[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date
of Report (Date of earliest event reported): March 16, 1998
WILLIAMS CONTROLS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-18083 84-1099587
- ---------------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (503) 684-8600
Not Applicable
------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisitions or Dispositions of Assets
On March 16, 1998, Williams Controls, Inc. (the "Registrant"), completed
the sale of a substantial portion of the assets of Kenco Williams, Inc.
("Kenco"),a wholly owned subsidiary of the Registrant, to Kenco Products, Inc.
("KPI") and entered into warehousing and lease agreements with KPI (the "Kenco
Transaction"). George Briggs, one of the principal owners of KPI has been acting
as general manager in charge of operating the business of Kenco for more than
the past year. The other principal owner of KPI is Colfax Group, Inc.; a
Delaware corporation. Colfax Group, Inc. is unrelated to the Registrant.
Consideration to the Registrant consisted of $1.1 million cash, a $250,000
Receivable, a $430,000 receivable for inventory sold, assumption of $1.0 million
of trade payables, accrued expenses and other liabilities related to the assets
purchased and $2.0 million of Series A Senior Preferred Stock (2000 shares) of
KPI. The preferred stock provides for annual dividends of $80 per share and is
convertible to common stock according to certain terms and conditions. The
accounting principles followed in determining the consideration received was the
fair market value of the assets disposed of.
The carrying values of assets sold in the Kenco Transaction included $1.4
million of productive assets (machinery and equipment, furniture and fixtures
and tools and dies), $794,000 of accounts receivable, $530,000 of inventory and
$325,000 of prepaid assets.
The Registrant has agreed to warehouse certain inventory not immediately
purchased valued at $2.6 million ("Warehouse Agreement"). KPI has agreed to
purchase all remaining inventory from Kenco on or before September 30, 1998
subject to certain terms and conditions outlined in the sale agreement.
The Registrant has agreed to lease to KPI the existing building and
improvements of Kenco for $23,000 per month ("Lease Agreement"). The lease is
currently scheduled to terminate on September 30, 1998, subject to certain early
termination provisions if Kenco sells the facility to a third party buyer.
Mr. Briggs and Colfax Group, Inc. have guaranteed the obligations of KPI
under the Warehouse Agreement and Lease Agreement subject to certain terms and
conditions.
Item 5. Other Events
Simultaneously with the closing of the Kenco Transaction, the Registrant
repaid $1.1 million outstanding under its existing credit facility with its
bank. Pursuant to the Intercreditor Agreement among US Bank, Wells Fargo Bank
and the Registrant dated July 14, 1997, Williams Controls, Inc. is obligated to
pay to US Bank the first $2.340 million in proceeds from future sales of
inventory to KPI.
2
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Not Applicable
(b) Pro forma financial information.
On March 16, 1998, Williams Controls, Inc. (the "Registrant"), completed
the sale of a substantial portion of the assets of Kenco Williams, Inc.
("Kenco"), a wholly owned subsidiary of the Registrant, to Kenco Products, Inc.
("KPI") and entered into warehousing and lease agreements with KPI (the "Kenco
Transaction"). George Briggs, one of the principal owners of KPI has been acting
as general manager in charge of operating the business of Kenco for more than
the past year. The other principal owner of KPI is Colfax Group, Inc., a
Delaware corporation. Colfax Group, Inc. is unrelated to the Registrant.
Consideration to the Registrant consisted of $1.1 million cash, a $250,000
receivable, a $430,000 receivable for inventory sold, assumption of $1.0 million
of trade payables, accrued expenses and other liabilities related to the assets
purchased and $2.0 million of Series A Senior Preferred
Stock (2000 shares) of KPI. The preferred stock provides for annual dividends
of $80 per share and is convertible to common stock according to certain terms
and conditions.
The assets sold in the Kenco Transaction included $1.4 million of
productive assets (machinery and equipment, furniture and fixtures and tools and
dies), $794,000 of accounts receivable, $530,000 of inventory and $325,000 of
prepaid assets.
The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1997, gives effect to the sale as if the transaction had been
consummated on December 31, 1997. The accompanying unaudited pro forma
consolidated statements of operations for the year ended September 30, 1997, and
the three months ended December 31, 1997, give effect to the sale as if the
transaction had been consummated October 1, 1996 and October 1, 1997,
respectively.
The unaudited pro forma consolidated financial statements should be read
in conjunction with the historical financial statements of the Registrant. The
unaudited pro forma consolidated financial statements do not purport to be
indicative of the financial position of the Registrant had the sale occurred on
December 31, 1997. Nor do the unaudited pro forma financial statements purport
to be indicative of the results of operations that actually would have occurred
had the sale been consummated on October 1,1996 or October 1, 1997, or to
project the Registrant's financial position or results of operations for any
future period.
3
<PAGE>
Williams Controls, Inc.
Unaudited Pro forma
Consolidated Balance Sheet
As of December 31, 1997
(Dollars in thousands)
Williams Pro forma
Controls, Inc. Adjustments As Adjusted
-------------- ----------- -----------
Assets
Current Assets:
Cash $ 961 $ 1,125 1
(1,125) 2 $ 961
Accounts receivable, net 8,682 496 3 9,178
Inventories 14,717 (934) 3
(530) 1 13,253
Net assets held for
disposition 307 (307) 1 0
Prepaid expenses 1,181 (21) 3 1,160
Other current assets 1,098 250 1
430 1 1,778
---------- ---------- ----------
Total current assets 26,946 (616) 26,330
Investment in affiliate 201 0 201
Property plant & equipment 24,223 170 3 24,393
Less accumulated depreciation
and amortization (6,579) 246 3 (6,333)
---------- ---------- ----------
Net property plant & equipment 17,644 416 18,060
Receivable from affiliate 3,611 0 3,611
Net assets held for disposition 1,919 (1,919) 1 0
Other assets 1,321 2,000 1 3,321
---------- ---------- ----------
Total Assets $ 51,642 $ (119) $ 51,523
========== ========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 5,719 $ 796 3 $ 6,515
Accrued expenses 2,599 52 3 2,651
Current portion of long-term
debt and leases 1,425 98 3 1,523
Estimated loss on disposal 109 (109) 1 (0)
Deferred tax liability 0 0 0
Other current liability 0 0 0
---------- ---------- ----------
Total current liabilities 9,852 837 10,689
Other liabilities 1,331 0 1,331
Long-term debt & capital leases 22,427 6 3
(1,125) 2 21,308
Deferred tax liability 0 0 0
Commitments and contingencies 0 0 0
Minority interest in
consolidated subsidiaries 442 442
Stockholders' equity:
Common stock 180 180
Additional paid-in capital 9,882 9,882
Retained earnings 8,096 163 1,3 8,259
Unearned ESOP shares (191) (191)
Treasury stock (130,200 and
195,200 shares) (377) (377)
Pension liability adjustment 0 0
---------- ---------- ----------
Total stockholders' equity 17,590 163 17,753
Total Liabilities & ---------- ---------- ----------
Stockholders' Equity $ 51,642 $ (119) $ 51,523
========== ========== ==========
4
<PAGE>
Williams Controls, Inc.
Unaudited Pro forma
Consolidated Statement of Operation
For the Three Months Ended December 31, 1997
(Dollars in thousands)
Williams Pro forma
Controls, Inc. Adjustments As Adjusted
------------- ----------- -----------
Net sales $ 14,944 $ 14,944
Cost of sales 10,789 10,789
---------- ---------- ----------
Gross margin 4,155 0 4,155
Operating expenses:
Research & development 559 559
Selling 691 691
Administration 1,078 1,078
---------- ---------- ----------
Total operating expenses 2,328 0 2,328
Earnings from continuing
operations 1,827 0 1,827
Other (income) expenses:
Interest expense, net 380 (40) 4 340
Other expense (income) (4) (69) 4 (73)
Equity interest in loss
of affiliate 358 0 358
---------- ---------- ----------
Total other (income) expenses 734 (109) 625
Earnings from continuing
operations before income
tax expense 1,093 109 1,202
Income tax expense 421 44 4 465
---------- ---------- ----------
Earnings from continuing
operations before minority
interest 672 65 737
Minority interest in net
loss in consolidated
subsidiaries (22) 0 (22)
---------- ---------- ----------
Net earnings from continuing
operations 694 65 759
Discontinued operations:
Loss from operations on
discontinued operations 0 (15) 4 (15)
Loss on disposal of
discontinued operations 0 (163) 4 (163)
---------- ---------- ----------
Total loss (gain) on
discontinued operations 0 (178) (178)
---------- ---------- ----------
Net earnings $ 694 $ 243 $ 937
========== ========== ==========
Earnings per common share
from continuing operations $ 0.04 $ 0.00 $ 0.04
Earnings per common share
from discontinued operations 0.00 0.01 0.01
---------- ---------- ----------
Earnings per common share $ 0.04 $ 0.01 $ 0.05
========== ========== ==========
Weighted average shares used
in per share calculation 18,500,000 18,500,000 18,500,000
========== ========== ==========
5
<PAGE>
Williams Controls, Inc.
Unaudited Pro forma
Consolidated Statement of Operations
For the Year Ended September 30, 1997
(Dollars in thousands)
Williams Pro forma
Controls, Inc. Adjustments As Adjusted
------------- ----------- -----------
Net sales $ 56,254 $ 56,254
Cost of sales 43,364 43,364
---------- ---------- ----------
Gross margin 12,890 0 12,890
Operating expenses:
Research and development 1,849 1,849
Selling 2,913 2,913
Administration 3,856 3,856
---------- ---------- ----------
Total operating expenses 8,618 0 8,618
Earnings from continuing
operations 4,272 0 4,272
---------- ---------- ----------
Other (income) expenses:
Interest expense, net 1,848 (160) 5 1,688
Other (income) 0 (276) 5 (276)
Equity interest in loss of
affiliate 384 0 384
---------- ---------- ----------
Total other (income)
expenses 2,232 (436) 1,796
Earnings from continuing
operations before income
tax expense 2,040 436 2,476
Income tax expense 1,155 174 5 1,329
---------- ---------- ----------
Earnings from continuing
operations before minority
interest 885 262 1,147
Minority interest in net loss
in consolidated subsidiaries 250 0 250
---------- ---------- ----------
Net earnings from continuing
operations 1,135 262 1,397
Discontinued operations:
(Loss) gain from operations
on automotive accessories
segment (1,207) 1,207 5 0
60 5 60
(Loss) gain on disposal of
automotive accessories segment,
including provision of $1,171
for operating losses during
phase-out period (1,965) 2,019 5 54
---------- ---------- ----------
(Loss) gain from discontinued
operations (3,172) 3,286 114
---------- ---------- ----------
Net earnings (loss) $ (2,037) $ 3,548 $ 1,511
=========== ========== ==========
Earnings per common share
from continuing
operations $ 0.06 $ 0.02 $ 0.08
Earnings (loss) per common
share from discontinued
operations (0.17) 0.17 (0.00)
Earnings (loss) per common ---------- ---------- ----------
share $ (0.11) $ 0.19 $ 0.08
=========== ========== ===========
Weighted average shares used
in per share calculation 18,200,000 18,200,000 18,200,000
========== ========== ===========
6
<PAGE>
Pro forma Adjustments:
1. To record cash, receivables and preferred stock received, in exchange for
net assets held for sale.
2. To record the payment of long-term debt made from the proceeds of the sale.
3. To reflect differences between net assets held for disposition at December
31, 1997 and actual balances of Kenco assets and liabilities disposed of at date
of sale, and to record a $934,000 adjustment to Kenco inventories to the
agreed-upon inventory sales price.
4. To eliminate the operations of Kenco Williams, Inc. from the consolidated
statement of operations of the Company for the three months ended December 31,
1997, assuming the sale occurred at October 1, 1997, to record dividends of
$40,000 on $2,000,000 of KPI preferred stock, to record $69,000 of rental income
from lease with KPI, and to record reduction of interest expense on
$1,125,000 debt, net of income taxes.
5. To eliminate the operations of Kenco Williams, Inc. from the consolidated
statement of operations of the Company for the fiscal year ended September 30,
1997, assuming the sale occurred at October 1, 1996, to record dividends of
$160,000 on $2,000,000 of KPI preferred stock, to record $276,000 of rental
income from lease with KPI, and to record reduction of interest expense on
$1,125,000 debt, net of income taxes.
(c) Exhibits
Exhibit Number Description
-------------- ------------
10.1 Asset Purchase Agreement and related Exhibits
dated March 16, 1998 by Williams Control Inc.
and Kenco Products, Inc. (the "Kenco Agreement").
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WIlliams Controls, Inc.
Date: March 31, 1998 /s/ Gerard A. Herlihy
------------------------
Gerard A. Herlihy
Chief Financial Officer,
Chief Administrative Officer
And Secretary
8
[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 6th day of March, 1998, by and between
KENCO WILLIAMS INC., a Delaware corporation ("Kenco"), and KENCO PRODUCTS, INC.,
a Delaware corporation (the "Purchaser"). There are numerous other defined terms
which are capitalized in this Asset Purchase Agreement (the "Agreement"), all of
which are defined in the substantive provisions of this Agreement or in Article
1, below.
RECITALS
The Purchaser desires to acquire from Kenco the Acquired Assets subject to
the Assumed Liabilities, excluding the Excluded Assets and the Retained
Liabilities.
A. George Briggs ("Briggs"), one of the Guarantors and a principal owner
of the Purchaser, has been acting as general manager in charge of operating the
business of Kenco for more than the past year, is aware of the history of
operating losses of Kenco, and, therefore, has a significant amount of
information regarding the business and assets which are subject of this
Agreement, including (without limitation) the Acquired Assets, the Assumed
Liabilities, the Excluded Assets, and the Retained Liabilities.
B. Kenco desires to sell the Acquired Assets subject to the Assumed
Liabilities;
C. Kenco desires to lease to the Purchaser, and the Purchaser
desires to lease from Kenco, the Leased Assets on the terms and conditions
described herein and set forth in the Lease;
D. Kenco is willing to act as inventory warehouseman for the
Purchaser on the terms and conditions described herein and set forth in the
Warehouse Agreement; and
E. The Guarantors are willing to guarantee the obligations of the
Purchaser under the Lease and the Warehouse Agreement pursuant to the
Guaranty.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto covenant and agree as follows:
ARTICLE 1
ARTICLE 1 DEFINITIONS
Unless otherwise defined in the substantive provisions of this Agreement,
the following terms will have the meanings ascribed to them in this Article 1.
<PAGE>
1.1 "Acquired Assets" means the assets being acquired pursuant hereto by
the Purchaser, including (without limitation) the assets described in Exhibit A.
1.2 "Acquisition" means the purchase by the Purchaser and the sale by
Kenco of the Acquired Assets, subject to the Assumed Liabilities, the Lease and
the Warehouse Agreement.
1.3 "Assumed Liabilities" means those liabilities described in
Exhibit B.
1.4 "Change of Control" means any of the following: (i) the sale, lease,
transfer, conveyance or other disposition of, in one or a series of related
transactions, of all or substantially all of the assets of the Purchaser to any
Person (as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934) (each an "Acquiring Person"), (ii) the adoption of a plan relating to
the liquidation or dissolution of the Purchaser, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (other than either of the Guarantors)
becomes the "beneficial owner" (as each such term is defined in Rule 13d-3 and
Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 20% of
the voting stock of the Purchaser, or (iv) the sale or other disposition by the
Guarantors of their equity ownership position in the Purchaser by more than 20%.
1.5 "Closing" has the meaning set forth in Section 3.3, below.
1.6 "Closing Date" has the meaning set forth in Section 3.3, below.
1.7 "Closing Documents" means this Agreement and the exhibit agreements
and other related agreements required to be executed and delivered under this
Agreement.
1.8 "Employment Agreement" means the Employment Agreement between the
Purchaser and George Briggs in the form of Exhibit H.
<PAGE>
1.9 "Environmental Law or Laws" means all applicable federal, state, local
and foreign laws, statutes, ordinances, codes, rules, standards and regulations,
now or hereafter in effect, and in each case as amended or supplemented from
time to time, and any applicable judicial or administrative interpretation
thereof, including any applicable judicial or administrative order, consent
decree, order or judgment, imposing liability or standards of conduct for or
relating to the regulation and protection of human health, safety, the
environment and natural resources (including ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C. ss.ss. 5101 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss.ss. 136 et
seq.); the Solid Waste Disposal Act (42 U.S.C. ss.ss. 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act (42
U.S.C. ss.ss. 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C.
ss.ss. 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. ss.ss.
651 et seq.); and the Safe Drinking Water Act (42 U.S.C. ss.ss. 300(f) et seq.),
each as from time to time amended, and any and all regulations promulgated
thereunder, and all analogous state, local and foreign counterparts or
equivalents and any transfer of ownership notification or approval statutes.
1.10 "Environmental Liabilities" means any and all liabilities for
the violation of, or remediation under, any Environmental Laws.
1.11 "Exchange Act" means Securities Exchange Act of 1934.
1.12 "Excluded Assets" means those assets described on Exhibit C.
1.13 "Excluded Liabilities" means those liabilities described on
Exhibit D.
1.14 "GAAP" means generally accepted accounting principles
consistently applied in the United States.
1.15 "Guarantors" means Colfax Group, Inc., a Delaware corporation,
and George Briggs, jointly and severally.
1.16 "Guaranty" means the guaranty of obligations of the Purchaser
to be executed by the Guarantors in the form attached as Exhibit E.
1.17 "Hazardous Materials" means any substance, material or waste which is
regulated by or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance which is (a) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's),
or any radioactive substance.
1.18 "Inventory" means the personal property identified on Exhibit
1 to the Warehouse Agreement.
1.19 "IRC" means the Internal Revenue Code of 1986, as amended.
1.20 "Knowledge" means actual knowledge without independent
investigation.
1.21 "Lease" means the lease of the Owned Facilities by Kenco to
the Purchaser in the form attached as Exhibit G.
1.22 "Lender" means Fidelity Funding, Inc., the Purchaser's primary
lender relating to the Transaction.
<PAGE>
1.23 "Liability or Liabilities" means direct or indirect indebtedness,
liability, claim, loss, damage, deficiency, obligation or responsibility, known
or unknown, asserted or unasserted, fixed or unfixed, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
which affects or could affect the Acquired Assets, including any liability for
Taxes.
1.24 "KPI Common Stock" means the $.01 par value common stock of
the Purchaser.
1.25 "KPI Preferred Stock" means the preferred stock to be issued to Kenco
by the Purchaser in accordance with the Certificate of Designations of Series A
Senior Preferred Stock, attached as Exhibit J.
1.26 "Ordinary Course of Business" or "Ordinary Course" means the ordinary
course of business consistent with past custom and practice of Kenco (including
with respect to quantity and frequency).
1.27 "Owned Facilities" means the real property and associated fixtures
owned by Kenco located at 10758 County Road 2, Middlebury, Indiana 46540.
1.28 "Permits" means all licenses, permits, orders and approvals of any
federal, state or local governmental or regulatory bodies that are material to
or necessary for the conduct of the business of Kenco.
1.29 "Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, association, unincorporated
organization, agency, other entity or groups of entities, or governmental body.
1.30 "Security Agreement" means the Security Agreement between
Purchaser and Kenco attached as Exhibit F.
<PAGE>
1.31 "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, claim, or other lien, other than: (a) mechanic's,
materialman's and similar liens; (b) liens for Taxes not yet due and payable or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings; (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement and similar legislation; (d) liens
arising in connection with sales of foreign receivables; (e) liens on goods in
transit incurred pursuant to documentary letters of credit; (f) purchase money
liens and liens securing rental payments under capital lease arrangements; and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
1.32 "Tax" means any federal, state, local or foreign income, gross
receipts, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, stamp, excise,
occupation, sales, use, transfer, value added, ad valorem, alternative, minimum,
estimated, net worth, self-employment, Medicaid, or other tax, including any
interest, penalty or addition thereto, whether disputed or not.
1.33 "Transaction" means the transactions contemplated by this
Agreement and the other Closing Documents.
1.34 "Warehouse Agreement" means the agreement between Kenco and the
Purchaser for the storage and sale of Inventory, in the form attached as Exhibit
I.
ARTICLE 2
ACQUISITION OF ACQUIRED ASSETS
2.1 Purchase and Sale. At the Closing and subject to the terms and
conditions stated herein, Kenco agrees to sell, assign, convey and transfer to
the Purchaser, and the Purchaser agrees to purchase from Kenco, the Acquired
Assets together with all of the properties, rights and goodwill associated
therewith of every kind and description, tangible and intangible, personal or
mixed, as more particularly described in Exhibit A to this Agreement, subject to
the Assumed Liabilities described in Exhibit B to this Agreement. Kenco's sale,
conveyance, assignment and transfer of the Acquired Assets shall be free and
clear of all Security Interests.
2.2 Excluded Assets. The Purchaser shall not purchase the
Excluded Assets described in Exhibit C.
<PAGE>
ARTICLE 3
PURCHASE PRICE AND CLOSING
3.1 Purchase Price for Acquired Assets.
(a) The Purchaser shall pay the total amount of: (1) $1,125,000
in immediately available funds; (2) 2,000 shares of KPI Preferred Stock; and (3)
the Purchaser will assume the Assumed Liabilities (the total of (1), (2) and (3)
being the "Purchase Price") to Kenco for the purchase of the Acquired Assets.
The Purchase Price shall be payable to Kenco at the Closing.
3.2 Allocation of the Purchase Price.
(a) The Purchase Price shall be allocated among the Acquired
Assets as set forth on Schedule 3.2.
(b) The parties agree that they will not take any tax or other
position inconsistent with any allocation of the Purchase Price set forth on
Schedule 3.2.
(c) The Purchaser and Kenco each covenant with the other that it
will promptly give written notice to the other of any inquiry or challenge of
such allocation by any federal, state or local tax authority.
3.3 Closing of the Purchase. The closing of the Transaction (the
"Closing") shall take place at Kenco's offices in Middlebury, Indiana, or at
such other place as selected by the parties on March 6, 1998 at 10:00 a.m. or at
such other time as the parties may agree, but no later than March 20, 1998 (the
"Closing Date").
3.4 Sales and Similar Taxes. The Purchaser shall pay any sales,
use, personal property or similar tax payable as a result of its acquisition
of the Acquired Assets.
ARTICLE 4
REPRESENTATIONS OF KENCO
<PAGE>
As an inducement to the Purchaser to enter into this Agreement and to
complete the Transaction, and with the knowledge that the Purchaser will rely
thereon, Kenco represents and warrants to the Purchaser that all of the
representations and warranties in this Article 4 are true, correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 4), except as
set forth in the Schedules attached to this Agreement which may be revised by
Kenco at any time or times prior to Closing and which Schedules, as the same may
be so revised, will be initialed by the parties at the Closing.
4.1 Due Organization and Qualification. Kenco is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has the corporate power and lawful authority to carry on
its business as now being conducted.
4.2 Title to Property. Kenco has good, valid and marketable title to all
real and personal property included in the Acquired Assets (tangible and
intangible), in each case subject to no Security Interest, option, right of
first refusal, or other restriction of any kind or character (except such
Security Interest which will be released at the Closing following payment to the
holder of such Security Interest).
4.3 Authority of Kenco; Consents. (a) Kenco has full power and
authority to execute and deliver this Agreement and the other Closing
Documents and to carry out the Transaction; and Kenco has taken all requisite
corporate action to authorize the execution, delivery and performance of the
Closing Documents.
(b) This Agreement and the other Closing Documents are valid and
binding agreements of Kenco enforceable in accordance with their terms.
(c) To the Knowledge of Kenco, and based on the representations
by Briggs to Kenco contained in Section 5.4: (A) no consent, authorization or
approval of, or declaration, filing or registration with, any governmental or
regulatory authority or any consent, authorization or approval of any other
third party is required to enable Kenco to enter into and perform its
obligations under this Agreement and the other Closing Documents except as will
be obtained at or prior to the Closing; and (B) neither the execution and
delivery of this Agreement and the other Closing Documents, nor the consummation
of the Transaction will:
(1) Be in violation of the Certificate of Incorporation,
Bylaws or any other organizational document of Kenco, or constitute a breach of
any evidence of indebtedness or agreement to which Kenco is a party;
(2) Result in the creation or imposition of any Security
Interest on any of the Acquired Assets under any agreement or commitment to
which Kenco or the Acquired Assets are bound;
(3) Conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality;
(4) Violate any statute, law or regulation of any
jurisdiction as such statute, law or regulation relates to the Acquired
Assets; or
<PAGE>
(5) Violate or cause any revocation of, or limitation on,
any Permit.
4.4 Compliance with Laws. To the Knowledge of Kenco, and based on the
representations of Briggs to Kenco contained in Section 5.4, Kenco is not in
violation of, nor has Kenco violated, any applicable order, judgment,
injunction, award or decree relating to the Acquired Assets. To the Knowledge of
Kenco, Kenco has not violated nor is it in violation of any federal, state,
local or foreign law, ordinance or regulation or any other requirement of any
governmental or regulatory body, court or arbitrator applicable to the Acquired
Assets.
4.5 Litigation. There are no outstanding orders, judgments, injunctions,
awards or decrees of any court, governmental or regulatory body or arbitration
tribunal against or involving the Acquired Assets or the Assumed Liabilities.
The Purchaser is aware of the litigation in which Kenco or its affiliates are
involved as described on Schedule 4.5 hereto and, with respect to such
litigation, Kenco will indemnify and hold harmless Purchaser against any and all
liabilities which may accrue to Purchaser from such litigation.
4.6 Broker's or Finder's Fees. No agent, broker, Person or firm acting on
behalf of Kenco is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from any Person controlling,
controlled by or under common control with any of the parties hereto, in
connection with the Transaction.
ARTICLE 5
REPRESENTATIONS OF THE PURCHASER AND THE GUARANTORS
As an inducement to Kenco to enter into this Agreement and to complete the
Transaction and with the knowledge that Kenco will rely thereon, the Purchaser
and the Guarantors, jointly and severally, represent and warrant to Kenco that
all of the representations and warranties in this Article 5 are true, correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 5).
5.1 Due Incorporation and Qualification of the Purchaser. The Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has the corporate power and lawful authority
to carry on its business as now being conducted. On or before the Closing Date,
the Purchaser will be duly qualified or otherwise authorized as a foreign
corporation to transact business and will be in good standing in the State of
Indiana.
<PAGE>
5.2 Authority of the Purchaser and the Guarantors; Consents. (a) The
Purchaser and the Guarantors each have full power and authority to execute and
deliver this Agreement and the other Closing Documents and to carry out the
Transaction; and the Purchaser and the Corporate Guarantor each has taken all
requisite corporate action to authorize the execution, delivery and performance
of the Closing Documents.
(b) This Agreement and the other Closing Documents are valid and
binding agreements of the Purchaser and each of the Guarantors, enforceable in
accordance with their terms.
(c) To the Knowledge of the Purchaser and each of the Guarantors:
(A) no consent, authorization or approval of, or declaration, filing or
registration with, any governmental or regulatory authority or any consent,
authorization or approval of any other third party is required to enable the
Purchaser and the Guarantors to enter into and perform their respective
obligations under this Agreement and the other Closing Documents except as will
be obtained at or prior to the Closing; and (B) neither the execution and
delivery of this Agreement and the other Closing Documents, nor the consummation
of the Transaction will, with respect to the Purchaser and the Guarantors,
individually:
(1) Be in violation of the Certificate of Incorporation,
Bylaws or any other organizational documents of it, or constitute a breach of
any evidence of indebtedness or agreement to which it is a party;
(2) Cause a default under any mortgage or deed of trust or
other lien, charge or encumbrance to which any of its property is subject to
under any contract to which it is a party, or permit the termination of any such
contract by another Person;
(3) Result in the creation or imposition of any Security
Interest on any of its property or assets (except the Acquired Assets) under any
agreement or commitment to which it is bound;
(4) Accelerate, or constitute an event entitling, or which
would upon notice or lapse of time or both, entitle the holder of any
indebtedness to accelerate the maturity of any such indebtedness.
(5) Conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality;
(6) Violate any statute, law or regulation of any
jurisdiction as such statute, law or regulation relates to it; or
(7) Violate or cause any revocation of, or limitation
on, any Permit.
5.3 KPI Preferred Stock. The KPI Preferred Stock upon issuance and the KPI
Common Stock issuable upon conversion of the KPI Preferred Stock, will be duly
authorized, fully paid and non-assessable and not subject to any preemptive
rights.
<PAGE>
5.4 Existing Operations. George Briggs has acted as general manager in
charge of operating the business of Kenco for more than a year and in connection
with such operations, and represents and warrants to Kenco, to the best of his
Knowledge, that: (A) no consent, authorization or approval of, or declaration,
filing or registration with, any governmental or regulatory authority or any
consent, authorization or approval of any other third party is required to
enable Kenco to enter into and perform its obligations under this Agreement and
the other Closing Documents except as will be obtained at or prior to the
Closing; (B) neither the execution and delivery of this Agreement and the other
Closing Documents nor the consummation of the Transaction thereby will violate
or cause any revocation of, or limitation on, any Permit; (C) Kenco is not in
violation of, nor has Kenco violated, any applicable order, judgment,
injunction, award or decree relating to the Acquired Assets; and (D) Kenco has
not violated, nor is it in violation, of any federal, state, local or foreign
law, ordinance or regulation or any other requirement of any governmental or
regulatory body, court or arbitrator applicable to the Acquired Assets including
Environmental Laws.
5.5 Broker's or Finder's Fees. No agent, broker, Person or firm acting on
behalf of the Purchaser or the Guarantors is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any Person controlling, controlled by or under common control with any of the
parties hereto, in connection with the Transaction, except Cascade Capital,
Inc., which acted as a broker for the Purchaser and whose commission and fees
related to the transactions contemplated by this Agreement and the other Closing
Documents will be paid entirely by the Purchaser.
ARTICLE 6
REGULATORY COMPLIANCE
6.1 Bulk Sales Compliance. The Purchaser hereby waives compliance by Kenco
with the provisions of the bulk sales law of the State of Indiana, if applicable
to the transfer of the Inventory pursuant to the Warehouse Agreement. Kenco
agrees to indemnify and hold the Purchaser harmless from any liability, other
than Liabilities which comprise part of the Assumed Liabilities, incurred as a
result of the failure to so comply.
6.2 Hart-Scott-Rodino Act. The parties have concluded that provisions of
the Hart-Scott-Rodino Act, 15 U.S.C. ss.ss. 18a, relating to antitrust review by
the federal government, and any similar state statute, are inapplicable to the
transaction contemplated hereunder.
6.3 The WARN Act. The parties have concluded that the provisions of the
WARN Act, 29 U.S.C. ss.ss. 2101, et seq., and any similar state statute,
relating to notice to employees, are inappropriate to the transactions
contemplated hereunder. Kenco agrees to indemnify and hold the Purchaser
harmless from any liability, other than Liabilities which comprise part of the
Assumed Liabilities, incurred as a result of the failure to so comply with the
WARN Act to the extent applicable.
<PAGE>
6.4 COBRA. Kenco will continue to comply with the provisions of
COBRA, Pub. L. No. 99-272, 99th Cong., 2d Sess. (1987), and any similar state
statute, relating to continuation of health benefits to employees of Kenco
whose termination dates occurred on or before the Closing Date.
ARTICLE 7
[SECTION INTENTIONALLY OMITTED]
ARTICLE 8
[SECTION INTENTIONALLY OMITTED]
ARTICLE 9
[SECTION INTENTIONALLY OMITTED]
ARTICLE 10
ACTIONS TO BE TAKEN AT THE CLOSING
In addition to the signature and delivery of this Agreement, the following
actions shall be taken at the Closing, each of which shall be conditioned on
completion of all the others and all of which shall be deemed to have taken
place simultaneously:
10.1 Transfer Documents. The following documents will be
delivered, as fully executed, at Closing:
(a) Kenco shall deliver to the Purchaser an Assignment and Bill
of Sale attached as Exhibit K conveying the Acquired Assets. Within five (5)
Business Days after the Closing, Kenco shall deliver to Purchaser executed
assignments in form satisfactory for filing with the U.S. Patent and Trademark
Office to assign the patents and trademarks included in the Acquired Assets.
(b) Kenco shall deliver to the Purchaser duly executed titles to
all vehicles, machinery and equipment included in the Acquired Assets (provided
such vehicles, machinery and equipment are titled) free and clear of any
Security Interests.
<PAGE>
10.2 The Purchase Price. The Purchaser shall deliver to Kenco the
Purchase Price.
10.3 Lease. The Purchaser and Kenco will enter into the Lease,
attached as Exhibit G.
10.4 Warehouse Agreement. The Purchaser and Kenco will enter into
the Warehouse Agreement attached as Exhibit I.
10.5 Security Agreement. The Purchaser and Kenco will enter into
the Security Agreement attached as Exhibit F.
10.6 Guaranty. The Guarantors will execute and deliver to Kenco
the Guaranty attached as Exhibit E.
10.7 Employment Agreement. The Purchaser and George Briggs will
execute and deliver to each other and to Kenco (third party beneficiary
thereof) the Employment Agreement attached as Exhibit H.
10.8 Employees. The Purchaser shall deliver to Kenco a list of
employees, if any, who will not be hired by the Purchaser immediately after
the Closing.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1 Survival of Representations and Warranties. All of the
representations and warranties of the parties contained in this Agreement shall
survive the Closing for a period of one year after the Closing Date.
11.2 Good Faith Efforts to Settle Disputes. Each of the parties agrees
that, prior to commencing any litigation against the other concerning any matter
with respect to which such party intends to claim a right of indemnification in
such proceeding, such parties shall meet in a timely manner and attempt in good
faith to negotiate a settlement of such dispute during which time such parties
shall disclose to the others all relevant information relating to such dispute.
<PAGE>
11.3 Fees and Expenses. Notwithstanding any other provision in this
Article 11, if any dispute or controversy arises between any of the parties to
this Agreement, the prevailing party in such dispute shall, in addition to any
other remedies the prevailing party may obtain in such dispute, be entitled to
recover from the other party all of its reasonable legal fees and out-of-pocket
costs incurred by such party in enforcing or defending its rights hereunder.
ARTICLE 12
[SECTION INTENTIONALLY OMITTED]
ARTICLE 13
CERTAIN ADDITIONAL AGREEMENTS
13.1 Public Statements; Confidentiality of Information. (a) No party will
make any public disclosure (including, without limitation, disclosure to Kenco's
employees or customers) of this Agreement or the Acquisition without the prior
consent of the other party hereto, which consent shall not be unreasonably
withheld, provided, however, that the foregoing shall not preclude any party
from making any disclosure which, in the opinion of its counsel, is required to
be made under applicable federal and state securities laws.
(b) Subject to the obligation of Williams Controls, Inc., the
parent of Kenco, as a public company to issue appropriate public announcements
of material events, and subject to this Section 13.1 hereof, each party will
maintain the confidentiality of all non-public information obtained from any
other party.
13.2 Employee Matters. Purchaser will assume any payable, vacation and
payroll related liabilities excluding the obligations for long-term
disabilities. Purchaser will have in place a full benefits package for the Kenco
Employees hired by it, including health and life insurance with full and
continuous coverage following the Closing and will advise Kenco at the Closing
the names of any employees who will not be hired by the Purchaser.
<PAGE>
13.3 Capitalization; Insider Investment. Purchaser has authorized
25,000,000 shares of capital stock, includig 20,000,000 shares of common stock,
$.01 par value per share, and 5,000,000 shares of preferred stock, $.01 par
value per share. On or before the Closing Date, the Guarantors and other persons
selected by the Guarantors shall have purchased 1,100,000 shares on or before
the Closing Date and, within 60 days after the Closing shall have purchased an
additional 900,000 shares at a price or prices of not less than 22 1/2(cent) per
share. In addition, Purchaser may sell up to an additional 500,000 shares of its
common stock on or before May 31, 1998 at a price or prices not less than 22
1/2(cent) per share. Purchaser has designated an additional 500,000 shares of
its common stock (the "Option Plan Shares") for the grant and exercise of stock
options under an employee stock option plan, of which not more than 250,000
shares may be issued at a price or prices not less than 22 1/2(cent) per share.
For so long as Kenco or its successors or assigns owns the KPI Preferred Stock,
the remaining 250,000 Option Plan Shares shall not be issued at a per share
price or prices less than the greater of $1.333 or fair market value per share.
13.4 Retention of Records. Following the Closing, the Purchaser will
retain all records relating to Kenco's operations prior to the Closing for not
less than six years, and will provide Kenco and its representatives access to
and (if requested by Kenco) copies of such records during normal business hours.
At Kenco's request, the Purchaser will turn over to Kenco the originals of all
records relating to Kenco's operations prior to the Closing, although the
Purchaser will be entitled to make and retain copies thereof as the Purchaser
may deem necessary or appropriate.
13.5 Expenses. Each party shall pay its own costs and expenses, including
the fees and disbursements of its respective counsel, in connection with the
negotiation, preparation and execution of this Agreement and the completion of
the Transaction whether or not the Transaction is completed.
13.6 Waivers and Consents. All waivers and consents given hereunder shall
be in writing. No waiver by any party hereto of any breach or anticipated breach
of any provision hereof by any other party shall be deemed a waiver of any other
contemporaneous, preceding or succeeding breach or anticipated breach, whether
or not similar, on the part of the same or any other party.
13.7 Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other parties, or whenever any of the parties desires to give or serve upon any
other parties any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (a) upon the earlier of actual receipt or five Business Days after
deposit in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) one Business Day after deposit with
a reputable overnight courier with all charges prepaid or (c) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address indicated below, or to such other address as
may be substituted by notice given as herein provided.
If to the Purchaser:
Kenco Products, Inc.
c/o George Briggs
10758 County Road 2
Middlebury, IN 46540
<PAGE>
With a copy to:
Thomas Keenum, Esq.
Keenum & Tutor, P.A.
301B College Street
Booneville, MS 38829
If to Kenco:
Gerard A. Herlihy
Chief Financial Officer
c/o Aptek Williams, Inc.
700 N.W. 12th Avenue
Deerfield Beach, FL 33442
With a copy to:
Gerald Raskin, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, CO 80202
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person designated herein to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
13.8 Further Assurances. From and after the date of this Agreement, each
of the parties hereto will cooperate with each other and will use its best
efforts to obtain all necessary waivers and consents from third parties. Kenco,
at any time and from time to time on and after the Closing, upon request by the
Purchaser and without further consideration, shall take or cause to be taken
such actions and execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such transfers, conveyances and assurances as may be
reasonably requested by the Purchaser for the better conveying, transferring,
assigning, delivering, assuring and confirming the Acquired Assets to the
Purchaser. Specifically, within five (5) Business Days after the Closing, Kenco
shall deliver to Purchaser executed assignments in form satisfactory for filing
with the U.S. Patent and Trademark Office to assign the patents and trademarks
included in the Acquired Assets.
<PAGE>
13.9 Entire Agreement. This Agreement, including all Schedules, Exhibits
and Exhibit Agreements hereto, and the other Closing Documents constitute the
entire agreement of the parties with respect to the subject matter hereof and
may not be modified, amended or terminated except by a written instrument
specifically referring to this Agreement signed by each of the parties hereto or
as otherwise provided in this Agreement.
13.10 Construction. In the event of an ambiguity or a question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" means including without limitation. Where appropriate to avoid
any ambiguity and to encompass the broadest meaning, the word "and" shall mean
"and/or," and the word "or" shall mean "and/or." The parties intend that the
each representation, warranty and covenant contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter,
regardless of the relative levels of specificity, which the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
13.11 No Rights of Third Parties. All conditions of the obligations of the
parties hereto, and all undertakings herein, except as otherwise provided herein
or by a written consent, are solely and exclusively for the benefit of the
parties hereto and their successors and assigns, and no other Person shall have
standing to require satisfaction of such conditions or to enforce such
undertakings in accordance with their terms or be entitled to assume that any
party hereto will refuse to complete the Transaction contemplated hereby in the
absence of strict compliance with any or all thereof, and no other Person shall,
under any circumstances, be deemed a beneficiary of such conditions or
undertakings, any or all of which may be freely waived in whole or in part, by
mutual consent of the parties hereto at any time, if in their sole discretion
they deem it desirable to do so.
13.12 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
<PAGE>
13.13 Applicable Law; Jurisdiction. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
IN ANY OF THE CLOSING DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE RELATED DOCUMENTS
AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF MICHIGAN APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. THE PURCHASER AND EACH GUARANTOR HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN OAKLAND COUNTY, MICHIGAN SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG THE PURCHASER,
THE GUARANTORS, AND KENCO PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER
CLOSING DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY OF THE OTHER CLOSING DOCUMENTS, PROVIDED, THAT NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE KENCO FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF KENCO. THE PURCHASER AND EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH
COURT, AND THE PURCHASER AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH
SUCH PERSON MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. THE PURCHASER AND EACH
GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH PERSON AT THE ADDRESS SET FORTH HEREIN AND THAT SERVICE
SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PERSON'S ACTUAL
RECEIPT THEREOF OR FIVE DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPERApplicable
Law; Jurisdiction. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE CLOSING
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT AND THE RELATED DOCUMENTS AND THE OBLIGATIONS SHALL
BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF MICHIGAN APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND
ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE PURCHASER AND EACH
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
OAKLAND COUNTY, MICHIGAN SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES AMONG THE PURCHASER, THE GUARANTORS, AND KENCO PERTAINING
TO THIS AGREEMENT OR ANY OF THE OTHER CLOSING DOCUMENTS OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER CLOSING DOCUMENTS,
PROVIDED, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
KENCO FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF KENCO. THE PURCHASER AND
EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE PURCHASER AND EACH
GUARANTOR HEREBY WAIVES ANY OBJECTION WHICH SUCH PERSON MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. THE PURCHASER AND EACH GUARANTOR HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PERSON AT
THE ADDRESS SET FORTH HEREIN AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF SUCH PERSON'S ACTUAL RECEIPT THEREOF OR FIVE DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
13.14 Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG KENCO AND THE PURCHASER OR ANY GUARANTOR
ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
CLOSING OR RELATED DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
13.15 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto except with the written
consent of the other parties, which consent will not be unreasonably withheld.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
13.16 Counterparts and Facsimile Signatures. This Agreement may be
executed in two or more counterparts, all of which taken together shall
constitute one instrument. Execution and delivery of this Agreement by exchange
of facsimile copies bearing the facsimile signature of a party shall constitute
a valid and binding execution and delivery of this Agreement by such party. Such
facsimile copies shall constitute enforceable original documents.
13.17 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
13.18 Corporate Authority. The undersigned have executed this
Agreement with all requisite corporate authority.
<PAGE>
13.19 Time of Essence. Time shall be of the essence hereof.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
hereunto subscribed, all as of the day and year first above written.
"The Purchaser"
KENCO PRODUCTS, INC.
By /s/George Briggs
-------------------------
George Briggs, President
"Kenco"
KENCO WILLIAMS, INC.
By /s/George Briggs
------------------------------------
Gerard A. Herlihy, Chief Financial
Officer
The undersigned persons have signed this Agreement for the purpose of
making the representations contained in Article 5 herein and agreeing to the
provisions contained in Sections 13.12 and 13.13.
"Guarantors"
COLFAX GROUP, INC.
By /s/George Briggs
----------------------------
George Briggs, President
/s/George Briggs
-----------------------------
George Briggs, Individually
[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
GUARANTY
THIS GUARANTY is dated and delivered effective as of March 6, 1998, by
George Briggs, an individual, and Colfax Group, Inc., a Delaware corporation
(the "Guarantors") to Kenco Williams, Inc. ("Kenco").
I. Kenco Products, Inc., a Delaware corporation ("KPI"), has entered into
an agreement to purchase certain assets from Kenco (the "Transaction") pursuant
to the terms of an agreement (the "Asset Purchase Agreement") dated of even date
herewith by and between KPI and Kenco.
A. A condition of the Transaction is that each of the Guarantors guarantee
KPI's performance of its obligations under the Lease, the Warehouse Agreement
and the Indemnification Agreement, as those terms are defined in the Asset
Purchase Agreement, and the purpose of this Guaranty is to accomplish those
requirements.
NOW, THEREFORE, in consideration of the completion of the Transaction, the
compliance by Kenco with the provisions of the various agreements by which the
Transaction was completed, and for other good and valuable consideration, the
adequacy and receipt of which hereby is acknowledged, and intending to be
legally bound, the Guarantors hereby covenants and agrees as follows:
1. The Guaranty. The Guarantors hereby absolutely and unconditionally,
jointly and severally, guarantee to Kenco performance of all of KPI's
obligations due to Kenco including, without limitation, the following agreements
(collectively referred to as the "Guaranteed Obligations"):
(a) the Indemnification Agreement dated as of the date hereof by which KPI
agrees to indemnify and hold Kenco harmless from the obligations as
specified therein (the "Indemnification Agreement");
(b) the lease for certain real estate located at 10758 County Road 2,
Middlebury, Indiana (the "Warehouse") dated as of the date hereof by which
Kenco has leased the Warehouse to KPI on the terms and conditions stated
therein (the "Lease");
(c) the agreement dated as of the date hereof by which KPI has agreed to
purchase inventory from Kenco on the terms and conditions stated therein
(the "Warehouse Agreement");
(d) the Inventory Purchase Note as that term is defined in the
Warehouse Agreement;
<PAGE>
(e) other obligations which KPI owes to Kenco, or in the future may
owe to Kenco, whether or not specified herein; and
(f) interest, penalties, and fees that may accrue or be payable on any
of the foregoing.
In the case of the failure or inability of KPI duly, punctually and fully to pay
any such Guaranteed Obligation when due, the Guarantors hereby, jointly and
severally, irrevocably and unconditionally agree to pay or cause to be paid
forthwith to the person or persons entitled to receive the same (according to
their respective interests) an amount equal to the aggregate of all such
Guaranteed Obligations then due and unpaid. In addition, in the case of any such
failure of payment of any Guaranteed Obligation by KPI, each of the Guarantors
shall forthwith, upon request from Kenco, pay to Kenco such additional amounts
as may be necessary to reimburse Kenco in full for any reasonable expenses that
Kenco incurred or may incur as a result of any such failure by KPI (including
reasonable attorneys' fees and other reasonable fees and disbursements that may
have been incurred by or on behalf of Kenco in enforcing such payment by KPI or
in enforcing this Agreement.
2. Guarantors' Obligations Absolute. The obligations of each of the
Guarantors under this Agreement shall be primary obligations of each such
Guarantor, are absolute and unconditional and their obligations under Section 1
shall constitute a guaranty of payment, performance and discharge and not of
collection. Such obligations shall not be subject to any counterclaim, set off,
deduction, diminution, abatement, recoupment, suspension, deferment, reduction
or defense for any reason whatsoever, and the Guarantors shall have no right to
terminate this Agreement or to be released, relieved or discharged from their
obligations hereunder for any reason whatsoever (whether or not the Guarantors,
KPI, or Kenco shall have any knowledge or notice thereof) including, without
limitation:
(a) any amendment, modification, addition, deletion or supplement to
or other change in the Asset Purchase Agreement, or any of the documents
referred to therein, or any other instrument or agreement applicable to
any of the parties to such agreements or instruments, or any assignment or
transfer of any such agreement or instrument or of any interest therein,
or any furnishing or acceptance of additional guaranty or indemnity, or
any release of any additional guaranty or indemnity;
(b) any failure, omission or delay on the part of KPI or Kenco to
conform or comply with any term of any instrument or agreement referred to
in Section 2(a);
(c) any waiver, consent, extension, indulgence, compromise, release
or other action or inaction under or in respect of any instrument or
agreement referred to in Section 2(a) or any other obligation or liability
of KPI or Kenco, or any exercise or nonexercise of any right, remedy,
power or privilege under or in respect of any such instrument or agreement
or any such obligation or liability;
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding with respect
to KPI or Kenco, or any other person or any of their respective properties
or creditors, or any action taken by any trustee or receiver or by any
court in any such proceeding;
<PAGE>
(e) any limitation on any liability or obligation of KPI under the
Asset Purchase Agreement, or any of the other instruments or agreements
referred to in Section 2(a), or any discharge, termination, cancellation,
frustration, irregularity, invalidity, unenforceability, illegality or
impossibility of performance, in whole or in part, of the Asset Purchase
Agreement, or any of the other documents referred to therein or any other
agreement or instrument referred to in Section 2(a) or any term of any
thereof;
(f) any merger or consolidation of KPI or any Guarantor into or with
any other corporation or entity or any sale, lease or transfer of any of
the assets of KPI or either of the Guarantors or any other person;
(g) any other occurrence or circumstance whatsoever, whether similar
or dissimilar to the foregoing, that might otherwise constitute a legal or
equitable discharge, release or defense of the liabilities of a guarantor
or surety or that might otherwise limit recourse against either or both of
the Guarantors.
The obligations of the Guarantors set forth herein constitute the full recourse
obligations of the Guarantors enforceable against them to the full extent of all
their assets and properties.
3. Waivers by Guarantors. Each of the Guarantors hereby unconditionally
waives and agrees to waive at any future time any and all rights which such
Guarantor may have or which now or at any time hereafter may be conferred upon
it, by statute, regulation or otherwise, to terminate, cancel, quit or surrender
this Agreement. Without limiting the generality of the foregoing, it is agreed
that, at any time or from time to time, the occurrence or existence of any one
or more of the following shall not release, relieve or discharge the Guarantors
from liability hereunder, and each Indemnitor hereby unconditionally waives and
agrees to waive to the extent permitted by applicable law:
(a) notice of any of the matters referred to in Section 2;
(b) all notices that may be required by statute, rule of law or
otherwise, now or hereafter in effect, to preserve intact any rights
against such Guarantor, including, without limitation, any demand,
presentment and protest and notice of any default or failure on the part
of KPI to perform and comply with any covenant, agreement, term or
condition of the Asset Purchase Agreement or any other agreement of KPI
referred to therein or herein;
(c) the enforcement, assertion or exercise against KPI of any right,
power, privilege or remedy conferred in the Asset Purchase Agreement or
any other agreement of KPI referred to therein or herein, or otherwise;
(d) any requirement of diligence on the part of any person;
(e) any requirement to exhaust any remedies or to mitigate the
damages resulting from a default under the Asset Purchase Agreement or any
other agreement of KPI referred to therein or herein;
<PAGE>
(f) any notice of any sale, transfer or other disposition of any
right, title to or interest in the Asset Purchase Agreement, or any other
obligation of KPI contained in an agreement referred to therein or herein;
or
(g) any other occurrence or circumstance whatsoever, whether similar
or dissimilar to the foregoing, that might otherwise constitute a legal or
equitable discharge, release or defense of the liabilities of a guarantor
or surety or that might otherwise limit recourse against either or both of
the Guarantors.
4. Continuing Guaranty. Except as otherwise provided herein, this Guaranty
shall continue to be in force and be binding upon the Guarantors until all
obligations due to Kenco under the Asset Purchase Agreement, the Lease, the
Warehouse Agreement and the Indemnification Agreement and the other obligations
referred to therein or herein have been performed.
5. Reinstatement of Agreement. This Agreement shall continue to be
effective, or be reinstated, as the case may be, if at any time payment or any
part thereof of any of the obligations indemnified or guaranteed hereunder is
rescinded or must otherwise be restored or returned by the recipient thereof
upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of
KPI, or upon or as a result of the appointment of a custodian, receiver,
intervenor, or conservator of, or trustee or similar officer for, KPI or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
6. No Subrogation. Neither of the Guarantors shall be entitled to be
subrogated to any of the rights of Kenco against KPI in respect of any amounts
paid by the Guarantors pursuant to any provision of this Guaranty until all
Guaranteed Obligations have been paid or performed or discharged in full, but
upon such payment or performance or discharge in full (and so long as this
Agreement has not been reinstated pursuant to Section 5), the Guarantors shall
be subrogated in full to all rights of Kenco in respect thereof, and Kenco will
assign, without any representation or warranty, all of its rights against KPI to
the Guarantors.
7. Termination. This Guaranty shall terminate when each and every one of
the Guaranteed Obligations has been performed and satisfied, and all applicable
statutes of limitations for the recovery of any amounts hereunder have expired.
Thereafter, Kenco will furnish the Guarantors written cancellation of this
Guaranty and will return the original of this Guaranty to the Guarantors.
8. Waiver of Acceptance. Each Guarantor hereby waives acceptance of
this Agreement by Kenco.
9. Rights of Third Parties. This Agreement is made for the benefit
of, and shall be enforceable by, Kenco and its successors and assigns, and
this Agreement shall not be construed to create any right in any other person.
<PAGE>
10. General Provisions.
(a) No delay on the part of Kenco in the exercise of any power or
right shall operate as a waiver thereof, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right.
(b) Each Guarantor hereby agrees to execute and deliver all such
other instruments and take all such action as Kenco may from time to time
reasonably request in order to effectuate fully the purposes of this Agreement.
(c) It shall not be necessary for Kenco, in order to enforce payment
of the Guaranteed Obligations by Guarantors or either of them, to first
institute suit or exhaust its remedies against KPI on such Guaranteed
Obligations, to have KPI joined with Guarantors in any suit brought under the
Guaranty or to enforce its rights against any collateral securing the Guaranteed
Obligations (the "Collateral"); provided however, that in the event Kenco elects
to enforce or exercise any remedies it may possess with respect to any such
Collateral for the Guaranteed Obligations prior to demanding performance from
Guarantors, Guarantors shall nevertheless be obligated hereunder to perform any
and all obligations owed to Kenco on the Guaranteed Obligations, except
Guarantors will not be obligated for sums repaid or recovered incident to the
exercise of such remedies.
(d) All warranties, representations, covenants, indemnities and
agreements made by each Guarantor herein or in any certificate or other
instrument delivered by it or on its behalf under this Agreement shall be
considered to have been relied upon by Kenco and shall survive the execution and
delivery of this Agreement, regardless of any investigation made by Kenco or on
its behalf. All statements of the Guarantors, or on their behalf, in any such
certificate or other instrument shall constitute warranties and representations
by the Guarantors hereunder.
(e) Guarantors agrees that Kenco may without notice to Guarantors at
any time and from time to time, at its discretion and with or without valuable
consideration: (i) allow substitution or withdrawal of any Collateral or other
security; (ii) release such Collateral or other security; (ii) compromise or
settle any amount due or owing under the Guaranteed Obligations; or (iv) amend
or modify in whole or in part the documents evidencing or securing the
Guaranteed Obligations, all without impairing or diminishing the obligations of
Guarantors hereunder. Guarantors further agrees that if KPI executes any
collateral assignments, mortgages or other security instruments, the exercise by
Kenco of any right or remedy thereby conferred on Kenco shall be wholly
discretionary with Kenco, and that the exercise or failure to exercise any such
right or remedy shall in no way impair or diminish the obligation of Guarantors
hereunder. Guarantors further agrees that Kenco shall not be liable for its
failure to use diligence in the collection of the Guaranteed Obligations.
Guarantors hereby waives notice of an event of default by KPI on the Guaranteed
Obligations, notice of acceleration of the Guaranteed Obligations, notice of
nonpayment of the Guaranteed Obligations, presentment, protest or notice of
dishonor of the Guaranteed Obligations, and diligence in bringing suits against
any person jointly or severally liable on the Guaranteed Obligations or any part
thereof.
(f) This Guaranty is made under and shall be governed by the
laws of the State of Oregon.
<PAGE>
Notices. Any and all notices required or permitted hereunder shall be given
as follows:
If to the Guarantors:
George Briggs
Kenco Products, Inc.
10758 County Road 2
Middlebury, IN 46540
Colfax Group, Inc.
c/o George Briggs
Kenco Products, Inc.
10758 County Road 2
Middlebury, IN 46540
With a copy to:
Thomas Keenum, Esq.
Keenum & Tutor, P.A.
301B College Street
Booneville, MS 38829
If to Kenco:
Gerard A. Herlihy
c/o Aptek Williams, Inc.
700 N.W. 12th Avenue
Deerfield Beach, FL 33442
With a copy to:
Gerald Raskin, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
Any notice required to be made within a stated period of time shall be
considered timely made if deposited before midnight of the last day of the
stated period. Any party may give any notice or other communication hereunder by
personal delivery or using a nationally recognized overnight courier service,
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it is actually received by the
individual for whom it is intended. Any party may change the address to which
notices, requests, demands, claims or other communications hereunder are to be
delivered by giving the other party notice in the manner set forth herein.
<PAGE>
IN WITNESS WHEREOF, Guarantors has caused this Guaranty to be executed as
of the date first above written.
"Guarantors"
COLFAX GROUP, INC.
By /s/ George Briggs
--------------------------
George Briggs, President
/s/ George Briggs
-----------------------------
George Briggs, Individually
[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
SECURITY AGREEMENT
DATE: Effective March 6, 1998
BETWEEN: KENCO PRODUCTS, INC., a Delaware corporation
10758 County Road 2
Middlebury, IN 46540
Attention: George Briggs
(the "Debtor")
AND: KENCO WILLIAMS, INC., a Delaware corporation
c/o Aptek Williams, Inc.
700 N.W. 12th Avenue
Deerfield Beach, FL 33442
Attention: Gerard A. Herlihy, CFO
(the "Secured Party")
1. Grant of Security Interest. For valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and to secure payment
and performance of the Obligations described in Section 2, Debtor hereby grants
to Secured Party, a security interest in and to the following (collectively, the
"Collateral"):
(a) all of Debtor's inventory (including finished inventory,
work-in-process, and raw materials), equipment, machinery, furniture and
fixtures, vehicles, supplies, all accounts (including all rights under contracts
to sell or lease goods or equipment or to render services, whether or not earned
by performance, which are not evidenced by an instrument or chattel paper),
contract rights, drafts, acceptances, notes, securities and other instruments,
all chattel paper, documents, records, computer software and data general
intangibles and other forms of receivables, and all guaranties and securities
therefor, including without limitation the property described below, now owned
or hereafter acquired by Debtor, as well as the products and proceeds thereof:
(i) any and all patents, copyrights, registered and
common law trademarks, trade names, service marks, service names, slogans,
assumed names and other similar rights owned by Debtor or which it has the
right to use in the conduct of its business, including, without
limitation, any rights to Debtor's trade names;
<PAGE>
(ii) all claims, causes of action, and other rights of
Debtor that relate in any way to the ownership, operation, use, or lease
of any of the Collateral;
(iii) all rents, income, receipts, revenues, issues,
profits and other income, liens, and security interests of any nature to
which Debtor may now be or shall hereafter become entitled arising from
the Collateral; and
(b) all equipment, fixtures, and goods of Debtor, including
additional equipment, fixtures, and goods acquired hereafter, together with all
accessions, parts, additions, substitutions, and replacements affixed thereto,
as well as the products and proceeds thereof.
2. Obligations Secured. This Agreement is given to secure (a) payment of
all indebtedness now or hereafter owing to Secured Party by Debtor and
performance of the covenants, notes and agreements between the Debtor and
Secured Party arising under the Asset Purchase Agreement, Warehouse Agreement
and Lease, each dated March 6, 1998 and the promissory note to be entered into
in connection with the Warehouse Agreement (the "Acquisition Documents"); (b)
any and all renewals and extensions of the any of the Acquisition Documents,
whether or not evidenced by new or additional instruments; (c) performance of
the covenants and provisions in all other agreements, certificates, guaranties,
or other documents executed by Debtor in connection with the Acquisition
Documents; (d) full performance or repayment of any and all obligations of
Debtor to Secured Party resulting from advances, either direct or indirect, to
Debtor by Secured Party and any other obligations incurred, either direct or
indirect, for the benefit of Debtor by Secured Party, and (e) payment of all
costs, expenses and reasonable attorney fees at trial, on appeal, or in any
bankruptcy proceeding incurred by Secured Party in enforcing the debts,
obligations and liabilities of Debtor and in preserving, handling, protecting,
collecting, foreclosing, disposing and otherwise realizing on any and all
security therefor (collectively, the "Obligations").
Notwithstanding any provision contained herein as to the rights of Secured
Party hereunder, Secured Party shall take no action, including, without
limitation, enforcement of any of its rights with respect to the Collateral that
would be in conflict with or contrary to provisions of the Subordination
Agreement dated of even date herewith among Debtor, Secured Party and Fidelity
Funding, Inc. (the "Subordination Agreement").
<PAGE>
3. Warranties, Representations and Covenants of Debtor. Debtor
represents, warrants and covenants as follows:
(a) Except for Permitted Liens (as defined below): (i) It will keep
its portion of the Collateral free and clear of any lien, encumbrance or
security interest; (ii) It will not mortgage, pledge, grant, or permit to exist
a security interest or lien upon any of the Collateral, now owned or hereafter
acquired by it; (iii) It is, and as to portions of the Collateral it acquires
after the date hereof, it will be, the sole owner of the Collateral, free from
any adverse lien, security interest, or adverse claim of any kind whatsoever,
except for claims of persons claiming solely by, through or under Secured Party.
"Permitted Liens" means (i) liens arising by operation of law for taxes,
assessments or governmental charges not yet due; (ii) statutory liens of
mechanics, materialmen, shippers, warehousemen, carriers and other similar
persons for services or materials arising in the ordinary course of business for
which payment is not yet due; (iii) non-consensual liens incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
liens for taxes or statutory liens of mechanics, materialmen, shippers,
warehousemen, carriers and other similar persons for services or materials which
are due but are being contested in good faith and by appropriate and lawful
proceedings promptly initiated and diligently conducted and for which reserves
satisfactory to Secured Party have been established; (v) liens in favor of
Secured Party; and (vi) liens in favor of Fidelity Funding, Inc. No financing
statement or other instrument affecting the Collateral, or rights therein,
bearing the signature of, or otherwise authorized by, Debtor is on file in any
public filing office, other than those giving rise to Permitted Liens. Debtor
will notify Secured Party of any claim or demand against the Collateral and will
defend the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein, other than those persons whose claims
or demands are based on Permitted Liens, and other than those persons claiming
solely by, through or under Secured Party.
(b) Debtor's equipment and inventory are located in the States of
Indiana and Oregon. Debtor will notify Secured Party in the event it opens
places of business in other states or comes to have Collateral located in other
states. The Collateral is not used or bought for personal, family or household
purposes.
(c) Debtor's principal place of business is in Middlebury, Indiana.
Debtor will not move its principal place of business outside its present
location. Debtor will not do business under any assumed business names except
those of which Debtor has notified Secured Party in writing of the adoption or
change of any assumed business name, and will, upon request of Secured Party,
execute any additional financing statements or other certificates necessary to
reflect the adoption or change in such name or names.
(d) Debtor will not sell, lease, transfer or otherwise dispose of
any interest in any Collateral (other than in the ordinary course of business)
without the prior written consent of Secured Party.
(e) Debtor will keep the Collateral in good condition and repair,
and will not misuse, abuse, destroy, or allow to deteriorate or waste the
Collateral or any part thereof, except for ordinary wear and tear of its normal
and excepted use in Debtor's business. Debtor will not use any of the Collateral
in violation or any governmental law, rule, or regulation. Secured Party or its
designee may examine and inspect the Collateral at all reasonable times,
wherever located, and for that purpose is authorized by Debtor to enter any
place or places where any part of the Collateral may be.
<PAGE>
(f) Debtor will keep the Collateral fully insured against loss or
damage by fire, theft, collision, and such other hazards.
(g) Debtor will pay promptly when due all taxes, license fees, and
assessments on the Collateral. Debtor may withhold payment of any tax, license
fee, or assessment in connection with a good faith dispute over the obligation
to pay, so long as Secured Party's interest in the Collateral is not
jeopardized. If a lien arises or is filed as a result of nonpayment, Debtor
shall within 20 days after the lien arises or, if a lien is filed, within 15
days after Debtor has notice of the filing, secure the discharge of the lien or
deposit with Secured Party cash or a sufficient corporate surety bond or other
security satisfactory to Secured Party in an amount sufficient to discharge the
lien plus any costs, attorney fees, or other charges that could accrue as a
result of a foreclosure or sale under the lien.
(h) Debtor will promptly execute any document, alone or with Secured
Party, procure any document, give any notices, do all other acts, and pay all
costs associated with the foregoing that Secured Party determines are necessary
to protect the Collateral against rights, claims or interest of third parties
(except those arising from Permitted Liens or those claiming solely by, through
or under Secured Party) and will otherwise preserve the Collateral as security
hereunder.
(i) Debtor will not assert against Secured Party any claim or
defense which Debtor may have against any other person with respect to the
Collateral or any part thereof.
(j) Until foreclosure, Debtor will indemnify, defend and hold
Secured Party harmless from and against any loss, liability, damage, cost and
expense whatsoever arising from the use, operation, ownership or possession of
the Collateral or any part thereof.
(k) Debtor shall promptly replace any material loss, theft, damage
or destruction of any Collateral; provided that if all insurance proceeds
covering such loss, theft, damage or destruction are promptly applied to the
reduction of indebtedness under the Kenco Note, then such failure to replace
shall not constitute an Event of Default.
(l) Debtor promptly will deliver to Secured Party all appropriate
financing statements and such other documents or instruments as Secured Party
may reasonably request to perfect the Security Interest created hereby which
will be subordinate only to the security interests granted to Fidelity Funding,
Inc.
4. Preservation of Collateral by Secured Party. If Debtor should fail to
make any payment, perform or observe any other covenant, obligation or
agreement, or take any other action which Debtor is obligated hereunder to make,
perform, observe, take or do, then Secured Party may, at Secured Party's sole
discretion, without notice to or demand upon Debtor and without releasing Debtor
from any obligation, covenant, or agreement hereof, make, perform, observe, take
or do the same in such manner and to such extent as Secured Party may deem
necessary to protect the security interest in or the value of the Collateral.
Furthermore, Secured Party, in its sole discretion, may commence, appear or
otherwise participate in any action or proceeding purporting to affect Secured
Party's security interest in or the value or ownership of the Collateral. All
sums expended or incurred by Secured Party pursuant to the foregoing
authorizations (including reasonable attorney fees) shall be secured hereby and
shall be due and payable within ten days after demand and shall bear interest
from the date of expenditure until the date of reimbursement at 15% per annum.
<PAGE>
5. Use of Collateral by Debtor. So long as no Event of Default shall have
occurred, Debtor may have possession of the Collateral (other than instruments
delivered to Secured Party pursuant to this Agreement) and may use the
Collateral in any lawful manner not inconsistent with any other agreement or
policy of insurance which affects the Collateral. Secured Party acknowledges and
agrees that any buyer in the ordinary course of Debtor's business takes free of
Secured Party's security interest.
6. Events of Default. TIME IS OF THE ESSENCE. Any of the following
shall constitute an event of default under this Agreement ("Event of
Default"):
(a) An Event of Default shall occur under any of the Acquisition
Documents;
(b) Secured Party receives any evidence that any Debtor has taken
any action that is contrary to its grant to Secured Party of a security interest
in the Collateral, and such default is not remedied within 20 days after notice
to Debtor by Secured Party;
(c) Debtor fails to perform or observe any covenant, agreement,
term, or promise contained herein or in any other agreement with Secured Party
to which Debtor is a party, and such performance or observance is not remedied
within 20 days from the earlier of the time an officer or director of Debtor
obtains actual acknowledge thereof or notice from Secured Party or the Bank;
(d) Any representation, warranty, or statement made herein proves to
have been false or misleading in any material respect as of the time made; or
(e) Material loss, theft, destruction or disappearance of, or damage
to, the Collateral, and such Collateral is not replaced within 20 days of such
event (or such additional time as may be necessary to replace such Collateral by
the exercise of reasonable diligence) or all insurance proceeds covering such
loss, theft, destruction or disappearance are not promptly applied to the
reduction of any indebtedness to Fidelity Funding, Inc. or Obligations to
Secured Party, as appropriate.
<PAGE>
7. Remedies Upon Default. Subject in all cases to the Subordination
Agreement.
(a) Upon the occurrence of any Event of Default, Secured Party may,
at its option and in addition to any other remedies provided by law, in this
Agreement or in any other agreement with Secured Party to which Debtor is a
party, do any one or more of the following, successively or concurrently:
(i) Declare all indebtedness secured hereby to be
immediately due and payable.
(ii) Either personally, or by means of a court appointed
receiver, take possession of all or any of the Collateral and exclude
therefrom Debtor and all others claiming under Debtor, and thereafter
hold, store, use, operate, manage, lease, maintain and control the
Collateral, make repairs, replacements, alterations, additions and
improvements to the Collateral and exercise all rights and powers of
Debtor with respect to the Collateral or any part thereof. Debtor hereby
expressly waive any requirement that Secured Party or the receiver post a
bond upon such appointment. If Secured Party demands or attempts to take
possession of the Collateral in the exercise of any rights under this
Agreement, Debtor shall turn over promptly and deliver complete possession
thereof to Secured Party.
(iii) Without notice to or demand upon Debtor, make such
payments and do such acts as Secured Party may deem necessary to protect
Secured Party's security interest in the Collateral, including without
limitation, (1) paying, purchasing, contesting or compromising any
encumbrance, charge or lien which is prior to or superior to the security
interest granted hereunder, and in exercising any such powers or authority
to pay all expenses incurred in connection therewith, and (2) in
exercising its rights under this Section 7, collect, compromise, endorse,
sell, or otherwise deal with Collateral or proceeds thereof in its own
name or that of Debtor, with full power to endorse any certificates of
title.
(iv) Require Debtor to deliver to Secured Party all original
documents, drafts, acceptances, notes, securities, other instruments and
chattel paper. If any of the chattel paper covers property that is covered
by certificates of title, then Debtor shall also deliver such
certificates.
(v) Require Debtor to assemble the Collateral, or any portion
thereof, at a place designated by Secured Party and reasonably convenient
to both parties, and promptly to deliver such Collateral to Secured Party
or its designee. Secured Party, and its agents and representatives and
designees, shall have the right to enter upon any or all of Debtor's
premises and property to exercise Secured Party's rights thereunder.
(vi) Notify account debtors or lessees of any Collateral that
the Collateral has been assigned to Secured Party and the proceeds, lease
payments, or other payments thereon shall be paid to Secured Party. Upon
request of Secured Party, Debtor will also promptly notify account debtors
and will indicate on all billings to account debtors that the accounts are
payable to Secured Party, and will promptly notify lessees of Collateral
that all lease payments are payable to Secured Party. Any and all proceeds
thereafter received by Debtor shall be turned over to Secured Party daily
in the exact form in which they are received.
<PAGE>
(vii) Foreclose on the Collateral as herein provided or in any
manner permitted by law, and exercise any and all lawful rights and
remedies conferred upon Secured Party by Debtor in connection with the
indebtedness secured hereby, either concurrently or in such order as
Secured Party may determine; and sell or cause to be sold in such order as
Secured Party may determine, as a whole or in such parcels as Secured
Party may determine, the Collateral without affecting in any way other
rights or remedies to which Secured Party may be entitled.
(viii) Sell, lease or otherwise dispose of the Collateral
at public sale, without having the Collateral at the place of sale, and
upon terms and in such manner as Secured Party may determine. Secured
Party or Debtor may be a purchaser at any sale.
(ix) Exercise any remedies of a secured party permissible
under the Uniform Commercial Code any state in which Collateral is
located.
(b) Unless the Collateral is perishable or threatens to decline
rapidly in value or is of a type customarily sold on a recognized market,
Secured Party shall give Debtor at least ten days' prior written notice of the
time and place of any intended public sale or of the time after which any
intended private sale or other disposition of the Collateral is to be made,
which notice shall be deemed reasonable.
(c) In the event of a public or private sale of the Collateral, the
proceeds, after payment therefrom of Secured Party's reasonable expenses of
sale, reasonable attorney fees and other legal expenses incurred in connection
therewith, shall be applied in satisfaction of the obligations secured hereby,
and any surplus remaining shall be paid by Secured Party to Debtor. If proceeds
applied to such obligations are insufficient to pay the same in full, Debtor
shall be jointly and severally liable for any deficiency and shall promptly pay
the same to Secured Party. Any repossession or retaking or sale of the
Collateral pursuant to the terms hereof shall not operate to release Debtor
until full payment of any deficiency has been made in cash.
8. Payment of Costs of Collection. In case of an Event of Default, or in
case litigation is commenced to enforce or construe any term of this Agreement
or any other instrument evidencing indebtedness of Debtor to Secured Party or of
any other document or agreement executed hereunder, the losing party will pay to
the prevailing party such amounts as shall be sufficient to cover the cost and
expense of collection or enforcement, including, without limitation, reasonable
attorney's fees and costs at trial, on appeal, and in any bankruptcy proceeding.
9. Power of Attorney. Debtor does hereby irrevocably appoint Secured Party
as its attorney-in-fact, with full power of substitution, upon the occurrence of
an Event of Default, to execute any document or instrument, including any proofs
of claim, to endorse any draft or other instrument for the payment of money, to
execute releases, to negotiate settlements, to cancel any insurance referred to
herein and to do all other things necessary or required to effect a settlement
under any insurance policy or to take any action or perform any obligation or
enforce any right with respect to the Collateral Debtor would have the right or
power to do, all of which actions may be taken in Secured Party's own name.
Secured Party agrees to give Debtor notice of any actions it has taken pursuant
to its appointment as attorney-in-fact within a reasonable time after such
action is taken, it being understood that the failure to give such notice will
not revoke Secured Party's appointment as attorney-in-fact or invalidate any
actions taken in such capacity. This power of attorney is a power coupled with
an interest which cannot be revoked until payment in full of the whole amount
then due and unpaid of the indebtedness of Debtor to Secured Party. Any actions
taken by Secured Party under this provision shall be subject to the
Subordination Agreement.
<PAGE>
10. Miscellaneous.
(a) Notices. All notices or other communications required or
permitted hereunder shall be given to the appropriate party or parties and shall
be effective as provided in the Asset Purchase Agreement dated of even date
herewith between Debtor and Secured Party..
(b) Remedies Cumulative. Any and all remedies herein expressly
conferred upon Secured Party shall be deemed cumulative with and not exclusive
of any other remedy conferred hereby or by law on Secured Party, and the
exercise of any one remedy shall not preclude the exercise of any other.
(c) Waiver. Secured Party shall not be deemed to have waived any
power, right or remedy under this or any other agreement executed by Debtor
unless the waiver is in writing signed by Secured Party. No delay in exercising
Secured Party's power, right or remedy shall be a waiver nor shall a waiver on
one occasion operate as a waiver of such power, right or remedy on a future
occasion.
(d) Further Assurances. Debtor will join with Secured Party in
executing, filing and doing whatever may be necessary under applicable law to
perfect and continue Secured Party's security interest in the Collateral now
owned or hereafter acquired by Debtor, all at Debtor's expense.
(e) Attorneys Fees. If Secured Party exercises its rights or
remedies under this Agreement or under the Uniform Commercial Code, Debtor
agrees to pay all costs, expenses and reasonable attorney fees as the trial
court or any appellate court may adjudge reasonable in any matter arising from
or related to this Agreement, including claims and adversary proceedings in
bankruptcy.
(f) Successors and Assigns. This Agreement may not be assigned by
Debtor without the prior written consent of Secured Party. This Agreement shall
be binding upon and shall inure to the benefit of the parties and their
permitted respective successors and assigns.
(g) Validity; Severability. If any provision of this Agreement is
held to be invalid, such event shall not affect, in any respect whatsoever, the
validity of the remainder of this Agreement, and the remainder shall be
construed without the invalid provision so as to carry out the intent of the
parties to the extent possible without the invalid provision.
<PAGE>
(h) Exhibits and Schedules. Any exhibits or schedules attached to
this Agreement and referred to herein are incorporated in this Agreement as if
they were fully set forth in the text hereof.
(i) Counterparts; Hearings. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but such
counterparts shall together constitute but one and the same Agreement. Section
headings in this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof.
(j) Amendment. This agreement can be modified or terminated
only by a writing signed by Secured Party and Debtor.
(k) Term of Security Agreement. This Agreement shall remain in
full force and effect as long as any indebtedness of Debtor to Secured Party
remains unpaid or outstanding.
(l) Capitalized Terms. Capitalized terms not defined herein
shall have the respective meanings ascribed thereto in the Acquisition
Documents.
(m) Include. The terms "include," "including," and similar
terms shall be construed as if followed by the phrase "without limitation."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
SECURED PARTY:
KENCO WILLIAMS, INC., a Delaware
corporation
By /s/Gerard A. Herlihy
------------------------
Gerard A. Herlihy, CFO
DEBTOR:
KENCO PRODUCTS, INC., a Delaware
corporation
By /s/ George Briggs
---------------------------
George Briggs, President
[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
WAREHOUSE AGREEMENT
WAREHOUSE AGREEMENT, dated as of March 6, 1998 between Kenco Products,
Inc. ("KPI") and Kenco Williams, Inc. ("Kenco").
RECITALS
A. Under an Asset Purchase Agreement between KPI and Kenco dated as of
even date herewith (the "Asset Purchase Agreement"), KPI purchased assets from
Kenco and entered into a lease for certain premises (the "Warehouse") owned by
Kenco.
B. The parties are entering into this Agreement in connection with
the Closing held under the Asset Purchase Agreement.
C. Kenco owns certain inventory (the "Inventory") located in the Warehouse
which KPI intends to purchase from Kenco and sell to KPI's customers.
D. KPI desires to purchase the Inventory (which Inventory is more
specifically described on Exhibit 1 attached hereto and by this reference
incorporated herein) before purchasing any Like-kind Inventory (as defined) from
any third party, which purchase will be accomplished pursuant to the credit
terms and other conditions set forth herein.
E. Capitalized terms used in this Agreement shall have the meanings
ascribed to them in Annex 1. Capitalized terms used herein but not defined in
Annex 1 shall have the meanings ascribed in the Asset Purchase Agreement. All
Annexes, Disclosure Schedules, Exhibits and other attachments (collectively,
"Appendices") hereto, or expressly identified to this Agreement, are
incorporated herein by reference, and taken together, shall constitute but a
single agreement. These Recitals shall be construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
adequacy and sufficiency of which hereby are acknowledged, the parties hereto
agree as follows:
<PAGE>
AGREEMENT
1 Purchase of Inventory. To the extent KPI offers or sells any goods for sale to
third parties and subject to this Agreement, KPI shall first purchase Inventory
from Kenco to the extent Kenco has Like-kind Inventory remaining for sale. For
the purposes of this Agreement, the term "Like-kind Inventory" means Inventory
listed on Exhibit 1 which has the same SKU as the products KPI offers for sale
to third parties.
<PAGE>
1.1 KPI may from time-to-time during normal business hours request that
Kenco make available at the Warehouse any or all of the Inventory remaining from
the Inventory listed on Exhibit 1. Upon confirmation that such Inventory is
available, KPI will deliver a purchase order, in the form of a pick ticket, to
Kenco itemizing the Inventory requested (which price is listed on Exhibit 1).
Such purchase order will reflect that payment in full for the Inventory subject
to the purchase order will be due in net 60 days. Interest will be charged at
the rate of 15% per annum on all amounts owed to Kenco by KPI which are past
due.
(a) When Kenco accepts the purchase order, Kenco will permit
employees of KPI to enter the Kenco storage facilities within the Warehouse to
move the Inventory subject to the purchase order into KPI's storage facilities
or to such other location as KPI may desire. Kenco shall have no responsibility
for moving any Inventory.
(b) Kenco may, in its discretion, place identifying marks on
Inventory sold to KPI pursuant to this Agreement.
(c) On or before September 30, 1998 (the last day of the sixth full
month following the date hereof) (the "Inventory Purchase Date"), KPI will
purchase all remaining Inventory from Kenco for prices for each item listed on
Exhibit 1. KPI will pay the purchase price of such Inventory as follows:
(i) Not more than $400,000 may be paid for by KPI issuing a promissory
note, in the form of Exhibit 2 , in the appropriate amount (the "Inventory
Purchase Note"); and
(ii) Any amount in excess of the Inventory Purchase Note must be paid in
cash not later than 60 days after the Inventory Purchase Date.
(d) If any of the Inventory is damaged, prior to KPI's purchase
hereunder, by water, fire or other act of God, KPI's sales price therefor will
be reduced to the Standard cost of the salvageable components; provided,
however, KPI shall not be required to purchase any Inventory which has been
damaged and for which Kenco has been paid the insurance proceeds.
(e) To the extent KPI desires to purchase Inventory from Kenco
outside of normal business hours as Kenco may establish normal business hours,
KPI may contact Kenco's employees at the Warehouse and arrange for such employee
to make himself available at the Warehouse, at KPI's expense. KPI shall be
responsible to reimburse Kenco for all overtime and other costs of the
employee's work outside of normal business hours.
<PAGE>
(f) If KPI is legally prohibited by injunction or court order from
purchasing any of the Inventory from Kenco for any reason, during the period
such legal prohibition is in effect, KPI may purchase like-kind Inventory from
other vendors; provided, however, that the date contained in Section 1.1(c)
shall be extended by the amount of time during which the legal prohibition was
in effect. In addition, if Kenco refuses for any reason to sell Inventory to
KPI, KPI shall have the right to purchase Like-kind Inventory from other
vendors.
1.2 No Warranties. Each purchase of Inventory by KPI from Kenco shall be
"as is and where is" and without any warranties of any kind except that Kenco
will warrant title to the Inventory free and clear of any Lien and its right to
sell the Inventory to KPI. SPECIFICALLY, AND WITHOUT LIMITATION OF THE
FOREGOING, KENCO SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSES WITH RESPECT TO THE INVENTORY.
1.3 Access. KPI shall, during normal business hours, from time to time in
Kenco's sole discretion, upon one (1) Business Day's prior notice: (a) provide
Kenco and any of its officers, employees and agents access to its properties,
facilities, advisors and employees (including officers) of KPI and to the
Inventory, (b) permit Kenco and any of its officers, employees and agents, to
inspect, audit and make extracts from any such party's books and records
necessary to verify Inventory and sales to KPI hereunder, and (c) permit Kenco,
and any of its officers, employees and agents, to inspect, review, evaluate and
make test verifications and counts of Inventory.
1.4 Taxes.
(a) Any and all payments by KPI hereunder or pursuant to any
obligation contemplated herein shall be made free and clear of and without
deduction for any and all present or future Taxes. If KPI shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the
sum payable shall be increased as much as shall be necessary so that after
making all required deductions, Kenco shall receive an amount equal to the sum
it would have received had no such deductions been made, (ii) KPI shall make
such deductions, and (iii) KPI shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, KPI shall furnish to
Kenco the original or a certified copy of a receipt evidencing payment thereof.
(b) KPI and each Guarantor shall jointly and severally indemnify
and, within ten (10) days of demand therefor, pay Kenco for the full amount of
Taxes paid by Kenco and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
were correctly or legally asserted.
2 CONDITIONS PRECEDENT
Kenco shall not be obligated to sell any Inventory to KPI pursuant to this
Agreement or to take, fulfill, or perform any other action hereunder, until the
following conditions have been satisfied or provided for in a manner
satisfactory to Kenco or waived in writing by Kenco:
<PAGE>
2.1 KPI shall have completed the transactions with Kenco related to this
Agreement including (without limitation) the purchase by KPI of assets from
Kenco and the receipt by Kenco of the entire consideration therefor, under the
Asset Purchase Agreement and the other Closing Documents (as defined in the
Asset Purchase Agreement) (collectively referred to as the "Related Documents").
2.2 KPI shall have executed and delivered the Security Agreement to Kenco,
in the form of Exhibit E to the Asset Purchase Agreement.
2.3 KPI shall not be $300,000 or more in arrears in its payment to
Kenco.
2.4 No Event of Default shall have occurred and be continuing.
3 AFFIRMATIVE COVENANTS
KPI and each Guarantor jointly and severally agrees, as to Kenco, that
until all amounts due hereunder or under any of the Related Documents have been
paid in full:
3.1 Maintenance of Existence and Conduct of Business. KPI and each
Guarantor shall: do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and its rights and
franchises; continue to conduct its business substantially as now conducted or
as otherwise permitted or contemplated hereunder; at all times maintain,
preserve and protect its assets and properties used or useful in the conduct of
its business, and keep the same in good repair, working order and condition in
all material respects (taking into consideration ordinary wear and tear) and
from time to time make, or cause to be made, all necessary or appropriate
repairs, replacements and improvements thereto consistent with industry
practices.
3.2 Books and Records. KPI shall keep all books and records necessary to
account to Kenco for the Inventory purchased and remaining.
3.3 Insurance; Damage to or Destruction of Inventory. For as long as KPI
has Obligations to Kenco, KPI will maintain insurance coverage for Inventory in
KPI's possession for which Kenco has not been paid in full, at levels reasonably
acceptable to Kenco and will name Kenco an additional insured on such policies.
KPI shall promptly notify Kenco of any loss, damage, or destruction to the
Inventory in the amount of $25,000 or more, whether or not covered by insurance.
Subject to any subordination agreement entered into by Kenco and Fidelity
Funding, Inc. ("Fidelity") and after deducting from such proceeds the expenses,
if any, incurred by Kenco in the collection or handling thereof, Kenco may, at
its option, apply such proceeds to the reduction of the Obligations.
3.4 Compliance with Laws. KPI shall comply with all federal, state, local
and foreign laws and regulations applicable to it except to the extent that the
failure to comply, individually or in the aggregate, could not reasonably be
expected to have a material adverse effect.
<PAGE>
3.5 Notices. KPI will, within two (2) Business Days following the
occurrence of any such event, notify Kenco of the occurrence of any of the
following: (i) the occurrence of any Event of Default or Default as defined
below; (ii) the receipt by KPI or either Guarantor of any notice from any third
party alleging the existence of an Event of Default or Default under any
agreement between KPI or either Guarantor and the third party (and such person
shall provide Kenco with a copy of such notice); and (iii) the existence of any
other event or occurrence which might result in a Default or Event of Default
hereunder or under any agreement with a third party.
3.6 Further Assurances. KPI agrees that it shall, at its expense and upon
request of Kenco, duly execute and deliver, or cause to be duly executed and
delivered, to Kenco such further instruments and do and cause to be done such
further acts as may be necessary or proper in the reasonable opinion of Kenco to
carry out more effectively the provisions and purposes of this Agreement or any
other Related Document.
4 EVENTS OF DEFAULT; RIGHTS AND REMEDIES
4.1 Events of Default. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute an "Event of
Default" hereunder:
(a) KPI becomes past due in the payment of its account to Kenco for
Inventory purchases hereunder in an amount of $300,000 or more.
(b) A case or proceeding shall have been commenced against KPI or
any Guarantor seeking a decree or order in respect of KPI or any Guarantor (i)
under Title 11 of the United States Code, as now constituted or hereafter
amended or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) appointing a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or similar official) for KPI or any Guarantor or of any
substantial part of any such person's assets, or (iii) ordering the winding-up
or liquidation of the affairs of KPI or any Guarantor, and such case or
proceeding shall remain undismissed or unstayed for sixty (60) days or more or
such court shall enter a decree or order granting the relief sought in such case
or proceeding.
(c) KPI or any Guarantor (i) shall file a petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy or other
similar law, (ii) shall fail to contest in a timely and appropriate manner or
shall consent to the institution of proceedings thereunder or to the filing of
any such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) of
KPI or any Guarantor or of any substantial part of any such Person's assets,
(iii) shall make an assignment for the benefit of creditors, (iv) shall take any
corporate action in furtherance of any of the foregoing; or (v) shall admit in
writing its inability to, or shall be generally unable to, pay its debts as such
debts become due.
(d) Any Change of Control shall occur.
<PAGE>
(e) Any sale by KPI of its assets not in the ordinary course of
business unless Kenco has consented to the transaction and the purchaser in such
transaction assumes all of KPI's Obligations to Kenco hereunder and under the
Inventory Purchase Note.
4.2 Remedies. If any Event of Default shall have occurred and be
continuing or if a Default shall have occurred and be continuing, Kenco may,
without notice, suspend this Agreement with respect to further sales to KPI of
Inventory. At any time during the term of this Agreement that is $300,000 or
more past due in the payment of its account with Kenco, Kenco may, in its
discretion sell Inventory to any other third party; provided, however, that
prior to any such third-party sale, Kenco shall give notice and shall have five
(5) Business Days' after the date of such notice to bring its account current
and, thereby prevent the third-party sale. In addition, Kenco may take such
other actions under any of the Related Documents as Kenco may deem appropriate
without affecting Kenco's rights or remedies hereunder.
5 SUCCESSORS AND ASSIGNS
5.1 Successors and Assigns. This Agreement and the Related Documents shall
be binding on and shall inure to the benefit of each of KPI, the Guarantors,
Kenco and their successors and assigns (including, in the case of KPI or any
Guarantor, a debtor-in-possession on behalf of such person), except as otherwise
provided herein or therein. Neither KPI nor any Guarantor may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the Related Documents without the prior written
consent of Kenco. Any such purported assignment, transfer, hypothecation or
other conveyance by KPI or any Guarantor without the prior written consent of
Kenco shall be void. The terms and provisions of this Agreement are for the
purpose of defining the relative rights and obligations of each of KPI, the
Guarantors, and Kenco with respect to the transactions contemplated hereby and
no Person shall be a third party beneficiary of any of the terms and provisions
of this Agreement or any of the Related Documents.
6 MISCELLANEOUS
6.1 Complete Agreement; Modification of Agreement. This Agreement and the
Related Documents constitute the complete agreement between the parties with
respect to the subject matter hereof and thereof and may not be modified,
altered or amended except in writing.
6.2 Amendments and Waivers. Except for actions expressly permitted to be
taken by Kenco, no amendment, modification, termination or waiver of any
provision of this Agreement or any Related Document, or any consent to any
departure by KPI or any Guarantor therefrom, shall in any event be effective
unless the same shall be in writing and signed by Kenco and KPI.
<PAGE>
6.3 No Waiver. Kenco's failure, at any time or times, to require strict
performance by KPI or any of the Guarantors of any provision of this Agreement
and any of the Related Documents shall not waive, affect or diminish any right
of Kenco thereafter to demand strict compliance and performance therewith. Any
suspension or waiver of an Event of Default shall not suspend, waive or affect
any other Event of Default whether the same is prior or subsequent thereto and
whether the same or of a different type. None of the undertakings, agreements,
warranties, covenants and representations of KPI or any Guarantor contained in
this Agreement or any of the Related Documents and no Default or Event of
Default by KPI or any Guarantor shall be deemed to have been suspended or waived
by Kenco unless such waiver or suspension is by an instrument in writing signed
by an officer of or other authorized employee of Kenco and directed to KPI
specifying such suspension or waiver.
6.4 Remedies. Kenco's rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies which Kenco may
have under any other agreement, including the Related Documents, by operation of
law or otherwise.
6.5 Severability. Wherever possible, each provision of this Agreement and
the Related Documents shall be interpreted in such a manner as to be effective
and valid under applicable law, but if any provision of this Agreement shall be
prohibited by 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
Agreement.
6.6 Conflict of Terms. Except as otherwise provided in this Agreement or
any of the Related Documents by specific reference to the applicable provisions
of this Agreement, if any provision contained in this Agreement is in conflict
with, or inconsistent with, any provision in any of the Related Documents, the
provision contained in this Agreement shall govern and control.
<PAGE>
6.7 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
RELATED DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE RELATED DOCUMENTS AND THE
OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MICHIGAN APPLICABLE TO CONTRACTS MADE AND PERFORMED IN
THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. KPI AND EACH
GUARANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN
OAKLAND COUNTY, MICHIGAN SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES AMONG KPI, THE GUARANTORS, AND KENCO PERTAINING TO THIS
AGREEMENT OR ANY OF THE RELATED DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS, PROVIDED, THAT
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE KENCO FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE INVENTORY OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF KENCO. KPI AND EACH GUARANTOR
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND KPI AND EACH GUARANTORS HEREBY WAIVES ANY
OBJECTION WHICH SUCH PERSON MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF
SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. KPI AND
EACH GUARANTORS HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH PERSON AT THE ADDRESS SET FORTH HEREIN AND THAT SERVICE
SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH PERSON'S ACTUAL
RECEIPT THEREOF OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE
PREPAID.
6.8 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG KENCO AND KPI OR ANY GUARANTOR ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS OR
THE TRANSACTIONS RELATED THERETO.
6.9 Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other parties, or whenever any of the parties desires to give or serve upon any
other parties any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (a) upon the earlier of actual receipt and five (5) Business Days
after deposit in the United States Mail, registered or certified mail, return
receipt requested, with proper postage prepaid, (b) one (1) Business Day after
deposit with a reputable overnight courier with all charges prepaid or (c) when
delivered, if hand-delivered by messenger, all of which shall be addressed to
the party to be notified and sent to the address or facsimile number indicated
below, or to such other address as may be substituted by notice given as herein
provided.
<PAGE>
If to KPI:
Kenco Products, Inc.
c/o George Briggs
10758 County Road 2
Middlebury, IN 46540
With a copy to:
Thomas Keenum, Esq.
Keenum & Tutor, P.A.
301B College Street
Booneville, MS 38829
If to Kenco:
Gerard A. Herlihy
Chief Financial Officer
c/o Aptek Williams, Inc.
700 N.W. 12th Avenue
Deerfield Beach, FL 33442
With a copy to:
Gerald Raskin, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, CO 80202
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person designated herein to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
6.10 Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
<PAGE>
6.11 Counterparts and Facsimile Signatures. This Agreement may be executed
in two or more counterparts, all of which when taken together shall constitute
one agreement. Execution and delivery of this Agreement by exchange of facsimile
copies bearing the facsimile signature of a person shall constitute a valid and
binding execution and delivery of this Agreement by such person. Facsimile
copies shall constitute enforceable original documents.
6.12 Construction. In the event of an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" means
including without limitation. Where appropriate to avoid any ambiguity and to
encompass the broadest meaning, the word "and" shall mean "and/or," and the word
"or" shall mean "and/or." The parties intend that the each representation,
warranty and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter, regardless of the relative levels
of specificity, which the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
6.13 Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement with its counsel.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
"KPI"
KENCO PRODUCTS, INC.
By /s/ George Briggs
------------------------
George Briggs, President
"Kenco"
KENCO WILLIAMS, INC.
By /s/ Gerard A. Herlihy
-------------------------
Gerard A. Herlihy, Chief
Financial Officer
<PAGE>
The undersigned persons have signed this Agreement for the purpose of
making the representations and covenants herein and agreeing to the provisions
contained in Sections 6.7 and 6.8.
"Guarantors"
COLFAX GROUP, INC.
By /s/ George Briggs
-------------------------
George Briggs, President
/s/ George Briggs
---------------------------------
George Briggs, Individually
<PAGE>
ANNEX 1
DEFINITIONS
Capitalized terms used in the Warehouse Agreement shall have the
following meanings (unless otherwise provided elsewhere in the Warehouse
Agreement) and all section references in the following definitions shall refer
to Sections of the Agreement. Capitalized terms used in the Agreement and not
defined in this Annex or elsewhere in the Agreement shall have the meanings
ascribed in the Asset Purchase Agreement:
"Affiliate" shall mean, with respect to KPI, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, ten percent (10%) or more of the stock having
ordinary voting power in the election of directors of KPI, (b) each Person that
controls, is controlled by or is under common control with KPI, (c) each of such
Person's officers, directors, joint venturers and partners and (d) in the case
of KPI, the immediate family members, spouses and lineal descendants of
individuals who are Affiliates of KPI. For the purposes of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise; provided,
however, that the term "Affiliate" shall specifically exclude Kenco.
"Agreement" shall mean the Warehouse Agreement by and among KPI, the
Guarantors, and Kenco.
"Business Day" shall mean any day that is not a Saturday, a Sunday or
federal holiday on which banks are required or permitted to be closed.
"Change of Control" means any of the following: (i) the sale, lease,
transfer, conveyance or other disposition of, in one or a series of related
transactions, of all or substantially all of the assets of KPI to any Person (as
such term is used in Section 13(d)(3) of the Exchange Act) (each an "Acquiring
Person"), (ii) the adoption of a plan relating to the liquidation or dissolution
of KPI, (iii) the consummation of any transaction (including any merger or
consolidation) the result of which is that any "person" (other than either of
the Guarantors) becomes the "beneficial owner" (as each such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of
more than 20.0% of the voting stock of KPI , or (iv) the sale or other
disposition by the Guarantors of their equity ownership position in KPI by more
than 20.0%.
"Default" shall mean any event which, with the passage of time or notice
or both, would, unless cured or waived, become an Event of Default.
"Event of Default" shall have the meaning assigned in Section 4.1.
<PAGE>
"Exchange Act" means Securities Exchange Act of 1934.
"Guaranties" shall mean any guaranty executed by any Guarantor in favor
of Kenco in respect of the Obligations.
"Guarantors" shall mean Colfax Group, Inc., a Delaware corporation, and
George Briggs, jointly and severally.
"Inventory" shall have the meaning set forth in the Agreement and the
Appendices thereto.
"Inventory Purchase Date" shall have the meaning set forth in Section 1.1
of the Agreement.
"Inventory Purchase Note" shall have the meaning assigned to it in the
Agreement.
"Kenco" shall mean Kenco Williams, Inc., or its successor.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any lease intended as security having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the applicable Uniform Commercial Code or comparable law of any
jurisdiction).
"Like-kind Inventory" shall have the meaning set forth in Section 1 of
the Agreement.
"KPI" shall mean Kenco Products, Inc..
"Obligations" shall mean all amounts due and owing (or which may become
due and owing) by any Party thereto under the Agreement or any of the Related
Documents to Kenco. This term includes all principal, interest (including all
interest which accrues after the commencement of any case or proceeding in
bankruptcy after the insolvency of, or for the reorganization of KPI or any
Guarantor, whether or not allowed in such proceeding), fees, Charges, expenses,
attorneys' fees and any other sum chargeable to KPI or any Guarantor under the
Agreement or any of the Related Documents.
<PAGE>
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity
or government (whether federal, state, county, city, municipal, local, foreign,
or otherwise, including any instrumentality, division, agency, body or
department thereof).
"Related Documents" shall have the meaning set forth in Section 2.1
of the Agreement.
"Security Agreement" shall mean the Security Agreement in the form of
Exhibit E to the Asset Purchase Agreement securing KPI's Obligations to Kenco as
provided therein. The security interest granted therein will be subject to a
subordination agreement entered into between Kenco and Fidelity.
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
by the United States or any political subdivision or taxing authority thereof or
therein, excluding net income and franchise taxes imposed on Kenco.
All other undefined terms contained in the Agreement shall, unless
the context indicates otherwise, have the meanings provided for by the Code as
in effect in the State of Indiana to the extent the same are used or defined
therein. The words "herein," "hereof" and "hereunder" and other words of similar
import refer to the Agreement as a whole, including all Annexes, Exhibits and
Schedules, as the same may from time to time be amended, restated, modified or
supplemented, and not to any particular section, subsection or clause contained
in the Agreement or any such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to Persons include its successors and assigns (to the extent and only
to the extent permitted by the Loan Documents) or, in the case of governmental
Persons, Persons succeeding to the relevant functions of such Persons; and all
references to statutes and related regulations shall include any amendments of
the same and any successor statutes and regulations. Whenever any provision in
any Loan Document refers to the knowledge (or an analogous phrase) of KPI or any
Guarantor, such words are intended to signify that such Person has actual
knowledge or awareness of a particular fact or circumstance or that such Person,
if it had exercised reasonable diligence, would have known or been aware of such
fact or circumstance.
[THIS DOCUMENT IS A COPY OF THE CURRENT REPORT ON FORM 8-K DATED MARCH 16, 1998
FILED ON APRIL 1, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION]
CERTIFICATE OF DESIGNATION OF
SERIES A SENIOR PREFERRED STOCK OF
KENCO PRODUCTS, INC.
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Kenco Products, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 151(g) thereof,
HEREBY CERTIFIES: That pursuant to the authority conferred upon the Board
of Directors by the Certificate of Incorporation of the Corporation, the Board
of Directors on March 6, 1998 adopted the following resolution creating a
series of 2,000 shares of preferred stock designated as Series A Senior
Preferred Stock:
RESOLVED, that pursuant to the authority granted to the Board of Directors
by Article Fourth of the Certificate of Incorporation of the Corporation
(the "Certificate"), there is hereby created and the Corporation hereby
is, authorized to issue 2,000 shares of a series of preferred stock,
designated "SERIES A SENIOR PREFERRED STOCK," which series of preferred
stock shall rank senior to, as to dividends and the distribution of assets
upon liquidation, dissolution or winding up of the Corporation, all other
series of preferred stock that may be designated in the future, and to
shares of the Corporation's common stock, and shall have the following
terms, conditions, designation, preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions:
(1) Designation, Par Value and Number.
2,000 shares of authorized preferred stock of the Corporation are hereby
constituted as a series of preferred stock, having a par value of $.01 per
share, designated as "Series A Senior Preferred Stock" hereinafter called
"Series A Preferred Stock." In accordance with the terms hereof, each share of
Series A Preferred Stock shall have the same relative rights as and be identical
in all respects with each other share of Series A Preferred Stock.
(2) Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive cash dividends, when and as declared by the Board of
Directors out of funds legally available for such purpose, in the annual amount
of $80 per share, and no more, payable annually on March 31 each year, unless
such day is a non-business day, in which event dividends shall be payable on the
next business day, commencing on the first such day. Dividends shall begin
accruing on the first day after the issuance of the Series A Preferred Stock, to
holders of record on such dates, not exceeding 30 days preceding the payment
date thereof, as may be determined by the Board of Directors in advance of the
payment of each particular dividend.
<PAGE>
(b) Dividends shall be cumulative.
(c) No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments which may be in arrears.
(d) If in any dividend period, dividends in the annual amount of $80
per share shall not have been declared and paid or set apart for payment on all
outstanding shares of Series A Preferred Stock for such dividend period and all
preceding dividend periods, then, until all accrued dividends shall be declared
and fully paid or set apart for payment, the Corporation shall not, with respect
to the payment of dividends or distribution of assets on liquidation,
dissolution or winding up of the Corporation:
(i) declare or pay or set apart for payment any dividends or make any
other distribution on the common stock or any other capital stock or
securities having an equity interest in the Corporation ranking junior to
or on a parity with the Series A Preferred Stock (other than dividends or
distributions paid in shares of, or options, warrants or rights to
subscribe for or purchase shares of common stock or any other capital
stock of the Corporation ranking junior to or on a parity with the Series
A Preferred Stock), or
(ii) make any payment on account of the purchase, redemption, other
retirement or acquisition of any common stock or any other capital stock
or securities having an equity interest in the Corporation ranking junior
to or on a parity with the Series A Preferred Stock.
(3) Voting.
(a) Except as expressly provided in this Paragraph (3) or as
otherwise required by law, holders of the Series A Preferred Stock shall not be
entitled to vote at meetings of shareholders.
(b) In their discretion, the holders of Series A Preferred Stock
will be entitled but not required, voting as a class, to elect not less than two
members of the Board of Directors of the Corporation; provided, however, that if
the Corporation's Board of Directors is expanded to more than seven members, the
holders of the Series A Preferred Stock will be entitled to elect not less than
40% of the members of the Board.
(c) Holders of the Series A Preferred Stock shall be entitled to
2,000 votes, in person or by proxy, for each share of Series A Preferred Stock
held of record when the Corporation is in default under its obligations
contained in any of the following agreements ("Default"):
(i) The Asset Purchase Agreement dated as of March 6, 1998 between the
Corporation and Kenco Williams, Inc., the Warehouse Agreement or the
Inventory Purchase Note to be issued by the Corporation pursuant to the
Warehouse Agreement, the Lease, the Security Agreement or any of the other
documents or agreements entered into in connection with the Asset Purchase
Agreement; or
(ii) The Loan Agreement between the Corporation and Fidelity Funding,
Inc. or any other documents or agreements entered into in connection
therewith.
<PAGE>
(d) Except as otherwise required by law or pursuant to Subparagraph
3(c) hereof, when entitled to vote, the holders of the Series A Preferred Stock
shall vote together as a class with the holders of common stock and other
capital stock of the Corporation entitled to vote at a meeting of the
shareholders of the Corporation.
(e) So long as any shares of Series A Preferred Stock remain
outstanding, in addition to any vote that the Series A Preferred Stock may have
in accordance with this Paragraph (3), the consent of the holders of at least
two-thirds of the voting power of the Series A Preferred Stock outstanding at
the time (voting separately as a class) given in person or by proxy, either in
writing or at any special or annual meeting called for the purpose, shall be
required to permit, effect or validate any one or more of the following:
(i) The amendment of any of the provisions of the Certificate, which would
materially and adversely affect any right, preference, privilege or voting
power of the Series A Preferred Stock or of the holders thereof; provided,
however, that any increase in the amount of authorized preferred stock or
the creation and issuance of other series' of preferred stock ranking
junior to the Series A Preferred Stock with respect to the payment of
dividends and the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers and shall not require the
consent of holders of at least two-thirds of the voting power of the
Series A Preferred Stock outstanding; or
(ii) Any merger or consolidation of the Corporation with another
corporation or sale, lease or conveyance (other than by mortgage or
pledge) of all or substantially all of the Corporation's properties or
business in exchange for securities of a corporation other than the
Corporation if the shares of Series A Preferred Stock are to be exchanged
for securities of such other corporation, unless the terms of the merger,
consolidation, sale, lease or conveyance require that the holders of the
Series A Preferred Stock receive securities of such other corporation
having at least the same preference as to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding up and at
least the same terms as the Series A Preferred Stock.
The foregoing voting provisions of this Subparagraph (d) shall not apply if, at
or prior to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares of the Series A
Preferred Stock (i) shall have been redeemed or (ii) are at the time subject to
redemption and sufficient funds shall have been deposited in trust to effect
such redemption.
(4) Redemption; No Sinking Fund.
<PAGE>
(a) Shares of Series A Preferred Stock may be redeemed, at the
option of the Corporation, at any time or from time to time. The redemption
price for each share of Series A Preferred Stock shall be an amount in cash
equal to the sum of $1,000 plus all accrued and unpaid dividends thereon
(whether or not earned or declared) to the date fixed for redemption. If less
than all the outstanding shares of Series A Preferred Stock are to be redeemed,
the shares to be redeemed shall be selected by the Corporation from outstanding
shares of Series A Preferred Stock not previously called for redemption, by lot
or pro rata (as nearly as practicable) or by any other method determined by the
Corporation in its sole discretion to be equitable.
(b) If the Corporation shall redeem shares of Series A Preferred
Stock, the Corporation shall give notice of such redemption by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
redemption date, to each holder of record of the shares to be redeemed, at such
holder's address as the same appears on the stock register of the Corporation.
(i) Each such notice shall state: the redemption date; the number of
shares of Series A Preferred Stock to be redeemed and, if less than all
the shares held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; the redemption price; the place or
places where certificates for such shares are to be surrendered for
payment of the redemption price; and that dividends on the shares to be
redeemed will cease to accrue on such redemption date.
(ii) Provided notice has been given pursuant to the preceding paragraph
and unless default shall be made by the Corporation in providing money for
the payment of the redemption price: (A) dividends on the shares of the
Series A Preferred Stock so called for redemption shall cease to accrue
from and after the redemption date, (B) said shares shall no longer be
deemed to be outstanding, and (C) all rights of the holders thereof as
holders of Series A Preferred Stock (except the right to receive from the
Corporation the redemption price) shall cease to exist except as herein
provided.
(iii) The Corporation's obligation to provide funds in accordance with the
preceding Paragraph shall be deemed fulfilled if, on or before the
redemption date, the Corporation shall deposit with a bank or trust
company having a capital and surplus of at least $50,000,000, funds
necessary for such redemption, in trust, with irrevocable instructions
that such funds be applied to the redemption of the shares of Series A
Preferred Stock so called for redemption. Upon any such deposit prior to
the redemption date set forth in the notice, the shares subject to
redemption shall be redeemed as of the date of such deposit and shall not
be outstanding after such date. Any interest accrued on such funds shall
be paid to the Corporation from time to time. Any funds so deposited and
unclaimed at the end of six years from such redemption date shall be
released or repaid to the Corporation, after which the holder or holders
of such shares of Series A Preferred Stock so called for redemption shall
look only to the Corporation for payment of the redemption price.
(iv) Upon surrender in accordance with said notice of the certificates for
any shares so redeemed (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), such shares
shall be redeemed by the Corporation at the redemption price aforesaid.
<PAGE>
(c) The Corporation shall not be required to establish any sinking
or retirement fund with respect to the shares of Series A Preferred Stock.
(5) Shares to be Retired.
All shares of Series A Preferred Stock redeemed or purchased by the
Corporation shall be retired and cancelled and shall be restored to the status
of authorized but unissued shares of preferred stock, without designation as to
series, and may thereafter be issued pursuant to the terms of the Certificate.
(6) Preemptive Rights.
(a) If the Corporation offers any shares of the Corporation's
capital stock (the "Offered Shares") to any Person, the holders of Series A
Preferred Stock will be entitled to purchase so many of the Offered Shares as
may be determined by multiplying the total number of Offered Shares by the
following fraction:
Number of shares of Common Stock into which the Series A Preferred Stock
held by such holder
is convertible
Total number of shares of Common Stock then outstanding
plus the numerator
(b) Not less than two weeks before the commencement of any offering
of Offered Shares, the Corporation will give the holders of the Series A
Preferred Stock notice of the proposed offering, including the quantity and
description of the Offered Shares, the price and terms of the offering, and any
other information that may be required to meet the requirements of Rule
502(b)(2) of the rules and regulations under the federal Securities Act of 1933,
as amended. The Corporation shall also advise each holder of the date by which
the holder must exercise his rights pursuant to this Section, which date must be
not less than two weeks after delivery of the notice.
(c) Any holder may (but is not obligated to) accept the
Corporation's offer of the Offered Shares either without conditions, or subject
to a condition that a minimum number of Offered Shares be sold pursuant to the
terms of the offering as described in the notice.
(7) Conversion Rights. (a) Each holder of Series A Preferred Stock shall
have the right, at its option, at any time and from time to time to convert,
subject to the terms and provisions of this Paragraph (8) any or all of such
holder's shares of Series A Preferred Stock. In such case, the shares of Series
A Preferred Stock shall be converted into such number of fully paid and
nonassessable shares of Common Stock as is equal to:
the product of the number of shares of Series A Preferred Stock being
so converted multiplied by
the quotient of (i) the Liquidation Preference divided by (ii) the
Conversion Price then in effect,
<PAGE>
except that with respect to any share which shall be called for redemption such
right shall terminate at the close of business on the second Business Day
preceding the Redemption Date unless the Corporation shall default in making the
payment due upon redemption thereof.
(b) The conversion right of a holder of Series A Preferred Stock
shall be exercised by the holder by the surrender of the certificates
representing shares to be converted to the Corporation accompanied by the
Conversion Notice, which notice may designate to whom the conversion shares
should be issued, which may include Persons to whom such shares have been
assigned.
(i) Immediately prior to the close of business on the Conversion
Date, each converting holder of Series A Preferred Stock shall be deemed
to be the holder of record of Common Stock issuable upon conversion of
such holder's Series A Preferred Stock notwithstanding that the share
register of the Corporation shall then be closed or that certificates
representing such Common Stock shall not then be actually delivered to
such person.
(ii) Upon notice from the Corporation, each holder of Series A
Preferred Stock so converted shall promptly surrender to the Corporation
certificates representing the shares so converted (if not previously
delivered), duly endorsed in blank or accompanied by proper instruments of
transfer.
(iii) On any Conversion Date, all rights with respect to the shares
of Series A Preferred Stock so converted, including the rights, if any, to
receive notices, will terminate, except the rights of holders thereof to:
(A) receive certificates for the number of shares of Common Stock into
which such shares of Series A Preferred Stock have been converted; (B) the
payment in cash of any accumulated and unpaid dividends accrued thereon;
and (C) exercise the rights to which they are entitled as holders of
Common Stock.
(c) If the Conversion Date shall not be a Business Day, then such
conversion right shall be deemed exercised on the next Business Day.
(d) When shares of Series A Preferred Stock are converted pursuant
to this Section, all accumulated and unpaid dividends (whether or not declared
or currently payable) on the Series A Preferred Stock so converted to (and not
including) the Conversion Date shall be due and payable, at the Corporation's
option,
(i) in cash;
<PAGE>
(ii) in a number of fully paid and nonassessable shares of Common Stock
equal to the quotient of (A) the amount of accumulated and unpaid
dividends payable to the holders of Series A Preferred Stock hereunder,
divided by (B) the Conversion Price; or
(iii) a combination thereof.
(8) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of any series or class or classes of
stock of or other securities having an equity interest in the Corporation
ranking junior to the Series A Preferred Stock, the holders of the shares of
Series A Preferred Stock shall be entitled to receive $1,000 per share plus an
amount equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders; but such
holders shall not be entitled to any further payment.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation or proceeds thereof distributable
among the holders of the shares of the Series A Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any other Capital Stock ranking, as to liquidation, dissolution or
winding up, on a parity with the Series A Preferred Stock, then such assets, or
the proceeds thereof, should be distributed among the holders of Series A
Preferred Stock before any distributions are made on any shares of Capital Stock
ranking on a parity with or junior to the Series A Preferred Stock. For the
purposes of this Paragraph (8), a consolidation or merger of the Corporation
with one or more corporations shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
(c) Subject to the rights of the holders of shares of any series or
class or classes of stock ranking on a parity with or senior to the Series A
Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after payment shall
have been made in full to the Series A Preferred Stock as provided in this
Paragraph (7), any other series or class or classes of stock of or other
securities having an equity interest in the Corporation ranking junior to the
Series A Preferred Stock upon liquidation, dissolution or winding up, shall,
subject to the respective terms and provisions, if any, applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the Series A Preferred Stock shall not be entitled to share therein.
(9) Covenants.
(a) For so long as the Series A Preferred Stock is outstanding, the
Corporation will not:
(i) pay bonuses to employees to the extent the aggregate amount of
such bonuses paid within any twelve-month period ending on the date of
payment exceeds 10% of the net taxable income of the Corporation as
determined on its most recent federal income tax return;
<PAGE>
(ii) sell all or substantially all of the Corporation's assets
not in the ordinary course of the Corporation's business;
(iii) enter into a partnership, joint venture, merger or any other
transaction with any other Person if such transaction results in a Change
of Control of the Corporation.
(b) For so long as the Corporation owes any debt or otherwise had
any liability to Fidelity Funding, Inc.:
(i) This Certificate of Designation may not be amended,
modified, or otherwise supplemented without Fidelity's prior written
consent; and
(ii) No dividend on the Series A Preferred Stock shall be paid, and
no redemption or repurchase of any shares of the Series A Preferred Stock
shall be effected if such dividend, redemption, or other repurchase is
then prohibited by the Loan Agreement or any other contract, agreement or
document between the Corporation and Fidelity.
(c) For so long as the Series A Preferred Stock is outstanding, the
Corporation will provide the holders of the Series A Preferred Stock regularly
prepared financial statements and other financial and other reports as required
to be provided to Fidelity Funding, Inc. under the loan Agreement between the
Corporation and Fidelity.
(d) The Corporation will, prior to conversion of the Series A
Preferred Stock into shares of Common Stock, cause its class of Common Stock,
$.01 par value per share, to be registered under the Section 12 of the
Securities Exchange Act of 1934, so that the conversion shares may be
distributed by the initial holder of the Series A Preferred Stock to the public
shareholders of Williams Controls, Inc.
(10) Definitions. For purposes hereof:
(a) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the Securities
and Exchange Commission thereunder the "Exchange Act Rules" (the term
"registrant" in Rule 12b-2 meaning in this case the Corporation).
(b) "Business Day" means any day other than a Saturday or Sunday or
legal holiday on which banks are generally required or permitted to be closed.
(c) "Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock, whether common or preferred.
<PAGE>
(d) "Change of Control" means any of the following: (i) the sale,
lease, transfer, conveyance or other disposition of, in one or a series of
related transactions, of all or substantially all of the assets of the
Corporation to any Person (each an "Acquiring Person"), (ii) the adoption of a
plan relating to the liquidation or dissolution of the Corporation, or (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any Person becomes the "beneficial
owner" (as each such term is defined in Rule 13d-3 and Rule 13d-5 under the
Exchange Act), directly or indirectly, of more than 20% of the voting stock of
the Corporation after the date hereof, or (iv) the sale or other disposition by
Colfax Group,Inc. or George Briggs of their equity ownership position in the
Corporation by more than 20%.
(e) "Common Stock" means the Corporation's authorized $.01 par
value common stock.
(f) The "Conversion Date" shall be the date the Corporation
receives the Conversion Notice.
(g) The "Conversion Notice" is written notice from the holder to the
Corporation stating that the holder elects to convert all or a portion of the
shares of Series A Preferred Stock represented by certificates delivered to the
Corporation contemporaneously. The Conversion Notice will specify or include:
(i) The number of shares of Series A Preferred Stock being
converted by the holder,
(ii) The name or names (with address and taxpayer identification
number) in which a certificate or certificates for shares of Common Stock
are to be issued, and
(iii) A written instrument or instruments of transfer in form
reasonably satisfactory to the Corporation duly executed by the holder or
its duly authorized legal representative.
(h) The "Conversion Price" shall initially be $1.333, subject to
adjustment as provided hereinafter.
(i) If the Corporation issues any shares of Common Stock (or securities
convertible into shares of Common Stock) during the one-year period
following the initial issuance of the Series A Preferred Stock for a price
less than $1.333 per share of Common Stock, the Conversion Price will be
reduced to the lowest price for which the Corporation sold shares of
Common Stock (or securities convertible into shares of Common Stock)
during such period.
(ii) The Conversion Price shall be subject to adjustment if any Conversion
Price Adjustment Event described in Clause (A) occurs. The adjustment will
be accomplished from time to time as described in Clause (B) of this
Section 10(h)(ii). The Conversion Price will also be subject to adjustment
as provided in Clause (C) of this Section 10(h)(ii).
<PAGE>
(A) The following shall events shall be considered "Conversion Price
Adjustment Events":
(1) make a redemption payment or pay a dividend (or other
distribution) payable in shares of Common Stock to all holders of any
class of capital stock of the Corporation (other than the issuance of
shares of Common Stock in connection with the payment in redemption for,
of dividends on, or the conversion of the Series A Preferred Stock);
(2) make any issuance to the holders of any class of Capital Stock
of rights, options or warrants entitling them to subscribe for or purchase
shares of Common Stock or securities convertible into or exchangeable for
shares of Common Stock at less than Market Value as of the date of
conversion or exchange; provided, however, that if such options or
warrants are only exercisable upon the occurrence of certain triggering
events, then the Conversion Price will not be adjusted until such
triggering events occur; and provided, further, that the Conversion Price
will not be adjusted as a result of the sales of Common Stock or the
option grants referenced in Section 13.3 of the Asset Purchase Agreement
between the Corporation and Kenco Williams, Inc.
(3) any subdivision, combination or reclassification of Common
Stock, or
(4) any distribution consisting exclusively of cash.
(B) If any Conversion Price Adjustment Event occurs, the Corporation will
calculate the adjustment to the Conversion Price as follows for each
specific event. In the following descriptions, the variables have the
following definitions:
A equals the total number of shares of Series A Preferred Stock outstanding
at the time of the Conversion Price Adjustment Event;
C equals the aggregate liquidation preference of all shares of the Series A
Preferred Stock then outstanding.
U equals the number of shares of Common Stock underlying rights, options, or
warrants issued entitling the holders to subscribe for or purchase shares
of Common Stock or securities convertible into or exchangeable for shares
of Common Stock issued in the Conversion Price Adjustment Event;
X equals the total number of shares of Common Stock outstanding immediately
prior to the Conversion Price Adjustment Event (not including unexercised
options, warrants, or rights);
Y equals the total number of shares of Common Stock outstanding immediately
after the Conversion Price Adjustment Event (not including unexercised
options, warrants, or rights);
Cash equals any distribution consisting exclusively of cash to all holders of
shares of any class of Common Stock in an aggregate amount that, combined
together with (I) all other such all-cash distributions made within the
then-preceding 12-months in respect of which no adjustment has been made
and (II) any cash and the fair market value of other consideration paid or
payable in respect of any tender offer by the Corporation or any of its
Subsidiaries for shares of any class of Common Stock concluded within the
then-preceding 12-months in respect of which no adjustment has been made
pursuant to Clause (A)(4);
ExP equals the exercise price or other consideration to be paid by the holder
upon the exercise of or conversion of "U";
<PAGE>
MV equals Market Value per share of the Common Stock as of the date of
conversion or exchange of "U";
CP equals the Conversion Price immediately prior to the Conversion Price
Adjustment Event;
ACP equals the Conversion Price immediately after the Conversion Price
Adjustment Event;
(1) In the case of an event described in Clauses (A)(1) or (A)(3),
the Conversion Price in effect immediately before such event shall be
adjusted pursuant to the following formula: X/Y multiplied by CP=ACP.1
(2) In the case of an event described in Clause (A)(2), the
Conversion Price in effect immediately before such event shall be adjusted
pursuant to the following formula: X/(X+U((MV-ExP)/MV)) multiplied by
CP=ACP.2 If any options, warrants, convertible securities, or other rights
of the nature described in Clause (A)(2) ("Rights") expire without
exercise or conversion, the Conversion Price will be readjusted to the
Conversion Price which would otherwise be in effect had the adjustment
made upon the issuance of such Rights been made on the basis of delivery
of only the number of shares of Common Stock actually delivered upon the
exercise or conversion of such Rights.
(3) In the case of an event described in Clause (A)(4), the
Conversion Price in effect immediately before such event shall be
adjusted pursuant to the following formula: CP-(Cash/C)=ACP.3
A Conversion Price adjustment shall become effective: (x) in the case of a
Conversion Price Adjustment Event described in Clauses (A)(1), (2), or (4)
immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to participate in such
event; or (y) in the case of a Conversion Price Adjustment Event described
in Clauses (A)(3), the close of business on the day upon which such
corporate action becomes effective.
(C)(1) In case of:
i) any capital reorganization or reclassification or other
change of outstanding shares of Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to
par value), or
ii) any consolidation or merger of the Corporation with or into
another Person (other than a consolidation or merger in which the
Corporation is the resulting or surviving Person and which does not result
in any reclassification or change of outstanding Common Stock), or
1 For example, where X=2 million shares, and 500,000 shares are being issued in
the Conversion Price Adjustment Event (Y=2,500,000), and CP is $1.00, the
Adjusted Conversion Price (ACP) is $.80.
2 For example, where X=2 million shares, and U=500,000 shares, MV is $2.00, ExP
is $1.50, and CP is $1.00, the Adjusted Conversion Price (ACP) is $.941. If ExP
is $0, the Adjusted Conversion Price (ACP) is $.80.
3 For example, where Cash distributed equals $200,000, CP equals $1.00 and there
are 1,500 shares of Series C Preferred Stock outstanding with an aggregate
liquidation preference of $1,500,000 (C), the Adjusted Conversion Price (ACP) is
$.867.
<PAGE>
iii) any sale or other disposition to another Person of all or
substantially all of the assets of the Corporation
(any of the events described in Clause (C)(1) being referred to in Clause
(C) as a "Transaction"), then the adjustment described in Clause (C)(2)
will be made.
(2) Each share of Series A Preferred Stock then outstanding shall,
without the consent of any holder of Series A Preferred Stock, become
convertible only into the kind and amount of shares of stock or other
securities (of the Corporation or another issuer) or property or cash
receivable upon such Transaction by a holder of the number of shares of
Common Stock into which such share of Series A Preferred Stock could have
been converted immediately prior to such Transaction after giving effect
to any adjustment event.
(3) The provisions of this Clause (C) and any equivalent thereof in
any such certificate similarly shall apply to successive Transactions. The
provisions of this Clause (C) shall be the sole right of holders of Series
A Preferred Stock in connection with any Transaction and such holders
shall have no separate vote thereon.
(iii) Notwithstanding anything herein to the contrary, no adjustment under
this Section need be made to the Conversion Price unless such adjustment
would require an increase or decrease of at least 1% of the Conversion
Price then in effect. Any lesser adjustment shall be carried forward and
shall be made at the time, if ever, of and together with the next
subsequent adjustment, which, together with any adjustment or adjustments
so carried forward, shall amount to an increase or decrease of at least 1%
of such Conversion Price.
(iv) Notwithstanding anything to the contrary contained in this
Certificate of Designation, no Conversion Price adjustment will be made as
a result of the issuance of Common Stock on conversion of the Series A
Preferred Stock.
(v) Each event requiring adjustment to the Conversion Price shall require
only a single adjustment even though more than one of the adjustment
clauses set forth in Paragraph (A), may be applicable to such Conversion
Price Adjustment Event.
<PAGE>
(vi) If the Corporation shall take a record of the holders of any class of
its Capital Stock for the purpose of entitling them to receive a dividend
or other distribution which would otherwise constitute a Conversion Price
Adjustment Event, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter no adjustment in the Conversion
Price then in effect shall be required by reason of the taking of such
record.
(vii) Upon any increase or decrease in the Conversion Price, then, and in
each such case, the Corporation promptly shall deliver to each registered
holder of Series A Preferred Stock a certificate signed by an authorized
officer of the Corporation, setting forth in reasonable detail the event
requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Price then
in effect following such adjustment.
(viii) The Corporation reserves the right to make such reductions in the
Conversion Price in addition to those required in the foregoing provisions
as it considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock rights will
not be taxable to the recipients.
(ix) In the case of any distribution by the Corporation to its
stockholders of substantially all of its assets, each holder of Series A
Preferred Stock will participate pro rata in such distribution based on
the number of shares of Common Stock into which such holders' shares of
Series A Preferred Stock would have been convertible immediately prior to
such distribution.
(x) If, as a result of any Conversion Price Adjustment Event, a holder of
the Series A Preferred Stock becomes entitled to receive upon conversion
shares of two or more classes of Capital Stock, the Corporation shall
determine the reasonable allocation of the adjusted Conversion Price
between the classes of Capital Stock. After such allocation, the
Conversion Price of each class of Capital Stock shall thereafter be
subject to adjustment on terms comparable to the Series A Preferred Stock
in this Section.
(xi) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series A Preferred Stock, such number
of its authorized but unissued shares of Common Stock as will from time to
time be sufficient to permit the conversion of all outstanding shares of
Series A Preferred Stock, and shall take all action required to increase
the authorized number of shares of Common Stock if at any time there shall
be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of
Series A Preferred Stock.
(xii) The issuance or delivery of certificates for Common Stock upon the
conversion of shares of Series A Preferred Stock shall be made without
charge to the converting holder of shares of Series A Preferred Stock for
such certificates or for any tax in respect of the issuance or delivery of
such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
in such names as may be directed by, the holders of the shares of Series A
Preferred Stock converted.
(i) "Fidelity" means Fidelity Funding, Inc., 12770 Merit Drive, 6th
Floor, Dallas, Texas 75251, and its successors and assigns under the Loan
Agreement.
<PAGE>
(j) "Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place payment is to be
received are authorized by law, regulation or executive order to remain closed.
If a payment date is a Legal Holiday at a place of payment, payment may be made
at that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
(k) "Loan Agreement" means that certain Loan and Security Agreement
dated March ___, 1998 between Fidelity and the Corporation.
(l) "Market Value" means the value per share of the Common Stock as
reported by any automated quotation service if the Common Stock is registered
under the Securities Exchange Act of 1934 and trading publicly, or the fair
market value of the Common Stock as it may be determined in good faith and after
a reasonable investigation by the Board of Directors of the Corporation.
(m) "Person" shall mean any individual, firm, corporation or
other entity.
IN WITNESS WHEREOF, KENCO PRODUCTS, INC. has caused this certificate to
be duly executed this 6th day of March, 1998.
KENCO PRODUCTS, INC.
By /s/ George Briggs
-------------------------
George Briggs, President
Attest:
/s/ Jeremy Phelan
- ---------------------------------
Jeremy Phelan, Secretary
