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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date or earliest event reported): June 17, 1996
SUMMA INDUSTRIES
(Exact name of registrant as specified in its charter)
CALIFORNIA 1-7755 95-1240978
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1600 WEST COMMONWEALTH AVENUE
FULLERTON, CALIFORNIA 92633
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 738-5000
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 17, 1996, the Company completed the sale of all of the issued
and outstanding capital stock of Morehouse-COWLES, Inc. to J.B. Jennings and
Bret Lewis, a private investment group based in Michigan. The Closing of the
sale of Morehouse-COWLES, Inc. by the Company was publicly announced on June 17,
1996, by means of the press release attached hereto as Exhibit 99 and
incorporated herein by this reference. The Company will not report a gain or
loss on the sale.
In exchange for all of the capital stock of Morehouse-COWLES, Inc., the
Company was paid $750,000 in cash and will be paid an additional $1,771,000 on
the terms and conditions set forth in a subordinated promissory note. The
subordinated note provides for the payment of interest monthly at the rate of 7%
per annum through June, 2001, and at the rate of 9% per annum through June 2006,
and provides for monthly principal payments commencing July 2001 utilizing a 10-
year amortization schedule with all unpaid interest and principal due and
payable by June 30, 2006. The note is subordinated to the investors' bank
credit agreement, permits optional prepayments, contains certain covenants and
default provisions and remedies and is secured by a pledge of all of the
outstanding capital stock of Morehouse-COWLES purchased by the investors, as
well as by the assets of Morehouse-COWLES, Inc. Additionally, the investment
group entered into a new lease with the wholly-owned subsidiary of the Company
that holds title to the Company's Fullerton facilities, in which the operations
of Morehouse-COWLES also have been conducted. The lease is for a period of ten
years, with an option to extend the term of the lease for an additional five
years. The monthly rent, on a "triple net basis," will be $4,000 during the
first five years of the lease, increasing to $5,000 per month during the second
five years of the original lease term.
On January 30, 1996, the Company had previously announced that it had
entered into a letter of intent to sell Morehouse-COWLES to another prospective
purchaser, but negotiations with that buyer were subsequently terminated as
reported in the Company's Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996. However, as also reported in that Quarterly Report on Form
10-Q, the Company announced that it would continue seek to sell the industrial
process equipment business conducted by Morehouse-COWLES, Inc. Accordingly, the
Company announced that Morehouse-COWLES, Inc. would be treated for accounting
purposes as a discontinued operation, and the results of its operations were
segregated in the financial statements of the Company set forth in the Quarterly
Report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not applicable.
(b) Pro forma financial information. To the extent not included in
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the Company's Quarterly Report on Form 10-Q for the quarter ended
February 29, 1996, the pro forma financial information required
pursuant to Article 11 of Regulation S-X will be included in the
Company's Quarterly Report on Form 10-Q for the quarter ended May
31, 1996 to be filed with the Securities and Exchange Commission
on or before July 15, 1996.
(c) Exhibits. The following exhibits are filed herewith:
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2.1 Stock Purchase Agreement
2.2 Subordinated Promissory Note, Security Agreement and
Guarantee
2.3 Facilities Lease
99 Press Release dated June 17, 1996
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SUMMA INDUSTRIES
Date: June 19, 1996 By: /s/ JAMES R. SWARTWOUT
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Title: Chief Executive Officer
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated effective as of May 24, 1996, is made
and entered into by and between J.B. JENNINGS and BRET LEWIS, on the one hand
(collectively, jointly and severally, the "Buyer"), and SUMMA INDUSTRIES, a
California corporation, with its principal place of business at 1600 West
Commonwealth Avenue, Fullerton, CA 92633 (the "Seller"), relating to the sale by
the Seller and purchase by the Buyer of all of the outstanding shares of capital
stock of Morehouse-COWLES, Inc., a California corporation (the "Company").
WHEREAS, there are currently outstanding One Million Four Hundred Thousand
(1,400,000) shares of Common Stock of the Company (the "Shares"), all of which
are owned beneficially and of record by the Seller.
WHEREAS, in order to accomplish such acquisition, Buyer desires to purchase
the Shares and the Seller desires to sell the Shares on the terms and subject to
the conditions set forth in this Agreement.
WHEREAS, a subsidiary of the Seller owns the real estate (the "Real
Estate") currently occupied by the Company and more particularly described in
Exhibit A hereto and desires to enter into a lease of the same to the Company on
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the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. SALE OF SHARES AND CLOSING.
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(a) Purchase and Sale. The Seller agrees to sell to Buyer, and Buyer
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agrees to purchase from Seller, the Shares at the Closing on the terms and
subject to the conditions set forth in this Agreement.
(b) Purchase Price. The aggregate purchase price for the Shares is
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the Company's net book value as of May 31, 1996 as reflected in the "Closing
Balance Sheet", plus $100,0000 (the "Purchase Price"), payable at the Closing in
the manner provided in Section 1(c). The Closing Balance Sheet shall be
prepared by the Company in conformance with generally accepted accounting
principles applied on a basis consistent with that on which the anual financial
statements of Seller have historically been prepared. The Closing Balance Sheet
shall be delivered by the Company to Buyer on or prior to the Closing Date. The
Purchase Price shall be paid by the delivery of $750,000 in immediately
available United States funds, by cashier's or bank certified check or checks,
and a promissory note for the balance (the "Note") executed by the Buyer in
substantially the form set forth in Exhibit B hereto.
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(c) Closing. The Closing shall take place at the offices of the
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Seller in Fullerton, California at 12:01 p.m., local time, on June 30, 1996 (the
"Closing Date"), or on such earlier date as all of the conditions of Closing
have been satisfied, or at such other time and place as Buyer and Seller
mutually agree. The Closing shall be effective as of the opening of business on
May 31, 1996. At the Closing, Buyer shall pay the Purchase Price in cash and by
issuance of the Note, as provided in Section 1(b) hereof. At the Closing,
Seller shall assign and transfer to Buyer good and valid title in and to the
Shares, free and clear of all liens, by delivering to Seller a certificate or
certificates representing the Shares, duly endorsed in blank or accompanied by
duly executed stock powers in form reasonably satisfactory to Seller endorsed in
blank, and Buyer shall execute and deliver the Note. At the Closing, there
shall also be delivered to Seller and Buyer the opinions, certificates and other
contracts, documents and instruments to be delivered under Sections 5, 6 and 7.
2. REAL ESTATE. Simultaneously with the transfer of the Shares, the Real
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Estate shall be leased to the Company pursuant to a Facilities Lease in
substantially the form set forth as Exhibit A attached hereto.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller represents and
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warrants to and agrees with Buyer as follows:
(a) Corporate Existence of Seller. Seller is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California. Seller has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby.
(b) Authority. The execution and delivery by Seller of this
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Agreement, and the performance by Seller of its obligations hereunder, have been
duly and validly authorized by the Board of Directors of Seller and by all other
necessary corporate action, if any is required, on the part of Seller. This
Agreement has been duly and validly executed and delivered by Seller and
constitutes legal, valid and binding obligations of Seller enforceable against
Seller in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general application relating to or
affecting creditors' rights and to general equity principles.
(c) Organization and Authority of Company. The Company is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of California, and is duly qualified as a foreign corporation and
is in good standing in each jurisdiction in which the failure to be so qualified
and in good standing would have a material adverse effect on its business or
financial condition. The Company has the full corporate power, authority and
legal right to own, lease or otherwise hold its properties and to carry on its
business as now being conducted. The Company's stock records and transfer books
reflect all material transactions relating to the stock of the Company. Seller
has delivered, or will upon execution hereof deliver, to Buyer accurate and
complete copies of the Company's articles of incorporation and bylaws.
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(d) Capitalization. The authorized capital stock of the Company
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consists solely of 10,000,000 shares of common stock, of which 1,400,000 shares
are currently issued and outstanding. The Shares have been duly authorized and
issued and are fully paid and non-assessable, and no shares have been issued in
violation of any preemptive rights. The Seller owns the Shares, beneficially
and of record, free and clear of all liens and encumbrances and any restrictions
on transfer. There are no outstanding or issued minority shares and no
outstanding or authorized options, contracts, preemptive rights, rights to
subscribe or other agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance, disposition, or
acquisition of any of its capital stock. There are no voting trusts, proxies,
or any other contracts or understandings with respect to the voting of the
capital stock of the Company. The delivery of a certificate or certificates at
the Closing representing the Shares in the manner provided in Section 1(c) will
transfer to Buyer good and valid title to the Shares, free of any liens or
encumbrances.
(e) No Subsidiaries. The Company has no subsidiaries and does not
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serve as a partner in any partnerships or as a member of any limited liability
company, joint venture or other business entity or association.
(f) No Conflicts. The transfer of the Shares as herein contemplated
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will not result in default under any contract to which the Company is a party,
and will not give rise to a right in any third party to accelerate any
indebtedness of the Company or alter or terminate any contract or other right of
the Company.
(g) Consents, etc. No consent, authorization, order or approval of,
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or filing or registration with, any governmental commission, board or other
regulatory body or any person or entity is required for or in connection with
the execution and delivery of this Agreement by the Seller or the consummation
by the Seller of the transactions contemplated hereby.
(h) Financial Statements. The Buyer has been previously furnished
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with the Company's balance sheets and income statements at and as of August 31,
1994 and 1995 and a balance sheet of the Company as of April 30, 1996 (the
"Balance Sheet"), all of which (collectively, the "Financial Statements") have
been prepared in conformance with generally accepted accounting principles
applied on a basis consistent with that on which the annual financial statements
of Seller have historically been prepared, fairly present the financial
condition of the Company and the results of its operations and transactions as
of their respective dates. The Financial Statements do not contain any material
misstatement of facts or omit to state or reflect any material fact concerning
the Company required to be stated or reflected therein or necessary to make the
statements therein not misleading as of their respective dates. The Company
does not have any liabilities or obligations, whether accrued, absolute,
contingent or otherwise, except (i) as reflected in the Financial Statements, or
(ii) as may have been incurred after April 30, 1996 in the ordinary course of
business and reflected on the books and records of account.
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(i) Absence of Material Adverse Changes. Other than losses from
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operations occurring in the ordinary course of business, there has not been
since April 30, 1996 (i) any material adverse change in the financial condition
of the Company; (ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the property or business of the
Company; (iii) any increase in the compensation payable to the officers of the
Company or any general or uniform increase in the rates of pay for any
substantial group of its employees; (iv) any acquisition or disposition of any
asset having a book value to the Company in excess of $10,000, other than in the
ordinary course of business; (v) any forgiveness of any indebtedness payable to
the Company in excess of $10,000; or (vii) other than as set forth on the
Disclosure Schedule attached hereto as Exhibit C, any incurrence of any
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obligation or liability, in an amount in excess of $10,000, other than in the
ordinary course of business.
(j) Litigation. Except as set forth in the Disclosure Schedule, there
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are no actions, suits, proceedings or investigations pending, or, to the
Seller's actual knowledge after internal inquiry and investigation conducted
with diligence deemed by Seller to be reasonable, threatened, against or
affecting the Company or any of its properties, assets or rights, in any
arbitration tribunal, court or before any authority, which individually or
collectively is reasonably expected to materially and adversely affect its
financial condition, business, properties, assets or rights.
(k) Books and Records. The books and records pertaining to the
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business of the Company previously made or to be made available for review by
Buyer are true, complete and correct in all material respects, have been
maintained in accordance with good business practice and accurately reflect the
basis for the financial condition and results of operations of the Company set
forth in the Financial Statements.
(l) Governmental Authorization and Compliance with Laws. Except as
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expressly set forth in this Agreement or in the Disclosure Schedule, the
business of the Company has been and is being operated in compliance, except as
to any noncompliance which, in the aggregate, is not reasonably expected to have
a material adverse effect upon the Company, its properties, assets and its
business collectively, with all laws, ordinances, regulations and orders of all
governmental entities, including, but in no way limited to those pertaining to
the protection of the environment and the handling and/or disposition of
hazardous waste materials, and the Company has all material permits,
certificates, licenses, variances, approvals and other authorizations required
in connection with the operation of its business. No notice has been issued and
no investigation or review is pending (i) with respect to any alleged violation
by the Company of any law, ordinance, regulation, order, policy or guideline of
any governmental entity, or (ii) with respect to any alleged failure to have all
permits, variances, certificates, licenses, approvals and other authorizations
required in connection with the operation of Company and the Seller has no
knowledge of any such permits, certificates, licenses, approvals or other
authorizations which are required but which have not been obtained.
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(m) Tax Matters. All tax returns, declarations of estimated tax, tax
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reports and similar documents required to be filed by the Company have been
filed in a timely fashion with the appropriate governmental agencies. All such
tax returns, declarations of estimated tax, tax reports and similar documents
were prepared on an appropriate basis; all federal, state, local and foreign
taxes, interest, penalties, assessments and deficiencies due were fully paid
when due, except for any such assessments being contested by appropriate
proceedings diligently pursued. The amount and nature of all such contested
assessments, if any, are listed in the Disclosure Schedule. The Company has
made all withholdings of tax required to be made under all applicable foreign,
federal, state and local tax regulations and such withholdings have either been
paid to the respective governmental agencies or set aside in accounts for such
purposes or accrued, reserved against and entered upon the books of the Company.
The Seller shall be responsible for and shall pay all federal, state and local
taxes owing by the Company or the Seller as a result of the operations of the
Company for all periods prior to May 31, 1996 and as a result of the
transactions contemplated hereby. The Seller reserves the right to contest in
an appropriate forum and in a diligent fashion, any assessment of taxes against
the Company as a result of this transaction.
(n) Title to Properties; Absence of Liens and Encumbrances, etc. The
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Company has good and marketable title to all of its properties and assets used
in its business, free and clear of any liens, claims, charges, pledges, options,
security interests or other encumbrances, except as reflected on the Financial
Statements or on the Disclosure Schedule and except for such imperfections of
title and encumbrances, if any, which do not materially detract from the actual
value, or interfere with the present use, of the property subject thereto or
affected thereby. All property and assets material to the business, operations
or financial condition of the Company are in substantially good operating
condition and repair.
(o) Necessary Property. The Company owns or has valid leases for all
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the assets now used in and reasonably necessary for the conduct of the business
of the Company in the manner and to the extent presently conducted by it.
Exhibit D attached hereto is a complete list of all of the Company's tangible
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personal property owned and used by it in the current conduct of its business
when the original cost thereof was in excess of $500.
(p) Real and Personal Property--Leased. The Company is not a party to
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any lease covering real or personal property except as described on the
Disclosure Schedule, true, correct and complete copies of which have been
delivered to Buyer. All such leases are valid, in full force and effect in
accordance with their respective terms, and will so remain following Closing
with no changes in their present terms and conditions.
(q) Benefit Plans and Other Material Contracts. Except as disclosed
------------------------------------------
in the Disclosure Schedule, the Company does not, as of the date hereof, and
will not have, as of the Closing, outstanding any employment or labor agreement
or any incentive compensation, deferred compensation, profit sharing, stock
option, stock bonus, stock purchase, savings, consultant, retirement, insurance,
pension or other fringe or employee benefit plan or arrangement (collectively
"Benefit Plans) with or for the benefit of any officer, employee or
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other person. The Company is not, nor is any other party thereto, in material
default of any obligation to be performed under a Benefit Plan or has done any
act which solely by notice and/or passage of time will become a material default
of any obligation to be performed thereunder.
Each Benefit Plan listed in the Disclosure Schedule which is subject to
ERISA ("ERISA Plans") complies in all material respects with the requirements of
ERISA. Each such ERISA Plan which is a pension plan has been determined by the
Internal Revenue Service to be qualified under Section 401(a) of the Code; no
such pension plan has engaged in a "prohibited transaction", as that term is
defined in Section 4975 of the Code, which could subject the Company to a
material tax or penalty on prohibited transactions under Section 4975 of the
Code; all required reports and returns have been filed with the appropriate
governmental authorities, there has not been a complete termination of any of
the pension plans, and no proceeding to bring about any such termination has
been instituted; except as listed on the Disclosure Schedule, there have not
been any "reportable events", as that phrase is defined in Section 4043 of
ERISA, for which the 30-day requirement period has not been waived under
regulations promulgated by the Pension Benefit Guaranty Corporation; no
liability to the Pension Benefit Guaranty Corporation has been incurred with
respect to the pension plans except for required premium payments which have
been paid when due; and except as listed on the Disclosure Schedule, none of the
pension plans has incurred any "accumulated funding deficiency", as that phrase
is defined in Section 302 of ERISA (whether or not waived), since the effective
date of that Section. None of the ERISA Plans is a multiemployer plan within
the meaning of section 3(37) of ERISA, and the Company has never contributed to,
or otherwise participated in, such a plan. Except as set forth in the
Disclosure Schedule or elsewhere in this Agreement, the Company is not a party
to any written or oral (a) contract or agreement with any labor organization;
(b) contract for the employment of any officer or employee or group of the
Company's employees; (c) consulting or non-competition agreement; (d) agreement
for the construction of plants or facilities or associated architectural,
engineering or other services; (e) distributor, dealer, vendor, manufacturer's
representative, sales agency or advertising contract which is not cancelable on
thirty (30) days' (or less) notice without premium or penalty; (f) contract for
the purchase or sale of materials, supplies, merchandise or other assets or
services involving in the aggregate an obligation of more than $10,000 or
extending (or which may extend) beyond December 31, 1996; (g) agreement granting
any preferential rights to purchase any of its assets, property or rights or
requiring the consent of any party to the transfer or assignment of such assets,
property or rights or limiting or restricting in any other way Company's ability
to transfer or assign such rights; (h) agreement, contract or indenture relating
to the borrowing or lending of money or guarantee of any obligation for borrowed
money or otherwise; (i) any license or other Intellectual Property agreement; or
(j) any other contract, agreement or arrangement, whether or not entered into in
the ordinary course of business, involving in the aggregate, an estimated total
payment in excess of $10,000. Except as otherwise disclosed in this Agreement
or in the Disclosure Schedule, there is no contract, agreement, plan or other
instrument referred to above that (assuming any notice required by the terms of
such contract, agreement, plan or other instrument is timely given, and the
Seller hereby agrees to provide any such notice) would be modified, subject to
termination or otherwise affected by the transactions contemplated hereby.
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Seller has furnished Buyer with true and correct copies of all contracts and
other documents listed on the Disclosure Schedule.
(r) Customers; Pricing Practices. Exhibit E contains a complete
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listing of the Company's 20 largest customers, together with a description of
the Company's pricing practices with respect to such customers.
(s) Inventories. Except as set forth in the Disclosure Schedule, the
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Company's inventories are of a type, quality and quantity normally held by the
Company and are of a quality useable or saleable in the ordinary course of the
Company's business. The value at which inventory is carried on the books of the
company reflects the normal inventory valuation policy utilized by the Company
and is stated at the lower of cost or market in accordance with generally
accepted accounting principles.
(t) Labor Matters. Except as set forth on the Disclosure Schedule,
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there are no controversies pending between the Company and any of its employees,
which controversies have affected or are reasonably expected to affect
materially and adversely the business, properties, assets or financial condition
of the Company.
(u) Officers and Directors. Exhibit F contains a true, complete and
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correct list of the Company's officers and directors as of the date hereof.
(v) Employees. Exhibit G contains a true, complete and accurate list
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of all employees of the Company and the remuneration of each employee whose
current rate of remuneration (including wages, salaries, bonuses, commissions
and fringe benefits) is $25,000 or more per year.
(w) Accounts Receivable. Except as set forth on the Disclosure
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Schedule, the accounts receivable reflected on the Financial Statements, the
accounts receivable arising thereafter and the accounts receivable existing at
Closing representing or will represent valid accounts arising from sales or
other charges made in the ordinary course of business of the Company and, to the
best of the Seller's knowledge, the Company's reserve for bad debts is adequate.
(x) No Violation of Other Agreements. Neither (i) the execution and
--------------------------------
delivery of this Agreement by the Seller or of any other agreement referred to
herein to be executed and delivered in connection herewith, nor (ii) the
performance and compliance by the Seller with all of the provisions of this
Agreement and the consummation of the transactions contemplated hereby and
thereby, conflicts with, or results in any breach of any of the provisions of,
or constitutes a default (or an occurrence which, by the lapse of time, the
giving of notice or both, would constitute a breach or default) under any loan
agreement, indenture, mortgage, deed of trust or other agreement or instrument
to which the Seller or the Company is a party or by which the Seller or the
Company is bound or to which any of its properties or assets are subject; or
conflicts with, or results in a breach of any of the provisions of, or
constitutes a default under
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the certificate of incorporation or bylaws of the Company or any law, judgment,
order, writ, injunction, decree, rule, arbitration award or regulation or
results in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon any of the assets of the Company.
(y) Insurance. All inventories, machinery, equipment, buildings,
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improvements, and other tangible assets owned or leased by the Company are, and
between the date hereof and the Closing Date will be, insured against fire and
casualty, and the Company is insured against liability, including products
liability under the policies and in the amounts and types of coverage set forth
on Exhibit H attached hereto and such policies are, and between the date hereof
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and the Closing Date will be, outstanding and in full force and the premiums
thereon fully paid when and as the same are due and payable. All such liability
policies, or policies providing substantially identical coverage (other than as
to dollar amount, which has varied), have been continuously in force for at
least six (6) years. Exhibit H attached hereto is a true and correct schedule
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of all policies of fire, liability, and other forms of insurance, pursuant to
which the Company or any of its assets are insured. All such insurance policies
are currently in force with all premiums due thereon having been paid. The
Seller has delivered to Buyer a loss run, statistical run and a narrative of
incidents, events and claims under each and every policy set forth in Exhibit H
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attached hereto certified to be correct by the Company's insurance broker. To
the Seller's knowledge, no insurer is the subject of insolvency proceedings.
The Company has notified its insurance carrier of all litigation and claims
asserted against the Company to date, but has not notified the insurance carrier
of the facts set forth on Exhibit H which might subsequently give rise to a
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claim. The Company has received no notices from any insurance carrier
disclaiming coverage as to any of such notifications.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
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warrants to, and agrees with, Seller as follows:
(a) Organization, etc. Each Buyer is an individual residing in the
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State of Michigan.
(b) Authority Relative to Agreements. Buyer has the full power and
--------------------------------
authority to execute, deliver and perform this Agreement, the Note, the Lease
and any other agreement referred to herein to be executed and delivered by it in
connection herewith and to consummate the transactions contemplated on its part
hereby. The execution and delivery by Buyer of this Agreement, the Note, the
Lease, any other agreement referred to herein to be executed and delivered by
Buyer in connection herewith and the consummation by it of the transactions
contemplated on its part hereby have been duly authorized by all necessary
corporate action. No other corporate proceedings on its part or the part of its
shareholders or directors are necessary to authorize the execution and delivery
of this Agreement, the Note, the Lease, and any other agreement referred to
herein to be executed and delivered by Buyer in connection herewith by them or
the consummation by it of the transactions contemplated on their part hereby.
This Agreement, the Note, the Lease, and any other agreement referred to herein
to be executed and delivered by Buyer in connection therewith have been duly
executed and
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delivered by Buyer and this Agreement, the Note, the Lease, and any other
agreement referred to herein to be executed and delivered by Buyer in connection
herewith constitute valid and binding agreements of Buyer, enforceable in
accordance with their terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
(c) Violation of Other Instruments. Neither the execution nor the
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consummation of this Agreement, the Note, the Lease, or of any other agreement
referred to herein to be executed and delivered by Buyer in connection herewith
does or will conflict with Buyer's articles of incorporation or bylaws, or
constitute a breach or default (or an occurrence which, by the lapse of time,
the giving of notice or both, would constitute a breach or default) under any
contract or commitment to which Buyer is a party, or by which Buyer or its
properties or assets are bound.
(d) Financial Statements. Copies of each Buyer's personal financial
--------------------
statement as of March 31, 1996 ("Buyer's Financial Statement"), which fairly
presents the financial condition of such Buyer, are attached hereto as Exhibit
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I. Buyer's Financial Statement does not contain any material misstatement of
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facts or omit to state or reflect any material fact concerning the Buyer
required to be stated or reflected therein or necessary to make the statements
therein not misleading as of their respective dates. Neither Buyer has any
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
except (i) as reflected in Buyer's Financial Statements or (ii) as may have been
incurred after March 31, 1996 and reflected on Exhibit J attached hereto. Since
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March 31, 1996, there has not been any incurrence of any obligation or liability
on the part of either Buyer in an amount in excess of $10,000.
(e) Investment Representation. The Shares are being purchased and
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will be taken and received by Buyer for its own account, for investment, with no
present intention of a distribution or disposition thereof to others.
5. ADDITIONAL COVENANTS AND AGREEMENTS.
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(a) Conduct of Business. The Seller further covenants and agrees
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that: during the period from the date hereof to the Closing, and except as
otherwise contemplated by this Agreement, the Company shall conduct its
operations according to its ordinary and usual course of business (including
sale of assets, billing, collection and payment consistent with the Company's
customary practices) and shall use its best efforts to preserve intact its
business organization; to keep available the services of its officers and
employees; to maintain satisfactory relationships with licensors, suppliers,
distributors, vendors, customers and others having business relationships with
it; it shall not sell or transfer any of its assets, other than in the ordinary
course of its business; and it shall not permit any insurance policy in
connection with its business to lapse, be canceled or terminate.
Representatives of the Company shall confer with representatives of Buyer to
keep Buyer informed with respect to operational matters of a material nature and
to report the general status of the ongoing operations of the business of the
Company.
9
<PAGE>
(b) Broker's Fees. If either party has retained any broker, finder or
-------------
agent or agreed to pay any brokerage fees, finder's fees or commissions with
respect to the transaction contemplated by this Agreement, that party shall be
solely responsible for such payment, it being understood and agreed that Seller
alone shall bear, be responsible for and pay any and all compensation payable to
H.J. Hartz & Associates, Inc. on account of the transactions contemplated
hereby.
(c) Regulatory Consents, Authorizations, etc. Each party hereto will
----------------------------------------
use its best efforts to obtain all consents, authorizations, orders and
approvals of, and make all filings and registrations with, any governmental
commission, board or other regulatory body or any other person, including
parties to all material contracts and agreements, the assignment of which is
contemplated hereunder, required for or in connection with the consummation by
it of the transactions contemplated on its part hereby and will cooperate fully
with the other in assisting it to obtain such consents, authorizations, orders
and approvals and to make such filings and registrations. No party hereto will
intentionally take, or omit to take, any action, which action or omission will
have the effect of delaying, impairing or impeding the receipt of any required
consent, authorization, order or approval or the making of any required filing
or registration.
(d) Investigation by Buyer's Legal Counsel.
--------------------------------------
(i) From the date hereof until Closing, Buyer may make or cause
to be made such investigation of the legal affairs of the Company as Buyer
reasonably deems necessary or advisable to familiarize itself with the
legal condition of the Company, provided that such investigation shall not
unreasonably interfere with normal operations of the Company. The Seller
shall cause the Company's officers, accountants and counsel to fully
cooperate with such investigation. Buyer's counsel shall be permitted to
have full access to the corporate books and records of the Company, and the
officers of the Company will furnish counsel to Buyer with such other
information with respect to the legal affairs of the Company as Buyer shall
from time to time reasonably request.
(ii) If as a result of such examination, counsel to Buyer
discovers any facts or circumstances not set forth or referred to in this
Agreement or in the Exhibits hereto and which Buyer, in its reasonable
discretion, believes to materially and adversely affect or in the future
may affect, the corporate organization, good standing or legal condition of
the Company, Buyer may, no later than the Closing Date, elect to terminate
this Agreement by giving the Seller written notice of its election to
terminate.
(iii) Either party shall also have a right to terminate this
Agreement should the other breach any material term hereof.
(iv) Upon any termination pursuant to this Section 5(f), neither
party shall owe the other any duty or obligation specified herein, except
those in Section 5(e) and (g) below, except that if the termination is
because of a default by the other party,
10
<PAGE>
the terminating party shall retain all rights it has against the defaulting
party and arising from such default.
(e) Confidentiality. Each of the parties agrees that it shall use its
---------------
best efforts to cause its employees, officers, and agents to, hold all data and
information obtained with respect to the other in confidence, and shall, and
shall use its best efforts to cause its employees, officers and agents to, not
use such data or information or disclose the same to others, except (i) as
permitted by the other parties to this Agreement, (ii) to the extent such data
or information is published or is a matter of public knowledge (other than in
violation of this Agreement or an agreement of similar nature), or (iii) as may
be required by law or judicial or administrative process, in which case such
party shall consult with the other party before any disclosure. In the event
that the transactions contemplated by the Agreement shall not be consummated on
or prior to the Closing Date, each party agrees to return to the other parties
any and all of such confidential information (including all copies, notes,
summaries and extracts thereof) to the provider thereof. If the Agreement is
consummated, all data and information relating to the Company shall remain
confidential and not revealed by the Seller to any third party, except as
provided above.
(f) Best Efforts. The parties agree to use their best efforts to
------------
obtain (1) all necessary authorizations and consents to the transactions
contemplated by this Agreement, (2) the consent of any party to any lease or
other contract or agreement to which the Company is a party and which consent is
required for the assignment thereof or the consummation of the transactions
contemplated by this Agreement.
(g) Expenses. Whether or not the transaction contemplated herein is
--------
consummated, each party hereto shall bear all costs and expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby.
(h) Publicity. Buyer and Seller agree to use their respective best
---------
efforts to cause their respective officers, employees and agents, not to issue
any press release or otherwise make any public statement with respect to the
transactions contemplated hereby without the consent of the other party (which
consent shall not be unreasonably withheld); provided, however, that
-------- -------
notwithstanding the foregoing, a party hereto shall be permitted to make such
disclosure to the public or governmental agencies as is reasonably deemed
necessary to prevent violation of applicable federal and state laws.
(i) Non-Competition. Seller shall not, at any time within a ten (10)
---------------
year period commencing immediately following the Closing, directly or indirectly
engage in, or have any interest in any person, firm, corporation or business
(whether as an employee, officer, director, agent, security holder, creditor,
consultant, contractor or otherwise) that engages in any activity in any county
or counties in any area throughout the world, which is the same as, similar to,
or competitive in any manner with any activity engaged in by the Company in any
such area as of the effective date of this Agreement, for either the above-
mentioned ten-year period or for so long as the Company or any of its successors
shall engage in any of such activities in any such
11
<PAGE>
area (whichever period is the lesser), it being expressly understood and agreed
that the Buyer is purchasing the Shares for the purpose of causing the Company
to continue to engage in such activities within such areas.
(j) Additional Agreements. Subject to the terms and conditions
---------------------
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by this Agreement.
(k) Further Assurances. Upon written request of Buyer after the
------------------
Closing, the Seller shall promptly execute any document or take any action
reasonably necessary to accomplish the purpose and intent of this Agreement and
consummate the transactions contemplated hereby.
(l) Resignations. At Closing, all officers and directors of the
------------
Company shall tender their resignations if requested by Buyer.
6. CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of Buyer
--------------------------------------
hereunder are subject to the fulfillment to the reasonable satisfaction of
Buyer, prior to or at the Closing, of each of the following conditions:
(a) Financing. Upon execution hereof, Buyer has provided Seller with
---------
written evidence of preliminary approval by Buyer's bank of satisfactory bank
financing for the transaction. Buyer agrees to use its best efforts to obtain
such financing and agrees that unless it provides Seller with evidence of the
availability of such financing on or before the Closing Date, Seller may elect
to terminate this Agreement.
(b) UCC Searches, etc. Buyer receiving, at its own expense, at least
-----------------
two (2) business days prior to the scheduled Closing Date, as agreed to by the
parties hereto, searches of the records of filings under Article 9 of the
Uniform Commercial Code, federal tax liens, state tax warrants, judgments,
liens, executions, bankruptcy filings, and other searches as Buyer may
reasonably deem appropriate.
(c) Representations and Warranties. The representations and
------------------------------
warranties of the Seller contained in this Agreement are true and correct in all
material respects on the date hereof and shall also be true and correct in all
material respects at and as of the Closing, with the same force and effect as if
made at and as of the Closing; Seller shall have performed or complied with all
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Closing.
(d) Opinion of the Company's Counsel. Buyer shall have received an
--------------------------------
opinion from Phillips & Haddan, counsel to Seller and the Company, dated the
date of the Closing, in form and substance satisfactory to Buyer, substantially
to the effect that:
12
<PAGE>
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. The
Company has the corporate power and authority to own all of its
properties and assets and to carry on its business as it is now being
conducted.
(ii) The authorized shares of stock of the Company consists of
10,000,000 shares of Common Stock, of which 1,400,000 shares are
issued and outstanding, all such shares have been duly authorized and
issued and are fully paid and non-assumable.
(iii) The Shares are owned beneficially and of record by the
Seller.
(iv) Such counsel is unaware of any pending or threatened claims
or litigation against the Company.
(v) The execution and delivery of this Agreement and any other
agreements referred to herein by the Seller and the consummation by it
of the transactions contemplated on its part hereby and thereby have
been duly authorized by all necessary corporate action on behalf of
the Seller and do not and will not violate any provision of the
Articles of Incorporation or Bylaws of the Company.
(vi) Seller has transferred all of Seller's rights in the Shares
to the Buyer and, assuming that Buyer is a "bona fide purchaser", has
acquired the Shares free of any adverse claim.
(e) Litigation; Other Events. No action, suit or proceeding shall
------------------------
have been instituted by any person which seeks to prohibit, restrict or delay
consummation of the transaction contemplated herein or any of the conditions
material to the consummation of the transaction contemplated herein.
(f) Additional Certificates, etc. The Seller shall have furnished to
----------------------------
Buyer such additional certificates, opinions and other documents as Buyers may
have reasonably requested relating to any of the conditions set forth in this
Section 6.
(g) Governmental Authority. All authorizations, consents, orders and
----------------------
approvals of any governmental authority necessary for the performance by the
Seller and Buyer of this Agreement and the other agreements and instruments
referred to herein and the consummation of the transactions contemplated herein
shall have been obtained.
(h) Real Estate Lease. The Company and Seller's subsidiary shall have
-----------------
executed and delivered the Lease, and Seller shall have guaranteed the
obligations of its subsidiary under the Lease, including without limitation the
obligation to indemnify the Company against environmental matters.
13
<PAGE>
(i) Key Personnel. Buyer shall have made satisfactory arrangements
-------------
for the continued employment by the Company of such of the Company's key
personnel as determined by Buyer.
7. CONDITIONS TO THE OBLIGATIONS OF SELLER. The obligations of the
---------------------------------------
Seller hereunder are subject to the fulfillment to the reasonable satisfaction
of the Seller, prior to or at the Closing, of each of the following conditions:
(a) Representations True. The representations and warranties of Buyer
--------------------
contained in this Agreement are true and correct in all material respects on the
date hereof and shall also be true and correct in all material respects at and
as of the Closing, with the same force and effect as if made at and as of the
Closing; Buyer shall have performed and complied in all material respects with
all of the agreements and covenants required by this Agreement to be performed
or complied with by it at or prior to the Closing.
(b) Compliance with Laws. On the Closing Date, there shall be no
--------------------
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court or governmental body or authority, directing that the
transactions provided for herein or any of them not be consummated as herein
provided.
(c) Consents. All requisite consents and approvals shall have been
--------
procured and any and all requirements of law shall have been met which are
necessary for the parties to fulfill their obligations hereunder.
(d) The Buyer shall have executed and delivered the Note and the
Lease.
(e) Opinion of the Buyer's Counsel. Seller shall have received an
------------------------------
opinion of Kries, Enderle, Callendar & Huggins, satisfactory in form and
substance to Seller, to the effect that:
(i) The execution and delivery by Buyer of this Agreement, the
Note, the Lease, and any other agreements referred to herein to which it is
a party and the consummation by Buyer of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of
Buyer; and
(ii) This Agreement, the Note, the Lease, and any other
agreements referred to herein to which it is a party, assuming due
authorization, execution and delivery by the other parties thereto, are the
valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms, subject to bankruptcy, insolvency,
reorganization, and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles.
14
<PAGE>
8. WAIVER OF CONDITIONS. Notwithstanding anything in this Agreement to
--------------------
the contrary, if any one or more of the conditions specified in Sections 6 or 7
hereof shall not have been satisfied, the party for whose benefit such condition
is to be satisfied shall have the right, in addition to any other right which
may be available to it, to waive such conditions and nevertheless to proceed
with the transactions contemplated hereby. In the event of any such waiver, the
party exercising its right shall not thereafter have the right to proceed
against the other party or parties for damages resulting from the breach so
waived.
9. REPRESENTATIONS AND WARRANTIES; SURVIVAL.
----------------------------------------
(a) Survival. The representations, warranties and covenants (except
--------
to the extent performed in full prior to or at the Closing) of the parties
hereto set forth in this Agreement, and in any certificates, exhibits and other
documents delivered in connection herewith, shall survive the Closing
(notwithstanding any investigation made by or on behalf of Buyer or the results
thereof) for the longer of:
(i) a period of three (3) years from the Closing Date; or
(ii) with respect to any representation, warranty or covenant
relating to the Company's federal, state or local tax returns or tax
liability, a period as is equal to the applicable statute of
limitations period as the same may have been or may be extended,
waived by the Seller or otherwise remain open.
Nothing contained in this Section 9(a) shall in any way affect any obligations
of any party under this Agreement that are to be performed, in whole or in part,
after the Closing.
(b) Indemnity. The Seller hereby agrees to indemnify and hold
---------
harmless the Buyer and any affiliate thereof and the directors, officers, and
employees of the Buyer and any such affiliate from and against all expenses,
claims, costs, damages or liabilities, including reasonable attorneys' fees,
arising out of or relating to (i) the untruth or inaccuracy of any
representation or warranty given in this Agreement by the Seller; (ii) any
breach of any covenant or obligation made by Seller herein; (iii) any and all
damages, losses, costs and expenses resulting from, occasioned by or arising out
of the breach of any representation or warranty, or the nonfulfillment of any
covenant, made by the Seller under this Agreement; or (iv) any and all actions,
suits, proceedings, demands, assessments, judgments, costs and legal fees and
other expenses incident to the foregoing. Buyer hereby agrees to indemnify and
hold harmless the Seller from and against all expenses, claims, costs, damages
or liabilities, including reasonable attorneys' fees arising out of or relating
to the untruth or inaccuracy in any material respect of any representation or
warranty given in this Agreement by Buyer or any breach of any covenant or
obligation of Buyer contained herein. Each party agrees to give prompt notice
in writing to the other party hereto of any claim which is threatened or
asserted against it which may give rise to a right in favor of such party to
seek indemnification hereunder. Notwithstanding the foregoing,
15
<PAGE>
(i) with respect to any and all liabilities and obligations of
the Company for products liability and similar claims, Seller shall only be
liable to indemnify Buyer on account thereof if the injury giving rise to
the claim occurred prior to the Closing and an executive officer of Seller
had received actual notice of such claim prior to Closing and Seller failed
to disclose such claim in writing to Buyer on or before the Closing date;
and
(ii) Seller shall not be obligated to indemnify Buyer until the
aggregate amount subject to indemnity exceeds all amounts received as
insurance reimbursements and/or reflected as reserves on the Financial
Statements (no matter how characterized thereon) by $25,000, and then only
to the extent of such excess.
(c) Procedure. Any party seeking indemnification hereunder (the
---------
"Indemnitee") agrees to notify the other (the "Indemnitor") promptly (but in no
event later than sixty (60) days) after discovery of any fact or circumstance
reasonably indicating that there may be a basis for a claim of indemnification
pursuant to this Section 9 (the "Claim" or "Claims"). Any such notice must be
sent by the Indemnitee prior to the expiration of the periods specified in
Section 9(a) hereof. The notice, to the extent the Indemnitee practically can,
shall describe the nature of the Claim, if the Claim is determinable, the amount
of the Claim, or if not determinable, the Indemnitee's estimate of the amount of
the Claim. Indemnitee further agrees to minimize the amount of its loss or
injury for which it is entitled to indemnification pursuant to this Section 9 to
the extent practicable. If Indemnitee, in order to fulfill its obligations to
the Indemnitor under the preceding sentence, must take legal action or if
Indemnitee is involved in any legal action, the outcome of which could give rise
to its seeking indemnification from the Indemnitor pursuant to this Section 9,
and the Indemnitor shall have acknowledged its obligations to indemnify
Indemnitee hereunder, the Indemnitor shall have the right (but not the
obligation) to control any such legal action and proceedings at its own cost and
expense. The Indemnitee shall nevertheless have the right to participate in all
phases of any such controlled legal action at its own expense. No settlement,
compromise or other resolution of such controlled litigation shall be had
without the written consent of the Indemnitee, such consent not to be
unreasonably withheld. The Indemnitor will not be liable under this Section 9
for any Claim in respect of which no such notice is given with the applicable
time period set forth in Section 9(a) and (c).
No Claim for which indemnification is asserted hereunder shall be settled
or compromised without the written consent of the Indemnitor.
(d) Suspension of Limitation Period. Notwithstanding anything
-------------------------------
contained in this Section 9 to the contrary with respect to the time periods for
indemnification, if a written notice is sent to a party prior to the end of any
applicable time period specified in Section 9(a), the provisions of this Section
9 shall survive the end of any such time period and continue in full force and
effect with respect to any demands, suits, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses including, without
limitation, interest, penalties and attorneys' fees asserted against, resulting
to, imposed upon or incurred by Indemnitee by reason of or resulting from the
subject matter contained in such notice.
16
<PAGE>
(e) In the event either party seeks indemnity payments from the other,
the parties will, for a period of 30 days after receipt of demand for such
payment, use their respective best efforts to arrive, in good faith, upon an
agreeable resolution of the claim. In the event that no agreement is reached
during such 30-day period, the party seeking indemnification shall be entitled
to pursue whatever legal remedies it may have.
(f) Set Off. Each party shall have the right to set off any amounts
-------
finally determined by a competent tribunal to be due to the other under this
Section against any amount owed such party to the other.
(g) Limitation on Indemnification. Except as otherwise expressly
------------------------------
provided below in this subsection 9(g), the maximum aggregate liability of
Seller to Buyer as a consequence of any one or more breach or breaches of one or
more of the representations and warranties of Seller contained herein shall be
limited to the aggregate amount paid and payable to Seller as the aggregate
Purchase Price for the Shares. In the case of actual fraud, Buyer may, in
addition to the foregoing right of indemnification, pursue any and all legal and
equitable remedies it may have against Seller.
10. POST CLOSING OPERATIONS OF THE COMPANY. From and after the Closing,
--------------------------------------
for so long as any amount remains payable by Buyer to Seller pursuant to the
Note, Buyer agrees and covenants with Seller as follows:
(a) Buyer shall not move the Company's assets and/or operations from
their current location and facilities, which are the subject of the Lease
specified in Section 2 above, other than movements of assets in the ordinary
course of business and Buyer shall casue the Company to duly and timely perform
all of the Company's obligations under the Lease;
(b) Except as contemplated in subsection 12(c) hereof, Buyer shall not
(A) merge the Company with any third party, (B) sell all or any portion of the
capital stock of the Company to any third party or otherwise permit the Company
to participate in any transaction which would result in a change in control of
the Company, (C) liquidate or dissolve the Company, or (D) permit the Company to
enter into any employment agreements with any of the Company's employees as of
the Closing, or with either Buyer, except as required by law, or which has been
approved by Seller;
(c) Buyer shall duly and timely perform all of Buyer's obligations
under the License Agreement specified in Section 1(c) above;
(d) Buyer shall (i) cause the Company to maintain the insurance the
Company is required to provide under the Facilities Lease, and (ii) at all times
maintain with reputable insurance companies (having a Best rate of "A+7" or
higher and admitted to issue insurance in California) products and personal
liability insurance of at least $2,000,000, with $5,000,000 of "excess"
coverage, and Seller and affiliates shall be named as additional insureds in all
such policies;
17
<PAGE>
(e) Buyer shall cause the Company to provide three (3) voice mail
boxes on the Company's voicemail system for the purpose of receiving telephone
calls directed to Seller, and shall promptly refer telephone calls and forward
facsimile communications and mail intended for Seller to Seller at the address
specified as provided in Section 12(b) below, and provide such further
reasonable services as Seller may reasonably request to facilitate the
relocation of Seller's executive offices from the premises that are the subject
of the Lease, it being understood and agreed that Seller will reimburse the
Company for any and all out-of-pocket direct costs paid by the Company in
connection therewith. For a period of two (2) weeks following the Closing,
Buyer will permit Seller and its employees to continue to occupy and use the
portion of the premises subject to the Lease currently used and occupied by them
at no charge except for reimbursement to the Company for any and all out-of-
pocket direct costs incurred in connection therewith.
(f) Any and all payments made by Buyer to Seller, no matter how
designated or described by Buyer, shall be applied to amounts owing by Buyer to
Seller first to any and all payments then due and payable under the Note, then
to any and all payments then due and owing under the Lease; and then to any and
all payments then due and owing under the License Agreement; and
(g) The Company shall provide to Seller quarterly financial statements
(within 30 days following the end of each calendar quarter), which may be
unaudited, and audited annual financial statements of the Company (within 120
days following the end of each fiscal year of the Company), prepared in
accordance with generally accepted accounting principles.
11. TERM; TERMINATION.
-----------------
(a) Termination on Closing Date. This Agreement shall terminate if
---------------------------
the Closing does not occur on the Closing Date, or on such other date as may be
agreed in writing by the parties.
(b) Breach.
------
(i) Buyer shall be entitled to terminate this Agreement if the
Seller fails to cure any breach of the terms of this Agreement
committed by it, to the reasonable satisfaction of Buyer after receipt
by the Seller of written notice thereof and prior to the Closing Date.
(ii) Seller shall be entitled to terminate this Agreement if
Buyer shall fail to cure any breach of the terms of this Agreement
committed by it to the reasonable satisfaction of Seller after receipt
by Buyer of written notice thereof and prior to the Closing Date.
18
<PAGE>
12. MISCELLANEOUS.
-------------
(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
(b) Notices. Any notices, requests, demands and other communications
-------
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or when deposited in the
United States mail, by registered or certified mail, postage prepaid, return
receipt requested, as follows:
If to the Seller, addressed as follows:
Summa Industries
1600 West Commonwealth Avenue
Fullerton, CA 92633
With a copy to: James M. Phillips, Jr., Esq.
Phillips & Haddan
4695 MacArthur Court, Suite 840
Newport Beach, CA 92660
If to Buyer: Bret A. Lewis
Epworth Manufacturing Co. Inc.
1400 Kalamazoo Street
South Haven, MI 49090
With a copy to: Russell A. Kreis, Esq.
Kreis, Enderle, Callendar & Hudgins
One Moonsbridge
Kalamazoo, Michigan 49002
or to such other address as the party hereto may from time to time give written
notice of to the others.
(c) Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties hereto and supersedes all prior agreements, understandings,
negotiations and discussions, both written and oral, among the parties hereto
with respect to the subject matter hereof. This Agreement may not be amended or
modified in any way except by a written instrument executed by all of the
parties hereto.
(d) Benefits; Binding Effect. This Agreement shall be for the benefit
------------------------
of and binding upon the parties hereto, their respective heirs, personal
representatives, legal representatives and permitted successors and assigns.
19
<PAGE>
(e) No Assignment. No party hereto shall assign its rights or
-------------
delegate its obligations under this Agreement, and any attempted assignment
thereof shall be void.
(f) No Waiver. No waiver of any of the provisions of this Agreement
---------
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall any such waiver constitute a continuing
waiver unless expressly so provided.
(g) No Third Party Beneficiary. Notwithstanding Section 9(d) hereof,
--------------------------
nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person, firm, corporation, partnership,
association or other entity, other than the parties hereto and their respective
heirs, personal representatives, legal representatives, successors and assigns,
any rights or remedies under or by reason of this Agreement.
(h) Severability. The invalidity of any one or more of the words,
------------
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, section or sections
or subsection or subsections had been inserted.
(i) Section Headings. The section and other headings contained in
----------------
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of any provisions of this Agreement.
(j) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the several parties hereto in separate counterparts, each of
which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument.
(k) Disputes. In the event any litigation or other proceeding is
--------
brought to interpret or enforce any provision of this Agreement, such action
shall be brought in a state or federal court of competent jurisdiction which
shall be located in South Haven, Michigan if initiated by Seller, or in Orange
County, California if initiated by Buyer.
13. SUBORDINATION. The Note shall be subordinated to the bank financing
-------------
referred to in Section 6(a) hereof in a manner reasonably satisfactory to the
bank providing such financing.
20
<PAGE>
14. RISK OF LOSS. The risk of substantial loss or damage to any of the
------------
Company's assets by fire or other casualty, or by taking by eminent domain,
until Closing, shall remain with the Seller. Upon loss or damage to a
substantial portion or all of the Company's assets, Buyer shall have the
election of terminating this Agreement without further liability hereunder or of
completing the purchase and receiving the insurance monies collectible for such
loss or damage, or the award for such taking by eminent domain, such election to
be made by no later than the Closing Date.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
/s/ J. B. JENNINGS /s/ BRET LEWIS
- --------------------------- ----------------------------
J.B. Jennings Bret Lewis
SUMMA INDUSTRIES
By: /s/ JAMES R. SWARTWOUT
----------------------------------
Title: Chief Executive Officer
----------------------------------
21
<PAGE>
SCHEDULE OF EXHIBITS
--------------------
Exhibit A - Facilities Lease
Exhibit B - Subordinated Promissory Note, Security Agreement and Guarantee
Exhibit C - Seller's Disclosure Schedule
Exhibit D - Tangible Personal Property
Exhibit E - Customer List
Exhibit F - List of Officers and Directors
Exhibit G - List of Employees
Exhibit H - Insurance
Exhibit I - Buyer's Disclosure Schedule
Exhibit J - List of Liabilities or Obligations Incurred after March 31, 1996
Exhibit K - Closing Balance Sheet at May 31, 1996
22
<PAGE>
EXHIBIT 2.2
SUBORDINATED PROMISSORY NOTE,
SECURITY AGREEMENT AND GUARANTEE
$1,771,000.00 June 17, 1996
THIS SUBORDINATED PROMISSORY NOTE, SECURITY AGREEMENT AND GUARANTEE (this
"Agreement") is made and entered into as of the 17th day of June, 1996, by and
among J.B. JENNINGS and BRET LEWIS (collectively, jointly and severally, the
"Makers"), SUMMA INDUSTRIES, a California corporation whose principal place of
business is located at 1600 West Commonwealth Avenue, Fullerton, California
92633 ("Payee"), and Morehouse-COWLES, Inc., a California corporation all of
whose capital stock concurrently is being purchased by Makers from Payee (the
"Company").
R E C I T A L S
A. Makers and Payee have previously entered into that certain Stock
Purchase Agreement dated as of May 24, 1996 (the "Stock Purchase Agreement")
providing for the purchase by Makers from Payee, jointly and severally, of all
of the issued and outstanding capital stock of the Company (the "Shares"). As
set forth in Section 1 of the Stock Purchase Agreement, a portion of the
Purchase Price (as defined therein) for the Shares is to be paid by Makers to
Payee pursuant to the terms and conditions this Agreement, the form of which is
attached as Exhibit B to the Stock Purchase Agreement.
B. This Agreement is being executed and delivered in order to set forth
the terms and conditions upon which the indebtedness evidenced hereby is to be
paid to Payee by Makers, together with interest thereon as set forth herein, to
provide for the subordination of such payment in certain circumstances, and to
provide for a guarantee of and security for the payment all amounts due Payee
from Makers hereunder;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Promise to Pay. Makers hereby jointly and severally promise to pay to
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the order of Payee, at Fullerton, California, or at such other place as Payee
may designate and so notify Makers, the principal sum of ONE MILLION SEVEN
HUNDRED SEVENTY-ONE THOUSAND DOLLARS ($1,771,000.00), with interest thereon from
the date hereof at the rate of seven percent (7%) per annum through June 30,
2001 and at the rate of nine percent (9%) per annum from July 1, 2001 through
June 30, 2006, principal and interest payable as follows:
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(a) Unless sooner due as hereinafter provided, but subject in all
events to the provisions of Section 2 below, in sixty (60) payments of interest
only, with each such payment due and payable on the last day of each succeeding
calendar month commencing on July 31, 1996 and continuing through and until June
30, 2001, followed by sixty (60) equal monthly installments of principal and
accrued interest the amount of which will be determined by calculating the
amount necessary to fully amortized the principal remaining on the note as of
June 30, 2001 over 120 months with interest on the unpaid balance accruing from
June 30, 2001 at the rate of nine percent (9%) per annum. Each such installment
shall be due and payable on the last day of each succeeding calendar month
commencing on July 31, 2001 and continuing through and until June 30, 2006, on
which date the any and all unpaid principal and accrued interest, shall be due
and payable. Any payment pursuant hereto shall first be applied to interest due
and owing at the date of such payment, and whatever remains after the amount of
such interest is deducted from such payment shall be applied to the principal
balance due hereunder, and the interest upon the portion of principal so
credited shall thereupon cease.
(b) Subject in all events to the provisions of Section 2 below, Makers
shall have the right, without penalty, and to prepay the indebtedness
represented hereby in part or in full at any time or times during the term
hereof. Any prepayment pursuant hereto shall first be applied to interest due
and owing at the date of such payment, and whatever remains after the amount of
such interest is deducted from such prepayment shall be applied to the principal
balance due hereunder, and the interest upon the portion of principal so
credited shall thereupon cease. In the event that Makers desire to cause the
Company to make any payment to either or both of them that would otherwise
constitute an event of default under the provisions of Section 3(h) below,
Makers must simultaneously pay to Payee an equivalent amount as a partial
prepayment of the indebtedness represented hereby.
(c) Concurrently with the execution and delivery hereof, the Company
is entering into that certain Facilities Lease with Fullerton Holdings, Inc., a
California corporation and wholly-owned subsidiary of Maker, pursuant to which
the Company will lease certain facilities located in Fullerton, California for a
minimum term of ten full years, with the right of the Company to extend the term
of the Facilities Lease for an additional period of five full years. In the
event that any payment(s) required to be made by the Company under the
Facilities Lease have not been timely made and remain unpaid as of the date on
which any amounts are paid by Makers to Payee hereunder or otherwise, any and
all amounts so paid by Makers to Payee, no matter how designated or described by
Makers, shall first be applied to satisfy all past-due payments payable by the
Company under the Facilities Lease, and whatever remains after the past-due
amount payable under the Facilities Lease is deducted from such payment shall be
applied in satisfaction of amounts payable hereunder.
(d) If the indebtedness represented hereby is not paid in full at
maturity (or earlier upon the acceleration thereof as provided in Section 4
below), it shall thereupon accrue, and Makers hereby expressly agree to jointly
and severally pay as liquidated damages and not as a penalty, interest on the
remaining unpaid balance of principal and accrued but unpaid interest at the
rate stated above or the highest rate then permitted by law, whichever is
greater, until all unpaid principal and interest is paid in full.
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(e) Makers hereby waive demand, presentment for payment, protest,
notice of protest, notice of nonpayment and diligence in collecting the
indebtedness represented hereby.
2. Subordination. The payment of principal and interest hereunder is
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expressly subordinated the full payment of up to a maximum of $1,500,000 in the
aggregate of indebtedness of Makers for money borrowed from Michigan National
Bank (the "Bank"), whether currently outstanding or from time to time incurred
hereafter (collectively, the "Senior Debt"). Such subordination shall be
effective for a period of ten full years from the date hereof. Concurrently
with the execution and delivery hereof, Payee and the Bank are entering into a
mutually acceptable agreement setting forth in more detail the terms and
conditions upon which payments hereunder shall be subordinated to the Senior
Debt. It is expressly understood, however, that so long as there is no default
in payment of principal or interest on the Senior Debt, Makers shall make
payments hereunder when due, and may make prepayments of principal and interest
hereunder.
3. Default. The failure of Makers to fully pay or perform or observe, on
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a timely basis, any of their obligations hereunder shall constitute a default
hereunder and shall entitle Payee to the rights and remedies provided in Section
4 below. Without limiting the foregoing, a default hereunder shall occur in the
event that, without the prior written consent of Payee:
(a) A voluntary or involuntary petition is filed for the bankruptcy or
reorganization of either of the Makers or of the Company under the Federal
bankruptcy or reorganization laws, or if a receiver or keeper is appointed for
either of the Makers or the Company or any of their respective assets, or if
either of the Makers or the Company makes a voluntary assignment for the benefit
of unsecured creditors, or if an attachment is levied against a substantial part
of the assets of either of the Makers or of the Company, and any such event or
condition has not terminated or been removed within thirty (30) days after
commencement of such event or condition;
(b) The Company is a party to any merger or consolidation with one or
more other entities, sells all or a substantial portion of its assets, or
otherwise engages in any transaction which results in a change in control of the
Company;
(c) The Company incurs, cumulatively during the continuance hereof,
new, interest-bearing indebtedness for borrowed money exceeding $500,000 in the
aggregate, or makes, cumulatively during the continuance hereof, new capital
expenditures exceeding $2,000,000 in the aggregate;
(d) The Company shall acquire another company for a purchase price of
$1,000,000 or more, whether as an acquisition of stock or assets;
(e) The Quick Ratio (as defined below) of the Company shall be less
than 0.55 at any time during the first full year following the date hereof, less
than 0.65 at any time during the second full year following the date hereof, or
less than 0.75 at any time thereafter during the continuance hereof, in each
case as reflected in the financial reports from the Company to
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Payee specified in Section 3(g) below. For purposes of this Section 3(e), the
Quick Ratio of the Company shall be calculated by dividing (i) the sum of all
cash and cash equivalents and all trade accounts receivable not greater than
sixty (60) days old, by (ii) the sum of all current liabilities, including
principal payments due to the Bank and/or the Makers within twelve (12) months;
(f) The net tangible net worth of the Company shall at any time be
less than the Specified Net Worth (as defined below). For purposes of this
Section 3(f), the Specified Net Worth of the Company shall be $2,300,000 during
the first full year following the date hereof, with the Specified Net Worth to
be increased by $50,000 each year thereafter during the continuance hereof, in
each case as reflected in the financial reports from Makers to Payee specified
in Section 3(g) below.
(g) Makers shall fail to provide to Payee (i) internally prepared
quarterly reports pertaining to the Company (within 30 days following the end of
each fiscal quarter), consisting of income statements for the preceding calendar
quarter and the year to date, a balance sheet as of the end of the calendar
quarter, and an aged receivables listing as of the end of the calendar quarter,
and (ii) annual financial statements of the Company (within 120 days following
the end of each fiscal year) which have been reviewed by an independent
certified public accounting firm reasonably acceptable to Payee, in all case
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with that on which the historical financial statements of the
Company were prepared prior to the date hereof.
(h) Makers shall fail to provide to Buyer within 120 days after
December 31 of each suceeding calendar year the personal financial statement of
each of the Makers, prepared on the same basis as the financial statements of
Makers provided in connection with the execution and delivery of the Stock
Purchase Agreement were prepared, and certified in writing by Makers as to the
same level of accuracy as represented in the Stock Purchase Agreement
(i) The Company shall make any payment or other distribution of any
kind to or for the account or benefit of either or both of the Makers, whether
as salary, fees, expenses, or other remuneration, principal or interest on
loans, dividends, repurchases or redemptions of capital stock, or otherwise,
which exceed $200,000 in the aggregate on an annual basis; provided, however,
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that the Company shall be entitled to pay or distribute additional amounts to or
for the benefit of either or both of the Makers (subject in all events to any
restrictions imposed thereon by the Bank) if, and only if, an equivalent amount
is simultaneously paid to Payee as a prepayment hereunder pursuant to Section
1(b) above. Notwithstanding the foregoing, the Company may (without a default
occurring or the obligation to make a corresponding prepayment hereunder as a
consequence thereof) pay or otherwise distribute to Makers more than $200,000 in
the aggregate on an annual basis in an amount equal to the sum of (A) the amount
of principal and interest payable by Makers during the year in question pursuant
to Section 1(a) of this Agreement, and (B) the amount payable by Makers as
income taxes (as reported on their IRS forms K-1) in respect of any year in
question during which an effective "S" election has been made under the Internal
Revenue Code of 1986, as amended.
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(j) There shall have occurred an event which constitutes, or with the
passage of time or the giving of notice would constitute, a default under the
Credit Agreement or the Revolving Credit Agreement, and any such event has not
terminated or been removed within ten (10) days after commencement of such
event; or
(k) There shall have occurred an event which constitutes, or with the
passage of time or the giving of notice would constitute, a default under any or
all of the Stock Purchase Agreement, the Facilities Lease, or any other
agreement to which either the Company or either of the Makers is a party, or by
which any of their respective assets or propertied may be bound, involving an
amount in excess of $100,000 or having a term of six( 6) months or more.
4. Remedies of Payee. Upon the occurrence of a default specified in
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Section 3 above, but subject in all events to the provisions of Section 2 above,
the principal amount of the indebtedness then owing hereunder and all unpaid
accrued interest thereon, together with any and all additional indebtedness owed
by Makers to Payee, shall become immediately due and payable, without notice,
presentment or demand of any kind, all of which are expressly waived by Makers.
In such event, Payee may proceed to satisfy such default by enforcing its rights
hereunder in any manner provided by law, which may include, without limitation,
proceeding against the Pledged Stock, the Company and/or the Collateral pursuant
to the provisions of Sections 5, 6 and 7 below. The amount involved in the
default shall include the costs and expenses, including reasonable attorney's
fees, incurred by Payee in enforcing its rights hereunder. Payee may exercise
all of his rights and remedies concurrently or in such order as he may
determine, and the failure of Payee to exercise any rights or remedies he may
have upon a default by Makers hereunder shall not be deemed a waiver of any
rights, or a release of the Company or either of the Makers from any obligation,
hereunder unless such waiver or release is given in writing by Payee, and in
such event, no such waiver shall be deemed to constitute a waiver of any
succeeding default. In the event that Payee is precluded from enforcing any of
its rights hereunder by virtue of the provisions of Section 2 above, and for so
long as the restrictions imposed under Section 2 shall continue, the Company
shall not incur any new interest bearing indebtedness for borrowed money, make
any new capital expenditures, acquire any other company, whether as an
acquisition of stock or assets, or enter into any transaction specified in
Section 3(b) above.
5. Pledged Stock.
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(a) As security for the prompt and full performance by Makers of all
of their obligations hereunder, Makers hereby jointly and severally grant a
security interest in and pledges to Payee all of the Shares being jointly and
severally purchased by Makers from Payee pursuant to the Stock Purchase
Agreement. Concurrently with the execution hereof, Makers shall deliver to
Phillips & Haddan, Attorneys at Law, as "Pledgeholder," Certificate No. 1
evidencing the ownership of all of the Shares, accompanied by a duly executed
stock power for transfer of the Shares from Makers to Payee, and shall take such
further actions and execute and deliver such additional documents and
instruments as may be necessary to enable Payee to perfect a security interest
in the Shares. The Shares, together with any substituted or additional shares
of other securities issued on account of any securities subject to this
Agreement pursuant
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to any reclassification, stock split, stock dividend or similar adjustment, or
pursuant to any merger, consolidation, sale of assets or reorganization (all of
which shall be delivered to Pledgeholder to hold as provided herein), are
hereinafter collectively referred to as the "Pledged Stock".
(b) Pledgeholder shall hold the Pledged Stock as security for the
performance by Makers of all of their obligations under and in accordance with
the terms of this Agreement. Each of the parties hereto hereby indemnifies and
holds the Pledgeholder and its respective officers, directors, shareholders,
employees and agents, as the case may be, harmless from and against any and all
losses, claims, damages, liabilities, costs and expenses, including reasonable
costs of investigation and attorneys' fees and disbursements, which may be
imposed upon the Pledgeholder or incurred by it hereunder, in connection with or
as a consequence of the performance of its duties hereunder, except where
attributable to willful misconduct or gross negligence, including any litigation
arising from this Agreement or involving the subject matter hereof, it being
understood and agreed that the Pledgeholder, in performing any of its
obligations hereunder, shall not incur any liability to the undersigned or any
other party for claims, damages, losses, costs or expenses, except for willful
misconduct or gross negligence, and it shall, accordingly, not incur any such
liability with respect to (i) any action taken or omitted in good faith reliance
upon advice of its counsel given with respect to any questions relating to the
duties and responsibilities of the Pledgeholder hereunder, or (ii) any action
taken or omitted in reliance upon any instrument, including the written advice
provided for herein, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein, which the Pledgeholder shall in good faith
believe to be genuine, to have been signed or presented by proper person or
persons, and to conform with the provisions hereof. If at any time a dispute
shall exist as to the duties of the Pledgeholder hereunder or the terms hereof,
the Pledgeholder may in its discretion deposit the Pledged Stock with the Clerk
of the Superior Court of the County of Orange, State of California, and may
interplead the parties hereto not later than thirty (30) calendar days
thereafter. Upon so depositing the Pledged Stock and filing its complaint in
interpleader, the Pledgeholder shall be completely discharged and released from
all further liability or responsibility under the terms hereof. The parties
hereto, for themselves, their heirs, successors and assigns, do hereby submit
themselves to the jurisdiction of said court and do hereby appoint the Clerk and
said court as their agent for service all process in connection with the
proceeding mentioned in this Section.
(c) During the term of this Agreement, except for the security
interest created hereby, Makers are the owner of the Pledged Stock free from any
adverse claim of ownership or any lien, security interest or encumbrance of any
kind, and shall retain all dividend, voting and other rights with respect to any
securities subject hereto, except for the right to sell, assign, encumber or
otherwise transfer the Pledged Stock or any interest therein without the prior
written consent of Payee.
(d) During the term of this Agreement, the security interest granted
hereby shall also cover any present or future indebtedness or obligations of
Makers to Payee, whether absolute or contingent, which Payee may permit Makers
to incur during the continuance hereof.
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(e) Upon the full and complete discharge of all of the indebtedness
and obligations guaranteed hereby, the Pledged Stock shall be released from the
security interest created hereby. Pledgeholder will thereupon promptly take
such actions and deliver such documents and instruments as may be necessary to
reconvey and return the Pledged Stock to Makers and to release the security
interest therein created hereby, and this Agreement shall thereafter terminate.
6. Guarantee. Subject in all events to the provisions of Section 2
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above, the Company hereby unconditionally guarantees to Payee the payment and
performance of all of the obligations of Makers hereunder. The obligations of
the Company shall be independent of the obligations of Makers and a separate
action or actions may be brought and prosecuted by Payee against the Company.
The Company authorizes Payee, without notice or demand and without exonerating
or otherwise affecting the liability of either of the Makers, to compromise,
extend, accelerate or otherwise change the time for payment or to modify any
other term(s) of payment of the indebtedness guaranteed hereby, or to take, hold
or release additional security for the performance of this guarantee or the
payment of the indebtedness and obligations of Makers guaranteed hereby, or to
apply any and all security in whatever manner Payee may determine. The Company
waives any right to require Payee to proceed against Makers or either of them,
to proceed against or exhaust any security, including without limitation the
Pledged Stock specified in Section 5 above and the Collateral specified in
Section 7 below, or to pursue any other remedy in Payee's power whatsoever. The
Company waives all demand or notice of nonpayment or nonperformance by Makers of
the indebtedness and obligations hereby guaranteed. Any indebtedness of Makers
now or hereafter owed to the Company is hereby subordinated to any amounts or
other monies due and payable by Makers to Payee. The Company agrees to pay
reasonable attorney's fees and all other costs and expenses which may be
incurred by Payee in enforcement of this guarantee. In the event that the right
to receive the payment and performance of Makers guaranteed hereby is assigned,
this guarantee shall continue and the assignee shall be entitled to the full
benefits hereof.
7. Security for Performance of the Guarantee.
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(a) As security for the prompt and full performance by the Company of
the obligations of the Company to Payee under the provisions of Section 6 above,
the Company hereby grants to Payee a security interest in those tangible and
intangible assets of the Company (the "Assets") described on the Financing
Statement on Form UCC-1 attached hereto and by this reference incorporated
herein which the Company has executed and is delivering to Payee concurrently
with the execution of this Agreement, together with such other documents and
instruments as may be necessary or appropriate to enable Payee to perfect this
security interest in the Assets.
(b) The Assets, together with any other property of the Company that
may become subject hereto, are hereinafter collectively referred to as the
"Collateral." The security interest granted hereby covers all properties of the
same kind and character as those which are covered by and subject hereto which
the Company may hereafter acquire at any time until the termination
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of this Agreement, as well as any and all of the proceeds, increase and products
of all property which is or hereafter becomes subject hereto.
(c) The security interest granted hereby shall also cover any present
or future indebtedness or obligations of the Company to Payee, whether absolute
or contingent, which Payee may permit the Company to incur during the
continuance hereof.
(d) Except for the security interest created hereby and the security
interest therein granted by the Company to the Bank as contemplated by the
Credit Agreement and/or the Revolving Credit Agreement, the Company is the owner
of the Collateral free from any adverse claim of ownership or any lien, security
interest or encumbrance of any kind, and shall retain all rights therein subject
to the terms and conditions hereof, except for the right to sell, assign,
encumber or otherwise transfer the Collateral or any interest therein without
the prior written consent of Payee.
(e) Payee understands and agrees that the security interest in the
Collateral granted hereby shall be subordinate to the security interest therein
granted by the Company to the Bank as contemplated by the Credit Agreement and
the Revolving Credit Agreement.
8. Notices. Any notice or other communication given hereunder to any
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party by another shall be in writing and delivered personally or by registered
or certified mail, postage prepaid, as follows:
To either of the Makers: C/O Bret A. Lewis
Epworth Manufacturing Co. Inc.
1400 Kalamazoo Street
South Haven, MI 49090
To the Company: Morehouse-COWLES, Inc.
1600 Commonwealth Avenue
Fullerton, California 92633
Attn: James R. Swartwout
To Payee: Summa Industries
1600 W. Commonwealth Avenue
Fullerton, California 92633
Attn: President
or to such other address as a party shall hereafter designate in writing and
give notice thereof to the others in accordance with the foregoing. Any such
notice or other communication shall be deemed delivered upon receipt if
personally delivered, or, if deposited in the U.S. mail, postage prepaid,
addressed as herein provided, forth-eight (48) hours after such deposit.
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9. Effect on Successors in Interest. Except as may herein be provided to
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the contrary, the provisions hereof shall inure to the benefit of and be binding
upon the heirs, administrators, executors, assigns and successors in interest of
each of the parties hereto. Any notice or other action hereunder by any
successor shall be effective only if accompanied by proper evidence of authority
to act.
10. Applicable Law. This Agreement shall be governed by and construed in
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all respects in accordance with the laws of the State of California.
11. Counterpart Originals. This Agreement may be executed in any number
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of counterparts, each of which shall be deemed an original for all purposes,
including the judicial proof of any of the terms hereof, but all of which taken
together shall constitute but one and the same agreement.
12. Cooperation. Each party hereto agrees to execute and deliver such
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other documents and instruments and to cooperate in the filing, recordation or
other acts similarly necessary, and to take such other actions as may be
necessary or appropriate in order to carry out the intent and purposes of this
Agreement.
13. Attorneys' Fees. This Agreement is made and shall be construed and
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enforced in accordance with the laws of the State of California which are
applicable to the construction and enforcement of contracts between parties
resident in California which are entered into and fully performed in California,
regardless of where this Agreement is executed or performed or the residency of
the parties hereto. In the event any litigation or other proceeding is brought
to interpret or enforce an provision of this Agreement, such action shall be
brought in a state or federal court of competent jurisdiction located in Orange
County, California, and Maker hereby consents to the jurisdiction of such
courts. The prevailing party in any such action will be entitled to recover
from the other party its court costs and reasonable attorneys' fees.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed and delivered as of the date first above written.
"Payee" "Makers"
SUMMA INDUSTRIES /s/ J. B. JENNINGS
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J.B. Jennings
By: /s/ JAMES R. SWARTWOUT /s/ BRET LEWIS
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Title: Chief Executive Officer Bret Lewis
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"The Company"
Morehouse-COWLES, Inc.
By: /s/ BRET LEWIS
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Title: President
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EXHIBIT 2.3
FACILITIES LEASE
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This Facilities Lease (the "Lease") is made June 17, 1996, between
Fullerton Holdings, Inc., a California corporation ("Landlord") and Morehouse-
COWLES, Inc., a California corporation ("Tenant").
1. Premises.
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1.1 Description. Landlord leases to Tenant and Tenant leases
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from Landlord the real property and all improvements thereon located at 1600
West Commonwealth Avenue, Fullerton, California 92633 and more particularly
described in Exhibit A hereto (the "Premises").
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1.2 Acceptance. Tenant acknowledges that it has made such
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inspections of the Premises as it deems necessary to determine the condition
thereof and that no representations or warranties have been made by Landlord or
its representatives with respect thereto. Tenant acknowledges that it is
relying solely on its inspections in determining the condition of the Premises
and that it accepts the same in an "as is" condition, except to the extent of
the environmental indemnification made by Landlord for the benefit of Tenant as
set forth in Section 16 hereof.
2. Term.
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2.1 Initial Term. The initial term of this lease shall commence
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on June 17, 1996 and end on July 31, 2006, unless sooner terminated pursuant to
any provision hereof.
2.2 Option to Extend. Tenant is given the option to extend the
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term of this Lease for a period of five years commencing on the expiration of
the initial term. The option must be exercised by giving written notice of
exercise to Landlord at least six months, but not more than nine months before
the expiration of the then initial term. If Tenant is in "Default" (as defined
in Section 17 at either the time of giving the notice of exercise of its option
to extend or on the date the term of extended term is to commence, the exercise
of such option shall be deemed to be ineffective and such option shall
automatically terminate unexercised. All of the provisions of this Lease shall
remain in effect during any extension of the term of this Lease.
3. Rent.
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3.1 Monthly Rent. Tenant shall pay to Landlord in advance on the
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first day of each month as monthly rent, without deduction, setoff, prior
notice, or demand (a) the sum of Four Thousand Dollars ($4,000) per month
commencing on July 1, 1996 and continuing through the June 30, 2001; and (b) the
sum of Five Thousand Five Hundred Dollars ($5,500) per
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month commencing on July 1, 2001 and continuing through July 31, 2006. Rent
during any extension of the initial term shall be as set forth in Exhibit B
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hereto. Rent for any period which is for less than one full month shall
be pro rated on a daily basis.
All rent shall be payable in lawful money of the United States to
Landlord at the address to which notices to Landlord are to be given.
3.2 Late Payments. If Tenant shall neglect or fail to pay the
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monthly rent or any other amount required to be paid by it under this Lease
within ten days following the date when the same is due and payable, Tenant
shall pay to Landlord, in addition to such unpaid amounts, a late charge equal
to 10% of the past due installment. Tenant acknowledges that the late payment by
Tenant of any installment of any rent or any other sum of money required to be
paid by Tenant under this Lease will cause Landlord to incur certain costs and
expenses not contemplated under this Lease, the exact amount of which costs
being extremely difficult and impractical to fix. Such costs and expenses shall
include, without limitation, administrative and collection costs, and processing
and accounting expenses and other costs and expenses necessary and incidental
thereto. Landlord and Tenant agree that the late charge set forth in this
Section represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for its loss suffered by such non-payment by the tenth
day of the month by Tenant. The interest and late charge provisions contained
herein are in addition to and do not diminish or represent a substitute for any
or all of Landlord's rights contained in this Lease or under applicable law..
3.3 Net Rental. It is the intent of Landlord and Tenant that the
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monthly rent payable to Landlord hereunder shall be net to Landlord so that
this Lease shall yield to Landlord the total rent specified in subsection 3.1
each month during the term of this Lease. Unless otherwise specifically
provided in this Lease, all costs, expenses, and charges of every kind and
nature relating to the Premises which may be attributed to, or become due during
the term of this Lease shall be paid by Tenant as additional rent hereunder.
Such costs, charges and expenses shall be payable upon commencement of this
Lease, notwithstanding the fact that the monthly rent does not commence at such
time.
4. Taxes.
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4.1 Tenant's Obligation. Commencing on the date hereof, and
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continuing thereafter throughout the term of this Lease, Tenant shall pay as
additional rent an amount equal to all taxes (real and personal), excises,
license and permit fees, assessments, utility levies and charges, and other
governmental charges, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind or nature whatsoever (including, but
not limited to, assessments for public improvements or benefits) which prior to
or during the term of this Lease are assessed, levied or imposed upon, or become
due and payable as a lien against the Premises or any part thereof; upon any
personal property, equipment or other facility used in the operation thereof
(whether or not owned by Tenant); upon the rent and/or income received from
subtenants or licensees of Tenant; and upon any use or occupancy of the Premises
and of
2
<PAGE>
any rights, obligations, easements and franchises as may now or hereafter
be appurtenant, or appertain, to the use of the Premises (all of the foregoing
being collectively referred to herein as "Taxes"). If any such Taxes are
payable or may at the option of the taxpayer be paid, in installments, Tenant
may pay the same together with any accrued interest on the unpaid balance of
such Taxes in installments as the same respectively become due. Any Taxes
relating to a fiscal period of the taxing authority, only a part of which period
is included within the term of this Lease, shall be adjusted as between Landlord
and Tenant as of the commencement and termination of the term of this Lease, so
that Tenant shall pay only that portion of said Taxes relating to the term of
this Lease. For the purposes of this Section 4, Taxes shall also include any
tax assessed upon or measured by rents, additional rent or other Landlord
receipts from Tenant, and any tax, fee, or license assessed or measured by
expenditures made by Tenant on behalf of Landlord under or in connection with
this Lease.
4.2 Payment of Taxes. All Taxes (except real property taxes)
----------------
shall be paid directly to the appropriate governmental authority prior to the
delinquency date established by such authority and Tenant shall provide Landlord
with reasonable proof of payment within five days after payment.
Landlord shall pay all real property taxes attributable to the
Premises and invoice Tenant for the same. Tenant shall reimburse Landlord
within ten business days of the receipt of each invoice for property taxes.
Landlord may, at its option, invoice Tenant for real property taxes not more
than twenty days' prior to the due date of the then current installment.
The failure of Tenant to pay the Taxes as and when herein
specified shall, in addition to all other rights and remedies of Landlord
hereunder, subject Tenant to any fine, penalty, interest or costs which Landlord
may incur as a result thereof. If Tenant fails to pay any Taxes as herein
required, Landlord may, at its option, pay the same. Tenant shall pay to
Landlord on demand the amount of the Taxes so paid together with interest
thereon from the date of Landlord's payment to the date of reimbursement by
Tenant at the lesser of 10% per annum or the maximum interest permitted by law.
4.3 Other Taxes. If at any time during the term of this Lease
-----------
the methods of taxation shall be altered so that in lieu of, or as a supplement
to, the whole or any part of the Taxes now levied, assessed or imposed on the
Premises, there shall be levied, assessed or imposed a tax, assessment, levy,
imposition or charge, wholly or partially as a capital levy or otherwise, on the
rents received therefrom, or a tax, assessment, levy (including but not limited
to any municipal, state or federal levy), imposition or charge measured by or
based in whole or in part upon the Premises, this Lease transaction or any
document to which Tenant is a party, creating or transferring an interest or an
estate in the Premises, and imposed upon Landlord, or a license fee measured by
the rent payable under this Lease, then all such taxes, assessments, levies,
impositions, charges or the part thereof so measured or based, shall be deemed
to be included within the term "Taxes" as defined in subsection 4.1, and Tenant
shall pay and discharge the same as herein provided in respect of the payment of
Taxes, it being the intention of the parties hereto
3
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that the rent to be paid hereunder shall be paid to Landlord absolutely net
without deduction of any nature whatsoever, foreseeable or unforeseeable.
4.5 Exclusion from Taxes. Nothing contained in this Lease shall
--------------------
require Tenant to pay any franchise, or income tax of Landlord.
5. Insurance.
---------
5.1 Non-Liability of Landlord. Landlord shall not be liable to
-------------------------
Tenant for any damage to Tenant or Tenant's property from any cause and Tenant
waives all claims against Landlord for damage to person or property arising for
any reason, except that Landlord shall be liable to Tenant for damage to Tenant
or Tenant's property resulting from the gross negligence or willful misconduct
of Landlord. The non-liability of Landlord contained in this subsection and
Tenant's indemnification of Landlord in subsection 5.2 shall extend to the
officer, directors, agents, employees and authorized representatives of
Landlord.
5.2 Indemnity. Tenant shall indemnify and hold Landlord harmless
---------
from any and all damages and liability arising out of, connected with or
incidental to the use or occupancy of the Premises (including without
limitation, the construction of any "Improvements" thereto as defined in
subsection 11.5), except that Tenant shall not be liable for any damage arising
out of the gross negligence or willful misconduct of Landlord unless (and only
to the extent) covered by insurance that Tenant is required to provide under the
terms of this Lease.
The obligation to indemnify shall include reasonable attorneys'
fees and investigation costs and all other reasonable costs, expenses and
liabilities.
5.3 Insurance by Tenant. Tenant will carry and maintain
-------------------
throughout the term of this Lease, at Tenant's sole cost and expense, the
insurance currently maintained on the Premises, as set forth in Exhibit C
---------
hereto, subject to increases in the liability limits as may be recommended from
time to time by Landlord's insurance agent or consultant, provided such
recommendations are consistent with industry practices.
5.4 Failure by Tenant to Maintain Insurance. If Tenant fails to
---------------------------------------
maintain the insurance policies required under the provisions of Section 5,
Landlord, may, at its option, secure and maintain such insurance policies and
Tenant shall reimburse Landlord on demand for the cost of such policies together
with interest thereon from the date of purchase by Landlord to the date of
reimbursement by Tenant at the lesser of 10% per annum or the maximum amount
permitted by law.
6. Destruction.
-----------
6.1 Risk Fully or Partially Covered by Insurance. If, during the
--------------------------------------------
term of this Lease, the Premises are totally or partially destroyed or damaged
from a risk covered by the insurance described in Section 5, such damage or
destruction shall not terminate this Lease, and
4
<PAGE>
Tenant shall restore the Premises to the extent of the available insurance
proceeds. If the cost of the restoration exceeds the amount of insurance
proceeds received, if any, (the "Shortfall") and Tenant did not comply with its
insurance obligations herein, Tenant shall be responsible for the Shortfall. If
Tenant complied with its insurance obligations hereunder, Landlord may, at its
option, either (a) accept responsibility for the Shortfall, in which case this
Lease shall continue in full force and effect, or (b) notify Tenant of its
intent to terminate this Lease immediately. Landlord shall advise Tenant of its
election in writing within 30 days after the amount of the Shortfall has been
determined.
Restoration of the Premises by Tenant shall include restoration of all
furniture, fixtures, equipment, improvements, alterations, additions, and
personal property located at the Premises.
6.2 Risk Not Covered by Insurance. If, during the term of this
-----------------------------
Lease, the Premises are totally or partially destroyed or damaged from a risk
not covered by the insurance described in Section 5, Landlord may, at its
option, either (a) restore the Premises at Landlord's expense, as soon as
reasonably possible, in which case this Lease shall continue in full force and
effect; or (b) notify Tenant of its intent to terminate this Lease immediately.
Landlord shall advise Tenant of its election in writing within 30 days after the
date of the damage or destruction.
If Landlord elects to terminate this Lease, Tenant, within 30 days
after receiving Landlord's notice to terminate, may pay into a joint bank
account (with Landlord or its representative as a required co-signor) the full
amount of the estimated cost of restoration, in which event Tenant may proceed
to restore the Premises at its expense. In such case this Lease shall not
terminate.
If Landlord elects to terminate this Lease and Tenant does not deposit
the estimated cost of the restoration in the bank account described above, this
Lease shall then terminate.
If Landlord elects to restore the Premises, Landlord shall not be
required to restore alterations or improvements made by Tenant, Tenant's trade
fixtures or other personal property, such excluded items being the sole
responsibility of Tenant to restore. If Landlord does not complete restoration
of the Premises within six months from the date of damage or destruction, Tenant
may then terminate this Lease.
6.3 Loss During Last Part of Term. Notwithstanding the provisions of
-----------------------------
subsections 6.1 and 6.2, if the Premises are totally or partially destroyed or
damaged during the last six months of the term of this Lease rendering the
Premises totally or significantly inaccessible or unusable, Tenant may terminate
this Lease by giving written notice to Landlord not more than 20 days after the
destruction.
5
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6.4 Abatement of Rent. In the event of damage or destruction
-----------------
there shall be no abatement or reduction of rent for the first six (6) months of
any time in which the Premise, in part of whole, cannot be used. Thereafter,
however, rent shall abate in proportion to the portion of the Premises that is
still not usable; provided that to the extent that Tenant is obligated to
restore the Premises, it is diligently pursuing completion of such restoration.
6.5 Waiver. Tenant waives any rights it might otherwise have
------
under applicable law to terminate this Lease due to any damage or destruction of
the Premises.
6.6 Legal Restrictions. If existing laws do not permit
------------------
restoration of the Premises following damage or destruction, either party can
terminate this Lease immediately by giving notice to the other party.
7. Utilities, Etc. Tenant shall be responsible for obtaining and the
--------------
payment of all utilities provided to the Premises, including, without
limitation, water, sewer, electrical, telephone and gas.
8. Conduct of Business.
-------------------
8.1 Permitted Use. Tenant shall use the Premises for the purpose
-------------
of conducting a business of the type and quality presently operated from the
Premises, and for no other use without Landlord's consent.
8.2 Limitations on Use. Tenant's use of the Premises as provided
------------------
in this Lease shall be in accordance with the following:
a. Cancellation of Insurance. Tenant shall not do, grant
-------------------------
or keep anything in, on or about the Premises that will cause a cancellation of
any insurance covering the Premises.
b. Compliance with Laws. Tenant shall obtain at its sole
--------------------
cost all licenses, permits, certificates, variances and approvals necessary for
the operation of its business and shall comply with all other laws, ordinances,
regulations and orders of all governmental entities concerning the Premises or
Tenant's uses of the same, including, without limitation, (i) those pertaining
to the protection of the environment and the handling, storage, and/or
disposition of hazardous waste materials, and (ii) the obligation at Tenant's
cost to alter, maintain or restore the Premises in compliance and conformity
with all laws (whether now existing or hereafter enacted) relating to the
condition, use or occupancy of the Premises during the term of this Lease. The
judgment of any court of competent jurisdiction or the admission of Tenant in
any action or proceeding against it, that Tenant has violated any such laws,
ordinances or regulations shall be conclusive as between Landlord and Tenant.
c. Waste. Tenant shall not use the Premises in any manner
-----
that will constitute waste, nuisance or unreasonable annoyance.
6
<PAGE>
d. Overloading. Tenant shall not do anything on the
-----------
Premises that will cause damage to it, reasonable wear and tear excepted. The
Premises' foundations, floors, and other structural components shall not be
overloaded. No machinery, apparatus or other appliance shall be used or
operated in or on the Premises that will in any manner injure the Premises,
whether by vibration or otherwise.
e. Maintenance. The Premises shall be kept by Tenant in
-----------
clean condition, free from any objectionable noises, odors or nuisances, and all
health and police regulations shall in all respects and at all times be fully
complied with by Tenant.
9. Assignment or Sublease. Tenant shall not (voluntarily or
----------------------
involuntarily) transfer, assign, sublet, enter into license or concession
agreements, change ownership, mortgage, encumber hypothecate or otherwise
transfer this Lease or Tenant's interest in and to the Premises (collectively
"Assignment") to any third party ("Assignee") without the prior written consent
of Landlord, which consent shall not be unreasonably withheld. By way of
example and not limitation, Landlord may take into account in determining
whether to grant its consent to a proposed Assignment, the proposed Assignee's
business reputation, experience, and financial condition. Tenant shall not be
entitled to an Assignment of this Lease while it is in Default hereunder. Any
Assignment made without Landlord's consent shall be voidable and, at Landlord's
election, shall constitute a "Default" under Section 17. No Assignment,
whether with or without Landlord's consent, shall relieve Tenant from its
covenants and obligations for the term of this Lease. In the event any payments
are to be made by an Assignee to Tenant in connection with this Lease or the
Assignment thereof in excess of the rent provided for hereunder, such payments
shall be deemed to be additional rent due Landlord hereunder and shall be
promptly paid by Tenant to Landlord. If Assignee's tenancy terminates prior to
the expiration of this Lease for any reason, Tenant shall be given a credit
against the remaining monthly rent due under Section 3.1 hereof equal to the
amount of any excess monthly rent actually paid by Assignee. Such credit shall
be applied against future monthly rent installments in inverse order of
maturity. It shall not be applied to any other obligations of Tenant hereunder,
including, without limitation, payment of Taxes, insurance, utilities and
maintenance costs.
10. Personal Property and Equipment. Any trade fixtures, equipment and
-------------------------------
other personal property of Tenant not permanently affixed to the Premises shall
remain the property of Tenant. Tenant shall have the right to remove any of its
personal property from time to time.
11. Maintenance, Repairs and Alterations.
------------------------------------
11.1 Tenant's Obligations. Tenant shall keep in good order,
--------------------
condition and repair the Premises and every part thereof, structural and
nonstructural ordinary wear and tear excepted (whether or not such portion of
the Premises requiring repair, or the means of repairing the same are reasonably
or readily accessible to Tenant, and whether or not the need for such repairs
occurs as the result of Tenant's use, any prior use, the elements or age of such
portion of the Premises).
7
<PAGE>
11.2 Landlord's Rights. If Tenant fails to perform Tenant's
-----------------
obligations under this Section 11, Landlord may at its option (but shall not be
required to) enter upon the Premises after five days prior written notice to
Tenant, and put the same in good order, condition and repair and the cost
thereof together with interest thereon at the rate of the lesser of 10% per
annum or the maximum amount permitted by law shall become due and payable as
additional rent to Landlord together with Tenant's next rental installment. In
the event of emergency repairs, no prior notice shall be required.
11.3 Landlord's Obligations. It is intended by the parties hereto
----------------------
that Landlord shall have no obligation, in any manner whatsoever, to repair and
maintain the Premises, whether structural or nonstructural, all of which
obligations are intended to be that of Tenant. Tenant expressly waives the
benefit of any statute now or hereinafter in effect which would otherwise afford
Tenant the right to make repairs at Landlord's expense or to terminate this
Lease because of Landlord's failure to keep the Premises in good order,
condition and repair.
11.4 Alterations and Additions. Tenant may at its own expense and
-------------------------
upon prior written notice to Landlord, from time to time during the term hereof,
make alterations, improvements and additions in and to the interior of the
Premises (except those of a structural nature) at a time necessary or convenient
for its purposes provided that the value of the Premises is not hereby
diminished and provided further that no alterations, additions or improvements
(collectively "Improvements") costing in excess of $10,000 may be made without
prior written approval of Landlord. All Improvements shall be in conformance
with all applicable zoning and related usage laws, and any and all applicable
building and construction codes.
All Improvements which require the approval of Landlord
(structural or those costing in excess of $10,000) shall be under the
supervision of a licensed contractor (or licensed architect or licensed
structural engineer, if required by the contractor) and the Improvements shall
be made in accordance with detailed plans and specifications with respect
thereto, approved in writing by Landlord before the commencement of work. All
work with respect to any Improvements must be done in a workmanlike manner and
diligently prosecuted to completion.
Tenant shall pay, when due, all claims for labor and
materials furnished or alleged to have been furnished to or for Tenant at or for
use on the Premises, which claims are or may be secured by a mechanic's or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than ten days notice prior to the commencement of any
work on the Premises, and Landlord shall have the right to post notices of
nonresponsibility in and on the Premises as provided by law. If required or
requested by Landlord or its mortgage lender, Tenant shall cause performance and
payment bonds to be posted by a surety licensed and qualified to do business in
the State of California.
Any Improvements made shall remain on and be surrendered with
the Premises on expiration or termination of the term, except that Landlord can
elect within 30 days before expiration of the term, or within five days after
termination thereof, to require Tenant
8
<PAGE>
to remove any Improvements that Tenant has made to the Premises. If Landlord so
elects, Tenant at its cost shall restore the Premises to the condition existing
prior to the installation of the Improvements to be removed, before the last day
of the term, or within 30 days after notice of election is given, whichever is
later.
12. Mechanics' Liens. Tenant will keep the Premises, the Improvements
----------------
thereon, and Tenant's leasehold interest free and clear of all mechanics' liens
and other liens on account of work done for Tenant or persons claiming under it.
Tenant may contest any lien if, immediately on demand by Landlord, Tenant
obtains and records a lien release bond issued by a surety authorized to issue
surety bonds in California in such amount and form as is required by applicable
law.
13. Right of Entry. Landlord and its authorized representatives shall
--------------
have the right to enter the Premises at all reasonable times for any of the
following purposes: 1) to determine whether the Premises are in good condition
and whether Tenant is complying with its obligations under this Lease; 2) to do
any necessary maintenance and make any restoration to the Premises that Landlord
has the right or obligation to perform; 3) to serve, post or keep posted any
notices required or allowed under the provisions of this Lease; 4) to post "for
sale" signs at any time during the term, to post "for rent" or "for lease"
during the last six months of the term, or during any period in which Tenant is
in Default; 5) to show the Premises to prospective brokers, agents, buyers,
tenants or persons interested in an exchange, at any time during the term; 6) to
shore the foundations, footings and walls of the building and other improvements
that are a part of the Premises and to erect scaffolding and protective
barricades around and about the Premises and to do any other act or thing
necessary for the safety or preservation of the Premises if any excavation or
other construction is undertaken or is about to be undertaken or performed on
any adjacent property or nearby street.
Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance or other damage arising out of
Landlord's entry on the Premises as provided in this Section, except damage
resulting from the gross negligence or willful misconduct of Landlord.
Tenant shall not be entitled to an abatement or reduction of rent if
Landlord exercises any rights reserved in this section.
14. Condemnation.
------------
14.1 Condemnation of Entire Premises. In the event the entire
-------------------------------
Premises shall be appropriated or taken under the power of eminent domain by any
public or quasi-public authority, the leasehold estate of Tenant shall cease
upon, but not prior to the date when Tenant shall be actually required to yield
possession of the Premises, and all liabilities of Landlord and Tenant hereunder
accruing subsequent to such date shall cease.
14.2 Partial Condemnation. In the event more than 25% of the
--------------------
square footage of the Premises is taken under the power of eminent domain by any
public or quasi-public
9
<PAGE>
authority, or if because of any appropriation or taking regardless of the amount
so taken the continued conduct of Tenant's business on the Premises would be
prevented or substantially impaired, either Landlord or Tenant shall have the
right to terminate this Lease as of the date of such taking; provided, however,
that this right shall be exercisable only if notice of election to exercise it
is given within 15 days after receipt of notice of the appropriation or taking.
Tenant hereby waives any statutory rights of termination which may arise by
reason of any partial taking of the Premises under the power of eminent domain.
14.3 Continuation of Lease. In the event this Lease is not
---------------------
terminated in accordance with the provisions of subsection 14.1 or 14.2, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining after the taking, except that the minimum monthly rent shall be
reduced proportionately to the degree the square footage of the building on the
Premises prior to the taking bears to the square footage of such area after the
taking.
14.4 Condemnation Award. Any award for the taking of all or any
------------------
part of the Premises under the power of eminent domain, or any payment made
under threat of the exercise of such power, shall be the sole property of
Landlord. Tenant shall have no claim thereto and hereby irrevocably assigns and
transfers any right it may have to share in the award to Landlord; provided,
however, that Tenant shall be entitled to apply for a separate award expressly
made for the taking of or damage to leasehold improvements made by Tenant and
Tenant's trade fixtures and personal property, so long as such award does not
otherwise diminish Landlord's award.
15. Bankruptcy and Insolvency. It is specifically recognized between
-------------------------
Landlord and Tenant that this Lease is entered into to a material extent because
of the unique quality and individuality of Tenant and that the continuing
capacity of Tenant to fulfill each and all of its obligations under this Lease
is essential to Landlord. Accordingly, it is agreed that as an inducement for
Landlord's entering into this Lease, that in the event any of the following
shall occur, neither this Lease nor any interest therein, nor any interest in or
to the Premises shall become an asset of, to, or in any of the below-mentioned
proceedings, nor be passed, transferred or conveyed to any party whatsoever,
whether by operation of law, by judicial order or otherwise (moreover, in any of
the below-enumerated events, Landlord may elect, with or without notice of such
election and with or without entry or other action by Landlord, forthwith to
terminate this Lease; provided, however, that if Landlord should give notice of
such election, it shall be deemed given, and this Lease terminated, upon
transmittal of such notice);
a. Should Tenant institute any proceedings under the
Bankruptcy Act, as such now exists or under any amendments or replacements
thereof or under any other act relating to the subject of insolvency or
bankruptcy;
10
<PAGE>
b. Should any involuntary proceeding be filed against Tenant
under any such bankruptcy laws and not be dismissed within 60 days;
c. Should Tenant become insolvent or be adjudicated a
bankrupt in any court of competent jurisdiction, or should a receiver or trustee
be appointed of Tenant's property and not removed within 60 days, or should
Tenant make an assignment for the benefit of creditors;
d. Should there occur the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the
Premises, or if a writ of attachment is executed on this Lease, and any of the
foregoing are not removed within ten days; or
e. Should this Lease, or any interest therein or to the
Premises, otherwise by operation of law pass to any person or persons other than
Tenant's permitted assigns, unless consented to by Landlord.
16. Environmental Indemnity. Landlord shall indemnify Tenant from all
-----------------------
costs or liabilities incurred by Tenant as a result of any actions Tenant is
legally required to take following any discovery of contamination of the
Premises by any hazardous or toxic substance, material or waste which is
regulated by any local governmental authority, the State of California, or the
United States Government; other than contamination that can reasonably be
demonstrated to have been caused by Tenant, its agents, employees, customers,
suppliers, invitees or contractors, or by any third parties following the date
hereof.
17. Defaults by Tenant.
------------------
17.1 Types of Default. The occurrence of any of the following
----------------
shall constitute a material default and breach of this Lease by Tenant
("Default"):
a. Rent Default. The failure by Tenant to make, as and
------------
when due, any payment of rent, additional rent or other charges payable by
Tenant hereunder or to timely discharge any other monetary obligation hereunder.
b. Abandonment. The abandonment or vacation of the
-----------
Premises by Tenant. As used herein, abandonment and vacation is defined to
include, without limitation, any absence of Tenant's personnel from the Premises
for five consecutive days unless due to damage or destruction of the Premises or
for other causes beyond Tenant's reasonable control which prevent Tenant from
gaining access to the Premises.
c. Assignment. The failure of Tenant to obtain Landlord's
----------
consent, if required, to an Assignment. Such failure shall be deemed incurable
and, at Landlord's option, shall constitute an immediate termination of Tenant's
right to possession of the Premises.
11
<PAGE>
d. Stock Purchase Transaction. The occurrence of an event
--------------------------
which constitutes, or with the passage of time or the giving of notice, or both,
would constitute a default under that certain Stock Purchase Agreement between
Tenant and Summa Industries, a California corporation, dated May 24, 1996 (the
"Stock Purchase Agreement") or the instruments or agreements executed pursuant
thereto.
e. Other. The failure to perform any other provisions of
-----
this Lease where the failure to perform is not cured within 30 days after notice
has been given to Tenant; provided, however, that such notice shall be in lieu
of, and not in addition to, any notice required under California law. If the
breach cannot be reasonably cured within 30 days, Tenant shall not be in Default
of this Lease if it commences to cure the breach within the 30 day period and
diligently and in good faith continues to cure the breach.
17.2 Effect of Notices. The notices specified in Section 19.1
-----------------
shall meet the requirements of California law and no further notice shall be
necessary prior to Landlord's assertion of any rights respecting regaining
possession of Premises. The purpose of the 30 day notice specified in Section
17.1(d) is to extend the notice time requirements of the unlawful detainer
statutes of California. In all other respects the statutory notice period shall
apply. Except as might otherwise be provided at law, no notice of default shall
be required under Section 17.1(d). No notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord so elects in the notice.
18. Remedies Upon Default. Landlord shall have the following remedies
---------------------
if Tenant commits a Default. These remedies are not exclusive. They are
cumulative and in addition to any other remedies Landlord may have by agreement
or which are now or later allowed by law.
a. Continuation of Lease. Landlord can continue this Lease
---------------------
in full force and effect, and the Lease will continue in effect as long as
Landlord does not terminate Tenant's right to possession, and Landlord shall
have the right to collect rent when due. During the period Tenant is in
Default, Landlord can enter the Premises and relet them, or any part of them, to
third parties for Tenant's account. Tenant shall be liable immediately to
Landlord for all reasonable costs Landlord incurs in reletting the Premises,
including, without limitation, brokers' commissions, expenses of remodeling the
Premises required by the reletting, and like costs. The reletting can be for a
period shorter or longer than the remaining term of this Lease, subject to
Landlord's duty to mitigate damages. Tenant shall pay the Landlord the rent
when due under this Lease on the dates the rent is due, less the rent Landlord
receives from any reletting. No act by Landlord allowed by this section shall
terminate this Lease unless Landlord notifies Tenant that Landlord elects to
terminate this Lease.
b. Termination of Right to Possession. Landlord can
----------------------------------
terminate Tenant's right to possession of the Premises at any time. No act by
Landlord other than giving notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession.
12
<PAGE>
On termination Landlord may re-enter the Premises and take possession
thereof, remove all persons from the Premises, and Tenant shall have no further
claim under the Lease. Landlord may further take possession of all property of
Tenant and others located on the Premises. Tenant shall have 5 days after
Landlord takes possession of the Premises within which to recover its property
by paying to Landlord all sums owed to it as well as all costs incurred, if any,
by Landlord in storing the property. Should Tenant fail to reclaim the property
in such manner, Landlord may sell or dispose of it in any manner Landlord
chooses and apply the proceeds, if any, first against the cost of storage, then
against any other sums owed to Landlord.
On termination, Landlord also has the right to recover from Tenant:
(i) the worth at the time of the award of the unpaid rent that had been earned
at the time of termination of this Lease; (ii) the worth at the time of the
award of the amount by which the unpaid rent would have been earned after the
date of termination of this Lease until the time of award exceeds the amount of
loss of rent that Tenant proves could have been reasonably avoided; (iii) the
worth at the time of the award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of the loss of
rent that Tenant proves could have been reasonably avoided; and (iv) any other
amount, and court costs necessary to compensate Landlord for all detriment
proximately caused by Tenant's default. The "worth at the time of the award" as
used in (i) and (ii) of this subsection is computed by allowing interest at the
rate of 10% per annum. "The worth at the time of the award" as referred to in
(iii) of this subsection is computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
1%.
c. Cure of Tenant's Default. Landlord, at any time, can
------------------------
cure the Default at Tenant's cost. If Landlord, by reason of the Default, pays
any sum or does any act that requires the payment of any sum, the sum paid by
Landlord shall be immediately due from Tenant to Landlord at the time the sum is
paid, and if paid at a later date shall bear interest at the lesser of 10% per
annum or the maximum amount permitted by law from the date the sum is paid by
Landlord until Landlord is reimbursed by Tenant. The sum, together with
interest upon it, shall be additional rent.
d. Waiver. No delay or omission in the exercise of any
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right or remedy of either party on any breach or Default by the other shall
impair such right or remedy or be construed as a waiver. All waivers must be in
writing. The waiver of any single breach or Default shall not be deemed to be a
waiver of any subsequent breach or Default.
19. Sale of the Premises. If Landlord sells or otherwise transfers all
--------------------
or any portion of the Premises, Landlord, on consummation of the sale or
transfer, shall be released from any liability thereafter asserted under this
Lease. If any security deposit or prepaid rent has been paid by Tenant,
Landlord can transfer the security deposit or prepaid rent to Landlord's
successor, subject to Tenant's right thereto, and on such transfer Landlord
shall be discharged from any further liability in reference to the security
deposit or prepaid rent.
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20. Subordination, Attornment and Estoppel Certificate.
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20.1 Subordination. Upon written request of Landlord, Tenant
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shall subordinate its rights hereunder to the lien of any mortgagee or trustee
under a deed of trust to any bank, insurance company or other lending
institution, or the lien resulting from any other method of financing or
refinancing now or hereafter enforced against the Premises or any portions
thereof, whether now in existence or in the future acquired or constructed, and
to all advances made or hereafter to be made upon the security therefore;
provided, however, such instrument of subordination shall provide that in the
event of foreclosure, or in the event of the exercise of power of sale, a
purchaser shall recognize Tenant's rights under this Lease, provided, Tenant is
not in Default hereunder.
20.2 Attornment by Tenant. In the event any proceedings are
--------------------
brought for foreclosure or in the event of the exercise of the power of sale
under any mortgage or deed of trust made by Landlord covering the Premises,
Tenant shall attorn to the purchaser upon such foreclosure or sale and recognize
such purchaser as Landlord under this Lease, provided that the purchaser shall
acquire and accept the Premises subject to this Lease.
20.3 Estoppel Certificate. Within ten days after request from
--------------------
Landlord, Tenant shall execute and deliver, in recordable form, a certificate
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modifications. The certificate
also shall state the amount of minimum monthly rent, the dates to which the rent
has been paid in advance, and the amount of any security deposit or prepaid
rent.
Failure to deliver the certificate within such ten days shall
be conclusive upon Tenant that this Lease is in full force and effect and has
not been modified, except as may be represented by Landlord. If Tenant fails to
deliver the certificate within the ten-day period, it shall be deemed to have
irrevocably constituted and appointed Landlord as its special attorney-in-fact
to execute and deliver the certificate to any third party.
21. Quitclaim Deed. Tenant shall execute and deliver to Landlord on the
--------------
expiration or termination of this Lease, immediately on Landlord's request, a
quitclaim deed to the Premises in recordable form, designating Landlord as
transferee.
22. Holding Over, Successors and Surrender.
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22.1 Holding Over. If Tenant remains in possession of the
------------
Premises after the expiration of the tenancy created hereunder without
Landlord's written consent and without the execution of a new Lease, Tenant, at
the option of Landlord, shall be deemed to be occupying the Premises from month
to month, subject to all the terms and conditions of this Lease insofar as the
same are applicable to a month-to-month tenancy, except for minimum monthly
rent. The minimum monthly rent for each month of any such month-to-month
tenancy shall be twice the highest monthly rent for the immediately preceding
12-month period.
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If Tenant receives Landlord's consent to hold over, Tenant shall be
deemed to be occupying the Premises on a month-to-month basis, subject to all
the terms and conditions of this Lease, except as expressly modified in the
consent.
22.2 Surrender. On the last day of the term hereof or two days
---------
after any sooner termination, Tenant shall surrender the Premises and all
Improvements to Landlord in good condition and repair, broom clean, ordinary
wear and tear excepted. Within such time periods, Tenant shall have removed its
personal property from the Premises (unless Landlord has exercised its rights
against such property arising out of a Default hereunder) and repaired any
damage to the Premises occasioned by such removal, which repairs shall include
the patching and filling of holes and repair of structural damage.
Landlord can elect to retain or dispose of in any manner any of
Tenant's personal property that Tenant does not remove from the Premises within
the time periods stated in the preceding paragraph by giving at least five days
notice to Tenant. Tenant may recover its property during such five-day period
by paying to Landlord all sums owed to it as well as Landlord's reasonable costs
of removing and storing the property. Title to the personal property that
Tenant does not recover and that Landlord elects to retain or dispose of on
expiration of the five-day period shall vest in Landlord. Tenant waives all
claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of any personal property. Regardless of whether Tenant
recovers its personal property, Tenant shall be liable to Landlord for
Landlord's reasonable costs of storing, removing and disposing of any personal
property.
If Tenant fails to surrender the Premises to Landlord on expiration or
two days after termination of the term as required by this subsection, Tenant
shall hold Landlord harmless from all damages resulting from Tenant's failure to
surrender the Premises, including, without limitation, claims made by a
succeeding tenant resulting from Tenant's failure to surrender the Premises,
unless Landlord has consented to Tenant's holding over.
23. Dedication.
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23.1 Dedication. Tenant covenants and agrees to join with
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Landlord, but at Landlord's sole cost, in the dedication to proper governmental
authorities of all necessary streets, in the granting of easements to any public
or private authority of any plot or building plan for approval or petition for
rezoning, and, further, in any matter connected with any local improvement
district of which said Premises are or may become a part, or in any other
similar action affecting the Premises. Tenant also agrees to join in the
execution and/or recordation of any instrument or document necessary in
connection with any of the foregoing.
24. Miscellaneous.
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24.1 Time. Time is of the essence of each provision
----
of this Lease.
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24.2 Successors. This Lease shall be binding upon and inure to
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the benefit of the parties and their respective successors and assigns, except
as provided in Section 9.
24.3 Severability. If any provision of this Lease is held by a
------------
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall remain in full force and effect and shall in no way
be effected, impaired or invalidated thereby.
24.4 Exhibits. All exhibits referred to herein are incorporated
--------
herein by this reference.
24.5 Governing Law; Venue. This Lease shall be construed and
--------------------
interpreted in accordance with the laws of the State of California without
regard to any of its conflict of laws or choice of laws provisions. In the
event of any dispute hereunder, the parties agree that any resulting legal
action shall be brought and maintained in a court of competent jurisdiction in
Orange County, California, which county shall be the sole and exclusive venue
for such action.
24.6 Counterparts. At the option of either party, this Lease may
------------
be executed in multiple counterparts, all of which shall be deemed originals,
notwithstanding the fact that the parties may have executed different
counterpart signature pages.
24.7 Negation of Partnership. Landlord is not, and shall not
-----------------------
become or be deemed to be a partner or joint venturer with Tenant by reason of
any provision of this Lease.
24.8 Quiet Enjoyment. Upon Tenant paying the rent reserved
---------------
hereunder and observing and performing all of the covenants, conditions and
provisions to be performed by it, Tenant shall have quiet enjoyment of the
Premises for the term hereof, subject to all of the provisions of this Lease.
24.9 Attorneys' Fees. In the event of any dispute arising out of
---------------
this Lease, the prevailing party shall be entitled to its costs and reasonable
attorneys' fees incurred in resolving such dispute.
24.10 Amendment. This Lease can be amended only by written
---------
instrument signed by both Landlord and Tenant.
24.11 Captions. The section headings in this Lease are for
--------
convenience only and are not a part of this Lease.
24.12 Singular and Plural. Whenever the context of any provisions
-------------------
shall require it, the singular number shall be held to include the plural number
and vice versa, and the use of any gender shall include any other or all
genders.
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24.13 Interpretation. Should any provision of this Lease require
--------------
judicial interpretation, it is agreed that the court interpreting or construing
the same shall not apply a presumption that the terms hereof shall be more
strictly construed against Landlord by reason of it having prepared this Lease,
it being agreed that both Landlord and Tenant have prepared this Lease.
24.14 Notices. All notices hereunder shall be in writing and shall
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be deemed to have been duly given on the date of service if served personally on
the party to whom notice is to be given, or on the second day after mailing if
mailed to the party to whom notice is to be given by first class certified mail,
return receipt requested, postage prepaid and addressed as follows:
a. If to Tenant:
Morehouse-COWLES, Inc.
1600 W. Commonwealth Avenue
Fullerton, California 92633
Attn: President
b. If to Landlord:
Fullerton Holdings, Inc.
1600 W. Commonwealth Avenue
Fullerton, California 92633
Attn: James R. Swartwout, President
Either party may, at any time, change its address for purposes of this Section
by giving the other party written notice of the new address in the manner set
forth above.
24.15 Consents. Whenever the consent of Landlord is required, it
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shall not be unreasonably withheld.
24.16 Term. References to the term of this Lease shall include
----
both the initial term and any extensions thereof.
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24.17 Entire Agreement. This Lease constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements concerning the same.
"Landlord"
Fullerton Holdings, Inc.
By: /s/ BRET LEWIS
------------------------------------
Title: President
---------------------------------
"Tenant"
Morehouse-COWLES, Inc.
By: /s/ BRET LEWIS
------------------------------------
Title: President
---------------------------------
GUARANTEE OF LEASE
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For valuable consideration contained in the Stock Purchase Agreement,
Summa Industries, a California corporation, hereby guarantees the faithful
performance of all of the obligations of Landlord contained within this Lease
throughout the duration of the Lease and any extension thereof, subject to any
defenses to such performance that Landlord may have.
Summa Industries
By: /s/ JAMES R. SWARTWOUT
-----------------------------------
Title: Chief Executive Officer
--------------------------------
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EXHIBIT 99
SUMMA INDUSTRIES DIVESTS SUBSIDIARY
June 17, 1996
Fullerton, California
SUMMA INDUSTRIES (NNM:SUMX) announced today that it has completed the sale of
its subsidiary, Morehouse-COWLES, Inc., to a private investment group, for
$750,000 in cash and $1,771,000 in subordinated notes. SUMMA will not report a
gain or a loss on the sale. Morehouse-COWLES will continue operations at the
Fullerton facility, which is owned by SUMMA, under a new 10-year lease.
Since SUMMA has reported the results of Morehouse-COWLES as discontinued
operations, the sale will not have a material impact on earnings from continuing
operations.
The office of SUMMA INDUSTRIES, currently located at the Fullerton facility,
will be relocated in Southern California.
For further information, contact James R. Swartwout, (714) 738-5000, ext. 264;
FAX (714) 738-5690.
