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FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 24, 1996
ARC CAPITAL
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation)
0-20097 33-0256103
(Commission File Number (I.R.S. Employer Identification No.)
2067 Commerce Drive
Medford, Oregon 97504
(Address of principal executive offices) (Zip Code)
541-776-7700
(Registrant's telephone number, including area code)
N.A.
(Former name or former address, if changed since last report)
Total Number of Pages: 75
Exhibit Index Appears on Page 6
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Item 2. Acquisition or Disposition of Assets.
On July 24, 1996, ARC Capital ("ARC") acquired
certain assets of Ventek, Inc. ("Ventek") primarily
consisting of inventory and fixed assets, subject to
certain liabilities, for the following consideration:
(a) A 6.75% note for $1,000,000 due three years
from the closing date (interest payable
quarterly).
(b) A 6.75% note for $2,250,000 due three years
from the closing date (interest payable
quarterly). The note will be convertible, at
the option of the noteholder, into ARC stock at
$2.25 per share.
(c) A $1,125,000 note and stock appreciation rights
payable (a) by the issuance of up to an
aggregate of 1,800,000 shares of ARC Class A
Common Stock ("ARC Stock") or, at ARC's option,
in cash three years after the closing date; or
(b) solely in cash in the event ARC Stock is
delisted from the NASDAQ Stock Market.
(d) Warrant to acquire 1,000,000 shares of ARC
Stock at $2.25 per share. 250,000 warrants
shall become exercisable at the end of each of
the next four fiscal years if predetermined
sales and earnings targets are met.
The consideration paid was based upon arm's length
negotiations between the parties as to the fair
market value of the purchased assets.
Ventek manufactures and markets computer aided vision
defect detection equipment used in the wood veneer
industry. ARC intends to conduct Ventek's business in
substantially the same manner as currently conducted.
Ventek was established in 1991 and has nine
employees.
Item 5. Other Events.
On July 24, 1996, Joseph A. DeRose resigned as a
member of ARC's board of directors. Effective with
the Ventek acquisition, Rodger A. Van Voorhis became
a member of ARC's board of directors.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired and
(b) Pro Forma Financial Information. It is
impracticable to provide the required financial
statements for Ventek at this time. ARC intends
to file the required financial statements as
soon as possible but not later than 60 days
after the date this Form 8-K is required to be
filed.
(c) Exhibits
10.1 Asset Purchase Agreement dated July 24,
1996, by and among ARC, Ventek and the
shareholders of Ventek.
10.2 $1,000,000 Note dated July 24, 1996,
between ARC and Ventek.
10.3 $2,250,000 Convertible Note dated
July 24, 1996, between ARC and Ventek.
10.4 $1,125,000 Note dated July 24, 1996,
between ARC and Ventek.
10.5 Stock Appreciation Rights Agreement
dated July 24, 1996, between ARC and
Ventek.
10.6 Warrant Agreement dated July 24, 1996,
between ARC and Ventek.
10.7 Form of Employment Agreement dated July
24, 1996, between each of the four
stockholders of Ventek and ARC.
10.8 Pledge and Security Agreement dated
July 24, 1996, by and among ARC, ARC
Subsidiary, Inc., Ventek and Solin &
Associates P.C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARC CAPITAL
Date: July 30, 1996 By: /s/ Alan R. Steel
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Vice President of Finance and
Chief Financial Officer
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Exhibit Index
10.1 Asset Purchase Agreement dated July 24, 1996, by and
among ARC, Ventek and the shareholders of Ventek.
10.2 $1,000,000 Note dated July 24, 1996, between ARC and
Ventek.
10.3 $2,250,000 Convertible Note dated July 24, 1996,
between ARC and Ventek.
10.4 $1,125,000 Note dated July 24, 1996, between ARC and
Ventek.
10.5 Stock Appreciation Rights Agreement dated July 24,
1996, between ARC and Ventek.
10.6 Warrant agreement dated July 24, 1996, between ARC
and Ventek.
10.7 Form of Employment Agreement dated July 24, 1996,
between each of the four stockholders of Ventek and
ARC.
10.8 Pledge and Security Agreement dated July 24, 1996, by
and among ARC, ARC Subsidiary, Inc., Ventek and Solin
& Associates P.C.
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 24th day of July, 1996 by and among ARC Capital, a California
corporation ("Buyer") on the one hand, and Ventek, Inc. ("Seller"), an Oregon
corporation and Rodger Van Voorhis, Doug Hickman, Ken Winder and Tom Thompson
(collectively, the "Shareholders") on the other hand, with reference to the
following:
WHEREAS, in order that Buyer may acquire substantially all of the
assets of the Seller, the parties desire that Buyer purchase from Seller and
Seller sell to Buyer substantially all of the assets of Seller pursuant to the
terms and conditions set forth in this Agreement (the "Asset Purchase"); and
WHEREAS, the parties intend that the Asset Purchase will result in
ownership by the Buyer of substantially all of the assets of the Seller;
WHEREAS, Seller will concurrently with the Closing change its name to
Veneer Technology, Inc. so that Buyer shall be able to use the name "Ventek,
Inc." after the Closing;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
I. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"Asset Purchase" shall have the meaning set forth in the preambles
hereto and more fully described in Section 2.3.
"Assets" shall have the meaning set forth in the preambles hereto and
more fully described in Section 2.1(a).
"Assumed Liabilities" shall have the meaning set forth
in Section 2.1(c).
"Buyer" shall have the meaning set forth in the
preambles to this Agreement.
"Buyer's Common Stock" shall mean all classes of common
stock of Buyer.
"Buyer's Class A Common Stock" shall mean the Class A
Common Stock of Buyer.
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1.
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"Buyer SEC Reports" shall mean Buyer' Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, any reports on Form 8-K and Form 10-Q
filed on behalf of Buyer with the SEC since January 1, 1995 and prior to the
date of this Agreement.
"Buyer's Securities" shall have the meaning set forth in
Section 3.24.
"Closing" and "Closing Date" shall have the meanings set
forth in Section 2.4.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Customer Deposits" shall mean the dollar amount of customer deposits
shown on Seller's balance sheet at June 30, 1996.
"Event of Default" shall mean a default in the payment of any
installment of principal and/or interest of any of the Straight Note, the SAR
Note or the Convertible Note, as and when due and payable, and be continuing for
a period of 15 days following written notice thereof by Seller to Buyer.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Ordinary course of business" or similar reference shall mean
consistent with past custom and practice, including with respect to quantity and
frequency.
"Pledge and Security Agreement" shall mean that certain Pledge and
Security Agreement of even date herewith, by and among ARC Capital, ARC
Subsidiary, Inc., Ventek, Inc. and Solin & Associates P.C.
"Purchase Price" shall have the meaning set forth in
Section 2.3.
"Requisite Seller Shareholder Approval" shall mean the affirmative
vote or consent of the holders of a majority of the shares of Seller's Common
Stock entitled to vote on the Asset Purchase for the transactions contemplated
herein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933,
as amended.
"Seller" shall have the meaning set forth in the preambles to this
Agreement, and, unless the context otherwise requires, shall include its
subsidiaries, if any.
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2.
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"Seller's Common Stock" shall mean the common stock of
the Seller.
"Seller Disclosure Memorandum" shall mean the confidential memorandum
to be delivered by Seller to Buyer prior to the Closing Date.
"Shareholders" shall mean Rodger Van Voorhis, Doug Hickman, Ken
Winder and Tom Thompson as the record holders of the Seller's Common Stock as of
the Closing Date.
"Tax" or "Taxes" shall mean a net income, gross income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, transfer, occupation, real
property, premium, property or windfall profit tax, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest and any penalty, additional tax or additional amount
imposed by any jurisdiction or other taxing authority (federal, state, local or
foreign).
"Underlying Shares" shall have the meaning set forth in
Section 3.24.
II. PURCHASE AND SALE OF ASSETS
2.1
(a) Assets to be Transferred. Subject to the
terms and conditions of this Agreement, at the Closing Seller shall sell to
Buyer and shall assign, transfer, convey and deliver to Buyer (or, at Buyer's
discretion, convey to ARC Subsidiary, Inc., a wholly-owned subsidiary of Buyer
designated by Buyer prior to the Closing (the "Subsidiary")), and Buyer shall
purchase all of Seller's right, title and interest in and to all its assets
except those specifically excluded herein, including, without limitation, those
assets identified in this Section 2.1 and the goodwill related thereto, Seller's
business and its name (collectively, the "Assets"):
(i) all fixtures, fixed assets,
furnishings, furniture, office supplies, vehicles, machinery, tools, dies,
molds, telephone systems, equipment, computer equipment and entry order devices
(collectively the "Fixed Assets");
(ii) all inventory, including raw
materials, work-in-process, returned goods, scrap and rework,
finished goods, and stores and supplies (the "Inventory");
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3.
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(iii) all trademarks, tradenames, patents,
service marks, trade styles, copyrights (whether registered or
unregistered), logos and similar intangibles, (collectively,
the "Trademarks");
(iv) all purchase orders and sales orders
of Seller entered into in the normal course of business that are outstanding at
the Closing (the "Purchase and Sales Orders") (each purchase order or sales
order of Seller which provides for aggregate payments in excess of $5,000 shall
be listed on the Seller Disclosure Memorandum);
(v) cash or cash equivalents, equal to the
amount of Customer Deposits, on deposit in banking or financial institutions or
in any accounts (savings, checking or otherwise) or safety deposit boxes;
(vi) all of Seller's leasehold interest in
its personal property leases (the "Personal Property Leases");
(vii) all computer software and accounting
software, whether owned, leased or licensed by Seller and including all such
software for which Seller holds a "right to use," including all codes, data and
related documentation ("Programs");
(viii) the corporate name "Ventek, Inc." and
all derivations thereof, and any trademarks associated with
the Ventek name;
(ix) all prepaid items, prepaid deposits
and other similar assets of the Seller;
(x) all permits and licenses used in the
operation of Seller's business and any bonds posted with respect thereto
("Permits"), including, without limitation, the Permits set forth in the Seller
Disclosure Memorandum; and
(xi) all scientific, engineering and
technological knowledge and know-how, and originals or copies of all books and
records relating to the business of Seller or the Assets, including without
limitation drawings, blueprints, formulae, reports and catalogues (the "Books
and Records"), but not including Seller's minute books or other corporate
documents.
(b) Excluded Assets. Assets shall exclude the
accounts receivable and unamortized organization costs and memberships of Seller
as reflected on Seller's balance sheet at June 30, 1996, cash in excess of
Customer Deposits and that certain investment in the WhamDyn, LLC partnership
owned by Seller.
APP4-21.002
4.
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(c) Certain Assumed Liabilities. Buyer shall
not assume any liabilities of Seller, except for the following: Seller's (i)
trade accounts payable, (ii) Customer Deposits, (iii) unfilled purchase orders
for which there are no corresponding accounts receivable and (iv) accrued
liabilities, all as set forth in Seller's June 30, 1996 balance sheet, other
than payroll and payroll taxes payable, accrued SEP-IRA plan contribution,
federal tax payable, legal fees and expenses, loans from shareholders and loans
from employees (the "Assumed Liabilities").
2.2 Instruments of Conveyance and Transfer. The conveyance, transfer,
assignment and delivery to Buyer (or to Buyer's designated subsidiary) of the
Assets, as herein provided, shall be effected by bills of sale, endorsements,
assignments, releases, assumption agreements on the part of Buyer, drafts,
checks and other instruments of transfer and conveyance in such form as is
reasonably acceptable to Buyer.
2.3 Purchase Price. As payment in full for the Assets
to be sold to Buyer at the Closing, Buyer shall deliver to
Seller:
(a) A 6.75% note for $1,000,000 due three years
from the Closing Date with interest in the amount of $16,875 payable quarterly
(the "Straight Note") containing the terms set forth in the form of note
attached hereto as Exhibit A.
(b) A $1,125,000 note (the "SAR Note") and stock
appreciation right ("SAR") pursuant to which a maximum of 1,800,000 shares of
Buyer's Class A Common Stock is issuable three years from the Closing Date,
which form of note and stock appreciation right is set forth as Exhibit B
hereto.
(c) A 6.75% convertible note for $2,250,000 due
three years from the Closing Date with interest in the amount of $37,968 payable
quarterly (the "Convertible Note") containing the terms set forth in the form of
note attached hereto as Exhibit C, which terms shall include a "put" option
described therein. The Convertible Note will be convertible into Buyer's Class A
Common Stock at $2.25 per share based upon the achievement of earnings
objectives, the terms of which are set forth in the Convertible Note.
(d) A warrant to acquire 1,000,000 shares of
Buyer's Class A Common Stock at $2.25 per share (the "Warrant") in the form
attached hereto as Exhibit D.
(e) The aggregate consideration set forth in
subparagraphs (a) through (d) of this Section 2.3 is referred to herein as the
"Purchase Price." The Straight Note, SAR Note and Convertible Note shall herein
collectively be referred to as the "Notes." The sale and transfer of Assets
APP4-21.002
5.
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and Assumed Liabilities and the concurrent payment of the Purchase Price is
referred to herein as the "Asset Purchase".
2.4 The Closing. Subject to the conditions set forth in Article VI,
unless this Agreement shall have been terminated as provided in Article VIII,
the consummation of the transactions contemplated by this Agreement (the
"Closing") shall take place at 2067 Commerce Drive, Medford, OR 97504 on July
24, 1996 or such other place or such other date as the parties may mutually
determine, no later than the second business day following the later of (i)
satisfaction or waiver of the conditions specified in Article VI (the "Closing
Date"), or (ii) July 31, 1996.
III. REPRESENTATIONS AND WARRANTIES OF THE SELLER
Each of the Seller and each Shareholder hereby represents and
warrants to Buyer as follows:
3.1 Organization and Authorization.
The Seller is a corporation duly organized,
validly existing and in good standing under the laws of Oregon, has the
corporate power and all necessary authorizations to own all of its properties
and assets and to carry on its business as it is now being conducted. The Seller
is duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or character of its properties requires such
qualification and where the failure to be so qualified would materially and
adversely affect the Seller, its business, properties or rights. Seller has
delivered to Buyer complete and correct copies of the Articles of Incorporation
and By-Laws, as amended and in effect on the date of this Agreement, of the
Seller. The Seller has all requisite corporate power to execute, deliver and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement by the Seller, and the consummation by the Seller
of the transactions contemplated hereby, have been approved by the Board of
Directors of the Seller, subject only to obtaining the Requisite Shareholder
Approval. This Agreement has been duly executed and delivered by the Seller and
constitutes a valid and binding agreement of the Seller.
The Seller does not have any subsidiaries or own any capital stock
of, or other equity interest in, any other entity.
3.2 Non-Contravention. The business and operation of the Seller have
been and are being conducted in accordance with all applicable laws, rules, and
regulations of all authorities, except those which do not (either individually
or in the aggregate) materially and adversely affect the Seller
APP4-21.002
6.
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or its properties, assets, businesses, or prospects. The execution and delivery
of this Agreement do not and the consummation of the transactions contemplated
hereby will not (a) violate the Articles of Incorporation or By-Laws or similar
charter documents of the Seller, (b) violate any provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether after
the giving of notice or the lapse of time or both) any obligation under any
contract, mortgage, lease, agreement, license or instrument, or any order,
arbitration award, judgment, or decree, to which the Seller is a party or by
which it is bound, (c) result in the creation or imposition of any lien, charge,
pledge, security interest or other encumbrance on any property of the Seller, or
(d) violate or conflict with any law, ordinance, order, writ, injunction,
judgement or decree of any court, administrative agency or governmental body or
any decision or finding of any arbitration panel or rule to which the Seller is
subject.
3.3 Capital Stock. Seller has 400 shares of no par value common stock
authorized (the "Seller's Common Stock"), of which 300 is issued and
outstanding. No other classes of capital stock of Seller are authorized, issued
or outstanding. All of such issued and outstanding shares of Seller's Common
Stock are validly issued and outstanding, fully paid and non-assessable and were
issued in compliance with all applicable securities laws. 100% of the shares of
outstanding capital stock of the Seller are owned, of record and beneficially,
by the Shareholders.
3.4 Options. There are no outstanding subscriptions, options,
conversion rights, warrants or other agreements or commitments of any nature
whatsoever obligating the Seller or its Shareholders to issue, deliver or sell,
or cause to be issued, delivered or sold, any additional shares of the capital
stock of the Seller or obligating the Seller or its Shareholders to grant,
extend or enter into any such agreement or commitment. The Shareholders of the
Seller do not have any preemptive rights or other rights to subscribe for
additional shares of the Seller, and no preemptive or similar rights will arise
as a result of the transactions contemplated by this Agreement. Except as set
forth in the Seller Disclosure Memorandum, there are no voting trusts, voting
agreements, irrevocable proxies or other agreements to which the Seller is a
party, or of which the Seller has knowledge, in effect relating to the voting or
transfer of any shares of the Seller's Common Stock.
3.5 Seller Financial Statements.
(a) The financial statements of Seller (the
"Financial Statements") which include the financial statements
for the Seller as of and for the year ended December 31, 1995
APP4-21.002
7.
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which Financial Statements have been compiled by the independent accounting
firm, Solin & Associates P.C., were prepared in accordance with the books and
records of the Seller and were prepared on a tax basis consistently applied and
present fairly the financial condition of the Seller as of the date thereof and
the results of operations and changes in financial position for the periods then
ended.
(b) The internal monthly financial statements of
the Seller have been prepared in accordance with the books and records of the
Seller and were prepared in accordance with accounting procedures applied on a
consistent basis and present fairly the financial condition of the Seller as of
the dates thereof.
3.6 No Adverse Changes. Except as set forth in the Seller Disclosure
Memorandum, since December 31, 1995, the Seller has conducted its business only
in the ordinary course, there has not been any material adverse change in the
business, financial condition, assets, liabilities, properties, business or
operations, or prospects of the Seller and the Seller has not:
(a) issued or sold any stock, notes, bonds or
other securities, or any option to purchase the same, or
entered into any agreement with respect thereto;
(b) declared, set aside or made any dividend or
other distribution on capital stock or redeemed, purchased or acquired any
shares thereof or entered into any agreement to the effect of the foregoing;
(c) amended its Articles of Incorporation or By-
Laws;
(d) other than in the ordinary course of busi-
ness, purchased, sold, assigned or transferred any material tangible assets or
any material license, franchise or other intangible asset; mortgaged, pledged,
granted or suffered to exist any lien or other encumbrance or charge on any
material assets or properties, tangible or intangible, except for liens for
taxes not yet delinquent and such other liens, encumbrances or charges which do
not materially adversely affect the business or financial condition of the
Seller; or waived any rights of material value or cancelled any material debts
or claims;
(e) incurred any material obligation or
liability (absolute or contingent), except current liabilities and obligations
incurred in the ordinary course of business, or paid any material liability or
obligation (absolute or contingent) other than current liabilities and
obligations incurred in the ordinary course of business;
APP4-21.002
8.
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(f) increased the compensation payable to any
officer or director of the Seller or any relative of any such officer or
director, or become obligated to increase any such compensation other than in
the ordinary course of business;
(g) incurred any damage, destruction or similar
loss, whether or not covered by insurance, materially
affecting the business or properties of the Seller;
(h) entered into any material contract or
commitment other than contracts or commitments made in the
ordinary course of business or pursuant to this Agreement;
(i) made any payment or arrangement, agreement
or commitment to pay any bonus, incentive compensation or retirement,
termination or severance benefits other than pursuant to existing plans,
agreements or arrangements disclosed in the Seller Disclosure Memorandum;
(j) made or suffered any material amendment,
modification or termination of any material contract, commit-
ment or obligation to which the Seller is a party;
(k) borrowed or loaned any money other than pur-
suant to agreements disclosed in the Seller Disclosure
Memorandum;
(l) suffered any material labor or employee dis-
pute or incurred a threat thereof relating to its employees;
(m) changed its method of accounting; or
(n) agreed, whether in writing or otherwise, to
take any action described in this Section 3.6.
3.7 Approvals. Except as set forth in the Seller Disclosure
Memorandum, no consent, approval, order or authorization of, or registration,
declaration or filing with any governmental authority is required in connection
with the execution and delivery of this Agreement by the Seller or the
consummation by the Seller of the transactions contemplated hereby, and no
action by any governmental agency will be required to permit Buyer to operate
the business of Seller subsequent to the Closing Date in the manner that Seller
has done in the past.
3.8 Contracts; Absence of Default. Except as listed
in the Seller Disclosure Memorandum, Seller is not a party to
any material written or oral:
(a) contract, agreement or understanding for the
employment of any officer, consultant, director or employee;
APP4-21.002
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(b) contract, agreement or understanding with
any labor union;
(c) contract, agreement or understanding for the
purchase of any materials, supplies or equipment, where
payments in any case in excess of $30,000 are provided;
(d) contract, agreement or understanding for the
sale of products or performance of services, where payments in
any case in excess of $30,000 are provided;
(e) license or franchise agreement, either as
licensor or licensee or franchisor or franchisee, or distri-
butor, or sales agency contract, agreement or understanding;
(f) lease under which the Seller is a lessor or
lessee, or contract, agreement or understanding to purchase or
sell real property or a material amount of personal property;
(g) pension, profit-sharing, bonus, deferred
compensation, retirement or stock option or stock purchase plan or similar
employee benefit plan in effect with respect to employees or others;
(h) contract or agreement granting to any
person, or obtaining from any person, the right to use any property or property
right, including any trademark, trade secret, know-how, software, or patent
licensing agreement, contract or understanding;
(i) plan or contract or other arrangement
providing for insurance (excluding medical and dental insurance plans covering
substantially all employees) for any officer, director or employee or member of
their families;
(j) contract or agreement containing covenants
by the Seller not to compete in any line of business or with
any person;
(k) partnership, joint venture contract or
arrangement or other agreement involving a sharing of profits;
(l) contract or agreement relating to the bor-
rowing or lending of money; or
(m) other material contract, agreement or under-
standing;
(n) purchase, supply or service contract in
excess of $5,000 each, or which is not terminable without cost or expense on
less than thirty (30) days notice.
APP4-21.002
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(Hereinafter, the foregoing are collectively referred to as
the "Seller's Contracts.")
The Seller has provided or made available to Buyer true, current,
correct and complete copies of all of the Seller's Contracts. Each of the
contracts and commitments which are set forth on the Seller Disclosure
Memorandum is valid and existing, in full force and effect and enforceable in
accordance with its terms. Except as set forth in the Seller Disclosure
Memorandum, the Seller is not in material default under any Seller's Contract,
and no other party to any of the Seller's Contracts, to the knowledge of the
Seller is in material default under any Seller's Contract, and no claim of
default by any party has been made or is now pending, and there does not exist
any situation which, with notice or the passing of time, or both, would
constitute a default or would excuse performance by any party thereto. Except as
disclosed in the Seller Disclosure Memorandum, no consent of any third party is
necessary for the execution of this Agreement or the consummation of the
transactions contemplated hereby.
3.9 Title to Assets. The Seller owns and has good and marketable
title in fee simple to all of its assets and properties (real, personal and
mixed, tangible or intangible), free and clear of any mortgage, lien, pledge,
charge, claim, conditional sales or other agreement, lease, right or
encumbrance.
3.10 Litigation. Except as set forth in the Seller Disclosure
Memorandum, there are no actions, suits or other governmental proceedings,
arbitrations or investigations pending or threatened against or affecting the
business, Assets, operations or financial condition of the Seller at law or in
equity in any court or before any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
The Seller is not in default with respect to any judgment, order, writ,
injunction or decree of any court or federal, state, municipal or other
governmental department, commission, agency or other instrumentality.
3.11 Permits. The Seller has all permits, licenses, orders and
approvals of all foreign, federal, state, or local governmental or regulatory
bodies required for it to conduct its business as presently conducted; and such
permits, licenses, orders or approvals will not be adversely affected by the
consummation of the transactions contemplated by this Agreement. The Seller has
complied in all respects with the laws applicable to it and with the rules and
regulations of all governmental agencies having authority over it, including,
without limitation, laws and agencies concerned with occupational safety,
environmental protection and employment practice, and the Seller has not
received notice of violation
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of any such rules or regulations, corrected or not, within the
last three years.
3.12 Insurance. The Seller has insurance contracts in full force and
effect providing for coverages, including but not limited to fire and liability,
which are usual and customary in the business of the Seller as to amount and
scope.
3.13 Corporate Records. The minute books of the Seller made available
to Buyer to review contain complete and accurate records of all material
corporate actions taken at all meetings, all actions by written consent without
a meeting, and all other material corporate actions taken by the Board of
Directors and shareholders of the Seller. The charter and organizational
documents of the Seller made available to Buyer to review contain complete and
accurate records of all material actions taken by the Seller.
3.14 Absence of Undisclosed Liabilities. Seller will not have on the
Closing Date liabilities or obligations, whether accrued, absolute, contingent
or otherwise, and there is no basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim or demand against the
Seller giving rise to any liability, except (a) as and to the extent reflected
or provided for in the Financial Statements, and (b) liabilities of the type
reflected in the Financial Statements to the extent incurred since December 31,
1995 in the ordinary course of business and as and to the extent disclosed in
the Seller Disclosure Memorandum. The Seller has not guaranteed or given
security for any obligation of any third party.
3.15 Personal Property. The Seller owns free and clear of any
security interest, lien, lease, encumbrance, right, commitment, contract or
charge of any nature, except to the extent that the extent and nature is
disclosed in the Seller's Contracts, or leases under leases disclosed as Seller
Contracts hereunder, all material tangible personal property used in or
reasonably necessary for the conduct of its business as presently conducted.
All personal property owned or used by the Company is in good
operating condition and in a reasonable state of maintenance and repair.
3.16 Regulatory Compliance. The Seller is in substantial compliance
with all federal, state, local and foreign laws and regulations applicable to
it, including, without limitation, environmental laws, and with any order of any
court of federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality wherever located.
APP4-21.002
12.
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3.17 Environmental Compliance.
(a) For purposes of this Agreement, the follow-
ing terms shall have the meanings set forth below:
(i) "Premises" means any property or fa-
cility owned, operated, or leased by the Seller in the case of
this paragraph 3.17;
(ii) "Hazardous Substance" means, at any
time, any substance, material, chemical or waste the presence of which requires
investigation or remediation under, or which is or becomes regulated by, any
state or local governmental authority or the United States due to its properties
of being toxic, hazardous, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, or mutagenic, including, without limitation, any
material, waste, chemical or substance which is: (i) defined as a "hazardous,"
"extreme hazardous" or "restricted hazardous" waste material or substance under
the laws of the governmental jurisdiction where the Premises are located and/or
to which the Premises are subject; (ii) petroleum or a petroleum product,
including, without limitation, gasoline and diesel fuel, (iii) asbestos or
asbestos containing; (iv) polychlorinated biphenyls; (v) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
ss. 1251 et seq. (33 U.S.C. ss. 1321) or listed pursuant to Section 307 of the
Clean Water Act (33 U.S.C. ss. 1317); (vi) defined as a "hazardous waste"
pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42
U.S.C. ss. 6901 et seq. (42 U.S.C. ss. 6903); or (vii) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq. ("CERCLA") (42
U.S.C. ss.9601);
(iii) "Hazardous Materials Law" means any
national territorial, state, province or local statute, ordinance, order, rule
or regulation of any type, relating to pollution or the protection of worker
safety, public safety, human health, natural resources, or the environment,
including laws, statutes, ordinances, rules or regulations relating to the
emission, discharge, release or threatened release, of pollutants, contaminants
or Hazardous Substances into ambient air, surface water, ground water or land,
or remediation or removal thereof, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or Hazardous Substances, including without
limitation those statutes and regulations referred to in Subparagraph (b) above,
the Occupational Health and Safety Act (29 U.S.C. ss.651 et seq); and
(iv) "Loss" means any and all of the fol-
lowing, whether the result of any action of any governmental
agency or a third party: liabilities; penalties; forfeitures;
APP4-21.002
13.
<PAGE>
suits; losses; damages; expenses; debts; obligations; claims; fines or civil
liability for violation of any Hazardous Material Laws; costs (including the
costs of investigation, defense, settlement and attorneys' and other
professional fees, whether or not litigation is instituted; or costs and capital
expenditures required for compliance with Hazardous Materials Laws.
(b) Except as disclosed in the Seller Disclosure
Memorandum,
(i) The Seller has obtained, and is in
full compliance with, all permits, licenses or other authorizations which are
required under any Hazardous Materials Law for the operations of the Seller;
(ii) The Seller and the Shareholders are
not aware of any past, present or future events, conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere with, or
prevent continued compliance by the Seller with, Hazardous Materials Laws, or
which may give rise to Loss to the Seller based on or related to Hazardous
Materials Laws;
(iii) The Seller has not entered into any
agreement with any governmental authority or agency, or with any private entity,
including, but not limited to, any prior owners of Premises, relating in any way
to violation of Hazardous Materials Laws, or to the presence, release, threat of
release, disposal, placement on, under or about any Premises of Hazardous
Substances;
(iv) Neither the Shareholders nor the
Seller has discovered or caused, and no other person has discovered or caused,
any discharge, emission, disposal or release of Hazardous Substances on the
Premises, on property formerly owned, operated or leased by the Seller or on the
property of any third party;
(v) Neither the Shareholders nor the
Seller has discovered, and no other person has discovered, any occurrence or
condition on the Premises or on any real property in the vicinity of the
Premises, which could cause the Premises to be subject to any restrictions on
the ownership, occupancy, transferability or use under any Hazardous Materials
Law;
(vi) The Seller has not manufactured,
stored or disposed of Hazardous Substances at any location, including, without
limitation, any disposal which was in compliance with Hazardous Materials Law;
APP4-21.002
14.
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(vii) The Seller does not use or maintain
any underground storage tanks or surface impoundments on the Premises, and no
underground storage tanks or surface impoundments are now, or ever have been,
located on the Premises; and
(viii) Neither the Shareholders nor the
Seller has received notice of any lien in favor of any governmental authority
filed or attached to the Premises for (i) any liability under federal,
territorial or state environmental laws or regulations, or (ii) damages arising
from or costs incurred by such governmental authority in response to a release
of Hazardous Substances into the environment.
3.18 Conflict of Interest. Except as disclosed in the Seller
Disclosure Memorandum, (a) no director, officer or employee of the Seller has
any interest in any property, real or personal or tangible or intangible
necessary for, used in or pertaining to the business of the Seller and (b) none
of the directors, officers or employees of the Seller (i) competes with the
Seller in any line of business, or (ii) is a party to any of the Seller's
Contracts, (iii) nor does any director, officer or employee of the Seller have
an interest, direct or indirect, in any entity which competes with the Seller in
any line of business or is a party to any of the Seller's Contracts or is a
customer or supplier of the Seller, and (iv) no director, officer or employee of
Seller has had within the last 12 months any contractual relationship with the
Seller.
3.19 Labor Matters. There are no controversies pending or threatened,
between the Seller and any union or any of the employees of the Seller. The
Seller is not currently subject to (a) any threats of strikes or work stoppages,
or (b) any organizational efforts or demands for collective bargaining or any
union organization. Except as disclosed in the Seller Disclosure Memorandum, the
Seller is not a party to any collective bargaining agreements.
3.20 Accuracy of Information Furnished. The certificates, statements
and other information furnished to Buyer in writing by or on behalf of the
Seller in connection with the transactions contemplated hereby do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.21 Brokers. Except as set forth in the Seller Disclosure
Memorandum, all negotiations relating to this Agreement and the transactions
contemplated hereby have been carried on without the intervention of any person
acting on behalf of the Seller who has or may have a valid claim against
APP4-21.002
15.
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Buyer for any broker's or finder's fee or similar compensation and the Buyer
shall have no liability or obligation to pay such fees or compensation.
3.22 Taxes.
(a) Except as set forth in the Seller Disclosure
Memorandum, (i) the Seller has filed or will, before the Closing Date, all
returns, declarations, reports and information returns and statements required
to be filed by it before the Closing Date relating to any Taxes with respect to
any income, properties or operations of the Seller before the Closing Date
(collectively, the "Returns"), and all such Returns were, or will be, correct
and complete in all material respects; (ii) the Seller has timely paid in full
Taxes due and payable and is not delinquent in the payment of any amount of
Taxes attributable to any settlement with governmental authorities; (iii) all
other Taxes due and payable by the Seller on or before the Closing Date have
been, or will have been, paid in full; and has paid all taxes due and payable
(whether or not shown on such returns or reports), all assessments, notice of
which has been received by it, and all other taxes, governmental charges,
penalties, interests and fines due and payable by it on or before the date
hereof; (iv) all Taxes required to be withheld by or on behalf of the Seller or
with respect to the business operated by the Seller or the assets thereof have
been withheld, and such withheld Taxes have been duly paid to the proper
governmental authority or set aside in accounts for such purpose; (v) no Returns
or Taxes for which the Seller could be held liable are currently being audited
by any taxing authority and no taxing authority has given notice in writing that
it will commence any such audit; (vi) the charges, accruals and reserves for
Taxes (including deferred Taxes) currently reflected on the books of the Seller
are and will be as of the Closing Date, adequate in accordance with generally
accepted accounting principles, consistently applied, to cover all unpaid
liabilities for Taxes accruing or payable by it in respect of periods that end
on or before the Closing Date and for periods that begin before the Closing Date
and end after the Closing Date to the extent that such Taxes are attributable to
the portion of any such period ending at the Closing Date (determined on a
closing-of-the-books method); (vii) no deficiency for any amount of Taxes has
been proposed, asserted or assessed in writing against the Seller; (viii) the
Seller has not granted an extension of the limitations period applicable to the
assessment of Taxes; (ix) the Seller has not been a party to any tax sharing
arrangement; and (x) there are no liens for delinquent Taxes upon the assets of
the Seller.
APP4-21.002
16.
<PAGE>
(b) Seller, from its inception, has been an S
corporation within the meaning of Section 1361 of the Code for federal and state
income tax purposes and will continue to have such status through the Closing
Date.
3.23 Employee Benefit and Employment Matters. The Seller does not
currently have, and has never maintained, any employee pension benefit plans (as
defined in Section 3(2) of the Employment Retirement Income Security of 1974, as
amended ("ERISA"), or any welfare benefit plans (as defined in Section 3(1) of
ERISA, whether or not excluded from coverage under specific Titles or Subtitles
of ERISA).
3.24 Unregistered Stock. The Seller and the Shareholders understand
and acknowledge that (i) the securities of Buyer being issued in connection with
the Asset Purchase as set forth in Article II ("Buyer's Securities") and the
shares of Buyer's Common Stock issuable upon conversion or exercise thereof (the
"Underlying Shares"), have not been registered under the Securities Act and are
therefore restricted securities; (ii) Buyer's Securities may not be sold or
transferred unless they are registered under the Securities Act or an exemption
from such registration is available; and (iii) a legend to that effect will be
placed on the certificates representing Buyer's Securities and the Underlying
Shares.
3.25 Investor Representations.
(a) Each Shareholder who receives Buyer's
Securities and any Underlying Shares in connection with the transactions
contemplated by this Agreement warrants and represents that (i) he is an
accredited investor as defined in Regulation D under the Securities Act, or by
reason of his business and financial experience, and the business and financial
experience of those persons unaffiliated with Buyer retained by him, if any, to
advise him with respect to his investment in Buyer's Securities and the
Underlying Shares, such Shareholder together with such advisers have such
knowledge, sophistication and experience in business and financial matters as to
be capable of evaluating the merits and risk of the prospective investment, and
(ii) that he is acquiring Buyer's Securities and the Underlying Shares for his
own account or for one or more separate accounts maintained by him, if any, for
investment and not with a view to the distribution thereof except in compliance
with the Securities Act or an exemption available thereunder.
(b) Each Shareholder who receives Buyer's
Securities and any Underlying Shares in connection with the transactions
contemplated by this Agreement understands and agrees that Buyer's Securities
and the Underlying Shares have not been registered under the Securities Act and
may be resold
APP4-21.002
17.
<PAGE>
only pursuant to this Agreement if registered pursuant to the applicable
provisions of the Securities Act or if an exemption from registration is
available.
3.26 Real Property. The Seller Disclosure Memorandum sets forth a
complete and accurate legal description of each parcel of real property owned by
the Seller and each parcel of real property owned by the Shareholders which is
used in the business and operations of the Seller, together with any existing
survey or a plat of each parcel that may be obtained by the Seller or the
Shareholders. The Seller Disclosure Memorandum contains a description of all
buildings, fixtures, and other improvements located on these real properties and
a list of any title report or policies of title insurance issued to any of the
Seller with respect to these properties. Except as set forth in the Seller
Disclosure Memorandum, the Seller does not lease any real property or occupy any
real property leased to another. The lease or leases listed are valid, in good
standing, and in full force without amendment thereto, and there does not exist
any default thereunder or event that with notice or lapse of time, or both,
would constitute a material default thereunder. The Seller is in possession of
all premises owned by it or owned by the Shareholders and used in the business
and operations of the Seller, and the Seller does not use or occupy any real
property in violation of any law, regulation or decree.
3.27 Zoning. The zoning of each parcel of property described in the
Seller Disclosure Memorandum permits the existing improvements thereon and the
continuation of the business now being conducted on such parcel.
3.28 Condition and Sufficiency of Assets. The buildings, plants,
structures, machinery, equipment, furniture, and fixtures of the Seller and the
buildings, structures, and fixtures owned by the Seller or the Shareholders used
in the business and operations of the Seller are structurally sound with no
known material defects, are in good operating condition and repair, and are
adequate for the uses to which they are being put, and, except as described in
the Seller Disclosure Memorandum, none of such buildings, plants, structures,
machinery, equipment, furniture or fixtures is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature or cost. The buildings, plants, structures, machinery, equipment,
furniture, and fixtures of the Seller and the buildings, structures, and
fixtures owned by the Shareholders used in the business and operations of the
Seller are sufficient for Buyer's continued conduct of the Seller's business
after the Closing in substantially the same manner as it is now conducted.
APP4-21.002
18.
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3.29 Customers. During the 12 months ended June 30, 1996, not more
than 10% of the revenues of the Seller were attributable to any single customer
or to any group of affiliated customers, except as set forth in the Seller
Disclosure Memorandum.
3.30 Inventory. The inventory of the Seller is good and merchantable
first-quality material and is saleable in the ordinary course of business
without discount from the prices generally charged for like material of first
quality, and the quantities of all inventory are reasonable and warranted in the
present circumstances of the business of the Seller.
IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller as follows:
4.1 Organization and Authorization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, has the corporate power and all necessary authorizations to own all
of its properties and assets and to carry on its business as it is now being
conducted. Buyer is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or character of its
properties requires such qualification and where the failure to be so qualified
would materially and adversely affect Buyer, its businesses, properties or
rights. Buyer has delivered, or made available for inspection, to the Seller
complete and correct copies of its Articles of Incorporation and By-Laws, as
amended and in effect on the date of this Agreement. Buyer has all requisite
corporate power to execute, deliver and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by Buyer,
and the consummation by Buyer of the transactions contemplated hereby have been
duly authorized by the Board of Directors of Buyer.
4.2 Non-Contravention. The execution and delivery of this Agreement
do not and the consummation of the transactions contemplated hereby will not (a)
violate the Articles of Incorporation or By-Laws of Buyer, (b) violate any
provision of or result in the breach or the acceleration of or entitle any party
to accelerate (whether after the giving of notice or the lapse of time or both)
any obligation under any mortgage, lease, agreement, license or instrument, or
any order, arbitration award, judgment, or decree, to which Buyer is a party or
by which either of them is bound, (c) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance on any property
of Buyer, or (d) violate or conflict with any law, ordinance or rule to which
Buyer or its property is subject.
APP4-21.002
19.
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4.3 Capital Stock. The authorized capital stock of Buyer is set forth
in the Buyer SEC Reports. The outstanding shares of capital stock are validly
issued and outstanding, fully paid and nonassessable as of the date hereof.
There are sufficient authorized but unissued shares of Buyer's Common Stock to
permit the issuance of all shares required to be issued in accordance with the
terms and conditions of this Agreement to the Seller upon consummation of the
Asset Purchase.
4.4 Shares to be Issued. The shares of Buyer's Common Stock to be
delivered pursuant to this Agreement will, upon issuance, be validly issued,
fully paid and nonassessable.
4.5 SEC Reports. All reports required to be filed by Buyer with the
SEC have been duly filed, are in compliance with the requirements of their
respective report forms and were complete and correct in all material respects
as of the date on which the information was furnished. The financial statements
of Buyer contained in such SEC Reports were prepared in accordance with the
books and records of Buyer and were prepared on a consistent basis and present
fairly the financial condition of Buyer as of the date thereof and the results
of operations and changes in financial position for the periods then ended. As
of any fiscal year end, such financial statements of Buyer were prepared in
accordance with generally accepted accounting principles.
V. COVENANTS
5.1 Negative Covenants of the Seller. From the date of this Agreement
until the Closing Date, except with the prior written consent of the Buyer,
which shall not be unreasonably withheld, or as expressly permitted by this
Agreement or as disclosed in the Seller Disclosure Memorandum, Seller hereby
covenants and agrees that it will not:
(a) declare or pay any dividends or effect any
stock split or other reclassification;
(b) merge or consolidate with any corporation;
(c) make any acquisition of stock or assets of
any person or entity;
(d) authorize the creation or issuance of or
issue, sell or dispose of, or create any obligation to issue, sell or dispose
of, any shares of its capital stock except pursuant to conversion rights,
options or other commitments or agreements existing on the date of this
Agreement;
APP4-21.002
20.
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(e) incur any indebtedness for borrowed money
other than in the ordinary course of business or in connection
with transactions disclosed hereunder or contemplated herein;
(f) enter into or amend any employment contract
with any of its officers, increase the salary of any officer other than in the
ordinary course of business, adopt or amend in any material respect (except as
required by law) any employee benefit plan, severance plan or collective
bargaining agreement or make awards or distributions under any employee benefit
plan not consistent with past practice or custom;
(g) amend its corporate charter or By-Laws;
(h) dispose of any material assets or otherwise
conduct its business other than in the ordinary course; or
(i) until the earlier of the Closing Date or
September 30, 1996, directly or indirectly, whether through any of its officers,
employees, representatives or otherwise, solicit or encourage any inquiries or
proposals for the acquisition of stock, assets or business of the Seller, or any
of its subsidiaries.
5.2 Affirmative Covenants of the Seller. In addition
to the covenants set forth in Section 5.1, the Seller hereby
covenants and agrees as follows:
(a) From the date of this Agreement until the
Closing Date (or until the items referred to have either been accomplished or,
in good faith, abandoned), except with the prior written consent of Buyer, it:
(i) shall use all reasonable efforts to
comply with all filing and regulatory requirements imposed on the Seller with
respect to the Asset Purchase, and cooperate with and promptly furnish
information to Buyer in connection with any such filing requirements imposed
upon Buyer in connection with the Asset Purchase;
(ii) shall (a) promptly advise Buyer orally
and in writing of any inquiry or proposal for the acquisition of its stock,
assets or business; (b) promptly advise Buyer in writing of any written
objection to the Asset Purchase received from any of its Shareholders and
furnish to Buyer such relevant information as Buyer shall reasonably request
with respect thereto; (c) use all reasonable efforts to obtain any consent,
authorization or approval of, or exemption by, any governmental authority or
agency or other third party required to be obtained or made in connection with
the Asset Purchase or the taking of any action in connection with the
consummation thereof; and (d) use all reasonable efforts to
APP4-21.002
21.
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cause the conditions precedent to the Asset Purchase set forth
in Article VI hereof to be fulfilled;
(iii) shall not, directly or indirectly,
make offers for, entertain offers for, negotiate with third parties for, or make
information available to any third party for the purpose of, the sale of all or
any portion of the stock or assets of the Seller; and
(iv) shall use its best efforts to conduct
its business in a reasonable and prudent manner in accordance with past
practices, to preserve its existing business organizations and relationships
with its employees, customers, suppliers, and others with whom it has a business
relationship, to preserve and protect its properties, and to conduct its
business in compliance with all applicable laws and regulations.
(b) During the period of five years after the
Closing Date, Seller and each Shareholder shall not, directly
or indirectly,
(i) compete directly or indirectly,
through a subsidiary or affiliate or otherwise, or engage or participate as an
owner, partner, shareholder, officer director (or other type of principal) joint
venturer, agent, representative or independent contractor, or in any other
capacity calling for the making of any investment or the rendition of any
services or any acts of management, operation or control in any entity which
competes directly or indirectly with the business of the Buyer or the Seller as
presently conducted in those jurisdictions throughout the world in which the
Buyer or Seller is currently doing business, including but not limited to
Jackson County, Oregon and Lane County, Oregon; provided, however, that Seller
or each Shareholder may own up to one percent of any class of securities of a
corporation engaged in such a competitive business if such securities are (i)
listed on a national securities exchange or (ii) registered in the United States
under the Securities and Exchange Act of 1934; or
(ii) solicit from any present or past
customer of the Seller or Buyer any business for its products;
or
(iii) request or advise any present or
future customer of the Seller or Buyer to withdraw, curtail or
cancel its business in any of the Buyer's products with the
Buyer; or
(iv) solicit any present or future employee
of the Buyer to leave their employ;
APP4-21.002
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provided, however, that upon the occurrence of an Event of Default and failure
to cure within 15 days of written notice of such Event of Default, the covenants
set forth in this subparagraph (b) shall expire and the Shareholders shall have
no further obligations with respect to such covenants;
(c) Seller further agrees that a monetary remedy
for any breach of its covenants in paragraph (b) hereof will be inadequate, and
will be impracticable and extremely difficult to prove, and further agrees that
such a breach would cause Buyer irreparable harm, and that Buyer shall be
entitled to temporary and permanent injunctive relief without the necessity of
proving actual damages. Seller agrees that Buyer shall be entitled to such
injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting any bond
or other undertaking in connection therewith. Any such requirements of bond or
undertaking is hereby waived by Seller, and Seller acknowledges that in the
absence of such of waiver, such a bond or undertaking may be required by the
court.
(d) Seller shall concurrently with the Closing
change its corporate name and file with the Secretary of State of the State of
Oregon amended articles of incorporation effecting a name change pursuant to the
applicable corporate laws of the State of Oregon, and take any further actions,
such as trademark assignments, in order to transfer full right and title to the
"Ventek, Inc." name to Buyer or the Subsidiary so as to allow Buyer to use the
"Ventek, Inc." name.
(e) Any sales tax arising from the Asset
Purchase shall be borne by the Seller and the Seller shall indemnify and hold
harmless Buyer from any liability arising from such sales tax.
5.3 Negative Covenants of the Buyer. From the date of the Closing
until the payment of the Notes, except with the prior written consent of the
Seller, which shall not be unreasonably withheld, or as expressly permitted by
this Agreement or as disclosed in the Seller Disclosure Memorandum, Buyer hereby
covenants and agrees that it will not:
(a) cause the Subsidiary to merge or consolidate
with any corporation;
(b) cause the Subsidiary to dissolve;
(c) cause the Subsidiary to issue any shares of
the Subsidiary's capital stock except pursuant to conversion rights, options or
other commitments or agreements, if any, existing on the Closing Date;
APP4-21.002
23.
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(d) sell or cause the sale of substantially all
of the assets of the Subsidiary, other than in the ordinary
course of business;
(e) cause the Subsidiary to incur any
indebtedness for borrowed money other than in the ordinary course of business,
including, but not limited to indebtedness for working capital and operations;
provided, however, for this subparagraph (e) only, Rodger Van Voorhis, during
such time as he is an officer of Subsidiary may consent to action taken under
this subparagraph (e) in lieu of Seller.
(f) declare or pay any cash dividends until
payment under the Notes is fully satisfied.
5.4 Affirmative Covenants of Buyer.
(a) Buyer hereby covenants and agrees that from
the date of this Agreement until the Closing Date (or until the items referred
to have either been accomplished or, in good faith, abandoned), except with the
prior written consent of the Seller, it
(i) shall use all reasonable efforts to
comply with all filing and regulatory requirements which may be imposed on Buyer
with respect to the Asset Purchase, and cooperate with and promptly furnish
information to the Seller in connection with any such filing requirements
imposed upon the Seller in connection with the Asset Purchase;
(ii) shall (i) use all reasonable efforts
to obtain any consent, authorization or approval of, or exemption by, any
governmental authority or agency or other third party required to be obtained or
made in connection with the Asset Purchase or the taking of any action in
connection with the consummation thereof; and (ii) use all reasonable efforts to
cause the conditions precedent to the Asset Purchase set forth in Article VI
hereof to be fulfilled;
(b) From the date of the Closing until the
payment of the Notes, except with the prior written consent of the Seller, which
shall not be unreasonably withheld, or as expressly permitted by this Agreement
or as disclosed in the Seller Disclosure Memorandum, Buyer hereby covenants and
agrees that it:
(i) shall, upon the occurrence of an Event
of Default and foreclosure on the interests secured by the Pledge and Security
Agreement, license to Seller, in consideration for a 10% royalty on gross
product sales, any technology developed by Buyer or its subsidiaries which is
necessary for the manufacture of Subsidiary's products in
APP4-21.002
24.
<PAGE>
order to enable Seller to continue to manufacture such
products.
(c) Piggyback Registration Rights. From the
time of issuance for a period of three years thereafter, unless such shares have
already been registered, Buyer hereby grants Seller and its transferees
piggyback registration rights. During such period, Seller and its transferees
have the right to register all of Buyer's Class A Common Stock that may be
issued under Section 2.3 pursuant to the Securities Act of 1933, as amended, on
Form S-3 (or any successor form) which permits the registration of such
securities, at the same time that Buyer registers any of its Class A Common
Stock (other than registrations on Forms S-4, S-8 or similar forms).
5.5 Access and Confidentiality.
(a) From the date of this Agreement to the
Closing Date, the Seller shall afford to Buyer and to the officers and
authorized representatives of Buyer (including, without limitation, counsel,
financial advisors and independent accountants) full access to its properties,
personnel, books and records at such reasonable times and in such manner as not
to disrupt normal business operations; and the officers of the Seller will
furnish such officers and representatives with such additional financial and
operating data and other information as to its business and properties as may be
reasonably requested. Similarly, from the date of this Agreement to the Closing
Date, Buyer shall afford to the Seller and to the Seller's officers and
authorized representatives (including, without limitation, counsel, financial
advisors and independent accountants) full access to its properties, personnel,
books and records at such reasonable times and in such manner as not to disrupt
normal business operations; and the officers of Buyer will furnish such officers
and representatives with such additional financial and operating data and other
information as to its business and properties as may be reasonably requested.
(b) The Seller and Buyer shall at all times
prior to the Closing Date and, in the event the transactions contemplated by
this Agreement are not consummated, at all times thereafter, keep confidential
all confidential or proprietary information furnished to it by the other party
in connection with this Agreement and the transactions contemplated hereby, and
will not disclose such confidential or proprietary information to any third
party without the prior written consent of the other party. In addition, in the
event of termination of this Agreement, all non-public documents (including
copies thereof) obtained hereunder by any party from any other party shall be
returned to such party upon request of such party.
APP4-21.002
25.
<PAGE>
5.6 Shareholder Approval The Seller shall promptly take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of voting upon the Asset Purchase and this
Agreement and any related matters.
5.7 Public Announcements. Each of the parties hereto will obtain the
written consent of the other parties before issuing any press release or
otherwise making any public statements with respect to the Asset Purchase, which
consent shall not be unreasonably withheld, except where legal disclosure
obligations require public disclosure, in which case no prior written consent
shall be required.
5.8 Expenses. Each of the parties hereto shall pay all of its own
costs and expenses incurred in connection with the Asset Purchase, this
Agreement and the transactions contemplated herein.
5.9 Bulk Sales. Each of the parties hereby waives the
requirements to comply with any "bulk sales" statutes relating
to the Asset Purchase.
5.10 Board Seat. Promptly after Closing, Buyer shall increase the
size of its Board of Directors by one if a vacancy does not exist at that time,
and will fill the vacancy by adding Rodger Van Voorhis to the Board of Directors
of Buyer.
5.11 Further Assurances. Each of the Buyer and Seller agrees to use
its best efforts to cooperate with each other, to take all action and to do all
things necessary, proper, or advisable to consummate and make effective the
transactions contemplated by this Agreement including, but not limited to, the
execution, filing and delivering of all such further documents, certificates and
agreements as may be necessary or desirable to consummate the transactions
contemplated herein.
VI. CONDITIONS
6.1 Conditions Precedent to the Obligations of All Parties.
Notwithstanding any other provision of this Agreement, the obligations of Buyer
on the one hand, and of the Seller on the other hand, to effect the Asset
Purchase shall be subject to the fulfillment, as of the Closing, of each of the
following conditions (unless waived by the written consent of the parties
hereto):
(a) the Asset Purchase and this Agreement shall
have been validly approved and adopted by the Boards of Directors of the Seller
and Buyer, and the affirmative vote of the holders of at least that number of
outstanding shares of the Seller's Common Stock required under the laws of the
State
APP4-21.002
26.
<PAGE>
of Oregon and the corporate charter and By-Laws of the Seller,
to approve this Agreement;
(b) all permits, approvals and consents of any
governmental body or agency or other third party for the
consummation of this Agreement shall have been obtained;
(c) there shall not be in effect an order or
decision of a court of competent jurisdiction which prevents,
or would materially alter the terms of this Agreement;
(d) there shall not be any action or proceeding
commenced by or before any court or governmental agency or authority or
threatened by any governmental agency or authority that challenges the
consummation of this Agreement;
(e) Messrs. Rodger Van Voorhis, Doug Hickman,
Ken Winder and Tom Thompson shall have entered into, and delivered at or prior
to Closing, 5-year employment agreements with Buyer or the Subsidiary, effective
upon the Closing Date, in the form attached hereto as Exhibit E;
(f) the Seller Disclosure Memorandum, which
shall include the Seller's financial statements for the fiscal year ending
December 31, 1995 shall have been prepared and delivered to Buyer, no later than
three days prior to the Closing to allow sufficient time prior to Closing for
Buyer to review it, and Buyer shall in its sole discretion be satisfied with,
and shall have approved, the disclosures provided therein; and
(g) all exhibits and attachments to this Agree-
ment shall have been prepared and delivered to all parties prior to or on the
Closing Date.
6.2 Additional Conditions Precedent to the Obligations of Buyer. In
addition to the conditions contained in Section 6.1, the obligations of Buyer to
effect the Asset Purchase shall also be subject to the fulfillment as of the
Closing Date of each of the following conditions (unless waived in writing by
Buyer):
The representations and warranties of each of the
Seller and each Shareholder contained in Article III shall be true in all
respects at and as of the date hereof and as of the Closing Date as if made at
and as of such time; the Seller shall have duly performed and complied in all
respects with all agreements, covenants and conditions required by this
Agreement to be performed or complied with by it prior to or on the Closing
Date; and the Seller shall have delivered to Buyer a certificate dated the
Closing Date and signed by its President or a Vice President, and Chief
Financial Officer to the effect set forth in this Section 6.2.
APP4-21.002
27.
<PAGE>
6.3 Additional Conditions Precedent to the Obligations of the Seller.
In addition to the conditions contained in Section 6.1, the obligations of the
Seller to effect the Asset Purchase shall also be subject to the fulfillment at
the Closing Date of each of the following conditions (unless waived in writing
by the Seller):
The representations and warranties of Buyer
contained in Article V shall be true in all respects at and as of the date
hereof and as of the Closing Date as if made at and as of the Closing Date;
Buyer shall have duly performed and complied in all respects with all
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing Date; and Buyer shall have
delivered to the Seller a certificate dated the Closing Date and signed by its
Vice President, and Chief Financial Officer to the effect set forth in this
Section 6.3.
VII. INDEMNIFICATION
7.1 Survival of Representations and Warranties.
All representations, warranties, covenants and
agreements of Seller contained in this Agreement or in any document delivered
pursuant hereto shall be deemed to be material and to have been relied upon by
the Buyer, and shall survive the Closing and shall be fully effective and
enforceable for a period of three (3) years following the Closing Date (unless a
different period is specifically assigned thereto), but shall thereafter be of
no further force or effect, except as they relate to claims for indemnification
timely made pursuant to this Article VII or claims alleging fraud on the part of
a party hereto. Any claim for indemnification asserted in writing before the
third anniversary of the Closing Date or other applicable survival period shall
survive until resolved or determined pursuant to arbitration as provided for in
this Agreement. Any representations regarding tax and the Seller's
indemnification obligation with respect thereto shall survive for 90 days after
the applicable statute of limitations period provided for in the relevant tax
law has expired. Any representation or warranty included in Section 3.17
(Environmental Compliance) and Seller's indemnification obligation with respect
thereto shall survive for ten years following Closing. The representations and
warranties contained in this Agreement shall not be affected by any
investigation, verification or examination by the Buyer or by anyone on its
behalf.
7.2 Indemnification.
(a) The Shareholders and Seller, jointly and
severally, hereby agree to indemnify, defend, save and hold
Buyer harmless from and against any and all damage, liability,
APP4-21.002
28.
<PAGE>
loss, expense, assessment, judgment or deficiency of any nature whatsoever
(including, without limitation, reasonable attorneys' fees and other costs and
expenses incident to any suit, action or proceeding) actually paid or incurred
or sustained by Buyer (collectively, the "Losses") which shall arise out of, or
result from, any breach of any representation, warranty or covenant of the
Seller or the Shareholders in this Agreement. In addition, Seller and each
Shareholder hereby indemnify Buyer for any Losses relating to or arising out of
(i) liabilities or debts of Seller which are not Assumed Liabilities, and (ii)
noncompliance with bulk sales laws relating to the Asset Purchase.
(b) Promptly after service of notice following
the Closing Date of any claim or process by any third party in any matter in
respect of which indemnity may be sought from a party pursuant to this
Agreement, the party so served shall notify the indemnifying party of the
receipt thereof. The indemnifying party shall have the right to participate in,
or assume, at its own expense, the defense of any such claim or process or
settlement thereof. Such defense shall be conducted expeditiously (but with due
regard for obtaining the most favorable outcome reasonably likely under the
circumstances, taking into account costs and expenditures) and the indemnified
party shall be advised promptly of all developments. Notwithstanding any
provision to the contrary set forth herein, the obligations of the indemnifying
party hereunder shall be subject to and conditioned upon its receipt of timely
notice of such claim or process and in the event that the failure to give such
timely notice adversely affects the ability of the indemnifying party to defend
such claim or materially increases the amount of indemnification which the
indemnifying party is obligated to pay hereunder, said indemnifying party shall
have no indemnification obligations whatsoever with respect to such claim. No
settlement of any such claim as to which the indemnifying party has not elected
to assume the defense thereof shall be made without the prior written consent of
the indemnifying party, which consent shall not be unreasonably withheld or
delayed. In addition, in the event of such a settlement without the prior
written consent of the indemnifying party, the indemnifying party shall have no
indemnification obligation whatsoever with respect to such claim.
(c) The parties shall make appropriate adjust-
ments for any recoveries actually received by an indemnified party under
available policies of insurance in determining the amount of loss for purposes
of this Section 7.2.
(d) If the Seller or Shareholders become liable
to Buyer for any event or occurrence giving rise to the Seller or Shareholders
being required to indemnify Buyer pursuant to this Agreement, Buyer's remedy, in
addition to any other
APP4-21.002
29.
<PAGE>
rights of Buyer in law or in equity, shall be to reduce the amount owed by Buyer
under the Notes issued pursuant to Section 2.3 of this Agreement, by the dollar
amount necessary to satisfy such liability. The amounts owed by the Seller and
the Shareholders under Article VII will first be applied to reductions in the
Straight Note, then to the SAR Note, and finally to the Convertible Note, in
that order. Seller and each Shareholder agree that the amount due under the
applicable note shall automatically be reduced by the amount of Buyer's Loss
determined pursuant to this Article VII, and that the failure of Seller or
Shareholder to return the original note(s) so as to enable Buyer to cancel the
original note(s) and issue a replacement note(s) with a reduced amount payable
as a result of the operation of Article VII herein, shall not affect the
automatic reduction in the principal amount of such note(s). In the event the
liability of Seller and the Shareholders under Article VII herein exceeds the
outstanding amount of the Straight Note, (the "Excess Amount"), then the number
of shares of Buyer's Class A Common Stock issuable under Section 2.3(b) herein
shall also be reduced at the rate of $2.25 per share for the Excess Amount of
such liability, by appropriate reductions to the amount due under the SAR Note
and adjustments to the SAR.
VIII. TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval legally required by the
respective Boards of Directors or shareholders of the Seller and Buyer:
(a) by mutual consent of the respective Boards
of Directors of the Seller and Buyer; and
(b) by either of the respective Boards of
Directors of the Seller and Buyer if the Asset Purchase shall not have been
consummated on or before September 30, 1996.
8.2 Written Notice. In order to terminate this Agreement pursuant to
the foregoing provisions of this Article VIII, the party or parties so acting
shall give written notice of such termination to the other parties, specifying
the grounds therefor.
8.3 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, the provisions of this Agreement (other than
Sections 5.5(b) and 5.7) shall become void and have no effect, with no liability
on the part of any party or its shareholders or directors or officers in respect
thereof.
APP4-21.002
30.
<PAGE>
8.4 Agreement. This Agreement may be amended by the
parties hereto by approval by their respective Boards of
Directors at any time prior to the Closing Date.
8.5 Waiver. To the extent permitted by law, any term or provision of
this Agreement may be waived in writing at any time by the party which is, or
whose shareholders are, entitled to the benefits thereof.
IX. GENERAL PROVISIONS
9.1 Notices. All notices, requests, demands or other communications
required or authorized or contemplated to be given by this Agreement shall be in
writing and shall be deemed to have been duly given if hand delivered, faxed,
sent by commercial overnight courier, sent by certified or registered mail, sent
by regular U.S. mail, postage prepaid, and addressed as follows:
If to Buyer:
ARC Capital
2067 Commerce Road
Medford, OR 97504
Attn: William J. Young, President
Fax: (541) 779-6838
with a copy to:
Yvonne E. Chester, Esq.
Troy & Gould Professional Corporation
1801 Century Park East, 17th Floor
Los Angeles, California 90067
Fax: (310) 201-4746
If to the Seller:
Ventek, Inc.
4217 W. 5th Avenue
Eugene, OR 97403
Attn: Rodger A. Van Voorhis,
Vice President - Operations
Fax: (541) 344-3780
APP4-21.002
31.
<PAGE>
with a copy to:
Brad Copeland, Esq.
Arnold, Gallagher, Saydack, Percell &
Roberts
P.O. Box 1758
Eugene, OR 97440
Fax: (541) 484-0536
or such other address as the parties hereto may from time to time designate in
writing, prior to the giving of such notice. Any such notice, (a) if hand
delivered, shall be effective upon the date of delivery, (b) if faxed, shall be
effective upon confirmation of transmission, (c) if given by commercial
overnight courier, shall be effective one business day following the date of
mailing, (d) if given by certified or registered mail, shall be effective two
business days following the date of mailing, or (e) if given by regular U.S.
mail shall be effective five days following the date of mailing.
9.2 Amendment and Waiver. No amendment or waiver of any provision of
this Agreement shall in any event be effective, unless the same shall be in
writing signed by the parties hereto, and then such amendment, waiver or consent
shall be effective only in a specific instance and for the specific purpose for
which given.
9.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
9.4 Assignability. This Agreement shall not be assigned by any party
without the prior written consent of all of the parties hereto; provided,
however, that Seller shall be permitted to assign its rights together with all
corresponding obligations hereunder to the shareholders of Seller without the
prior written consent of Buyer. In the event of such assignment, this Agreement
shall bind and inure to the benefit of the parties named herein and their
respective successors and assigns.
9.5 Entire Agreement. This Agreement and the documents referred to
herein contain the entire understanding among the parties with respect to the
transactions contemplated hereby and supersede all prior and contemporaneous
agreements and understandings whether oral or written, relating to the subject
matter hereof.
9.6 Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Oregon.
APP4-21.002
32.
<PAGE>
9.7 Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of the terms and conditions contained therein or of
this Agreement.
9.8 Arbitration. Any controversy or claim arising out of or relating
to this Agreement, including, without limitation, the making, performance, or
interpretation of this Agreement, shall be settled by arbitration. Unless
otherwise agreed, the arbitration shall be conducted in Jackson County, Oregon,
in accordance with the then-current Commercial Arbitration Rules of the American
Arbitration Association. The arbitration shall be held before a single
arbitrator (unless otherwise agreed by the parties). The arbitrator shall be
chosen from a panel of attorneys knowledgeable in the field of business law in
accordance with the then-current Commercial Arbitration Rules of the American
Arbitration Association. The parties agree that all facts and other information
relating to any arbitration arising under this Agreement shall be kept
confidential to the fullest extent permitted by law.
9.9 Attorneys Fees. If any suit or action is filed by any party to
enforce this Agreement or otherwise with respect to the subject matter of this
Agreement, the prevailing party shall be entitled to recover reasonable attorney
fees incurred in preparation or in prosecution or defense of such suit or action
as fixed by the trial court, and if any appeal is taken from the decision of the
trial court, reasonable attorney fees as fixed by the appellate court.
APP4-21.002
33.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers as of the date first
above written.
ARC CAPITAL
By:______________________________
Alan Steel
Title: Vice President and Chief
Financial Officer
VENTEK, INC.
By:______________________________
Rodger A. Van Voorhis
Title: Vice President -
Operations
SHAREHOLDERS:
------------------------------
Doug Hickman
------------------------------
Ken Winder
------------------------------
Tom Thompson
------------------------------
Rodger A. Van Voorhis
APP4-21.002
34.
<PAGE>
ASSET PURCHASE AGREEMENT
BY AND AMONG
ARC CAPITAL,
VENTEK, INC.
AND
THE SHAREHOLDERS OF VENTEK, INC.
Dated as of July 24, 1996
<PAGE>
.
NOTE
$1,000,000 Date: July 24, 1996
On July 24, 1996, ARC Capital, a California corporation,
("Maker"), Ventek, Inc., an Oregon corporation ("Ventek") and the stockholders
of Ventek entered into an Asset Purchase Agreement pursuant to which Maker
acquired certain assets of Ventek from Ventek. The purchase price of the Ventek
assets purchased from Ventek partly consists of this Note on the following terms
and conditions.
FOR VALUE RECEIVED, Maker hereby promises to pay to the order
of Ventek, Inc.
("Payee") the principal sum of ONE MILLION Dollars ($1,000,000) in lawful money
of the United States of America, together with interest on the unpaid principal
balance according to the terms and subject to the conditions set forth in this
Note.
1. INTEREST
This Note shall bear interest at the
rate of 6.75% per annum.
Interest on the principal balance of this Note from time to time outstanding
will be computed on the basis of a 365-day year and actual days elapsed from the
date of this Note until paid in accordance with this Note. In no event shall the
interest rate exceed the maximum allowable by Oregon or any other applicable
law.
2. PAYMENT
Interest in the amount of $16,875 will be payable quarterly in
arrears. Principal will be paid in one installment on July 23, 1999 ("Maturity
Date"). All payments will be made by Maker to Payee at such place as Payee shall
designate by written notice to the undersigned.
3. PREPAYMENT
The Maker may, at its option and upon 15 days prior written
notice to the Payee, prepay the principal amount hereof in whole at any time.
4. DEFAULT AND REMEDIES, SENIORITY AND OFFSET
(a) Events of Default. An Event of Default hereunder shall
mean a default in the payment of any installment of principal and interest
hereof, as and when due and payable, and be continuing for a period of 15 days
following written notice thereof by Payee to Maker.
(b) Remedies. At any time after the occurrence of an Event of
Default the Payee may, by written notice sent to the Maker by registered or
certified mail, return receipt requested, declare the entire amount of this Note
to be forthwith due and payable, whereupon this Note shall become forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are expressly waived. Upon acceleration by Payee, Payee shall be
entitled to all remedies available to it at law or in equity.
(c) Security Interest. The payment of the Note is hereby
secured by that certain Pledge and Security Agreement by and among ARC Capital,
ARC Subsidiary, Inc, Ventek, and Solin & Associates P.C.
(d) Junior to Ilverton. This Note is junior in right of
payment to that certain Note in the principal amount of $3,400,000 dated April
17, 1996, issued by Maker and originally payable to Ilverton International Inc.;
provided, however, that the junior status of this Note shall not impair or alter
the priority of Payee's security interests in the personal property described in
the Pledge and Security Agreement of even date herewith by and among ARC
Capital, ARC Subsidiary, Inc., Ventek, Inc. and Solin & Associates P.C. nor
shall it relieve Maker of its obligations to make payments to Payee in
accordance with the terms of paragraph 2 herein.
(e) Offset. This Note is subject to reduction by operation of
Section 7.2 of the Asset Purchase Agreement dated July 24, 1996, by and among
Maker, Ventek and Ventek, Inc., which provides for the right of offset.
5. MISCELLANEOUS
(a) Elements of Risk. Payee recognizes that the amount due
pursuant to this Note involves a high degree of risk in that (i) the Maker is an
early stage company, and (ii) there can be no assurances that the Maker will
sustain profitability or generate sufficient cash flows to repay the Note.
The Payee acknowledges that he has (x) prior investment
experience, including investment in non-listed and non-registered securities, or
he has employed the services of an investment advisor, attorney or accountant to
read all of the documents furnished or made available by the Maker to evaluate
the merits and risks of entering into this Note, and (y) that he recognizes the
highly speculative nature of this transaction and is able to bear the economic
risk he hereby assumes.
The Payee hereby represents that he has been furnished by the
Maker during the course of this transaction with all information regarding the
Maker which he had requested or desired to know; that all documents which could
be reasonably provided have been made available for his inspection and review;
that he has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers of the Maker concerning the terms and
conditions of the Note, and any additional information which he had requested.
(b) Notices. Unless otherwise specified herein, all notices
and other communications given or made pursuant to this Note shall be in writing
and shall be deemed to have been duly given if sent by telecopy or by registered
or certified mail, return receipt requested, postage and fees prepaid, or
otherwise actually delivered to the address of the party to whom the notice is
addressed as set forth below:
If to Maker:
ARC Capital
Attn: President
2067 Commerce Drive
Medford, OR 97504
FAX: (541) 779-6838
<PAGE>
If to Payee:
Ventek, Inc. (or its successor)
4217 W. Fifth Avenue
Eugene, OR 97402
FAX: (541) 344-3780
Maker and Payee may each from time to time change its address
for receiving notice by giving written notice thereof in the manner set forth
above.
(c) Amendment; Waiver. This Note shall be binding upon and
inure to the benefit of Maker and Payee and their respective successors, heirs,
assigns, and personal representatives. No provision of this Note may be waived
unless in writing signed by Payee, and waiver of any one provision of this Note
shall not be deemed to be a waiver of any other provision.
(d) Attorneys' Fees. If there occurs an Event of Default, the
undersigned promises to pay all reasonable costs and expenses of collection and
attorneys' fees and court costs incurred by the holder hereof on account of such
collection, whether or not suit is filed in relation thereto.
(e) Severability. Whenever possible, each provision of this
Note shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Note shall be or become prohibited
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Note.
(f) Headings. The section and subsection headings contained in
this Note are included for convenience only and form no part of the agreement
between the parties.
(g) Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of Oregon.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by
its duly authorized officer as of the day and year first above written.
ARC CAPITAL
By:
Alan R. Steel
Chief Financial Officer
5
.
CONVERTIBLE NOTE
$2,250,000 Date: July 24, 1996
On July 24, 1996, ARC Capital, a California corporation
("Maker"), Ventek, Inc., an Oregon corporation ("Ventek") and the stockholders
of Ventek entered into an Asset Purchase Agreement pursuant to which Maker
acquired certain assets of Ventek from the stockholders. The purchase price of
the Ventek assets purchased from the stockholders partly consists of this
Convertible Note on the following terms and conditions.
FOR VALUE RECEIVED, Maker hereby promises to pay to the order
of Ventek, Inc. or its successor ("Payee") the principal sum of TWO MILLION TWO
HUNDRED AND FIFTY THOUSAND Dollars ($2,250,000) in lawful money of the United
States of America, together with interest on the unpaid principal balance
according to the terms and subject to the conditions set forth in this
Convertible Note (this "Note").
1. INTEREST
This Note shall bear interest at the rate of 6.75% per annum.
Interest on the principal balance of this Note from time to time outstanding
will be computed on the basis of a 365-day year and actual days elapsed from the
date of this Note until converted or paid in accordance with this Note. In no
event shall the interest rate exceed the maximum allowable by Oregon or any
other applicable law.
2. PAYMENT
Interest in the amount of $37,968 will be payable quarterly in
arrears. Principal will be paid in one installment on July 23, 1999 ("Maturity
Date"). All payments will be made by Maker to Payee at such place as Payee shall
designate by written notice to the undersigned.
3. PREPAYMENT
The Maker may, at its option and upon 15 days prior written
notice to the Payee, prepay the principal amount hereof in whole at any time.
4. CONVERSION OF NOTE
Prior to the Maturity Date, but only on the terms set forth in
Exhibit I, the Payee will be entitled to convert all of the Note, at the
principal amount thereof, into shares of Class A Common Stock ("ARC Stock") of
the Maker, at the price of $2.25 per share (the "Conversion Price").
Notwithstanding the requirements for conversion in Exhibit I, Payee may convert
any portion of the Note after receiving a prepayment notice as provided in
Section 3. No payment or adjustment will be made on conversion of the Note for
interest accrued thereon. The Maker is not required to issue fractional shares
of ARC Stock upon conversion of the Note and, in lieu thereof, will pay a cash
adjustment based upon the closing market price of the ARC Stock on the last
business day prior to the date of conversion.
(a) If the Maker (i) pays a dividend or makes a distribution on its
ARC Stock in shares of its Stock; (ii) subdivides its outstanding shares of ARC
Stock into a greater number of shares, or; (iii) combines its outstanding shares
of ARC Stock into a smaller number of shares; then the conversion privilege and
the Conversion Price in effect immediately prior to such action shall be
adjusted so that the Payee may receive the number of shares of ARC Stock which
he would have owned immediately following such action if he had converted the
Note immediately prior to such action.
The adjustment shall become effective immediately after the
record date in the case of a dividend and immediately after the effective date
in the case of a subdivision or combination.
(b) Upon conversion, Payee understands and agrees that the ARC Stock
to be issued to Payee, or the Subsidiary Stock (as defined below) to be issued
upon the exercise of the Stock Sale Option pursuant to Section 5 below, will
contain the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may
not be sold or transferred in the absence of such registration
or an exemption therefrom under said Act.
(c) Upon receipt of the shares of ARC Stock, Payee shall be entitled
to piggyback registration rights with respect to such shares as set forth in and
pursuant to Section 5.4(c) of the Asset Purchase Agreement.
5. STOCK SALE OPTION
Upon conversion of the Note into ARC Stock and concurrent with
or after an initial public offering ("IPO") of the common stock of one or more
of, or any combination of, its SRC VISION, Inc., ARC Netherlands, Inc. and
Ventek, Inc. subsidiaries (individually or collectively, "Subsidiary"), but only
if such IPO occurs during the term of the Note, Payee shall have the option to
sell to Maker up to 1,000,000 shares of ARC Stock converted to date for
consideration consisting of Subsidiary common stock ("Subsidiary Stock") owned
by Maker. The number of shares of Subsidiary Stock to be paid for ARC Stock
shall be determined as follows:
(a) The total market value ("TMV") of ARC Stock to be sold to
Maker shall be determined by multiplying the number of shares of ARC Stock times
the average of the closing price of ARC Stock, as quoted by NASDAQ, for the 30
trading days ending on the IPO date.
(b) The TMV shall be divided by 70% of the per share IPO price
of Subsidiary Stock before discounts, fees, underwriting costs, etc.
6. DEFAULT AND REMEDIES, SENIORITY AND OFFSET
(a) Events of Default. An Event of Default hereunder shall
mean a default in the payment of any installment of principal and interest
hereof, as and when due and payable, and be continuing for a period of 15 days
following written notice thereof by Payee to Maker.
(b) Remedies. At any time after the occurrence of an Event of
Default, the Payee may, by written notice sent to the Maker by registered or
certified mail, return receipt requested, declare the entire amount of this Note
to be forthwith due and payable, whereupon this Note shall become forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are expressly waived. Upon acceleration by Payee, Payee shall be
entitled to all remedies available to it at law or in equity.
(c) Security Interest. The payment of the Note is hereby secured
by that certain Pledge and Security Agreement by and among ARC Capital, Ventek
and Solin & Associates, P.C. ARC Subsidiary, Inc.
(d) Junior to Ilverton. This Note is junior in right of payment
to that certain Note in the principal amount of $3,400,000 dated April 17, 1996,
issued by Maker and originally payable to Ilverton International Inc.; provided,
however, that the junior status of this Note shall not impair or alter the
priority of Payee's security interests in the personal property described in the
Pledge and Security Agreement of even date herewith by and among ARC Capital,
ARC Subsidiary, Inc., Ventek, and Solin & Associates P.C. nor shall it relieve
Maker of its obligations to make payments to Payee in accordance with the terms
of paragraph 2 herein.
(e) Offset. This Note is subject to reduction by operation of
Section 7.2 of the Asset Purchase Agreement dated July 24, 1996, by and among
Maker, Ventek and Ventek, Inc., which provides for the right of offset.
7. MISCELLANEOUS
(a) Elements of Risk. Payee recognizes that the amount due
pursuant to this Note, and the securities that may be issued upon conversion of
the Note, involve a high degree of risk in that (i) the Maker is an early stage
company; (ii) there can be no assurances that the Maker will sustain
profitability or generate sufficient cash flows to repay the Note; (iii) Payee
may not be able to liquidate the ARC Stock (or Subsidiary Stock) received upon
possible conversion of the Note; (iv) transferability of the ARC Stock (or
Subsidiary Stock) received upon possible conversion of the Note may be extremely
limited; and (v) in the event of a disposition of the ARC Stock (or Subsidiary
Stock) received upon possible conversion of the Note and exercise of the Stock
Sale Option pursuant to Section 5 of this Note, Payee could sustain the loss of
his entire investment. Payee further recognizes that there can be no assurance
that a Subsidiary IPO will ever take place.
The Payee acknowledges that he has (x) prior investment
experience, including investment in non-listed and non-registered securities, or
he has employed the services of an investment advisor, attorney or accountant to
read all of the documents furnished or made available by the Maker to evaluate
the merits and risks of entering into this Note and receiving ARC Stock upon
conversion of the Note or Subsidiary Stock upon the exercise of the Stock Sale
Option pursuant to Section 5 of this Note, and (y) that he recognizes the highly
speculative nature of this transaction and is able to bear the economic risk he
hereby assumes.
The Payee hereby represents that he has been furnished by the
Maker during the course of this transaction with all information regarding the
Maker which he had requested or desired to know; that all documents which could
be reasonably provided have been made available for his inspection and review;
that he has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers of the Maker concerning the terms and
conditions of the Note, and any additional information which he had requested.
(b) Notices. Unless otherwise specified herein, all notices
and other communications given or made pursuant to this Note shall be in writing
and shall be deemed to have been duly given if sent by telecopy or by registered
or certified mail, return receipt requested, postage and fees prepaid, or
otherwise actually delivered to the address of the party to whom the notice is
addressed as set forth below:
If to Maker:
ARC Capital
Attn: President
2067 Commerce Drive
Medford, OR 97504
FAX: (541) 779-6838
If to Payee:
Ventek, Inc. (or its successor)
4217 W. Fifth Avenue
Eugene, OR 97402
FAX: (541) 344-3780
Maker and Payee may each from time to time change its address
for receiving notice by giving written notice thereof in the manner set forth
above.
(c) Amendment; Waiver. This Note shall be binding upon and
inure to the benefit of Maker and Payee and their respective successors, heirs,
assigns, and personal representatives. No provision of this Note may be waived
unless in writing signed by Payee, and waiver of any one provision of this Note
shall not be deemed to be a waiver of any other provision.
(d) Attorneys' Fees. If there occurs an Event of Default, the
undersigned promises to pay all reasonable costs and expenses of collection and
attorneys' fees and court costs incurred by the holder hereof on account of such
collection, whether or not suit is filed in relation thereto.
(e) Severability. Whenever possible, each provision of this
Note shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Note shall be or become prohibited
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Note.
(f) Headings. The section and subsection headings contained in
this Note are included for convenience only and form no part of the agreement
between the parties.
(g) Governing Law. This Note shall be governed by, and construed
in accordance with, the laws of the State of Oregon.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed by
its duly authorized officer as of the day and year first above written.
ARC CAPITAL
By:
Alan R. Steel
Chief Financial Officer
<PAGE>
EXHIBIT I
to Convertible Note Dated July 24, 1996
The Payee's right to convert the Note into ARC Stock shall be subject
to the achievement of certain sales and earnings objectives for the ARC
Subsidiary (as defined in that certain Asset Purchase Agreement dated July 24,
1996, between the Company and Ventek) during the following periods: (i) from the
date of this Note to December 31, 1996, (ii) calendar 1997, and (iii) calendar
1998. Upon achievement of both the sales and earnings objectives in any of the
three periods, or cumulatively at the end of the second period, Payee shall have
the right to convert up to one-third, or two thirds in case only the cumulative
objectives are met at the end of the second period, of the principal amount of
the Note into ARC Stock. If the period or cumulative sales and earnings
objectives are not met in any single period, the right to convert the related
increments shall cease to exist until the Maturity Date, at which time Payee may
exercise his option to convert such one-third increment and any other portion of
the Note not previously converted.
The Ventek sales and earnings objectives are as follows:
Period Sales Earnings
From the date of the Note to December 31, 1996 $ 2,500,000 $ 723,875
Calendar 1997 6,000,000 2,250,750
Calendar 1998 9,000,000 3,660,750
If the sales and earnings objectives are achieved, the right to
convert shall commence on the date of completion of the audit of the related
period performed by Maker's independent public accountants, but not later than
90 days from the end of such period. For purposes of determining sales and
earnings, the following definitions apply.
1. Sales: The sales price of goods and services shipped
determined in accordance with generally accepted accounting principles. The
percentage-of-completion revenue recognition method shall not be used for
purposes of computing sales.
2. Earnings: Income before taxes based on income determined in
accordance with generally accepted accounting principles applied on a consistent
basis, after deduction as expenses of doing business of (i) a 3% of sales
management fee, and (ii) interest and goodwill expenses arising from Maker's
acquisition of Ventek.
NOTE
$1,125,000 Date: July 24, 1996
On July 24, 1996, ARC Capital, a California corporation ("Maker" or
"ARC Capital"), Ventek, Inc. ("Payee") and the shareholders of Payee (the
"Shareholders") entered into an Asset Purchase Agreement pursuant to which Maker
acquired substantially all of the assets of Payee from Payee (the "Asset
Purchase Agreement"). The purchase price of the Payee assets includes this note.
FOR VALUE RECEIVED, Maker hereby promises to pay to the order of Payee
the principal sum of ONE MILLION, ONE HUNDRED AND TWENTY-FIVE THOUSAND Dollars
($1,125,000) without interest according to the terms and subject to the
conditions set forth in this note (the "Note").
I. PAYMENT IN ONE INSTALLMENT
The principal of the Note will be paid in one installment on
July 23, 1999 (the "Maturity Date"). All payments will be made by Maker to Payee
at such place as Payee shall designate by written notice to the undersigned.
II. PAYMENT IN CASH OR STOCK
On the Maturity Date, the Maker will be entitled, in its sole
discretion, to satisfy the Note in cash or in Class A Common Stock of Maker
("Class A Stock"); provided, however, that if at the Maturity Date the Class A
Stock is not traded on the Nasdaq Small Cap, NYSE, NMS, Nasdaq National Market,
American Stock Exchange or similar stock exchange, then Payee shall have the
right, in its sole discretion, to choose to receive payment under the Note in
cash, if such decision is approved by a majority of the holders of the
outstanding obligations due under the Note, with payment being made to the Payee
at its address set forth herein, within five business days of the Maturity Date.
III. PAYMENT IN STOCK
(1) If, in its sole discretion, Maker elects to pay the Note
in Class A Stock, the number of shares of Class A Stock to be issued to Payee
shall equal the principal sum of the Note divided by the Fair Market Value of
the Class A Stock at the Maturity Date; provided, however, that the entire
principal sum shall be satisfied, irrespective of the Fair Market Value of the
Class A Stock, by the issuance by Maker of one million and eight hundred
thousand (1,800,000) shares of Class A Stock. Example calculations of the
amounts owed under
APP4-21.003
1.
<PAGE>
this subparagraph (1) are set forth in Exhibit A attached
hereto.
(2) Notwithstanding anything to the contrary contained herein,
under no circumstances shall Maker be required to issue more than an aggregate
of 1,800,000 shares of Class A Stock.
(3) The maximum of 1,800,000 shares that may be issued under
this Note and/or the payment in cash, is further subject to reduction by
operation of Section 7.2 of the Asset Purchase Agreement which provides for a
right of offset.
(4) This Note is junior in right of payment to that certain
note in the principal amount of $3,400,000 dated April 17, 1996, issued by ARC
Capital and originally payable to Ilverton International, Inc.; provided,
however, that the junior status of this Note shall not impair or alter the
priority of Payee's security interests in the personal property described in the
Pledge and Security Agreement of even date herewith by and among ARC Capital,
ARC Subsidiary, Inc., Ventek, Inc. and Solin & Associates P.C. nor shall it
relieve Maker of its obligations to make payments to Payee in accordance with
the terms of Articles 1, 2 and 3 herein.
(5) "Fair Market Value" shall mean the closing market price of
the Class A Stock on the last business day on or immediately prior to the
Maturity Date.
(6) The Maker is not required to issue fractional shares of
Class A Stock upon payment of the Note and, in lieu thereof, will pay a cash
adjustment based upon the closing market price of the Class A Stock on the last
business day on or prior to the Maturity Date.
(7) If the Maker (i) pays a dividend or makes a distribution
on its Class A Stock in shares of its Stock; (ii) subdivides its outstanding
shares of Class A Stock into a greater number of shares or; (iii) combines its
outstanding shares of Class A Stock into a small number of shares; then the
right to payment and the Payment Price in effect immediately prior to such
action shall be adjusted so that the Payee may receive the number of shares of
Class A Stock which he would have owned immediately following such action if the
Note had been paid immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend and immediately after the effective date in the case
of a subdivision or combination.
APP4-21.003
2.
<PAGE>
(8) Upon payment of the Note with Class A Stock, Payee
understands and agrees that the Class A Stock to be issued to Payee will contain
the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may
not be sold or transferred in the absence of such registration
or an exemption therefrom under said Act.
(9) Upon receipt of the shares of Class A Stock, Payee shall
be entitled to piggyback registration rights with respect to such shares as set
forth in and pursuant to Section 5.4(c) of the Asset and Purchase Agreement.
IV. NONTRANSFERABILITY OF RIGHT TO PAYMENT
The right to receive payment of the Note is transferable by
the Payee only to the Shareholders.
V. DEFAULT AND REMEDIES
(1) Events of Default. An Event of Default hereunder shall
mean a default in the payment of any of the principal as and when due and
payable, and be continuing for a period of 15 days following written notice
thereof by Payee to Maker.
(2) Remedies. At any time after the occurrence of an Event of
Default the Payee may, by written notice sent to the Maker by registered or
certified mail, return receipt requested, declare the entire amount of this Note
to be forthwith due and payable, whereupon this Note shall become forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are expressly waived. Upon acceleration by Payee, Payee shall be
entitled to all remedies available to it at law or in equity.
VI. SECURITY FOR OBLIGATION
The payment of the Note is hereby secured by that
certain Pledge and Security Agreement by and among ARC Capital
and ARC Subsidiary, Inc. on the one hand and Ventek, Inc. and
Solin & Associates P.C. on the other hand, of even date
herewith.
VII. MISCELLANEOUS
(1) Elements of Risk. Payee recognizes that the amount due
pursuant to this Note involves a high degree of risk in that (i) the Maker is an
early stage company; (ii) there can be no assurances that the Maker will sustain
APP4-21.003
3.
<PAGE>
profitability or generate sufficient cash flows to repay the
Note.
The Payee acknowledges that be has (x) prior investment experience,
including Investment in non-listed and nonregistered securities, or be has
employed the services of an investment advisor, attorney or accountant to read
all of the documents furnished or made available by the Maker to evaluate the
merits and risks of entering into this Note and receiving Class A Stock upon
payment of the Note and (y) that he recognizes the highly speculative nature of
this transaction and is able to bear the economic risk he hereby assumes.
The Payee hereby represents that he has been furnished by the Maker
during the course of this transaction with all information regarding the Maker
which he had requested or desired to know; that all documents which could be
reasonably provided have been made available for his inspection and review; that
he has been afforded the opportunity to ask questions of and receive answers
from duly authorized officers of the Maker concerning the terms and conditions
of the Note, and any additional information which he had requested.
(2) Notice. Unless otherwise specified herein,
all notices and other communications given or made pursuant to this Note shall
be in writing and shall be deemed to have been duly given if sent by telecopy or
by registered or certified mail, return receipt requested, postage and fees
prepaid, or otherwise actually delivered to the address of the party to whom the
notice is addressed as set forth below:
If to Maker:
ARC Capital
Attn: President
2067 Commerce Drive
Medford, OR 97504
(FAX): (541) 779-6838
If to Payee:
Ventek, Inc.
Attn: Vice President - Operations
4217 W. 5th Avenue
Eugene, OR 97402
Maker and Payee may each from time to time change its address for
receiving notice by giving written notice thereof in the manner set forth above.
(3) Amendment; Waiver. This Note shall be
binding upon and inure to the benefit of Maker and Payee and
their respective successors, heirs, assigns, and personal
APP4-21.003
4.
<PAGE>
representatives. No provision of this Note may be waived unless in writing
signed by Payee, and waiver of any one provision of this Note shall not be
deemed to be a waiver of any other provision.
(4) Attorney's Fees. If an Event of Default
occurs, the undersigned promises to pay all reasonable costs and expenses of
collection and attorneys' fees and court costs incurred by the holder hereof on
account of such collection, whether or not suit is filed in relation thereto.
(5) Severability. Whenever possible, each
provision of this Note shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Note shall be or
become prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note.
(6) Headings. The section and subsection
headings contained in this Note are included for convenience only and form no
part of the agreement between the parties.
(7) Governing Law. This Note shall be governed
by, and construed in accordance with, the laws of the State of
Oregon.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed
by its duly authorized officer as of the date and year first above written.
ARC CAPITAL
By:_____________________________
Alan R. Steel
Vice President and
Chief Financial Officer
APP4-21.003
5.
<PAGE>
STOCK APPRECIATION RIGHTS AGREEMENT
This Stock Appreciation Rights Agreement (the "Agreement") dated as of
July 24, 1996, is made by and between ARC Capital, a California corporation (the
"Company"), and Ventek, Inc. ("Holder").
RECITALS
A. On July 24, 1996 (the "Date of Grant"), the Board of Directors of
the Company granted Holder stock appreciation rights to Class A Common Stock of
the Company (the "Stock"), as set forth below, in consideration for the product
knowledge and expertise of the four current shareholders of Holder, who will
become employees of the Company and are signing employment agreements with the
Company, as a consideration to the asset purchase agreement dated as of July 24,
1996 entered into by and among the Holder, its shareholders (the "Shareholders")
and the Company (the "Asset Purchase Agreement").
B. The Company and Holder wish to enter into this
Agreement to set forth the terms and conditions of the stock
appreciation rights granted to Holder by the Company.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Holder hereby agree
as follows:
1. Grant of Stock Appreciation Rights. The Company
hereby grants to Holder the following rights on up to
1,800,000 shares of Stock with an initial value of $2.25 per
share (the "SARs").
2. Payable in Cash or Stock. The SARs entitle Holder to receive an
amount payable equal to the Fair Market Value at the Expiration Date of
1,800,000 shares of Stock minus $1,125,000. The amount, if any, payable
hereunder shall be paid, at the sole discretion of the Company, in cash or in
Stock at its Fair Market Value at the Expiration Date to the Holder at its
address set forth herein on or before the Payment Date; provided, however, that
if at the Expiration Date the Stock is not traded on the Nasdaq Small Cap, NYSE,
NMS, Nasdaq National Market, American Stock Exchange or similar stock exchange,
then Holder shall have the right, in its sole discretion, to choose to receive
payment under the SARs in cash, if such decision is approved by a majority of
the holders of the outstanding obligations due under the SARs. Example
calculations of the amounts owed under this Section 2 are set forth in Exhibit A
attached hereto. If the amount
APP4-21.019
1.
<PAGE>
payable hereunder is paid in Stock, Holder shall be entitled to piggyback
registration rights with respect to such Stock as set forth in and pursuant to
Section 5.4(c) of the Asset Purchase Agreement.
"Expiration Date" shall be July 23, 1999.
"Fair Market Value" shall mean the closing market price of the Stock on
the Expiration Date or if such date is not a business day, then on the last
business day immediately prior to the Expiration Date.
"Payment Date" shall mean five business days after the Expiration Date
of the SARs.
3. Maximum of 1,800,000 Shares. The SARs are being issued in
conjunction with the issuance of a $1,125,000 note of even date herewith (the
"$1,125,000 Note"). Notwithstanding anything to the contrary contained herein or
in the $1,125,000 Note, under no circumstances shall the Company be required to
issue more than an aggregate of 1,800,000 shares of Stock under both agreements.
4. Right of Offset. The maximum of 1,800,000 shares that may be issued
under the SARs and the $1,125,000 Note, and/or the payment in cash under both
agreements, is further subject to reduction by operation of Section 7.2 of the
Asset Purchase Agreement which provides for a right of offset.
5. Forfeiture and Acceleration of SARs. In the event the Holder
breaches a representation or warranty subject to Section 7.2 of the Asset
Purchase Agreement, that number of SARs shall be forfeited as provided under
Section 7.2 of the Asset Purchase Agreement; however, in the event Holder
breaches the Asset Purchase Agreement and the Asset Purchase Agreement is
terminated by reason thereof, all SARs will be forfeited and the Company shall
have no further liability or obligation to make any payment hereunder with
respect to the SARs.
6. Nontransferability of Stock Appreciation Rights.
The SARs granted to Holder pursuant to this Agreement may be
transferred and assigned only to the Shareholders.
7. Adjustments Upon the Occurrence of Certain Events. The number of
shares of Stock relating to the SARs, and the price per share at which the SARs
were granted, shall be appropriately adjusted for any increase or decrease in
the number of shares of Stock issued by the Company as a result of any stock
split, stock dividend, combination of shares, exchange for other securities,
reclassification, recapitalization or other change in the capital structure of
the Company which would effect a dilution of Holder's rights
APP4-21.019
2.
<PAGE>
hereunder. Any such adjustment by the Company shall be
effective and binding for purposes of this Agreement.
8. Notices. Any notice hereunder by Holder shall be given to the
Company in writing and such notice shall be deemed duly given or made if mailed
or delivered to the Company at ARC Capital, Attn: President, 2067 Commerce
Drive, Medford, OR 97504, or at such other address as the Company may designate
by written notice to Holder.
Any notice hereunder by the Company shall be given to Holder in writing
and such notice shall be deemed duly given or made if mailed or delivered to
Holder at Ventek, Inc., Attn: President, 4217 W. 5th Avenue, Eugene, OR 97403.
9. Waiver. The waiver by the Company of any provision
of this Agreement shall not operate as or be construed to be
a waiver of the same provision or any other provision hereof
at any subsequent time or for any other purpose.
10. Interpretation and Construction. The section
headings contained herein are for ease of reference only and
shall not be deemed part of, or germane to the interpretation
or construction of this Agreement.
11. Applicable Law. This Agreement shall be construed
and interpreted in accordance with and governed by the laws of
the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
VENTEK, INC. ARC CAPITAL
By:______________________ By:________________________
Rodger A. Van Voorhis, Alan R. Steel,
Vice President - Operations Vice President and Chief
Financial Officer
APP4-21.019
3.
<PAGE>
1
THESE WARRANTS AND ANY SHARES OF CLASS A COMMON STOCK ISSUABLE UPON THEIR
EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THESE WARRANTS ARE NOT TRANSFERABLE, AND ANY SHARES OF CLASS A
COMMON STOCK ISSUABLE UPON THEIR EXERCISE MAY NOT BE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT
THERETO, OR (2) RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER AND THAT SUCH PROPOSED
TRANSFER IS NOT IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS.
CLASS I WARRANT
TO PURCHASE CLASS A COMMON STOCK
Warrant No. 1
This Warrant issued by ARC Capital, a California corporation (the
"Company"), as of July 24, 1996, entitles Ventek, Inc. (the registered "Holder")
to purchase 1,000,000 shares of the Company's Class A Common Stock at an initial
purchase price of $2.25 per share (the "Purchase Price") pursuant to the
conditions set forth in Section 2 below.
This Warrant is one in a series of Class I Warrants, which in the
aggregate entitles the Holders thereof to purchase up to 1,000,000 shares of
Class A Common Stock. The Class I Warrants were issued in connection with the
Company's purchase certain assets of Ventek, Inc. ("Ventek") pursuant to an
Asset Purchase Agreement dated July 24, 1996, among the Company, Ventek and the
shareholders of Ventek.
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the Class A Common Stock of the Company,
whether now or hereafter authorized.
(b) "Corporate Office" shall mean the office of the Company at which at
any particular time its principal business shall be administered, which office
is located at the date hereof at 2067 Commerce Drive, Medford, Oregon 97504,
Attention: President.
(c) "Exercise Date" shall mean the date on which the Company shall have
received both (a) the Warrant, with an exercise form acceptable to the Company
and duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (b) the Purchase Price.
(d) "Initial Warrant Exercise Dates" shall mean the dates specific in
Section 2 hereof.
(e) "Purchase Price" shall mean the purchase price to be paid per share
of Common Stock upon exercise of each Warrant in accordance with the terms
hereof, which price shall be $2.25, subject to adjustment from time to time
pursuant to the provisions of Section 8 hereof, and subject to the Company's
right to reduce the Purchase Price upon notice to all Registered Holders. The
Purchase Price may be paid in whole or in part either (i) in cash, or by
official bank or certified check made payable to the Company, of an amount in
lawful money of the United States of America equal to the applicable Purchase
Price, or (ii) by delivery of Common Stock in transferable form, such Common
Stock to be valued for such purpose at its fair market value on the Exercise
Date (a "Cashless Exercise"). For purposes of a Cashless Exercise, the fair
market value shall be deemed to be the last sale price of the Common Stock on
the business day prior to the date of the Cashless Exercise or, in case no such
reported sales take place on such day, the average of the last reported bid and
asked prices of the Common Stock on such day, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
average of the last reported bid and asked prices of the Common Stock on such
day as reported by NASDAQ, or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price of the
Common Stock as determined by the Board of Directors.
(f) "Registered Holders" shall mean the persons in whose names the
Warrants shall be registered on the books maintained by the Company.
(g) "Warrant Expiration Date" shall mean 5:00 P.M. (Oregon time) on
July 23, 2001, or earlier as provided in Section 2 hereof; except that if such
date shall in the State of Oregon be a holiday or a day on which banks are
authorized to close, then 5:00 P.M. (Oregon time) on the next following day
which in the State of Oregon is not a holiday or a day on which banks are
authorized to close. Upon notice to all Registered Holders the Company shall
have the right to extend the Warrant Expiration Date.
SECTION 2. Conditions Precedent to Warrants Becoming Exercisable.
(a) The Holder's right to exercise any portion of this Warrant shall be
subject to the achievement of certain sales and earnings objectives for ARC
Subsidiary (as that term is defined in that certain Asset Purchase Agreement
dated July 24, 1996, between the Company and Ventek) during the following
periods: (i) from the date of this Warrant to December 31, 1996, (ii) calendar
1997, (iii) calendar 1998, and (iv) calendar 1999. The Initial Warrant Exercise
Dates shall be, each as to 25% of the shares of Common Stock purchasable
pursuant to the Warrant, March 31, 1997, 1998, 1999 and 2000 for the above
periods, respectively, but only if Ventek's sales and earnings for each period
equal or exceed, as to each period individually or cumulatively, the following
amounts:
Period Sales Earnings
From the date of the Warrant to December 31, 1996 $ 2,500,000 $ 723,875
Calendar 1997 6,000,000 2,250,750
Calendar 1998 9,000,000 3,660,750
Calendar 1999 11,000,000 4,718,875
For example, if the objectives are not met in the first period and
are met in the second period, but the cumulative objectives are met for the
first and second periods combined, then the Warrant Exercise Date for the first
two 25% increments shall be March 31, 1998.
For purposes of determining sales and earnings, the following
definitions apply.
1. Sales: The net sales price of goods and services shipped
determined in accordance with generally accepted accounting principles. The
percentage-of-completion revenue recognition method shall not be used for
purposes of computing sales.
2. Earnings: Income before taxes based on income determined in
accordance with generally accepted accounting principles applied on a consistent
basis, after deduction as expenses of doing business of (i) a 3% of sales
management fee, and (ii) interest and goodwill expenses arising from the
Company's acquisition of Ventek.
(b) If the individual period or cumulative sales and earnings targets
established in Section 2(a), or any portion thereof, are not met by December 31,
1999, the Warrant Expiration Date for the related portion of the shares of
Common Stock purchasable pursuant to the Warrant shall be March 31, 2000. If the
Warrant Expiration Date for any portion of the Common Stock is determined in
accordance with this Section 2(b), the Holder shall have no further exercise or
other rights as to that portion under this Warrant as if such rights never
existed.
SECTION 3. Warrants and Issuance of Warrant Agreements.
(a) This Warrant initially entitles the Registered Holder to purchase
an aggregate of 1,000,000 shares of Common Stock upon the exercise thereof, in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 8.
(b) From time to time, up to the Warrant Expiration Date, the Company
shall execute and deliver Warrants in required whole number denominations to the
persons entitled thereto in connection with any exchange permitted under this
Warrant; provided that no Warrant shall be issued except (i) those initially
issued hereunder; (ii) those issued on or after the Initial Warrant Exercise
Date, upon the partial exercise of this Warrant, to evidence any unexercised
Warrants held by the exercising Registered Holder; (iii) those issued upon any
exchange pursuant to Section 6; (iv) those issued in replacement of lost,
stolen, destroyed or mutilated Warrants pursuant to Section 7; and (v) at the
option of the Company, in such form as may be approved by its Board of
Directors, to reflect (a) any adjustment or change in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants made
pursuant to Section 8 hereof, and (b) other modifications approved by Registered
Holders.
SECTION 4. Form and Execution of Warrants; Exercise of Warrants.
(a) Warrants shall be executed on behalf of the Company by its Chairman
of the Board, President, any Vice President or Chief Financial Officer by manual
signatures. In case any officer of the Company who shall have signed any of the
Warrants shall cease to be such officer of the Company before the date of
issuance of the Warrants and issue and delivery thereof, such Warrants may
nevertheless be issued and delivered with the same force and effect as though
the person who signed such Warrants had not ceased to be such officer of the
Company. After execution by the Company, each Warrant shall then be delivered to
the Registered Holder.
(b) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein. A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date and the person entitled to receive
the securities deliverable upon such exercise shall be treated for all purposes
as the holder upon exercise thereof as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date the Company shall
deposit the proceeds received from the exercise of a Warrant, and promptly after
clearance of checks received in payment of the Purchase Price pursuant to such
Warrants, cause to be issued and delivered by the Company's transfer agent, to
the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise (plus a Warrant
for any remaining unexercised Warrants of the Registered Holder).
(c) Upon receipt of the shares of Common Stock, Registered Holder shall
be entitled to piggyback registration rights with respect to such shares as set
forth in and pursuant to Section 5.4(C) of the Asset Purchase Agreement.
SECTION 5. Reservation of Shares; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of the Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants and payment of the Purchase Price shall, at the time of
delivery, be duly and validly issued, fully paid, nonassessable and free from
all taxes, liens and charges with respect to the issue thereof (other than those
which the Company shall promptly pay or discharge).
(b) The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws with respect
to the exercise of the Warrants; provided, however, that the Company shall not
be obligated to file any general consent to service of process or qualify as a
foreign corporation in any jurisdiction. With respect to any such securities
laws, however, Warrants may not be exercised by, or shares of Common Stock
issued to, any Registered Holder in any state in which such exercise would be
unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
the Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
being exercised, then no such delivery shall be made unless the person
requesting the same has paid to the Company the amount of transfer taxes or
charges incident thereto, if any.
SECTION 6. Exchange of Warrant.
(a) This Warrant may be exchanged for other Warrants representing an
equal aggregate number of Warrants of the same type. Warrants to be exchanged
shall be surrendered to the Company at its Corporate Office, and upon
satisfaction of the terms and provisions hereof, the Company shall execute,
issue and deliver in exchange therefor the Warrant or Warrants which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Company shall keep at its office books in which it shall
register the Warrants in accordance with its regular practice.
(c) The Company may require payment by such holder of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith.
(d) All Warrants surrendered for exercise or for exchange in case of
mutilated Warrants shall be promptly canceled by the Company and thereafter
retained by the Company until the Warrant Expiration Date, or such other time as
the Company shall determine solely within its discretion.
SECTION 7. Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to them of the ownership of and loss, theft, destruction or
mutilation of any Warrant and (in case of loss, theft or destruction) of
indemnity satisfactory to them, and (in case of loss, theft or destruction) upon
surrender and cancellation thereof, the Company shall execute and deliver to the
Registered Holder in lieu thereof a new Warrant of like tenor representing an
equal aggregate number of Warrants. Applicants for a substitute Warrant shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe or require.
SECTION 8. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to Section (f) and the exceptions referred to in Section
8(e) below, in the event the Company shall, at any time or from time to time
after the date hereof, subdivide or combine the outstanding shares of Common
Stock into a greater or lesser number of shares (any such subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to such
subdivision or combination, and the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately after such subdivision
or combination. Such adjustment shall be made successively whenever such
subdivision or combination is made.
Upon each adjustment of the Purchase Price pursuant to this Section 8,
the total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions contained in Section 8(b) hereof) be
such number of shares of Common Stock purchasable at the Purchase Price
immediately prior to such adjustment multiplied by a fraction, the numerator of
which shall be the Purchase Price in effect immediately prior to such adjustment
and the denominator of which shall be the Purchase Price in effect immediately
after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants determined by multiplying the number one by
a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Warrants pursuant to this Section 8, the Company shall, as
promptly as practicable, cause to be distributed to the Registered Holder of a
Warrant on the date of such adjustment a Warrant evidencing, subject to Section
9 hereof, the number of additional Warrants to which such Holder shall be
entitled as a result of such adjustment or, at the option of the Company, cause
to be distributed to such Holder in substitution and replacement for the Warrant
held by him prior to the date of adjustment (and upon surrender thereof, if
required by the Company) a new Warrant evidencing the number of Warrants to
which such Holder shall be entitled after such adjustment.
(c) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Warrants,
the Warrant or Warrants theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue a new Warrant pursuant to Section
8(b) hereof, continue to express the Purchase Price per share and the number of
shares purchasable thereunder as they were expressed in the Warrant when it was
originally issued.
(d) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
President, and by the Chief Financial Officer, Controller, Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares
of Common Stock purchasable upon exercise of each Warrant after such adjustment,
and, if the Company shall have elected to adjust the number of Warrants, the
number of Warrants to which the Registered Holder of each Warrant shall then be
entitled, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly cause a brief summary thereof to be sent
by ordinary first class mail to each Registered Holder of Warrants at his last
address as it shall appear in the registry books of the Company. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof except as to the Holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective. The
affidavit of the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein.
(e) For purposes of Section 8(a) and 8(b) hereof, the following
provisions shall also be applicable:
(A) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.25 in such
price; provided that any adjustments which by reason of this clause (B) are not
required to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any
adjustment(s) so carried forward, shall require an increase or decrease of at
least $.25 in the Purchase Price then in effect hereunder.
(f) Any determination as to whether an adjustment in the Purchase Price
in effect hereunder is required pursuant to Section 8, or as to the amount of
any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company.
(g) If and whenever the Company shall declare any dividends or
distributions or grant to the holders of Common Stock, as such, rights or
warrants to subscribe for or to purchase, or any options for the purchase of,
Common Stock or securities convertible into or exchangeable for or carrying a
right, warrant or option to purchase Common Stock, the Company shall notify each
of the then Registered Holders of the Warrants of such event prior to its
occurrence to enable such Registered Holders to exercise their Warrants and
participate as holders of Common Stock in such event.
SECTION 9. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company
shall nevertheless not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(A) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the National Market System of NASDAQ ("NMS"), the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day or no closing sale price is quoted, the average of
the closing bid and asked prices for such day on such exchange or system; or
(B) If the Common Stock is listed in the over-the-counter
market (other than on NMS) or admitted to unlisted trading privileges, the
current value shall be the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(C) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 10. Warrantholder Not Deemed Stockholder. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 11. Rights of Action. All rights of action with respect to this
Warrant are vested in the Registered Holder of the Warrants, and the Registered
Holder of a Warrant, without consent of the holder of any other Warrant, may, on
his own behalf and for his own benefit, enforce against the Company his right to
exercise his Warrants for the purchase of shares of Common Stock in the manner
provided in this Warrant.
SECTION 12. Agreement of Warrantholder. Every holder of a Warrant, by
his acceptance thereof, consents and agrees with the Company that the Company
may deem and treat the person in whose name the Warrant is registered as the
holder and as the absolute, true and lawful owner of the Warrants represented
thereby for all purposes, and the Company shall not be affected by any notice or
knowledge to the contrary, except as otherwise expressly provided in Section 7
hereof.
SECTION 13. Gender; Singular and Plural. When the context and
construction so require, all words used in the singular herein shall be deemed
to have been used in the plural and the masculine shall include the feminine and
neuter and vice versa.
SECTION 14. Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without
reference to principles of conflict of laws.
SECTION 15. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid, as follows: if to the Registered Holder of a Warrant, at the address of
such holder as shown on the registry books maintained by the Company; if to the
Company, at 2067 Commerce Drive, Medford, Oregon 97504, Attention: President.
SECTION 16. Binding Effect. This Warrant shall be binding upon and
inure to the benefit of the Company (and its respective successors and assigns)
and the holders from time to time of Warrants. Nothing in this Warrant is
intended or shall be construed to confer upon any other person any right, remedy
or claim, in equity or at law, or to impose upon any other person any duty,
liability or obligation.
SECTION 17. Termination. This Warrant shall terminate at the close of
business on the Warrant Expiration Date.
ARC CAPITAL
By:
Alan R. Steel
1
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and
between ARC Capital, a California corporation, or its successor in the operation
in the business of Ventek, Inc., acquired by ARC Capital on July 24, 1996, (the
"Company") and _______________________ (the "Executive"), as of the 24th day of
July, 1996.
I. RECITAL.
WHEREAS, the Company desires to employ the Executive as
- -------------------------------------------,
NOW, THEREFORE, the Company and the Executive desire to set
forth in this Agreement the terms and conditions of the Executive's employment
with the Company.
II. EMPLOYMENT.
The Company hereby employs the Executive and the Executive
hereby accepts such employment, upon the terms and conditions hereinafter set
forth, from July 24, 1996, to and including July 23, 2001. This Agreement shall
be automatically renewed for one additional year unless the Executive or the
Company gives notice to the other, in writing, at least 30 days prior to the
expiration of this Agreement, of its or his desire to terminate this Agreement
or modify its terms.
III. DUTIES.
A. The Executive shall serve during the course of his
employment as _____________________________________________ of the Company and
shall have such other similar duties and responsibilities as the Board of
Directors of the Company shall determine from time to time.
B. The Executive agrees to devote substantially all of his
time, energy and ability to the business of the Company and shall not be
involved in the operations or management of any other business which would
interfere with the Executive's performance of his duties and obligations
hereunder. Nothing herein shall prevent the Executive, upon written approval of
the Board of Directors of the Company, from serving as a director or trustee of
other corporations or businesses which are not in competition with the business
of the Company or in competition with any present or future affiliate of the
Company.
C. For the term of this Agreement, the Executive shall
report to the Chief Executive Officer of the Company.
D. The Executive shall not, without specific written
approval of the Company's Board of Directors or ARC's Chief Executive Officer,
do or purport to do any of the following:
1. Borrow money, execute guarantees or obtain credit in
any amount in the name of or on behalf of the Company.
2. Permit any customer of the Company to become indebted to
the Company, except in the ordinary course of business consistent with prudent
business practices and with the Company's policies and procedures as established
from time to time and made known to Employee.
IV. COMPENSATION.
A. Base Salary. The Company shall pay the Executive a base
salary at the rate of $150,000 per year. Such salary shall be earned monthly and
shall be payable in periodic installments no less frequently than monthly in
accordance with the Company's customary practices. Amounts payable shall be
reduced by standard withholding and other authorized deductions.
B. Welfare Benefit Plans. The Executive shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company to the extent
applicable generally to other peer executives of the Company.
C. Expenses. The Executive shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures as in effect generally
with respect to other peer executives of the Company.
D. Fringe Benefits. The Executive shall be entitled to
fringe benefits in accordance with the plans, practices, programs and policies
as in effect generally with respect to other peer executives of the Company.
E. Vacation. The Executive shall be entitled to paid
vacation of three weeks per year.
F. Automobile Allowance. The Executive shall be entitled to
a monthly automobile allowance of $375.
V. TERMINATION.
A. Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death. If the Company determines in
good faith that disability of the Executive has occurred (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective on the day
of the receipt of such notice by the Executive. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from his duties with the
Company on the basis provided in this agreement for a period of 3 months as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or his legal representative. "Incapacity" as used
herein shall be limited only to such Disability which substantially prevents
Company from availing itself of the services of the Executive.
B. Cause. The Company may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean that the Company,
acting in good faith based upon the information then known to the Company,
determines that the Executive has: (1) committed an act of fraud upon, or an act
evidencing material dishonesty toward the Company; or (2) been convicted of a
felony, which conviction through lapse of time or otherwise is not subject to
appeal; or (3) willfully refused to perform material required duties and
responsibilities or performed them with gross negligence or willful misconduct.
C. Obligations of the Company upon Termination Based upon
Death or Disability or Cause.
1. Death or Disability. If the Executive's employment
is terminated by reason of the Executive's Death or Disability, this Agreement
shall terminate without further obligations to the Executive or his legal
representatives under this Agreement, other than for (a) payment of the sum of
(i) the Executive's annual base salary through the date of termination to the
extent not theretofore paid and (ii) reasonable employment expenses, as provided
herein, through the date of termination to the extent not theretofore paid and
(iii) any accrued vacation pay to the extent not theretofore paid (the sum of
the amounts described in clauses (i), (ii) and (iii) shall be hereinafter
referred to as the "Accrued Obligations"), which shall be paid to the Executive
or his estate or beneficiary, as applicable, in a lump sum in cash within 30
days of the date of the termination and (b) payment to the Executive or his
estate or beneficiary, as applicable, any amounts due pursuant to the terms of
any applicable welfare or pension benefit plans.
2. Cause. If the Executive's employment is terminated
by the Company for Cause, this Agreement shall terminate without further
obligations to the Executive other than for the timely payment of Accrued
Obligations and any amounts due pursuant to the terms of any applicable welfare
or pension benefit plans.
D. Obligations of the Company upon Termination without Cause.
If the Executive's employment is terminated by the Company other than for cause,
then the Company shall pay Executive the Accrued Obligations and, in addition,
if the Executive is terminated before the third anniversary date hereof, shall
pay the Executive an amount equal to his base salary in equal monthly
installments until such third anniversary date (the "Termination Period"). In
addition, the Company shall continue to pay the Executive's health and medical
benefits for the Termination Period, after which time the Executive will be
entitled to pursue, at the Executive's cost, applicable COBRA benefits. If the
Company terminates Executive's employment other than for cause, then the
prohibition placed on Executive pursuant to Section VIII herein shall cease at
the end of the Termination Period.
E. Foreclosure under Pledge and Security Agreement. In the
event Ventek or its successors exercise their rights to foreclose pursuant to
that certain Pledge and Security Agreement dated July 24, 1996, among ARC
Capital, ARC Subsidiary, Inc., an Oregon corporation, Ventek, Inc., an Oregon
corporation, and Solin & Associates, P.C., all payment obligations of the
Company shall cease from the date of foreclosure.
VI. ARBITRATION.
Any controversy or claim arising out of or relating to this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration, to be held in Medford, Oregon in accordance with the
rules and procedures of the American Arbitration Association. In the event
either party institutes arbitration under this Agreement, the costs and expenses
of such arbitration (including counsel fees) shall be borne by each of the
parties, or as the arbitrator(s) may determine at the request of either party.
VII. CONFIDENTIAL INFORMATION.
The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during his
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination of the
Executive's employment with the Company, he shall not, without the prior written
consent of the Company, or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it.
VIII. NON COMPETITION.
Subject to Section V. D. above, the Employee agrees that, for
the duration of this Agreement and for a period of 36 months following
termination of employment, Employee shall not, directly or indirectly: (i)
conduct, participate or engage in any business anywhere in the world that is
competitive with the business of the Company as then conducted; (ii) sell to or
solicit purchases of customers (other than for the Company) who were customers
of the Company or any affiliated company; or (iii) initiate any contact with any
employee of the Company for the purpose of hiring such employee in any capacity
either for his own benefit or purposes or for the benefit or purposes of any
other person or entity.
IX. SUCCESSORS.
A. This Agreement is personal to the Executive and shall
not, without the prior written consent of the Company, be assignable by the
Executive.
B. This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns and any such successor or
assignee shall be deemed substituted for the Company under the terms of this
Agreement for all purposes. As used herein, "successor" and "assignee" shall
include (i) any person, firm, corporation or other business entity which at any
time, whether by purchase, merger or otherwise, directly or indirectly acquires
the stock of the Company or to which the Company assigns this Agreement by
operation of law or otherwise, and (ii) the ARC Subsidiary (as that term is
defined in that certain Asset Purchase Agreement dated July 1, 1996, between the
Company and Ventek, Inc.
X. WAIVER.
No waiver of any breach of any term or provision of this
Agreement shall be construed to be, nor shall be, a waiver of any other breach
of this Agreement. No waiver shall be binding unless in writing and signed by
the party waiving the breach.
XI. REMEDIES.
A. Employee acknowledges that breach of the obligations
imposed by this Agreement will cause irreparable harm to the Company and, in
that event, if Employee fails to abide by these obligations, the Company will be
entitled to specific performance, including immediate issuance of temporary
restraining order or preliminary injunction enforcing this Agreement, and to
judgment for damages caused by Employee's breach, and to other remedies provided
by applicable law.
B. The Employee acknowledges that a remedy at law for any
breach or attempted breach of this Agreement may be inadequate and the Employee
covenants and agrees not to oppose any demand for specific performance and
injunctive and other equitable relieve in case of any such breach or attempted
breach.
XII. MODIFICATION.
This Agreement may not be amended or modified other than by a
written agreement executed by the Executive and the Board of Directors of the
Company.
XIII. SAVINGS CLAUSE.
If any provision of this Agreement or the application thereof
is held invalid, the invalidity shall not affect other provisions or
applications of the Agreement which can be given effect without the invalid
provisions or applications and to this end the provisions of this Agreement are
declared to be severable.
XIV. COMPLETE AGREEMENT.
This instrument constitutes and contains the entire agreement
and understanding concerning the Executive's employment and the other subject
matters addressed herein between the parties, and supersedes and replaces all
prior negotiations and all agreements proposed or otherwise, whether written or
oral, concerning the subject matters hereof. This is an integrated document.
XV. GOVERNING LAW.
This Agreement shall be deemed to have been executed and
delivered within the State of Oregon, and the rights and obligations of the
parties hereunder shall be construed and enforced in accordance with, and
governed by, the laws of the State of Oregon without regard to principles of
conflict of laws.
XVI. CONSTRUCTION.
Each party has cooperated in the drafting and preparation of
this Agreement. Hence, in any construction to be made of this Agreement, the
same shall not be construed against any party on the basis that the party was
the drafter.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
XVII. COMMUNICATIONS.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or if mailed by registered or certified mail, postage prepaid,
addressed to the Executive at __________________________________________, or
addressed to Ventek, Inc. Board of Directors, c/o ARC Capital at 2067 Commerce
Road, Medford, Oregon 97504. Any party may change the address at which notice
shall be given by written notice given in the above manner.
XVIII. EXECUTION.
This Agreement is being executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.
XIX. LEGAL COUNSEL.
The Executive and the Company recognize that this is a legally
binding contract and acknowledge and agree that they have had the opportunity to
consult with legal counsel of their choice.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ARC CAPITAL EXECUTIVE
By:
Its:
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement") is dated as of July
24, 1996, by and among ARC Capital, a California corporation (the "Pledgor"),
ARC Subsidiary, Inc., an Oregon corporation ("Subsidiary"), Ventek, Inc., an
Oregon corporation (the "Secured Party"), and Solin & Associates P.C.
("Pledge Holder").
WITNESSETH:
WHEREAS, the Pledgor is the owner of 1,000 shares of common stock (the
"Stock") issued by Subsidiary, constituting 100% of the issued and outstanding
capital stock of Subsidiary;
WHEREAS, pursuant to that certain Asset Purchase Agreement of even date
herewith by and among ARC Capital, Ventek, Inc., Rodger Van Voorhis, Doug
Hickman, Ken Winder and Tom Thompson (the "Asset Purchase Agreement"), Pledgor
purchased and assigned to Subsidiary all the Assets of the Secured Party (the
"Asset Purchase");
WHEREAS, in consideration for the Asset Purchase Pledgor issued to the
Seller a Straight Note in the principal amount of $1,000,000 (the "Straight
Note") of even date herewith, an SAR Note (the "SAR Note") in the principal
amount of $1,125,000 of even date herewith, and a Convertible Note (the
"Convertible Note") in the principal amount of $2,250,000 of even date herewith
(collectively, the "Notes");
WHEREAS, the Secured Party has required, as security for the payment of
the Notes and the stock appreciation rights issued to Secured Party pursuant to
that certain SAR Agreement of even date herewith by and between ARC Capital and
Ventek, Inc. (the "SARs"), that the Pledgor pledge 1,000 shares of Stock (the
"Pledged Shares"), and grant to Secured Party a security interest in the Pledged
Shares;
WHEREAS, Secured Party has required, as further security for the
payment of the Notes and SARs, that Subsidiary grant to Secured Party a security
interest in all of the Assets and Additional Collateral (defined below);
NOW, THEREFORE, in consideration of the premises, the Pledgor and
Subsidiary hereby agree as follows:
APP4-21.009
1.
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SECTION 1. Capitalized Terms and Definitions.
All capitalized terms not defined herein shall have the meanings
assigned to them in the Asset Purchase Agreement.
"Additional Collateral" shall mean all technology and intellectual
property used, developed or acquired by Subsidiary from the date of this
Agreement until the payment of the Notes.
SECTION 2. Security Interest.
(a) The Pledgor hereby pledges to Secured Party, and grants to
Secured Party a security interest in, the Pledged Shares, and all dividends,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares.
(b) Subsidiary hereby grants to the Secured Party
a present and continuing security interest in all the Assets
and all the Additional Collateral.
SECTION 3. Security for Obligations. This Agreement
secures the payment of all the Pledgor's obligations under the
Notes whether for principal, interest, fees, expenses or
otherwise and the SARs.
SECTION 4. Delivery of Pledged Shares. Pledgor shall
--------------------------
deliver all of the certificates evidencing shares of Stock to
the Pledge Holder. The Pledged Shares shall bear a legend
indicating that the Pledged Shares have been pledged pursuant
to this Agreement and shall be in suitable form for transfer
by delivery by Pledge Holder to Secured Party, or shall be
accompanied by duly executed instruments of transfer or
assignment in blank for completion following delivery of the
Pledged Shares to the Secured Party, if and when required
hereby, all in form and substance satisfactory to Secured
Party.
SECTION 5. Further Assistance. The Pledgor agrees that at any time and
from time to time, at the expense of the Pledgor, the Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, in order to protect any security
interest granted hereby or to enable Secured Party to exercise and enforce their
rights and remedies hereunder with respect to any Pledged Shares or Assets or
Additional Collateral.
SECTION 6. Remedies Upon Default. In the event of an
"Event of Default," as defined in the Notes (an "Event of
Default"), the Secured Party, in its sole discretion and in
APP4-21.009
2.
<PAGE>
addition to the rights and remedies at law or in equity or otherwise, may
deliver to Pledgor, Subsidiary and Pledge Holder a written notice specifying the
default (the "Notice of Default"). Fifteen (15) days following the date upon
which the Pledge Holder, Pledgor and Subsidiary receive the copy of the Notice
of Default, unless the Pledge Holder receives an order or injunction from a
court (a "Restraining Order") instructing the Pledge Holder not to deliver the
Pledged Shares to the Secured Party or the Pledgor or Subsidiary has cured such
an Event of Default, the Pledge Holder shall, and is hereby irrevocably
instructed to, deliver to Secured Party all the Pledged Shares, and the Pledgor
and Subsidiary shall deliver to the Secured Party all of the Assets and
Additional Collateral, in accordance with instructions to be set forth in the
Notice of Default.
Upon Secured Party's receipt of the Pledged Shares from the Pledge
Holder, Secured Party shall have the right to register the Pledged Shares or any
portion thereof, at Secured Party's sole expense, in the name of the Secured
Party and/or sell or otherwise dispose of the Pledged Shares in accordance with
Section 7 below.
In the event that a Restraining Order is served upon the Pledge Holder
on a timely basis, Pledge Holder shall continue to hold the Pledged Shares and
Subsidiary shall continue to hold the Assets and the Additional Collateral until
(i) a written instruction to release the Pledged Shares, Assets and Additional
Collateral (a "Release Notice"), executed either by the court of applicable
jurisdiction or jointly by the Secured Party and Pledgor is received by Pledge
Holder, or (ii) the Restraining Order is overturned, or is lifted or
invalidated, in which case Pledge Holder shall deliver all the Pledged Shares
and Pledgor shall deliver all the Assets and Additional Collateral to the party
identified in the Release Notice in accordance with instructions to be set forth
in the Release Notice.
SECTION 7. Sale Upon Default. Pledgor and Secured Party acknowledge and
agree that the Pledged Shares are restricted, unregistered stock that is
difficult to value and for which no public market exists. The parties further
agree that the Pledged Shares are not subject to sale in a "recognized market"
as that term is described in ORS 79.5040. Pledgor and Secured Party wish to
agree to reasonable standards for conducting a commercially reasonable sale of
the Pledged Shares. Without limiting rights and remedies otherwise available to
Secured Party, the parties agree that compliance with the following steps shall
satisfy requirements of a commercially reasonable sale:
APP4-21.009
3.
<PAGE>
(a) The sale may be either a public or private sale
pursuant to U.C.C. ss.9-504 at Secured Party's discretion, and
that it may be for all or any portion of the Pledged Shares.
(b) Secured Party shall set a date for public sale of the
Pledged Shares, or a date after which a private sale may occur, which date shall
not be less than 30 days after the date of notice of the sale is given to
Pledgor, and shall send written notification to Pledgor in advance regarding the
date and time of the public sale, or the date after which a private sale may
occur.
(c) Any public sale shall take place at a site in
Oregon selected by Secured Party.
(d) Immediately upon request, Pledgor shall provide Secured
Party with information requested by Secured Party for compliance with state or
federal securities laws.
(e) At any sale of any of the Pledged Shares, Secured Party
may restrict the prospective bidders or purchasers to persons or entities who,
by certain representations made by them, would render registration of the sale
under state or federal securities laws unnecessary.
(f) Secured Party shall ensure that any sales hereunder will
be in compliance with applicable federal and state securities laws.
SECTION 8. Voting Rights; Dividends; Etc.
(a) Until an Event of Default occurs:
(i) The Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to
the Pledged Shares or any part thereof.
(ii) The Pledgor shall be entitled to receive
and retain any and all dividends paid in respect of the
Pledged Shares.
(b) Effective at such time as there is an Event of
Default and thereafter during the continuance of an Event of
Default:
(i) All rights of the Pledgor to exercise the
voting and other consensual rights which he would otherwise be entitled to
exercise pursuant to Section 7(a)(i) and to receive the dividend payments which
he would otherwise be authorized to receive and retain pursuant to Section
7(a)(ii) shall cease, and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to
APP4-21.009
4.
<PAGE>
exercise such voting and other consensual rights and to reserve and hold as
pledged collateral such dividend payments.
(ii) All dividend payments which are received
by the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b)
shall be received in trust for the benefit of Secured Party, shall be segregated
from other funds of the Pledgor, and shall be forthwith paid over to Secured
Party as pledged collateral in the same form as so received (with any necessary
endorsement).
SECTION 9. Transfers and Other Liens. The Pledgor
-------------------------
and Subsidiary agree that they will not (i) sell or otherwise
dispose of any of the Pledged Shares, Assets or Additional
Collateral or grant any option with respect to the Pledged
Shares without the prior written consent of the Secured Party,
or (ii) create or permit to exist any lien, security interest,
or other charge or encumbrance upon or with respect to any of
the Pledged Shares, Assets or Additional Collateral except for
the security interests under this Agreement or liens which are
junior to the rights of the Secured Party.
SECTION 10. Amendments, Waivers and Consents. No
--------------------------------
amendment or waiver of any provision of this Agreement nor
consent to any departure by the Pledgor or Subsidiary
herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Secured Party, and then
such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which
given.
SECTION 11. Notices. Any notice or other communication required or
contemplated by this Agreement shall be in writing and shall be effective upon
delivery of the same in person or by fax to the intended addressee, or five days
after deposit of the same in the United States mail, postage prepaid, registered
or certified mail, return receipt requested, or one day after deposit with
Federal Express or similar overnight carrier, next day delivery, sent to the
intended addressee at the fax or address, as applicable, given on the signature
page of this Agreement or at such other fax number or address as the addressee
shall have designated by written notice given in accordance herewith and
actually received by the other party at least five days in advance of the date
upon which such change shall be effective.
SECTION 12. Continuing Security Interest; Release of Pledged Shares,
Assets and Additional Collateral. This Agreement shall create a continuing
security interest in the Pledged Shares, Assets and Additional Collateral and
shall (i) remain in full force and effect until release of the security interest
in the Pledged Shares, Assets and Additional Collateral pursuant to the terms of
Section 13 of this
APP4-21.009
5.
<PAGE>
Agreement; (ii) be binding upon the Pledgor, Subsidiary and their assigns; and
(iii) inure to the benefit of the Secured Party and its respective transferees
and assigns.
SECTION 13. Governing Law, Terms. This Agreement shall be governed by
and construed in accordance with the internal laws (as opposed to conflicts of
law provisions and decisions) of the State of Oregon.
SECTION 14. Return of Pledged Shares and Release of Security Interest
in the Assets and Additional Collateral. Upon or concurrently with payment in
full of all principal, interest and other obligations due under the Notes,
Secured Party shall deliver, or shall cause Pledge Holder to deliver, to Pledgor
the Pledged Shares, together with the stock powers, held by Pledge Holder under
this Agreement, and Pledge Holder shall deliver to Pledgor the Pledged Shares,
together with the stock powers, held by Pledge Holder under this Agreement, and
this Agreement shall terminate. Upon or concurrently with payment in full of all
principal, interest and other obligations due under the Notes, the Secured Party
agrees that at any time and from time to time, at the expense of the Secured
Party, the Secured Party will promptly execute and deliver any instruments and
documents, including but not limited to a UCC termination statement, and take
all further action that may be necessary or desirable, in order to terminate and
release any security interest granted or purported to be granted hereby in the
Assets and Additional Collateral or otherwise, or to enable Pledgor to recover
possession of the Pledged Shares from the Pledge Holder.
For purposes of this Section 13, payment under the Notes shall mean
payment in cash or in Pledgor's Class A common stock and/or elimination of the
Pledgor's debt represented by the Notes by Secured Party's exercise of its
conversion privileges under the Notes.
SECTION 15. Pledge Holder. Pledge Holder, by his signature hereto,
consents to act as Pledge Holder hereunder upon the express understanding that
he shall be solely responsible for the physical holding of the Pledged Shares
and shall deliver the Pledged Shares in accordance with the terms of this
Agreement.
It is expressly understood that the duties and obligations of the
Pledge Holder are to be strictly limited to the foregoing, and Secured Party and
Pledgor hereby indemnify and hold Pledge Holder free and harmless from any and
all liability, costs, and expenses, including attorney's fees, incurred by
reason hereof. Pledgor hereby acknowledges that the Pledged Shares deposited
with Pledge Holder hereunder are deposited at the sole risk of Pledgor. Any
administrative fees of Pledge Holder for acting as Pledge Holder hereunder
APP4-21.009
6.
<PAGE>
are deposited at the sole risk of Pledgor. Any fees of Pledge Holder for acting
as Pledge Holder shall be divided between Pledgor and Secured Party. Pledgor
further agrees to indemnify and hold Pledge Holder harmless against any and all
liability to Secured Party or Pledgor which may result from delivery of the
Pledged Shares to the Secured Party in accordance with the provisions of Section
6 of this Agreement.
Notwithstanding anything to the contrary in this
Agreement,
(a) Safekeeping of Securities. Pledge Holder will hold the
Pledged Shares in a secure place. Pledge Holder shall have no duties to either
Pledgor or Secured Party with respect to dividends, voting or other rights
relating to the Pledged Shares.
(b) Pledge Holder's Standard of Care. In performing any of its
duties under this Agreement, Pledge Holder shall not incur any liability to
anyone for any damages, losses or expenses, except for willful default or gross
negligence and it shall, accordingly, not incur any such liability with respect
to (i) any action taken or omitted in good faith upon advice of its counsel with
respect to any questions relating to its duties and responsibilities under this
Agreement, and (ii) subject to Section 6, any action taken or omitted in
reliance upon the Secured Party's Notice of Default. The Pledge Holder shall
have no duty to know or determine the performance or non-performance of any
provision of any agreement between the Pledgor and the Secured Party.
(c) Resignation of Pledge Holder. Pledge Holder may resign at
any time by giving 30 days' advance written notice to Pledgor and Secured Party.
Any resignation shall be effective only upon the joint appointment by the
Pledgor and Secured Party of a successor pledge holder and the latter's
acceptance of the appointment. If no appointment of successor shall be made
within 60 days of notice of resignation by Pledge Holder, Pledge Holder, Pledgor
or Secured Party may apply to any court of competent jurisdiction to appoint a
successor. Upon appointment and acceptance of a successor or successors, each
successor shall forthwith, without further act or deed, succeed to all rights
and duties of its predecessor under this Agreement. After payment of all amounts
due to the predecessor, the predecessor shall promptly deliver to its successor
all assets held under this Agreement.
SECTION 16. Attorney's Fees and Expenses. If any
litigation or any other proceeding is commenced in connection
with or related to the Agreement, the losing party shall pay
the expenses, including but not limited to, the reasonable
attorney's fees and expenses, of the prevailing party. The
court shall be entitled to pro rate said fees and expenses
APP4-21.009
7.
<PAGE>
between the parties in the event that a suit or proceeding is
successful only in part.
IN WITNESS WHEREOF, the Pledgor, the Pledge Holder, Subsidiary and
Secured Party have each caused this Agreement to be duly executed and delivered
as of the date first above written.
SECURED PARTY:
Ventek, Inc.
By:_________________________
Title:______________________
PLEDGE HOLDER:
Solin & Associates P.C.
By:_________________________
Title:______________________
PLEDGOR:
ARC Capital
By:_______________________
Title:____________________
SUBSIDIARY:
ARC Subsidiary, Inc.
By:_______________________
Title:____________________
APP4-21.009
8.
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