciary of any Pension Plan
maintained by the Company has engaged in any transaction that is prohibited
by ERISA Section 406 or the regulations thereunder for which an exemption
does not exist.
(vi) No Pension Plan maintained by the Company is currently in
effect, and no current or former employee or officer of the Company is
entitled to any present or future payment with respect to any Pension Plan
maintained by the Company.
(vii) Any payments required to be made pursuant to the
terms of any Employee Plan maintained by the Company that relate to any
period prior to the Closing will have either been timely made or accrued on
the books of the Company in accordance with generally accepted accounting
principles.
(viii) The Company does not offer and has never in the past
offered health benefits for retired employees except to the extent required
by applicable Law.
(ix) The Company does not maintain any Employee Plans outside
of the United States for non-U.S. citizen employees of the Company.
(x) The Company Disclosure Schedule lists separately all
Contracts pursuant to which the consummation of the transactions as
contemplated hereunder will (a) entitle any current or former employee or
officer of the Company to severance pay, unemployment compensation or any
other payment, or (b) accelerate the time of payment or vesting or increase
the amount of compensation due any such employee or officer. The
consummation of the transactions as contemplated hereunder will not result in
any prohibited transaction described in Section 406 of ERISA or Section 4975
of the IRC for which an exemption is not available or the cost of which is
not borne by the former employee or his beneficiary.
(xi) No liability under Title IV of ERISA has been incurred by
the Company or any of its ERISA Affiliates since the effective date of ERISA
that has not been satisfied in full, and no condition exists that presents a
material risk to the Company or any of its
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ERISA Affiliates of incurring directly or indirectly a liability under such
Title, other than liability for premiums due the Pension Benefit Guaranty
Corporation.
(xii) Each Employee Plan maintained by the Company is in
full force and effect, and the Company is not in default under any Employee
Plan maintained by the Company. There have been no claims of default and,
there are no facts or conditions which if continued, or on notice, will
result in a default under any Employee Plan.
(k) CONTRACTS. The Company Disclosure Schedule lists all of the
following types of Company Contracts, except for purchase orders with
vendors, suppliers and customers covering inventory purchased or sold in the
ordinary course of business, consistent in form and amount with past practice:
(i) Each Contract (or group of related Contracts) which
is to be performed in whole or in part at or after the date of this Agreement
and which: (A) cannot be canceled upon 30 days' notice without payment or
penalty of less than $10,000; (B) involves aggregate future payments by or to
the Company of more than $10,000; (C) involves material nonmonetary
obligations to be performed later than one year from the date hereof; (D)
otherwise materially affects the Company or its Business Condition; or (E)
was not entered into in the ordinary course of business;
(ii) Each Contract pursuant to which the Company: (A) has
borrowed or is committed or entitled to borrow money in an amount in excess
of $10,000; (B) has lent or committed to lend money; or (C) has given or is
committed to give a guarantee of, or otherwise to incur primary or secondary
liability for (including any letter of credit), any obligation of any other
party in any amount;
(iii) Each Contract regarding advertising, brokerage,
licensing, management, representative or agency relationships;
(iv) Each Contract with or concerning any labor or
employee organization;
(v) Each Contract for the Transfer of any properties,
assets or rights of the Company for consideration in excess of $10,000 or for
the grant of any preferential right to purchase any of such assets,
properties or rights, or which requires the consent of any third party to the
Transfer of such assets, properties or rights;
(vi) Each Contract with any Seller or any Affiliate of
the Company;
(vii) Each Contract: (A) under which the benefits cannot
be retained upon the consummation of the transactions contemplated by this
Agreement without the written consent or approval of other parties; (B) under
which there will be a default as a result of the consummation of the
transactions contemplated by this Agreement unless such other parties provide
written consent or approval; or (C) which would require the making of any
payment,
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other than payments as contemplated by this Agreement, to any employee of the
Company or to any other Person as a result of the consummation of the
transactions contemplated herein;
(viii) Each Contract involving a guarantee by Seller or the
Sherlines of any the Company Indebtedness or imposing a Lien on personal
assets of Seller or the Sherlines which serve as collateral for the Company
Indebtedness;
(ix) Each Contract pursuant to which the Company has
granted or agreed to any discount in connection with future product sales,
rebates, inventory balancing or product returns or exchanges;
(x) Each Contract providing the Company the right or
license to use or exploit the IP of any other Person; and/or
(xi) Each Contract requiring the Company to make capital
expenditures in excess of $5,000.
(l) ABSENCE OF LIABILITIES. The Company has no Indebtedness,
obligation or liability, absolute, accrued, contingent or otherwise, except
for: (i) those disclosed in the Company Disclosure Schedule; (ii) those
accrued, reserved or disclosed in the Current Balance Sheet and notes
thereto; or (iii) trade payables and obligations incurred in the ordinary
course of business on or after the date of the Current Balance Sheet.
(m) CONFLICTS OF INTEREST. Neither the Company nor any officer,
employee, agent or any other person acting on behalf of the Company or any
Affiliate of the Company, including Seller, has, directly or indirectly,
given or agreed to give or received or agreed to receive any money, gift or
similar benefit (other than legal price concessions to customers in the
ordinary course of business) to or from any customer, supplier, licensor,
employee or agent of a customer or supplier, or official or employee of any
Governmental Authority or other Person who was, is, or may be in of a
position to help or hinder the business of the Company (or prior to December
31, 1998, the business of Seller) (or assist in connection with any actual or
proposed transaction therewith) which: (i) might subject the Company or
Seller to any damage or penalty in any civil, criminal or governmental
litigation or proceeding; (ii) if not given in the past, might have had a
material adverse effect on the Business Condition of the Company (or Business
Condition of Seller); or (iii) if not continued in the future, might have a
material adverse effect on the Business Condition of the Company.
(n) OTHER RELATIONSHIPS. Other than Drew Sherline's 50% ownership
interest in Paxall, LLC, neither Seller, the Sherlines nor the Company has
any interest (other than as a noncontrolling holder of securities of a
publicly traded company), either directly or indirectly, in any Person,
including without limitation, any Person (whether as an employee, officer,
director, shareholder, agent, independent contractor, security holder,
creditor, consultant, or otherwise) that presently (i) provides any services
or designs, produces and/or sells any products or product lines, or engages
in any activity which is the same, similar to or competitive with any
activity or business in which the Company is now engaged; (ii) is a supplier
of, customer of,
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creditor of, or has an existing contractual relationship with the Company; or
(iii) has any direct or indirect interest in any asset or property used by
the Company or any property, real or personal, tangible or intangible, that
is necessary or desirable for the conduct of the business of the Company.
Other than Drew Sherline's 50% ownership interest in Paxall, LLC, no current
stockholder, director, officer or employee of the Company nor any Affiliate
of any such person, is, or since January 1, 1996, has been, directly or
indirectly through his affiliation with any other person or entity, a party
to any transaction (other than as an employee) with the Company providing for
the furnishing of services by, or rental of real or personal property from,
or otherwise requiring cash payments to any such person. All of the
Company's (and prior to December 31, 1998, the Seller's) transactions with
Paxall, LLC have been conducted on an arms length basis with terms not
materially more favorable to the Company (or Seller) than could have been
obtained by the Company (or Seller) from an unaffiliated third party.
(o) LICENSES; COMPLIANCE WITH LAWS AND CONTRACTS.
(i) The Company has all material franchises, permits,
licenses (other than product licenses), and other rights which are necessary
for the conduct of its business and to the Best Knowledge of Seller, the
Sherlines and the Company, there is not any basis for the denial of such
rights in the future and is in compliance with, and is not in violation of,
any Law.
(ii) The Company Disclosure Schedule lists all federal,
state, local and foreign licenses, permits and other authorizations issued by
any Governmental Authority to the Company.
(iii) The Company or Seller has performed all of the
obligations required to be performed by it to date under all Company
Contracts and is not in breach of or default under any such Company Contract
(including any breach or default arising from any misrepresentation). To the
Best Knowledge of Seller, the Sherlines and the Company: (A) each other
party to a Company Contract has performed all of the material obligations
required to be performed by it to date under such Contract and is not in
material default thereunder; and (B) no event has occurred or circumstances
exist which, with notice or lapse of time or both, would constitute a breach
of any Company Contract.
(p) IP RIGHTS. The IP presently owned, licensed, held by the
Company (the "COMPANY IP") constitutes all IP that is required to enable the
Company to conduct its business as now conducted. The Company has provided
adequate safeguards and security for the protection and confidentiality of
the Company IP and all other of its confidential and/or proprietary
information. Neither the Company nor Seller has received any written notice
of infringement or other written complaint that the operations of the Company
(or prior to December 31, 1998, the operations of Seller) contravenes,
violates or otherwise infringes IP or any other proprietary rights of others.
Neither the Company nor any Person employed by or affiliated with the
Company or Seller has wrongfully Exploited any IP owned or licensed by any
former employer, and neither the Company nor any Person employed by or
affiliated with the Company has violated any confidential relationship which
such Person may have had with any third party.
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The Company has and will have full right and authority to utilize the Company
IP, including, without limitation, the processes, systems and techniques
presently used by it in the design, development, manufacture, marketing, sale
and distribution of its present products and all other products contemplated
by it to be offered and all rights to any such IP developed by any employee
or consultant of the Company or Seller have been duly and validly assigned to
the Company. No royalties, honoraria, damages or fees are or will be payable
by the Company to other Persons by reason of the ownership or use by the
Company of any Company IP or any IP hereafter developed by the Company or any
employee thereof. No Affiliate of the Company owns or holds, directly or
indirectly, any interests in any Company IP. No Person has interfered with,
infringed upon, misappropriated, or otherwise violated any IP right of the
Company. The Company has not Transferred to any Person right to Exploit any
Company IP.
(q) INSURANCE.
(i) The Company Disclosure Schedule lists: (A) all
policies of insurance that are in force on the date hereof and/or which have
been in force at any time within the prior three years and insure the Company
or any of its assets or employees (the "INSURANCE POLICIES"); (B) all
outstanding claims under the Insurance Policies; (C) all claims made by or on
behalf of the Company under any Insurance Policy; and (D) any Contract under
which the Company is obligated to maintain insurance on behalf of any other
Person. The Company will continue to maintain following the date hereof
substantially the same insurance coverages that are in force on the date
hereof, and the Company has delivered to Purchaser true and complete copies
of each Insurance Policy, including all amendments, supplements,
modifications, or side letters relating thereto.
(ii) The Insurance Policies are: (A) all in full force
and effect; (B) sufficient for compliance with all requirements of Law and
all Company Contracts; and (C) will not terminate or lapse by reason of
consummation of the transactions contemplated by this Agreement. The
premiums with respect to all Insurance Policies covering all periods up to
and including the Closing Date have been paid or will have been paid prior to
the Closing, and no notice of cancellation or termination has been received
with respect to any such Policy.
(r) CUSTOMERS. No Large Customer of the Company has canceled or
otherwise terminated, or made any threat to cancel or terminate, its
relationship with the Company, or its purchase of products from the Company,
and neither Seller, the Sherlines nor the Company has any knowledge that any
Large Customer intends to cancel or otherwise terminate its relationship with
the Company or decrease materially the amount of products it purchases from
the Company compared to products it has purchased in recent periods. A
"LARGE CUSTOMER" of the Company shall mean any customer which has, since
January 1, 1998, purchased in excess of $50,000 of products from the Company
and Seller.
(s) SUPPLIERS. No supplier of the Company has canceled or
otherwise terminated, or made any threat to cancel or terminate, its
relationship with the Company, or its sale of products to the Company, and
neither Seller, the Sherlines nor the Company has any knowledge that any
supplier intends to cancel or otherwise terminate its relationship with the
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Company or decrease materially the amount or change the type of products it
sells to the Company compared to products it has sold in recent periods. The
Company has an alternative source of supply for all products supplied by its
current suppliers.
(t) LABOR RELATIONS. There is no pending or, to the Best
Knowledge of Seller, the Sherlines or the Company, threatened labor dispute,
strike or work stoppage affecting the Business Condition of the Company. The
Company (and Seller) has conducted and conducts its business in all material
respects in accordance with all Laws regarding employment, unfair labor
practices and nondiscrimination.
(u) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997
there has not been (for the purposes of this Section 3(u), the term the
"Company" shall include both One Source Industries, LLC, and its
predecessor, One Source Industries, Inc.):
(i) Any damage, destruction or loss (whether or not
covered by insurance) to tangible assets of the Company which has had a
materially adverse effect on the Business Condition of the Company;
(ii) Any declaration, setting aside or payment of any
dividend or other distribution with respect to any Securities of the Company
or any direct or indirect redemption, purchase or other acquisition by the
Company of Securities of the Company;
(iii) Any issuance or Transfer by the Company or Seller of
any Securities of the Company, or any agreement of any character to which the
Company has been a party or by which it has been bound obligating the Company
to issue, sell or deliver any Securities;
(iv) Any Lien created affecting any assets of the Company
or assumed by the Company with respect to any such assets except for purchase
money security interests in supplies and inventory acquired by the Company in
the ordinary course of business, consistent with past practices, except for
Liens for Taxes not yet delinquent;
(v) Any Indebtedness or other material liability,
guarantee or obligation (whether absolute, accrued, contingent, or otherwise)
incurred, or other transaction engaged in by the Company, other than in the
ordinary course of business, consistent with past practices;
(vi) Any Transfer of any asset of the Company with a book
value in excess of $5,000, other than inventory in the ordinary course of
business consistent with past practices;
(vii) Any cancellation, without full payment, of any note,
loan or other obligation owing to the Company;
(viii) Any waiver or release of any right or claim of the
Company;
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(ix) Any change in the method of accounting including,
without limitation, any change in depreciation or amortization policies or
rates, by the Company from the methods consistently applied throughout the
periods covered by the Company Financial Statements;
(x) Any amendment or termination of any Contract which
would be a Company Contract if such Contract were in effect as of the date of
this Agreement;
(xi) Any other event, development or condition of any
character that, in light of the facts and circumstances currently known to
Seller, the Sherlines or the Company, has had or could have a material
adverse effect on the Business Condition of the Company (other than as a
result of general economic conditions); or
(xii) Any Contract, other than this Agreement, by which
the Company will or could be obligated to undertake or engage in any action
described in the preceding clauses (i) through (xii).
(v) BROKERS. Other than Global Capital Markets and any fees
payable to Global Capital Markets by the Company, neither Seller, the
Sherlines nor the Company have retained or otherwise engaged or employed any
broker, finder or any other person, or paid or agreed to pay any fee or
commission to any agent, broker, finder or other person, for or on account of
acting as a finder or broker in connection with this Agreement or the
transactions contemplated hereby.
(w) BANKS, AGENTS, ETC. The Company Disclosure Schedule contains
a complete and correct list setting forth the name of (i) each financial
institution in which the Company or Seller has an account, safe deposit box
or borrowing privilege and the names of all persons authorized to draw
thereon, to have access thereto or to borrow thereupon, as the case may be,
and (ii) each agent to whom the Company or Seller has granted a power of
attorney or similar authority to act on its behalf.
(x) MINUTE BOOKS; FINANCIAL RECORDS. The minute books of the
Company provided to the Purchaser contain a complete summary of all meetings
of managers and members and reflect all transactions referred to in such
minutes accurately in all material respects. The books, records and accounts
of the Company accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company.
(y) ACCURACY OF INFORMATION. All documents and written information
supplied by Seller, the Sherlines or the Company were complete and correct in
all material respects as of the date at which the information was furnished
and, as of such date, contained no untrue statement of a material fact nor,
to the Best Knowledge of Seller, the Sherlines and the Company, omitted to
state a material fact (excluding facts relating to general worldwide economic
conditions) necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
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4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHERLINES.
Each of Seller and the Sherlines severally represents and warrant
to Purchaser as to itself as follows:
(a) TITLE TO COMPANY MEMBERSHIP INTERESTS. Each of Seller and Drew
Sherline owns beneficially and of record, and has good and marketable title
to, the Company Membership Interests set forth opposite such Person's name on
EXHIBIT E, free and clear of any Liens. In consideration of the payment of
the Purchase Price, Purchaser will acquire good and marketable title to the
Purchased Membership Interests, free and clear of any Liens.
(b) AUTHORITY; ENFORCEABILITY.
(i) This Agreement has been duly executed and delivered by
such Person and constitutes a valid and legally binding obligation of such
Person enforceable against such Person in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar Laws relating to or affecting
creditors' rights generally, or the availability of equitable remedies.
(ii) The execution and delivery by such Person of this Agreement
does not, and compliance by such Person with the provisions hereof will not: (A)
conflict with or result in a breach or default under any of the terms,
conditions or provisions of the Charter Documents of Seller or any Contract to
which such Person is a party or by which any of its assets is subject; or (B)
violate any Law applicable to such Person; or (C) result in the creation or
imposition of any Lien on any asset of such Person.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser represents and warrants to Seller as follows:
(a) ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized, validly existing and in good standing under the Laws of the state of
Delaware and has all requisite corporate power and corporate authority to own,
lease and operate its properties and assets and to carry on its business as now
being conducted.
(b) AUTHORITY; ENFORCEABILITY.
(i) This Agreement has been duly executed and delivered by
Purchaser and constitutes a valid and legally binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar Laws relating to or affecting creditors' rights
generally, or the availability of equitable remedies.
(ii) The execution and delivery by Purchaser of this Agreement
do not, and compliance by Purchaser with the provisions hereof will not: (A)
conflict with or result
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in a breach or default under any of the terms, conditions or provisions of
the Charter Documents or Purchaser or any Contract to which Purchaser is a
party or otherwise bound, or to which any asset or property of Purchaser is
subject; (B) violate any Law applicable to Purchaser; or (C) result in the
creation or imposition of any Lien on any asset of Purchaser.
(c) BROKERS. Other than Global Capital Markets and any fees
payable to Global Capital Markets by the Company, Purchaser has not retained
or otherwise engaged or employed any broker, finder or any other person, or
paid or agreed to pay any fee or commission to any agent, broker, finder or
other person, for or on account of acting as a finder or broker in connection
with this Agreement or the transactions contemplated hereby.
6. PRE-CLOSING COVENANTS.
(a) CONDUCT OF BUSINESS OF THE COMPANY. From the date hereof
until the Closing, and except as authorized or contemplated by this Agreement
or otherwise approved in advance in writing by Purchaser, the Company shall
maintain itself as a validly existing limited liability company in good
standing under the laws of its state or jurisdiction of incorporation,
conduct its affairs and business according to its usual and ordinary course
of business, and use commercially reasonable efforts to sustain and preserve
in all material respects its goodwill and business organization and all its
material business relationships with lenders, customers, suppliers and
licensors and keep available the services of its respective officers and
employees. Without limiting the generality of the foregoing, the Company
shall:
(i) confer on a regular basis with one or more representatives
of Purchaser regarding the conduct of its business;
(ii) not propose, adopt, or authorize any amendment to its
Charter Documents;
(iii) promptly notify Purchaser of: (A) any material change in
the Business Condition of the Company; (B) any Action or threatened Action
involving the Company; (C) any event, circumstance or development that would
result in the representations and warranties under Section 3 of this
Agreement not to be true in all material respects if such representations and
warranties had been made on such date; or (D) the loss of any material
customer, supplier or license or any substantial damage to any of the assets
of the Company;
(iv) not authorize, issue, grant, award, Transfer, purchase,
retire or redeem any Securities of the Company, or effect any stock split,
combination, recapitalization or otherwise change its capitalization as it
existed on the date hereof, or accept any capital contribution;
(v) not declare, set aside or, except to the extent
reflected as a dividend payable on the Current Balance Sheet, pay any
dividend or distribution payable in cash, stock or property with respect to
its Securities, except cash distributions to the Sherlines consistent
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with past practice; PROVIDED, any such distribution is subject to the
repayment provisions set forth in Section 9(g) hereof;
(vi) not authorize or enter into, or commit to enter into,
any transaction or Contract which, if it had been completed as of the date
hereof or entered into on or prior to the date hereof, would have been
required to have been disclosed in the Company Disclosure Schedule;
(vii) except in the usual and ordinary course of business
consistent with past practice, not: (A) acquire or Transfer any assets;
(B) create or permit to exist any Lien on any assets; or (C) relinquish,
forfeit or waive any right under any Company Contract;
(viii) incur any Indebtedness, other than accrued interest on
Indebtedness outstanding at the date of this Agreement;
(ix) not enter into or amend any Contract with Seller or the
Sherlines or any Affiliate of the Sherlines;
(x) not adopt or amend any Employee Plan, increase
compensation or benefits payable to employees under any Plan or otherwise, or
pay any bonuses to any employees;
(xi) not take any action which would cause any representation
or warranty of Seller, the Sherlines or the Company under Section 3 of this
Agreement not to be true and correct as of the Closing;
(xii) not agree or commit to do any of the foregoing.
(b) ACCESS AND INFORMATION. During the period from the date
hereof to the Closing, the Company shall during normal business hours upon
reasonable advance notice: (i) afford Purchaser (and its representatives and
professional advisors) complete access to the books, records, Contracts,
officers, key employees and properties of the Company; (ii) permit Purchaser
(and its representatives and professional advisors) to make such examinations
of the books, records, Contracts, officers, key employees, and properties of
the Company; (iii) furnish to Purchaser (and its representatives and
professional advisors) all existing financial, operating, and other data and
information concerning the Company as they reasonably request; and (iv) permit
Purchaser (and its representatives and professional advisors) to conduct such
other reasonable investigation as is appropriate in connection with the
transactions contemplated by this Agreement.
(c) ACQUISITION PROPOSALS. During the period from the date hereof
and extending through the earlier of termination of this Agreement or the
Closing (the "PROPOSAL PERIOD"), each of Seller, the Sherlines and the
Company agrees: (i) that such Person shall not, and shall direct and cause
its respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or
accountant) not to, initiate, solicit, intentionally encourage or accept the
submission of any proposal or offer with respect to
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a merger, acquisition, sale, consolidation or similar transaction involving
all or any significant portion of the assets or any equity securities of the
Company (any such proposal or offer being hereinafter referred to as an
"ACQUISITION PROPOSAL") or engage in any negotiations or discussions
concerning, or provide any confidential information or data to, any person
relating to an Acquisition Proposal; and (ii) that such Person will notify
Purchaser immediately if any such inquiries or proposals are received by, any
such information is received from, or any such negotiations or discussions
are sought to be initiated or continued with, any such Person. If the
Company, Seller or the Sherlines breach this Section 6(c) and the Company,
Seller or the Sherlines definitively concludes a transaction similar to the
transaction contemplated hereby prior to July 1, 1999, then the Company,
Seller and/or the Sherlines shall pay to Purchaser, within 24 hours of the
occurrence of such transaction, a total of $250,000 in immediately available
funds.
(d) TRANSFER OF MEMBERSHIP INTEREST. The Sherlines, Seller and
the Company agree not to Transfer any Company Membership Interest except
pursuant to this Agreement.
(e) THE COMPANY. Each of Seller and the Sherlines agrees to cause
the Company to comply with each of its covenants and agreements under this
Agreement required to be performed on or prior to the Closing.
7. CONDITIONS PRECEDENT TO OBLIGATION OF SELLER.
The obligation of Seller to consummate the Acquisition is subject
to satisfaction and fulfillment of all of the following conditions precedent,
each of which must be satisfied on or before the Closing, unless waived by
Seller:
(a) COMPLIANCE BY PURCHASER; REPRESENTATIONS AND WARRANTIES
CORRECT. All of the terms, conditions, agreements and obligations of this
Agreement to be complied with and performed by Purchaser at or before the
Closing shall have been complied with and performed in all material respects,
and all the representations and warranties made by Purchaser in this
Agreement shall be true and correct in all material respects at and as of the
Closing (unless made as of a specified date, in which case such
representation and warranty shall be true and correct in all material
respects as of the specified date) with the same force and effect as though
such representations and warranties had been made at and as of the Closing.
(b) NO ACTIONS. No Action seeking to enjoin or prohibit the
Acquisition shall be pending.
(c) GOVERNMENTAL CONSENTS. All orders, permits, consents,
licenses, approvals, franchises, certificates, registrations and other
authorizations from Governmental Authorities that are necessary for Purchaser
to consummate the Acquisition (including all Blue Sky and state securities
permits, approvals, registrations and qualifications) shall have been
obtained.
(d) EMPLOYMENT AGREEMENT. The Company shall have executed and
delivered the Employment Agreement to Drew Sherline.
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(e) OPERATING AGREEMENT. Purchaser shall have executed and
delivered the Amended and Restated Operating Agreement of the Company to
Seller.
(f) CERTIFICATE. Purchaser shall have delivered to Seller a
certificate, dated as of the Closing and signed on behalf of Purchaser by a
Chief Executive Officer or the Chief Financial Officer to the effect that:
(i) the representations and warranties of Purchaser shall be true and correct
at and as of the Closing with the same force and effect as though such
representations and warranties had been made at and as of the Closing (unless
made as of a specified date, in which case such representation and warranty
shall be true and correct in all material respects as of the specified date);
(ii) Purchaser shall have complied in all material respects with its
obligations and agreements under this Agreement; and (iii) the conditions set
forth in Section 7(c) shall have been satisfied.
8. CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER.
The obligation of Purchaser to consummate the Acquisition is
subject to satisfaction and fulfillment of all of the following conditions
precedent, each of which must be satisfied on or before the Closing unless
waived by Purchaser:
(a) COMPLIANCE BY SELLER, THE SHERLINES AND THE COMPANY;
REPRESENTATIONS AND WARRANTIES CORRECT. All of the terms, conditions,
agreements and obligations of this Agreement to be complied with and
performed by Seller, the Sherlines and the Company at or before the Closing
shall have been complied with and performed in all material respects, and all
the representations and warranties made by Seller, the Sherlines and the
Company in this Agreement shall be true and correct in all material respects
at and as of the Closing (unless made as of a specified date, in which case
such representation and warranty shall be true and correct in all material
respects as of the specified date) with the same force and effect as though
such representations and warranties had been made at and as of the Closing.
(b) CONSENTS. The Company shall have obtained all consents and
approvals which are necessary so that the execution, delivery and performance
of this Agreement, and the consummation of the Acquisition, will not result
in a breach or default under, or give a third party the right to terminate,
any Company Contract, which consents and approvals shall be in form and
substance reasonably satisfactory to Purchaser.
(c) OPINION OF COUNSEL FOR SELLER. Purchaser shall have received
an opinion of Stephens & Kray, a partnership of professional corporations,
counsel for Seller, dated the Closing Date and addressed to Purchaser, in
form and substance reasonably satisfactory to Purchaser and its counsel,
containing the opinions set forth in EXHIBIT F.
(d) NO ACTIONS. No Action seeking to enjoin or prohibit the
Acquisition shall be pending.
(e) NO MATERIAL ADVERSE CHANGES. Between the date hereof and the
Closing
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there shall not have occurred any material adverse change in the Business
Condition of the Company.
(f) GOVERNMENTAL CONSENTS. All orders, permits, consents,
licenses, approvals, franchises, certificates, registrations and other
authorizations from Governmental Authorities that are necessary for Seller to
consummate the Acquisition (including all Blue Sky and state securities
permits, approvals, registrations and qualifications) must have been obtained.
(g) EMPLOYMENT AGREEMENT. Drew Sherline shall have executed and
delivered the Employment Agreement to the Company.
(h) PAXALL OPTION AGREEMENT. The Company and Drew Sherline shall
have executed and delivered an agreement providing the Company with the
option to purchase Drew Sherline's ownership interest in Paxall, LLC.
(i) OPERATING AGREEMENT. Seller and Drew Sherline shall have
executed and delivered the Amended and Restated Operating Agreement of the
Company to Purchaser.
(j) CERTIFICATE. Seller, the Sherlines and the Company shall have
delivered to Purchaser a certificate, dated as of the Closing to the effect
that: (i) except as disclosed in the Company Disclosure Schedule delivered at
the Closing, the representations and warranties of Seller, the Sherlines and
the Company shall be true and correct at and as of the Closing with the same
force and effect as though such representations and warranties had been made
at and as of the Closing (unless made as of a specified date, in which case
such representation and warranty shall be true and correct in all material
respects as of the specified date);(ii) Seller, the Sherlines and the Company
shall have complied in all material respects with its obligations and
agreements under this Agreement; and (iii) the conditions set forth in
Sections 8(b), (d), (e) and (f) shall have been satisfied.
9. ADDITIONAL COVENANTS.
(a) CERTAIN TAX MATTERS.
(i) Purchaser shall prepare or cause to be prepared,
consistent with past practice, and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing which are
filed after the Closing. Purchaser shall permit Seller to review and comment
on each such Tax Return described in the preceding sentence prior to filing.
To the extent permitted by applicable Law, Seller and the Sherlines shall
include any income, gain, loss, deduction or other tax items for such periods
on their Tax Returns in a manner consistent with the Schedule K-1s furnished
by the Company to Seller or by Seller to the Sherlines for such periods.
Seller or the Sherlines shall pay all such Taxes or shall reimburse Purchaser
for any Taxes of the Company with respect to such periods within 15 days
after payment by Purchaser or the Company of such Taxes to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences
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between book and Tax income) shown on the face of the Current Balance Sheet
(rather than in any notes thereto).
(ii) Purchaser shall prepare or cause to be prepared and file
or cause to be filed any Tax Returns of the Company for periods which begin
before the Closing and end after the Closing. Seller shall pay to Purchaser
within 15 days after the date on which Taxes are paid with respect to such
periods an amount equal to the portion of such Taxes which relates to the
portion of such period ending on the Closing to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Current Balance Sheet (rather than in any
notes thereto). For purposes of this Section, in the case of any Taxes that
are imposed on a periodic basis and are payable for a taxable period that
includes (but does not end on) the Closing, the portion of such Tax which
relates to the portion of such period ending on the Closing shall: (x) in the
case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire taxable
period multiplied by a fraction the numerator of which is the number of days
in the period ending on the Closing and the denominator of which is the
number of days in the entire period; and (y) in the case of any Tax based
upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant taxable period ended on the Closing. Any
credits relating to a taxable period that begins before and ends after the
Closing shall be taken into account as though the relevant period ended on
the Closing. All determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior practice of the
Company and Seller.
(iii) Purchaser, Seller, the Company and the Sherlines shall
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this
Section 9(a) and any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
To the extent not delivered to Purchaser, Seller and the Sherlines agree:
(A) to retain all books and records with respect to Tax matters pertinent to
the Company relating to any taxable period beginning before the Closing until
the expiration of the statute of limitations (and, to the extent notified by
Purchaser, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing
authority; and (B) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, Seller and the Sherlines shall allow Purchaser to
take possession of such books and records. Purchaser, Seller and the
Sherlines further agree, upon request, to use their commercially reasonable
efforts to obtain any certificate or other document from any Governmental
Authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby), including, where
appropriate, the execution and filing of any and all consents, waivers,
extensions of any applicable statutes of limitations, powers of attorney and
other documents as shall be reasonably requested by any party hereto in
connection with such Tax audit, assessment or other controversy.
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(iv) Purchaser shall promptly notify Seller in writing
within 10 days of receipt by Purchaser or any of its Affiliates of notice of:
(A) any pending or threatened federal, state, local or foreign Tax audits or
assessments of the Company; and (B) any pending or threatened federal, state,
local or foreign Tax audits or assessments of Purchaser or any of its
Affiliates which may affect the Liabilities for Taxes of the Company with
respect to any period ending on or before the Closing. Seller and the
Sherlines shall promptly notify Purchaser in writing within 10 days of
receipt by Seller or the Sherlines of notice of any pending or threatened
federal, state, local or foreign Tax audits or assessments relating to the
income, properties or operations of the Company. Purchaser will have the sole
right: (x) to represent the Company's interest with respect to any such Tax
audit or assessment, including in any administrative or court proceeding
relating thereto; and (y) to employ counsel of its choice at its expense and
to control the conduct of such audit, assessment, or proceeding, including
settlement or other disposition thereof. Seller and the Sherlines will
cooperate with Purchaser and its counsel in the defense against or compromise
of any claim in any such audit, assessment, or proceeding and Purchaser shall
keep Seller apprized of any material developments in such audit, assessment,
or proceeding.
(v) All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any
corporate-level gains tax triggered by the Agreement) shall be paid by Seller
or the Sherlines when due, and Seller and the Sherlines will, at their own
expense, file all necessary Tax Returns and other documentation with respect
to all such transfer, documentary, sales, use, stamp, registration and other
Taxes and fees, and, if required by applicable Law, Purchaser will, and will
cause its Affiliates to, join in the execution of any such Tax Returns and
other documentation.
(vi) All tax sharing agreements or similar agreements with
respect to or involving the Company, on one hand, and Seller or the
Sherlines, on the other hand, shall be terminated as of the Closing and,
after the Closing, the Company shall not be bound thereby or have any
liability thereunder.
(vii) Prior to the Closing, the Company, Seller and the
Sherlines will not take or allow any action that would result in the
termination of the Company's status as a limited liability company which is
treated as a partnership for tax purpose.
(viii) Seller and the Sherlines consent to the filing by the
Company of an election under IRC Section 754 for the initial and all
subsequent taxable years of the Company.
(b) RELEASE. Except as otherwise expressly provided in this
Agreement, effective as of the Closing, each of Seller and the Sherlines
hereby forever relieves, releases and discharges the Company from any and all
claims, debts, liens, liabilities, losses, demands, obligations, promises,
acts, agreements, costs and expenses, damages, actions and causes of action,
of whatever kind or nature, whether known or unknown, suspected or
unsuspected, existing now, existing as of the Closing or accruing after the
Closing based on, arising out of, or
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in connection with any action or omission of the Company prior to the Closing
(other than the Continuing Obligations) (collectively, "RELEASED CLAIMS") and
agrees that neither Purchaser nor the Company shall have any liability or
obligation whatsoever to either of Seller or the Sherlines (or any Person
claiming by or through either of them) arising out of or in connection with
the Released Claims. Each of Seller and the Sherlines represents that he,
she or it has not Transferred any Released Claims. In furtherance thereof,
each of Seller and the Sherlines acknowledges that he, she or it is familiar
with Section 1542 of the Civil Code of the State of California, which
provides as follows:
A general release does not extend to claims which the creditor
did not know or suspect to exist in his favor at the time of
executing the release, which if known by him, must have
materially affected his settlement with the debtor.
Each of Seller and the Sherlines waives any and all rights he, she or it has
or may have under California Civil Code Section 1542 and/or any successor
section to it with respect to the claims released hereby.
(c) MUTUAL COOPERATION. Each of the parties to this Agreement
shall cooperate with the other parties and use its commercially reasonable
efforts to take all actions and do all things that are proper, advisable or
necessary to consummate the transactions contemplated by this Agreement,
including: (i) effecting all necessary filings and registrations with
Governmental Authorities and responding to all related requests for
additional information; (ii) obtaining before the Closing all necessary
orders, permits, consents, licenses approvals, authorizations, and
qualifications from governmental authorities; (iii) defending any litigation
or other legal proceedings challenging this Agreement or the consummation of
the transactions contemplated by this Agreement; and (iv) seeking relief from
any order that enjoins, impairs or restrains the ability of the parties to
consummate the transactions contemplated by this Agreement provided that
nothing in this Agreement shall require any party to make any payment in
order to produce any order, permit, consent, approval, authorization or
qualification.
(d) EXPENSES OF THE COMPANY; BROKER'S FEE. The Company shall pay
all fees and other charges of Global Capital Markets in connection with the
transactions contemplated by this Agreement. Seller or the Sherlines shall
pay all costs and expenses incurred by them or the Company (other than the
fees and other charges of Global Capital Markets) in connection with the
negotiation, execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement, including fees and expenses
of counsel. Purchaser shall pay all costs and expenses incurred by Purchaser
in connection with the negotiation, execution and delivery of this Agreement
and the consummation of the transactions contemplated by this Agreement,
including fees and expenses of its counsel.
(e) COVENANT NOT TO COMPETE. Drew Sherline agrees that he shall
not, so long as he is a member, either of record or beneficially, of the
Company and for a period of three years after he ceases to be a member of the
Company, directly or indirectly, either as an employee, employer, consultant,
agent, investor, principal, partner, stockholder (except as the
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holder of less than 1% of the issued and outstanding stock of a publicly held
corporation), corporate officer or director, or in any other individual or
representative capacity, engage or participate in any business in any county
identified in EXHIBIT G to this Agreement or any other jurisdiction, domestic
or foreign, in which the Company has conducted business that is in
competition in any manner whatsoever with the business of the Company, as
such business has been conducted while he was a shareholder.
(f) CONFIDENTIALITY; PUBLICITY. Each of Seller and the Sherlines
will not at any time after the date hereof disclose or use for his, her or
its own benefit or purposes or the benefit or purposes of any other Person,
other than Purchaser or the Company, any trade secrets, information, data, or
other confidential information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion, credit
and financial data, financial methods, plans, or the business and affairs of
Purchaser or the Company generally; PROVIDED that the foregoing shall not
apply to information which is generally known to the public other than as a
result of Seller's or the Sherlines' breach of this covenant. Except as
required by law, neither Seller, the Sherlines nor the Company shall disclose
to any Person or make any public announcement, by press release or otherwise,
of this Agreement or the transactions contemplated by this Agreement without
the prior written consent of Purchaser, which consent will not be
unreasonably withheld or delayed once this Agreement is publicly announced by
Purchaser. Purchaser will consult with the Company regarding any proposed
written public announcement or press release concerning this Agreement or the
transactions contemplated hereby, and will in good faith consider any
comments and suggestions the Company may have; PROVIDED, HOWEVER, that
Purchaser shall have the right to determine the actual text of any such
announcement or release.
(g) REPAYMENT OF EXCESS DISTRIBUTIONS. If the amounts distributed
to the Sherlines or Seller after the Current Balance Sheet date result in
the Company having a ratio of current assets (excluding any current assets
related to the investment in the Water Flame technology, which assets have
been transferred to Drew Sherline) to current liabilities of less than 1.33
to 1 (the "RATIO"), as reflected on the balance sheet dated as of the Closing
Date, then the Sherlines or Seller shall promptly repay to the Company, by
certified or bank cashiers check or wire transfer, an amount that would have
been sufficient to cause the Ratio to equal or exceed 1.33 to 1 as of the
Closing Date.
(h) TAG ALONG RIGHTS. If, at any time after the Closing and prior
to the initial public offering of the Company's securities, Purchaser
proposes to Transfer, in a bona fide arms-length transaction or series of
transactions to any third party or parties, otherwise than pursuant to an
Affiliate of Purchaser, equity Securities of the Company which equal fifty
percent (50%) or more of the total number of the then outstanding equity
Securities of the Company, Purchaser shall so notify Seller, describing in
such notification the material terms of such proposed Transfer. Seller shall
have the right, exercisable by written notice to Purchaser within ten (10)
Business Days after Purchaser gives notice to Seller of its intention to
effect such Transfer, to require Purchaser to provide as part of its proposed
Transfer that Seller be given the right to participate, in proportion to the
respective percentage of outstanding equity Securities of the Company owned
by Purchaser and Seller, in such transaction or series of transactions on the
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same terms and conditions (including but not limited to obligations with
respect to indemnification) as Purchaser, and, if such right is exercised by
Seller, Purchaser shall not proceed with such Transfer unless Seller is given
the right to so participate. Seller may not assign its rights under this
Section 9(h) without the prior written consent of the Purchaser.
10. INDEMNIFICATION.
(a) GENERAL. From and after the Closing, the parties shall
indemnify each other as provided in this Section 10. For the purposes of
this Section 10, each party shall be deemed to have remade all of its
representations and warranties contained in this Agreement at the Closing
with the same effect as if originally made at the Closing. As used in this
Agreement: (i) the term "INDEMNIFIED PARTY" shall mean a party who is
entitled to indemnification from a party hereto pursuant to this Section 10;
(ii) the term "INDEMNIFYING PARTY" shall mean a party hereto who is required
to provide indemnification under this Section 10 to another party; and (iii)
the term "THIRD PARTY CLAIM" shall mean any Action which is asserted or
threatened by a party other than the parties hereto, their successors and
permitted assigns, against any Indemnified Party or to which any Indemnified
Party is subject.
(b) THE SHERLINES' AND SELLER'S INDEMNIFICATION OBLIGATIONS.
Seller and the Sherlines shall, jointly and severally, indemnify, save and
keep Purchaser and its officers, directors, employees and stockholders, the
Company and its officers, directors and employees (other than Drew Sherline),
and their respective heirs, successors and assigns (each a "PURCHASER
INDEMNITEE" and collectively, the "PURCHASER INDEMNITEES") harmless against
and from all Losses sustained or incurred by any Purchaser Indemnitee, as a
result of or arising out of or by virtue of:
(i) any inaccuracy in any representation and warranty made to
Purchaser in this Agreement;
(ii) the breach by the Company before the Closing or either of
Seller or the Sherlines before or after the Closing of, or failure of the
Company before the Closing or either of Seller or the Sherlines before or
after the Closing to comply with, any of their respective covenants or
obligations under this Agreement;
(iii) any Liability of the Company, Seller or the
Sherlines with respect to Tax Returns filed or Taxes owing for any tax period
or portion thereof ending on or before the Closing, or for any tax period
beginning before and ending after the Closing to the extent allocable (as
determined in accordance with Section 9(a)(ii)), to the extent such Taxes are
not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Current Balance Sheet (rather than in any
notes thereto);
(iv) any Loss suffered or incurred by the Company as a result
of, or arising out of, the phantom stock plan with Kathleen Lane, the lost
stock certificate issued in the name of Kurt Rochlitz, and/or the finders
agreement with Lucerne & Associates, all as disclosed in the Company
Disclosure Schedule; and
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(v) fraud by either of Seller or the Sherlines in connection
with this Agreement and the transactions contemplated hereby.
(c) PURCHASER INDEMNIFICATION OBLIGATIONS. Purchaser shall
indemnify, save and keep Seller, the Sherlines and their successors and
permitted assigns (individually a "SELLER INDEMNITEE" and collectively, the
"SELLER INDEMNITEES") harmless against and from all Losses sustained or
incurred by any Seller Indemnitee as a result of or arising out of or by
virtue of:
(i) any inaccuracy in any representation and warranty
made by Purchaser to Seller or the Sherlines in this Agreement;
(ii) any breach by Purchaser of, or failure by Purchaser
to comply with, any of its respective covenants or obligations under this
Agreement; and
(iii) fraud by Purchaser in connection with this Agreement
and the transactions contemplated hereby.
(d) LIMITATION ON INDEMNIFICATION OBLIGATIONS.
(i) Neither Purchaser Indemnitees nor the Seller
Indemnitees shall be entitled to recover under Sections 10(b) or 10(c)
unless: (A) a claim has been asserted by written notice, setting forth the
basis for such claim, delivered to Purchaser or Seller, as the case may be,
on or prior to March 31, 2001; and (B) the aggregate amount of indemnifiable
Losses incurred by Purchaser Indemnities on the one hand or the Seller
Indemnitees on the other hand exceeds $50,000 (the "BASKET"), at which time
such claim for indemnification may be made for all Losses, not just the
Losses in excess of the Basket.
(ii) Notwithstanding anything to the contrary herein
contained, the limitations contained in Sections 10(d)(i) shall not apply to
indemnification obligations under Sections 10(b) and (c) for:(A) breaches of
any of the representations and warranties relating to Sections 3(a)(iii) or
(iv), 3(b), 3(e) or 3(h);(B) breach of any covenants or agreement of any
Indemnifying Party contained under Sections 2, 6 or 9 of this Agreement; or
(C) fraud by an Indemnifying Party in connection with this Agreement and the
transactions contemplated by this Agreement.
(iii) The amount of any indemnification to be provided by
Seller or the Sherlines or Purchaser with respect to any Losses shall be
reduced by any insurance proceeds received or to be received by the
indemnified party with respect to such Losses. In furtherance hereof, the
Purchaser agrees to use commercially reasonable efforts to cause the Company
to maintain products liability insurance until March 31, 2001; provided such
insurance is available to the Company on commercially reasonable terms.
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(e) NO CLAIM BY SELLER, THE SHERLINES OR OTHERS. Although Seller
and the Sherlines may have relied on information supplied by the Company in
making certain representations and warranties contained in this Agreement and
the Company Disclosure Schedule, each of Seller and the Sherlines has no
claim, and shall assert no claim, for contribution, indemnification or
otherwise, against the Company with respect to any breach of any covenant or
of any of the representations and warranties or any inaccuracy in the Company
Disclosure Schedule irrespective of whether the information supplied by the
Company and relied upon by Seller or the Sherlines was incomplete or
inaccurate in any way or for whatsoever reason; further, each of Seller and
the Sherlines acknowledges that the Company has made no representation or
warranty to them with respect to the information supplied by the Company to
them whatsoever.
(f) THIRD PARTY CLAIMS. Forthwith following the receipt of notice
of a Third Party Claim, the party receiving the notice of the Third Party
Claim shall: (i) notify the other party of its existence setting forth with
reasonable specificity the facts and circumstances of which such party has
received notice; and (ii) if the party giving such notice is an Indemnified
Party, specifying the basis hereunder upon which the Indemnified Party's
claim for indemnification is asserted. The Indemnified Party shall have the
right, without prejudice to its right of indemnification hereunder, in its
discretion exercised in good faith and upon the advice of counsel, to
contest, defend and litigate such Third Party Claim, and may settle such
Third Party Claim, either before or after the initiation of litigation, at
such time and upon such terms as the Indemnified Party deems fair and
reasonable; PROVIDED, HOWEVER, that: (x) the Indemnified Party must give to
the Indemnifying Party at least 5 days prior notice of its intention to
settle; and (y) without the prior consent of the Indemnifying Party (which
consent will not be unreasonably withheld), the Indemnified Party may not
settle the Third Party Claim: (A) on terms which involve a payment by the
Indemnified Party which (I) is in excess of $25,000 and (II) of which the
Indemnifying Party will be obligated to pay more than 50%; or (B) if such
settlement would involve an admission of liability by the Indemnifying Party,
a loss or relinquishment of material rights by the Indemnifying Party or
equitable relief against the Indemnifying Party. The Indemnified Party shall
be reimbursed by the Indemnifying Party for the reasonable attorneys' fees
and other expenses of defending, contesting, litigating and/or settling the
Third Party Claim which are incurred from time to time, forthwith following
the presentation to the Indemnifying Party of itemized bills for said
attorneys' fees and other expenses.
(g) LIQUIDATION OF INDEMNIFICATION CLAIMS. When an Indemnified
Party shall give an Indemnifying Party notice of a Loss that has been fixed
or determined as to amount, the notice shall specify in reasonable detail the
nature and amount of the Losses and the sections of this Agreement upon which
the claim for indemnification for the Losses is based. If the Indemnifying
Party desires to dispute the claim, it shall, within 15 days after notice of
the claim is given pursuant to this Section 10(g), give counter notice to the
Indemnified Party, setting forth in reasonable detail the basis for disputing
the claim. If no such counter notice is given within that 15-day period, or
if the Indemnifying Party acknowledges liability for the indemnification,
then the indemnification obligation shall be promptly satisfied.
(h) DISPUTE RESOLUTION. If, within 15 days after the giving of a
counter notice by the Indemnifying Party, the Indemnifying Party and the
Indemnified Party have not
36
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reached agreement as to the indemnification claim in question, then the claim
for indemnification shall be submitted to and settled by arbitration as
hereinafter provided (it being expressly understood and agreed that if such
counter notice is duly given, it is the intention of the parties to this
Agreement that any such indemnification claim shall be resolved by
arbitration as provided in this Section 10(h)). The arbitration shall be by
a single arbitrator experienced in the matters at issue selected by, and
mutually acceptable to, the Indemnifying Party and the Indemnified Party and
shall be conducted in accordance with the arbitration rules of the American
Arbitration Association. The arbitrator must be independent (not an agent,
officer, director, attorney, employee, or shareholder of Purchaser or Seller
or either of the Sherlines or a relative or Affiliate of any of those
persons) without any economic or financial interest of any kind in the
outcome of the arbitration. Each arbitrator's conduct will be governed by the
Code of Ethics for Arbitrators in Commercial Disputes (1986) that has been
approved and recommended by the American Bar Association and the American
Arbitration Association. Within 60 days after the effective date of the
counter notice of the Indemnifying Party, the arbitrator shall convene a
hearing for the dispute to be held on such date and at such time and place in
Los Angeles County, California, as the arbitrator designates upon 30 days'
advance notice to each Indemnified Party and each Indemnifying Party. The
parties shall request that the arbitrator render his decision within 30 days
after the conclusion of the hearing. The arbitrator shall hear and decide
the dispute based on the evidence produced, notwithstanding the failure or
refusal to appear by a party who has been duly notified of the date, time,
and place of the hearing. The decision of the arbitrator shall be final and
binding as to any matters submitted under this Agreement, and to the extent
that the arbitrator's decision is that Losses have been incurred for which a
party is to be indemnified under this Agreement, the Losses shall be promptly
satisfied; PROVIDED, HOWEVER, that, if necessary, such decision may be
enforced by either the Indemnifying Party or the Indemnified Party in any
court of record having jurisdiction over the subject matter or over any of
the parties hereto. The prevailing party shall recover all of such party's
costs, and reasonable attorneys' fees incurred in connection with any such
arbitration.
(i) CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. All amounts
paid by Purchaser or Seller or the Sherlines, as the case may be, under the
terms of this Section 10 shall be treated for all Tax purposes as an
adjustment of the Purchase Price, unless otherwise required by applicable law
in which event such payments shall be made in an amount sufficient to
indemnify the party on a net after-Tax basis.
(j) ACCOUNTS RECEIVABLE. For purposes of determining whether
accounts receivable are fully collectable as represented pursuant to Section
3(g)(v), an account shall be deemed not fully collectable if is shall not
have been collected within eight months of the Closing Date. Purchaser shall
assign to Seller any uncollectable accounts receivable for which Purchaser is
indemnified in full by Seller or the Sherlines under this Section 10.
11. TERMINATION. This Agreement may be terminated:
(a) by delivery of written notice from Purchaser to Seller: (i) if
any material condition to the obligation of Purchaser to complete the
Acquisition set forth in Section 8 is not satisfied at the Closing or such
earlier time or times contemplated thereby; or (ii) in the event of a
material breach of any representation, warranty, condition or agreement of
Seller or the
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Sherlines contained in this Agreement that is not cured within 10 days of the
time that written notice of such breach is received by Seller or the
Sherlines; or
(b) by delivery of written notice from Seller to Purchaser: (i) if
any material condition to the obligations of Seller to complete the
Acquisition set forth in Section 7 is not satisfied at the Closing or such
earlier time or times contemplated thereby; or (ii) in the event of a
material breach of any representation, warranty, condition or agreement of
Purchaser contained in this Agreement that is not cured within 10 days of the
time that written notice of such breach is received by Purchaser; or
(c) by delivery of written notice from a party to the other
parties if the Acquisition shall not have been consummated on or before
January 31, 1999; or
(d) by mutual written consent of Purchaser and Seller.
The termination of this Agreement shall not relieve any party from
liability for any breach or default occurring prior to termination of this
Agreement. If termination of this Agreement shall be judicially determined to
have been caused by willful breach of this Agreement, then, in addition to
other remedies at Law or in equity for breach of this Agreement, the party so
found to have willfully breached this Agreement shall indemnify the other
parties for their respective costs, fees and expenses of their counsel,
accountants and other experts and advisors as well as fees and expenses
incident to negotiation, preparation and execution of this Agreement and
related documentation.
12. MISCELLANEOUS PROVISIONS.
(a) NOTICES. All notices, consents, demands, requests, approvals
or other communications hereunder shall be in writing and shall be deemed to
have been duly given if: (i) delivered in person, on the date actually given;
(ii) by United States mail, certified or registered, with return receipt
requested, on the date which is two Business Days after the date of mailing;
or (iii) if sent by telex or facsimile transmission, with a copy mailed on
the same day in the manner provided in (i) above, on the date transmitted
provided receipt is confirmed by telephone:
(A) if to Purchaser to:
Westminster Capital, Inc.
9665 Wilshire Blvd., Suite M-10
Beverly Hills, CA 90212
Attention: Keenan Behrle, Executive Vice President
Telecopy No.: (310) 271-6274
(B) if to Seller or the Sherlines to:
Drew Sherline and Cathy Sherline
28071 Tioga Court
Laguna Nigel, CA 92656
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or at such other address as may have been furnished by such Person in writing
to the other parties.
(b) SEVERABILITY. Should any Section or any part of a Section
within this Agreement be rendered void, invalid or unenforceable by any court
of Law for any reason, such invalidity or unenforceability shall not void or
render invalid or unenforceable any other Section or part of a Section in
this Agreement.
(c) EXHIBITS AND SCHEDULES. Each Exhibit and Schedule delivered
pursuant to the terms of this Agreement, each document, instrument and
certificate delivered by the parties in connection with the transactions
contemplated hereby constitutes an integral part of this Agreement and is
incorporated by reference into this Agreement.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED BOTH AS TO VALIDITY AND PERFORMANCE AND ENFORCED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PRINCIPLES THEREOF.
(e) SUBMISSION TO JURISDICTION AND WAIVER OF IMMUNITY AND
INCONVENIENT FORUM. Each of Seller and the Sherlines agree that any and all
disputes arising in connection with this Agreement and the transactions
contemplated hereby may be brought in any state or federal court of record
located in the County of Los Angeles, State of California. Each of Seller
and the Sherlines irrevocably submits to the jurisdiction of the state and
federal courts located in the County of Los Angeles, State of California in
any legal action or proceeding relating to this Agreement and the
transactions contemplated hereby. Seller and the Sherlines irrevocably waive
all immunity from jurisdiction, attachment and execution, whether on the
basis of sovereignty or otherwise, to which they might otherwise be entitled
in any legal action or proceeding in any state or federal court located in
the County of Los Angeles, State of California. Each of Seller and the
Sherlines irrevocably waives, to the fullest extent permitted by Law, any
objection which it may now or hereafter have to any suit, action or
proceeding relating to this Agreement and the transactions contemplated
hereby being brought in the federal or state courts located in the County of
Los Angeles, State of California, and hereby further irrevocably waive any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
(f) HEADINGS. Section headings and subheadings used in this
Agreement are for convenience only and shall not affect the meaning or
construction of this Agreement.
(g) NO ADVERSE CONSTRUCTION. The rule that a contract is to be
construed against the party drafting the contract is hereby waived, and shall
have no applicability in construing this Agreement, any other document
delivered at the Closing or any provisions hereof or thereof.
(h) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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(i) COSTS AND ATTORNEYS' FEES. In the event that any action,
suit, or other proceeding is instituted concerning or arising out of this
Agreement the prevailing party shall recover all of such party's costs, and
reasonable attorneys' fees incurred in each and every such action, suit, or
other proceeding, including any and all appeals or petitions therefrom.
(j) SUCCESSORS AND ASSIGNS. All rights, covenants and agreements
of the parties contained in this Agreement shall, except as otherwise
provided herein, be binding upon and inure to the benefit of their respective
successors and assigns. Neither Seller nor the Sherlines may assign his, her
or its obligations under this Agreement without the prior written consent of
Purchaser, and Purchaser may not assign any of its obligations under this
Agreement without the prior written consent of Seller.
(k) AMENDMENT. This Agreement may be amended at any time prior to
or after the Closing by the mutual written agreement of all parties hereto.
(l) WAIVER. At any time prior to the Closing, Purchaser and
Seller may:
(i) extend the time for the performance of any of the
obligations or other acts of the parties hereto;
(ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto; or
(iii) waive compliance with any of the agreements or
conditions contained herein.
Any agreement on the part of Purchaser or Seller to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
or on behalf of such party.
(m) ENTIRE AGREEMENT. This Agreement, the attached Exhibits and
Schedules, the other agreements and schedules referred to in this Agreement,
contain the entire understanding of the parties and there are no further or
other agreements or understandings, written or oral, in effect between the
parties relating to the subject matter hereof unless expressly referred to
herein. Notwithstanding the foregoing, the confidentiality provisions
contained in paragraph 7 of that certain letter of intent, dated October 8,
1998, by and between Purchaser and Drew Sherline, will remain in effect until
the Closing Date, after which date such provisions shall terminate.
(n) TIME OF ESSENCE. Time is of the essence in the performance and
satisfaction by each party of every condition, obligation and agreement to be
performed or satisfied by the party under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
WESTMINSTER CAPITAL, INC.,
A DELAWARE CORPORATION
By: /s/ William Belzberg
-----------------------------------
Its: Chief Executive Officer
----------------------------------
ONE SOURCE INDUSTRIES, LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
By: /s/ Drew Sherline
-----------------------------------
Its: President
----------------------------------
ONE SOURCE INDUSTRIES, INC.
A CALIFORNIA CORPORATION
By: /s/ Drew Sherline
-----------------------------------
Its: President
----------------------------------
/s/ Drew Sherline
--------------------------------------
Drew Sherline
/s/ Cathy Sherline
--------------------------------------
Cathy Sherline
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
ONE SOURCE INDUSTRIES, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
DATED AS OF JANUARY 11, 1999
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER
APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT
REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS
FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH
HEREIN.
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
ONE SOURCE INDUSTRIES, LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY
THIS AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") is entered
into as of this 11th day of January, 1999, by and between Westminster Capital,
Inc., Drew Sherline and One Source Industries, Inc. (collectively, the "Members"
and, individually, a "Member"). This Agreement replaces and supercedes the
Operating Agreement of One Source Industries, LLC, dated as of January 1, 1999,
by and between Drew Sherline and One Source Industries, Inc.
R E C I T A L S
A. Drew Sherline and One Source Industries, Inc. filed Articles of
Organization for ONE SOURCE INDUSTRIES, LLC (the "Company"), a limited
liability company under the laws of the State of California, with the
California Secretary of State on December 31, 1998. The Company was created
to conduct the business historically conducted by One Source Industries, Inc.
and One Source Industries, Inc. contributed all of its assets and
liabilities to the Company in connection with the formation of the Company.
B. Concurrently with entering into this Agreement, the parties hereto
have also entered into a Membership Interest Purchase Agreement (the
"Purchase Agreement"), pursuant to which Westminster Capital, Inc. has
purchased an 80% Membership Interest in the Company from One Source
Industries, Inc.
C. The parties hereto desire to adopt and approve this Agreement as
the operating agreement for the Company, to admit Westminster Capital, Inc.
as a Member, to establish their respective rights and responsibilities and to
govern their relationships as Members of the Company.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Members hereby agree as follows:
ARTICLE 1
FORMATION OF LIMITED LIABILITY COMPANY;
ORGANIZATIONAL MATTERS
1.1 FORMATION. The parties hereby form a limited liability company (the
"Company") under the provisions of the Beverly-Killea Limited Liability Company
Act (the "Act") and, except
<PAGE>
as herein otherwise expressly provided, the rights and liabilities of the
Members shall be as provided in that Act, as amended from time to time.
1.2 NAME. The business of the Company shall be conducted under the
name "ONE SOURCE INDUSTRIES, LLC," or such other name as the Manager shall
hereafter designate.
1.3 PLACE OF BUSINESS. The principal business office of the Company
shall be located at 26941 Cabot Road, Suite 129, Laguna Hills, California,
92653, or at such other place as may be designated by the Manager from time
to time.
1.4 TERM. The term of the Company shall commence on the date hereof
and shall continue until December 31, 2031, unless sooner terminated as
hereinafter provided.
1.5 COVENANTS REGARDING ORGANIZATION. The Members shall take such
steps as are necessary to (a) maintain the Company's status as a limited
liability company formed under the laws of the State of California and its
qualification to conduct business in any jurisdiction where the Company does
business and is required to be qualified, and (b) ensure that the Company
shall continue to be treated as a partnership for tax purposes.
ARTICLE 2
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
2.1 "ACT" means the Beverly-Killea Limited Liability Company Act, Title
2.5 of the Corporations Code of the State of California, as it may be amended
from time to time.
2.2 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant fiscal year of the Company, after giving effect to the following
adjustments: (a) credit to such Capital Account any amounts which such Member
is obligated to restore pursuant to any provision of this Agreement or is deemed
to be obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (b) debit to such Capital Account
the items described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and
(6). This definition of Adjusted Capital Account Deficit is intended to comply
with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
2.3 "AFFILIATE" means, with reference to a specified Member, any Person
controlling, controlled by, or under the common control of a Member. The term
"control," as used in the immediately preceding sentence, means, with respect to
a corporation or limited liability company, the right to exercise, directly or
indirectly, fifty percent (50%) or more of the voting rights attributable to the
controlled corporation or limited liability company, and, with respect to any
individual, partnership, trust or other entity or association, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of the controlled entity.
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2.4 "AGREEMENT" means this Operating Agreement, as amended, modified or
supplemented from time to time.
2.5 "CAPITAL ACCOUNT" means, with respect to any Member, the capital
account maintained for such Member in accordance with the following
provisions:
(a) To each Member's Capital Account there shall be credited such
Member's capital contributions (including, the Gross Asset Value of any
property contributed to the Company), such Member's distributive share of
Profits and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.4 or Section 6.5 hereof, and the amount of
any Company liabilities assumed by such Member or which are secured by any
property distributed to such Member.
(b) To each Member's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any property distributed to such
Member pursuant to any provision of this Agreement, such Member's
distributive share of Losses and any items in the nature of deduction or loss
that are specially allocated pursuant to Section 6.4 or Section 6.5 hereof,
and the amount of any liabilities of such Member assumed by the Company or
which are secured by any property contributed by such Member to the Company.
(c) In the event all or a portion of a Membership Interest in the
Company is transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the
extent it relates to the transferred Interest.
(d) Where appropriate in determining the amount of any liability
for purposes of this Agreement, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the Manager shall
determine that it is prudent to modify the manner in which the Capital
Accounts, or any debits or credits thereto (including, without limitation,
debits or credits relating to liabilities that are secured by contributed or
distributed property or that are assumed by the Company or any Member) are
computed in order to comply with such Regulations, the Manager may make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Member pursuant to Article 12 hereof upon the
dissolution of the Company. The Manager also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Members and the amount of Company capital reflected on the
Company's balance sheet, as computed for book purposes, in accordance with
Section 1.704-1(b)(2)(iv)(q) of the Regulations, and (ii) make any
appropriate modifications in the event unanticipated events might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
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2.7 "COMPANY" means the limited liability company formed pursuant to
this Agreement by the parties hereto, as said company may from time to time
be constituted.
2.8 "COMPANY MINIMUM GAIN" has the meaning given "partnership minimum
gain" set forth in Sections 1.704-2(b)(2) and 1.704-2(d) of the Regulations.
2.9 "DEPRECIATION" means, for each fiscal year of the Company, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such fiscal year, except
that (1) with respect to any asset whose Gross Asset Value differs from its
adjusted tax basis for federal income tax purposes and which difference is
being eliminated by use of the "remedial method" defined by Section
1.704-3T(d) of the Regulations, Depreciation for such fiscal year shall be
the amount of book basis recovered for such fiscal year under the rules
prescribed by Section 1.704-3T(d)(2) of the Regulations, and (2) if the Gross
Asset Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such fiscal year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery
deduction for such fiscal year bears to such beginning adjusted tax basis;
PROVIDED, HOWEVER, that if the adjusted basis for federal income tax purposes
of an asset at the beginning of such fiscal year is zero, Depreciation shall
be determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Manager.
2.10 "DISTRIBUTABLE CASH" means the amount of cash that the Manager
deems available for distribution to the Members, taking into account the tax
distributions required by Section 5.1 and all Company debts, liabilities and
obligations then due and amounts that the Manager deems necessary to place
into reserves for customary and usual claims, anticipated cash requirements
with respect to the Company's business and future growth plans. The Manager
shall not be obligated to fix any amount as Distributable Cash.
2.11 "ECONOMIC INTEREST" means a Person's right to share in the income,
gains, losses, deductions, credit or similar items of, and to receive
Distributable Cash from, the Company, but does not include any other rights
of a Member including, without limitation, the right to vote or to
participate in management, or, except to the extent provided by law, any
right to information concerning the business and affairs of the Company.
2.12 "GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset, as
reasonably determined by the Manager and the contributing Member;
(b) The Gross Asset Values of all Company assets shall be adjusted
to equal their respective gross fair market values, as reasonably determined
by the Manager, as of the following times: (i) the acquisition of an
additional Membership Interest by any new or existing
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Member in exchange for more than a DE MINIMIS capital contribution; (ii) the
distribution by the Company to a Member of more than a DE MINIMIS amount of
property as consideration for a Membership Interest; and (iii) the
liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(G);
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal the gross fair market value of such asset
on the date of distribution, as reasonably determined by the Manager and the
recipient Member; and
(d) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and
Section 2.24(f) or 6.4(g) hereof; PROVIDED, HOWEVER, that Gross Asset Values
shall not be adjusted pursuant to this Section 2.12(d) to the extent the
Manager determine that an adjustment pursuant to Section 2.12(b) hereof is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this Section 2.12(d).
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to Section 2.12(a), (b) or (d) hereof, such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Profits and Losses.
2.13 "INTEREST" means an ownership interest in the Company, which
includes a Member's Economic Interest and/or a Member's Membership Interest.
2.14 "MAJORITY IN INTEREST" means those Members owning, in the
aggregate, more than fifty percent (50%) of the Percentage Interests, except
where otherwise expressly provided in this Agreement.
2.15 "MANAGER" means the Board of Directors selected to manage the
Company pursuant to the provisions of this Agreement and the Act.
2.16 "MEMBER" means a Person who:
(a) has been admitted to the Company as a Member in accordance
with this Agreement (including each Person whose name is listed on the
signature page hereof and each Person who hereafter has been admitted to the
Company as a member in accordance with Article 10) or is a transferee or
assignee of a Membership Interest who has become a member pursuant to Article
9; and
(b) has not resigned, withdrawn or been expelled as a member or,
if other than an individual, been dissolved.
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2.17 "MEMBER NONRECOURSE DEBT" has the meaning given "partner
nonrecourse debt" set forth in Section 1.704-2(b)(4) of the Regulations. The
amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse
Debt for a fiscal year of the Company equals the excess (if any) of the net
increase (if any) in the amount of Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt during that fiscal year over the
aggregate amount of any distributions during that fiscal year to the Member
that bears (or is deemed to bear) the economic loss for such Member
Nonrecourse Debt to the extent such distributions are from the proceeds of
such Member Nonrecourse Debt and are allocable to an increase in Member
Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(2).
2.18 "MEMBER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain
that would result if such Member Nonrecourse Debt were treated as a
nonrecourse liability, determined in accordance with Section 1.704-2(i)(3) of
the Regulations.
2.19 "MEMBER NONRECOURSE DEDUCTIONS" has the meaning given "partner
nonrecourse deductions" set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2)
of the Regulations.
2.20 "MEMBERSHIP INTEREST" means a Member's rights in the Company,
collectively, including the Member's Economic Interest, any right to vote or
participate in management, and any right to information concerning the
business and affairs of the Company.
2.21 "NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
2.22 "PERCENTAGE INTEREST" means the percentage assigned to each Member
as set forth opposite such Member's name on the signature page hereof.
2.23 "PERSON" means an individual, general partnership, limited
partnership, limited liability company, corporation, trust, estate, real
estate investment trust, association or other entity, whether domestic or
foreign.
2.24 "PROFITS" AND "LOSSES" means, for each fiscal year of the Company,
an amount equal to the Company's taxable income or loss for such fiscal year,
determined in accordance with Code Section 703(a) (and, for this purpose, all
items of income, gain, loss, or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or
loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this Section 2.24 shall be added to such taxable income or loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section
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1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses pursuant to this Section 2.24, shall be subtracted from
such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to Section 2.12(b) or (c) hereof, the amount of such
adjustment shall be taken into account as gain or loss from the disposition
of such asset for purposes of computing Profits or Losses;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its gross asset value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal year or
other period, computed in accordance with Section 2.9 hereof;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution
other than in liquidation of an Economic Interest, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Profits or Losses; and
(g) Notwithstanding any other provisions of this Section 2.24, any
items which are specially allocated pursuant to Section 6.4 or Section 6.5
hereof shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss, or
deduction available to be specially allocated pursuant to Sections 6.4 and
6.5 hereof shall be determined by applying rules analogous to those set forth
in Sections 2.24(a) through (f) above.
2.25 "REGULATIONS" means the Treasury Regulations promulgated under the
Code.
2.26 "TRANSFER" shall mean any transfer, sale, assignment, gift, pledge
or other disposition or encumbrance.
ARTICLE 3
BUSINESS PURPOSE
3.1 PURPOSE. The purpose of the Company is conduct the packaging
business historically conducted by One Source Industries, Inc. and to engage
in any and all activities related or incidental thereto or for which limited
liability companies may be organized under the laws of the State of
California.
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3.2 WAIVER OF RIGHT OF PARTITION. Except as expressly provided in this
Agreement, no Member may, either directly or indirectly, take any action to
require partition of the Company or of any of the Company's assets or
properties or cause the sale of any of the Company's assets or properties
without the consent of the Manager and a Majority in Interest of the Members;
and, notwithstanding any provision of law to the contrary, each Member (and
his, her or its legal representative, successor or assign) hereby irrevocably
waives any and all right to maintain any action for partition or to compel
any sale with respect to his, her or its Membership Interest, or with respect
to any assets or properties of the Company.
3.3 OUTSIDE ACTIVITIES AND INVESTMENTS OF MEMBERS. Each Member
understands that the other Members may be interested, directly or indirectly,
in various other businesses and undertakings, some of which may be similar in
nature to the business of the Company. Except as specifically provided for
in the Purchase Agreement and the other agreements referenced therein,
including the employment agreement between the Company and Drew Sherline,
each Member agrees that any Member and any Affiliate of any Member may engage
in or possess an interest, direct or indirect, in any business venture of any
nature or description for his, her or its own account, independently or with
others, including without limitation any business, industry or activity in
which the Company may be interested in investing or may also have
investments, and may do so without any accountability or any obligation to
report the same to the Company or any Member or to afford the Company or any
Member any opportunity to participate therein. Neither the Company nor any
Member shall have any right in or to any such independent venture or
investment or the revenues or profits derived therefrom.
3.4 OUTSIDE EMPLOYMENT OF MEMBERS. The fact that any Member or any
Affiliate of any Member is employed by, or is directly or indirectly
interested in or connected with, any Person employed or engaged by the
Company to render or perform a service, or from whom the Company may make any
purchase, or to whom the Company may make any sale, or from or to whom the
Company may obtain or make any loan or enter into any lease, license or other
arrangement, shall not prohibit the Company from engaging in any transaction
with such Person, or create any additional duty of legal justification by
such Member or such Person beyond that of an unrelated party, and neither the
Company nor any other Member shall have any right in or to any revenues or
profits derived from such transaction by such Member, Affiliate or Person.
ARTICLE 4
CAPITAL AND CONTRIBUTIONS;
RIGHTS AND OBLIGATIONS OF MEMBERS
4.1 INITIAL CAPITAL CONTRIBUTIONS.
(a) In connection with the formation of the Company, Drew Sherline
contributed $1,000 to the Capital of the Company.
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(b) In connection with the formation of the Company, One Source
Industries, Inc. contributed all of the assets (including, without
limitation, all equipment, supplies, fixtures, inventories, personal property
and other goods, accounts receivable, notes, drafts and other documents,
leasehold improvements, customer lists, business records, contract rights,
permits, trademarks, trade names and service marks, goodwill and other
general intangibles of whatever kind or nature) which are owned by One Source
Industries, Inc. In connection with such contribution, the Company agreed to
assume all liabilities and other obligations of One Source Industries, Inc.
(including, without limitation, all trade payables, obligations under
equipment and real property leases, employee related liabilities and
obligations under all contracts and other agreements transferred to the
Company); excluding, however, any liabilities for federal, state, local or
foreign income taxes or franchise taxes, including any interest, penalties
and additions imposed with respect to such taxes. Each of One Source
Industries, Inc. and Drew Sherline agrees to promptly execute and deliver all
such further documents, instruments, assignments, endorsements and other
agreements, and take all such further actions, as may be necessary or
desirable or that the Company may request, in order to confirm the foregoing
or carry out the intent and purposes thereof.
(c) The Members agree that, for purposes of calculating and
maintaining the Capital Accounts of the Members as provided in Section 4.2
below, the net value of the assets and liabilities contributed by One Source
Industries, Inc. to the Company, as described in Section 4.1(b) above, shall
be determined based on the total consideration paid by Westminster Capital,
Inc. to One Source Industries, Inc. for the purchase the 80% Membership
Interest in the Company as provided in the Purchase Agreement, and that any
adjustments that may be required to be made to the Members' respective
Capital Accounts by reason of the payment of deferred, contingent
consideration for such Membership Interest under the Purchase Agreement shall
be reflected on the books of the Company as an adjustment in the value of the
goodwill so contributed by One Source Industries, Inc. to the Company.
4.2 MAINTENANCE OF CAPITAL ACCOUNTS. Capital accounts shall be
maintained for each Member in accordance with Section 704(b) of the Code and
the Regulations promulgated thereunder. Each Member's Capital Account shall
be initially credited with the contribution required of such Member under
Section 4.1, when made.
4.3 NO ADDITIONAL CAPITAL CONTRIBUTIONS. Except as provided in Section
4.1, or as otherwise determined by all of the Members, no Member shall be
liable to creditors of the Company, or shall be required to make additional
capital contributions to the Company or to restore all or any portion of a
deficit balance in such Member's Capital Account with the Company.
4.4 NO INTEREST ON CONTRIBUTIONS. No Member shall have the right to
receive interest on contributions to the Company.
4.5 NO RIGHT TO WITHDRAW. No Member may withdraw or resign from the
Company without the consent of the Manager and a Majority in Interest of the
Members.
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4.6 LOANS BY MEMBERS. With the consent of the Manager, any Member may,
at any time and from time to time, make a loan to the Company in such amount
and upon such terms as the Member and the Manager may agree.
4.7 COMPENSATION OF MEMBERS. A Member may be compensated for
performing services to the Company in his, her or its capacity as an employee
or consultant thereto, as reasonably determined by the Manager.
ARTICLE 5
DISTRIBUTIONS
5.1 MANDATORY DISTRIBUTIONS. In order to permit the Members to pay
taxes on their allocable share of the taxable income of the Company, the
Manager shall cause the Company to distribute to each Member, on a quarterly
basis, an estimated amount equal to the excess, if any, of (a) the product of
the taxable income of the Company (including estimates for the current year)
allocated to such Member, determined on a cumulative basis for all years
(through and including the immediately preceding tax year) multiplied by
highest combined marginal federal and California income tax rate applicable
to a resident individual for such fiscal year (stated as a percentage), over
(b) all amounts previously distributed to such Member. Such amounts shall be
treated as advances on distributions of cash under Section 5.2 below.
5.2 DISTRIBUTIONS OF CASH. Subject to applicable law and to
limitations contained elsewhere in this Agreement, the Manager may elect from
time to time to distribute Distributable Cash to the Members, which
distributions shall be in the following order of priority:
(a) First, Distributable Cash shall be distributed to and among
the Members who have made loans to the Company, PRO RATA, in proportion to
the principal loan balances outstanding, until all of the accrued but unpaid
interest on all such loans, if any, have been paid, and then the principal
amounts thereof; PROVIDED, HOWEVER, that this provision shall not apply with
respect to the principal or interest on any loans that, at the time of such
distribution, may not be paid by the Company under the terms of any
subordination agreement applicable to such loan.
(b) Second, Distributable Cash shall be distributed to and among
the Members, PRO RATA, in accordance with their respective Percentage
Interests.
(c) All distributions hereunder shall be made only to the Persons
who, according to the books and records of the Company, are the holders of
record of Interests in respect of which such distributions are made on the
actual date of distribution. Neither the Company nor any Member, Manager or
officer shall incur any liability for making distributions in accordance with
this Section 5.2.
5.3 FORM OF DISTRIBUTION. No Member, regardless of the nature of the
Member's capital contributions, shall have the right to demand and receive
any distribution from the Company in any form other than money. Further, no
Member may be compelled to accept from the Company a
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distribution of any asset in kind in lieu of a proportionate distribution of
money being made to other Members. A Member may be compelled, however, to
accept an in-kind asset distribution if such asset is being distributed
proportionately to all Members.
5.4 WITHHOLDING ON DISTRIBUTIONS. Each Member acknowledges and agrees
that the Company may be required to deduct and withhold tax or to fulfill
other obligations of such Member on any amount distributed or allocated by
the Company to such Member or to any assignee of a Member's Interest (or the
related Economic Interest). Each Member shall promptly furnish the Tax
Matters Partner with an Internal Revenue Service Form W-8, Form W-9 or Form
1001, as applicable. All amounts so withheld with respect to such Member
shall be treated as amounts distributed to such Person pursuant to Section
5.2(b) for all purposes under this Agreement.
5.5 RETURN OF DISTRIBUTIONS. Except for distributions made in
violation of the Act or this Agreement, no Member shall be obligated to
return any distribution to the Company or pay the amount of any distribution
for the account of the Company or to any creditor of the Company. The amount
of any distribution returned to the Company by a Member or paid by a Member
for the account of the Company or to a creditor of the Company shall be added
to the account or accounts from which it was subtracted when it was
distributed to such Member.
5.6 RESTRICTION ON DISTRIBUTIONS. No distribution shall be made if,
after giving effect to the distribution:
(a) The Company would not be able to pay its debts as they become
due in the usual course of business; or
(b) The Company's total assets would be less than the sum of its
total liabilities.
ARTICLE 6
ALLOCATIONS OF PROFITS AND LOSSES
6.1 ALLOCATION OF PROFITS. Except as otherwise provided in this
Article 6, Profits shall be allocated: first, to and among the Members, PRO
RATA, in proportion to and to the extent by which (a) the cumulative Losses
allocated to the Members pursuant to Section 6.2 hereof for all prior fiscal
years exceeds (b) the cumulative Profits allocated to the Members pursuant to
this Section 6.1 for all prior fiscal years; and, thereafter, to and among
the Members, PRO RATA, in accordance with their respective Percentage
Interests.
6.2 ALLOCATION OF LOSSES.
(a) GENERAL ALLOCATIONS. Except as provided in Section 6.2(b), or as
otherwise provided in this Article 6, Losses shall be allocated: first, to and
among the Members, PRO RATA, in proportion to and to the extent by which (i) the
cumulative Profits allocated to the Members pursuant to Section 6.1 hereof for
all prior fiscal years exceeds (ii) the cumulative Losses allocated to the
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Members pursuant to this Section 6.2 for all prior fiscal years; and,
thereafter, to and among the Members, PRO RATA, in accordance with their
respective Percentage Interests.
(b) LIMITATIONS ON LOSSES. Losses allocated pursuant to Section
6.2(a) shall not exceed the maximum amount of Losses that can be so allocated
without causing any Member to have an, or to increase an existing, Adjusted
Capital Account Deficit at the end of any fiscal year. In the event some but
not all of the Members would have Adjusted Capital Account Deficits as a
consequence of an allocation of Losses pursuant to Section 6.2(a) hereof, the
limitation set forth in this Section 6.2(b) shall be applied on a
Member-by-Member basis so as to allocate the maximum permissible Losses to
each Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations. All
Losses in excess of the limitation set forth in this Section 6.2(b) shall be
allocated to and among the other Members, PRO RATA, in accordance with their
respective Percentage Interests.
6.3 TRANSFERS. If there is a change in Members or in the respective
holdings of Economic Interests or in the respective rights or obligations
appurtenant to Economic Interests (caused, for example, by an admission of a
new Member), allocations under this Article 6 for a taxable year among the
Persons who are or were Members shall be made in the manner determined to be
required under the Code and, if more than one method is determined to be
permitted, then by the method selected as appropriate by the Manager, taking
into account both the principles of substantial fairness and convenience of
administration.
6.4 SPECIAL ALLOCATIONS. The following special allocations shall be made
in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(f) of the Regulations, and notwithstanding any other
provision of this Article 6, if there is a net decrease in Company Minimum
Gain during any fiscal year, each Member shall be specially allocated items
of Company income and gain for such fiscal year (and, if necessary,
subsequent fiscal years) in an amount equal to such Member's share of the net
decrease in Company Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be determined in
accordance with Sections 1.704-2(f)(6) and 1.704-2(j)(2) of the Regulations.
This Section 6.4(a) is intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(i)(4) of the Regulations, and notwithstanding any other
provision of this Article 6, if there is a net decrease in Member Nonrecourse
Debt Minimum Gain attributable to a Member Nonrecourse Debt during any fiscal
year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, determined in accordance with
Section 1.704-2(i)(5) of the Regulations, shall be specially allocated items of
Company income and gain for such fiscal year (and, if necessary, subsequent
fiscal years) in an amount equal to such Member's share of the net decrease in
Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
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Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance with
Section 1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This Section
6.4(b) is intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Regulations and shall be interpreted
consistently therewith.
(c) QUALIFIED INCOME OFFSET. In the event any Member unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company
income and gain shall be specially allocated to each such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as quickly
as possible, provided that an allocation pursuant to this Section 6.4(c)
shall be made only if and to the extent that such Member would have an
Adjusted Capital Account Deficit after all other allocations provided for in
this Article 6 have been tentatively made as if this Section 6.4(c) were not
in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Member has a
deficit Capital Account at the end of any fiscal year which is in excess of
the sum of (i) the amount such Member is obligated to restore pursuant to any
provision of this Agreement and (ii) the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentences of Sections
1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such Member shall be
specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 6.4(d) shall be made only if and to the extent that such Member would
have a deficit Capital Account in excess of such sum after all other
allocations provided for in this Article 6 have been made as if Section
6.4(c) hereof and this Section 6.4(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any fiscal
year or other period shall be specially allocated to and among the Members,
PRO RATA, in accordance with their respective Percentage Interests.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Member who
bears the economic risk of loss with respect to the Member Nonrecourse Debt
to which such Member Nonrecourse Deductions are attributable in accordance
with Regulations Section 1.704-2(i)(1).
(g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or
Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account
in determining Capital Accounts as the result of a distribution to a Member
in complete liquidation of such Member's Interest in the Company, the amount
of such adjustment to Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to and among the Members in accordance with their Interests in the
Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or
to the Member to whom such distribution was made in the event Regulations
Section 1.704-1(b)(2)(iv)(m)(4) applies.
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6.5 CURATIVE ALLOCATIONS. The allocations set forth in Section 6.4
hereof (the "Regulatory Allocations") are intended to comply with certain
requirements of the Regulations. It is the intent of the Members that, to
the extent possible, all Regulatory Allocations will be offset either with
other Regulatory Allocations or with special allocations of other items of
Company income gain, loss or deduction pursuant to this Section 6.4.
Therefore, notwithstanding any other provision of this Article 6 (other than
the Regulatory Allocations), the Manager shall make such offsetting special
allocations in whatever manner the Manager determines appropriate so that,
after such offsetting allocations are made, each Member's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Member would have had if the Regulatory Allocations were not part of the
Agreement and all Company items were allocated pursuant to Sections 6.1, 6.2,
6.3 and 6.4(g) hereof. In exercising his discretion under this Section 6.5,
the Manager shall take into account future Regulatory Allocations under
Sections 6.4(a) and 6.4(b) that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Section 6.4(e) and 6.4(f).
6.6 NONRECOURSE LIABILITIES. Solely for purposes of determining a
Member's proportionate share of the "excess nonrecourse liabilities" of the
Company within the meaning of Regulations Section 1.752-3(a)(3), the Members'
respective Interests in Company profits are in proportion to their respective
Percentage Interests.
6.7 SECTION 704(c) PRINCIPLES. In accordance with Code Section 704(c)
and the Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of the Company shall, solely for
tax purposes, be allocated to and among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its initial Gross Asset Value. In the event
the Gross Asset Value of any Company asset is adjusted pursuant to Section
2.12(b) hereof, subsequent allocations of income, gain, loss and deduction
with respect to such asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c) and the
Regulations thereunder. Any elections or other decisions relating to such
allocations shall be made by the Members in any manner that reasonably
reflects the purpose and intention of this Agreement. Permitted methods of
allocation include the traditional method, the traditional method with
curative allocations and the remedial method, as described in Regulations
Sections 1.704-3 and 1.704-3T. Allocations pursuant to this Section 6.7 are
solely for purposes of federal, state and local taxes and shall not affect or
in any way be taken into account in computing any Member's Capital Account or
share of Profits, Losses, other items or distributions pursuant to any
provision of this Agreement.
ARTICLE 7
MANAGEMENT
7.1 THE MANAGER. The business of the Company shall be managed by a Board
of Directors (the "BOARD OF DIRECTORS," also referred to in this Agreement as
the "MANAGER"). The Board of Directors shall initially be set at three
Directors. The initial Directors shall be William
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Belzberg, Keenan Behrle and Drew Sherline (as President of One Source
Industries, Inc.). Each of the Directors shall serve as a Director until he
or she resigns, is removed by a Majority in Interest of the Members (for
cause or otherwise), dies or becomes incapacitated, in which case a Majority
in Interest of all the Members shall designate a successor Director, who
shall serve as a Director until he or she resigns, is removed by a Majority
in Interest of the Members (for cause or otherwise), dies or becomes
incapacitated.
7.2 POWER AND AUTHORITY. The Board of Directors may exercise all such
powers of the Company and do all such lawful acts and things as are not by
statute or by this Agreement directed or required to be done by the Members.
It is intended that the powers and authority of the Board of Directors shall
be substantially the same as the powers and authority of directors of a
corporation formed under the laws of the State of California. The consent or
approval of a majority of the Directors given at a meeting (in person or by
telephone), held at such time or place specified in a notice given at least
two days prior to such meeting (unless waived), or by written action taken in
lieu of a meeting shall be necessary for any decision of the Board of
Directors concerning the transaction and conduct of business on behalf of the
Company.
7.3 MANAGER'S RIGHT TO APPOINT OFFICERS. The Board of Directors may
appoint a chief executive officer, president, secretary, chief financial
officer and such other officers of the Company as appropriate, each of whom
shall hold office for such period, have such authority and perform such
duties as the Board of Directors determines. Unless otherwise determined by
the Board of Directors, it is intended that the powers and authority of the
officers shall be substantially the same as the powers and authority of
officers of a corporation formed under the laws of the State of California.
7.4 RELIANCE ON MANAGER'S OR OFFICER'S SIGNATURE. Every contract,
deed, mortgage, lease and other instrument executed by the Manager or an
officer of the Company shall be conclusive evidence in favor of every person
or entity relying thereon or claiming thereunder that, at the time of the
delivery thereof, (i) the Company was in existence and (ii) neither this
Agreement nor the Articles of Organization had been amended in any manner so
as to restrict the delegation of authority to the Manager or officer as
provided herein.
7.5 RESIGNATION. Any Director or officer of the Company may resign at
any time without prejudice to any rights of the Company under any contract to
which such Director or officer is a party, by giving written notice to the
Board of Directors. Any such resignation shall take effect at the date of
the receipt of such notice or at any later time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
7.6 BANK ACCOUNTS. The funds of the Company shall be deposited in such
bank account or accounts, or invested in such interest-bearing or
non-interest bearing investments, as shall be designated by the Manager or an
officer of the Company. Company funds shall be separately identifiable from
and not commingled with those of any other Person.
7.7 RELIANCE UPON ADVISORS. The Manager or an officer of the Company may
consult with legal counsel chosen by him and any act or omission suffered or
taken by him on behalf of the Company or in furtherance of the interests of the
Company in good faith in reliance upon and in
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accordance with the advice of such counsel shall be full justification for
any such act or omission and the Manager or officer shall be fully protected
in so acting or omitting to act, provided such counsel was chosen with
reasonable care.
7.8 COMPENSATION; ADMINISTRATIVE EXPENSES. Each Director and officer
of the Company shall be entitled to receive reasonable compensation for
services rendered by him in the management of the Company's business; and
each Director and officer shall be compensated in such manner as the Manager
reasonably determines. All reasonable expenses incurred by the Directors or
officers in managing and conducting the Company's business, including (but
not limited to) overhead, administrative and travel expenses, and
professional, technical, administrative, and other services, will be
reimbursed by the Company.
7.9 LIMITED LIABILITY. Neither the Manager nor any officer of the
Company shall be personally liable under any judgment of a court, or in any
other manner, for any debt, obligation or liability of the Company, whether
that liability or obligation arises in contract, tort or otherwise, solely by
reason of being the Manager or an officer, provided that such Person acted in
good faith and in a manner that was believed to be in the best interests of
the Company. Neither the Manager nor any officer shall be liable to the
Company or to any Member for any loss or damage sustained by the Company or
any Member, unless the loss or damage shall have been the result of fraud,
deceit, gross negligence, reckless or intentional misconduct, or a knowing
violation of law by the Manager or officer.
7.10 APPROVAL OF MEMBERS; LIMITATION ON MEMBERS' AUTHORITY. Any approval
of the Members required by this Agreement or the Act may be given at a
meeting (in person or by telephone), held at such time or place specified in
a notice given at least two days prior to such meeting (unless waived), or by
written action taken in lieu of a meeting. No Member shall be an agent of the
Company solely by virtue of being a Member; and no Member shall have
authority to act for or on behalf of the Company solely by virtue of being a
Member, except as may be otherwise expressly provided in this Agreement.
ARTICLE 8
BOOKS AND RECORDS; TAX MATTERS PARTNER
8.1 BOOKS OF ACCOUNT. There shall be maintained and kept at all times
during the continuation of the Company, proper and usual books of account
which shall accurately reflect the condition of the Company and shall account
for all matters concerning the management thereof, which books shall be
maintained and kept at the principal office of the Company or at such other
place or places as the Manager may from time to time determine. The
Company's books and records shall be maintained on the basis selected by the
Manager.
8.2 FISCAL YEAR. The fiscal year of the Company shall be the calendar
year.
8.3 TAX MATTERS PARTNER. The "tax matters partner" of the Company
within the meaning of Internal Revenue Code Section 6231(a)(7) shall be
Westminster Capital, Inc.
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ARTICLE 9
TRANSFER OF INTERESTS
9.1 TRANSFER RESTRICTIONS. No Member may Transfer any of his, her or
its Membership Interest to any Person except with the prior written consent
of the Manager and a Majority in Interest of the Members, which consent may
not be unreasonably withheld. Notwithstanding the foregoing, a Member may
Transfer his Membership Interest or any portion thereof to another Member
without the consent of any other Member and may transfer his Membership
Interest to an Affiliate of such Member for estate planning purposes. Any
attempted Transfer of any Membership Interest to any Person that is made
without the prior written consent of the Manager and a Majority in Interest
of the Members shall be invalid and shall not be reflected on the Company's
books.
9.2 TRANSFERS BY BEQUEST. Notwithstanding any provisions of Section
9.1 to the contrary:
(a) Upon the death of any individual Member (and, for purposes of
this Section 9.2, each trustor of a Member trust who has retained the power
of revoke such trust shall be deemed to be a Member), the Interest of such
individual (or trust) may be assigned to such Person or Persons as may be
designated by such Member in his or her will, or under the terms of such
revocable trust, or as otherwise provided under applicable law.
(b) Upon the termination of any irrevocable trust which is a
Member, or upon a required or discretionary distribution from any such trust
to one or more beneficiaries thereof, the Interest of such trust may be
assigned to such beneficiary or beneficiaries, as provided under the terms of
such trust.
(c) Any assignee referred to in this Section 9.2 shall have only
the right to the distributions, profits and losses otherwise allocable to the
transferor Member's Interest, and as a holder of an Economic Interest, shall
have no right to become a substituted Member except as provided in Article 10
below and shall have no right to the management of the Company or to
participate in any decision affecting the Company.
ARTICLE 10
ADMISSION OF NEW MEMBERS;
AMENDMENT TO OPERATING AGREEMENT
AND ARTICLES OF ORGANIZATION
10.1 ADMISSION OF MEMBERS. New members may be admitted to the Company
only upon the written consent of the Manager and a Majority in Interest of
the Members, and shall be admitted upon such terms and conditions as the
Manager may determine, consistent with this Agreement, the Company's Articles
of Organization and any applicable provision of law or rule of
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a governmental agency or self-regulating organization which has jurisdiction
over the business of the Company.
10.2 AMENDMENTS. This Agreement and the Articles of Organization may
not be amended in whole or in part except upon the written consent of the
Manager and a Majority in Interest of the Members; PROVIDED, HOWEVER, that no
amendment which has a materially adverse effect on a Member shall be
effective hereunder without the consent of such Member. Notwithstanding
anything contained herein to the contrary, the Manager may amend this
Agreement without any vote, consent, approval, authorization or other action
of any Member (provided that notice of such amendment is given to all
Members) to (a) add to the duties or obligations of the Manager or surrender
any right or power granted to the Manager in this Agreement for the benefit
of the Members; (b) cure any ambiguity, correct or supplement any provision
in this Agreement that may be inconsistent with any other provision in this
Agreement, or make any other provisions with respect to matters or questions
arising under this Agreement that will not be inconsistent with the intent of
this Agreement; (c) reflect the withdrawal, addition or substitution of
Members; (d) elect for the Company to be bound by any successor statute to
the Act governing limited liability companies, if, in the opinion of the
Manager, the amendment does not have a materially adverse effect on the
Members or the Company; (e) conform this Agreement to changes in the Act or
interpretations thereof which the Manager believes, in his exclusive
discretion, appropriate, necessary or desirable, if, in the Manager's
reasonable opinion, such amendment does not have a materially adverse effect
on the Members or the Company; (f) change the name of the Company; (g)
conform the profit and loss allocation provisions to any applicable
requirements of Federal or state law which the Manager, in his exclusive
discretion, believes appropriate, necessary or desirable, if, in the
Manager's reasonable opinion, such amendment does not have a materially
adverse effect on the Members or the Company; and (h) make any change which,
in the exclusive discretion of the Manager, is advisable to qualify or to
continue the qualification of the Company as a limited liability company
under the laws of the State of California or that is necessary or advisable,
in the exclusive discretion of the Manager, so that the Company will not be
treated as an association taxable as a corporation for Federal or state
income tax purposes.
ARTICLE 11
LIABILITY AND INDEMNIFICATION
11.1 DEFINITIONS. For purposes of this Article 11, the following
definitions shall apply:
(a) "Expenses" shall include without limitation attorneys' fees,
disbursements and retainers, court costs, transcript costs, fees of
accountants, experts and witnesses, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees
and all other expenses of the types customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating or
being or preparing to be a witness or other participant in a Proceeding.
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(b) "Proceeding" shall include any action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative
hearing or other proceeding, whether civil, criminal, administrative or
investigative in nature, except a proceeding initiated by a Person pursuant
to Section 11.10(b) of this Agreement to enforce such Person's rights under
this Agreement.
(c) "Indemnified Party" shall include any Member, Manager or
officer of the Company who was or is a party or is threatened to be made a
party to, or otherwise becomes involved in, any Proceeding (including a
Proceeding by or in the right of the Company) by reason of the fact that such
Member, Manager or officer of the Company is or was an agent of the Company.
11.2 INDEMNIFICATION OF MEMBERS, MANAGERS AND OFFICERS. The Company
shall indemnify each Indemnified Party against all Expenses, amounts paid in
settlement, judgments, fines, penalties and ERISA excise taxes actually and
reasonably incurred by or levied against such Indemnified Party in connection
with such Proceeding if such Indemnified Party acted in good faith and in a
manner such Indemnified Party reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe such Indemnified Party's
conduct was unlawful. The termination of any Proceeding, whether by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that an Indemnified
Party did not act in good faith and in a manner which it reasonably believed
to be in or not opposed to the best interests of the Company or, with respect
to any criminal Proceeding, that an Indemnified Party had reasonable cause to
believe that such Indemnified Party's conduct was unlawful. To the fullest
extent permitted by applicable law, an Indemnified Party shall be
conclusively presumed to have met the relevant standards of conduct, as
defined by the laws of the State of California or other applicable
jurisdictions, for indemnification pursuant to this Section 11.2, unless and
until a court of competent jurisdiction, after all appeals, finally
determines to the contrary, and the Company shall bear the burden of proof of
establishing by clear and convincing evidence that such Indemnified Party
failed to meet such standards of conduct. In any event, the Indemnified
Party shall be entitled to indemnification from the Company to the fullest
extent permitted by applicable law, including, without limitation, any
amendments thereto subsequent to the date of this Agreement that increase the
protection of the Members, the Manager and the officers of the Company
allowable under such laws. For purposes herein, an Indemnified Party shall
be treated as "acting in good faith and in a manner such Indemnified Party
reasonably believed to be in or not opposed to the best interests of the
Company" unless such Indemnified Party engaged in gross negligence, bad faith
or intentional misconduct.
11.3 SUCCESSFUL DEFENSE. Notwithstanding any other provision of this
Agreement, to the extent that an Indemnified Party has been successful on the
merits or otherwise in defense of any Proceeding referred to in Section 11.2,
or in defense of any claim, issue or matter therein, such Indemnified Party
shall be indemnified against Expenses actually and reasonably incurred in
connection therewith to the fullest extent permitted by the laws of
California or other applicable jurisdictions, including, without limitation,
any amendments thereto subsequent to the date of this Agreement that increase
the protection of the Members, the Manager and the officers of the Company
allowable under such laws.
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11.4 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred by an
Indemnified Party in connection with a Proceeding shall be paid by the
Company in advance of the final disposition of such Proceeding upon receipt
of a written undertaking by or on behalf of such Indemnified Party to repay
such amount if it shall ultimately be determined that such Indemnified Party
is not entitled to be indemnified by the Company as authorized in this
Article 11.
11.5 INDEMNIFICATION OF OTHER AGENTS. The Company may, but shall not be
obligated to, indemnify any Person (other than an Indemnified Party) who was
or is a party or is threatened to be made a party to, or otherwise becomes
involved in, any Proceeding (including any Proceeding by or in the right of
the Company) by reason of the fact that such Person is or was an agent of the
Company, against all Expenses, amounts paid in settlement, judgments, fines,
penalties and ERISA excise taxes actually and reasonably incurred by such
Person in connection with such Proceeding under the same circumstances and to
the same extent as is provided for or permitted in this Article 11 with
respect to an Indemnified Party, or with respect to such circumstances and on
such terms as the Manager may determine.
11.6 INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of
Expenses provided by or granted pursuant to the provisions of this Article 11
shall not be deemed exclusive of any other rights to which any Person seeking
indemnification or advancement of Expenses may be entitled under any
agreement, vote of the Members, determination of the Manager or otherwise,
both as to action in such Person's capacity as an agent of the Company and as
to action in another capacity while serving as an agent.
11.7 INSURANCE. The Company shall have the power to purchase and
maintain insurance or other financial arrangement on behalf of any Person who
is or was an agent of the Company against any liability asserted against such
Person and incurred by such Person in any such capacity, or arising out of
such Person's status as an agent, whether or not the Company would have the
power to indemnify such Person against such liability under the provisions of
this Article 11 or of Section 17155 of the Act. In the event a Person shall
receive payment from any insurance carrier or from the plaintiff in any
action against such Person with respect to indemnified amounts after payment
on account of all or part of such indemnified amounts having been made by the
Company pursuant to this Article 11, such Person shall reimburse the Company
for the amount, if any, by which the sum of such payment by such insurance
carrier or such plaintiff and payments by the Company to such Person exceeds
such indemnified amounts; PROVIDED, HOWEVER, that such portions, if any, of
such insurance proceeds that are required to be reimbursed to the insurance
carrier under the terms of its insurance policy shall not be deemed to be
payments to such Person hereunder. In addition, upon payment of indemnified
amounts under the terms and conditions of this Agreement, the Company shall
be subrogated to such Person's rights against any insurance carrier with
respect to such indemnified amounts (to the extent permitted under such
insurance policies). Such right of subrogation shall be terminated upon
receipt by the Company of the amount to be reimbursed by such Person pursuant
to the second sentence of this Section 11.7.
11.8 HEIRS, EXECUTORS AND ADMINISTRATORS. The indemnification and
advancement of Expenses provided by, or granted pursuant to, this Article 11
shall, unless otherwise provided when
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authorized or ratified, continue as to a Person who has ceased to be an agent
of the Company and shall inure to the benefit of such Person's heirs,
executors and administrators.
11.9 RIGHT TO INDEMNIFICATION UPON APPLICATION.
(a) Any indemnification or advance under Section 11.2 or Section
11.4 shall be made promptly, and in no event later than sixty (60) days,
after the Company's receipt of the written request of an Indemnified Party
therefor, unless, in the case of an indemnification, a determination shall
have been made as provided in Section 11.2 that such Indemnified Party has
not met the relevant standard for indemnification set forth in that Section.
(b) The right of a Person to indemnification or an advance of
Expenses as provided by this Article 11 shall be enforceable in any court of
competent jurisdiction. The burden of proving by clear and convincing
evidence that indemnification or advances are not appropriate shall be on the
Company. Neither the failure by the Manager or Members of the Company or its
independent legal counsel to have made a determination that indemnification
or an advance is proper in the circumstances, nor any actual determination by
the Manager or the Members of the Company or its independent legal counsel
that indemnification or an advance is not proper, shall be a defense to the
action or create a presumption that the relevant standard of conduct has not
been met. In any such action, the Person seeking indemnification or
advancement of Expenses shall be entitled to recover from the Company any and
all expenses of the types described in the definition of Expenses in Section
11.1(a) of this Agreement actually and reasonably incurred by such Person in
such action, but only if such Person prevails therein. A Person's Expenses
incurred in connection with any Proceeding concerning such Person's right to
indemnification or advances in whole or in part pursuant to this Agreement
shall also be indemnified by the Company regardless of the outcome of such a
Proceeding, unless a court of competent jurisdiction finally determines that
each of the material assertions made by such Person in the Proceeding was not
made in good faith or was frivolous.
11.10 LIMITATIONS ON INDEMNIFICATION. No payments pursuant to this
Agreement shall be made by the Company:
(a) To indemnify or advance funds to any Person with respect to a
Proceeding initiated or brought voluntarily by such Person and not by way of
defense, except as provided in Section 11.9(b) with respect to a Proceeding
brought to establish or enforce a right to indemnification under this
Agreement, otherwise than as required under California law; PROVIDED,
HOWEVER, that indemnification or advancement of Expenses may be provided by
the Company in specific cases if a determination is made that such
indemnification or advancement is appropriate, which determination shall be
made (i) by the Manager or (ii), if such determination shall be made with
respect to the Manager, by independent legal counsel chosen by a Majority in
Interest of the Members;
(b) To indemnify or advance funds to any Person for any Expenses,
judgments, amounts paid in settlement, fines, penalties or ERISA excise taxes
resulting from the such Person's
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conduct which is finally adjudged to have been willful misconduct, knowingly
fraudulent or deliberately dishonest; or
(c) If a court of competent jurisdiction finally determines that
any indemnification or advance of Expenses hereunder is unlawful.
11.11 PARTIAL INDEMNIFICATION. If a Person is entitled under any
provision of this Article 11 to indemnification by the Company for a portion
of Expenses, amounts paid in settlement, judgments, fines, penalties or ERISA
excise taxes incurred by such Person in any Proceeding, but not, however, for
the total amount thereof, the Company shall nevertheless indemnify such
Person for the portion of such Expenses, amounts paid in settlement,
judgments, fines, penalties or ERISA excise taxes to which such Person is
entitled.
ARTICLE 12
DISSOLUTION OF THE COMPANY
12.1 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved on the
earlier of the following events:
(a) The agreement to dissolve of both (i) the Manager and (ii) a
Majority in Interest of the Members;
(b) The death, bankruptcy, retirement, resignation, expulsion or
dissolution of any Manager or Member, unless within 90 days after the event
there are at least two remaining Members and a Majority in Interest of the
remaining Members agree to continue the business of the Company;
(c) The sale or liquidation of all or substantially all the assets
of the Company;
(d) The expiration of the term of the Company; or
(e) As otherwise provided by the Act.
Solely for purposes of this Section 12.1, the term "Majority in
Interest" means those Members owning, in the aggregate, more than fifty
percent (50%) of the profits and capital interests of all the Members, as
provided in Section 17350(d) of the Act.
12.2 APPLICATION OF COMPANY ASSETS. The assets of the Company on
winding-up shall be applied in the following order:
(a) First, assets shall be applied to the expenses of the
winding-up, liquidation and dissolution.
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(b) Second, assets shall be applied to creditors (including
Members, in their capacity as creditors), in order of priority as provided by
law.
(c) Thereafter, assets shall be distributed to and among the
Members PRO RATA in accordance with their positive Capital Accounts, after
giving effect to all contributions, distributions and allocations for all
periods. Such liquidating distributions to the Members shall be made by the
end of the Company's taxable year in which the Company is liquidated or, if
later, within ninety (90) days after the date of such liquidation.
12.3 DISTRIBUTIONS IN KIND. Any non-cash asset distributed to one or
more Members shall first be valued at its fair market value to determine the
Profit or Loss that would have resulted if such asset were sold for such
value. Such Profit or Loss shall then be allocated pursuant to Article 6,
and the Members' Capital Accounts shall be adjusted to reflect such
allocations.
12.4 NEGATIVE CAPITAL ACCOUNT BALANCES. If any Member has a deficit
balance in his, her or its Capital Account (after giving effect to all
contributions, distributions and allocations for all fiscal years, including
the fiscal year during which such liquidation occurs), such Member shall have
no obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a debt owed
to the Company or to any other Person for any purpose whatsoever.
12.5 NO PERSONAL LIABILITY. No Member shall be personally liable for
any debts, liabilities or obligations of the Company, whether to the Company,
any Member or to the creditors of the Company, beyond the amount contributed
by such Member to the capital of the Company, such Member's share of the
accumulated but undistributed profits of the Company, if any, and the amount
of any distribution (including the return of any capital contribution) made
to such Member required to be returned to the Company pursuant to this
Agreement or under the Act; and no Manager shall be personally liable for any
debts, liabilities or obligations of the Company, whether to the Company, any
Member or to the creditors of the Company. Each Member shall look solely to
the assets of the Company for all distributions with respect to the Company
and for the return of his, her or its capital contributions and shall have no
recourse therefore against any other Member or the Manager. The Members
shall not have any right to demand or receive property other than cash upon
dissolution and termination of the Company or to demand the return of their
capital contributions to the Company prior to dissolution and termination of
the Company.
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ARTICLE 13
MISCELLANEOUS
13.1 COUNSEL TO THE COMPANY. Counsel to the Company may also be counsel to
any Member or the Manager, or any Affiliate of a Member or the Manager. The
officers of the Company may execute on behalf of the Company and the Members any
consent to the representation of the Company that counsel may request pursuant
to the California Rules of Professional Conduct or similar rules in any other
jurisdiction ("Rules"). The Company has initially selected Troop Steuber Pasich
Reddick & Tobey, LLP ("Company Counsel") as legal counsel to the Company in
connection with its formation and organization, including the preparation of
this Agreement. Each Member acknowledges that Company Counsel does not
represent any Member in the absence of a clear and explicit agreement to such
effect between the Member and Company Counsel, and that in the absence of any
such agreement Company Counsel shall owe no duties directly to a Member. In the
event any dispute or controversy arises between any Members and the Company, or
between any Members or the Company, on the one hand, and a Member or the Manager
(or Affiliate of a Member or the Manager) that Company Counsel represents, on
the other hand, then each Member agrees that Company Counsel may represent
either the Company or such Member or the Manager (or its Affiliate), or both, in
any such dispute or controversy to the extent permitted by the Rules, and each
Member hereby consents to such representation.
13.2 ENTIRE AGREEMENT. Except as herein provided, this Agreement
constitutes the entire agreement among the parties relating to the subject
matter hereof. It supersedes any prior agreement or understandings between them
relating to the subject matter hereof, and it may not be modified or amended in
any manner other than as set forth herein.
13.3 PARTIES IN INTEREST. Except as expressly provided in the Act, nothing
in this Agreement shall confer any rights or remedies under or by reason of this
Agreement on any Persons other than the Members and their respective successors
and assigns nor shall anything in this Agreement relieve or discharge the
obligation or liability of any third person to any party to this Agreement, nor
shall any provision give any third person any right of subrogation or action
over or against any party to this Agreement.
13.4 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. All terms used herein shall have the meaning given them under the
Act, as such may be amended from time to time, except as otherwise provided
herein.
13.5 SUCCESSORS AND ASSIGNS. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of the
parties and their legal representatives, heirs, administrators, executors,
successors and assigns.
13.6 HEADINGS. Captions contained in this Agreement are inserted only as a
matter of convenience and in no way define, limit or extend the scope or intent
of this Agreement or any
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provision thereof. All pronouns shall be deemed to
refer to the masculine, feminine, neuter, singular or plural, as the identity of
the Person may require in the context thereof.
13.7 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or the application of
such provision to any Person or circumstances shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected hereby.
13.8 INTERPRETATION. In the event any claim is made by any Member relating
to any conflict, omission or ambiguity in this Agreement, no presumption or
burden of proof or persuasion shall be implied by virtue of the fact that this
Agreement was prepared by or at the request of a particular Member or its
counsel.
13.9 ATTORNEYS' FEES. In the event of any litigation or arbitration
between the parties hereto respecting or arising out of this Agreement, the
prevailing party, whether or not such litigation or arbitration proceeds to
final judgment or determination, shall be entitled to recover all of the
attorneys' fees incurred with respect to such legal efforts, in each and every
such action, suit or other proceeding, including any and all appeals or
petitions therefrom; PROVIDED, HOWEVER, that in the case of any negotiated
settlement of any litigation or arbitration between the parties, there shall be
no "prevailing party" for purposes of this Section 13.9. As used herein, the
term "attorneys' fees" shall be deemed to mean the full and actual cost of any
legal services actually performed in connection with the matters involved,
calculated on the basis of usual fees charged by the attorneys performing such
services.
13.10 DUE AUTHORIZATION. Each Person executing this Agreement on behalf of
an entity represents and warrants that he or she has been duly authorized to
enter into this Agreement on behalf of such entity, and that such entity is
thereby fully bound.
13.11 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
13.12 ARBITRATION. Any controversy or dispute arising out of or relating
to (a) this Agreement (including the interpretation of any of the provisions
hereof), (b) the parties' rights under the Act, whether arising in contract,
tort or any other legal theory, or (c) the action or inaction of any Member,
the Manager or any officer, and whether based on federal, state or local
statute or common law and regardless of the identities of any other
defendants, other than requests for immediate equitable relief, (a
"Dispute"), then such Dispute shall be settled by arbitration in accordance
with EXHIBIT A hereto. No action at law or in equity based upon any claim
arising out of or related to this Agreement shall be instituted in any court
by any Member except (i) an action to compel arbitration pursuant to this
Section 13.12 or (ii) an action to enforce an award obtained in an
arbitration proceeding in accordance with this Section 13.12.
13.13 WAIVER OF JURY. WITH RESPECT TO ANY DISPUTE ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, AS TO WHICH
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NO MEMBER INVOKES THE RIGHT TO ARBITRATION HEREINABOVE PROVIDED, OR AS TO
WHICH LEGAL ACTION NEVERTHELESS OCCURS, EACH MEMBER HEREBY IRREVOCABLY WAIVES
ALL RIGHTS HE, SHE OR IT MAY HAVE TO DEMAND A JURY TRIAL. THIS WAIVER IS
KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY THE MEMBERS AND EACH MEMBER
ACKNOWLEDGES THAT NONE OF THE OTHER MEMBERS NOR ANY PERSON ACTING ON BEHALF
OF THE OTHER PARTIES HAS MADE ANY REPRESENTATION OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. THE
MEMBERS EACH FURTHER ACKNOWLEDGE THAT HE, SHE OR IT HAS BEEN REPRESENTED (OR
HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF
ITS OWN FREE WILL, AND THAT HE, SHE OR IT HAS HAD THE OPPORTUNITY TO DISCUSS
THIS WAIVER WITH COUNSEL. EACH OF THE MEMBERS FURTHER ACKNOWLEDGES THAT HE,
SHE OR IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS
WAIVER PROVISION.
13.14 EXHIBITS. Exhibits attached to this Agreement are incorporated
and shall be treated as if set forth herein.
13.15 INVESTMENT REPRESENTATION. Each Member hereby represents and
warrants to and agrees with the other Members and the Company that he, she or it
is acquiring the Interest for investment purposes for his, her or its own
account only and not with a view to or for sale in connection with any
distribution of all or any part of the Interest.
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IN WITNESS WHEREOF, the Members of ONE SOURCE INDUSTRIES, LLC, a California
limited liability company, have executed this Agreement, effective as of the
date written above.
<TABLE>
<CAPTION>
PERCENTAGE
MEMBERS: INTEREST
- ------- ----------
<S> <C>
/s/ Drew Sherline
- ------------------------------------- 1%
Drew Sherline
One Source Industries, Inc. 19%
By: /s/ Drew Sherline
-----------------------------------
Drew Sherline
President
Westminster Capital, Inc. 80%
By: /s/ William Belzberg
-----------------------------------
</TABLE>
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EXHIBIT A
ARBITRATION PROVISIONS
10 RULES; JURISDICTION. Any Dispute shall be settled by arbitration that
must be conducted in the County of Los Angeles, California, and, except as
herein specifically stated, in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA Rules") then in effect (but not
under the auspices of the AAA), and subject to the provisions of Title 9 of Part
3 of the California Code of Civil Procedure or any successor statute ("Title
9"). To the extent the AAA Rules conflict with, or are supplemented by, the
provisions of Title 9, the provisions of Title 9 shall govern and be applicable.
However, in all events the arbitration provisions provided herein shall govern
over any conflicting rules that may now or hereafter be contained in either the
AAA Rules or Title 9. Any judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction of the subject matter thereof.
The arbitrators shall have the authority to grant any equitable and legal
remedies that would be available in any judicial proceeding instituted to
resolve a Dispute. The parties hereby submit to the in personam jurisdiction of
the Superior Court of the State of California for the County of Los Angeles and
the United States District Court for the Central District of California for
purposes of confirming or enforcing an arbitral award, including without
limitation an award of equitable relief, and entering judgment thereon. The
parties hereto waive any and all objections that they may have as to
jurisdiction or venue in any of the above courts.
20 COMPENSATION OF ARBITRATORS. Any such arbitration shall be conducted
before a panel of three arbitrators who shall be compensated for their services
at a rate to be determined by the parties, but based upon reasonable and
customary hourly or daily consulting rates for the neutral arbitrator in the
event the parties are not able to agree upon the arbitrators' rate of
compensation.
30 SELECTION OF ARBITRATORS. Within fifteen (15) calendar days of notice
by a party seeking arbitration under this provision, the party requesting
arbitration shall appoint one person as an arbitrator and within fifteen (15)
calendar days thereafter the other party shall appoint the second arbitrator.
Within fifteen (15) days after the appointment of the second arbitrator, the two
arbitrators so chosen shall mutually agree upon the selection of the third
impartial and neutral arbitrator, who must be a partner or principal of a
nationally recognized firm of independent certified public accountants from the
management advisory services department (or comparable department or group) of
such firm; PROVIDED, HOWEVER, that such firm cannot be the firm of certified
public accountants that has audited the books and records of either party or
provided management or advisory services for either party within the last three
years.
In the event the chosen arbitrators cannot agree upon the selection of the
third arbitrator, the AAA Rules for the selection of such an arbitrator shall be
followed, except that the selection shall be from such departments or groups and
certified accounting firms as are described in the immediately preceding
paragraph. If the other party shall fail to designate the second arbitrator,
the sole arbitrator appointed shall have the power to appoint, in his or her
sole discretion, both the
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second and third arbitrators. If a party fails to appoint a successor to its
appointed arbitrator within fifteen (15) days of the death, resignation or
other incapacity of such arbitrator, the remaining two arbitrators shall
appoint such successor. The majority decision of the arbitrators will be
final and conclusive upon the parties hereto.
40 PAYMENT OF COSTS. Each party hereby agrees to pay one half the costs
of the compensation of the arbitrators, the costs of transcripts and all other
expenses of the arbitration proceedings; PROVIDED, HOWEVER, that the prevailing
party in any arbitration, which shall be determined by the arbitrators, shall be
entitled to an award of attorneys' fees and costs, and the arbitrators' fees and
costs, and all other costs of the arbitration shall be paid by the losing party.
50 EVIDENCE; DISCOVERY. All testimony of witnesses at any arbitration
proceeding held pursuant to these provisions shall be taken under oath, and
under the rules of evidence as set forth under the Evidence Code of California
and judicial interpretations thereunder. The parties shall be entitled to
conduct discovery proceedings in accordance with the provisions of Section
1283.05 of the California Code of Civil Procedure.
60 BURDEN OF PROOF; BASIS OF DECISION. For any claim submitted to
arbitration, the burden of proof shall be as it would be if the claim were
litigated in a judicial proceedings except where otherwise specifically provided
in the Agreement to which this is attached, and the decision shall be based on
the application of California law (as determined from statutes, court decisions,
and other recognized authorities) to the facts found by the arbitrators.
70 JUDGMENT. Upon the conclusion of any arbitration proceedings
hereunder, the arbitrators shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by them and shall deliver such documents to each party to the Agreement
along with a signed copy of the award in accordance with Section 1283.6 of Title
9.
80 TERMS OF ARBITRATION. The arbitrators chosen in accordance with these
provisions shall not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of the Agreement.
90 EXCLUSIVE REMEDY. Except as specifically provided in this EXHIBIT A
or in the Agreement to which it is attached, arbitration shall be the sole and
exclusive remedy of the parties for any Dispute.
100 ARBITRATION CONFIDENTIAL. Neither party will disclose the existence
of any arbitration proceedings hereunder, nor the outcome thereof, except: (a)
insofar as such disclosure is reasonably necessary to carry out and make
effective the terms of this Agreement, including without limitation, pleadings
or other documents filed seeking entry of judgement upon an award of the
arbitrators; (b) insofar as a party hereto is required by law to respond to any
demand for information from any court, governmental entity, or governmental
agency, or as may be required by federal or state securities laws; (c) insofar
as disclosure is necessary to be made to a party's independent accountants for
tax
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or audit purposes; (d) insofar as disclosure is necessary to be made to a
party's attorneys for purposes of rendering advice or services relating to
this Agreement; and (e) insofar as the parties may mutually agree in writing.
110 NOTICE; LANGUAGE. Notice of arbitration sent to the other party by
using the following means shall be deemed good and sufficient notice of service:
Notices shall be in writing, shall be sent by certified or registered air mail
with postage prepaid, return receipt requested, or by hand delivery. Such
communications shall be deemed given and received upon delivery, if hand
delivered; or within five (5) days of mailing, if sent by certified or
registered mail. Notices to any Member shall be sent to such Member's last
known business address appearing on the books of the Company.
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<PAGE>
CONSENT AND ACKNOWLEDGMENT OF SPOUSE
The undersigned, Cathy Sherline, acknowledges and agrees that:
(i) she has read the Amended and Restated Operating Agreement of One
Source Industries, LLC, a California limited liability company, dated as of
January 11, 1999 (the "Agreement"), to which this Consent and Acknowledgment of
Spouse (the "Consent") is attached, the parties to which include her husband;
(ii) she consents to the execution and performance of the Agreement by
her husband, and specifically consents and agrees that all provisions of the
Agreement, which relate to the Membership Interests also relate to any
Membership Interests in which she has or may have or may hereafter acquire a
community property or other interest; and she agrees to be subject to, and abide
by the terms of, such provisions as if she had been a party to the Agreement;
(iii) she hereby waives any rights she may have during the continuance of
her marriage, or at any time thereafter, prior to the death or incompetency of
her spouse, to control and/or manage One Source Industries, LLC;
(iv) she has carefully considered the provisions of Section 1100 of the
California Family Code attached hereto, which Section grants to her, among other
things, equal rights to management and control of certain community assets, and
understands that by executing this Consent she has waived any rights she may
have thereunder with respect to One Source Industries, LLC; and she specifically
consents to and agrees that the Membership Interests, to the extent that it is
controlled by her spouse, and the consent, approval and other rights personally
granted to him pursuant to the Agreement constitute a "business or an interest
in a business" which is being operated by her spouse, so as to cause her spouse
to have primary right to the management and control thereof, and she waives her
right to prior notice of any sale, lease, exchange, encumbrance or other
disposition of any or all of the personal property used in the operation of such
business (unless she and her spouse are in the process of a marital dissolution
proceeding at the time); and
(v) she was advised to seek independent counsel to review and advise
her with respect to the negotiation and execution of this Consent. She hereby
acknowledges that, of her own free will, she declined to do so.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Consent
as of the 11th day of January, 1999.
/s/ Cathy Sherline
---------------------------------
Cathy Sherline
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(BW)(WESTMINSTER-CAPITAL)(WI) WESTMINSTER PURCHASES 80 PERCENT OF ONE SOURCE
INDUSTRIES
Business Editors
BEVERLY HILLS, Calif.--(BUSINESS WIRE)--Jan. 12, 1999--Westminster
Capital Inc. (PCX:WI) Tuesday announced that it had acquired 80 percent of
One Source Industries LLC.
Westminster Capital paid $4.8 million at the closing for the 80 percent
interest and may pay up to an additional $2.6 million in deferred contingent
payments over the next four years, depending upon the audited results for
1998 and the performance of One Source for each year from 1999 through 2002.
Drew Sherline, founder of One Source, retained 20 percent of the company.
One Source reported preliminary results for 1998 (unaudited), showing net
profits before taxes of $1.8 million on revenues of $10.2 million.
In connection with the acquisition by Westminster Capital, Art Portugal has
joined One Source as president and chief executive officer to head up
management of the company. Portugal previously served as executive vice
president for client services of PIA Merchandising Co. of Irvine, Calif., and
has spent more than 25 years as an executive in sales management serving the
food industry.
Sherline will remain active in the management of the company and will serve
as chairman. Sherline has specialized in meeting the packaging needs of
consumer-products manufacturers since founding One Source in 1985.
One Source, a privately held company, provides turnkey packaging and
point-of-sale displays for a broad spectrum of consumer products ranging from
computer software to food products. One Source provides display-packaging
services nationwide from its facilities in Southern California and Memphis,
Tenn.
Westminster Capital has diversified operations, including group purchasing
services for new-car dealerships through its wholly owned subsidiary,
Westland Associates Inc., and telephone service to military personnel on U.S.
Navy bases through its majority-owned subsidiary, Global Telecommunications.
--30--DB/la* TJM/la
CONTACT: Westminster Capital Inc., Beverly Hills
Rui Guimarais, 310/278-1930
