<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended April 30, 1997 or
[_] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to ______
Commission file number 0-8485
Grip Technologies, Inc.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 95-1980894
- -------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 Corporate Park, Suite 130
Irvine, California 92714
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 252-8500
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
<PAGE>
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [_] No [_]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of April 30, 1997: 5,981,925
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 3 Defaults Upon Senior Securities 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 16
</TABLE>
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<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
April 30, 1997 July 31, 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 920 $ 16,975
Accounts receivable, net of allowance
for doubtful accounts of $130,311 at
April 30, 1997 and $190,669 at July
31, 1996 297,541 537,445
Inventories 576,853 506,995
Prepaids and other assets 28,978 31,625
-------------- -------------
Total current assets 904,292 1,093,040
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$684,903 at April 30, 1997 and
$373,589 at July 31, 1996 810,825 887,242
INTANGIBLES, net of accumulated
amortization of $1,073,422 at April
30, 1997 and $924,490 at July 31,
1996 1,074,488 1,223,420
-------------- -------------
$ 2,789,604 $ 3,203,702
============== =============
</TABLE>
The accompanying notes are an integral part of these balance sheets
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<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
April 30, 1997 July 31, 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 10,000 $ 340,000
Current portion of long-term obligations 1,518,929 976,412
Amounts due stockholder 405,479 358,879
Accounts payable 594,944 528,392
Accrued liabilities 320,172 329,905
------------- -------------
Total current liabilities 2,849,524 2,533,588
LONG-TERM OBLIGATIONS, net of current
portion 522,424 337,072
------------- -------------
Total liabilities 3,371,948 2,870,660
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock
Authorized -- 3,000,000 shares
Issued and outstanding -- 887,500
shares at April 30, 1997 and
1,287,500 shares at July 31, 1996 887,500 1,287,500
Common stock
Authorized -- 25,000,000 shares
Issued and outstanding -- 5,981,925
shares at April 30, 1997 and
5,581,925 shares at July 31, 1996 5,854,040 5,454,040
Accumulated deficit (7,323,884) (6,408,498)
------------- -------------
Total stockholders' equity
(deficit) (582,344) 333,042
------------- -------------
$ 2,789,604 $ 3,203,702
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets
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<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months Ended April 30, Quarters Ended April 30,
---------------------------------------- -------------------------------------------
1997 1996 1997 1996
--------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 3,013,230 $ 1,999,149 $ 838,496 $ 1,040,503
COST OF SALES 2,361,189 1,550,227 690,645 823,855
--------------- ----------------- --------------- ---------------
Gross profit 652,041 448,922 147,850 216,648
--------------- ----------------- --------------- ---------------
OPERATING EXPENSES:
Selling 477,583 635,391 139,441 198,707
General and administrative 471,339 556,658 132,205 163,483
Research and development 29,405 29,320 8,213 7,378
Depreciation 311,314 161,256 109,089 68,827
Intangible amortization 148,932 120,586 49,644 49,644
--------------- ----------------- --------------- ---------------
1,438,572 1,503,211 438,592 488,039
--------------- ----------------- --------------- ---------------
Loss from operations (786,531) (1,054,289) (290,742) (271,391)
--------------- ----------------- --------------- ---------------
INTEREST AND OTHER
Interest expense, net 149,583 117,922 56,921 36,171
Other expense (income) (22,328) (14,322) (5,798) (8,654)
--------------- ----------------- --------------- ---------------
127,255 103,600 51,123 27,517
--------------- ----------------- --------------- ---------------
Loss before income taxes (913,787) (1,157,889) (341,865) (298,908)
PROVISION FOR INCOME TAXES 1,600 1,600 - -
--------------- ----------------- --------------- ---------------
Net loss $ (915,387) $ (1,159,489) $ (341,865) $ (298,908)
============== ================ ============== ===============
Net loss per common and equivalent
share $ (0.16) $ (0.25) $ (0.06) $ (0.06)
============== ================ ============== ===============
Weighted average common shares
outstanding 5,757,749 4,691,980 5,981,925 5,176,925
============== ================ ============== ===============
</TABLE>
The accompanying notes are an integral part of these statements
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<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Nine Months Ended April 30,
---------------------------
1997 1996
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(915,387) $(1,159,489)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 311,314 161,256
Intangible amortization 148,932 120,586
Loss on disposal of property and equipment - 5,531
(Increase) decrease in accounts receivable 239,904 (156,087)
Increase in inventories (69,858) (70,371)
(Increase) decrease in prepaids and other
assets 2,647 (30,615)
Increase in accounts payable 66,552 2,673
Decrease in accrued liabilities (9,733) (115,377)
--------- -----------
Net cash used in operating activities (225,628) (1,241,893)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (234,896) (399,652)
Proceeds from disposal of proberty and equipment - 9,500
Decrease in note receivable - 50,000
Organization costs - (2,900)
--------- -----------
Net cash used in investing activities (234,896) (343,052)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term borrowings (30,000) (410,000)
Net increase in amounts due stockholder 46,600 75,809
Proceeds from long-term obligations 508,500 -
Principal payments of long term obligations (80,631) (71,132)
Proceeds from issuance of stock - 1,907,185
--------- ----------
Net cash provided by financing activities 444,469 1,501,862
--------- ----------
NET DECREASE IN CASH (16,055) (83,083)
CASH, beginning of period 16,975 126,827
--------- ----------
CASH, end of period $ 920 $ 43,744
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements
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<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine Months Ended April 30,
-----------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Cash paid for interest $ 89,555 $ 72,888
============== =============
</TABLE>
On September 22, 1995, the Company completed the acquisition of USGRIPS, Inc.,
in exchange for 600,000 shares of Common Stock. The fair values of the assets
acquired and liabilities assumed are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired:
Accounts receivable $ 195,877
Inventories 194,077
Prepaids and other assets 4,830
Property and equipment 315,406
Goodwill 1,390,750
-------------
$ 2,100,940
=============
Liabilities assumed:
Short-term borrowings $ 600,000
Accounts payable 266,211
Accrued liabilities 184,729
-------------
$ 1,050,940
=============
Fair market value of Common Stock issued $ 1,050,000
=============
</TABLE>
The accompanying notes are an integral part of these statements
-8-
<PAGE>
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
APRIL 30, 1997
--------------
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Grip Technologies, Inc. (the Company) and its wholly owned
subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation. In the opinion of the Company's
management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated
financial position at April 30, 1997, the consolidated results of
operations and cash flows for the quarters ended April 30, 1997 and 1996
have been included.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules of the
Securities and Exchange Commission (SEC). These unaudited financial
statements should be read in conjunction with the financial statements and
related footnotes for the year ended July 31, 1996 included as part of the
Company's Annual Report on Form 10-K (File No. 0-8485) filed with the SEC
on November 12, 1996.
The consolidated results of operations for the quarter and nine months
ended April 30, 1997 are not necessarily indicative of the results to be
expected for the full fiscal year.
2. Acquisition of USGRIPS, Inc.
----------------------------
On September 22, 1995, the Company acquired USGRIPS, Inc. (USG). In
connection therewith, the Company issued 600,000 shares of Common Stock,
valued at $1,050,000, to the two stockholders of USG, and agreed to issue
up to an additional 400,000 shares over a three-year period pursuant to an
earn-out formula based on the gross margins achieved by the acquired USG
business. The acquisition has been accounted for as a purchase, and the
results of USG have been included in the accompanying consolidated
financial statements since the date of acquisition. The cost of the
acquisition has been allocated on the basis of the estimated fair market
value of the assets acquired and the liabilities assumed. This allocation
resulted in goodwill of $1,390,750, which is being amortized over seven
years.
In connection with the acquisition of USG, the Company elected to outsource
production and discontinue all manufacturing in its Irvine, California,
facility. Subsequent to the outsourcing of production, the Company began
purchasing sport grips from contract manufacturers who use the Company's
tooling, and in some cases, technology. Certain grips are then processed
in the Company's Vista, California facility, where the grips are painted or
engraved with custom logos, in accordance with customer requirements.
3. Going Concern
-------------
The Company has historically incurred significant losses including a loss
of $341,865 and $915,387 for the quarter and nine months ended April 30,
1997, respectively. The Company used $ 29,077 and $225,628 of cash for
operating activities during the quarter and nine months ended April 30,
1997, respectively. The working capital deficit increased $25,328 and
$504,684 to $1,945,232 for the quarter and nine months ended April 30,
1997, respectively. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. In order to
provide working capital to support its operations, the Company has raised
funds through trade credit, stock issuances and additional borrowings. The
Company is also currently pursuing additional funding through private
placements.
The ability of the Company to meet its existing and ongoing obligations is
dependent upon raising additional capital from sources of funding such as
private placements, public offerings, a merger or banks/other lenders.
However, there can be no assurances that any of these transactions may be
-9-
<PAGE>
consummated in a timely manner or on terms reasonably acceptable to the
Company. The ability of the Company to continue as a going concern is
ultimately dependent, in part, on achieving profitable operating levels and
obtaining adequate financing. The accompanying financial statements do not
include any adjustments that might be necessary should the Company be
unable to continue as a going concern.
4. Common Stock Transactions
-------------------------
On December 31, 1996, a holder of 400,000 shares of Series A convertible
preferred stock elected to convert the shares into 400,000 shares of common
stock.
5. Stock Options
-------------
In December 1996, the Board of Directors approved an amendment to the 1994
Stock Option Plan (the Plan) increasing the number of shares of common
stock set aside for grant to key employees, officers, directors and
consultants to 900,000. The amendment was subsequently approved by the
stockholders.
6. Long-Term Obligations
---------------------
In January 1997, certain term notes to a bank totaling $780,000 were
combined into a single note and the maturity date extended to September 15,
1997. The effective interest rate of the note to the Company is
approximately 10% and continues to be secured by the personal assets of a
stockholder.
In March 1997, the Company borrowed $108,500 from two accredited investors
for promissory notes. The notes mature on February 28, 1999, pay
interest at 8% per annum, and are convertible into common stock at $1.50
per share. In connection therewith, other outstanding short-term
borrowings of $50,000 to one investor was extended through February 28,
1999 under similar terms. In conjunction therewith, the Company issued
warrants to purchase 10,000 shares of common stock for $1.50 per share.
7. Subsequent Events
-----------------
In May 1997, the Company issued 72,500 shares of common stock as a result
of the early exercise of warrants by certain existing warrant holders.
Proceeds from the issuance totaled $54,375. The warrants originally had
exercise prices ranging from $1.50 to $5.00 per share. As an inducement to
encourage the early exercise of all outstanding warrants, the Company
lowered the exercise price to $0.75 per share for the warrants exercised
early. In addition, a short-term note holder agreed to cancel $10,400 of
principal and interest and surrender warrants to purchase 13,866 shares in
consideration for the issuance of 13,866 shares of common stock of the
Company at $0.75 per share. The warrants originally had an exercise price
of $2.50 per share.
Also in May 1997, the Company initiated a private placement to accredited
investors of units consisting of three shares of common stock and a warrant
to purchase one share of common stock for two years at an exercise price of
$2 per share. The Company is offering a minimum of 200,000 units and a
maximum of 500,000 units at $3 per unit. The private placement is open
through June 15, 1997, and may be extended for an additional 60 days by the
Company. No assurances can be made that the Company will be able to close a
minimum offering or obtain any funding from this private placement.
In June 1997, the Company borrowed $250,000 from an accredited investor.
New promissory notes totaling $521,000 were issued in exchange for the
amount borrowed and the cancellation of certain existing convertible short-
term notes totaling $271,000. The new notes pay interest semi-annually at
8% per annum, are convertible into common stock at $1.00 per share and
mature on May 31, 1999.
8. New Accounting Pronouncement
----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, which will require a
basic earnings-per-share (EPS) disclosure, rather than the primary EPS
currently disclosed. This disclosure will be required commencing with
fiscal 1998. The significant difference between the two calculations is
the inclusion, if dilutive, of common stock equivalents in the calculation
of primary EPS. Since such equivalents have been anti-dilutive due to the
Company's recurring losses, the adoption of SFAS No. 128 would have minimal
effect on the Company's reported EPS.
-10-
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
consolidated financial statements and notes thereto set forth elsewhere herein.
Forward-Looking Statements
- --------------------------
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company in
this Report, as well as the Company's other periodic reports on Forms 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, but are not limited to, those factors set forth under the caption
"Liquidity and Capital Resources" appearing below.
Financial Condition and Results of Operations
- ---------------------------------------------
On September 22, 1995, the Company completed the acquisition of USGRIPS, Inc.
(USG), in exchange for 600,000 shares of common stock. Accordingly, the
financial information discussed herein includes the operations of USG from that
date forward.
Net sales for the quarter and nine months ended April 30, 1997 were $838,496 and
$3,013,230, a 19% decrease and 51% increase when compared with $1,040,503 and
$1,999,149 for the same periods in fiscal 1996, respectively. The 51% increase
in current year-to-date net sales was primarily attributable to higher sales
volume to new and existing OEM customers. This was the result of an aggressive
sales campaign directed towards the OEM market. Net sales for the quarter
compared to the same quarter in fiscal 1996 were negatively impacted by reduced
sales to Cobra Golf (Cobra). This was due, in part, to golf club production
delays at Cobra resulting from its inability to obtain certain component parts
for their golf clubs. This delay resulted in a temporary overstocked inventory
of golf grips by Cobra. Due in part to its temporary overstocked inventory the
Company accepted an unusually high level of product returns from Cobra.
Subsequently, the Company has resumed shipments to Cobra. Delays in the
completion of certain tooling, primarily due to cash flow constraints, also
negatively impacted net sales for the quarter and nine months ended April 30,
1997 compared to the same periods in fiscal 1996. Sales to the Company's two
largest customers, Cobra and Golfsmith International (Golfsmith), were 25% and
15% during the most recent quarter and 53% and 10%, during the nine months
ended April 30, 1997, respectively. The Company continues to work with other
OEM customers to increase sales to these other customers in order to reduce the
dependence on Cobra.
Cost of sales for the nine months ended April 30, 1997 was $2,361,189 compared
to $1,550,227 for the same period in fiscal 1996. The resulting gross profit
percentage decreased slightly from 22.5% to 21.7%. The increase in dollar
amounts reflects the increased sales level in the current period. The overall
slight decrease in gross profit percentage is attributable to many factors, some
offsetting, including costs related to a full nine months of operations at the
Vista facility. In addition, the Company incurred additional costs in
streamlining the flow of production through the Vista facility, which Management
believes will ultimately result in improved production efficiencies. Increased
labor inefficiencies in the most recent quarter caused, in part, by the Company
not promptly reducing the size of the labor force to match lower than
anticipated production levels also contributed to the decrease in gross profit
percentage.
Selling expenses for the quarter and nine months ended April 30, 1997 decreased
30% and 25%, from the same periods in fiscal 1996. The primary factors causing
the decrease are reductions in the number of salespersons and advertising.
Advertising has been reduced due to cash flow constraints. The number of
salespersons has been
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<PAGE>
reduced as the Company has redirected its sales and marketing efforts to the
replacement market. The Company has focused more on its marketing partnerships
with catalog resellers such as Golfsmith, the world's largest reseller of golf
club components. During the quarter, the Company also initiated a new
distributor program to increase replacement market sales to retailers and other
non-OEM customers. Management believes that these programs will enable the
Company to ultimately increase sales to the replacement market while incurring
less expense and risk related to servicing that market directly. Significant
benefits from these programs are not expected until Fiscal 1998.
General and administrative expenses for the quarter and nine months ended April
30, 1997 decreased 19% and 15% from the same periods in fiscal 1996. The
Company successfully integrated the acquired USG operation, eliminated duplicate
functions and otherwise aggressively reduced expenses. Bad debt expense was
also reduced due to the redirected sales and marketing efforts and improved
credit management.
The Company's research and development efforts are in line with past periods,
and continue to focus on development of prototype grip products for new
customers, as well as the development of technologies the Company owns or has
licensed.
Depreciation expense for the quarter and nine months ended April 30, 1997 has
increased 58% and 93% over the comparable periods in fiscal 1996. These
increases reflect the additional investments in tooling made in prior periods
required to accommodate new OEM customers, new projects for existing OEM
customers and other new proprietary grip products.
Improvements made within the Company's Vista facility to increase capacity,
streamline production and meet key delivery deadlines during the nine months
ended April 30, 1997 resulted in improvements in customer service, product
quality, customer relationships and management's evaluating and reporting of
operations. However, the costs of such improvements contributed to the
operating loss. The net loss for the quarter just ended increased by 14%
compared to the same quarter in Fiscal 1996. The net loss for the nine months
ended April 30,1997 decreased by 21% compared to the same period in Fiscal 1996.
The Company incurred a loss of $341,865 or $0.06 per share and $915,387 or $0.16
per share during the quarter and nine months ended April 30, 1997, as compared
to a loss of $298,908 or $0.06 per share and $1,159,489 or $0.25 per share for
the same periods in fiscal 1996, respectively.
Receivables decreased $239,904 during the nine months ended April 30, 1997 due
to continually improving collections and reduced sales levels in the most recent
quarter.
Inventories decreased $26,413 during the quarter ended April 30, 1997 as a
result of improved inventory management, but remain above July 31, 1996 levels
by $69,858 in order to support the overall increase in sales activity.
During the quarter and nine months ended April 30, 1997 the Company invested
$67,433 and $234,896 in tooling for new products, as compared with $206,543 and
$399,652 during the same periods in fiscal 1996.
Liquidity and Capital Resources
- -------------------------------
The Company had a significant working capital deficit of $1,945,232 at April
30, 1997. The working capital deficit at July 31, 1996 was $1,440,548. The
$504,684 increase in working capital deficit is directly attributable to net
cash used in operating activities and investments in property and equipment
(tooling) which were funded primarily by borrowings on a $400,000 line of
credit established with a bank in September 1996. Interest on the line is
payable monthly at prime plus 2.5% and matures on September 15, 1997 . As a
result of cash flow constraints, compounded by the increased operating cash flow
deficit in the quarter just ended, the Company has had to prioritize its
payments to vendors, debt holders and others. Management has identified
payroll, rent, utilities and certain office expenses, contract grip
manufacturers, tooling and certain debt holders as the most critical obligations
to be met. As a result, trade payables have increased and a portion are
significantly past due. As of June 14, 1997 the Company is more than 60 days
past due with respect to approximately $210,000 in trade payables. Included in
this amount is approximately $25,000 owed to one of the Company's PGA tour
endorsers for endorsement fees. The endorser's representatives have verbally
agreed to work with the Company regarding payments of the past due amounts.
However, included in current liabilities at April 30, 1997 is approximately
$1,511,000 of long-term obligations personally guaranteed by and/or
collateralized by the personal assets of the Company's President and major
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<PAGE>
stockholder. Also included in current liabilities at April 30, 1997 are
$586,730 due to two stockholders, including the President and another officer of
the Company. Of the $1,511,000 of current portion of long-term obligations,
$1,180,000 is owed to a bank and matures on September 15, 1997. Historically,
the Company has been able to extend this obligation, however, to date, the
Company has not obtained any written commitment from the bank to extend these
loans and no assurance can be given that the obligations will be extended past
September 15, 1997 or that the Company will be able to obtain new loan
commitments from another lender to repay the $1,180,000 on September 15, 1997.
Repayment of the amounts due the stockholders has historically been deferred,
but further deferral is not assured. The Company is not expected to generate
sufficient cash from operations necessary to repay these obligations as they
come due. It will be required to either extend the maturities, sell additional
equity to generate funds to repay them, or seek alternative financing.
During the quarter just ended, the Company borrowed $108,500 to help fund
operations and extended a short-term note of $50,000 to February 28, 1999. The
new note is convertible at $1.50 per share. Since the end of the quarter just
ended, the Company has obtained additional fundings of $304,375 from the early
exercise of warrants and promissory notes issued by the Company. In addition,
$10,000 of short-term borrowings were converted to common stock.
The Company anticipates it will require an additional $2,000,000 through Fiscal
1998, including $300,000 through the remainder of Fiscal 1997, to fund operating
losses, the expected continued sales growth, projected tooling purchases and to
meet certain obligations (including certain notes payable and other long-term
obligations) as they come due. The Company is aggressively pursuing the pending
private placement and other opportunities to meet these requirements. The
Company is also seeking to obtain concessions and/or deferred payment plans from
vendors on amounts owed. The Company will also pursue other private placements
of its debt securities and other loan transactions. Additional bank financing is
not expected to be an option unless credit enhancements, such as guarantees, are
available, or until such time the Company has at least one fiscal quarter of
profitability. None of these sources or alternatives may be available to the
Company and, if they become available, they may not occur within the time frame
required by the Company or they may require terms which management finds
unacceptable. The inability of the Company to locate additional capital prior to
the end of the fiscal 1997 raises substantial doubt about the Company's ability
to continue operating as a going concern.
-13-
<PAGE>
PART II
Item 3 Defaults Upon Senior Securities
Don Poulin is owed approximately $280,000 in connection with the
purchase by the Company of certain assets from Poulin Progrip, Inc. in
1993. Poulin and the Company into a settlement agreement in February
1996, pursuant to which the Company agreed to pay Poulin $200,000 by
July 31, 1996, which Poulin subsequently agreed to extend through
December 31, 1996. If the Company fails or refuses to make such
payment the settlement agreement is rescinded and both parties reserve
whatever rights they might have against the other. The Company has
made periodic payments to Poulin although the settlement agreement has
been rescinded. The total payments in arrears at April 30, 1997 is
approximately $65,000.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
2.1 Agreement and Plan of Reorganization, dated September 20,
1995, by and among Registrant, USG Acquisition Corporation
and USGRIPS, Inc., as amended -incorporated by reference to
exhibit 2.1 to Registrant's Form 10-K for the year ended
July 31, 1996
03.1(i) Restated Articles of Incorporation of Registrant-
incorporated by reference to exhibit 3.1(i) to Registrant's
Form 10-K for the year ended July 31, 1996
3.1(ii) Amended and Restated Bylaws of Registrant -incorporated by
reference to exhibit 3.1(ii) to Registrant's Form 10-K for
the year ended July 31, 1996
4.1 Loan documents for $780,000 loan from Wells Fargo Bank,
including Loan Commitment Note, dated January 14, 1997;
Addendum to Promissory Note, dated February 12, 1997; Third
Party Security Agreement: Securities Account, dated January
14, 1997; Addendum to Third Party Security Agreement:
Securities Account, dated February 12, 1997; and Securities
Account Control Agreement, dated February 12, 1997; and
Securities Account Control Agreement, dated February 14,
1997.
4.2 Revolving Line of Credit Note, dated September 23, 1996,
made payable by Registrant to Wells Fargo Bank N.A. in the
original principal sum of $400,000 - incorporated by
reference to exhibit 4.4 to Registrant's Form 10-K for the
year ended July 31, 1996
4.3 Form of Convertible Notes issued by Registrant:
<TABLE>
<CAPTION>
Amount Payee Loan Date Due Date
- ----------------------------- -------------------- --------- --------
<S> <C> <C> <C>
$ 50,000 The Caroline Company 3/12/97 2/28/99
$ 87,500 The Caroline Company 3/12/97 2/28/99
$ 21,000 Third Century II 3/25/97 2/28/99
$500,000 Third Century II 6/10/97 5/31/99
$ 21,000 Z-Fund 6/10/97 5/31/99
</TABLE>
Registrant agrees to make copies of any or all of said
Convertible Notes available to the commission upon request.
4.4 Form of Instruction for and Notice of Early Exercise of
Stock Purchase Warrant
-14-
<PAGE>
10.1 1994 Stock Option Plan - incorporated by reference to
exhibit 10.1 to Registrant's Form 10-K for the year ended
July 31, 1996
10.2 Amendments to 1994 Stock Option Plan - adopted by
Shareholders on December 17, 1996 incorporated by reference
10.3 Employment Agreement, dated as of September 22, 1995,
between Registrant and Paul Herber - incorporated by
reference to exhibit 10.2 to Registrant's Form 10-K for the
year ended July 3
10.4 Noncompetition Agreement, dated September 22, 1995, between
Registrant and J. Barrie Ogilvie -incorporated by reference
to exhibit 10.3 to Registrant's Form 10-K for the year
ended July 31, 1996
10.5 Security Agreement, dated July 31, 1995, between Registrant
and Sam G. Lindsay - incorporated by reference to exhibit
10.4 to Registrant's Form 10-K for the year ended July 31,
1996
10.6 Letter Agreement, dated August 1, 1995, between Registrant
and Sam G. Lindsay re: deferral of compensation -
incorporated by reference to exhibit 10.5 to Registrant's
Form 10-K for the year ended July 31, 1996
10.7 Request to Convert and Investment Letter, dated July 31,
1996, between Registrant and Sam G. Lindsay- incorporated
by reference to exhibit 10.6 to Registrant's Form 10-K for
the year ended July 31, 1996
10.8 Agreement, dated September 22, 1995, between Registrant and
ARC Equipment, Inc. - incorporated by reference to exhibit
10.7 to Registrant's Form 10-K for the year ended July 31,
1996
21.1 Subsidiaries of Registrant - incorporated by reference to
exhibit 21.1 to Registrant's Form 10-K for the year ended
July 31, 1996
27 Financial data schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the Registrant's fiscal quarter
ended April 30, 1997
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIP TECHNOLOGIES, INC.
---------------------------------
(Registrant)
Date: June 14, 1997
/s/ SAM G. LINDSAY
--------------------------------
Sam G. Lindsay
President and
Chief Executive Officer
Date: June 14, 1997
/s/ ROBERT W. TAYLOR
---------------------------------------
Robert W. Taylor
Chief Operations and Financial Officer
-16-
<PAGE>
EXHIBIT 4.1
WELLS FARGO BANK LOAN COMMITMENT NOTE
- --------------------------------------------------------------------------------
$780,000.00 Irvine, California
January 14, 1997
FOR VALUE RECEIVED, the undersigned GRIP TECHNOLOGIES, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at Orange Coast RCBO, 2030 Main Street Suite 900, Irvine, CA
92714, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of $780,000.00, or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other day
on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1 - 9 months, as designated by Borrower, during which all or a
portion of the outstanding principal balance of this Note bears interest
determined in relation to LIBOR; provided however, that no Fixed Rate Term may
be selected for principal amount less than $100,000.00; and provided further,
that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof.
If any Fixed Rate Term would end on a day which is not a Business Day, then such
Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a percentage equal
to 100% less any LIBOR Reserve Percentage.
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London Inter-
Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of the Bank's base rates and serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
--------
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) at a fixed rate per annum determined by Bank to be 1.75000%
above LIBOR in effect on the first day of the applicable Fixed Rate Term. When
interest is determined in relation to the Prime Rate, each change in the rate
of interest hereunder shall become effective on the date each Prime Rate change
is announced within Bank. With respect to each LIBOR selection option selected
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
----------------------------------
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the
<PAGE>
principal amount subject thereto; and (iii) for each LIBOR selection, the length
of the applicable Fixed Rate Term. Any such notice may be given by telephone so
long as, with respect to each LIBOR selection, (A) Bank receives written
confirmation from Borrower not later than 3 Business Days after such telephone
notice is given, and (B) such notice is given to Bank prior to 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. For each LIBOR option
requested hereunder, Bank will quote the applicable fixed rate to Borrower at
approximately 10:00 a.m., California time, on the first day of the Fixed Rate
Term. If Borrower does not immediately accept the rate quoted by Bank, any
subsequent acceptance by Borrower shall be subject to a redetermination by Bank
of the applicable fixed rate; provided however, that if Borrower fails to accept
any such rate by 11:00 a.m., California time, on the Business Day such quotation
is given, then the quoted rate shall expire and Bank shall have no obligation to
permit a LIBOR option to be selected on such day. If no specific designation of
interest is made at the time any advance is requested hereunder or at the end of
any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate interest
selection for such advance or the principal amount to which such Fixed Rate Term
applied.
(c) Additional LIBOR Provisions.
---------------------------
(i) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until
such notice has been withdrawn by Bank, then (A) no new LIBOR option may be
selected by Borrower, and (B) and portion of the outstanding principal balance
hereof which bears interest determined in relation to LIBOR, subsequent to the
end of the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court
or governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided, however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed RAte Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to
Bank of principal, interest, fees or any other amount payable
hereunder (except for changes in the rate of tax on the overall
net income of Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances
or loans by, or any other acquisition of funds by any office of
Bank; or
(C) impose on Bank any other condition.
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable
-------------------
on the 15th day of each month, commencing March 15, 1997.
(e) Default Interest. From and after the maturity date of this Note,
----------------
or such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment: Borrower may from time to time during the
-----------------------
term of this Note borrow and partially or wholly repay its outstanding
borrowings, subject to all of the limitations, terms and conditions of this Note
and of any document executed in connection with or governing this Note; provided
however, that amounts repaid may not be reborrowed; and provided further, that
the total borrowings under this Note shall not exceed the principal amount
stated above. The unpaid principal balance of this obligation at any time shall
be the total amounts advanced hereunder by the holder hereof less the amount of
principal payments made hereon by or for any
<PAGE>
Borrower, which balance may be endorsed hereon from time to time by the holder.
The outstanding principal balance of this Note shall be due and payable in full
on September 15, 1997.
(b) Advances. Advances hereunder, to the total amount of the principal sum
--------
available hereunder, may be made by the holder at the oral or written request of
(i) ____________________________________________________________________________
_______________________________________________________________, any one acting
alone, who are authorized to request advances and direct the disposition of any
advances until written notice of the revocation of such authority is received by
the holder at the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any account of any Borrower with the holder,
which advances, when so deposited, shall be conclusively presumed to have been
made to or for the benefit of each Borrower regardless of the fact that persons
other than those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to determine whether
any person requesting an advance is or has been authorized by any Borrower.
(c) Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT
(a) Prime Rate. Borrower may prepay principal on any portion of this Note
----------
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note which
-----
bears interest determined in relation to LIBOR at any time and in the minimum
amount of $100,000.00; provided however, that if the outstanding principal
balance of such portion of this Note is less than said amount, the minimum
prepayment amount shall be the entire outstanding principal balance thereof. In
consideration of Bank providing this prepayment option to Borrower, or if any
such portion of this Note shall become due and payable at any time prior to the
last day of the Fixed Rate Term applicable thereto by acceleration or otherwise,
Borrower shall pay to Bank immediately upon demand a fee which is the sum of the
discounted monthly differences for each month from the month of prepayment
through the month in which such Fixed Rate Term matures, calculated as follows
for each such month:
(i) Determine the amount of interest which would have accrued each month
---------
on the amount prepaid at the interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount prepaid for
the remaining term of such Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a principal amount equal to
the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
Non-Revolving Loan Commitment Note (08/96), Page 3
<PAGE>
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
(g) Any violation or breach of any provision of, or any defined event of
default under, any adddendum to this Note or any loan agreement, guarantee,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
--------
this Note, at the holder's option may declare all sums of principal and interest
outstanding hereunder to be immediately due and payable without presentment,
demand, notice of nonperformance, notice of protest, protest or notice of
dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorney's fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel),
expended or incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower to any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
-----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
GRIP TECHNOLOGIES, INC.
BY: /S/ SAMUEL G. LINDSAY
----------------------
SAMUEL G. LINDSAY
PRESIDENT
<PAGE>
ADDENDUM TO PROMISSORY NOTE
THIS ADDENDUM is attached to and made a part of that certain promissory
note executed by Grip Technologies, Inc. ("Borrower") and payable to WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank"), or order, dated as of February 12, 1997,
in the principal amount of Seven Hundred Eighty Thousand Dollars ($780,000.00)
(the "Note").
The following provisions are hereby incorporated into the Note:
1. So long as Bank remains committed to extend credit to Borrower under
this Note and until payment in full of all obligations of Borrower hereunder,
Borrower shall provide to Bank all of the following, in form and detail
satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include balance sheet, income statement, and
statement of cash flow;
(b) not later than 30 days after and as of the end of each quarter, a
financial statement of Borrower, prepared by Borrower, to include balance sheet,
income statement and statement of cash flow; and
(c) from time to time such financial and other information as Bank may
reasonably request.
2. As security for all indebtedness of Borrower to Bank subject hereto,
Borrower shall cause Samuel G. Lindsay ("Pledgor") to grant Bank a security
interest of first priority in (a) commercial paper of a type and with a rating
and market value acceptable to Bank, which commercial paper will be maintained
by Pledgor in a securities account with Bank ("Account"), (b) the Account, (c)
all financial assets now or hereafter in the Account, and (d) all proceeds of
any of the foregoing. All of the foregoing shall be evidenced by and subject to
the terms of such security agreements, financing statements and other documents
as Bank shall reasonably require, all in form and substance satisfactory to
Bank. Borrower shall reimburse Bank immediately upon demand for all costs and
expenses incurred by Bank in connection with any of the foregoing security,
including without limitation filing and recording fees and costs of appraisals
and audits.
<PAGE>
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
3. ARBITRATION:
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Note. A "Dispute" shall mean any action, dispute, claim
or controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Note and each other document,
contract and instrument required hereby or now or hereafter delivered to Bank in
connection herewith (collectively, the "Documents"), or any past, present or
future extensions of credit and other activities, transactions or obligations of
any kind related directly or indirectly to any of the Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Documents.
Any party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
---------------
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank
-2-
<PAGE>
of the protections afforded to it under 12 U.S.C. (S)91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure.
-----------------------------------------------------------
No provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any Dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (A) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions
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<PAGE>
of law are not erroneous under the substantive law of the state of California,
and (C) the parties shall have in addition to the grounds referred to in the
Federal Arbitration Act for vacating, modifying or correcting an award the right
to judicial review of (l) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (2) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
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anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
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arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute shall
control. This Note may be amended or modified only in writing signed by Bank and
Borrower. If any provision of this Note shall be held to be prohibited by or
invalid under applicable law, such provision shall be ineffective
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<PAGE>
only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or any remaining provisions of this Note. This
arbitration provision shall survive termination, amendment or expiration of any
of the Documents or any relationship between the parties.
IN WITNESS WHEREOF, this Addendum has been executed as of the same date
as the Note.
Grip Technologies, Inc.
By: /s/ SAMUEL G. LINDSEY
---------------------
Samuel G. Lindsey
President
<PAGE>
THIRD PARTY SECURITY AGREEMENT:
SECURITIES ACCOUNT
1. GRANT OF SECURITY INTEREST. In consideration of any credit or other
financial accommodation heretofore, now or hereafter extended or made to GRIP
TECHNOLOGIES, INC. ("Borrowers"), or any of them, by WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") , and for other valuable consideration, as security for the
payment of all Indebtedness of Borrowers to Bank, the undersigned SAMUEL G.
LINDSAY ("Owner") hereby grants and transfers to Bank a security interest in (a)
Owner's Institutional Securities Account Number 009894 (the "Securities
Account") maintained with Bank acting through its Investment Group (the
"Intermediary"), (b) all financial assets credited to the Securities Account,
including but not limited to that certain investment in commercial paper of Ford
Motor Credit with a maturity on September 15, 1997, (c) all security
entitlements with respect to the financial assets credited to the Securities
Account, and (d) all other investment property or other assets maintained or
recorded in the Securities Account (with all the foregoing defined as
"Collateral"), together with whatever is receivable or received when any of the
Collateral or proceeds thereof are sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, including
without limitation, (i) all rights to payment, including returned premiums, with
respect to any insurance relating to any of the foregoing, (ii) all rights to
payment with respect to any cause of action affecting or relating to any of the
foregoing, and (iii) all stock rights, rights to subscribe, stock splits,
liquidating dividends, cash dividends, dividends paid in stock, new securities
or other property of any kind which Owner is or may hereafter be entitled to
receive on account of any securities pledged hereunder, including without
limitation, stock received by Owner due to stock splits or dividends paid in
stock or sums paid upon or in respect of any securities pledged hereunder upon
the liquidation or dissolution of the issuer thereof (hereinafter called
"Proceeds"). Except as otherwise expressly permitted herein, in the event Owner
receives any such Proceeds, Owner will hold the same in trust on behalf of and
for the benefit of Bank and will immediately deliver all such Proceeds to Bank
in the exact form received, with the endorsement of Owner if necessary and/or
appropriate undated stock powers duly executed in blank, to be held by Bank as
part of the Collateral, subject to all terms hereof. As used herein, the terms
"security entitlement", "financial asset" and "investment property" shall have
the respective meanings set forth in the California Uniform Commercial Code. The
word "Indebtedness" is used herein in its most comprehensive sense and includes
any and all advances, debts, obligations and liabilities of Borrowers, or any of
them, heretofore, now or hereafter made, incurred or created, whether voluntary
or involuntary and however arising, whether due or not
<PAGE>
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrowers may be liable individually or jointly with
others, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
2. CONTINUING AGREEMENT; REVOCATION; OBLIGATION UNDER OTHER AGREEMENTS.
This is a continuing agreement and all rights, powers and remedies hereunder
shall apply to all past, present and future Indebtedness of each of the
Borrowers to Bank, including that arising under successive transactions which
shall either continue the Indebtedness, increase or decrease it, or from time to
time create new Indebtedness after all or any prior Indebtedness has been
satisfied, and notwithstanding the death, incapacity, dissolution, liquidation
or bankruptcy of any of the Borrowers or Owner or any other event or proceeding
affecting any of the Borrowers or Owner. This Agreement shall not apply to any
new Indebtedness created after actual receipt by Bank of written notice of its
revocation as to such new Indebtedness; provided however, that loans or advances
made by Bank to any of the Borrowers after revocation under commitments existing
prior to receipt by Bank of such revocation, and extensions, renewals or
modifications, of any kind, of Indebtedness incurred by any of the Borrowers or
committed by Bank prior to receipt by Bank of such revocation, shall not be
considered new Indebtedness. Any such notice must be sent to Bank by registered
U.S. mail, postage prepaid, addressed to its office at 2030 Main Street, Suite
900, Irvine, California 92714, or at such other address as Bank shall from time
to time designate. The obligations of Owner hereunder shall be in addition to
any obligations of Owner under any other grants or pledges of security for any
liabilities or obligations of any of the Borrowers or any other person
heretofore or hereafter given to Bank unless said other grants or pledges of
security are expressly modified or revoked in writing; and this Agreement shall
not, unless expressly herein provided, affect or invalidate any such other
grants or pledges of security.
3. OBLIGATIONS JOINT AND SEVERAL; SEPARATE ACTIONS; WAIVER OF STATUTE OF
LIMITATIONS; REINSTATEMENT OF LIABILITY. The obligations hereunder are joint and
several and independent of the obligations of Borrowers, and a separate action
or actions may be brought and prosecuted against Owner whether action is brought
against any of the Borrowers or any other person, or whether any of the
Borrowers or any other person is joined in any such action or actions. Owner
acknowledges that this Agreement is absolute and unconditional, there are no
conditions precedent to the effectiveness of this Agreement, and this Agreement
is in full force and effect and is binding on Owner as of the date written
below, regardless of whether Bank obtains collateral or any guaranties from
others or takes any other action contemplated by Owner. Owner waives the benefit
of any statute of limitations affecting Owner's liability hereunder or the
enforcement thereof,
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<PAGE>
and Owner agrees that any payment of any Indebtedness or other act which shall
toll any statute of limitations applicable thereto shall similarly operate to
toll such statute of limitations applicable to Owner's liability hereunder. The
liability of Owner hereunder shall be reinstated and revived and the rights of
Bank shall continue if and to the extent that for any reason any amount at any
time paid on account of any Indebtedness secured hereby is rescinded or must be
otherwise restored by Bank, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise, all as though such amount had not been paid. The
determination as to whether any amount so paid must be rescinded or restored
shall be made by Bank in its sole discretion; provided however, that if Bank
chooses to contest any such matter at the request of Owner, Owner agrees to
indemnify and hold Bank harmless from and against all costs and expenses,
including reasonable attorneys' fees, expended or incurred by Bank in connection
therewith, including without limitation, in any litigation with respect thereto.
4. OBLIGATIONS OF BANK. Bank shall have no duty to take any steps necessary
to preserve the rights of Owner against prior parties, or to initiate any action
to protect against the possibility of a decline in the market value of the
Collateral or Proceeds. Bank shall not be obligated to take any actions with
respect to the Collateral or Proceeds requested by Owner unless such request is
made in writing and Bank determines, in its sole discretion, that the requested
action would not unreasonably jeopardize the value of the Collateral and
Proceeds as security for the indebtedness.
5. REPRESENTATIONS AND WARRANTIES.
(a) Owner represents and warrants to Bank that: (i) Owner is the sole owner
of the Collateral and Proceeds; (ii) Owner has the right to grant a security
interest in the Collateral and Proceeds; (iii) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses
and conditions precedent of any kind or character, except the lien created
hereby or as otherwise agreed to by Bank, or heretofore disclosed by Owner to
Bank, in writing; (iv) all statements contained herein and, where applicable, in
the Collateral are true and complete in all material respects; (v) no financing
statement covering any of the Collateral or Proceeds, and naming any secured
party other than Bank, is on file in any public office; (vi) no person or
entity, other than Owner, Bank and the Intermediary, has any interest in or
control over the Collateral; and (vii) specifically with respect to Collateral
and Proceeds consisting of investment securities, instruments, chattel paper,
documents, contracts, insurance policies or any like property, all persons
appearing to be obligated thereon have authority and capacity to contract and
are bound as they appear
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<PAGE>
to be, and the same comply with applicable laws concerning form,
content and manner of preparation and execution.
(b) Owner further represents and warrants to Bank that: (i) the Collateral
pledged hereunder is so pledged at Borrowers' request; (ii) Bank has made no
representation to Owner as to the creditworthiness of any of the Borrowers; and
(iii) Owner has established adequate means of obtaining from each of the
Borrowers on a continuing basis financial and other information pertaining to
Borrowers' financial condition. Owner agrees to keep adequately informed from
such means of any facts, events or circumstances which might in any way affect
Owner's risks hereunder, and Owner further agrees that Bank shall have no
obligation to disclose to Owner any information or material about any of the
Borrowers which is acquired by Bank in any manner.
6. COVENANTS OF OWNER.
(a) Owner agrees in general: (i) to indemnify Bank against all losses,
claims, demands, liabilities and expenses of every kind caused by property
subject hereto; (ii) to pay all costs and expenses, including reasonable
attorneys' fees, incurred by Bank in the perfection and preservation of the
Collateral or Bank's interest therein and/or the realization, enforcement and
exercise of Bank's rights, powers and remedies hereunder; (iii) to permit Bank
to exercise its powers; (iv) to execute and deliver such documents as Bank deems
necessary to create, perfect and continue the security interests contemplated
hereby; and (v) not to change Owner's chief place of business (or personal
residence, if applicable) or the places where Owner keeps any of Owner's records
concerning the Collateral and Proceeds without first giving Bank written notice
of the address to which Owner is moving same.
(b) Owner agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) not to permit any lien on the Collateral or
Proceeds, except in favor of Bank and except liens in favor of the Intermediary
to the extent expressly permitted by Bank in writing; (ii) not to hypothecate or
permit the transfer by operation of law of any of the Collateral or Proceeds or
any interest therein; (iii) to keep, in accordance with generally accepted
accounting principles, complete and accurate records regarding all Collateral
and Proceeds, and to permit Bank to inspect the same and make copies thereof at
any reasonable time; (iv) if requested by Bank, to receive and use reasonable
diligence to collect Proceeds, in trust and as the property of Bank, and to
immediately endorse as appropriate and deliver such Proceeds to Bank daily in
the exact form in which they are received together with a collection report in
form satisfactory to Bank; (v) in the event Bank elects to receive payments of
Proceeds hereunder, to pay all expenses
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<PAGE>
incurred by Bank in connection therewith, including expenses of accounting,
correspondence, collection efforts, reporting to account or contract debtors,
filing, recording, record keeping and expenses incidental thereto; (vi) to
provide any service and do any other acts which may be necessary to keep all
Collateral and Proceeds free and clear of all defenses, rights of offset and
counterclaims; and (vii) if the Collateral or Proceeds consists of securities
and so long as no Event of Default exists, to vote said securities and to give
consents, waivers and ratifications with respect thereto, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would impair Bank's interest in the Collateral and Proceeds or be inconsistent
with or violate any provisions of this Agreement.
7. POWERS OF BANK. Owner appoints Bank its true attorney in fact to perform
any of the following powers, which are coupled with an interest, are irrevocable
until termination of this Agreement and may be exercised from time to time by
Bank's officers and employees, or any of them, whether or not any of the
Borrowers or Owner is in default: (a) to perform any obligation of Owner
hereunder in Owner's name or otherwise; (b) to notify any person obligated on
any security, instrument or other document subject to this Agreement of Bank's
rights hereunder; (c) to collect by legal proceedings or otherwise all
dividends, interest, principal or other sums now or hereafter payable upon or on
account of the Collateral or Proceeds; (d) to enter into any extension,
reorganization, deposit, merger or consolidation agreement, or any other
agreement relating to or affecting the Collateral or Proceeds, and in connection
therewith to deposit or surrender control of the Collateral and Proceeds, to
accept other property in exchange for the Collateral and Proceeds, and to do and
perform such acts and things as Bank may deem proper, with any money or property
received in exchange for the Collateral or Proceeds, at Bank's option, to be
applied to the Indebtedness or held by Bank under this Agreement; (e) to make
any compromise or settlement Bank deems desirable or proper in respect of the
Collateral and Proceeds; (f) to insure, process and preserve the Collateral and
Proceeds; (g) to exercise all rights, powers and remedies which Owner would
have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; and (h) to do all acts and things and execute all documents in
the name of Owner or otherwise, deemed by Bank as necessary, proper or
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder. To effect the purposes of this Agreement or otherwise upon
instructions of Owner, Bank may cause any Collateral and/or Proceeds to be
transferred to Bank's name or the name of Bank's nominee. If an Event of Default
has occurred and is continuing, any or all Collateral and/or Proceeds consisting
of securities may be registered, without notice, in the name of Bank or its
nominee, and thereafter Bank or its nominee may exercise, without notice, all
voting and corporate
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<PAGE>
rights at any meeting of the shareholders of the issuer thereof, any and all
rights of conversion, exchange or subscription, or any other rights, privileges
or options pertaining to such Collateral and/or Proceeds, all as if it were the
absolute owner thereof. The foregoing shall include, without limitation, the
right of Bank or its nominee to exchange, at its discretion, any and all
Collateral and/or Proceeds upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof, or upon the
exercise by the issuer thereof or Bank of any right, privilege or option
pertaining to any shares of the Collateral and/or Proceeds, and in connection
therewith, the right to deposit and deliver any and all of the Collateral and/or
Proceeds with any committee, depository, transfer agent, registrar or other
designated agent upon such terms and conditions as Bank may determine. All of
the foregoing rights, privileges or options may be exercised without liability
on the part of Bank or its nominee except to account for property actually
received by Bank. Bank shall have no duty to exercise any of the foregoing, or
any other rights, privileges or options with respect to the Collateral or
Proceeds and shall not be responsible for any failure to do so or delay in so
doing.
8. OWNER'S WAIVERS.
(a) Owner waives any right to require Bank to: (i) proceed against any of
the Borrowers or any other person; (ii) marshal assets or proceed against or
exhaust any security held from any of the Borrowers or any other person; (iii)
give notice of the terms, time and place of any public or private sale of
personal property security held from any of the Borrowers or any other person,
or otherwise comply with the provisions of Section 9504 of the California
Uniform Commercial Code; (iv) take any action or pursue any other remedy in
Bank's power; or (v) make any presentment or demand for performance, or give any
notice of nonperformance, protest, notice of protest or notice of dishonor
hereunder or in connection with any obligations or evidences of indebtedness
held by Bank as security for or which constitute in whole or in part the
Indebtedness secured hereunder, or in connection with the creation of new or
additional Indebtedness.
(b) Owner waives any defense to its obligations hereunder based upon or
arising by reason of: (i) any disability or other defense of any of the
Borrowers or any other person; (ii) the cessation or limitation from any cause
whatsoever, other than payment in full, of the Indebtedness of any of the
Borrowers or any other person; (iii) any lack of authority of any officer,
director, partner, agent or any other person acting or purporting to act on
behalf of any of the Borrowers which is a corporation, partnership or other type
of entity, or any defect in the formation of any such Borrower; (iv) the
application by any of the Borrowers of the proceeds of any Indebtedness for
purposes
-6-
<PAGE>
other than the purposes represented by Borrowers to, or intended or
understood by, Bank or Owner; (v) any act or omission by Bank which directly or
indirectly results in or aids the discharge of any of the Borrowers or any
portion of the Indebtedness by operation of law or otherwise, or which in any
way impairs or suspends any rights or remedies of Bank against any of the
Borrowers; (vi) any impairment of the value of any interest in the Collateral or
Proceeds, or any other security for the Indebtedness or any portion thereof,
including without limitation, the failure to obtain or maintain perfection or
recordation of any interest in any such security, the release of any such
security without substitution, and/or the failure to preserve the value of, or
to comply with applicable law in disposing of, any such security; or (vii) any
modification of the Indebtedness, in any form whatsoever, including any
modification made after revocation hereof to any Indebtedness incurred prior to
such revocation, and including without limitation the renewal, extension,
acceleration or other change in time for payment of, or other change in the
terms of, the Indebtedness or any portion thereof, including increase or
decrease of the rate of interest thereon. Until all Indebtedness shall have been
paid in full, Owner shall have no right of subrogation, and Owner waives any
right to enforce any remedy which Bank now has or may hereafter have against any
of the Borrowers or any other person, and waives any benefit of, or any right to
participate in, any security now or hereafter held by Bank. Owner further waives
all rights and defenses Owner may have arising out of (A) any election of
remedies by Bank, even though that election of remedies, such as a non-judicial
foreclosure with respect to any security for any portion of the Indebtedness,
destroys Owner's rights of subrogation or Owner's rights to proceed against any
of the Borrowers for reimbursement, or (B) any loss of rights Owner may suffer
by reason of any rights, powers or remedies of any of the Borrowers in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging Borrowers' Indebtedness, whether by operation of Sections 726,
580a or 580d of the Code of Civil Procedure as from time to time amended, or
otherwise, including any rights Owner may have to a Section 580a fair market
value hearing to determine the size of a deficiency following any trustee's
foreclosure sale or other disposition of any real property security for any
portion of the Indebtedness.
9. AUTHORIZATIONS TO BANK. Owner authorizes Bank either before or after
revocation hereof, without notice to or demand on Owner, and without affecting
Owner's liability hereunder, from time to time to: (a) alter, compromise, renew,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the Indebtedness or any portion thereof, including increase
or decrease of the rate of interest thereon; (b) take and hold security, other
than the Collateral and Proceeds, for the payment of the Indebtedness or any
portion thereof, and
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<PAGE>
exchange, enforce, waive, subordinate or release the Collateral and Proceeds, or
any part thereof, or any such other security; (c) apply the Collateral and
Proceeds or such other security and direct the order or manner of sale thereof,
including without limitation, a non-judicial sale permitted by the terms of the
controlling security agreement or deed of trust, as Bank in its discretion may
determine; (d) release or substitute any one or more of the endorsers or
guarantors of the Indebtedness, or any portion thereof, or any other party
thereto; and (e) apply payments received by Bank from any of the Borrowers to
any Indebtedness of any of the Borrowers to Bank, in such order as Bank shall
determine in its sole discretion, whether or not such Indebtedness is covered by
this Agreement, and Owner hereby waives any provision of law regarding
application of payments which specifies otherwise. Bank may without notice
assign this Agreement in whole or in part.
10. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Owner
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Owner to do so, Bank at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same. Any such payments made by Bank shall be obligations of Owner to Bank,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 15 hereof, and shall be
secured by the Collateral and Proceeds, subject to all terms and conditions of
this Agreement.
11. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any default in the
payment or performance of any obligation, or any defined event of default, under
(i) any contract or instrument evidencing any Indebtedness, (ii) any other
agreement between any of the Borrowers and Bank, including without limitation
any loan agreement, relating to or executed in connection with any Indebtedness,
or (iii) any control, custodial or other similar agreement in effect among Bank,
Owner and the Intermediary; (b) any representation or warranty made by Owner
herein shall prove to be incorrect in any material respect when made; (c) Owner
shall fail to observe or perform any obligation or agreement contained herein;
(d) any attachment or like levy on any property of Owner; and (e) Bank, in good
faith, believes any or all of the Collateral and/or Proceeds to be in danger of
misuse, dissipation, commingling, loss, theft, damage or destruction, or
otherwise in jeopardy or unsatisfactory in character or value.
12. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have
and may exercise without demand any and all
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<PAGE>
rights, powers, privileges and remedies granted to a secured party upon default
under the California Uniform Commercial Code or otherwise provided by law,
including without limitation, the right to contact the Intermediary and to
instruct the Intermediary to deliver all Collateral and/or Proceeds directly to
Bank. All rights, powers, privileges and remedies of Bank shall be cumulative.
No delay, failure or discontinuance of Bank in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Bank of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales. While an Event of Default exists: (a) Owner will not dispose of any
of the Collateral or Proceeds except on terms approved by Bank; (b) Bank may
appropriate the Collateral and apply all Proceeds toward repayment of the
Indebtedness in such order as Bank may from time to time eject; (c) Bank may
take any action with respect to the Collateral contemplated by any control,
custodial or other similar agreement then in effect among Bank, Owner and the
Intermediary; and (d) at Bank's request, Owner will assemble and deliver all
books and records pertaining to the Collateral to Bank at a reasonably
convenient place designated by Bank. For any Collateral or Proceeds consisting
of securities, Bank shall be under no obligation to delay a sale of any portion
thereof for the period of time necessary to permit the issuer thereof to
register such securities for public sale under any applicable state or federal
law, even if the issuer thereof would agree to do so.
13. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or any
part of the Indebtedness, Bank may transfer all or any part of the Collateral or
Proceeds and shall be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so transferred, and the
transferee shall be vested with all rights and powers of Bank hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral or Proceeds not so transferred, Bank shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of any of
the Collateral or Proceeds, or any part
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<PAGE>
thereof, may be applied by Bank to the payment of expenses incurred by Bank in
connection with the foregoing, including reasonable attorneys' fees, and the
balance of such proceeds may be applied by Bank toward the payment of the
Indebtedness in such order of application as Bank may from time to time elect.
14. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the address specified in
Section 2 hereof and to Owner at the address of its chief executive office (or
personal residence, if applicable) specified below or to such other address as
any party may designate by written notice to each other party, and shall be
deemed to have been given or made as follows: (a) if personally delivered, upon
delivery; (b) if sent by mail, upon the earlier of the date of receipt or three
(3) days after deposit in the U.S. mail, first class and postage prepaid; and
(c) if sent by telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Owner shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in exercising any right, power, privilege or remedy conferred
by this Agreement or in the enforcement thereof, whether incurred at the trial
or appellate level, in an arbitration proceeding or otherwise, and including any
of the foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding, contested matter or
motion brought by Bank or any other person) relating to Owner or in any way
affecting any of the Collateral or Bank's ability to exercise any of its rights
or remedies with respect thereto. All of the foregoing shall be paid by Owner
with interest from the date of demand until paid in full at a rate per annum
equal to the greater of ten percent (10%) or the Prime Rate in effect from time
to time. The "Prime Rate" is a base rate that Bank from time to time establishes
and which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto.
16. SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Owner may not
assign or transfer any of its interests or rights hereunder without Bank's prior
written consent. Owner acknowledges that Bank has the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in, any Indebtedness of Borrowers to Bank and any obligations with
respect thereto, including this Agreement. In connection therewith, Bank may
disclose all documents and information which
-10-
<PAGE>
Bank now has or hereafter acquires relating to Owner and/or this Agreement,
whether furnished by Borrowers, Owner or otherwise. Owner further agrees that
Bank may disclose such documents and information to Borrowers.
17. AMENDMENT. This Agreement may be amended or modified only in writing
signed by Bank and Owner.
18. APPLICATION OF SINGULAR AND PLURAL. In all cases where there is but
a single Borrower, then all words used herein in the plural shall be deemed to
have been used in the singular where the context and construction so require;
and when there is more than one Borrower named herein or when this Agreement is
executed by more than one Owner, the word "Borrowers" and the word "Owner"
respectively shall mean all or any one or more of them as the context requires.
19. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
21. ADDENDUM. Additional terms and conditions relating to the Securities
Account are set forth in an Addendum attached hereto.
22. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, this Agreement and each other
document, contract and instrument required hereby or now or hereafter delivered
to Bank in connection herewith (collectively, the "Documents"), or any past,
present or future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the Documents,
including without limitation, any of the foregoing arising in connection with
the exercise of any self-help, ancillary or other remedies pursuant to any of
the Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other
-11-
<PAGE>
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by
---------------
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Documents.
The arbitration shall be conducted at a location in California selected by the
AAA or other administrator. If there is any inconsistency between the terms
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. (S)91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Oualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the
-12-
<PAGE>
California Rules of Civil Procedure or other applicable law. Any Dispute in
which the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000
shall be decided by majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively participate in all hearings
and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
---------------
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference.
--------------------------------------------
Notwithstanding anything herein to the contrary, no Dispute shall be submitted
to arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (i) the holder of
the mortgage, lien or security interest specifically elects in writing to
proceed with the arbitration, or (ii) all parties to the arbitration waive any
rights or benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations of
the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A
-13-
<PAGE>
referee with the qualifications required herein for an arbitrator shall be
selected pursuant to the AAA's selection procedures. Judgment upon the decision
rendered by a referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure Sections 644 and
645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Documents or any relationship between the parties.
Owner warrants that its chief executive office (or personal residence,
if applicable) is located at the following address:
- ------------------------------------------------------------------------------
IN WITNESS WHEREOF, this Agreement has been duly executed as
of 1/14/97.
-------
/s/ Samuel G. Lindsay
- -----------------------------------------
SAMUEL G. LINDSAY
-14-
<PAGE>
ADDENDUM TO THIRD PARTY SECURITY AGREEMENT: SECURITIES ACCOUNT
THIS ADDENDUM is attached to and made a part of that certain Third Party
Security Agreement: Securities Account executed by SAMUEL G. LINDSAY ("Owner")
in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), dated as of
February 12, 1997 (the "Agreement").
The following provisions are hereby incorporated into the Agreement:
1. Securities Account Activity.
---------------------------
(a) So long as no Event of Default exists, Owner may receive payments of
interest and/or cash dividends earned on financial assets maintained in the
Securities Account. Except as permitted by the preceding sentence, Owner may not
withdraw or receive any distribution of any of the Collateral from the
Securities Account without Bank's prior written consent.
(b) Without Bank's prior written consent, Owner may not trade financial
assets maintained in the Securities Account.
2. Exclusion from Collateral. Notwithstanding anything herein to the
-------------------------
contrary, the terms "Collateral" and "Proceeds" do not include, and Bank
disclaims a security interest in any WF Securities and Collective Investment
Funds now or hereafter maintained in the Securities Account.
3. "Collective Investment Funds" means a collective investment fund as
---------------------------
described in 12 CFR 9.18 and includes without limitation a collective investment
fund maintained by Bank's Trust Department.
4. "WF Securities" means stock, securities or obligations of Wells Fargo
-------------
& Company or of any affiliate thereof (as the term affiliate is defined in
Section 23A of the Federal Reserve Act (12 USC 371(c), as amended from time to
time).
5. Limitation on Indebtedness. Notwithstanding anything in this
--------------------------
Agreement to the contrary, the Indebtedness of Borrowers secured hereby is
limited to all obligations of Borrowers arising under or in connection with that
certain Promissory Note executed by Borrowers and payable to the order of Bank,
dated as of January 14, 1997, in the principal amount of Seven Hundred Eighty
Thousand and no/100 ($780,000.00), and all extensions, renewa1 or modifications
thereof, and restatements or substitutions therefor.
<PAGE>
IN WITNESS WHEREOF, this Addendum has been executed as of the same date
as the Agreement.
/s/ SAMUEL G. LINDSAY
- ---------------------
Samuel G. Lindsay
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: ^^^ILLEGIBLE SIGNATURE^^^
-----------------------------
Title: Vice President
--------------------------
<PAGE>
SECURITIES ACCOUNT CONTROL AGREEMENT
------------------------------------
(Wells Fargo Bank Intermediary)
THIS SECURITIES ACCOUNT CONTROL AGREEMENT (this "Agreement") is entered
into as of February 14, 1997, by and among SAMUEL G. LINDSAY ("Customer"), WELLS
FARGO BANK, NATIONAL ASSOCIATION, acting through its Investment Group
("Intermediary"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its
Orange Coast Regional Commercial Banking Office ("Secured Party").
RECITALS
--------
A. Customer maintains that certain Institutional Securities Account No.
009894 (the "Securities Account") with Intermediary pursuant to an agreement
between Intermediary and Customer dated as of February 14, 1997, and governed by
the laws of the State of California (the "Account Agreement"), and Customer has
granted to Secured Party a security interest in the Securities Account and all
financial assets and other property now or at any time hereafter held in the
Securities Account.
B. Secured Party, Customer and Intermediary have agreed to enter into
this Agreement to perfect Secured Party's security interests in the Collateral,
as defined below.
NOW, THEREFORE, in consideration of their mutual covenants and promises,
the parties agree as follows:
1. Definitions. As used herein:
-----------
(a) the term "Collateral" shall mean (i) the Securities Account, (ii)
all financial assets credited to the Securities Account, including without
limitation that certain investment in commercial paper issued by Ford Motor
Credit with a maturity on September 15, 1997, (iii) all security entitlements
with respect to the financial assets credited to the Securities Account, (iv)
any and all other investment property or other assets maintained or recorded in
the Securities Account, and (v) all substitutions for, and proceeds of the sale
or other disposition of, any of the foregoing, including without limitation,
cash proceeds; and
(b) the terms "investment property," "entitlement order," "financial
asset" and "security entitlement" shall have the respective meanings set forth
in the California Uniform Commercial Code. The parties hereby expressly agree
that all property, including without limitation, cash, certificates of deposit
and mutual funds, at any time held in the Securities Account is to be treated as
a "financial asset".
2. Agreement for Control. Intermediary is authorized by Customer and
---------------------
agrees to comply with all entitlement orders
<PAGE>
originated by Secured Party with respect to the Securities Account, and all
other requests or instructions from Secured Party regarding disposition and/or
delivery of the Collateral, without further consent or direction from Customer.
3. Customer's Rights with Respect to the Collateral.
------------------------------------------------
(a) Until Intermediary is notified otherwise by Secured Party,
Intermediary may distribute to Customer that portion of the Collateral which
consists of interest and/or cash dividends earned on financial assets maintained
in the Securities Account.
(b) Without Secured Party's prior written consent, (i) Customer may not
give trading instructions to Intermediary with respect to Collateral in the
Securities Account, (ii) Intermediary will not comply with any trading
instructions from Customer with respect to Collateral in the Securities Account;
and (iii) except to the extent permitted by Section 3(a) hereof, Customer may
not withdraw any Collateral from the Securities Account, and Intermediary will
not comply with any entitlement order or other instruction from Customer
attempting to withdraw any Collateral from the Securities Account.
(c) Upon receipt of either written or oral notice from Secured Party,
Intermediary shall promptly cease distributing to Customer that portion of the
Collateral which consists of interest and/or cash dividends earned on financial
assets maintained in the Securities Account.
4. Intermediary's Acknowledgments. Intermediary acknowledges that:
------------------------------
(a) The Securities Account is maintained with Intermediary solely in
Customer's name.
(b) Intermediary has no knowledge of any claim to, security interest in
or lien upon any of the Collateral, except the security interests in favor of
Secured Party and Intermediary's liens securing fees and charges, or payment for
open trade commitments, as described in Section 4(c) hereof.
(c) Any claim to, security interest in or lien upon any of the
Collateral which Intermediary now has or at any time hereafter acquires shall be
junior and subordinate to the security interests of Secured Party in the
Collateral, except for Intermediary's liens securing: (i) fees and charges owed
by Customer with respect to the operation of the Securities Account; and (ii)
payment owed to Intermediary for open trade commitments for purchases in and for
the Securities Account.
-2-
<PAGE>
5. Agreements of Intermediary and Customer. Intermediary and Customer
---------------------------------------
agree that:
(a) Intermediary shall flag its books, records and systems to reflect
Secured Party's security interests in the Collateral, and shall provide notice
thereof to any party making inquiry with Intermediary as to Customer's accounts
with Intermediary to whom or which Intermediary is legally required to provide
information.
(b) Intermediary shall send copies of all statements relating to the
Securities Account simultaneously to Customer and Secured Party.
(c) Intermediary shall promptly notify Secured Party if any other party
asserts any claim to, security interest in or lien upon any of the Collateral,
and Intermediary shall not enter into any agreement with any other party
relating to the Collateral or agree to accept entitlement orders from any other
party.
(d) Without Secured Party's prior written consent, Intermediary and
Customer shall not amend, modify or terminate the Account Agreement, other than
(i) amendments to reflect ordinary and reasonable changes in Intermediary's fees
and charges for handling the Securities Account, and (ii) operational changes
initiated by Intermediary as long as they do not alter any of Secured Party's
rights hereunder.
6. Miscellaneous.
-------------
(a) This Agreement shall not create any obligation or duty of
Intermediary except as expressly set forth herein.
(b) In the event of any conflict between this Agreement and the Account
Agreement or any other agreement between Intermediary and Customer, the terms of
this Agreement shall control.
(c) All notices, requests and demands which any party is required or may
desire to give to any other party under any provision of this Agreement must be
in writing (unless otherwise specifically provided) and delivered to each party
at the following address:
INTERMEDIARY:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Investment Group
707 Wilshire Boulevard
Los Angeles, CA 90017
Telefacsimile # 213-614-2382
-3-
<PAGE>
CUSTOMER:
Samuel G. Lindsay
--------------------------------------------------------
--------------------------------------------------------
Telefacsimile #
-----------------------------------------
SECURED PARTY:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Orange Coast Regional Commercial Banking Office
2030 Main Street, Suite 900
Irvine, CA 92614
Telefacsimile # 714-261-1830
or to such other address or telefacsimile number as any party may designate by
written notice to all other parties. Each such notice, request and demand shall
be deemed given or made as follows: (i) if sent by hand delivery, upon delivery;
(ii) if sent by telefacsimile, upon receipt; and (iii) if sent by mail, upon the
earlier of the date of receipt or three (3) days after deposit in the U.S. mail,
first class and postage prepaid.
(d) This Agreement shall be binding upon and inure to the benefit of the
heirs, executors, administrators, legal representatives, successors and assigns
of the parties. This Agreement may be amended or modified only in writing signed
by all parties hereto.
(e) This Agreement shall terminate upon receipt by Intermediary of
written notice from Secured Party expressly stating that Secured Party no longer
claims any security interest in the Collateral.
(f) This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
"Intermediary" "Secured Party"
WELLS FARGO BANK, WELLS FARGO BANK,
NATIONAL ASSOCIATION, NATIONAL ASSOCIATION,
acting through its acting through its
Investment Group Orange Coast Regional Commercial
Banking Office
By: By: /s/ ^^ILLEGIBLE SIGNATURE^^
------------------------------- ---------------------------------
Title: Title: Vice President
----------------------------
"Customer"
/s/ Samuel G. Lindsay
- ----------------------------------
SAMUEL G. LINDSAY
-5-
<PAGE>
SECURITIES ACCOUNT CONTROL AGREEMENT
------------------------------------
(Wells Fargo Bank Intermediary)
THIS SECURITIES ACCOUNT CONTROL AGREEMENT (this "Agreement") is entered
into as of February 14, 1997, by and among SAMUEL G. LINDSAY ("Customer"), WELLS
FARGO BANK, NATIONAL ASSOCIATION, acting through its Investment Group
("Intermediary"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its
Orange Coast Regional Commercial Banking Office ("Secured Party").
RECITALS
--------
A. Customer maintains that certain Institutional Securities Account No.
009894 (the "Securities Account") with Intermediary pursuant to an agreement
between Intermediary and Customer dated as of February 14, 1997, and governed by
the laws of the State of California (the "Account Agreement"), and Customer has
granted to Secured Party a security interest in the Securities Account and all
financial assets and other property now or at any time hereafter held in the
Securities Account.
B. Secured Party, Customer and Intermediary have agreed to enter into
this Agreement to perfect Secured Party's security interests in the Collateral,
as defined below.
NOW, THEREFORE, in consideration of their mutual covenants and promises,
the parties agree as follows:
1. Definitions. As used herein:
-----------
(a) the term "Collateral" shall mean (i) the Securities Account, (ii)
all financial assets credited to the Securities Account, including without
limitation that certain investment in commercial paper issued by Ford Motor
Credit with a maturity on September 15, 1997, (iii) all security entitlements
with respect to the financial assets credited to the Securities Account, (iv)
any and all other investment property or other assets maintained or recorded in
the Securities Account, and (v) all substitutions for, and proceeds of the sale
or other disposition of, any of the foregoing, including without limitation,
cash proceeds; and
(b) the terms "investment property," "entitlement order," "financial
asset" and "security entitlement" shall have the respective meanings set forth
in the California Uniform Commercial Code. The parties hereby expressly agree
that all property, including without limitation, cash, certificates of deposit
and mutual funds, at any time held in the Securities Account is to be treated as
a "financial asset".
2. Agreement for Control. Intermediary is authorized by Customer and
---------------------
agrees to comply with all entitlement orders
<PAGE>
originated by Secured Party with respect to the Securities Account, and all
other requests or instructions from Secured Party regarding disposition and/or
delivery of the Collateral, without further consent or direction from Customer.
3. Customer's Rights with Respect to the Collateral.
------------------------------------------------
(a) Without Secured Party's prior written consent, (i) Customer may not
give trading instructions to Intermediary with respect to Collateral in the
Securities Account, (ii) Intermediary will not comply with any trading
instructions from Customer with respect to Collateral in the Securities Account;
and (iii) Intermediary may not distribute to Customer interest and/or cash
dividends earned on financial assets maintained in the Securities Account.
(b) Without Secured Party's prior written consent, Customer may not
withdraw any Collateral from the Securities Account, and Intermediary will not
comply with any entitlement order or other instruction from Customer attempting
to withdraw any Collateral from the Securities Account.
4. Intermediary's Acknowledgments. Intermediary acknowledges that:
------------------------------
(a) The Securities Account is maintained with Intermediary solely in
Customer's name.
(b) Intermediary has no knowledge of any claim to, security interest in
or lien upon any of the Collateral, except the security interests in favor of
Secured Party and Intermediary's liens securing fees and charges, or payment for
open trade commitments, as described in Section 4(c) hereof.
(c) Any claim to, security interest in or lien upon any of the
Collateral which Intermediary now has or at any time hereafter acquires shall be
junior and subordinate to the security interests of Secured Party in the
Collateral, except for Intermediary's liens securing: (i) fees and charges owed
by Customer with respect to the operation of the Securities Account; and (ii)
payment owed to Intermediary for open trade commitments for purchases in and for
the Securities Account.
5. Agreements of Intermediary and Customer. Intermediary and Customer
---------------------------------------
agree that:
(a) Intermediary shall flag its books, records and systems to reflect
Secured Party's security interests in the Collateral, and shall provide notice
thereof to any party making inquiry with Intermediary as to Customer's accounts
with Intermediary to whom or which Intermediary is legally required to provide
information.
-2-
<PAGE>
(b) Intermediary shall send copies of all statements relating to the
Securities Account simultaneously to Customer and Secured Party.
(c) Intermediary shall promptly notify Secured Party if any other party
asserts any claim to, security interest in or lien upon any of the Collateral,
and Intermediary shall not enter into any agreement with any other party
relating to the Collateral or agree to accept entitlement orders from any other
party.
(d) Without Secured Party's prior written consent, Intermediary and
Customer shall not amend, modify or terminate the Account Agreement, other than
(i) amendments to reflect ordinary and reasonable changes in Intermediary's fees
and charges for handling the Securities Account, and (ii) operational changes
initiated by Intermediary as long as they do not alter any of Secured Party's
rights hereunder.
6. Miscellaneous.
-------------
(a) This Agreement shall not create any obligation or duty of
Intermediary except as expressly set forth herein.
(b) In the event of any conflict between this Agreement and the Account
Agreement or any other agreement between Intermediary and Customer, the terms of
this Agreement shall control.
(c) All notices, requests and demands which any party is required or may
desire to give to any other party under any provision of this Agreement must be
in writing (unless otherwise specifically provided) and delivered to each party
at the following address:
INTERMEDIARY:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Investment Group
707 Wilshire Blvd.
Los Angeles, CA 90017
Telefacsimile # 213 614-2382
------------
ATTN: B. TORTORELLI
CUSTOMER:
SAMUEL G. LINDSAY
-----------------------------------
-----------------------------------
Telefacsimile #
--------------------
-3-
<PAGE>
SECURED PARTY:
WELLS FARGO BANK, NATIONAL ASSOCIATION
Orange Coast Regional Commercial Banking Office
2030 Main Street, Suite 900
Irvine, CA 92614
Telefacsimile # 714-253-4288
or to such other address or telefacsimile number as any party may designate by
written notice to all other parties. Each such notice, request and demand shall
be deemed given or made as follows: (i) if sent by hand delivery, upon
delivery; (ii) if sent by telefacsimile, upon receipt; and (iii) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid.
(d) This Agreement shall be binding upon and inure to the benefit of
the heirs, executors, administrators, legal representatives, successors and
assigns of the parties. This Agreement may be amended or modified only in
writing signed by all parties hereto.
(e) This Agreement shall terminate upon receipt by Intermediary of
written notice from Secured Party expressly stating that Secured Party no longer
claims any security interest in the Collateral.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
"Intermediary" "Secured Party"
WELL FARGO BANK, WELLS FARGO BANK,
NATIONAL ASSOCIATION, NATIONAL ASSOCIATION,
acting through its acting through its
Investment Group Orange Coast Regional Commercial
Banking Office
By: /s/ ^^ILLEGIBLE SIGNATURE^^ BY: /s/ ^^ILLEGIBLE SIGNATURE^^
------------------------------ --------------------------------
Title: Vice President
"Customer"
Samuel G. Lindsay
/s/-------------------------------
SAMUEL G. LINDSAY
-5-
<PAGE>
EXHIBIT 4.3
CONVERTIBLE NOTE
- ----------------
FOR VALUE RECEIVED, on or before the undersigned, Grip
----------------
Technologies, Inc., a California corporation ("Borrower"), promises to pay to
the order of , or its successors or assigns
---------------------------
("Holder"), at the principal sum of , together
---------------- ------------------
with simple interest at the rate of eight percent (8%) per annum. Borrower may
prepay any or all amounts due under this Note at any time without penalty:
provided, however, Borrower, as a condition to repayment of some or all of the
balance hereof shall deliver written notice of its intention to prepay at least
30 calendar days prior to the date of such prepayment ("Prepayment Date") and
cooperate with Holder in Holder's exercise of Holder's convertibility rights, as
set forth below, if Holder elects to exercise such rights. Said payments shall
first be applied to accrued interest and then to principal. All payments shall
be made in lawful money of the United States.
This Note is executed pursuant to a Subscription Agreement dated
,1997, executed by Borrower and Holder.
- --------------------------
The principal and accrued interest on this Note are convertible, at the
option and in the discretion of the Holder, wholly or in part for shares of
Borrower's common stock at a conversion price of $ per share until
----- ----------
("Expiration Date"). To exercise Holder's conversion rights, Holder shall
deliver written notice to Borrower no later than 10:00 a.m. Pacific time on the
Expiration or the Prepayment Date, whichever is earlier, indicating the amount
of principal and accrued interest to be converted to shares of common stock.
Such shares shall be "restricted securities", as defined in Rule 144 under the
Securities Act of 1933, and shall bear a legend indicating their restricted
nature. However, Holder shall have "piggyback" registration rights with respect
to said shares in any registration statement filed by Holder on or prior to
, 1999, unless such registration statement is not
- -----------------------
suitable for the sale of such shares, for example, and not by limitation, the
registration of transactions in connection with Borrower's benefit plans.
Borrower shall give Holder written notice of the opportunity to exercise such
registration rights at least ten (10) days prior to the effective date of such
registration statement.
Notwithstanding any other provisions of this note, if at the time of
conversion, Borrower is obligated to withhold any amount of the interest to be
converted for either federal or state income tax purposes, then, at Borrower's
option, Borrower may either (i) require Holder to pay the entire amount of such
withholding as a condition to the exercise by Holder of its conversion right, or
(ii) require that Holder not convert that portion of the interest which is
required to be withheld.
The undersigned and each endorser, surety, and guarantor, if any, to the
extend permitted by law, hereby jointly and severally waive presentment for
payment, demand, notice of nonpayment, notice of dishonor, protest of any
dishonor, notice of protest, and protest of this Note and all other notices in
connection with the delivery, assignment, acceptance, performance, default, or
any manner be affected by any indulgence, extension of time, renewal, waiver, or
modification granted endorsers may become parties hereto without affecting the
liability of any of them hereunder.
<PAGE>
The Holder hereof shall not, by any act of omission or commission, be
deemed to waive any of the Holder's rights, remedies or powers hereunder or
otherwise unless such waiver is in writing and signed by the Holder hereof, and
then only to the extent specifically set forth therein. A waiver of one event of
default shall not be construed as continuing or as a bar to or waiver of such
right, remedy, or power on a subsequent event of default.
If the Borrower fails to pay the full amount of unpaid principal and
interest when due and payable, Borrower shall pay default interest at the rate
of ten percent (10%) plus all expenses of collection with or without suit,
including reasonable attorney's fees as may be permitted by law. The Holder may
pursue any remedies singly, successively, or together against the undersigned,
such remedies being cumulative and concurrent.
The validity and interpretation of this Note shall be governed by the
laws of the State of California.
Executed this day of , 1997.
---- -------------------
GRIP TECHNOLOGIES, INC.
By:
---------------------------
Sam G. Lindsay, President
<PAGE>
EXHIBIT 4.4
INSTRUCTIONS FOR AND
NOTICE OF EARLY EXERCISE OF
STOCK PURCHASE WARRANT
To:
From: Grip Technologies, Inc.
10 Corporate Park, Suite 130
Irvine, California 92714
The following are instructions to all holders (the "Holders") of Stock
Purchase Warrant (the "Warrants") issued by Grip Technologies, Inc., a
California corporation (the "Company.), and, if executed and returned to the
Company, will constitute a binding commitment by the undersigned to exercise the
Warrant(s) described herein on the terms and conditions set forth herein.
Proposal: The Company hereby agrees and commits to reduce the exercise
--------
price (the "Exercise Price") for the purchase of shares of Common Stock of the
Company upon exercise of the Warrants to the extent and upon the condition that
those Warrants are exercised by the Holder(s) thereof at any time prior to April
30, 1977. The reduction in the Exercise Price is available for, and limited only
to, those Shares which are actually purchased upon the early exercise of the
Warrants as provided herein in these Instructions for and Notice of Early
Exercise of Stock Purchase Warrant (the "Instructions"). This offer expires if
it has not been accepted on or prior to April 30, 1997 (the "Expiration Date")
by compliance by the Holder(s) with the acceptance procedures described below.
There will be no reduction to the Exercise Price if and to the extent that any
Warrant has not been exercised in accordance with these Instructions prior to
the Expiration Date
-----------------------------------------------------------------------------
The offer of the Company is subject to and conditioned upon compliance by the
Company with all applicable federal and state securities and blue sky laws.
-----------------------------------------------------------------------------
Acceptance Procedures: In order to accept the offer described in these
---------------------
Instructions, each Holder must deliver to the Company, at 10 Corporate Park,
Suite 130, Irvine, California 92714, Attention: Sam G. Lindsay, President, on or
prior to the Expiration Date, all of the following:
1. A complete and properly executed copy of these Instructions.
2. A certified or cashiers check, made payable to Grip Technologies,
Inc., in the amount of the Aggregate Exercise Price. [See Agreement to Exercise
Warrant on page 2 of these Instructions.] In lieu of payment by a certified or
cashiers check, a personal check or wire transfer of funds is acceptable only by
prior arrangement with and written confirmation by the Company.
3. The original Warrant for cancellation. [Note: If you are exercising
your Warrant with respect to less than all or the Shares covered thereby, then a
new Warrant, representing the reduced number of Shares, will be issued and
delivered to you. There will be no reduction in the Exercise Price with respect
to the reissued Warrant.]
<PAGE>
INFORMATION REGARDING THE WARRANT(S): The undersigned is the holder of Stock
- ------------------------------------
Purchase Warrant Series ________ representing the right to purchase ____ shares
of Common Stock of the Company, at price of $__ per share (the Exercise Price").
The Warrant expires, if unexercised, on ____________.
AGREEMENT TO EXERCISE WARRANT: By execution of these Instructions, the
- -----------------------------
undersigned hereby exercises/partially exercises [cross out the inapplicable
term] the Warrant and agrees to purchase ________ shares (the "Shares") of
Common Stock of the Company in consideration for the reduction of the Exercise
Price to $1.10 per share. For purposes hereof, the Aggregate Exercise Price is
$____ [PLEASE COMPLETE WITH THE PRODUCT OF $1.10 TIMES THE NUMBER OF SHARES TO
BE PURCHASED.]
REPRESENTATIONS AND WARRANTIES OF WARRANTS HOLDER: In connection with the
- -------------------------------------------------
exercise of the Warrant, the undersigned hereby represents and warrants to the
Company as follows:
1. The undersigned is the record and beneficial owner(s) of the Warrant.
2. The undersigned has not assigned, transferred, conveyed, pledged,
hypothecated, securitized, mortgaged or otherwise transferred the Warrant, or
his/her/its rights or interest therein, nor has the undersigned agreed or
committed to do any of the foregoing.
3. The undersigned has received copies of, and has had an opportunity
to review, the Company's Annual Report for its fiscal year ended July 31, 1996
and Form 10-Q's for the fiscal quarters ended October 31, 1996 and January 31,
1997. The undersigned has had the opportunity to ask questions of and to receive
answers from representatives of the Company concerning the terms and conditions
of the offer described in these Instructions and to obtain any additional
information which the undersigned deemed necessary to verify the accuracy of the
information described in the above-referenced Annual and Form 10-Q's.
4. The undersigned is purchasing the Shares for his/hers/its account (or
a trust account if the purchaser is a trustee) and not with a view to or for
sale in connection with any distribution of shares of the Company.
5. The undersigned is an "accredited investor" as that term is defined
in Rule 501(a) promulgated under the Securities Act of 1933, as amended (the
"Act") by reason of the fact that the undersigned is [PLEASE CHECK THE BOX NEXT
TO THE APPLICABLE SUBPARAGRAPHS]:
[_] A natural person whose net worth/1/ or whose joint net worth/1/ with
such individual's spouse at the time of purchase exceeds $1,000,000 or a natural
person whose individual income/2/ (without
- --------------------
1 For this purpose, a person's net worth is the excess of all of the person's
assets over all of the person's liabilities exclusive of home, home furnishings
and automobiles.
2 For this purpose, a person's income is the amount of his individual adjusted
gross income (as reported on a federal income tax return), increased by the
following amounts: (a) any deduction for a portion of long-term capital gains
(Section 1202 of the Internal Revenue Code of 1986, as amended [the "Code"), (b)
any deduction for depletion (Section 611 et seq. of the Code); (c) any exclusion
------
for interest on tax-exempt municipal obligations (Section 103 of the
2
<PAGE>
such individual's spouse), exceeded $200,000 or joint income with that person's
spouse exceeded $300,000 in each of the two most recent years and who has a
reasonable expectation of reaching the same income level/2/ in the current year,
provided in any case that such purchaser meets the provisions of subparagraph
6(a)(ii) or 6(b) or the investment does not exceed ten percent (lO%) of such
persons net worth/1/ or joint net worth/1/ with that person's spouse;
[_] Any bank as defined in Section 3(a)(2) of the Act, savings and loan
association as defined in section 3(a)(5)(A) of the Act or trust company whether
acting in its individual or fiduciary capacity; insurance company as defined in
Section 2(13) of the Act; investment company registered under the Investment
Company Act of 1940; pension or profit-sharing trust that is also an employee
benefit plan within the meaning of Title I of the Employee Retirement Income
Security Act of 1974 (other than a pension or profit-sharing trust of the
issuer, a self-employed individual retirement plan, or individual retirement
account) if the investment decision is made by a plan fiduciary as defined in
section 3(21) of such act which is either a bank, savings and loan association,
insurance company or registered investment advisor, or if the employee benefit
plan has total assets in excess of $5,000,000 or if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
[_] A small business investment company licensed by the U.S. Small
Business Administration under Section 3Ol(c) or (d) of the Small Business
Investment Company Act of 1958; a business development company as defined in
Section 2(a)(48) of the Investment Company Act of 1940; or a private business
development company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940;
[_] An organization described in Section 50l(c)(3) of the Internal
Revenue Code, as amended December 29, 1981, [sic], not formed for the specific
purpose of acquiring the securities offered, which has total assets (including
endowment, annuity and life income funds) of not less that $5,000,000 according
to its most recent audited financial statement;
[_] A director, executive officer or general partner (who exercises
managerial functions with respect to the issuer) of the issuer of the securities
being sold, or any director, executive officer, or general partner of a general
partner of that issuer;
[_] Any entity in which all of the equity owners are persons specified
in any of the above subsections.
[_] A trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Shares, whose purchase is directed by a
sophisticated person.
- -----------------------------
Code); and (d) any losses of a partnership allocated to the individual limited
partners (as reported on Schedule E of Form 1040).
/3/ "Executive officer" means the president, any vice president in charge
of a principal business unit. division or function (such as sales,
administration or finance), any other officer who performs a policy making
function, or my other person who performs similar policy making functions for
the issuer. Executive officers of subsidiaries may be deemed executive officers
of the issuer if they perform such policy snaking Sanctions for the issuer.
-3-
<PAGE>
6. (a) (i) The undersigned has a preexisting personal or business
relationship with the Company or any of its officers, directors or controlling
persons, or (ii) by reason of the undersigned's business or financial experience
or the business or financial experience of the undersigned's professional
advisor who is unaffiliated with and who is not compensated by the Company or
any affiliate or selling agent of the Company, directly or indirectly, has the
capacity to protect the undersigned's own interests in connection with the
transaction.
(b) The undersigned has adequate means of providing for the
undersigned's current needs and personal contingencies, is able to bear the
economic risks of investment in the transaction and has no need for liquidity in
such purchase.
Acknowledgments and Covenants of the Holder(s): The undersigned
----------------------------------------------
understands, acknowledges and agrees that:
1. None of the Shares has been nor, unless and only to the extent
otherwise provided in the Warrant, will be registered under the Act or any
securities or Blue Sky laws of any state (collectively "State Laws") and,
consequently, the Shares must be held indefinitely unless subsequently
registered thereunder or an exemption from such registration is available.
Except as otherwise provided in the Warrant, the Company has no obligation or
any intention ever to register any of the Shares under the Act or certain State
Laws, or to provide any exemption from registration under the Act or State laws
for any resale of the Shares.
2. The Shares have not been registered under the Act on the basis that
the issuance thereof is exempt under Section 4(6) of the Act and/or the rules
and regulations promulgated thereunder, and that the Company's reliance on such
exemption is predicated in part on the undersigned's representations and
warranties set forth in these Instructions.
3. The Shares have not been registered under certain State Laws in
reliance on specific exemptions from registration thereunder and no securities
administrator or any state or federal government has made any finding or
determination relating to the fairness for investment of the Shares, and neither
any securities administrator nor the federal government has recommended or
endorsed the offering of these Shares.
4. The undersigned understands and agrees that the following
restrictions and limitations are applicable to its/his/her purchase of the
Shares which are being sold to it/him/her in reliance on the exemption from
registration contained in Section 4(6) of the Act.
(a) The Shares may not be sold, pledged, hypothecated or
otherwise transferred unless they are registered under the Act and applicable
state securities laws or are exempt therefrom .
(b) A legend to the following effect will be placed on any
certificates representing the Shares comprising the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BE
REGISTERED UNDER THE Securities ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION
-4-
<PAGE>
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR A LAWYER'S OPINION
(WHICH MAY BE COUNSEL TO THE COMPANY) SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) Stop transfer instructions to the transfer agent of the Shares
have been or will be placed so as to restrict resale, pledge, hypothecation or
other transfer thereof, subject to the provisions hereof, including the
provisions of the legend referred to in subparagraph (b) above.
Authority:
---------
1. The undersigned, if executing these Instructions in a representative
or fiduciary capacity, has full power and authority to execute and deliver these
Instructions in such capacity and on behalf of the purchasing individual, ward,
partnership, trust, estate, corporation or other entity for whom the undersigned
is executing these Instructions, and such individual, ward, partnership, trust,
estate, corporation or other entity has full right and power to perform pursuant
to these Instructions and become a purchaser of Shares pursuant to the terms
hereof. The undersigned will, upon request of the Company, furnish to the
Company a true and correct copy of (a) if the undersigned is a trust, the trust
agreement; and (b) if the undersigned is a corporation, the Articles and
Certificate of Incorporation and Bylaws and a copy (certified by the secretary
or other authorized officer) of appropriate corporate resolutions authorizing
the specific investment; and (c) if the undersigned is a partnership, the
Partnership Agreement.
2. If the undersigned is a partnership, the person executing these
Instructions hereby represent and warrants that the representations, warranties,
agreements or undertakings set forth in these Instructions are true with respect
to all partners in the undersigned (and if any such partner is itself a
partnership, all persons holding an interest in such partnership, directly or
indirectly, through the partnership) and that the person executing these
Instructions has made due inquiry to determine the truthfulness of the
representation and warranty made pursuant hereto.
3. If the undersigned is purchasing the shares described herein in a
representative or fiduciary capacity, the above representations and warranties
shall be deemed to have been made on behalf of the person or persons for whom
the undersigned is so purchasing.
Survival of Representations and Warranties: All representations and
------------------------------------------
warranties set forth in these Instructions shall be true and correct in all
respects on and as of the Expiration Date as if made on and as of the Expiration
Date and shall survive the closing.
Indemnification by Holder(s): The undersigned understands the meaning
----------------------------
and legal consequences of the Representations and Warranties of Warrant Holder
set forth in these Instructions, and agrees to indemnify and hold harmless the
Company, and each officer, director, employee, and agent of the Company, from
and against any and all loss, damage or liability due to or arising out of a
breach of any representation or warranty of the undersigned contained in these
Instructions.
-5-
<PAGE>
Notwithstanding any of the representations, warranties, acknowledgments or
agreements made herein by the undersigned, the undersigned does not thereby or
in any other manner waive any rights granted to the undersigned by law.
Dated: , 1997
---------------------------
------------------------------------
Authorized signature of
warrant holder
------------------------------------
Print name and capacity
Social Security Number or Federal
Taxpayer Identification Number:
---------------------------------
Address:
-------------------------
-------------------------
-------------------------
Telephone:( )
-----------------------
Fax: ( )
----- ----------------------
ACCEPTANCE
Grip Technologies, Inc., a California corporation, hereby accepts the
offer of the above-described Holder to purchase Shares upon exercise of the
Warrant described above.
Dated: , 1997
-----------------------
GRIP TECHNOLOGIES, INC.
By
--------------------------------------
Sam G. Lindsay
President
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM APRIL 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 920
<SECURITIES> 0
<RECEIVABLES> 427,852
<ALLOWANCES> 130,311
<INVENTORY> 576,853
<CURRENT-ASSETS> 904,292
<PP&E> 1,495,728
<DEPRECIATION> 684,903
<TOTAL-ASSETS> 2,789,604
<CURRENT-LIABILITIES> 2,849,524
<BONDS> 0
0
887,500
<COMMON> 5,454,040
<OTHER-SE> 7,323,884
<TOTAL-LIABILITY-AND-EQUITY> (582,344)
<SALES> 838,496
<TOTAL-REVENUES> 838,496
<CGS> 690,645
<TOTAL-COSTS> 690,645
<OTHER-EXPENSES> 438,592
<LOSS-PROVISION> (290,742)
<INTEREST-EXPENSE> 56,921
<INCOME-PRETAX> (341,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> (341,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,865)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
