<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-19620
REDDI BRAKE SUPPLY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 84-1152135
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1376 Walter Street, Ventura California 93003
- --------------------------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (805) 644-8355
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$.0001 par value Common Stock
(Title of Class)
Class C Warrants to purchase Common Stock
(Title of Class)
Class D Warrants to purchase Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing sales price as reported
on The Nasdaq National Market on October 10, 1996, is $9,018,910. In calculating
the market value of the voting stock held by non-affiliates, the registrant did
not include shares of its Common Stock held by directors, executive officers and
holders of more than 5% of its Common Stock (but has included shares which may
be beneficially owned but are not held by such persons).
As of October 10, 1996, the registrant had outstanding 26,236,830
shares of its class of Common Stock.
<PAGE> 2
PART I
ITEM 1: BUSINESS
INTRODUCTION
Reddi Brake Supply Corporation (together with its subsidiary, "Reddi
Brake" or the "Company") is a non-traditional "two-step" distributor of brake
systems, chassis components and other undercar parts primarily to commercial
auto repair shops. "Two-step" means that the Company's size and organization
enable it to purchase directly from manufacturers and other primary source
suppliers for resale to commercial customers, bypassing the added layer of
warehouse distributors and jobbers present in traditional three-step
distribution channels. The Company's Reddi Brake(R) outlets are typically 2,500
to 3,500 square feet in size, are housed in plain, industrial warehouse sites
and are located in areas with high concentrations of commercial repair shops.
Suppliers ship directly to the outlets, which carry approximately 8,500 "hard
part" undercar SKUs in stock for immediate delivery to the repair shops, and
offer over 20,000 additional SKUs on a "same day" or "next day" basis. As of
October 10, 1996, the Company operated 85 Reddi Brake(R) outlets in 26 states.
The Company entered into the two-step distribution business through its
April 1993 acquisition (the "Acquisition") of an entity which was then operating
11 Reddi Brake(R) outlets in California embarking on an aggressive expansion
program of opening new outlets in different regions of the country. In fiscal
1994, the Company opened 34 Reddi Brake(R) outlets, continuing its expansion in
Central and Northern California and beginning its expansion into various Western
states and Southeastern states. In fiscal 1995, the Company opened 52 additional
outlets, including new outlets in several Midwestern and Mid-Atlantic states.
However, in late fiscal 1995, the Company decided that its system of outlets had
expanded to a size calling for a review of operations before continuing its
expansion program, and the Company began a process of enhancing its
infrastructure.
In February 1996, in response to the Company's operating losses, a new
management team was installed and undertook a restructuring of the Company's
operations. At that time, (1) William Leider resigned as Chief Executive
Officer, President and Chief Operating Officer and from the Company's Board of
Directors, (2) Richard McGorrian, who had served as the Company's Vice
President, Marketing since November 1995, was appointed President and Chief
Executive Officer and was elected to the Board, and (3) S. Gerald Birin, who had
served as the Company's Chief Financial Officer and Secretary since November
1995 was appointed to the additional position of Executive Vice President and
was elected to the Board.
Since February 1996, the new management team has (1) closed 21
underperforming warehouses, (2) heightened its monitoring of certain other
underperforming warehouses, (3) returned approximately $3.4 million of inventory
to vendors and redistributed approximately $1.75 million of inventory from its
21 closed warehouses, (4) modified the inventory selection in remaining
warehouses and begun selling higher margin products, such as alternators,
carburetors and generators, with a particular focus on customer preferences of
local markets, (5) reduced certain overhead items, such as payroll, payroll
benefits, professional fees, and fleet costs, and (6) entered into an agreement
with a vendor for implementation of a new management information and accounting
system. In addition, in the fourth quarter of fiscal 1996, after evaluating the
geographic location of existing Reddi Brake locations, the Company expanded into
two new markets by purchasing two corporations operating a total of seven
automotive parts warehouses in Nevada and Orange County, California, in exchange
for shares of Reddi Brake's Common Stock.
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As discussed below under "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Factors That May Affect
Future Results", such restructuring plans may be modified, and there can be no
assurance that such restructuring will prove successful. Further, the
continuation of the Company's operations and further implementation of its
restructuring plans require that the Company raise additional working capital.
Management is engaged in discussions with two firms in an effort to raise
additional funds. However, there can be no assurance that the Company will be
able to raise such additional working capital. If the Company is not able to
raise additional capital in the near future, it is doubtful that the Company
will be able to continue its operations and will consider reorganization under
federal bankruptcy laws. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company was incorporated in Nevada on July 13, 1990. The Company's
principal executive offices are located at 1376 Walter Street, Ventura,
California 93003, and its telephone number is (805) 644-8355.
INDUSTRY OVERVIEW
According to industry sources, the total market for automotive
replacement parts for passenger cars and light trucks (not including service or
tires) accounted for sales of approximately $64.2 billion in 1993. This market
has two basic channels: (1) the wholesale segment, serving professional
installers, vehicle dealers, retail auto parts stores and other distributors,
which accounted for approximately $44.9 billion in 1993 sales, and (2) the
retail segment, serving do-it-yourself (DIY) customers, which accounted for
approximately $19.3 billion in 1993 sales.
The Company's "two-step" Reddi Brake(R) outlets focus on commercial
auto repair shops in the wholesale segment. The channels of distribution serving
the wholesale segment are highly fragmented and include (1) the traditional
three-step aftermarket channels, which consist primarily of warehouses that buy
from product manufacturers and sell to jobbers that, in turn, sell to
professional installers, and (2) traditional two-step distribution channels,
including the original equipment channel through vehicle dealerships, retail
parts stores, specialty distributors and local and regional remanufacturers.
The Reddi Brake(R) outlets are non-traditional "two-step" distributors,
purchasing directly from major manufacturers for resale to commercial repair
shops, to avoid the inefficiencies and extra costs involved in utilizing
traditional three-step channels. At the same time, Reddi Brake(R) outlets carry
more focused inventory than the traditional two-step distributors, offering the
commercial shops ready availability of selected lines of brake systems, chassis
and other undercar "hard parts". The Company believes that its Reddi Brake(R)
outlets combine distribution efficiencies and purchasing power with specialized
inventory targeting the needs of commercial repair shops.
TWO-STEP REDDI BRAKE(R) OUTLETS
The Company's Reddi Brake(R) outlets have been designed to meet the
needs of its targeted customer base -- the commercial repair shops -- and sell
high-volume undercar products such as brake systems, chassis and steering parts
- -- emphasizing quality parts, availability and rapid delivery. The Company
selects outlet sites in areas with both inexpensive rent and a high
concentration of commercial repair shops. Reddi Brake(R) outlets are typically
2,500 to 3,500 square feet in size and are housed in plain, industrial warehouse
sites, which do not emphasize exterior visibility. The interior of each outlet
is similarly plain, consisting of desk and counter space, telephone and computer
equipment, and industrial shelving for the parts inventory. Since virtually all
of this business is conducted by outside orders from repair outlets, site
visibility and interior design are not important.
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These outlets focus on ready availability of approximately 8,500 "hard
part" undercar SKUs carried in stock, and offer over 20,000 additional SKUs on a
"same day" or "next day" basis. Parts are delivered by manufacturers or other
primary source suppliers directly to the outlets which, in turn, offer quick
response delivery to the commercial repair shops.
The Company's Reddi Brake(R) outlets are characterized by their
relatively low overhead and modest unit investment requirements. The inexpensive
sites, small size and "no-frills" exterior and interior of these outlets combine
to hold the cost of opening an average outlet to approximately $250,000,
primarily consisting of initial inventory costs.
PURCHASING AND INVENTORY CONTROL
The Company employs certain operating disciplines and efficiencies to
reduce costs. Through centralized control of purchasing, pricing and inventory
replenishment, and direct shipment of merchandise from suppliers, management
believes that the Company can control and reduce operating expenses that are
typical for the industry.
The Company selects its vendors based upon quality, price, service and,
for appropriate product categories, brand name recognition. Inventory is
delivered from the suppliers to the individual outlets. The Company purchases
from approximately 25 primary vendors, with 12 vendors accounting for over 80%
of their total purchases in fiscal 1996. The Company has no long-term purchase
contracts with any of its vendors; however, various purchase discounts and
rebates received from vendors are contingent upon the Company's meeting certain
volume purchase requirements with respect to these vendors.
Although the Company is not yet able to resume timely payments to trade
and other creditors, it has made significant payments to major vendors from the
net proceeds of its April 1996 and June 1996 preferred stock offerings. Further,
in the third quarter of fiscal 1996, the Company returned approximately
$3,400,000 of inventory to vendors in connection with its closing of 14
underperforming warehouses. Due to its cash flow shortage, however, the Company
has been placed on COD status by a majority of its vendors. Accordingly, the
Company's ability to fill customer orders has been adversely affected. See "Part
II - Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources".
Merchandising policies and significant buying decisions are made at the
Company's Ventura, California headquarters, while store managers may vary their
inventory to meet local demand. Sales data for each outlet is linked into the
Company's computerized perpetual inventory control systems at point-of-sale.
These systems enable the Company's management to track, on a "real time" basis,
outlet and company-wide sales and inventory information by SKU, establish
product pricing and generate inventory replenishment orders.
The manufacturers of automotive parts and products generally provide
repair or replacement warranties, which the Company extends to its customers.
The Company's vendors generally permit it to return an agreed-upon percentage of
its annual purchases for full credit.
MARKETING AND COMPETITION
For the Reddi Brake(R) outlets, the Company's marketing strategy is
designed to promote awareness among commercial repair shops of ready
availability of approximately 8,500 high quality "hard part" undercar SKUs, at
competitive prices. Critical to this strategy is an emphasis on quick and
efficient order taking and immediate parts delivery. A full-time staff of
approximately 47 customer account
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representatives regularly calls on commercial customers of the various outlets,
occasionally accompanied by vendor representatives to maintain customer contact
and provide training. In addition, certain store personnel make calls to
existing and potential commercial customers. The outlets also offer special
prices on selected items, during seasonal and special promotions.
The Reddi Brake(R) outlets compete in a highly competitive environment
in the commercial segment of the automotive aftermarket parts accessories
industry. The primary competitors include the traditional three-step aftermarket
channels, consisting primarily of independent and national warehouse
distributors and associations, such as National Automotive Parts Association and
Carquest, and the associated jobbers to whom they sell; the traditional two-step
distribution channels, including the original equipment channels through vehicle
dealerships, retail part stores, specialty distributors and local and regional
remanufacturers; and APS Holding Corporation, a national operator of "installer
service warehouses". Many of the Company's competitors are larger and have
greater capital and management resources. National and regional automotive parts
chains with which the Company does not presently compete may expand into the
Company's present or future market areas.
The Reddi Brake(R) outlets compete primarily by providing auto repair
shops with ready availability of high quality undercar parts at competitive
prices. By locating these outlets near concentrations of repair shops, the
Company is able to provide immediate delivery of its "on hand" 8,500 SKUs.
EMPLOYEES
As of October 4, 1996, the Company had 890 employees, including two
executive officers. Of these employees, 836 worked in the Reddi Brake(R) outlets
and 54 were management and support personnel at the Company's administrative
offices. The Company's employees are not subject to any collective bargaining
agreement. The Company considers its relations with its employees to be good.
SERVICE MARKS AND TRADEMARKS
The Company believes that its "Reddi Brake(R)" service mark is
important to its merchandising and marketing strategy, but that its business is
not otherwise dependent on any patent, license, trademark, service mark or
copyright. There are no infringing uses known by the Company that could
materially affect the use of such mark.
ITEM 2: PROPERTIES
As of October 10, 1996, the Company operated 85 Reddi Brake(R) outlets
in 26 states. Each of these sites is leased from parties not affiliated with the
Company. Of the 85 Reddi Brake(R) outlets, 82 are leasehold sites typically
ranging between 2,500 and 3,500 square feet, under leases with terms generally
ranging from three to five years. The Ventura, California outlet is located in a
15,000 square foot facility, which also houses the Company's administrative
facilities. The Atlanta, Georgia facility is 8,500 square feet and serves as
both a Reddi Brake(R) outlet and certain data processing facilities for the
Southeastern Regional Center. The Indianapolis, Indiana facility is 5,200 square
feet and serves as both a Reddi Brake(R) outlet and certain data processing
facilities for the Midwestern Regional Center.
The Company also leases a 15,000 square foot warehouse in West Covina,
California from the Company's former Chairman pursuant to a lease which expires
in February 2008. This warehouse was subleased to Hi/LO Automotive, Inc. until
October 31, 1995. The Company plans to find another tenant to sublease this
facility. No assurances can be given that the Company will be able to
successfully sublease
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this facility or that the rent under any such new sublease will be adequate to
cover the rent payable under the Company's with respect to this facility.
Monthly rent payments made by the Company with respect to this facility will be
charged against the Company' reserve for discontinued operations established in
fiscal 1994. At June 30, 1996, such reserve was reevaluated and increased by
$354,000 to approximately $1,296,000, which management believes is adequate to
cover future expenses associated with its former Wesco Division.
ITEM 3: LEGAL PROCEEDINGS
A class action lawsuit entitled James P. Delano and Cynthia L. Delano,
et al. v. Reddi Brake Supply Corporation, et al., was filed on October 31, 1995
against the Company and Bruce Douglass, Gordon Werner and Michael Cassidy
(former officers of the Company) in the United States District Court for the
Central District of California. The Company and the individual defendants have
entered into an agreement of settlement with the plaintiffs, under which the
total settlement amounts and attorneys' fees to be paid by the Company would not
have a material adverse impact on its results of operations or financial
condition. Consummation of the settlement agreement is subject to a finding by
the Court that the terms of the settlement are fair, adequate and reasonable to
the members of the plaintiff class after members of the plaintiff class have
been notified of the proposed settlement and have been given an opportunity to
be heard by the Court. Although the parties have entered into a definitive
written agreement of settlement, there can be no assurance that such settlement
will be approved by the Court or that the settlement will be consummated.
On October 6, 1995, Thomas M. Jeffrey and Debra A. Jeffrey filed a
lawsuit in the Arizona Superior Court against the Company, and certain of its
former officers and/or directors (Bruce Douglass, Gordon Werner, William Leider
and Michael Cassidy), and their spouses, alleging violations of Arizona law in
connection with plaintiffs' purchase of Reddi Brake securities. The case
subsequently was removed to the United States District Court for the District of
Arizona. The Company has reached a tentative agreement with plaintiffs for the
settlement of this action, under which the total settlement amounts to be paid
by the Company would not have a material adverse impact on its results of
operations or financial condition. Consummation of this settlement is subject to
the negotiation, execution and delivery of definitive settlement documents and
the approval of the Delano v. Reddi Brake Supply Corp. litigation discussed
above. Accordingly, there can be no assurance that such settlement will be
consummated.
On September 6, 1996, Maremont Corporation filed a lawsuit in the
United States District Court for the Central District of California against the
Company, alleging that the Company owes the plaintiff approximately $1.2 million
for goods sold and delivered to the Company. The complaint includes a demand for
the Company's payment of such sum, plus interest, attorneys' fees and costs.
Such amount has been included as an accounts payable as of June 30, 1996 in the
Company's consolidated financial statements.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 21, 1996, the Company held its 1995 annual meeting of
stockholders (the "Annual Meeting"). At the Annual Meeting, the stockholders
elected directors to serve on the Board, voted in favor of the Chief Executive
Officer and Chief Financial Officer Performance Based Compensation Plan which
had been adopted by the Compensation Committee of the Board of Directors,
subject to stockholder approval, and ratified the Board of Directors' selection
of KPMG Peat Marwick LLP, as the Company's independent auditors for the 1996
fiscal year. The results of ballots cast at the Annual Meeting were as follows:
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PROPOSAL 1: ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST ABSTAIN
- ------- --- ------- -------
<S> <C> <C> <C>
Stanley L. Timmins 12,395,800 0 114,719
Eric Openshaw 12,395,800 100 114,719
Richard McGorrian 12,395,700 0 114,719
S. Gerald Birin 12,395,700 0 115,719
</TABLE>
PROPOSAL 2: ADOPTION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PERFORMANCE BASED COMPENSATION PLAN
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
6,847,565 342,725 114,132
</TABLE>
PROPOSAL 3: RATIFICATION OF KPMG PEAT MARWICK LLP AS AUDITORS
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
12,338,142 74,961 97,366
</TABLE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded over-the-counter on The
Nasdaq Stock Market since February 28, 1992. The Common Stock now is traded on
The Nasdaq National Market under the symbol REDI. Prior to March 1994, the
Common Stock was traded on The Nasdaq Small-Cap Market and, prior to May 9,
1994, the trading symbol was WSCO.
The following table sets forth, for the periods indicated, the high and
low closing sales price per share for the Common Stock in each of the fiscal
quarters indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1995
<S> <C> <C>
First Quarter $6.75 $4.19
Second Quarter $6.63 $4.50
Third Quarter $7.25 $2.88
Fourth Quarter $4.13 $2.75
<CAPTION>
HIGH LOW
---- ---
FISCAL YEAR ENDED JUNE 30, 1996
<S> <C> <C>
First Quarter $3.72 $2.31
Second Quarter $3.03 $2.06
Third Quarter $2.56 $1.28
Fourth Quarter $2.56 $1.78
</TABLE>
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Quotations for fiscal 1995 and fiscal 1996 have been obtained from The
Nasdaq Stock Market. On October 10, 1996, the closing price of the Common Stock
as reported on the Nasdaq National Market was $0.34. As of October 10, 1996,
there were approximately 444 holders of record of the Company's Common Stock.
The Company has not paid any cash dividends on its capital stock and
does not intend to pay dividends in the foreseeable future. The Board of
Directors currently intends to retain any future earnings for use in its
business. Under the terms of the Company's working capital line of credit with
The CIT Group/Credit Finance, Inc., the Company is prohibited from declaring or
paying a dividend or distribution on its Common Stock in cash or any property
other than Reddi Brake securities.
ITEM 6: SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of Reddi Brake Supply Corporation. The data should be read
in conjunction with the consolidated financial statements, related notes, and
other financial information included herein. The results of operations of the
Wesco Division are reported as a discontinued operation. The Wesco Division's
results for the fiscal year ended June 30, 1992 include information derived from
the financial statements of a "Predecessor" corporation, prior to the
recapitalization of Wesco Auto Parts Corporation in October 1991. Operating
results of the Company include the results of the Reddi Brake Division from the
date of acquisition, May 1, 1993.
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<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales ................................... $ 62,725,468 $ 46,695,341 $ 21,003,497 $ 2,047,970 $ --
Cost of goods sold .......................... 38,548,308 25,010,103 11,398,234 1,271,673 --
------------ ------------ ------------ ------------ ------------
Gross profit ................................ 24,177,160 21,685,238 9,605,263 776,297 --
Operating Expenses:
Store operating and selling ................ 21,802,719 15,404,074 6,492,893 571,382 --
New store development ...................... -- 597,470 151,033 -- --
General and administrative ................. 7,534,414 4,717,139 1,871,949 1,216,939 936,295
Write Off of Computer Equipment and
Certain Intangibles ...................... 1,238,000 -- -- -- --
Issuance of shares of Common Stock to
consultant ............................... -- -- 1,548,400 -- --
Provision for Store Closures ............... 721,794 -- -- -- --
Exchange of EBIT Shares for shares of
Common Stock ............................. -- -- 9,255,036 -- --
Interest expense, net ...................... 1,423,069 850,201 369,601 300,546 131,049
------------ ------------ ------------ ------------ ------------
Total operating expenses ................... 32,719,996 21,568,884 19,688,912 2,088,867 1,067,344
Income (loss) from continuing operations
before provision (benefit) for income taxes
and a change in accounting ................ (8,542,836) 116,354 (10,083,649) (1,312,570) (1,067,344)
Provision (benefit) for income taxes ........ 20,000 50,000 -- (83,000) (187,000)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations
before a change in accounting ............. (8,562,836) 66,354 (10,083,649) (1,229,570) (880,344)
Discontinued operations:
Income (loss) from operations of
discontinued Wesco Auto Parts
division ................................. -- -- (2,758,721) (1,535,434) 282,545
Loss on disposal of Wesco Auto Parts
division, including provision for
estimated operating losses during
phase-out period ......................... -- -- (3,500,000) -- --
Cumulative benefit due to a change in
accounting ................................ -- -- -- 197,000 --
------------ ------------ ------------ ------------ ------------
Net income (loss) ........................... $ (8,562,836) $ 66,354 $(16,342,370) $ (2,568,004) $ (597,799)
============ ============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Income (loss) before discontinued operations
and change in accounting ................... $ (0.52) $ 0.00 $ (0.71) $ (0.11) $ (0.14)
Loss from discontinued operations ........... -- -- (0.45) (0.13) 0.05
Change in accounting ........................ -- -- -- 0.02 --
------------ ------------ ------------ ------------ ------------
Net income (loss) per share ................. $ (0.52) $ 0.00 $ (1.16) $ (0.22) $ (0.09)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding ............................... 16,528,268 16,393,930 14,123,484 11,658,690 6,361,722
BALANCE SHEET DATA:
Working capital ............................. $ 14,841,001 $ 12,194,634 $ 7,211,367 $ 2,728,144 $ 3,048,934
Total assets ................................ 39,926,249 40,947,695 27,996,810 21,449,149 13,337,726
Long-term debt .............................. 7,840,925 8,635,141 1,191,046 161,094 74,117
Stockholders' equity ........................ 13,428,041 11,235,442 9,781,072 10,312,537 7,117,348
</TABLE>
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN
THIS ITEM 2 CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW
UNDER THE HEADING "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS
REPORT ON FORM 10-K, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED BY THE COMPANY'S MANAGEMENT.
INTRODUCTION
As of October 10, 1996, the Company operated 85 Reddi Brake(R)
warehouses in 26 states, through which the Company serves as a non-traditional
"two-step" distributor of brake systems, chassis components and other undercar
parts primarily to auto repair shops. In February 1996, in response to the
Company's operating losses, a new management team was installed and undertook a
restructuring of the Company's operations. Since then, the Company has (1)
closed 21 underperforming warehouses, (2) heightened its monitoring of certain
other underperforming warehouses, (3) returned approximately $3.4 million of
inventory to vendors and redistributed approximately $1.75 million of inventory
from its 21 closed warehouses, (4) modified the inventory selection in remaining
warehouses and begun selling higher margin products, such as alternators,
carburetors and generators, with a particular focus on customer preferences of
local markets, (5) reduced certain overhead items, such as payroll, payroll
benefits, professional fees, and fleet costs, and (6) entered into an agreement
with a vendor for implementation of a new management information and accounting
system. In addition, in the fourth quarter of fiscal 1996, after evaluating the
geographic location of existing Reddi Brake locations, the Company expanded into
two new markets by purchasing two corporations operating a total of seven
automotive parts warehouses in Nevada and Orange County, California, in exchange
for shares of Reddi Brake's Common Stock.
As discussed below under "Factors that May Affect Future Results", the
Company's restructuring plans may be modified, and there can be no assurance
that such restructuring will prove successful. Further, continuation of the
Company's operations and the implementation of the Company's restructuring plans
require that the Company raise additional working capital. Management is engaged
in discussions with two firms in an effort to raise additional funds. However,
there can be no assurance that the Company will be able to raise such required
additional working capital. If the Company is not able to raise additional
working capital in the near future, it is doubtful that the Company will be able
to continue its operations and will consider reorganization under federal
bankruptcy laws. See "-Liquidity and Capital Resources."
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
Net sales for the year ended June 30, 1996 were $62,725,468, an
increase of $16,030,127, or 34.3%, over the prior year. This increase is
primarily due to increased sales in maturing warehouses opened during the year
ended June 30, 1995 and the acquisition of three new warehouses in Nevada
(effective as of April 30, 1996) and four new warehouses in Orange County,
California (effective as of May 31, 1996), the aggregate effect of which was
partially offset by the closing of fourteen underperforming
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warehouses in February 1996. Sales at the Company's comparable Reddi Brake(R)
warehouses (based on warehouses opened at least 12 full months as of June 30,
1996) increased approximately 8% for fiscal 1996, as compared to fiscal 1995.
However, sales were generally lower than the Company had expected, particularly
in warehouses outside of the Western region. Further, management believes that
sales were adversely affected by extreme weather conditions in the Midwest and
Eastern regions during the third quarter of fiscal 1996.
As a percentage of sales, gross profit decreased from 46.4% in fiscal
1995 to 38.5%, in fiscal 1996. This decrease is primarily due to the Company
recognizing less purchase discounts, as a percentage of sales, for initial
inventories, since the Company has not opened any new Reddi Brake(R) warehouses
since May 1995. For further explanation of such purchase discounts, see Note 2
to the Consolidated Financial Statements. During the first and second quarters
of fiscal 1996, the Company amortized approximately $2,081,000 of purchase
discounts, as compared to $4,725,000 for the prior year. As of December 31,
1995, however, the Company had exhausted its monthly recognition of such
discounts. Accordingly, the Company expects a further decrease in its gross
margin in fiscal 1997, as compared to fiscal 1996. The decrease in the Company's
gross margin for fiscal 1996 was net of a $951,000 credit recorded with respect
to the reversal of an overaccrual in the Company's reserve for estimated
inventory returns to its vendors recorded in the June 30, 1995 consolidated
financial statements.
As a percentage of sales, warehouse operating and selling expenses for
fiscal 1996 increased to 34.7%, up from 33% in fiscal 1995. The Company
attributes this increase to additional expenses incurred in opening and
operating 17 new Reddi Brake locations from January through May 1995, as fixed
overhead (primarily wages, salary, rent, vehicles and equipment) were not fully
absorbed by the lower than expected sales. Further, the Company experienced rate
increases in vehicle insurance and workers compensation insurance. To a lesser
extent, this increase also reflects the reallocation of expenses for computer
data lines from general and administrative expenses to warehouse operating and
selling expenses.
As a percentage of sales, general and administrative expenses for
fiscal 1996 increased to 12.0% from 10.1% in fiscal 1995. This increase
primarily reflects additional purchasing, accounting and administrative
personnel hired to support the Company's new warehouses opened during fiscal
1995, compensation paid to senior management executives hired since May 1995,
charges related to the severance of departing officers, increased payments of
legal fees and increased computer-related overhead. This increase was also due,
in part, to $310,000 recorded as reserves with respect to two lawsuits. In March
1996, the Company settled one of these two lawsuits utilizing $150,000 of the
above mentioned reserve.
As of December 31, 1995, the Company approved a plan to close 14
warehouses and, accordingly, recorded a provision for estimated costs amounting
to $721,794. The provision consists principally of estimated losses on leases,
handling and freight costs to return inventory to vendors or to other stores,
and the abandonment of certain assets. During the third quarter of fiscal 1996,
the Company closed all 14 warehouses and, as of June 30, 1996, had utilized
approximately $491,000 of this reserve. The Company is continuing to incur
expenses relating to these closures.
During the fourth quarter of fiscal 1996, management re-evaluated the
carry value of certain assets and determined that such assets were permanently
impaired, resulting in aggregate charges of approximately $1,238,000 for the
write off of the unamortized portion of those assets. These charges consisted of
$673,000 of goodwill and certain intangibles associated with the Company's April
1993 acquisition of eleven Reddi Brake(R) warehouses and $565,000 related to the
Company's present management information and accounting system. In the fourth
quarter, the Company also recorded charges of $354,000 for an increase in the
reserve previously established in connection with its West
-10-
<PAGE> 12
Covina warehouse lease (see "Part I - Item 2. Properties" for a discussion of
this lease). Such amount is included in general and administrative expenses.
Interest expenses, net, increased to $1,423,069 (2.3% of net sales) in
fiscal 1996, as compared to $850,201 (1.8% of net sales) in fiscal 1995. This
increase was primarily due to increased borrowings under the Company's working
capital line and an increase in capital lease obligations related to vehicles
for new Reddi Brake warehouses. These borrowings were primarily used to fund the
operations of Reddi Brake(R) warehouses and for the increased general and
administrative expenses.
The income tax provision for the year ended June 30, 1996 represents
state income taxes. As of June 30, 1996, the Company has deferred tax assets of
$7,862,000 and a related valuation allowance of $7,862,000. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the projected future taxable
income and tax planning strategies in making this assessment. Based upon
historical taxable income (losses) and projections for future taxable income,
management believes it is more likely than not that the Company will not realize
the benefits of these deductible differences.
The Company's business is seasonal in nature, with warehouse sales
historically running higher in the first and fourth quarter (April through
September) of the fiscal year.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
Revenues for fiscal 1995 were approximately $46.7 million, as compared
to approximately $21.0 million for fiscal 1994, an increase of $25.7 million or
122%. This increase in revenues was primarily attributable to increases in sales
of Reddi Brake(R) outlets opened in the second half of fiscal 1994 and the
opening of 52 additional Reddi Brake(R) outlets in fiscal 1995. Fiscal 1995
sales at the Company's 13 comparable Reddi Brake(R) outlets (outlets open for at
least 12 full months during fiscal 1994) increased 3.7%, to approximately $15.1
million in fiscal 1995 from approximately $14.6 million in fiscal 1994. However,
sales in new outlets in regions outside of the Western states were generally
lower than the Company had expected based on historical sales in the Western
region.
As a percentage of revenues, gross profit increased from 45.7% in
fiscal 1994 to 46.4% in fiscal 1995. This increase is primarily due to the
Company successfully negotiating better terms and price discounts from vendors
for the initial inventories associated with the new Reddi Brake(R) outlets
opened in fiscal 1994 and fiscal 1995. During fiscal 1995, such discounts for
initial inventories at new outlets amounted to approximately $4.73 million.
These purchase discounts are recorded as a reduction in cost of goods sold over
the estimated inventory turn for such new stores, which approximates twelve
months. See Note 2 to the Consolidated Financial Statements. The Company
anticipates such discounts will be significantly lower in fiscal 1996 given the
Company's planned hiatus in opening new outlets, resulting in a significant
decrease in gross margins during fiscal 1996. Unless the Company opens new
outlets following such hiatus and receives similar purchase discounts for the
initial inventory of such stores, the Company's monthly recognition of existing
purchase discounts will be exhausted by May 1996.
The annualized inventory turnover rate was approximately 1.5 times
during fiscal 1995, as compared to approximately 1.7 times during fiscal 1994.
This decrease is primarily due to the opening of 52 Reddi Brake(R) outlets
during fiscal 1995 which caused an immediate increase in inventory followed by
the expected sales ramp-up period, a slower than expected increase in sales for
these new units and
-11-
<PAGE> 13
certain slow moving inventory items. In response to these factors, the Company
has reached agreement with various vendors to return an aggregate of
approximately $4.2 million in inventory to such vendors.
As a percentage of revenues, store operating and selling expenses for
fiscal 1995 increased to 33.0%, from 30.9% in fiscal 1994. This increase is
primarily attributable to additional expenses incurred in opening 52 new Reddi
Brake(R) outlets during fiscal 1995 coupled with lower than expected sales from
these new units.
New store development expenses (primarily composed of new store set-up,
payroll, lodging and training) for fiscal 1995 were approximately $597,000, an
increase of approximately $446,000 over fiscal 1994. This increase was the
result of the opening of 52 new Reddi Brake(R) outlets mainly in the Southeast,
Midwest and Mid-Atlantic states in fiscal 1995, as compared to 34 Reddi
Brake(R) outlets opened mainly in the West in fiscal 1994.
As a percentage of revenues, general and administrative expenses for
fiscal 1995 increased to 10.1%, from 8.9% for fiscal 1994. This increase
primarily reflects additional purchasing, accounting and administrative
personnel hired to support the Company's opening and operation of a significant
number of new stores.
Interest expense, net, increased to approximately $850,000 in fiscal
1995, as compared to approximately $370,000 in fiscal 1994, primarily due to
increased borrowing on the Company's working capital line, the completion of a
$6.9 million private placement (the "Debt Placement") of subordinated debt in
February 1995 and an increase in capital lease obligations related to vehicles
for new Reddi Brake(R) outlets. These borrowings were primarily used to fund the
opening and operation of new Reddi Brake(R) outlets.
In the fourth quarter of fiscal 1995, the Company incurred a loss from
continuing operations of approximately $938,000. This fourth quarter loss was
primarily due to one-time charges of (a) $569,000 related to the Company's
return of $4.2 million of inventory to vendors, (b) $236,000 associated with the
Company's intended foreclosure of shares pledged in connection with a loan to
the Company's former president and chief executive officer and (c) $150,000 in
fees and expenses paid to a bank in connection with a potential revolving credit
facility that was not consummated.
After taking the above factors into account, the Company generated
income from continuing operations of approximately $116,000 for fiscal 1995, as
compared to a loss from continuing operations of approximately $10.1 million for
fiscal 1994 (which included certain non-cash charges aggregating $10.8 million).
The Wesco Division incurred a loss of $133,000 on net sales of $8,193,351 for
the period from July 1, 1994 through October 31, 1994. This loss was previously
reserved for at the end of fiscal 1994.
The Company's business is seasonal in nature, with store sales
historically running higher in the first and fourth quarters (April through
September).
LIQUIDITY AND CAPITAL RESOURCES
In November 1995, the Company obtained a new working capital line of
credit (the "CIT Line") with The CIT Group/Credit Finance, Inc. The maximum
credit available under the CIT Line is the lesser of (a) $13 million, or (b) the
sum of 85% of eligible accounts receivable and 55% of eligible inventory.
Borrowings under the CIT Line bear interest at a rate equal to the CIT's prime
lending rate (8.25% at June 30, 1996) plus 1.50%. Borrowings are collateralized
by the Company's accounts receivable, notes receivable, inventory, fixtures and
equipment. Under the terms of the CIT Line, as amended, the
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<PAGE> 14
Company must comply with certain reporting, operational and financial
performance covenants, including a covenant that the Company install a new
management information and accounting system by November 30, 1996. The Company
has entered into an agreement with a vendor for the implementation of a new
management information and accounting system; however, this system is not
expected to be operational by November 30, 1996 and, accordingly, the Company
will be in default of this covenant at that date unless it receives a waiver
from CIT.
The Company's principal sources of funds are cash generated from
operations, borrowings on the CIT Line, and proceeds from its April 1996 Class A
Preferred Stock offering and its June 1996 Class B Preferred Stock offering. In
the fourth quarter of 1996, the Company raised approximately $8,358,550 of
aggregate net proceeds in these offerings.
Although the Company is not yet able to resume timely payments to trade
and other creditors, it has made significant payments to major vendors from the
net proceeds of the above discussed offerings of Preferred Stock. Further, in
the third quarter of fiscal 1996, the Company returned approximately $3,400,000
of inventory to vendors in connection with its closing of 14 underperforming
warehouses. Due to its cash flow shortage, however, the Company has been placed
on COD status by a majority of its vendors. Accordingly, the Company's ability
to fill customer orders has been adversely affected.
The continuation of the Company's operations and further implementation
of its restructuring plans require that the Company raise additional working
capital. Management is engaged in discussions with two firms in an effort to
raise additional funds. However, there can be no assurance that the Company will
be able to raise such required additional working capital. If the Company is
unable to raise additional working capital in the near future, it is doubtful
that the Company will be able to continue its operations and will consider
reorganization under federal bankruptcy laws.
RECENT DEVELOPMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of" (SFAS 121), issued in March 1995 and effective for fiscal years beginning
after December 15, 1995, establishes accounting standards for the recognition
and measurement of impairment of long-lived assets, certain identifiable
intangibles and goodwill either to be held or disposed of. The Company plans to
adopt SFAS 121 in fiscal 1997. Management believes the adoption of SFAS 121 will
not have a material impact on the Company's financial position or results of
operations.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), issued in October 1995 and effective for
fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair value based method of accounting for employee stock options or
similar equity instruments. SFAS 123 allows an entity to elect to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma
disclosures of net earnings and earnings per share as if the fair value based
method of accounting had been applied. The Company plans to adopt SFAS in fiscal
1997 and anticipates that it will continue to elect to continue to measure
compensation costs under APBO No. 25, and will comply with the pro forma
disclosure requirements. Management believes the adoption of SFAS 123 will not
have a material impact on the Company's financial position or results of
operations.
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<PAGE> 15
FACTORS THAT MAY AFFECT FUTURE RESULTS
All forward-looking statements contained in this Item 7 and in this
Report on Form 10-K are subject to, in additional to the other matters described
in this Report on Form 10-K, a variety of significant risks and uncertainties.
The following discussions highlights some of these risks and uncertainties.
Further, from time to time, information provided by the Company or statements
made by its employees may contain "forward-looking" information. The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including
those discussed below.
Recent Operating Losses. For its year ended June 30, 1996, the Company
reported a loss of $8,557,836, primarily due to the factors discussed above.
Although the Company's new management has responded to this loss with the
measures described above, there can be no assurance that these or any other
measures will lead to profitability for the Company in fiscal 1997.
Management Strategy. As discussed above, the Company's management has
undertaken a restructuring of operations in response to the Company's recent
losses. These measures are based upon new management's current understanding and
assumptions concerning the Company's operations and, accordingly, management may
modify its approach on these measures, or take additional measures, as it deems
appropriate. Further, there can be no assurance that management's strategy in
responding to the Company's losses will prove successful. In addition, the
restructuring may involve future warehouse closures, in which event the Company
would experience further associated charges.
Need for Additional Capital. As discussed above, the Company is
continuing to experience cash flow difficulties. Continuation of the Company's
operations and the implementation of the Company's restructuring plans require
that it raise such additional working capital. Management is engaged in
discussions with two firms in an effort to raise additional funds. However,
there can be no assurance that the Company will be able to raise such required
additional working capital. If the Company is unable to raise additional working
capital in the near future, it is doubtful that it will be able to continue its
operations and will consider reorganization under federal bankruptcy laws.
Expected Decrease in Gross Margin. As discussed above, the Company's
gross margin for the year ended June 30, 1996 was 38.5%, as compared to 46.4%
during the prior year. This decrease was primarily due to the diminishing
amortization of past purchase discounts, which were exhausted as of December 31,
1995. Accordingly, the Company expects a further decrease in its gross margin in
fiscal 1997, as compared to fiscal 1996.
Defaults in Loan Covenants. As discussed above, the CIT Line, as
amended, contains certain reporting, operational and financial performance,
including a covenant that the Company install a new management information and
accounting system by November 30, 1996. The Company has entered into an
agreement with a vendor for the implementation of a new management information
and accounting system; however, this system is not expected to be operational by
November 30, 1996 and, accordingly, the Company has classified the entire
obligation as a current obligation in the accompanying consolidated financial
statements. If the Company's new management information and accounting system is
not operational by November 30, 1996, the Company will be in default of this
covenant at that date unless it receives a waiver from CIT. The Company's breach
of this or its other covenants under the CIT Line would give CIT the right to
call the outstanding amounts due on the CIT Line and enforce its rights against
substantially all of the Company's assets.
-14-
<PAGE> 16
Competition. The Company operates in a highly competitive environment
in the commercial segment of the automotive parts and accessories aftermarket.
The Company's primary competitors include traditional three-step aftermarket
channels, consisting primarily of independent and national warehouse
distributors and associations, such as NAPA and Carquest, and the associated
jobbers to whom they sell; traditional two-step distribution channels, including
original equipment channels through vehicle dealerships, retail parts stores,
specialty distributors and local and regional manufacturers; and APS Holding
Corporation, a national operator of "installer service warehouses". Many of the
Company's current and potential competitors are larger and have greater
financial resources.
Dependence Upon Key Executives. The Company's success will be, to a
large extent, dependent upon the continued services of Richard McGorrian, its
Chief Executive Officer, and recruiting and making an orderly transition to a
qualified successor to S. Gerald Birin, its Chief Financial Officer. Mr. Birin
has resigned as an officer and director of the Company, effective October 23,
1996, and the Company is currently interviewing candidates for the position of
Chief Financial Officer. The loss of the services of Mr. McGorrian for any
reason, without an orderly transition to a qualified successor, or any
significant delay in recruiting a new Chief Financial Officer, would likely have
a material adverse effect on the Company's operations and results.
Other Factors Affecting Market Price. The market price of the Company's
Common Stock may be adversely affected by a number of other factors, including
future sales of shares covered by a Registration Statement on Form S-3 (which
presently covers approximately 5.2 million shares), the possible exercise of
various warrants and options which could result in the issuance of up to
approximately 3.3 million additional shares, the conversion of up to $6.9
million of 9.0% Adjustable Convertible Subordinated Notes into a maximum
(subject to anti-dilution adjustments) of approximately 2.5 million shares, the
issuance of additional shares of Common and Preferred Stock, and fluctuations in
response to periodic variations in operating results, market conditions and
general economic conditions and factors external to the Company.
-15-
<PAGE> 17
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REDDI BRAKE SUPPLY CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND 1995
AND FOR THE THREE YEARS
ENDED JUNE 30, 1996
TOGETHER WITH REPORTS OF
INDEPENDENT AUDITORS
-16-
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Reddi Brake Supply Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Reddi Brake
Supply Corporation and Subsidiaries as of June 30, 1996 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. We have also audited the financial statement schedule for the year ended
June 30, 1996 listed in the accompanying index. These consolidated financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reddi Brake Supply
Corporation and Subsidiaries as of June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule for the year ended June 30, 1996, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Reddi Brake Supply Corporation and Subsidiaries will continue as a going
concern. As discussed in note 2 to the consolidated financial statements, the
Company has suffered significant operating losses, used $7,976,653 of cash in
operations in 1996 and does not expect to be in compliance with certain debt
covenants in fiscal 1997 (note 7) and has an accumulated deficit of $26,685,249
as of June 30, 1996. These matters raise substantial doubt about the entity's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Los Angeles, California
September 19, 1996
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<PAGE> 19
Report of Independent Auditors
Board of Directors and Shareholders
Reddi Brake Supply Corporation
We have audited the accompanying consolidated balance sheets of Reddi Brake
Supply Corporation (formerly Wesco Auto Parts Corporation) as of June 30, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our audit also included the
financial statement schedule listed in the Index at Item 14(a) for the years
ended June 30, 1995 and 1994. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reddi Brake
Supply Corporation at June 30, 1995 and 1994, and the consolidated results of
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respect
the information set forth therein.
Ernst & Young LLP
Los Angeles, California
September 7, 1995, except for Note 6,
as to which the date is October 12,
1995
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<PAGE> 20
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 571,156 1,701,955
Accounts receivable, less allowance for doubtful
accounts of $560,000 and $275,000 in 1996 and
1995, respectively 6,064,675 4,365,274
Other receivables 428,126 146,160
Inventories 24,921,223 25,178,851
Supplies and prepaid expenses 141,216 100,077
Notes and advances due from stockholder
(note 9) 242,632 641,418
Notes receivable due from Hi-LO (note 3) 662,256 671,011
------------ ------------
Total current assets 33,031,284 32,804,746
------------ ------------
Facilities and equipment, at cost (note 12):
Fixtures and equipment 2,376,618 2,289,851
Leasehold improvements 229,457 217,847
Equipment under capital leases 4,095,440 3,253,233
------------ ------------
6,701,515 5,760,931
Less accumulated depreciation and amortization 3,081,225 1,272,020
------------ ------------
Facilities and equipment, net 3,620,290 4,488,911
------------ ------------
Notes receivable due from Hi-LO (note 3) 1,548,599 2,210,945
Deposits 302,266 273,495
Debt issuance costs, less accumulated amortization
of $144,572 and $18,673 in 1996 and 1995,
respectively 634,422 429,485
Intangible assets, less accumulated amortization of
$901,853 and $153,072 in 1996 and 1995,
respectively 789,388 740,113
------------ ------------
$ 39,926,249 40,947,695
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------ ------------
<S> <C> <C>
Current liabilities:
Short-term borrowings (note 7) $ 6,955,467 7,206,235
Current installments of obligations under capital
leases (note 12) 1,124,810 1,069,111
Accounts payable 6,598,710 9,808,209
Accrued expenses 1,302,282 878,063
Accrued payroll 912,164 424,568
Current portion of deferred compensation (note 9) -- 221,096
Accrued costs related to discontinued operations
(note 3) 1,296,850 1,002,830
------------ ------------
Total current liabilities 18,190,283 20,610,112
------------ ------------
Obligations under capital leases, less current
installments (note 12) 940,925 1,495,257
Deferred compensation, less current portion (note 9) -- 239,884
Deferred tax liabilities (note 5) 467,000 467,000
Subordinated convertible debt, 9% coupon (note 8) 6,900,000 6,900,000
Commitments and contingencies (note 12)
Stockholders' equity (note 6):
Preferred stock, $.0001 par value. Authorized
2,500,000 shares, none issued -- --
Class A and B preferred stock, $10.00 issue price
Authorized and outstanding 950,000 shares in
1996 9,547,244 --
Common stock, $.0001 par value. Authorized
35,000,000 shares; issued and outstanding
17,866,520 and 16,416,700 shares in 1996 and
1995, respectively 1,786 1,641
Additional paid-in capital 30,564,260 29,308,970
Accumulated deficit (26,685,249) (18,075,169)
------------ ------------
Net stockholders' equity 13,428,041 11,235,442
------------ ------------
$ 39,926,249 40,947,695
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 21
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 62,725,468 46,695,341 21,003,497
Cost of goods sold 38,548,308 25,010,103 11,398,234
------------ ------------ ------------
Gross profit 24,177,160 21,685,238 9,605,263
------------ ------------ ------------
Expenses:
Store operating and selling 21,802,719 15,404,074 6,492,893
General and administrative 7,534,414 4,717,139 1,871,949
Write-off of computer equipment and certain intangibles
(note 11) 1,238,000 -- --
Provision for store closures (note 10) 721,794 -- --
New store development -- 597,470 151,033
Issuance of shares of common stock to consultant (note 6) -- -- 1,548,400
Exchange of EBIT shares for shares of common stock (note 6) -- -- 9,255,036
------------ ------------ ------------
31,296,927 20,718,683 19,319,311
------------ ------------ ------------
Income (loss) from operations (7,119,767) 966,555 (9,714,048)
Interest expense, net of interest income of approximately
$254,000, $175,000 and $43,000 in 1996, 1995 and 1994,
respectively 1,423,069 850,201 369,601
------------ ------------ ------------
Income (loss) from continuing operations before
income taxes and discontinued operations (8,542,836) 116,354 (10,083,649)
Income taxes (note 5) 20,000 50,000 --
------------ ------------ ------------
Income (loss) from continuing operations (8,562,836) 66,354 (10,083,649)
Discontinued operations (note 3):
Loss from operations of discontinued Wesco Auto Parts
Division -- -- (2,758,721)
Loss on disposal of Wesco Auto Parts Division, including
provision for estimated operating losses during the phase-
out period -- -- (3,500,000)
------------ ------------ ------------
Net income (loss) $ (8,562,836) 66,354 (16,342,370)
============ ============ ============
Earnings (loss) per common share:
Income (loss) before discontinued operations $ (.52) -- (.71)
Loss from discontinued operations -- -- (.45)
------------ ------------ ------------
Net income (loss) per common share $ (.52) -- (1.16)
============ ============ ============
Weighted average number of common shares outstanding 16,528,268 16,393,930 14,123,484
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 22
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------------------- --------------------------- ADDITIONAL NET
NUMBER OF NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------------ ----------- ------------ ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 -- $ -- 16,261,148 $ 1,626 12,110,064 (1,799,153) 10,312,537
Issuance of stock to
Consultant in
connection with
consulting agreement,
November 1993 -- -- 980,000 98 1,548,302 -- 1,548,400
Issuance of stock through
private placement--
December 1993, net of
expenses -- -- 1,360,544 136 5,265,344 -- 5,265,480
Repurchase of stock from
Mr. Sheerin, December
1993 -- -- (1,000,000) (100) (1,499,900) -- (1,500,000)
Surrender of stock by
Mr. Sheerin, December
1993 -- -- (400,000) (40) 40 -- --
Exercise of employee
incentive stock options -- -- 180,281 18 463,915 -- 463,933
Exercise of various
options and warrants -- -- 310,667 31 778,025 -- 778,056
Surrender of shares from
EBIT Escrow -- -- (3,000,000) (300) 300 -- --
Exchange of EBIT Shares
for Common Shares -- -- 1,542,506 154 9,254,882 -- 9,255,036
Net loss -- -- -- -- -- (16,342,370) (16,342,370)
------------ ----------- ------------ ----------- ---------- ------------- --------------
Balance at June 30, 1994 -- -- 16,235,146 1,623 27,920,972 (18,141,523) 9,781,072
Issuance of stock to
Mr. Sheerin, November
1994 -- -- 150,000 15 834,360 -- 834,375
Surrender of stock by
consultant, November
1994 -- -- (100,000) (10) 10 -- --
Exercise of employee
incentive stock options -- -- 176,136 17 639,532 -- 639,549
Exercise of warrants -- -- 26,667 3 96,665 -- 96,668
Foreclosure of stock
owned by Dr. Douglass -- -- (71,249) (7) (182,569) -- (182,576)
Net income -- -- -- -- -- 66,354 66,354
------------ ----------- ------------ ----------- ---------- ----------- --------------
Balance at June 30, 1995 -- -- 16,416,700 1,641 29,308,970 (18,075,169) 11,235,442
Issuance of Class A and
Class B preferred stock 950,000 9,500,000 -- -- (1,320,900) -- 8,179,100
Dividends accrued on
preferred stock -- 47,244 -- -- -- (47,244) --
Issuance of stock in
connection with the
settlement of
litigation -- -- 80,000 8 134,922 -- 135,000
Issuance of common stock
in connection with the
acquisition of Express
Undercar Parts Nevada -- -- 695,109 70 1,246,093 -- 1,246,163
Issuance of common stock
to attorney for services
rendered in connection
with the acquisition of
Express Undercar Parts
Nevada -- -- 9,333 1 17,182 -- 17,183
Issuance of common stock
in connection with the
acquisition of Express
Undercar Parts
California -- -- 594,761 59 1,096,977 -- 1,097,036
Issuance of common stock
to attorney for services
rendered in connection
with the acquisition of
Express Undercar Parts
California -- -- 11,570 1 21,340 -- 21,341
Issuance of common stock
to attorney -- -- 30,000 3 61,872 -- 61,875
Issuance of common stock -- -- 50,000 5 47,495 -- 47,500
Foreclosure of stock
owned by former
employee -- -- (20,953) (2) (49,761) -- (49,763)
Net loss -- -- -- -- -- (8,562,836) (8,562,836)
------------ ----------- ------------ ----------- ---------- ----------- --------------
Balance at June 30, 1996 950,000 $ 9,547,244 17,866,520 $ 1,786 30,564,260 (26,685,249) 13,428,041
============ =========== ============ =========== ========== =========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE> 23
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(8,562,836) 66,354 (16,342,370)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 1,229,855 968,087 1,180,099
Amortization of intangibles 75,752 70,662 70,633
Amortization of debt issuance costs 124,940 18,673 --
Write-off of computer equipment and certain
intangibles 1,238,000 -- --
Change in allowance for doubtful accounts 285,000 (135,000) 360,000
Accrued costs related to discontinued operations 294,020 (201,176) 3,500,000
Deferred income taxes -- -- 403,000
Common stock issued as compensation -- -- 1,548,400
Exchange of EBIT shares for common stock -- -- 9,255,036
Compensation related to nonqualified stock options -- -- 107,500
(Gain) loss on sale of equipment (3,446) 9,496 48,227
Loss on foreclosure of note receivable from officer 122,836 236,184 --
Change in assets and liabilities associated with
operating activities:
Accounts receivable (1,606,720) (1,551,986) (1,364,439)
Inventories 3,003,146 (15,876,548) (5,243,378)
Other receivables (262,827) (27,686) 359,946
Supplies and prepaid expenses (19,960) 154,729 50,562
Note and advances due from officer -- (179,635) 602,432
Note receivable due from Hi-LO -- (39,339) --
Deposits (42,474) (4,752) (1,896)
Accounts payable and accrued expenses (4,138,092) 3,516,930 1,948,340
Accrued payroll 421,183 (408,314) 513,073
Deferred compensation (135,030) -- --
----------- ----------- -----------
Total adjustments 586,183 (13,449,675) 13,337,535
----------- ----------- -----------
Net cash used in operating activities (7,976,653) (13,383,321) (3,004,835)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixtures and equipment (190,233) (875,904) (1,422,460)
Proceeds from sale of equipment 190,692 343,174 14,822
Cash advances to officer -- -- (485,000)
Proceeds from sale of Wesco Auto Parts Division -- 6,598,695 --
Note receivable principal payments from Hi-LO 671,101 315,746 --
----------- ----------- -----------
Net cash provided by (used in) investing
activities 671,560 6,381,711 (1,892,638)
----------- ----------- -----------
</TABLE>
(Continued)
-22-
<PAGE> 24
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Advances on short-term borrowings $ 41,297,140 16,075,000 4,784,550
Payments on short-term borrowings (41,797,908) (14,373,520) (3,975,000)
Finance fees paid for LOC (329,877) -- --
Payments on notes payable and obligations under capital
lease (1,259,369) (1,038,604) (415,749)
Proceeds from exercise of options and warrants -- 578,029 6,400,071
Proceeds from issuance of preferred stock 8,179,100 -- --
Proceeds from issuance of common stock 85,208 -- --
Repurchase of common stock -- -- (1,500,000)
Proceeds from issuance of subordinated debt, net -- 6,451,842 --
------------ ------------ ------------
Net cash provided by financing activities 6,174,294 7,692,747 5,293,872
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (1,130,799) 691,137 396,399
Cash and cash equivalents, beginning of year 1,701,955 1,010,818 614,419
------------ ------------ ------------
Cash and cash equivalents, end of year $ 571,156 1,701,955 1,010,818
============ ============ ============
Supplemental disclosure:
Cash paid for interest $ 1,677,000 873,000 380,000
Cash paid for income taxes -- 81,000 --
============ ============ ============
Noncash investing and financing activities - common stock
issued for acquisitions (note 1) $ 2,374,000 -- --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-23-
<PAGE> 25
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) ORGANIZATION AND ACQUISITION
Reddi Brake Supply Corporation, a Nevada corporation (the Company),
through its subsidiary, Reddi Brake Supply Company, Inc. (Reddi Brake)
operates 92 units (see note 10) in 29 states that provide two-step
distribution of brake systems, chassis components and other undercar
parts mainly to the professional installer. Prior to November 1, 1994,
the Company also operated an 8-unit chain of stores in Southern
California under the Wesco Auto Parts name (the Wesco Division). This
chain was sold to Hi-LO Automotive, Inc. (Hi-LO), a Delaware corporation,
on November 1, 1994 (see note 3).
On April 23, 1993, the Company entered into a definitive agreement for
the acquisition (the Acquisition) of Reddi Brake Supply Company, Inc., a
California corporation, which was completed on April 30, 1993. The
Acquisition was consummated through the merger of Reddi Brake Supply
Company, Inc. into a wholly owned subsidiary of the Company. The purchase
price was an aggregate of $1,550,000 in cash, 583,500 shares of the
Company's common stock (the Acquisition Shares) with a then market value
of $1,604,625, acquisition costs of $451,451 and the assumption of
liabilities of $1,654,789. Reddi Brake Supply Company's operations have
been included in the accompanying consolidated financial statements from
May 1, 1993. The purchase price exceeded the fair value of net assets
acquired by $893,214 and was allocated to intangibles, $442,500, and
costs in excess of fair value of net assets acquired (goodwill), $450,714
(see note 11).
In connection with the Acquisition, each of the 3,000,000 shares of the
Company's then outstanding special stock was exchanged for one share of
the Company's common stock and concurrently placed into an escrow
account. On September 19, 1994, the Company reached an agreement with the
holders of rights to receive the common stock held in the escrow account
(see note 6).
Effective April 30, 1996, the Company acquired all of the outstanding
shares of Express Undercar Parts Nevada, from Allen J. Sheerin
(stockholder) and Bryan Morford (stockholder) through the issuance of
695,109 shares of its common stock valued at $1,279,000. Express Undercar
Parts Nevada operates three warehouses in Nevada, providing two-step
distribution of undercar parts mainly to the professional installer.
Effective May 31, 1996, the Company acquired all of the outstanding
shares of Express Undercar Parts California, from the stockholder through
the issuance of 594,761 shares of its common stock valued at $1,095,000.
Express Undercar Parts California operates four warehouses in Orange
County, California, providing two-step distribution of undercar parts
mainly to the professional installer. The acquisitions have been
accounted for as a purchase and the results of operations have been
included in the consolidated financial statements since the effective
date of the related acquisition. The excess of purchase price over the
estimated fair values of the net assets acquired aggregating $798,000 has
been allocated to a noncompete agreement ($100,000) and goodwill
($698,000) and is being amortized over 3 and 20 years, respectively. The
acquisitions were not material to the Company's financial position or
results of operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Reddi Brake
Supply Corporation and its wholly owned subsidiaries (collectively
referred to as the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation.
-24-
<PAGE> 26
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
LIQUIDITY
The Company has significant operating losses, used $7,976,653 of cash in
operations in 1996, does not expect to be in compliance with certain debt
covenants in fiscal 1997 (note 7) and as of June 30, 1996 has an accumulated
deficit of $26,685,000. These matters raise substantial doubt about the
Company's ability to continue as a going concern.
The Company implemented a formal plan to close certain of its operating
facilities during fiscal 1997 and is currently pursuing additional financing.
However, there is no assurance that the reduction in operating costs coupled
with additional financing will be sufficient to sustain continuing operations.
INVENTORIES
The Company's inventories, consisting primarily of finished goods, are stated at
the lower of FIFO (first-in, first-out) cost or market.
The Company receives, from certain suppliers of product, purchase discounts for
the initial inventory purchase of a new store. These purchase discounts are
recorded as a reduction of cost of goods sold over the Company's estimated
aggregate inventory turn. This monthly reduction in the cost of goods sold
produces a result which is not materially different than the result which would
be obtained if the Company allocated the discount to each particular stock
keeping unit acquired in the initial inventory. Under the Company's method of
accounting for such discounts, inventory, net of the unamortized discount is
stated at the lower of cost or market which would approximate that computed in
all material respects, by allocating the discount to each item purchased. The
Company reduced costs of goods sold by such discounts in the amounts of
approximately $2,081,000, $4,725,000 and $1,542,000 for the years ended June 30,
1996, 1995 and 1994, respectively. At June 30, 1996, no unamortized discounts
remained.
In addition, the Company receives, from certain suppliers of product, purchase
discounts and rebates related to volume purchasing. These discounts and rebates
are recognized as reductions in the cost of goods sold to the extent the related
inventory has been sold, based on the Company's annualized aggregate inventory
turn. Under the Company's method of accounting for such discounts and rebates,
to the extent that the inventory for which the discounts and rebates relate has
not been sold, inventory net of the unamortized discounts and rebates is stated
at the lower of cost or market, which would approximate that computed in all
material respects, by allocating the discounts and rebates to each item
purchased. The Company reduced costs of goods sold by such discounts in the
amounts of approximately $1,133,000, $1,157,000 and $185,000 for the years ended
June 30, 1996, 1995 and 1994, respectively. At June 30, 1996, approximately
$104,000 of unamortized discounts remained.
REVENUE RECOGNITION AND CUSTOMER RECEIVABLES
The Company recognizes revenue upon delivery of merchandise to the customer. No
provision for returns is provided as customer returns historically, net of
vendor returns for credit, have not been significant.
The Company performs a credit evaluation for new customers and grants credit to
customers meeting the Company's requirements, and typically does not require
collateral or other security. Additionally, the Company routinely assesses the
collectibility of its customer receivables. An allowance for doubtful accounts
is maintained at a level which management believes is sufficient to cover
potential credit losses.
-25-
<PAGE> 27
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
DEPRECIATION AND AMORTIZATION
Fixtures and equipment and leasehold improvements are stated at cost and are
depreciated or amortized over the estimated useful lives or lease terms, using
the straight-line method. The estimated useful lives are as follows:
Fixtures and equipment 3 to 7 years
Leasehold improvements Lesser of lease term or useful
life of improvements
EQUIPMENT UNDER CAPITAL LEASES
Equipment under capital leases is being amortized over the term of the lease or,
when the Company takes possession of the asset at the end of the lease, the
estimated useful life of the asset using the straight-line method.
PREOPENING EXPENSES
All costs of a noncapital nature incurred in opening a new store are charged to
expense when the new store opens.
WARRANTY
The Company does not maintain a warranty reserve because it generally has been
able to return defective parts to its vendors for full credit, even if the
return occurs after the expiration of the vendor's stated warranty period. The
amount of customer-returned defective parts for which vendors would not grant
the Company credit was not material to the results of operations for each of the
three years ended June 30, 1996. In the opinion of management, such amounts are
not expected to be material to the results of operations in future years.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed using the weighted average
number of shares of common stock outstanding during the three years ended June
30, 1996. For the year ended June 30, 1995, the aggregate dilution of common
stock equivalents was less than 3% of income per common share, and therefore,
the Company is reporting only primary income per share. Common stock equivalents
were not included in the weighted average number of shares because of their
antidilutive effect during the years ended June 30, 1996 and 1994. Also, the
weighted average number of shares at June 30, 1994 does not include 3,000,000
shares of common stock held in an escrow account due to the contingent nature of
these shares (see note 6).
-26-
<PAGE> 28
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121), issued in March 1995 and effective for fiscal years beginning after
December 15, 1995, establishes accounting standards for the recognition and
measurement of impairment of long-lived assets, certain identifiable intangibles
and goodwill either to be held or disposed of. The Company plans to adopt SFAS
121 in fiscal 1997. Management believes the adoption of SFAS 121 will not have a
material impact on the Company's financial position or results of operations.
STOCK COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), issued in October 1995 and effective for fiscal years
beginning after December 15, 1995, encourages, but does not require, a
fair-value-based method of accounting for employee stock options or similar
equity instruments. SFAS 123 allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APBO No. 25), but requires pro forma disclosures
of net earnings and earnings per share as if the fair-value-based method of
accounting had been applied. The Company plans to adopt SFAS 123 in fiscal 1997
and anticipates that it will continue to elect to continue to measure
compensation costs under APBO No. 25, and will comply with the pro forma
disclosure requirements. Management believes the adoption of SFAS 123 will not
have a material impact on the Company's financial position or results of
operations.
BUSINESS CONCENTRATIONS
The Company provides two-step distribution of undercar parts mainly to
professional installers through warehouses located throughout the United States.
The industry is impacted by the general economy. Changes in the marketplace may
significantly affect management's estimates and the Company's performance.
ADVERTISING COSTS
The Company expenses nonreimbursable advertising costs as costs are incurred.
The amounts charged to advertising and sales promotion expense during the years
ended June 30, 1996, 1995 and 1994 were approximately $395,000, $250,000 and
$200,000, respectively.
-27-
<PAGE> 29
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) DISCONTINUED OPERATIONS
On September 25, 1994, the Company's Board of Directors adopted a plan to
sell the Wesco Division. Net assets of the discontinued operations at
June 30, 1994 consisted primarily of inventory and furniture, fixtures
and equipment amounting to approximately $10 million after deducting an
allowance for the estimated loss on disposal.
The estimated loss on the disposal of Wesco of $3.5 million consisted of
an estimated loss on disposal of the business of $3.2 million and
provision of $300,000 for anticipated losses until disposal. Summary
operating results of the discontinued operation for the fiscal year ended
June 30, 1994 are as follows:
<TABLE>
<S> <C>
Net sales $ 25,843,481
Cost of goods sold (15,065,847)
------------
Gross profit 10,777,634
Operating expenses (13,536,355)
------------
Net loss $ (2,758,721)
============
</TABLE>
On November 1, 1994, the Company completed the sale of its Wesco Division
to Hi-LO. In the transaction, the Company sold to Hi-LO substantially all
the operating assets of the Wesco Division for a price of approximately
$9.8 million. The Wesco Division incurred a loss of $134,989 on net
assets of $8,193,351 for the period from July 1, 1994 through October 31,
1994. This loss was previously reserved for at the end of fiscal 1994. As
of June 30, 1995, the Company had a reserve of approximately $1.0 million
to cover future expenses associated with potential lease expenses related
to the Wesco Division which management believed to be adequate. During
the fourth quarter of fiscal 1996, the Company reassessed the adequacy of
the reserve and determined that an additional provision of approximately
$350,000 was required. The additional provision is included in general
and administrative expense in the 1996 consolidated statement of
operations.
Approximately $6.6 million of the purchase price was paid by Hi-LO in
cash at the closing. The balance of the purchase price is payable under
two promissory notes, each bearing interest at the rate of 8.30% per
annum as follows: (a) a note in the principal amount of $1,895,016, which
is payable in 12 equal quarterly installments of principal ($157,918
each) plus accrued interest with any remaining balance due on October 31,
1997 and (b) a note (the Convertible Note) in the principal amount of
$1,263,437, which provides for quarterly payments of interest only and
payment of the entire outstanding balance of principal on October 31,
1999.
The Convertible Note is convertible at the option of the Company, in
whole or in part, at any time on or after November 1, 1996 through
October 31, 1999, into shares of Hi-LO common stock based on a conversion
price of $13.46 per share. The Company's conversion rights may be
accelerated upon a change in control of Hi-LO and the conversion price is
subject to antidilution adjustments upon the occurrence of certain
events. Assuming no adjustment to the conversion price, a maximum 93,859
shares of Hi-LO's common stock may be acquired upon conversion of the
Convertible Note.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value.
-28-
<PAGE> 30
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Cash and cash equivalents, accounts receivable, other receivables, notes
and advances due from stockholders, trade accounts payables and accrued
expenses: The carrying amounts approximate the fair value of financial
instruments due to their short-term nature.
Notes receivable due from Hi/LO: The fair value is determined as the
present value of expected future cash flows discounted at the interest
rate currently offered by the Company. The fair value of the note
receivable approximates the carrying value.
Short-term borrowings: The carrying amount of the line of credit reflects
the fair value based on current rates available to the Company for
borrowings with similar terms.
Subordinated Convertible Debt: Due to the Company's financial position,
it is unable to determine the fair value of the Subordinated Convertible
Debt.
(5) INCOME TAXES
Income taxes for the years ended June 30, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal:
Current $ -- 10,000 --
Deferred -- -- --
------- ------- ----
-- 10,000 --
------- ------- ----
State:
Current 20,000 40,000 --
Deferred -- -- --
------- ------- ----
20,000 40,000 --
------- ------- ----
Total $20,000 50,000 --
======= ======= ====
</TABLE>
Deferred tax assets (liabilities) were composed of the following at June
30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Capitalization of inventory costs $ 1,067,000 921,000
Accrual for discontinued operations 650,000 447,000
Net operating loss carryforward 6,232,000 476,000
Alternative minimum tax credit carryovers 177,000 118,000
Reserves for inventory -- 332,000
Accrued severance payments -- 157,000
Auto lease interest expense (1,055,000) --
Tax depreciation in excess of financial reporting amounts (61,000) (479,000)
Other, net 385,000 165,000
----------- -----------
Net deferred assets 7,395,000 2,137,000
Valuation allowance (7,862,000) (2,604,000)
----------- -----------
Total net deferred liability $ (467,000) (467,000)
=========== ===========
</TABLE>
-29-
<PAGE> 31
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Income taxes (benefit) differs from the amounts computed by applying the
Federal statutory income tax rates as a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C>
Income taxes (benefit) at statutory rate $(2,996,980) 40,000 (5,556,000)
State income taxes, net 20,000 26,000 --
Limitation on net operating loss -- -- 526,000
Exchange of EBIT shares -- -- 3,146,000
Valuation allowance 2,996,980 (66,000) 1,862,000
Permanent differences -- 50,000 22,000
----------- -------- -----------
$ 20,000 50,000 --
=========== ======== ===========
</TABLE>
The Company has a net operating loss carryforward of approximately
$13,100,000, which may be available, subject to limitations, to offset
future taxable income through fiscal year 2010.
The Company's 1994, 1993 and 1992 Federal income tax returns, and the
1992, 1991 and 1990 Federal income tax returns of the Company's April
1993 acquisition, Reddi Brake, are being audited by the Internal Revenue
Service. The outcome of this audit is not expected to have a material
adverse effect on the financial position or results of operation of the
Company.
The Company has a valuation allowance of $7,862,000 as of June 30, 1996
related to deferred tax assets. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will be realized.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
projected future taxable income and tax planning strategies in making
this assessment. Based upon historical taxable income (losses) and
projections for future taxable income, management believes it is more
likely than not that the Company will not realize the benefits of these
deductible differences.
(6) STOCKHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK TO CONSULTANTS
Effective as of October 15, 1993, the Company entered into a Consulting
Agreement (the Consulting Agreement) with Liviakis Financial
Communications, Inc. (Consultant) whereby the Consultant agreed to assist
and consult the Company in matters concerning mergers and acquisitions,
corporate finance, investor relations and financial public relations. As
full compensation for services to be provided by Consultant, the Company
issued to Consultant 980,000 unregistered, restricted shares (the
Consultant Shares) of the Company's common stock, which were valued by
the Company's Board of Directors, based on an independent valuation, at
$1.58 per share, a discount of 45% of the closing bid price of the
Company's common stock on October 14, 1993. The Company recorded a
noncash charge to earnings of $1,548,000 for the year ended June 30,
1994. In September 1994, Consultant agreed to surrender for cancelation
100,000 shares of common stock previously issued to it as a consulting
fee. In March 1996, the Company agreed to issue an additional 80,000
shares of its common stock to settle a dispute regarding the registration
of the shares pursuant to the Consulting Agreement. Accordingly, the
Company recorded an expense of $159,000 related to the issuance of these
shares during fiscal year 1996.
-30-
<PAGE> 32
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In connection with the Consulting Agreement, (a) the Company's former
Chairman, Allen J. Sheerin, surrendered 400,000 shares of common stock
back to the Company for cancelation and (b) the Company repurchased
1,000,000 shares of common stock from Mr. Sheerin for $1.50 per share.
The source of cash consideration to fund the Company's repurchase of
these shares was cash proceeds from a December 1993 private placement
discussed below. In addition, Mr. Sheerin surrendered all 585,000 of his
Class C warrants and 235,000 of his 535,000 Class D warrants back to the
Company for cancelation (see Warrants and Options).
PRIVATE PLACEMENT
On December 2, 1993, the Company completed a private placement (the
Placement) of 1,360,544 shares of its common stock, $.0001 par value (the
Common Stock), and 266,667 two-year warrants entitling the holder of each
warrant to purchase one share of common stock at an exercise price of
$5.50 per share (the Warrants) (the Common Stock and the Warrants are
collectively referred to herein as the Securities), at a price of $4.41
per unit consisting of one share of common stock and .196 of a Warrant.
The Company received approximately $5.3 million in net proceeds from the
Placement. The offering and sale of the Securities in the Placement were
not registered under the Securities Act of 1933, as amended (the Act), in
reliance upon the exemption from registration provided by Regulation S
promulgated under the Act for offerings and sale of securities conducted
outside of the United States under specified conditions. The exercise
price of the warrants has been changed to $3.50 per share and the term
has been extended by two years.
EBIT ESCROW
In connection with the Acquisition (see note 1), each of the 3,000,000
shares of the Company's then outstanding special stock was exchanged for
one share of common stock and concurrently placed into an escrow account
(the EBIT Escrow). These shares were to be released from the EBIT Escrow
if, as and at such time(s) as the Company exceeded certain earnings
before interest and taxes (EBIT) targets on or before, in most cases,
June 30, 1998, provided that, to the extent that the Company did not
exceed such targets by such date, these shares would thereupon be
canceled.
On September 19, 1994, the Company reached an agreement whereby the
holders of rights to receive up to 3,000,000 shares of the common stock
held in the EBIT Escrow surrendered their rights in exchange for the
issuance of a 1,542,506 shares of common stock to them. As a result of
the issuance of such shares, the Company recorded a noncash charge to
earnings of $9,255,036 ($6 per share) for the year ended June 30, 1994.
PREFERRED STOCK
On March 25, 1996 and April 23, 1996, the Company authorized the issuance
of 400,000 of Class A preferred stock, $10 issue price and 550,000 shares
of Class B preferred stock $10 issue price. Subsequent to the
authorization of the preferred stock, the Company completed private
placements of the 950,000 shares of preferred stock. The shares earn
dividends at a rate of 4% of the original issue price and are convertible
into the Company's common stock at a 20% discount. The Company received
approximately $8.3 million in net proceeds from the placements. The
offerings and sale of the Securities in the Placement were not registered
under the Securities Act of 1933, as amended (the Act), in reliance upon
the exemption from registration provided by Regulation S promulgated
under the Act for offerings and sale of securities conducted outside of
the United States under specified conditions.
-31-
<PAGE> 33
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INCENTIVE STOCK OPTIONS
In August 1990, the Board of Directors approved the 1990 Incentive Stock Option
Plan (the 1990 Plan) to grant key employees options to purchase up to a maximum
of 500,000 shares of the Company's Common Stock. In September 1991, the Board of
Directors approved the 1991 Incentive Stock Option Plan (the 1991 Plan) to grant
key employees options to purchase up to a maximum of 650,000 shares of the
Company's Common Stock. On January 21, 1992, the Board of Directors adopted, and
the Company's stockholders subsequently approved, the 1992 Incentive Stock
Option Plan (the 1992 Plan) to grant key employees options to purchase up to a
maximum of 1,000,000 shares of the Company's Common Stock. On September 25,
1994, the Board of Directors approved the 1994 Directors' Stock Option Plan (the
1994 Plan) to grant members of Reddi Brake's Board of Directors, who is a
Non-Employee Director, the option to purchase 25,000 shares plus an additional
10,000 shares upon each successive anniversary. Exercise prices of all stock
options granted under the 1990 Plan, the 1991 Plan, the 1992 Plan and the 1994
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. Options granted to a participant who, at the time of the grant,
possesses more than 10% of the combined voting power of all classes of stock of
the Company must have an exercise price of at least 110% of the fair market
value of the Common Stock on the date of grant. Options may have a maximum term
of 10 years or 5 years for 10% owners.
The 1990 Plan, 1991 Plan and the 1992 Plan authorized the Compensation Committee
to include stock option provisions which permit the acceleration of vesting in
the event of a change in control of the Company resulting from certain
occurrences.
The Company has issued incentive stock options to certain employees and
directors under the 1991, 1992 and 1994 Incentive Stock Option Plans. To date,
no incentive stock options have been granted under the 1990 Plan. A summary of
the outstanding incentive stock options is as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTIONS OUTSTANDING
---------------------------------------
NUMBER OF SHARES PRICE PER SHARE
------------------ -----------------
<S> <C> <C>
Balance at June 30, 1993 631,217 $1.00 - 4.00
Granted 97,000 2.25 - 4.88
Exercised (180,281) 1.00 - 4.00
Canceled (91,000) 1.00 - 3.50
---------
Balance at June 30, 1994 456,936 1.00 - 4.88
Granted 119,500 3.00 - 3.81
Exercised (176,136) 1.00 - 4.88
Canceled (103,800) 1.00 - 3.00
---------
Balance at June 30, 1995 296,500 3.00 - 4.88
Granted 1,404,000 1.53 - 6.12
Exercised -- --
Canceled (677,500) 2.19 - 6.12
---------
Balance at June 30, 1996 1,023,000 $1.53 - 6.12
========= ============
</TABLE>
-32-
<PAGE> 34
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The 1990, 1991, 1992 and 1994 Plans reserve a total of 2,650,000 shares of the
Company's Common Stock for issuance to directors, officers and employees. At
June 30, 1996, options for 1,023,000 shares were outstanding, 366,417 shares
were exercised, 1,631,550 shares had been canceled and 1,260,583 shares were
available for issuance. There are 385,800 incentive stock options that are
currently exercisable at prices ranging from $2.03 to $6.12 per share at June
30, 1996.
OPTIONS AND WARRANTS
As of June 30, 1993, the Company had outstanding 750,000 Class C Warrants and
750,000 Class D Warrants, each of which entitles the holder to purchase one
share of Common Stock at an exercise price of $2.50 per share and $3.50 per
share, respectively. During fiscal 1994, in connection with the Consulting
Agreement (see note 6), the Company's former Chairman, Allen J. Sheerin, agreed
to surrender all 585,000 of his Class C Warrants and 235,000 of his 535,000
Class D Warrants back to the Company for cancelation. As of June 30, 1994, the
Company had outstanding 127,500 Class C Warrants and 477,500 Class D Warrants.
Each remaining Class C and D Warrant is exercisable at any time through December
31, 1996, except for 337,500 Class D Warrants exercisable at any time through
June 30, 1998.
The Company has issued options and warrants to purchase Common Stock to certain
stockholders and directors. A summary of the outstanding options and warrants is
as follows;
<TABLE>
<CAPTION>
OPTIONS AND WARRANTS OUTSTANDING
---------------------------------------
NUMBER OF SHARES PRICE PER SHARE
------------------ -----------------
<S> <C> <C>
Balance at June 30, 1993 2,416,633 $ .95 - 5.00
Granted 585,667 3.00 - 5.00
Exercised (310,667) .95 - 3.63
Canceled (820,000) 2.50 - 3.50
----------
Balance at June 30, 1994 1,871,633 .95 - 6.27
Granted 275,000 6.13 - 6.27
Exercised (26,667) 3.63
Canceled (45,000) 3.88
----------
Balance at June 30, 1995 2,074,966 .95 - 6.27
Granted 440,000 1.50 - 7.00
Exercised -- --
Canceled (192,466) 3.63
----------
Balance at June 30, 1996 2,322,500 $ .95 - 7.00
========== ============
</TABLE>
-33-
<PAGE> 35
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
There are 2,322,500 options and warrants currently exercisable at prices
ranging from $.95 to $7.00 per share at June 30, 1996. The Company has
reserved 4,293,929 shares of its Common Stock to accommodate the
potential exercise of such options and warrants and the potential
conversion of the Subordinated Convertible Debt into 1,971,429 shares of
Common Stock (see note 8) (subject to customary antidilution
adjustments).
CONVERSION OF PREFERRED SHARES TO COMMON STOCK
Subsequent to June 30, 1996, holders of the Company's preferred stock
converted approximately 565,000 of the 950,000 preferred shares
outstanding into approximately 8,242,000 shares of common stock.
(7) SHORT-TERM BORROWINGS
Pursuant to a commercial loan agreement (the Loan Agreement) between the
Company and Sumitomo Bank of California (the Bank), the Company had a
working capital line of credit (the Sumitomo Line). The maximum credit
available under the Sumitomo Line was the lesser of (a) $7.2 million or
(b) the sum of 80% of eligible accounts receivable and 25% of eligible
inventory. Borrowings under the Sumitomo Line bore interest at a rate
equal to the Bank's prime lending rate plus 1.00%. In addition, the Bank
charged a fee of .375% per month on the unused portion of the line. The
Sumitomo Line matured on October 31, 1995.
In November 1995 (as amended on March 18, 1996), the Company obtained a
working capital line of credit with the CIT Group. The maximum credit
available under the CIT Line is the lessor of (a) $13 million or (b) the
sum of 85% of eligible accounts receivable and 55% of eligible inventory.
Borrowings under the CIT Line bear interest at a rate equal to the CIT's
prime lending rate (8.25% at June 30, 1996) plus 1.50%. In addition, CIT
charges a fee of .5% of the unused portion of the line. Borrowings are
collateralized by the Company's accounts receivable, note receivable from
Hi-LO, inventory, fixtures and equipment. Under the terms of the CIT
line, the Company must comply with certain reporting, operational and
financial performance covenants, including a covenant that the Company
upgrade and improve its accounting systems by November 1996. The Company
does not expect to be in compliance with this covenant at November 1996
and has accordingly classified the entire obligation as a current
obligation in the accompanying consolidated financial statements. As of
June 30, 1996, the Company was in compliance with all covenants. The line
expires in November 1998.
(8) SUBORDINATED CONVERTIBLE DEBT
On February 9, 1995, the Company completed a private placement (the
Placement) of 9% Adjustable Convertible Subordinated Debentures due 2005
(the Debentures) in the aggregate principal amount of $6.9 million.
Interest on the unpaid principal is payable quarterly on April 30, July
31, October 31 and January 31 of each year. The Company may call the
Debentures after January 17, 1998. The Debentures are subordinated to all
of the obligations due to the Company's Bank and suppliers and are
convertible into shares of the Company's Common Stock at a conversion
price of $6.27 per share which represents a 20% premium over the ten-day
average closing price ($5.225) of the Common Stock ending January 17,
1995 (the Conversion Commence Date). The conversion price is subject to
reduction on the first three anniversaries of the Conversion Commencement
Date if and to the extent the average trading price of the Common Stock
for the respective ten-day periods prior to each of the first three
anniversaries of the Conversion Commencement Date is less than 80% of the
initial conversion price of $5.225 or, if applicable, the adjusted
conversion price then in effect, provided that the conversion price may
not be so decreased below $3.50 per share (with a maximum of two such
reductions). The conversion price is also subject to customary
antidilution adjustments.
At June 30, 1996, the conversion price was adjusted to $3.50 per share
(the Adjusted Conversion Price).
-34-
<PAGE> 36
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
In addition, the Company issued, as partial compensation to the Placement
agent, Allen & Company Incorporated, and certain finders, 150,000
warrants, each entitling the holder to purchase one share of Common Stock
at an adjusted conversion price of $3.50 per share (the Warrants).
Holders of shares issuable upon conversion of the Debentures or exercise
of the Warrants have demand and piggyback rights to have such shares
registered, at the Company's expense, under the Securities Act of 1993
(the Act).
The Company received approximately $6.5 million in net proceeds from the
Placement. The offering and sale of the securities in the Placement were
not registered under the Act, in reliance upon the exemption from
registration provided by Regulation D promulgated under the Act.
(9) RELATED PARTY TRANSACTIONS
Effective August 12, 1994, the Company's Chairman, Allen J. Sheerin,
resigned his position as Chairman and Director to pursue other interests.
In connection with his resignation, commencing July 1, 1994, the Company
began paying Mr. Sheerin a total of $750,000 in 36 equal monthly
installments of $20,833 through June 1997 (netted against his $10,000 per
month installment debt payments to the Company, as described below). The
Company recorded a $665,000 charge for the present value of this amount
in its 1994 fiscal year. In addition, on April 7, 1994, the Company
granted Mr. Sheerin five-year options to purchase 150,000 shares of
Common Stock at $4.41 a share and extended Mr. Sheerin's deadline for
exercise of his 300,000 Class D Warrants from June 30, 1996 to June 30,
1997. Upon consummation of the acquisition of Express Car Underparts
Nevada (see note 1), the exercise price on the five-year options was
changed from $4.41 a share to $3.00. Additionally, the deadline for
exercise of his 300,000 Class D Warrants was extended from June 30, 1997
to June 30, 1998.
On November 1, 1994, in conjunction with the sale of the Wesco Division
to Hi-LO (see note 3), the Company negotiated the cancelation of a lease
obligation with Mr. Sheerin. Mr. Sheerin leased the West Covina,
California Wesco store location to the Company under an operating lease
which had 15 years remaining on its term. This lease was terminated at
the closing of the sale of the Wesco Division, with Hi-LO entering into a
new five-year lease with Mr. Sheerin. The cancelation had the effect of
relieving the Company of responsibility for approximately $8 million of
lease payments over the final 15 years of the lease term. In
consideration of the cancelation of the West Covina lease, the Company
agreed to issue Mr. Sheerin 150,000 shares of the Company's Common Stock
and to grant him registration rights with respect to these and other
shares of Common Stock owned by him. The issuance of shares generated a
charge of $834,375, based on a fair market price at the time of issuance
of $5.5625 per share. This expense was charged to the reserve for
discontinued operations which was established by the Company in fiscal
1994.
Effective April 30, 1996, the Company acquired all of the outstanding
shares of Express Undercar Parts Nevada, of which Mr. Sheerin was a 75%
owner (see note 1).
Effective May 31, 1996, the Company acquired all of the outstanding
shares of Express Undercar Parts, California, of which Mr. Sheerin was a
100% owner (see note 1).
The Company continues to lease a warehouse from Mr. Sheerin (see note
12).
Mr. Sheerin is a 40% owner of Innovative Systems Corporation (Innovative)
which formerly provided computer consulting to Wesco Division's wholesale
and retail operations. Total payments to Innovative consists of payments
for software licensing fees, computer hardware and software and
maintenance and were as follows: none in 1996, $58,000 in 1995 and
$280,000 in 1994.
-35-
<PAGE> 37
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The amounts due from stockholder at June 30, 1996 consist of advances to
Mr. Sheerin, evidenced by a promissory note dated April 7, 1994, which
bears interest at 10% per annum and is secured by certain real property.
The balance of the note is due in June 1997 and, accordingly, is
classified as a current asset in the accompanying consolidated financial
statements. The note is in default and the Company has informal
arrangements to collect the balance by June 1997.
As of August 31, 1995, Bruce Douglass, the Company's former President and
Chief Operating Officer, owed the Company $418,760 representing an
initial advance of $375,000 made on January 28, 1994 to Mr. Douglass plus
accrued interest of $43,760. This advance was evidenced by a nonrecourse
promissory note with interest at 8% per annum and was secured by a pledge
of 71,249 shares of the Company's Common Stock. Effective August 31,
1995, Mr. Douglass resigned his position to pursue other interests. In
connection with his resignation, Mr. Douglass' obligation became
immediately due and payable. As Mr. Douglass did not repay this
obligation, the Company foreclosed on the shares pledged to it and,
accordingly, recorded a fiscal 1996 charge of approximately $236,000 as
the difference between the amount owed and the market value of the Common
Stock as of August 31, 1995 ($2.5625 per share).
(10) STORE CLOSURES
The Company implemented a formal plan to close 14 of its stores during
fiscal year 1996 and recognized a charge of approximately $721,000. The
charge primarily relates to handling and freight costs to return
inventory to vendors or to other stores and a provision for the
settlement of future lease commitments. At June 30, 1996, the Company had
returned the related inventories and settled 8 of the lease arrangements.
Management believes its provision at June 30, 1996 to settle the
remaining 6 lease arrangements is adequate.
In July 1996, the Company closed 7 of its underperforming warehouses and
recorded a charge of approximately $200,000. The charge will be included
in the Company's 1997 results of operations. The Company has distributed
the related inventories to its other stores and is currently in
negotiations to settle the leases.
(11) WRITE-OFF OF COMPUTER EQUIPMENT AND CERTAIN INTANGIBLES
During the fourth quarter of fiscal year 1996, the Company performed an
evaluation of its existing computer systems and determined them to be
inadequate to support future operations of the Company. A decision was
made by Company management to replace its existing computer systems
during fiscal year 1997. This decision led the Company to adjust the
carrying value of its existing computer systems, resulting in a $565,000
impairment charge.
During the fourth quarter of fiscal 1996, the Company re-evaluated and
recognized a charge for the impairment of goodwill and certain intangible
assets, related to the 1993 acquisition of Reddi Brake Supply Company of
$388,000 and $285,000, respectively. In determining the impairment, the
Company estimated future operating cash flows to be derived over the
remaining life of the goodwill and intangible assets which indicated that
future undiscounted operating cash flows were insufficient to recover the
carrying value of the goodwill and intangible assets. The impairment was
recorded based upon the estimated present value of the future cash flows,
which in the opinion of management approximated fair value.
-36-
<PAGE> 38
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) COMMITMENTS AND CONTINGENCIES
LEASES
Reddi Brake continues to lease a 15,000-square-foot warehouse in West
Covina, California from Mr. Allen J. Sheerin (stockholder). The lease
expires February 2008, with two renewal options of five years each.
Monthly lease payments are approximately $14,320 plus taxes, insurance
and maintenance and annual CPI increases. The Company paid approximately
$172,000, $320,000 and $616,000 in 1996, 1995 and 1994, respectively, to
Mr. Sheerin. Such amounts include the lease of a Wesco store for the
first four months of fiscal 1995 and the fiscal year 1994.
Reddi Brake also leases its Santa Barbara, California Reddi Brake outlet
from a general partnership, of which Bruce Douglass, the Company's former
President and Chief Operating Officer, is a partner, at a minimum monthly
rental of $2,800, pursuant to a written lease expiring May 1, 1998. The
Subsidiary also leases its Ventura, California Reddi Brake outlet and
administrative offices from a general partnership, of which Mr. Douglass
is a partner, at a minimum monthly rental of $7,250, pursuant to a
written lease expiring on May 1, 1998. Each of these leases is subject to
rent increases based upon the applicable interest rate under the
landlord's mortgages for the leased premises. These leases also provide
for the tenants' payment of taxes, insurance and maintenance costs. The
Company paid approximately $121,000, $135,000 and $116,000 in 1996, 1995
and 1994, respectively, to these two general partnerships.
The Company leases its other locations from unaffiliated parties. These
other leases expire on various dates through July 2003 and certain leases
may be extended by the Company for additional terms.
Future minimum payments on all capital leases and noncancelable operating
lease commitments at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year ending June 30:
1997 $1,301,719 2,012,311 3,314,030
1998 806,933 1,898,550 2,705,483
1999 198,138 1,002,142 1,200,280
2000 103,111 298,340 401,451
2001 41,401 232,029 273,430
Thereafter -- 1,219,100 1,219,100
---------- ---------- ----------
2,451,302 $6,662,472 $9,113,774
========== ==========
Less imputed interest 385,567
----------
Present value of minimum
capital lease payments 2,065,735
Less current portion 1,124,810
----------
$ 940,925
==========
</TABLE>
-37-
<PAGE> 39
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company entered into capital lease obligations for equipment during the
years ended 1996, 1995 and 1994 that totaled $540,000, $2,629,000 and
$1,294,000, respectively.
Amortization expense related to equipment under capital leases during the years
ended 1996, 1995 and 1994 was approximately $788,000, $608,000 and $237,000,
respectively.
Total rent expense under operating leases was approximately $1,922,000,
$1,629,000 and $2,226,000 during the years ended 1996, 1995 and 1994,
respectively.
LEGAL MATTERS
A class action lawsuit was filed on October 31, 1995 against the Company and
certain former officers and/or directors in the United States District Court for
the Central District of California. An agreement of settlement has been entered
into and is now subject to a finding by the Court that the terms of the
settlement are fair. Under this agreement of settlement, the total settlement
amounts and attorneys' fees to be paid by the Company would not have a material
adverse impact on its results of operations or financial condition. Consummation
of the settlement is subject to the finding by the Court, and there can be no
assurance that such settlement will be consummated.
In connection with the class action, a separate lawsuit was filed on October 6,
1995 against the Company and certain former officers and/or directors. An
agreement of settlement has been entered into and is subject to the settlement
of the class action. Under this agreement of settlement, the total settlement
amounts and attorneys' fees to be paid by the Company would not have a material
adverse impact on its results of operations or financial condition. Consummation
of the settlement is subject to the finding by the Court, and there can be no
assurance that such settlement will be consummated.
The Company is also involved in routine litigation incidental to the conduct of
its business. The Company, after consultation with its counsel, believes that no
litigation currently pending will have a material adverse effect on its
financial position or results of operations.
EMPLOYEE'S SAVINGS RETIREMENT PLAN
In March 1993, the Company established a tax-qualified 401(k) Savings Retirement
Plan (401(k) Plan). All employees who have completed one year of service and at
least 1,000 hours of service in that year with the Company are eligible to join
the 401(k) Plan on the first day of each calendar quarter. All eligible
employees may contribute from 1% to 15% of their annual compensation on a
pre-tax basis. The Company does not make matching contributions.
-38-
<PAGE> 40
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported in the Company's Report on form 8-K/A #1, dated
February 7, 1996, on January 19, 1996, the Audit Committee of the Board of
Directors approved the dismissal of its independent accountants, Ernst & Young
LLP, and elected to engage KPMG Peat Marwick, LLP to audit Reddi Brake's June
30, 1996 financial statements. Ernst & Young LLP's reports on the financial
statements of Reddi Brake for the fiscal years ended June 30, 1994 and June 30,
1995 did not contain any adverse opinion or disclaimer of opinion, nor were such
reports qualified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended June 30, 1994 and 1995, and the subsequent interim
period to January 19, 1996, there were no disagreements between Reddi Brake and
Ernst & Young LLP on any matter of accounting principles or practices, financial
statements disclosure or auditing scope or procedure.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of October 10,
1996 with respect to the Company's directors and executive officers:
<TABLE>
<CAPTION>
Name AGE POSITION
---- --- --------
<S> <C> <C>
Eric Openshaw 41 Interim Chairman of the Board of Directors
Richard McGorrian 56 President, Chief Executive Officer and Director
S. Gerald Birin 39 Executive Vice President, Chief Financial
Officer, Secretary and Director
</TABLE>
BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
ERIC OPENSHAW was appointed to the Board of Directors in July 1995 and
was appointed Interim Chairman of the Board in February 1996. Since July 1995,
Mr. Openshaw has been a Vice President of Oracle Corporation, providing
consulting services to Oracle's clients in the Western United States. From June
1986 to June 1995, Mr. Openshaw was a partner at KPMG Peat Marwick LLP, where he
was the head of its management consulting practice for the Pacific Southwest.
RICHARD MCGORRIAN served as Vice President - Marketing of Reddi Brake
from November 1995 until February 1996, when he was elected President, Chief
Executive Officer and Chief Operating Officer. Mr. McGorrian was appointed to
the Board of Directors in February 1996. From September 1994 until October 1995,
Mr. McGorrian served first as the Executive Vice President of Service Operations
and then as the Executive Vice President of total company operations and a
director of Auto Expo Inc., an automobile parts and service chain. From January
1990 until September 1994, Mr. McGorrian served as a Regional Director for Midas
International's muffler and brake shops.
S. GERALD BIRIN has served as the Chief Financial Officer and Secretary
of Reddi Brake since November 1995 and was appointed to the additional office of
Executive Vice President in February 1996. Mr. Birin was appointed to the Board
of Directors in February 1996. From April 1991 to October 1995, Mr. Birin served
as the Chief Financial Officer of Beach Patrol, Inc., a privately-held
manufacturer of women's and girls' swimwear and related sportswear.
-39-
<PAGE> 41
Directors are elected annually to serve until the next annual meeting
of stockholders and until their successors are elected and qualified. Executive
officers are elected by and serve at the discretion of the Board of Directors.
No family relationships exist between any of the directors or officers of Reddi
Brake.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires Reddi
Brake's officers and directors, and persons who own more than ten percent of a
registered class of Reddi Brake's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
Securities and Exchange Commission regulations to furnish Reddi Brake with
copies of all Section 16(a) forms they file. Based solely on review of the
copies of such forms furnished to Reddi Brake, or written representations that
no Forms 5 were required, Reddi Brake believes that during the period from July
1, 1995 to June 30, 1996 all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were complied
with.
ITEM 11: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid to (a) Richard
McGorrian, Reddi Brake's President and Chief Executive Officer, (b) S. Gerald
Birin, Reddi Brake's Executive Vice President, Chief Financial Officer and
Secretary, (c) William M. Leider, who served as Reddi Brake's Chief Executive
Officer from May 1995 until February 1996 and, additionally, as Reddi Brake's
President and Chief Operating Officer from September 1995 until February 1996,
and (d) Gordon Werner, who served as Reddi Brake's Chairman of the Board since
February 1995 and Vice Chairman of the Board from June 1992 until February 1995,
for services rendered in all capacities to Reddi Brake and its subsidiary for
the fiscal years ended June 30, 1996, 1995 and 1994. No other executive officer
of Reddi Brake earned in excess of $100,000 in salary and bonus during fiscal
1996.
-40-
<PAGE> 42
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION LONG TERM COMPENSATION COMPENSATION ($)
------------------- ---------------------- ----------------
OTHER ANNUAL AWARDS
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) COMPENSATION ($) OPTIONS (#)
- --------------------------- ---- --------- --------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard McGorrian 1996 107,653 - - 450,000 85,500(1)
President and Chief Executive
Officer
S. Gerald Birin 1996 88,382 - - 250,000 57,000(1)
Executive Vice President, Chief
Financial Officer and Secretary
William M. Leider 1996 178,000 - - 75,000 50,000(3)
Former President, Chief Executive 1995 10,000 25,000
Officer and Chief Operating
Officer(2)
Gordon Werner 1996 112,600 - 29,500(4) _ 3,684(3)
Former Chairman of the Board 1995 93,000 - 39,256(5) 25,000 -
1994 48,000 - - - -
</TABLE>
- --------------------------
(1) Consists of a percentage of the net cash proceeds to the Company from
the issuance of Class B Preferred Stock in April 1996, payable to
Messrs. McGorrian and Birin pursuant to the terms of their respective
employment agreements. See "Employment Agreements," below.
(2) Mr. Leider was appointed Chief Executive Officer of Reddi Brake in May
1995 and was additionally appointed President and Chief Operating
Officer in September 1995. Mr. Leider's employment with Reddi Brake was
terminated in February 1996. Does not include approximately $26,000 and
$11,687 paid to Leider, Murphy & Associates, a consulting firm of which
Mr. Leider is a principal, during fiscal 1995 and fiscal 1996,
respectively, for consulting services rendered to the Company. For a
description of the consulting fees paid to Leider, Murphy & Associates,
see "Item 13. Certain Relationships and Related Transactions," below.
(3) Consists of severance payments made to Messrs. Leider and Werner.
(4) Consists of consulting fees and lodging, travel and entertainment
expenses paid by the Company on behalf of Mr. Werner.
(5) Consists of lodging, travel and entertainment expenses paid by the
Company on behalf of Mr. Werner.
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<PAGE> 43
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information at June 30, 1996 and
for the fiscal year then ended with respect to stock options granted to the
individuals named in the Summary Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO PER SHARE MARKET PRICE ON APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE DATE OF EXPIRATION OPTION TERM (1)
NAME GRANTED FISCAL YEAR PRICE GRANT DATE 5% 10%
- ---- --------- ------------- ------- ------- ------ -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Richard McGorrian 150,000(2) 18.99% $2.19 $2.19 11/01/05 $0 $0
450,000(3) 56.96% $1.50 $1.50 02/29/06 $33,750 $67,500
S. Gerald Birin 150,000(2) 18.99% $2.38 $2.38 11/09/05 $0 $0
250,000(3) 31.65% $1.65 $1.50 02/29/06 $0 $0
William M. Leider 25,000 3.17% $3.00 $2.44 02/07/01 $0 $0
25,000 3.17% $5.00 $2.44 02/07/01 $0 $0
25,000 3.17% $7.00 $2.44 02/07/01 $0 $0
</TABLE>
- ---------------------------------
(1) The potential realizable values shown under these columns represent the
future value of the options (net of exercise price) assuming the market
price of the Common Stock were to appreciate by 0%, 5% and 10%,
respectively, during each year of the options' ten-year term. The rates
of appreciation are prescribed by regulations of the Securities and
Exchange Commission and are not intended to forecast possible future
appreciation of Reddi Brake Common Stock.
(2) These options were cancelled on February 9, 1996 and replaced by the
options referred to in footnote (3).
(3) These options were granted on February 9, 1996 to replace the options
referred to in footnote (2). See "Ten-Year Option Repricings" table,
below.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUE
The following table sets forth information with respect to the named
executive officers with respect to the unexercised stock options held by them as
of the end of fiscal 1996. No stock options were exercised by any of the named
executive officers during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS HELD AT MONEY OPTIONS
JUNE 30, 1996(#) AT JUNE 30, 1996($)
------------------ --------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
- ---- ------------- ----------------
<S> <C> <C>
Richard McGorrian 150,000/300,000 $56,250/$112,500
S. Gerald Birin 83,333/166,667 $18,750/$37,500
William M. Leider 75,000/0 $0 / $0
</TABLE>
- ------------------
(1) Based on the difference between the closing price on the Nasdaq
National Market of Reddi Brake Common Stock on that date ($1.875) and
the exercise price.
-42-
<PAGE> 44
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
SECURITIES MARKET PRICE ORIGINAL OPTION
UNDERLYING OF STOCK AT EXERCISE PRICE TERM REMAINING
NUMBER OF OPTIONS TIME OF AT TIME OF NEW EXERCISE AT DATE OF
NAME DATE REPRICED (#) REPRICING REPRICING PRICE REPRICING
- ---- ------ -------------- ----------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard McGorrian 02/29/96 450,000 (1) $1.50 $2.19 $1.50 117 months
S. Gerald Birin 02/29/96 250,000 (1) $1.50 $2.38 $1.65 117 months
</TABLE>
- ---------------------------------
(1) These options replaced 150,000 options previously granted to each of
Messrs. McGorrian and Birin.
The Compensation Committee of the Board of Directors (the "Committee"),
which is charged with responsibility for administering the Company's incentive
stock option plans, granted Mr. McGorrian, effective November 1, 1995, an option
to purchase 150,000 shares of the Company's Common Stock at an exercise price of
$2.19 per share (the "Original McGorrian Option"). In February 1996, the
Committee determined that, in light of Mr. McGorrian's increased duties and
responsibilities as President and Chief Executive Officer of the Company, it
would be in the Company's best interests to (a) accept Mr. McGorrian's surrender
of the Original McGorrian Option to the Company for cancellation and (b) grant
Mr. McGorrian a new option to purchase 450,000 shares of the Company's Common
Stock at an exercise price of $1.50 per share. Effective November 9, 1995, the
Committee granted Mr. Birin an option to purchase 150,000 shares of the
Company's Common Stock at an exercise price of $2.38 per share (the "Original
Birin Option"). In February 1996, the Committee determined that, in light of Mr.
Birin's increased duties and responsibilities as Executive Vice President and
Chief Financial Officer of the Company, it would be in the Company's best
interests to (a) accept Mr. Birin's surrender of the Original Birin Option to
the Company for cancellation and (b) grant Mr. Birin a new option to purchase
250,000 shares of the Company's Common Stock at an exercise price of $1.65 per
share.
ERIC OPENSHAW
COMPENSATION OF DIRECTORS
On September 25, 1994, the Board of Directors adopted the Reddi Brake
Supply Corporation 1994 Directors' Stock Option Plan (the "Directors' Plan"),
which was approved at Reddi Brake's 1994 Annual Meeting of Stockholders. Under
the Directors' Plan, each non-employee director is granted an initial stock
option to purchase 25,000 shares of Common Stock and thereafter will receive
annual grants of stock options (on each successive anniversary of the date on
which he or she was granted an initial stock option) to purchase 10,000 shares
of Common Stock, so long as he or she continues to serve as a non-employee
director. All stock options will have an exercise price equal to the fair market
value of the Common Stock on the date of grant.
Pursuant to the provisions of the Directors' Plan, on September 25,
1994, the non-employee directors then serving (Gordon Werner, Stanley Timmins,
Jay Matulich, Federico Pignatelli and William Leider) each were granted a stock
option to purchase 25,000 shares of Common Stock at an exercise price of $6.125
per share, the fair market value of the Common Stock on the date of grant, and
in September 1995, Messrs. Werner, Timmins and Pignatelli each received an
additional option to purchase 10,000 shares of Common Stock at an exercise price
of $2.875 per share, the fair market
-43-
<PAGE> 45
value of the Common Stock on the date of grant. Upon his election to the Board
in July 1995, Mr. Openshaw received an option to purchase 25,000 shares of
Common Stock under the Directors' Plan at an exercise price of $3.1875 per
share, the fair market value of the Common Stock on the date of grant, and in
July 1996, Mr. Openshaw received an additional option to purchase 10,000 shares
of Common Stock at an exercise price of $1.125 per share, the fair market value
of the Common Stock on the date of grant. Upon his election to the Board in
September 1996, Martin E. Janis, a former director, received an option to
purchase 25,000 shares of Common Stock under the Directors' Plan at an exercise
price of $.59 per share, the fair market value of the Common Stock on the date
of grant.
In accordance with the terms of the Directors' Plan, the unexercised
portion of the stock options granted to each of Messrs. Matulich, Pignatelli and
Leider expired 90 days following their respective resignations from the Board,
the unexercised portion of the stock options granted to Mr. Werner expired 90
days following the expiration of his term as a director, any unexercised portion
of Mr. Timmins' options will expire on December 4, 1996, and any unexercised
portion of Mr. Janis' option will expire on January 7, 1997.
All directors are reimbursed for their travel expenses incurred in
attending Board or Committee meetings. Reddi Brake currently does not pay any
cash compensation to non-employee directors in consideration of their regular
services as members of the Board of Directors. During the fiscal year ended June
30, 1996, prior to becoming an employee of the Company, Mr. Werner received
compensation in the amount of $8,000 for his part-time consulting services to
the Company in his capacity as Chairman of the Board.
EMPLOYMENT AGREEMENTS
Mr. Leider served as Reddi Brake's Chief Executive Officer from May
1995 until February 1996 and, additionally, as Reddi Brake's President and Chief
Operating Officer from September 1995 until February 1996. Effective February 7,
1996, Mr. Leider resigned from his positions as Chief Executive Officer,
President and Chief Operating Officer pursuant to the terms and conditions of
the Separation Agreement between Mr. Leider and Reddi Brake, dated February 7,
1996 (the "Separation Agreement"). Under the Separation Agreement, for six
months following his resignation, Mr. Leider received severance pay at a monthly
rate of $10,000. In addition, Mr. Leider was granted one five-year warrant to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$3.00 per share, one five-year warrant to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $5.00 per share and one five-year
warrant to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $7.00 per share.
Mr. McGorrian serves as President and Chief Executive Officer pursuant
to the terms of a written employment agreement which provides for an employment
term of three years running from February 1996 through February 1999, subject to
a one year extension at the option of either Mr. McGorrian or the Company, and
an annual base salary of $175,000, together with a bonus of between $50,000 and
$200,000 if certain income targets are met. Mr. McGorrian's employment agreement
also provides for the payment to Mr. McGorrian of additional compensation, if
there is a change in ownership or control of Reddi Brake during his employment
term, equal to sixty percent of a portion of the net consideration received by
the Company and/or its stockholders. If the net consideration received by the
Company and/or its stockholders in connection with a change in ownership or
control of Reddi Brake is less than $60 million, however, Mr. McGorrian will not
receive any additional amount under the terms of his employment agreement.
-44-
<PAGE> 46
Mr. Birin has served as Executive Vice President, Chief Financial
Officer and Secretary pursuant to the terms of a written employment agreement
which provided for an annual base salary of $150,000, together with a bonus of
between $25,000 and $100,000 if certain income targets are met.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 10, 1996, certain
information with respect to (i) each person who is known by Reddi Brake to be
the beneficial owner of more than five percent (5%) of the outstanding Common
Stock, (ii) each director of Reddi Brake, (iii) each executive officer of Reddi
Brake expected to be named in the summary compensation table in Reddi Brake's
next annual proxy statement and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK(1)
------------------------------------
NAME AND ADDRESS SHARES OWNED PERCENT OF CLASS
- ---------------- ------------ ----------------
<S> <C> <C>
Allen J. Sheerin(2)................................ 2,567,757 9.59%
2657 Windmill Parkway
Henderson, NV 89014
Eric Openshaw(3)................................... 35,000 *
748 South Walnut Avenue
San Dimas, CA 91773
Richard McGorrian(4)............................... 150,000 *
1376 Walter Street
Ventura, CA 93003
S. Gerald Birin(4)................................. 83,333 *
1376 Walter Street
Ventura, CA 93003
William M. Leider(5)............................... 75,000 *
4676 Admiralty Way, Suite 300
Marina del Rey, CA 90292
All directors and executive officers as a group (3
persons)(3)(4)..................................... 268,333 1.01%
</TABLE>
- ---------------------------------
* Less than 1%.
(1) Based on an aggregate of 26,236,830 shares of Common Stock outstanding
and, with respect to particular persons, shares underlying options or
warrants exercisable now or within the next 60 days. Except as
otherwise indicated in this and the following footnotes, (a) no effect
has been given to shares issuable upon exercise of outstanding warrants
or options or upon the conversion of outstanding convertible
securities, and (b) each of the persons listed in the above table has
sole voting and investment power with respect to his shares indicated
therein.
(2) Includes (a) 50,000 shares held by the AJS Charitable Trust, (b)
362,500 shares of Common Stock issuable upon exercise of 50,000 Class C
Common Stock Purchase Warrants and
-45-
<PAGE> 47
312,500 Class D Common Stock Purchase Warrants at an exercise price of
$2.50 per share, (c) 150,000 shares of Common Stock issuable upon
exercise of a five-year stock option, at an exercise price of $3.00 per
share, granted in connection with Mr. Sheerin's resignation as Chief
Executive Officer and President and (d) 20,000 shares of Common Stock
issuable upon exercise of a ten-year stock option, at an exercise price
of $3.00 per share. Further, this includes 197,895 shares held by Irene
Sheerin, Successor Trustee of the Kanamaru Family Trust, Trust B, as to
which shares Mr. Sheerin disclaims beneficial ownership.
(3) Includes up to 35,000 shares of Common Stock issuable upon exercise of
the stock options granted to Mr. Openshaw under the Reddi Brake Supply
Corporation 1994 Directors' Stock Option Plan.
(4) Includes up to 150,000 shares issuable to Mr. McGorrian, at an exercise
price of $1.50 per share, upon the exercise of presently exercisable
stock options under the 1991 Incentive Stock Option Plan, and up to
83,333 shares issuable to Mr. Birin, at an exercise price of $1.65 per
share, upon the exercise of presently exercisable stock options under
the 1992 Incentive Stock Option Plan.
(5) Includes up to 25,000 shares issuable at an exercise price of $3.00 per
share, up to 25,000 shares issuable at an exercise price of $5.00 per
share, and up to 25,000 shares issuable at an exercise price of $7.00
per share upon the exercise of presently exercisable options granted to
Mr. Leider in connection with his resignation as Chief Executive
Officer and President in February 1996.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases from Mr. Sheerin, the former Chairman of the Board,
Chief Executive Officer and President of Reddi Brake, the approximately 15,000
square foot building which formerly housed the additional inventory and office
space of the West Covina Wesco store, at a present monthly rental of
approximately $14,500, under a written lease expiring April 30, 2008, subject to
two renewal options of five years each. This lease is subject to annual rent
increases based on the applicable CPI during its initial term, and is further
subject to increase to the then prevailing market rental rate upon exercise of
each renewal option. This lease also provides for the tenant's payment of taxes,
insurance and maintenance costs.
On May 28, 1996, Reddi Brake purchased from Mr. Sheerin seventy-five
percent (75%) and from Bryan Morford, Reddi Brake's General Manager- Western
Region, twenty-five percent (25%) of all of the outstanding shares
(collectively, the "Express Nevada Shares") of common stock of Express Undercar
Parts Warehouse, Inc., Nevada ("Express Nevada"), which owned and operated three
automotive warehouse locations in Nevada, for a purchase price of $1.279
million, payable in 695,109 shares of Reddi Brake Common Stock. Messrs. Sheerin
and Morford were granted registration rights with respect to all shares of Reddi
Brake Common Stock which they received as consideration for their Express Nevada
Shares. In connection with Reddi Brake's acquisition of Express Nevada, Reddi
Brake agreed to reduce the exercise price of Class D Warrants held by Mr.
Sheerin and two of his transferees from $3.50 per share to $2.50 per share and
extend the expiration date of such Class D Warrants from June 30, 1997 to June
30, 1998. In addition, Reddi Brake agreed to reduce the exercise price of a
five-year stock option to purchase 150,000 shares of Reddi Brake Common Stock
granted to Mr. Sheerin in connection with his resignation as Reddi Brake's Chief
Executive Officer and President from $4.41 per share to $3.00 per share and the
exercise price of a ten-year stock option to purchase 20,000 shares of Reddi
Brake Common Stock held by Mr. Sheerin from $5.00 per share to $3.00 per share.
-46-
<PAGE> 48
On June 28, 1996, Reddi Brake purchased from Mr. Sheerin all of the
outstanding shares (collectively, the "Express California Shares") of common
stock of Express Undercar Parts Warehouse of California, Inc. ("Express
California"), which owned and operated four automotive warehouse locations in
Orange County, California, for a purchase price of $1,095,000, payable in
594,761 shares of Reddi Brake Common Stock. Mr. Sheerin was granted registration
rights with respect to all shares of Reddi Brake Common Stock which he received
as consideration for his Express California Shares.
From time to time before October 1991, Reddi Brake advanced various
cash amounts to Mr. Sheerin on an open book account, the aggregate outstanding
amount of which, including accrued but unpaid interest at the rate of 10% per
annum, as of April 7, 1994, is evidenced by an Amended and Restated Promissory
Note (the "Amended Note"), dated April 7, 1994, in the principal amount of
$574,637. The Amended Note bears interest at the rate of 10% per annum, and
requires Mr. Sheerin to make payments of principal and interest at the rate of
$10,000 per month, with all remaining principal and accrued interest due and
payable on June 30, 1996. Effective February 7, 1994, Mr. Sheerin resigned from
his position as Chief Executive Officer and President of Reddi Brake pursuant to
the terms of a Settlement Agreement between Reddi Brake and Mr. Sheerin (the
"Settlement Agreement"). Under the Settlement Agreement, Reddi Brake agreed to
pay Mr. Sheerin a total of $750,000 in thirty-six equal installments of $20,833
each, commencing July 1, 1994.
As of April 30, 1996, Reddi Brake owed Mr. Sheerin $277,811.72 under
the Settlement Agreement, and Mr. Sheerin owed Reddi Brake an outstanding
balance of $459,609.96 on the Amended Note. On June 28, 1996, Reddi Brake agreed
to (a) cancel Mr. Sheerin's obligations to return to Reddi Brake a good faith
deposit of $50,000 made in connection with Reddi Brake's acquisition of Express
California and reduce the outstanding balance of principal and accrued but
unpaid interest on the Amended Note by the net amount of $227,811.72, to a
remaining balance of $231,798.24, in consideration of Mr. Sheerin's cancellation
of the full amount of indebtedness remaining under the Settlement Agreement and
(b) extend the due date of the Amended Note from June 30, 1996 to July 13, 1996.
As of September 30, 1996, Mr. Sheerin was in default under the Amended Note,
which had an outstanding balance of $248,798. The Company has an informal
arrangement to collect such balance by June 30, 1997.
Effective February 7, 1996, William M. Leider resigned from his
positions as Reddi Brake's Chief Executive Officer, President and Chief
Operating Officer. In connection with his resignation, Reddi Brake agreed to pay
Mr. Leider a total of $60,000 in six equal monthly installments of $10,000 each,
commencing February 1996. In addition, Mr. Leider was granted one five-year
warrant to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $3.00 per share, one five-year warrant to purchase 25,000 shares of the
Company's Common Stock at an exercise price of $5.00 per share and one five-year
warrant to purchase 25,000 shares of the Company's Common Stock at an exercise
price of $7.00 per share.
During fiscal 1996, Reddi Brake paid to Leider, Murphy & Associates, a
consulting firm of which Mr. Leider is a principal, approximately $11,687 for
consulting services.
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<PAGE> 49
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements:
The following consolidated financial statements of Reddi Brake Supply
Corporation and its wholly-owned subsidiary are included in Part II, Item 8 of
this report.
Page
Reports of Independent Auditors................................. 17
Consolidated Balance Sheets as of June 30, 1996 and 1995........ 19
Consolidated Statements of Operations for the three years
ended June 30, 1996............................................. 20
Consolidated Statements of Stockholders' Equity for the three
years ended June 30, 1996..................................... 21
Consolidated Statements of Cash Flows for the three years
ended June 30, 1996........................................... 22
Notes to Consolidated Financial Statements...................... 24
(a)2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the financial statements or notes thereto.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
The following exhibits are filed as part of this Report:
2.1 Agreement and Plan of Reorganization, dated as of September
16, 1991.(1)
2.2 Plan of Disposition of the Wesco Division.(12)
3.1 Articles of Incorporation.(2)
3.2 Bylaws.(2)
3.3 October 4, 1991 Amendments to the registrant's Articles of
Incorporation.(1)
4.1 Form of certificate representing shares of the registrant's
Common Stock.(1)
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<PAGE> 50
4.2 Form of certificate representing the registrant's Class C
Warrants.(1)
4.3 Form of certificate representing the registrant's Class D
Warrants.(1)
4.4 Form of Warrant Agreement, dated October 1991, between the
registrant and the original warrantholders, relating to the
Class C Warrants.(1)
4.5 Form of Warrant Agreement, dated October 1991, between the
registrant and the original warrantholders, relating to the
Class D Warrants.(1)
4.6 Form of Registration Rights Agreement, dated October 1991.(1)
4.7 Warrant to Purchase Common Stock, dated June 25, 1992.(6)
4.8 Form of Warrant to Purchase Common Stock, dated July 24,
1992.(6)
4.9 Warrants to Purchase Common Stock, dated April 27, 1993.(7)
4.10 Form of Note Purchase Agreement, dated January 17, 1995, among
the registrant, Allen & Company Incorporated and certain
purchasers of the registrant's 9% Adjustable Convertible
Subordinated Debentures due 2005.(15)
4.11 Form of Warrant Certificates, dated January 3, 1995 and
February 9, 1995.(15)
4.12 Certificate of Designation of Class A Preferred Stock dated
March 18, 1996.(18)
4.13 Certificate of Amendment of Certificate of Designation of
Class A Preferred Stock dated March 28, 1996.(18)
4.14 Certificate of Designation of Class B Preferred Stock dated
March 18, 1996.(18)
4.15 Certificate of Amendment of Certificate of Designation of
Class B Preferred Stock dated March 28, 1996.(18)
4.16 Certificate of Amendment of Certificate of Designation of
Class B Preferred Stock dated April 22, 1996.(18)
4.17 Certificate of Amendment of Certificate of Designation of
Class B Preferred Stock dated May 7, 1996.(18)
10.1 Incentive Stock Option Plan, dated August 14, 1990.(3)*
10.2 Incentive Stock Option Plan, dated September 16, 1991,
together with the first amendment thereto.(3)*
10.3 Incentive Stock Option Plan, dated January 21, 1992.(4)*
10.4 Form of Stock Option Agreement, dated October 18, 1991,
between the registrant and each of its non-employee
directors.(4)*
10.5 Lease, dated March 1, 1988, between Allen J. Sheerin and the
Subsidiary.(4)
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<PAGE> 51
10.6 Equipment Lease Agreement, dated April 10, 1989, between Allen
J. Sheerin and the Subsidiary.(4)
10.7 Sublease Agreement, dated May 14, 1991, between General
Automotive, Inc. and the Subsidiary.(4)
10.8 Standard Industrial Lease, dated December 17, 1986, between
Leonard H. Hammonds & Katherine M. Hammonds and the
Subsidiary.(4)
10.9 Sublease Agreement, dated September 26, 1991, between the
Subsidiary and PACCAR Automotive, Inc.(4)
10.10 Lease Agreement, dated February 1992, between the registrant
and Sterik Company.(5)
10.11 Sublease Agreement, dated May 28, 1992, between the registrant
and Pay Less Drug Stores Northwest, Inc., a Maryland
corporation.(6)
10.12 Shopping Center Lease, dated May 29, 1992, between the
registrant and College Square Joint Venture, a California
joint venture.(6)
10.13 Commercial Loan Agreement, dated December 1, 1992, between the
registrant and Sumitomo Bank of California ("Sumitomo").(9)
10.14 Plan and Agreement of Merger, dated April 23, 1993.(10)
10.15 Form of Lease Agreement, dated May 1, 1993, between the
Subsidiary and 1376 Walter Street Partners.(7)
10.16 Form of Lease Agreement, dated May 1, 1993, between the
Subsidiary and Douglass-Curwood #2 Partnership.(7)
10.17 Form of Amendment to Commercial Loan Agreement, dated June 15,
1993, between the registrant and Sumitomo.(7)
10.18 Form of Amendment to Commercial Loan Agreement, dated August
6, 1993, between the registrant and Sumitomo.(11)
10.19 Settlement Agreement, dated April 7, 1994, between the
registrant and Allen J. Sheerin.(12)*
10.20 Consulting Agreement, effective as of February 7, 1994,
between the registrant and Allen J. Sheerin.(12)*
10.21 Stock Option Agreement, dated April 7, 1994, between the
registrant and Allen J. Sheerin.(12)*
10.22 Form of Stock Conversion Agreement, dated September 19, 1994,
between the registrant and each holder of EBIT Rights.(12)
10.23 Promissory Note, dated September 23, 1994, issued by the
registrant in favor of California State Bank.(12)
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<PAGE> 52
10.24 Amendment Agreements Numbers 1 and 2 to First Amended and
Restated Commercial Loan Agreement, dated May 9, 1994 and
August 15, 1994, respectively, between the registrant and
Sumitomo.(12)
10.25 Motor Vehicle Lease Agreement, dated July 17, 1994, between
the registrant and Donlen Corporation.(12)
10.26 GE Capital Fleet Services Master Fleet Agreement, dated April
27, 1995, between the registrant and GE Capital Fleet
Services.(13)
10.27 Motor Vehicle Fleet Open End Operating Lease Agreement between
the registrant and PHH Vehicle Management Services
Corporation.(13)
10.28 Asset Purchase Agreement, dated October 31, 1994, between the
registrant and Hi/LO Automotive, Inc. ("Hi/LO").(14)
10.29 Promissory Note, dated November 1, 1994, between the
registrant and Hi/LO.(15)
10.30 Convertible Promissory Note, dated November 1, 1994, between
the registrant and Hi/LO.(15)
10.31 Amendment Agreements Numbers 4 and 5 to First Amended and
Restated Commercial Loan Agreement, dated as of November 30,
1994 and January 27, 1995, respectively, between the
registrant and Sumitomo.(15)
10.32 Registration Rights Agreement, dated October 31, 1994, between
the registrant and Allen J. Sheerin.(14)
10.33 Amendment Agreement Number 6 to First Amended and Restated
Commercial Loan Agreement, dated as of May 30, 1995, between
the registrant and Sumitomo.(16)
10.34 Loan and Security Agreement between the CIT Group/Credit
Finance, Inc. and the registrant, dated November 27, 1995.(17)
10.35 Engagement letter dated March 22, 1996 with Baytree
Associates, Inc.(18)
10.36 Engagement letter dated May 7, 1996 with Baytree Associates,
Inc.(18)
10.37 Amendment dated March 18, 1996 of Loan and Security Agreement
between the Company and The CIT Group/Credit Finance, Inc.(18)
10.38 Separation Agreement, dated February 7, 1996, between the
registrant and William M. Leider.*
10.39 Form of Stock Option Agreement, dated February 7, 1996,
between the registrant and William M. Leider.*
10.40 Employment Agreement, dated February 15, 1996, between the
registrant and Richard McGorrian.*
-51-
<PAGE> 53
10.41 Employment Agreement, dated February 15, 1996, between the
registrant and S. Gerald Birin.*
10.42 Stock Purchase Agreement, dated May 28, 1996, by and among the
registrant, Allen J. Sheerin and Bryan Morford.
10.43 Registration Rights Agreement, dated May 28, 1996, by and
among the registrant, Allen J. Sheerin and Bryan Morford.
10.44 Escrow Agreement, dated June 3, 1996, by and among the
registrant, Allen J. Sheerin, Bryan Morford and Corporate
Stock Transfer, Inc.
10.45 Stock Purchase Agreement, dated June 28, 1996, by and between
the registrant and Allen J. Sheerin.
10.46 Registration Rights Agreement, dated June 28, 1996, by and
between the registrant and Allen J. Sheerin.
10.47 First Amendment to Escrow Agreement, dated June 28, 1996, by
and among the registrant, Allen J. Sheerin and Corporate Stock
Transfer, Inc.
10.48 Agreement, dated June 28, 1996, between the registrant and
Allen J. Sheerin.
10.49 Addendum to Amended and Restated Promissory Note dated April
7, 1994 by and between Allen J. Sheerin, as maker, and the
registrant, as holder, dated June 28, 1996.
10.50 Form of Warrant Agreement between the registrant and Baytree
Associates, Inc.
10.51 Letter Agreement effective as of July 1, 1996, between the
registrant and Martin E. Janis & Company.
10.52 Stock Option Agreement, dated July 1, 1996, between the
registrant and Martin E. Janis & Company.
10.53 Master Lease Agreement, dated September 13, 1996, between the
registrant and Data General Corporation.
22.1 List of the registrant's subsidiaries.(4)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP.
- ----------------------
(1) Previously filed in the Exhibits to the registrant's Current Report on
Form 8-K dated October 22, 1991.
(2) Previously filed in the Exhibits to the registrant's Registration
Statement on Form S-18 (File No. 33-36686-D).
(3) Previously filed in the Exhibits to the registrant's Registration
Statement on Form S-8 (File No. 33-44544).
-52-
<PAGE> 54
(4) Previously filed in the Exhibits to the registrant's Transition Report
on Form 10-K for the transition period from January 1, 1991 to June 30,
1991.
(5) Previously filed in the Exhibits to the registrant's Registration
Statement on Form S-1 (File No. 33-45987).
(6) Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
the registrant's Registration Statement on Form S-1 (File No.
33-45987).
(8) Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
the registrant's Registration Statement on Form S-1 (File No.
33-50634).
(9) Previously filed in the Exhibits to Post-Effective Amendment No. 3 to
the registrant's Registration Statement on Form S-1 (File No.
33-45987).
(10) Previously filed in the Exhibits to the registrant's Current Report on
Form 8-K, dated as of April 27, 1993.
(11) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993.
(12) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994.
(13) Previously filed in the Exhibits to the registrant's Quarterly Report
of Form 10-Q for the quarterly period ended March 31, 1995.
(14) Previously filed in the Exhibits to the registrant's Current Report on
Form 8-K, dated November 1, 1994.
(15) Previously filed in the Exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1994.
(16) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.
(17) Previously filed in the Exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1995.
(18) Previously filed in the Exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1996.
* Management contract, compensatory plan or arrangement.
-53-
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REDDI BRAKE SUPPLY CORPORATION
Date: October 14, 1996 By: /s/ Richard McGorrian
---------------------------------
Richard McGorrian, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: October 14, 1996 /s/ Richard McGorrian
--------------------------------------
Richard McGorrian, President, Chief
Executive Officer and Director
Date: October 14, 1996 /s/ S. Gerald Birin
--------------------------------------
S. Gerald Birin, Executive Vice
President, Chief Financial Officer,
Secretary and Director
Date: October 14, 1996 /s/ Richard Wolff
--------------------------------------
Richard Wolff, Principal Accounting
Officer
Date: October 14, 1996 /s/ Eric Openshaw
--------------------------------------
Eric Openshaw, Chairman of the Board
-54-
<PAGE> 56
Schedule
REDDI BRAKE SUPPLY CORPORATION
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
- ------------------------------------- ------------- ---------- ----------- ----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS/ END OF
DESCRIPTION PERIOD EXPENSE WRITE-OFFS PERIOD
- ------------------------------------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Year ended June 30, 1996 - allowance
for uncollectible accounts $275,000 304,941 (19,941) 560,000
======== ======== ======== ========
Year ended June 30, 1995 - allowance
for uncollectible accounts $410,000 255,399 (390,399)(1) 275,000
======== ======== ======== ========
Year ended June 30, 1994 - allowance
for uncollectible accounts $140,000 536,494 (266,494) 410,000
======== ======== ======== ========
</TABLE>
(1) Includes a $260,000 write-off of uncollectible accounts receivable related
to the discontinued Wesco Auto Parts Division.
See accompanying independent auditors' report.
S-1
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated as of September 16,
1991.(1) *
2.2 Plan of Disposition of the Wesco Division(12) *
3.1 Articles of Incorporation.(2) *
3.2 Bylaws.(2) *
3.3 October 4, 1991 Amendments to the registrant's Articles of
Incorporation.(1) *
4.1 Form of certificate representing shares of the registrant's Common
Stock.(1) *
4.2 Form of certificate representing the registrant's Class C
Warrants.(1) *
4.3 Form of certificate representing the registrant's Class D
Warrants.(1) *
4.4 Form of Warrant Agreement, dated October 1991, between the registrant
and the original warrantholders, relating to the Class C Warrants.(1) *
4.5 Form of Warrant Agreement, dated October 1991, between the registrant
and the original warrantholders, relating to the Class D Warrants.(1) *
4.6 Form of Registration Rights Agreement, dated October 1991.(1) *
4.7 Warrant to Purchase Common Stock, dated June 25, 1992.(6) *
4.8 Form of Warrant to Purchase Common Stock, dated July 24, 1992.(6) *
4.9 Warrants to Purchase Common Stock, dated April 27, 1993.(7) *
4.10 Form of Note Purchase Agreement, dated January 17, 1995,
among the registrant, Allen & Company Incorporated and
certain purchasers of the registrant's 9%
Adjustable Convertible Subordinated Debentures due 2005.(15) *
4.11 Form of Warrant Certificates, dated January 3, 1995 and February 9, *
1995.(15)
4.12 Certificate of Designation of Class A Preferred Stock dated March 18,
1996.(18) *
4.13 Certificate of Amendment of Certificate of Designation of Class A
Preferred Stock dated March 28, 1996.(18) *
4.14 Certificate of Designation of Class B Preferred Stock dated March 18,
1996.(18) *
4.15 Certificate of Amendment of Certificate of Designation of Class B
Preferred Stock dated March 28, 1996.(18) *
4.16 Certificate of Amendment of Certificate of Designation of Class B
Preferred Stock dated April 22, 1996.(18) *
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
4.17 Certificate of Amendment of Certificate of Designation of Class B
Preferred Stock dated May 7, 1996.(18) *
10.1 Incentive Stock Option Plan, dated August 14, 1990.(3)** *
10.2 Incentive Stock Option Plan, dated September 16, 1991, together with
the first amendment thereto.(3)** *
10.3 Incentive Stock Option Plan, dated January 21, 1992.(4)** *
10.4 Form of Stock Option Agreement, dated October 18, 1991, between the
registrant and each of its non-employee directors.(4)** *
10.5 Lease, dated March 1, 1988, between Allen J. Sheerin and the
Subsidiary.(4) *
10.6 Equipment Lease Agreement, dated April 10, 1989, between Allen J.
Sheerin and the Subsidiary.(4) *
10.7 Sublease Agreement, dated May 14, 1991, between General Automotive,
Inc. and the Subsidiary.(4) *
10.8 Standard Industrial Lease, dated December 17, 1986, between Leonard
H. Hammonds & Katherine M. Hammonds and the Subsidiary.(4) *
10.9 Sublease Agreement, dated September 26, 1991, between the Subsidiary
and PACCAR Automotive, Inc.(4) *
10.10 Lease Agreement, dated February 1992, between the registrant and
Sterik Company.(5) *
10.11 Sublease Agreement, dated May 28, 1992, between the registrant and
Pay Less Drug Stores Northwest, Inc., a Maryland corporation.(6) *
10.12 Shopping Center Lease, dated May 29, 1992, between the registrant and
College Square Joint Venture, a California joint venture.(6) *
10.13 Commercial Loan Agreement, dated December 1, 1992, between the
registrant and Sumitomo Bank of California ("Sumitomo").(9) *
10.14 Plan and Agreement of Merger, dated April 23, 1993.(10) *
10.15 Form of Lease Agreement, dated May 1, 1993, between the Subsidiary
and 1376 Walter Street Partners.(7) *
10.16 Form of Lease Agreement, dated May 1, 1993, between the Subsidiary
and Douglass-Curwood #2 Partnership.(7) *
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
10.17 Form of Amendment to Commercial Loan Agreement, dated June 15, 1993,
between the registrant and Sumitomo.(7) *
10.18 Form of Amendment to Commercial Loan Agreement, dated August 6, 1993,
between the registrant and Sumitomo.(11) *
10.19 Settlement Agreement, dated April 7, 1994, between the registrant and
Allen J. Sheerin.(12)** *
10.20 Consulting Agreement, effective as of February 7, 1994, between the
registrant and Allen J. Sheerin.(12)** *
10.21 Stock Option Agreement, dated April 7, 1994, between the registrant
and Allen J. Sheerin.(12)** *
10.22 Form of Stock Conversion Agreement, dated September 19, 1994, between
the registrant and each holder of EBIT Rights.(12) *
10.23 Promissory Note, dated September 23, 1994, issued by the registrant
in favor of California State Bank.(12) *
10.24 Amendment Agreements Numbers 1 and 2 to First Amended and Restated
Commercial Loan Agreement, dated May 9, 1994 and August 15, 1994,
respectively, between the registrant and Sumitomo.(12) *
10.25 Motor Vehicle Lease Agreement, dated July 17, 1994, between the
registrant and Donlen Corporation.(12) *
10.26 GE Capital Fleet Services Master Fleet Agreement, dated April 27,
1995, between the registrant and GE Capital Fleet Services.(13) *
10.27 Motor Vehicle Fleet Open End Operating Lease Agreement between the
registrant and PHH Vehicle Management Services Corporation.(13) *
10.28 Asset Purchase Agreement, dated October 31, 1994, between the
registrant and Hi/LO Automotive, Inc. ("Hi/LO").(14) *
10.29 Promissory Note, dated November 1, 1994, between the registrant and
Hi/LO.(15) *
10.30 Convertible Promissory Note, dated November 1, 1994, between the
registrant and Hi/LO.(15) *
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
10.31 Amendment Agreements Numbers 4 and 5 to First Amended and Restated
Commercial Loan Agreement, dated as of November 30, 1994 and January
27, 1995, respectively, between the registrant and Sumitomo.(15) *
10.32 Registration Rights Agreement, dated October 31, 1994, between the
registrant and Allen J. Sheerin.(14) *
10.33 Amendment Agreement Number 6 to First Amended and Restated Commercial
Loan Agreement, dated as of May 30, 1995, between the registrant and
Sumitomo.(16) *
10.34 Loan and Security Agreement between the CIT Group/Credit Finance,
Inc. and the registrant, dated November 27, 1995.(17) *
10.35 Engagement letter dated March 22, 1996 with Baytree Associates,
Inc.(18) *
10.36 Engagement letter dated May 7, 1996 with Baytree Associates, Inc.(18)
*
10.37 Amendment dated March 18, 1996 of Loan and Security Agreement between
the Company and the CIT Group/Credit Finance.(18) *
10.38 Separation Agreement, dated February 7, 1996, between the registrant
and William M. Leider.**
10.39 Form of Stock Option Agreement, dated February 7, 1996, between the
registrant and William M. Leider.**
10.40 Employment Agreement, dated February 15, 1996, between the registrant
and Richard McGorrian.**
10.41 Employment Agreement, dated February 15, 1996, between the registrant
and S. Gerald Birin.**
10.42 Stock Purchase Agreement, dated May 28, 1996, by and among the
registrant, Allen J. Sheerin and Bryan Morford.
10.43 Registration Rights Agreement, dated May 28, 1996, by and among the
registrant, Allen J. Sheerin and Bryan Morford.
10.44 Escrow Agreement, dated June 3, 1996, by and among the registrant,
Allen J. Sheerin, Bryan Morford and Corporate Stock Transfer, Inc.
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
<S> <C> <C>
10.45 Stock Purchase Agreement, dated June 28, 1996, by and between the
registrant and Allen J. Sheerin.
10.46 Registration Rights Agreement, dated June 28, 1996, by and between
the registrant and Allen J. Sheerin.
10.47 First Amendment to Escrow Agreement, dated June 28, 1996, by and
among the registrant, Allen J. Sheerin and Corporate Stock Transfer,
Inc.
10.48 Agreement, dated June 28, 1996, between the registrant and Allen J.
Sheerin.
10.49 Addendum to Amended and Restated Promissory Note dated April 7, 1994
by and between Allen J. Sheerin, as maker, and the registrant, as
holder, dated June 28, 1996.
10.50 Form of Warrant Agreement between the registrant and Baytree
Associates, Inc.
10.51 Letter Agreement effective as of July 1, 1996, between the registrant
and Martin E. Janis & Company.
10.52 Stock Option Agreement, dated July 1, 1996, between the registrant
and Martin E. Janis & Company.
10.53 Master Lease Agreement, dated September 13, 1996, between the
registrant and Data General Corporation
22.1 List of the registrant's subsidiaries.(4) *
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP.
</TABLE>
- ---------------------------
(1) Previously filed in the Exhibits to the registrant's Current Report on
Form 8-K dated October 22, 1991.
(2) Previously filed in the Exhibits to the registrant's Registration
Statement on Form S-18 (File No. 33-36686-D).
(3) Previously filed in the Exhibits to the registrant's Registration
Statement on Form S-8 (File No. 33-44544).
(4) Previously filed in the Exhibits to the registrant's Transition Report
on Form 10-K for the transition period from January 1, 1991 to June 30,
1991.
<PAGE> 62
(5) Previously filed in the Exhibits to the registrant's Registration
Statement on Form S-1 (File No. 33-45987).
(6) Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
the registrant's Registration Statement on Form S-1 (File No.
33-45987).
(7) Previously filed in the Exhibits to Post-Effective Amendment No. 1 to
the registrant's Registration Statement on Form S-1 (File No.
33-50634).
(8) Previously filed in the Exhibits to Post-Effective Amendment No. 3 to
the registrant's Registration Statement on Form S-1 (File No.
33-45987).
(9) Previously filed in the Exhibits to the registrant's Current Report on
Form 8-K, dated as of April 27, 1993.
(10) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993.
(11) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1994.
(13) Previously filed in the Exhibits to the registrant's Quarterly Report
of Form 10-Q for the quarterly period ended March 31, 1995.
(14) Previously filed in the Exhibits to the registrant's Current Report on
Form 8-K, dated November 1, 1994.
(15) Previously filed in the Exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1994.
(16) Previously filed in the Exhibits to the registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.
(17) Previously filed in the Exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1995.
(18) Previously filed in the Exhibits to the registrant's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1996.
* Previously filed.
** Management contract, compensatory plan or arrangement.
<PAGE> 1
Exhibit 10.38
SEPARATION AGREEMENT
This SEPARATION AGREEMENT (the "Agreement") is made and
entered into as of February 7, 1996, and is by and between REDDI BRAKE SUPPLY
CORPORATION, A NEVADA CORPORATION ("Company"), on the one hand, and WILLIAM S.
LEIDER ("Leider"), on the other. The Agreement is based upon the following
recitals of fact:
A. Leider is employed by Company as the Chief Executive
Officer and President.
B. Leider's employment with the Company will be
terminated on February 7, 1996 (the "Termination Date") by mutual agreement of
Leider and the Company.
C. The Company has agreed to provide Leider with certain
separation benefits, and Leider has agreed to accept those benefits as provided
herein. Additionally, the parties have agreed to certain indemnifications and
releases, all as provided below.
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND COVENANTS
SET FORTH HEREIN, THE PARTIES HERETO MUTUALLY AGREE AS FOLLOWS:
1. PAYMENT OF ACCRUED BENEFIT.
Upon the execution of this Agreement, Company shall pay Leider
the full amount of any and all accrued and vested wages, vacation, bonuses and
benefits due and owing Leider through the Termination Date.
2. PAYMENT OF SEPARATION BENEFIT.
Commencing on the date of execution of this Agreement and
continuing for a period of six (6) months Leider shall receive from Company
severance pay at a monthly rate of $10,000. In addition, upon the execution of
this Agreement, the Company shall issue to Leider the following warrants: (i)
one five-year warrant to purchase 25,000 shares of the Company's common stock
at an exercise price of $3.00 per share, (ii) one five-year warrant to purchase
25,000 shares of the Company's common stock at an exercise price of $5.00 per
share, and (iii) one five- year warrant to purchase 25,000 shares of the
Company's common stock at an exercise price of $7.00 per share.
3. NO ADDITIONAL BENEFITS.
Leider agrees that upon receipt of the payments referred to in
Paragraphs 1 and 2 (collectively, the "Separation Benefit"), Leider shall not
be entitled to receive from the Company any other payments of any nature
whatsoever.
<PAGE> 2
4. TAX WITHHOLDING.
The Separation Benefit payments to Leider hereunder shall be
subject to income tax, social security, and similar withholding obligations as
required by law. The parties hereto acknowledge that there may be taxes due in
addition to any amounts withheld hereunder. The parties agree that any such
taxes that may be due and owing on the monetary payments made to Leider under
the terms of this Agreement shall be Leider's sole responsibility. Leider
hereby agrees to indemnify and hold Company harmless in the event that any such
taxes are not paid by Leider.
5. MUTUAL RELEASE.
(a) Except as expressly provided herein, Leider,
Company, and each of them, collectively and individually, on their own behalf
and on behalf of their heirs, officers, directors, partners, and agents, hereby
release and discharge each other and their respective heirs, officers,
directors, partners, and agents, individually and collectively, of and from any
and all known or unknown liabilities, claims, demands for damages, costs,
indemnification, contribution, or any other thing for which they or any of them
have or may have a known or unknown cause of action, claim, or demand for
damages, costs, indemnification, or contribution, whether certain or
speculative, which may have at any time prior hereto come into existence or
which may be brought in the future in connection with any acts or omissions
which have arisen at any time prior to the date of this Agreement, including,
but not limited to, any and all claims Leider has or may have relating to, or
arising out of the employment of Leider with Company, or any claim by Leider
for breach of employment contract or that Leider has been wrongfully terminated
by Company.
(b) The parties hereto acknowledge the existence
of and, with respect to the releases given in Paragraph 5(a), hereinabove,
expressly waive and relinquish any and all rights and benefits they have or may
have under California Civil Code, Section 1542, which provides:
A general release does not extend to claims which a
creditor does not know or expect to exist in his
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor.
Both parties hereto acknowledge that he/it is aware that both parties may
hereafter discover facts different from or in addition to those which he/it or
he/its attorneys now know or believe to be true with respect to the matters
released in Paragraph 5(a) hereinabove, and agree that the releases so given in
Paragraph 5(a) above, shall be and remain in effect as full and complete
releases of the respective claims, notwithstanding any such different or
additional facts.
(c) This mutual release shall not apply to the
rights (if any) that Company may have against Leider arising out of any
hereafter discovered intentional misconduct or fraudulent conduct by Leider
during the term of his employment with Company. Company
2
<PAGE> 3
shall retain all of its rights, including, but not limited to, its rights of
contribution and/or indemnification against Leider for any such actions.
6. TRADE SECRETS.
In accordance with Leider's existing and continuing
obligations to the Company, Leider has returned to the Company all Company
information, including files, records, computer access codes and instruction
manuals which Leider has in his possession. Leider further agrees not to keep
any copies of any Company information. Leider affirms his obligation to keep,
retain in confidence and not to divulge any proprietary, confidential or secret
information or trade secrets of the Company. Leider understands that the term
"Company information" means (a) confidential information, including information
received from third parties under confidential conditions and (b) other
technical, marketing, business or financial information, the use or disclosure
of which might reasonably be construed to be contrary to the interest of the
Company or its subsidiaries or affiliates. Leider further understands that
"confidential information" means information received by Leider in the course
of his employment at the Company which was (a) described to Leider as
confidential or (b) which Leider understood to be confidential. Leider
acknowledges that a breach by Leider of the covenants contained in this
Paragraph 6 may not be compensable by monetary damages and therefore that
Company may pursue all available equitable remedies, including injunctive
relief.
7. ENTIRE AGREEMENT.
This Agreement contains the sole and entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and supersedes any and all oral representations by any party or written
agreements between the parties, including the employment agreement between the
Company and Leider, which statements, representations and agreements shall be
deemed merged herein.
8. WAIVER, MODIFICATION AND AMENDMENT.
No provision hereof may be waived unless in writing signed by
both parties hereto. Waiver of any one provision herein shall not be deemed to
be a waiver of any other provision herein. This Agreement may be modified or
amended only by a written agreement executed by the parties affected thereby.
9. EXECUTION.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which, together, shall be
deemed to constitute a single document.
3
<PAGE> 4
10. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and shall be
binding upon the predecessors, successors and assigns of the parties hereto,
and each of them. This Agreement is not intended to constitute a third-party
beneficiary contract.
11. ATTORNEYS' FEES.
The parties hereto agree to bear their own costs and
attorneys' fees incurred in the negotiation and drafting of this Agreement or
otherwise incurred prior to the date of execution hereof. In any arbitration,
quasi-judicial or administrative proceedings or any action in any court of
competent jurisdiction, brought by either party to enforce any covenant or any
of such party's rights or remedies under this Agreement, including any action
for declaratory relief, or any action to collect any payment under this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees
and all costs, expenses and disbursements in connection with such action,
including the costs of reasonable investigation, preparation, and professional
or expert consultation, which sums may be included in any judgment or decree
entered in such action in favor of the prevailing party.
12. SEVERABILITY.
In the event that any of the terms or provisions of this
Agreement are found to be legally unenforceable, then the remaining terms and
conditions shall nevertheless be fully enforceable without regard to any such
provision or terms that are found to be legally unenforceable.
13. NONADMISSION OF LIABILITY.
This Agreement, and its performance, does not constitute and
will not be construed as an admission by Company of the truth of any contested
matter, or of any liability, wrongful act, or omission.
14. CONFIDENTIALITY OF AGREEMENT.
The content of this Agreement, and of the parties' discussions
pertaining to it, are confidential, and Leider will not disclose or allow the
disclosure of any information concerning this Agreement and its performance to
anyone, except that the Agreement may be disclosed by Leider to Leider's
attorney(s) or accountant(s), Leider's children and, as required, to
governmental taxing authorities or to enforce the rights contained in this
Agreement in an appropriate legal proceeding.
15. NOTICE.
All notices, requests, demand and other communications
hereunder or under any instrument, document or agreement made under or in
connection with this Agreement shall be
4
<PAGE> 5
in writing (including such forms of written communication as telegram,
facsimile, reproduction and others) and shall be deemed to have been duly given
upon personal delivery or sending by telegraph, facsimile or other electronic
transmission, or three (3) business days after sending by first class certified
mail, return receipt requested, to such address as shall be given in writing by
either party to the other.
16. ARBITRATION.
Any controversy or claim arising out of or relating to this
Agreement, or any agreements or instruments relating hereto or delivered in
connection herewith, will at the request of any party be determined by
arbitration in accordance with California arbitration procedure under the rules
of the American Arbitration Association, provided that the arbitrator(s) will
be chosen from and the arbitration process will be administered by Judicial
Arbitration & Mediation Services, Inc. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The institution
and maintenance of an action for judicial relief or in pursuit of a provisional
or ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration.
Dated: _______________, 1996
----------------------------------
WILLIAM S. LEIDER
Dated: _______________, 1996 REDDI BRAKE SUPPLY CORPORATION
By:
-------------------------------
Its:
-------------------------------
5
<PAGE> 1
Exhibit 10.39
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
as of the 7th day of February, 1996, by and between Reddi Brake Supply
Corporation, a Nevada corporation ("Optionor"), and William M. Leider
("Optionee") with reference to the following facts:
A. Effective February 7, 1996, Optionee's employment with
Optionor was terminated, and Optionor retained Optionee as an independent
consultant for a period of six (6) months.
B. Optionor has agreed to grant to Optionee an option to purchase
up to 25,000 authorized and unissued shares of Optionor's Common Stock, par
value $.0001 per share (the "Common Stock"), as part consideration for
Optionee's service as an independent consultant.
C. The Board of Directors of Optionor has approved the grant by
Optionor to Optionee of an option to purchase up to 25,000 shares of the Common
Stock, upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. GRANT OF OPTION; TERM AND CONSIDERATION.
1.1 Grant of Option. Optionor hereby grants to Optionee an
irrevocable option (the "Option") to purchase up to 25,000 shares of Common
Stock (the "Option Shares") at a purchase price equal to _______ Dollars per
Option Share (the "Exercise Price"), all on the terms, covenants and conditions
set forth in this Agreement.
1.2 Term. The term of the Option shall commence as of the
date hereof and shall expire at 5:00 p.m. Pacific Standard Time five years from
the date hereof (the "Term"), unless sooner terminated or sooner exercised, as
provided herein.
2. EXERCISE OF OPTION.
2.1 Rate of Exercise. In no event shall Optionor be required
to issue any fractional Option Shares.
2.2 Exercise of Option. Optionee may exercise the Option, if
at all, at any time during the Term by delivering a Notice of Exercise to
Optionor specifying the number of Option Shares to be purchased and accompanied
by cash or a certified or bank cashier's check, payable to the order of
Optionor, in the amount of the Exercise Price times the number of Option Shares
to be purchased. As soon as practicable after any exercise of this Option in
accordance with the
<PAGE> 2
foregoing provisions, Optionor shall deliver to Optionee at the main office of
Optionor, or at such other place as shall be mutually acceptable, a certificate
or certificates representing the Option Shares as to which the Option has been
exercised.
3. RESTRICTION ON ISSUANCE OF OPTION SHARES AND DELIVERY. If
authorization of any regulatory commission or agency is required for the lawful
delivery of any certificate representing Option Shares, Optionor may withhold
delivery of such certificate until such authorization has been granted.
Optionor will make reasonable efforts to obtain such authorizations, but if
Optionor is unable to obtain such authorizations from such regulatory
commission or agency, which counsel for Optionor deems necessary for the lawful
delivery of such certificate, Optionor shall be relieved from any liability for
failure to deliver such certificate until such time that such authorization is
obtained or is obtainable.
4. RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
shareholder with respect to any Option Shares covered by the Option until the
date of issuance of a stock certificate to Optionee for such Option Shares. No
adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.
5. CHANGES IN CAPITAL STRUCTURE.
5.1 The number and class of shares subject to the Option and
the Exercise Price (but not the total price) shall be proportionately adjusted
in the event of any increase or decrease in the number of the issued shares of
the Common Stock of the Optionor which results from a split-up or consolidation
of shares, payment of a stock dividend or stock dividends exceeding a total of
five percent for which the record dates occur in any one fiscal year, a
recapitalization (other than the conversion of convertible securities according
to their terms), a combination of shares or other like capital adjustment, so
that upon exercise of the Option, Optionee shall receive the number and class
of shares he would have received had he been the holder of the number of shares
of the Common Stock for which the Option is being exercised upon the date of
such change or increase or decrease in the number of issued shares of the
Optionor.
5.2 Upon a reorganization, merger or consolidation of the
Optionor with one or more corporations as a result of which the Optionor is not
the surviving corporation, a sale of all or substantially all of the property
of the Optionor to another corporation or any dividend or distribution to
stockholders of more than ten percent of the Optionor's assets, adequate
adjustment or other provisions shall be made by the Optionor or other party to
such transaction so that there shall remain and/or be substituted for the
Option Shares provided for herein, the shares, securities or assets which would
have been issuable or payable in respect of or in exchange for the Option
Shares then remaining under the Option, as if Optionee had been the owner of
such shares as of the applicable date. Any securities so substituted shall be
subject to similar successive adjustments.
6. NON-TRANSFERABILITY OF OPTION. The Option may not be
assigned, transferred pledged or hypothecated in any way, shall not be
assignable by operation of law and
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<PAGE> 3
shall not be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition
contrary to the provisions of this Agreement, and the levy of any execution,
attachment or similar process thereupon, shall be null and void and without
effect.
7. RESTRICTION ON TRANSFERABILITY OF OPTION SHARES. Optionee
shall not dispose of or otherwise transfer the Option Shares, or any interest
therein, unless and until Optionee shall have delivered to Optionor an opinion
of Optionee's legal counsel (with the identity of such counsel and the
substance of such opinion satisfactory to Optionor) to the effect that (a) the
intended disposition does not violate the Federal Securities Act of 1933 (the
"Securities Act") or any applicable state securities laws, or (b) the Option
Shares have been validly qualified and/or registered under the Securities Act
and any applicable state securities laws.
8. SECURITIES LAWS REQUIREMENTS. Upon exercise of the Option,
(a) if Optionee is subject to the reporting requirements under Section 16(a) of
the Securities Exchange Act of 1934 (the "Exchange Act"), Optionee will furnish
to the Optionor a copy of each Form 4 or Form 5 filed by Optionee and will
timely file all reports required under federal securities laws, and (b)
Optionee will report all sales of Option Shares to the Optionor in writing on
the form prescribed from time to time by the Optionor. All Option Share
certificates may be imprinted with legend conditions reflecting federal and
state securities law restrictions and conditions and the Optionor may comply
therewith and issue "stop transfer" instructions to its transfer agents and
registrars without liability.
9. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telex or telecopy (and promptly confirmed by mail) to the parties as follows
(or at such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of changes of address shall
only be effective upon receipt):
If to Optionor to:
Reddi Brake Supply Corporation
1376 Walter Street
Ventura, California 93003
with a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard
Suite 900
Beverly Hills, California 90212
Attn: Gary J. Freedman
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<PAGE> 4
If to Optionee to:
William M. Leider
13082 Mindanao Way #27
Marina del Rey, California 90292
10. NUMBER AND GENDER. Terms used herein in any number or gender
include other numbers or genders, as the context may require.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12. GOVERNING LAW. This Agreement and performance under it, shall
be construed in accordance with and under the laws of the State of California.
Should a court or other body of competent jurisdiction determine that any term
or provision of this Agreement is excessive in scope, such term or provision
shall be adjusted rather than voided and interpreted so as to be enforceable to
the fullest extent possible, and all other terms and provisions of this
Agreement shall be deemed valid and enforceable to the fullest extent possible.
13. BINDING EFFECT; PARTIES IN INTEREST. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the successor and
assigns of the parties hereto. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person other than the
parties to this Agreement, or their respective successors or assigns, any legal
or equitable right, remedy or claim under or in respect of this Agreement or
any provision contained herein.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
This Agreement may be amended or modified at any time and in all respects only
by an instrument in writing executed by Optionor and Optionee.
15. TAXES. Optionee agrees to pay any and all federal and state
income taxes due and owing as a result of the issuance or exercise of the
Option. Optionor assumes no responsibility for any taxes resulting from such
issuance or exercise.
16. FURTHER ASSURANCES. Each of the parties hereto shall execute
and deliver any and all additional papers and documents, and shall do any and
all further acts and thing, as may be reasonably necessary in connection with
the performance of their obligations hereunder and to carry out the intent of
this Agreement.
17. ATTORNEYS FEES. In the event that any party hereto brings an
action or proceeding for a declaration of the rights of the parties under this
Agreement, for injunctive relief, for an alleged breach or default, or any
other action arising out of this Agreement or the
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<PAGE> 5
transactions contemplated hereby, or in the event that any party is in default
of its obligations pursuant hereto, whether or not suit is filed or prosecuted
to final judgement, the prevailing party shall be entitled to reasonable
attorneys' fees, in addition to any other court costs incurred and any other
damages or relief awarded.
18. MODIFICATIONS, AMENDMENTS AND WAIVERS. No amendment, change
or modification of this Agreement shall be valid unless it is in writing, is
signed by all of the parties hereto, and expressly states that an amendment,
change or modification of this Agreement is being made. No claim of waiver,
consent or acquiescence with respect to any provision of this Agreement shall
be made against any party hereto except on the basis of a written instrument
executed by or on behalf of such party. The party hereto for whose benefit a
condition is herein inserted shall have the unilateral right to waive such
condition.
IN WITNESS WHEREOF, Optionor and Optionee have executed this Agreement
as of the date first above written.
"OPTIONOR"
REDDI BRAKE SUPPLY CORPORATION,
a Nevada corporation
By:__________________________________
Its:__________________________________
"OPTIONEE"
______________________________________
William M. Leider
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<PAGE> 1
Exhibit 10.40
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the 15th
day of February, 1996, by and between Reddi Brake Supply Corporation, a Nevada
corporation ("Employer"), and Richard McGorrian ("Employee"), with reference to
the following facts:
A. Employee wishes to be employed by Employer.
B. Employer and Employee wish to enter into this Agreement to
assure Employer of the services of Employee and to set forth the rights and
duties of the parties.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties agree as follows:
1. Employment
1.1 Employer hereby employs Employee, and Employee hereby
accepts and agrees to employment, on the terms and conditions set forth herein.
1.2 Employee shall serve as the President and Chief
Executive Officer of Employer and its wholly-owned subsidiary, Reddi Brake
Supply Company, Inc., a California corporation, and any other corporation or
other entity which is in control of, controlled by or under common control with
Employer, whether or not Employee is directly employed by such other
corporation or entity (collectively the "Affiliates"). In such capacity,
Employee shall have such authority and power to perform, and shall be
responsible for performing, all duties that are customary for an officer
holding such office, and shall have such other authority and perform such other
duties as may be reasonably assigned by the Board of Directors of Employer. In
particular, Employee shall have the authority to hire, set the terms of
employment, and terminate all other employees of Employer and the Affiliates,
and, subject to approval by Employer's Board of Directors, to select and engage
one or more investment bankers, underwriters, and market makers for Employer
and the Affiliates, and Employer's principal independent accountants and
general counsel for Employer and the Affiliates, provided, however, that
Employee may, without such approval, hire accountants and attorneys for
specific projects where the aggregate fees are reasonably estimated to be no
more than $50,000. Without limiting the generality of the foregoing, Employee
shall be responsible, subject only to the direction of the Board of Directors
of Employer, for the day to day operations and management of the business of
Employer and the Affiliates, including regular consultation with and
supervision of other officers and employees. Employee agrees to observe and
comply with the reasonable written rules and regulations of Employer, as from
time to time in effect, with respect to the performance of his duties and his
employment hereunder and to carry out and perform all reasonable written
orders, directions and policies announced to him by the Board of Directors.
1.3 Employee agrees that, except during vacation periods
or in accordance with Employer's personnel policies covering reasonable periods
of leave, illness, or other incapacitation, Employee shall devote substantially
all of his business time and services to the business and
<PAGE> 2
interests of Employer. Employee shall perform the duties of his office and
those assigned to him by Employer's Board of Directors in good faith, to the
best of his ability. It is understood that Employer shall employ a person
selected by Employee as Employee's secretary.
1.4 Employee shall not, without the prior written consent
of Employer, directly or indirectly, during the term of his employment:
(a) Render services of a business, professional
or commercial nature to any other corporation, partnership, proprietorship,
firm, association or other entity, whether for compensation or otherwise;
provided, however, services as an officer or director of a nonprofit or
professional organization or, subject to paragraph 1.4(b) below, as a director
of two or fewer corporations (other than nonprofit or professional
organizations) shall not be prohibited by any provision of this Agreement; or
(b) Engage in any activity competitive with
Employer's business, whether alone, as a partner, or as an officer, director,
employee or shareholder of or consultant to any other corporation, partnership,
proprietorship, firm, association or other entity; provided, however, ownership
of not more than one percent (1%) of the outstanding securities of any publicly
traded corporation or other entity shall not be deemed to be so competitive or
otherwise prohibited by any provision of this Agreement.
2. Term of Employment
Subject to the provisions for termination provided in
paragraph 8, Employee's term of employment by Employer shall commence as of the
date first above written and shall continue until the close of business on the
third (3rd) anniversary thereof (the "Initial Period"), provided, further, that
Employee's term of employment hereunder may be extended, at the election and
discretion of Employer or Employee, for an additional period (the "Option
Term") of one (1) year following such third (3rd) anniversary by delivery of
written notice of election to the other no less than ninety (90) days before
such third (3rd) anniversary. In the event that Employer or Employee elects to
continue this Agreement for the Option Term, the word "Term" shall collectively
refer to the Initial Term and the Option Term.
3. Compensation
3.1 As base compensation (the "Base Salary") for all
services rendered by Employee hereunder, Employee shall receive salary at the
rate of $175,000 per annum; provided that, if Employer achieves net income or
"break even" (i.e., no net loss) for its fiscal quarter ending June 30, 1996 or
September 30, 1996 (determined according to generally accepted accounting
principles with respect to Employer and the Affiliates on a consolidated
basis), the Base Salary shall be $200,000 per annum beginning July 1, 1996 or
October 1, 1996, as applicable. After July 1, 1996, or October 1, 1996, as
applicable, the Base Salary shall be reviewed annually and possible increases
shall be considered in good faith by Employer's Board of Directors. The Base
Salary shall be payable in accordance with Employer's regular payroll policies
and practices in accordance with Employer's regular payroll periods.
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<PAGE> 3
3.2 In addition to the Base Salary, (a) if Employer
achieves a net income of at least $250,000 (determined before interest payments
and income taxes according to generally accepted accounting principles with
respect to Employer and the Affiliates on a consolidated basis (the
"Consolidated Adjusted Net Income")) for its fiscal quarter ending June 30,
1996, Employer shall pay Employee a bonus of $25,000. Beginning with the
fiscal year ending June 30, 1997, Employer shall pay Employee, not later than
ten (10) days following availability of Employer's audited financial statements
for such fiscal year, an annual bonus of at least $50,000 and no more than
$200,000, as follows:
EMPLOYER'S CONSOLIDATED AMOUNT OF
ADJUSTED NET INCOME BONUS FOR
FOR FISCAL YEAR SUCH FISCAL YEAR
$0 - 1,999,000 $50,000
$2,000,000 - 2,999,999 $100,000
$3,000,000 - 4,999,999 $150,000
$5,000,000 or more $200,000
3.3 As additional compensation, Employer shall pay
Employee an amount equal to the following applicable percentages of the net
cash proceeds to Employer or an Affiliate from the issuance of any stock or
subordinated debt of Employer or an Affiliate on or before June 30, 1996,
(excluding any stock issued pursuant to any employee or director stock option
or other employee benefit plan of Employer or an Affiliate or pursuant to any
presently outstanding options, warrants or convertible securities, and
subordinated debt or stock the proceeds of issuance of which are immediately
used to retire other stock or subordinated debt of Employer or an Affiliate),
payable not later than thirty (30) days after receipt of such cash:
MAXIMUM FEES AND COSTS PAYABLE BY APPLICABLE PERCENTAGE OF NET
EMPLOYER AS PERCENTAGE OF GROSS CASH PROCEEDS TO EMPLOYER
PROCEEDS RAISED/SECURITIES ISSUED/
MAXIMUM DISCOUNT OF OFFERING PRICE
TO MARKET PRICE
10% payable in Cash/ Nine-Tenths of One Percent (.9%)
10% in Warrants/
20% Discount
11% payable in Cash/ Eight and One-Half Tenths of
11% in Warrants/ One Percent (.85%)
21% Discount
12% payable in Cash/ Eight-Tenths of One Percent
12% in Warrants/ (.8%)
22% Discount
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<PAGE> 4
13% payable in Cash/ Seven and One-Half Tenths of One
13% in Warrants/ Percent (.75%)
23% Discount
14% payable in Cash/ Seven-Tenths of One Percent (.7%)
14% in Warrants/
24% Discount
15% payable in Cash/ Six and One-Half Tenths of One
15% in Warrants/ Percent (.65%)
25% Discount
Over 15% payable in Cash/ 0
Over 15% in Warrants/
Over 25% Discount
[For example, if Employer pays aggregate fees and costs between 10% and 11% of
the gross proceeds raised or if Employer grants the underwriter(s), placement
agent(s), broker(s) or finder(s) aggregate rights to acquire securities in an
amount between 10% and 11% of the securities issued to investors or if the
price of the Common Stock (or conversion price of convertible debt) is between
20% and 21% of a discount to the average trading price of Employer's Common
Stock for the ten (10) consecutive trading days prior to the closing of the
financing, THEN Employer shall pay Employee an amount equal to eight and
one-half tenths of one percent (.85%).]
3.4 Subject to approval by Employer's shareholders at a
meeting properly noticed and held in accordance with applicable law and subject
to the further provisions of this paragraph 3.4, as additional compensation, if
there is a change in control (as defined in paragraph 8.1(e) below) during the
Term, Employer shall pay Employee an amount equal to sixty percent (60%) of the
following amount:
FAIR MARKET VALUE OF "NET PORTION TO WHICH EMPLOYEE'S
CONSIDERATION" RECEIVED PERCENTAGE IS APPLIED
BY EMPLOYER AND/OR
ITS SHAREHOLDERS
$60,000,000 or less Zero (0)
More than $60,000,000 but not Five percent (5%) of excess over
more than $100,000,000 $60,000,000
More than $100,000,000 but not $2,000,000 plus seven-and-one-half
more than $125,000,000 percent (7.5%) of excess over
$100,000,000
More than $125,000,000 $3,875,000 plus ten percent (10%)
of excess over $125,000,000
As used herein, "net consideration" shall mean, as applicable, (a) the
aggregate amount of consideration (with the value of property other than cash
valued in good faith by Employer's
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Board of Directors) received by the Company and/or its stockholders in a merger
or asset sale, or (b) with respect to a change of controlling shares, the
amount equal to the product of the number of shares of Employer's Common Stock
outstanding as of the date of the change of controlling shares multiplied by
the average closing price per share for the ten (10) consecutive trading days
beginning on such date. Notwithstanding the foregoing, any amounts which would
otherwise be payable under this paragraph 3.4 shall be reduced to the extent
necessary to ensure that (a) Employee's "net after-tax proceeds" attributable
to all amounts payable by Employer to Employee (whether pursuant to this
Agreement or otherwise) which constitute "parachute payments" under Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), after
giving effect to such reduction, exceeds (b) the Employee's net after-tax
proceeds which would be attributable to all amounts payable by Employer to
Employee (whether pursuant to this Agreement or otherwise) which would
constitute "parachute payments" under Section 280G of the Code, if such
reduction had not been made. For purposes of the preceding sentence, (i) the
term "net after-tax proceeds" shall mean the portion of a parachute payment
which remains payable to Employee after Employee has paid federal, state, and
local income taxes on such parachute payment, and the excise tax imposed by
Section 4999 of the Code on any portion of such parachute payment which
constitutes an "excess parachute payment," (ii) the determination whether any
amount constitutes a "parachute payment" or an "excess parachute payment" shall
be made without regard to whether such payment constitutes "reasonable
compensation" for Employee's services within the meaning of Section 280G(b)(4)
of the Code, Proposed Treasury Regulation Section 1.280G-1 Q&A-9, Q&A-39, or
any successor provisions, and (iii) Employer's certified public accountant
shall determine the amount of all "parachute payments," "excess parachute
payments," "net after-tax proceeds," and, consequently, the amount of any
reduction in the payments to be made by Employer to Employee under this
paragraph 3.4, and such determination shall be final and binding upon Employer
and Employee.
4. Reimbursements
Employee is authorized to incur ordinary and necessary expenses
for promoting the business of Employer and fulfilling his duties hereunder,
including without limitation expenses for professional license fees, dues and
subscriptions, expenses for entertainment, travel (including actual costs
incurred for oil and gas and repairs and maintenance of an automobile), and
similar items. Employer shall reimburse Employee for all such expenses paid by
Employee upon the presentation by Employee of an itemized account of such
expenditures.
5. Benefits
5.1 Employer shall pay Employee a nonaccountable
automobile allowance of $650 per month during the Term. In addition, Employee
shall be entitled to receive such vacation, sick leave, medical, dental, and
vision insurance (including spouse and dependent coverage thereunder) and other
benefits as from time to time generally become available to executive employees
of Employer in accordance with the then existing personnel policies of
Employer.
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5.2 During the Term, subject to Employee's insurability,
Employer shall maintain, for the benefit of Employee, an individual disability
income insurance policy providing monthly benefits equal to two-thirds (2/3)
of Employee's monthly Base Salary then in effect during the period of any
disability of Employee, with a waiting period for commencement of benefits of
not more than six (6) months.
5.3 Beginning on the first anniversary of the date first
set forth above and continuing through the Term, subject to Employee's
insurability, Employer shall pay to Employee an amount equal to the annual
premium on an individual whole life insurance policy on Employee's life in a
face amount equal to three (3) times the Base Salary then in effect, which
policy shall be owned by Employee or his designee and in which Employer shall
have no interest.
5.4 If the principal administrative offices of Employer
are not moved to within thirty-five (35) miles of Employee's current residence
in Mission Viejo, California by June 30, 1997, which move shall be determined
by Employee with the approval of the Board of Directors (which shall not be
unreasonably withheld), Employer shall reimburse Employee for his reasonable
out-of-pocket costs (including closing costs, broker's commission, moving
costs, and similar costs) in selling or leasing his current residence and
purchasing or leasing a new residence within thirty-five (35) miles of
Employer's principal administrative offices, provided, however, that such
reimbursement shall not include any loss Employee may incur on the sale or
lease of his current residence or the purchase price or rental of his new
residence. Prior to such a relocation of Employer's offices or Employee's
residence, Employer shall reimburse Employee for his out-of-pocket costs of
lodging and meals in Ventura, California, up to a maximum aggregate amount of
$1,950 per month.
6. Trade Secrets
All information not disclosed to the public by Employer
regarding its business which is compiled by, obtained by or furnished to
Employee during the term of this Agreement is acknowledged to be confidential
information and the exclusive property of Employer. Employee specifically
agrees that he will not at any time, whether during or subsequent to the term
of Employee's employment by Employer, in any fashion, form or manner, unless
specifically consented to in writing by Employer, either directly or indirectly
use or divulge, disclose or communicate to any person, firm or corporation, in
any manner whatsoever, any confidential information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the generality of the foregoing, the
names, buying habits or practices of any of its customers, its marketing
methods and related data, the names of any of its vendors or suppliers, costs
of materials, the prices it obtains or has obtained or at which is sells or has
sold its products or services, sales costs, lists or other written records used
in Employer's business, compensation paid to employees and other terms of
employment or any other confidential information of, about or concerning the
business of Employer, its manner of operation or other confidential data of any
kind, nature or description, the parties hereto stipulating that as between
them the same are important, material and confidential trade secrets and affect
the successful conduct of Employer's business, and its goodwill, and that any
breach of any term of this paragraph is a material breach of this Agreement in
addition to other
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remedies available at law or in equity. All product brochures and literature,
mailing lists, lists of prospective or actual customers, address or information
listings, trade publication and address listings, trade show attendee listings,
equipment, notebooks, documents, memoranda, reports, files, samples, books,
correspondence, lists, computer disks and other written, graphic or electronic
records, and the like, affecting or relating to the business of Employer, which
Employee shall prepare, use, construct, observe, possess or control shall be
and remain Employer's sole property.
7. Employee's Duties on Termination
Upon the termination of the employment of Employee hereunder,
Employee agrees to promptly deliver to Employer all written, printed or
otherwise recorded materials of any kind whatsoever effecting or relating to
Employer's business, whether or not specified in paragraph 6, which are in his
possession or under his control.
8. Termination of Employment
8.1 This Agreement and the employment of Employee
hereunder may be terminated at any time prior to the expiration of the term of
this Agreement as follows:
(a) Upon the mutual agreement of Employer
and Employee;
(b) By Employer, if Employee dies or becomes
disabled by reason of sickness, physical or mental disability or any other
cause which materially impairs his ability to perform his duties under this
Agreement for one hundred twenty (120) consecutive days or more than one
hundred eighty (180) days during any one (1) year period;
(c) By Employer, in the event (i) of conduct of
Employee involving material financial improprieties, embezzlement or fraud,
(ii) Employee has been convicted of plead guilty or no contest to any felony
involving monies or other property, or (iii) of willful misconduct by Employee
causing material harm to Employer, but only if (x) Employee shall have failed
to discontinue such misconduct within ten (10) days after receiving notice from
Employer that it will consider the continuation of such misconduct cause for
termination of this Agreement, or (y) the misconduct is of such nature that
Employer would be materially prejudiced thereby whether or not Employee
discontinues such misconduct;
(d) By Employer, if Employee shall otherwise
materially default in the performance of his obligations, services or duties
hereunder or shall materially breach any provision of this Agreement, but only
if Employee shall not have discontinued the conduct giving rise to the right of
termination within thirty (30) days after receiving written notice from
Employer that it will consider the continuation of such conduct cause for
termination of this Agreement; or
(e) By Employer, without cause, upon thirty (30)
days written notice to Employee, or if there is a "change in control" (as
defined below) at any time during the Term and Employee elects to terminate
this Agreement; provided, however, that in such event, Employee shall be
entitled to the severance benefits set forth in paragraph 8.3 below. As used
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<PAGE> 8
herein, a "change in control" means: (i) (A) a merger of Employer or an
Affiliate with or into any other entity in which Employer or an Affiliate is
not the surviving corporation or survives as a subsidiary of another entity,
(B) a consolidation of Employer or an Affiliate with any other entity, or (C)
the sale, lease or other disposition of all or substantially all of Employer's
or an Affiliate's assets or the adoption of a plan of complete liquidation of
Employer or an Affiliate or (ii) the acquisition by any person, entity or
"group" (as contemplated by Section 13 (d)(3) of the Securities Exchange Act of
1934, as amended) of beneficial ownership or control of securities representing
(A) fifty percent (50%) or more of the combined voting power of Employer's
then-outstanding securities or (B) less than fifty percent (50%) of the
combined voting power of Employer's then-outstanding securities if, in
connection with such acquisition, the persons who were directors before such
transaction shall cease to constitute a majority of Employer's Board of
Directors; provided, however, that a change in control shall not be deemed to
have occurred solely as a result of any transaction between Employer and an
Affiliate. As used herein, "merger or asset sale" means any transaction
described in clause (i) of the above definition of "change in control"; "change
of controlling shares" means any transaction described in clause (ii) of the
above definition of "change in control".
Termination of Employee's employment under paragraph 8.l(c) or 8.1(d) shall not
be in limitation of any other right or remedy Employer may have under this
Agreement or at law or in equity.
8.2 If this Agreement is terminated by Employer pursuant
to paragraph 8.1(c) or 8.1(d), such termination shall be deemed "with cause."
In such event, or if Employee terminates this Agreement, Employer shall pay to
Employee, on the last day of his employment, all of Employee's Base Salary,
amounts payable pursuant to paragraph 3.3, pay in lieu of vacation, and other
benefits theretofore accrued but unpaid or untaken, and Employer shall pay to
Employee, within ten (10) days after availability of audited financial
statements for Employer's relevant fiscal year, bonuses (determined on a pro
rata basis of the amount provided for in paragraph 3.2). The pro rata portion
of Employee's bonus payable hereunder shall be determined by multiplying the
amount otherwise due to Employee under paragraph 3.2 had he remained employed
by Employer through the end of the then current fiscal year by a fraction, the
numerator of which is the number of full weeks he was employed in such fiscal
year and the denominator of which is fifty-two (52), provided, however, that
Employee shall not be entitled to either such bonus if he terminates this
Agreement without giving at least 90 days prior written notice to Employee.
8.3 If this Agreement is terminated pursuant to paragraph
8.1(b) or 8.1(e), in addition to the amounts provided in paragraph 8.2,
Employee shall receive: (a) an amount equal to the Base Salary, as provided in
paragraph 3.1, for a continuing period of one (1) year following the date of
termination, provided, however, in the case of a termination pursuant to
paragraph 8.1(b), the amounts so payable to Employee shall be reduced by the
amounts which Employee receives under the disability insurance policy described
in paragraph 5.2 above; (b) continuing medical, dental, and vision insurance
benefits as provided in paragraph 5.1 above for Employee, his spouse and
dependents throughout the one (1) year period following the date of
termination; and (c) reimbursement of any outplacement fees incurred by
Employee for counseling and employment searches, up to a maximum aggregate
amount of such reimbursement of $7,500. The
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amounts due Employee under this paragraph 8.3 shall continue to be paid in the
event of Employee's death or total disability occurring within the one (1) year
period following termination and shall not be subject to any reduction in the
event Employee commences other employment during the such period.
8.4 In the event Employee becomes entitled to any
payments under this paragraph 8, he acknowledges and agrees that such payments
shall be made in full satisfaction of all rights of Employee arising as a
result of the termination of his employment hereunder. Such payments shall be
subject to withholding for federal, state and local income taxes, social
security, disability and the like. In the event a payment is required for any
period which is less than a full month, the amount of the payment shall be
prorated.
8.5 Nothing contained in this paragraph 8 shall be
construed as imposing on Employer an obligation to make a severance payment to
Employee if the employment of Employee is terminated pursuant to the provisions
of paragraph 8.1(a).
9. Other Covenants
9.1 During the term of his employment, Employee agrees
that he will not undertake any planning for or organization of any business
activity competitive with Employer's business or combine or conspire with other
employees or representatives of Employer's business for the purpose of
organizing any such competitive business activity.
9.2 During the term of his employment and for two (2)
years following his termination as an employee (the "Post-Termination
Period"), Employee agrees that he will not, directly or indirectly or by action
in concert with others, induce or influence (or seek to induce or influence)
any person who is engaged (as an employee, agent, independent contractor or
otherwise) by Employer to terminate his or her employment or engagement with
Employer.
9.3 During the term of his employment and the
Post-Termination Period, Employee agrees that he will not, directly or
indirectly or by action in concert with others, induce or influence (or seek to
induce or influence) any corporation, partnership, proprietorship, firm,
association or other entity which is a customer or a supplier of goods or
services to Employer to terminate or alter its business relations with
Employer.
10. Severable Provisions
The provisions of this Agreement are severable, and, if any one or
more provisions may be determined to be judicially unenforceable, in whole or in
part, the remaining provisions, and any partially unenforceable provision to the
extent enforceable, in any jurisdiction, shall nevertheless be binding and
enforceable.
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11. Waiver
Either party's failure to enforce any provision or provisions
of this Agreement shall not in any way be construed as a waiver of any such
provision or provisions or prevent that party thereafter from enforcing each
and every other provision of this Agreement.
12. Enforcement
Employer and Employee recognize and acknowledge that Employee
is employed hereunder in a position where Employee will be rendering personal
services of a special, unique, unusual and extraordinary character. Employee
agrees that the breach by him of this Agreement, including its covenants, could
not reasonably or adequately be compensated in damages in an action at law and
that Employee shall be entitled to injunctive relief, which may include but
shall not be limited to restraining Employee from rendering any services that
would breach this Agreement. However, no remedy conferred by any of the
specific provisions of this Agreement (including this paragraph 12) is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by Employer shall not constitute a waiver
of the right to pursue other available remedies.
13. Governing Law
This Agreement and performance under it shall be construed in
accordance with and under the laws of the State of California. Should a court
or other body of competent jurisdiction determine that any term or provision of
this Agreement is excessive in scope, such term or provision shall be adjusted
rather than voided and interpreted so as to be enforceable to the fullest
extent possible, and all other terms and provisions of this Agreement shall be
deemed valid and enforceable to the fullest extent possible.
14. Employee's Representations
Employee represents and warrants that he is free to enter into
this Agreement and to perform each of the terms and covenants of it. Employee
represents and warrants that he is not restricted or prohibited, contractually
or otherwise, from entering into and performing this Agreement and that his
execution and performance of this Agreement is not a violation or breach of any
other agreement between Employee and any other person or entity.
15. Notices
Any notice or other communication to be given hereunder shall
be in writing and shall be personally delivered, sent by United States
certified mail, sent by Federal Express or similar overnight express delivery
service, or sent by electronic facsimile (fax) or other similar electronic
means, with a copy to be sent the same day by regular U.S. mail. Notices to
Employer shall be addressed to Employer at its principal place of business, to
the attention of the President;
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notices to Employee shall be addressed to him at 22645 Bar Iovento, Mission
Viejo, CA 92692, or, if different, the home address last shown on the records
of Employer, with a copy to Robert C. Kopple, Esq., Kopple & Klinger, 2029
Century Park East, Suite 1040, Los Angeles, CA 90067. Any party may hereafter
designate in writing to the other a different address. Any such notice shall be
deemed given (a) when personally delivered, (b) 48 hours after deposit in the
United States mail, addressed as aforesaid with postage and certification fee
prepaid, (c) one business day after having been delivered to Federal Express or
similar overnight express delivery service for overnight delivery, or (d) upon
transmission by facsimile (fax) or other similar electronic means.
16. Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. Attorneys' Fees
If any action at law or in equity is necessary to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements, in
addition to any other relief to which such party may be entitled at law or in
equity.
18. Entire Agreement
This Agreement and any Stock Option Agreement entered into by
and between the parties are the entire agreement between them and supersede all
prior agreements and understandings between the parties (whether written or
oral) regarding the subject matter hereof and thereof and may not be modified
or terminated orally. No modification, termination or attempted waiver shall be
valid unless in writing and signed by the party against whom the same is sought
to be enforced.
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
/ / /
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19. Binding Agreement
The rights and obligations of Employer under this Agreement
shall inure to the benefit of and shall be binding on the successors and
assigns of Employer. Employee's obligations under paragraphs 6, 7, and 9 shall
continue in effect beyond the term hereof and shall be binding on Employee's
assigns, heirs, executors, administrators and other legal representatives.
Employer's obligation under paragraphs 8.2 and 8.3 shall continue in effect
beyond the term hereof and shall be binding of Employer's assigns and
successors.
20. Titles and Headings
Titles and headings to paragraphs in this Agreement are for
the purpose of reference only and shall in no way limit, define or otherwise
affect the provisions of it.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first set forth above.
"Employer" REDDI BRAKE SUPPLY CORPORATION,
a Nevada corporation
By:
-------------------------------
Its: Chairman of the Board
"Employee"
-------------------------------
Richard McGorrian
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Exhibit 10.41
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the 15th
day of February, 1996, by and between Reddi Brake Supply Corporation, a Nevada
corporation ("Employer"), and S. Gerald Birin ("Employee"), with reference to
the following facts:
A. Employee wishes to be employed by Employer.
B. Employer and Employee wish to enter into this Agreement to
assure Employer of the services of Employee and to set forth the rights and
duties of the parties.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties agree as follows:
1. Employment
1.1 Employer hereby employs Employee, and Employee hereby
accepts and agrees to employment, on the terms and conditions set forth herein.
1.2 Employee shall serve as the Executive Vice President
and Chief Financial Officer of Employer and its wholly-owned subsidiary, Reddi
Brake Supply Company, Inc., a California corporation, and any other corporation
or other entity which is in control of or controlled by or under common control
with Employer, whether or not Employee is directly employed by such other
corporation or entity (collectively the "Affiliates"). In such capacity,
Employee shall have such authority and power to perform, and shall be
responsible for performing, all duties that are customary for an officer
holding such office, and shall have such other authority and perform such other
duties as may be reasonably assigned by the President or Board of Directors of
Employer. Without limiting the generality of the foregoing, Employee shall be
responsible, subject only to the direction of the President and the Board of
Directors of Employer, for management of the financial, accounting, human
resource and other administrative functions of Employer and the Affiliates,
including regular consultation with and supervision of other officers and
employees. Employee agrees to observe and comply with the reasonable written
rules and regulations of Employer, as from time to time in effect, with respect
to the performance of his duties and his employment hereunder and to carry out
and perform all reasonable written orders, directions and policies announced to
him by the President or the Board of Directors.
1.3 Employee agrees that, except during vacation periods
or in accordance with Employer's personnel policies covering reasonable periods
of leave or illness or other incapacitation, Employee shall devote
substantially all of his business time and services to the business and
interests of Employer. Employee shall perform the duties of his office and
those assigned to him by Employer's Board of Directors in good faith, to the
best of his ability. It is understood that Employer shall employ a person
selected by Employee as Employee's secretary.
1.4 Employee shall not, without the prior written consent
of Employer, directly or indirectly, during the term of his employment:
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<PAGE> 2
(a) Render services of a business, professional
or commercial nature to any other corporation, partnership, proprietorship,
firm, association or other entity, whether for compensation or otherwise;
provided, however, services as an officer or director of a nonprofit or
professional organization or, subject to paragraph 1.4(b) below, as a director
of two or fewer corporations (other than nonprofit or professional
organizations) shall not be prohibited by any provision of this Agreement; or
(b) Engage in any activity competitive with
Employer's business, whether alone, as a partner, or as an officer, director,
employee or shareholder of or consultant to any other corporation, partnership,
proprietorship, firm, association or other entity; provided, however, ownership
of not more than one percent (1%) of the outstanding securities of any publicly
traded corporation or other entity shall not be deemed to be so competitive or
otherwise prohibited by any provision of this Agreement.
2. Term of Employment
Subject to the provisions for termination provided in
paragraph 8, Employee's term of employment by Employer shall commence as of the
date first above written and shall continue until the close of business on the
third (3rd) anniversary thereof (the "Initial Period"), provided, further, that
Employee's term of employment hereunder may be extended, at the election and
discretion of Employer or Employee, for an additional period (the "Option
Term") of one (1) year following such third (3rd) anniversary by delivery of
written notice of election to the other no less than ninety (90) days before
such third (3rd) anniversary. In the event that Employer or Employee elects to
continue this Agreement for the Option Term, the word "Term" shall collectively
refer to the Initial Term and the Option Term.
3. Compensation
3.1 As base compensation (the "Base Salary") for all
services rendered by Employee hereunder, Employee shall receive salary at the
rate of $150,000 per annum; provided that, if Employer achieves net income or
"break even" (i.e., no net loss) for its fiscal quarter ending June 30, 1996 or
September 30, 1996 (determined according to generally accepted accounting
principles with respect to Employer and the Affiliates on a consolidated
basis), the Base Salary shall be $175,000 per annum beginning July 1, 1996, or
October 1, 1996, as applicable. After July 1, 1996, or October 1, 1996, as
applicable, the Base Salary shall be reviewed annually and possible increases
shall be considered in good faith by Employer's Board of Directors. The Base
Salary shall be payable in accordance with Employer's regular payroll policies
and practices in accordance with Employer's regular payroll periods.
3.2 In addition to the Base Salary, (a) if Employer
achieves a net income of at least $250,000 (determined before interest payments
and income taxes according to generally accepted accounting principles with
respect to Employer the Affiliates on a consolidated basis (the "Consolidated
Adjusted Net Income")) for its fiscal quarter ending June 30, 1996, Employer
shall pay Employee a bonus of $25,000. Beginning with the fiscal year ending
June 30, 1997, Employer shall pay Employee, not later than ten (10) days
following availability of Employer's audited
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financial statements for such fiscal year, an annual bonus of at least
$25,000 and no more than $100,000, as follows:
EMPLOYER'S CONSOLIDATED AMOUNT OF
ADJUSTED NET INCOME BONUS FOR
FOR FISCAL YEAR SUCH FISCAL YEAR
$0 - 1,999,000 $25,000
$2,000,000 - 2,999,999 $50,000
$3,000,000 - 4,999,999 $75,000
$5,000,000 or more $100,000
3.3 As additional compensation, Employer shall pay
Employee an amount equal to the following applicablepercentages of the net cash
proceeds to Employer or an Affiliate from the issuance of any stock or
subordinated debt of Employer or an Affiliate on or before June 30, 1996,
(excluding any stock issued pursuant to any presently outstanding options,
warrants, or convertible securities or any employee or director stock option or
other employee benefit plan of Employer or an Affiliate or pursuant to any
presently outstanding options, warrants or convertible securities, and
subordinated debt or stock the proceeds of issuance of which are immediately
used to retire other stock or subordinated debt of Employer or an Affiliate),
payable not later than thirty (30) days after receipt of such cash:
MAXIMUM FEES AND COSTS PAYABLE BY APPLICABLE PERCENTAGE OF NET
EMPLOYER AS PERCENTAGE OF GROSS CASH PROCEEDS TO EMPLOYER
PROCEEDS RAISED/SECURITIES ISSUED/
MAXIMUM DISCOUNT OF OFFERING PRICE
TO MARKET PRICE
10% payable in Cash/ Six-Tenths of One Percent (.6%)
10% in Warrants/
20% Discount
11% payable in Cash/ Five and One-Half Tenths of One
11% in Warrants/ Percent (.55%)
21% Discount
12% payable in Cash/ Five-Tenths of One Percent (.5%)
12% in Warrants/
22% Discount
13% payable in Cash/ Four and One-Half Tenths of One
13% in Warrants/ Percent (.45%)
23% Discount
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14% payable in Cash/ Four-Tenths of One Percent (.4%)
14% in Warrants/
24% Discount
15% payable in Cash/ Three and One-Half Tenths of One
15% in Warrants/ Percent (.35%)
25% Discount
Over 15% payable in Cash/ 0
Over 15% in Warrants/
Over 25% Discount
[For example, if Employer pays aggregate fees and costs between 10% and 11% of
the gross proceeds raised or if Employer grants the underwriter(s), placement
agent(s), broker(s) or finder(s) aggregate rights to acquire securities in an
amount between 10% and 11% of the securities issued to investors or if the
price of the Common Stock (or conversion price of convertible debt) is between
20% and 21% of a discount to the average trading price of Employer's Common
Stock for the ten (10) consecutive trading days prior to the closing of the
financing, THEN Employer shall pay Employee an amount equal to eight and
one-half tenths of one percent (.35%).]
3.4 Subject to approval by Employer's shareholders at a
meeting properly noticed and held in accordance with applicable law and subject
to the further provisions of this paragraph 3.4, as additional compensation, if
there is a change in control (as defined in paragraph 8.1(e) below), during the
Term, Employer shall pay Employee an amount equal to forty percent (40%) of the
following amount:
FAIR MARKET VALUE OF "NET
CONSIDERATION" RECEIVED PORTION TO WHICH EMPLOYEE'S
BY EMPLOYER AND/OR ITS SHAREHOLDERS PERCENTAGE IS APPLIED
$60,000,000 or less Zero (0)
More than $60,000,000 but not Five percent (5%) of excess over
more than $100,000,000 $60,000,000
More than $100,000,000 but $2,000,0000 plus seven-and-one-half
not more than $125,000,000 percent (7.5%) of excess over
$100,000,000
More than $125,000,000 $3,875,000 plus ten percent (10%) of
excess over $125, 000,000
As used herein, "net consideration" shall mean, as applicable, (a) the
aggregate amount of consideration (with the value of property other than cash
valued in good faith by Employer's
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Board of Directors) received by the Company and/or its stockholders in a Merger
or Asset Sale, or (b) with respect to a change of controlling shares, the
amount equal to the product of the number of shares of Employer's Common Stock
outstanding as of the date of the change of controlling shares multiplied by
the average closing price per share for the ten (10) consecutive trading days
beginning on such date. Notwithstanding the foregoing, any amounts which would
otherwise be payable under this paragraph 3.4 shall be reduced to the extent
necessary to ensure that (a) Employee's "net after-tax proceeds" attributable
to all amounts payable by Employer to Employee (whether pursuant to this
Agreement or otherwise) which constitute "parachute payments" under Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), after
giving effect to such reduction, exceeds (b) the Employee's net after-tax
proceeds which would be attributable to all amounts payable by Employer to
Employee (whether pursuant to this Agreement or otherwise) which would
constitute "parachute payments" under Section 280G of the Code, if such
reduction had not been made. For purposes of the preceding sentence, (i) the
term "net after-tax proceeds" shall mean the portion of a parachute payment
which remains payable to Employee after Employee has paid federal, state, and
local income taxes on such parachute payment, and the excise tax imposed by
Section 4999 of the Code on any portion of such parachute payment which
constitutes an "excess parachute payment," (ii) the determination whether any
amount constitutes a "parachute payment" or an "excess parachute payment" shall
be made without regard to whether such payment constitutes "reasonable
compensation" for Employee's services within the meaning of Section 280G(b)(4)
of the Code, Proposed Treasury Regulation Section 1.280G-1 Q&A-9, Q&A-39, or
any successor provisions, and (iii) Employer's certified public accountant
shall determine the amount of all "parachute payments," "excess parachute
payments," "net after-tax proceeds," and, consequently, the amount of any
reduction in the payments to be made by Employer to Employee under this
paragraph 3.4, and such determination shall be final and binding upon Employer
and Employee.
4. Reimbursements
Employee is authorized to incur ordinary and necessary
expenses for promoting the business of Employer and fulfilling his duties
hereunder, including without limitation expenses for professional license fees,
dues and subscriptions, entertainment, travel (including actual costs incurred
for oil and gas and repairs and maintenance of an automobile), and similar
items. Employer shall reimburse Employee for all such expenses paid by Employee
upon the presentation by Employee of an itemized account of such expenditures.
5. Benefits
5.1 Employer shall pay Employee a nonaccountable
automobile allowance of $650 per month during the Term. In addition, Employee
shall be entitled to receive such vacation, sick leave, medical, dental, and
vision insurance (including spouse and dependent coverage thereunder) and other
benefits as from time to time generally become available to executive employees
of Employer in accordance with the then existing personnel policies of
Employer.
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5.2 During the Term, subject to Employee's insurability,
Employer shall maintain, for the benefit of Employee, an individual disability
income insurance policy providing monthly benefits equal to two-thirds (2/3)
of Employee's monthly Base Salary then in effect during the period of any
disability of Employee, with a waiting period for commencement of benefits of
not more than six (6) months.
5.3 Beginning on the first anniversary of the date first
set forth above and continuing through the Term, subject to Employee's
insurability, Employer shall pay to Employee an amount equal to the annual
premium on an individual whole life insurance policy on Employee's life in a
face amount equal to three (3) times the Base Salary then in effect, which
policy shall be owned by Employee or his designee and in which Employer shall
have no interest.
5.4 If the principal administrative offices of Employer
are not moved to within thirty-five (35) miles of Employee's current residence
in Bel Air, California by June 30, 1997, Employer shall reimburse Employee for
his reasonable out-of-pocket costs (including closing costs, broker's
commission, moving costs, and similar costs) in selling or leasing his current
residence and purchasing or leasing a new residence within thirty-five (35)
miles of Employer's principal administrative offices, provided, however, that
such reimbursement shall not include any loss Employee may incur on the sale or
lease of his current residence or the purchase price or rental of his new
residence.
6. Trade Secrets
All information not disclosed to the public by Employer
regarding its business which is compiled by, obtained by or furnished to
Employee during the term of this Agreement is acknowledged to be confidential
information and the exclusive property of Employer. Employee specifically
agrees that he will not at any time, whether during or subsequent to the term
of Employee's employment by Employer, in any fashion, form or manner, unless
specifically consented to in writing by Employer, either directly or indirectly
use or divulge, disclose or communicate to any person, firm or corporation, in
any manner whatsoever, any confidential information of any kind, nature or
description concerning any matters affecting or relating to the business of
Employer, including, without limiting the generality of the foregoing, the
names, buying habits or practices of any of its customers, its marketing
methods and related data, the names of any of its vendors or suppliers, costs
of materials, the prices it obtains or has obtained or at which is sells or has
sold its products or services, sales costs, lists or other written records used
in Employer's business, compensation paid to employees and other terms of
employment or any other confidential information of, about or concerning the
business of Employer, its manner of operation or other confidential data of any
kind, nature or description, the parties hereto stipulating that as between
them the same are important, material and confidential trade secrets and affect
the successful conduct of Employer's business, and its goodwill, and that any
breach of any term of this paragraph is a material breach of this Agreement in
addition to other remedies available at law or in equity. All product brochures
and literature, mailing lists, lists of prospective or actual customers,
address or information listings, trade publication and address listings, trade
show attendee listings, equipment, notebooks, documents, memoranda, reports,
files, samples, books, correspondence, lists, computer disks and other written,
graphic or electronic
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records, and the like, affecting or relating to the business of Employer, which
Employee shall prepare, use, construct, observe, possess or control shall be
and remain Employer's sole property.
7. Employee's Duties on Termination
Upon the termination of the employment of Employee hereunder,
Employee agrees to promptly deliver to Employer all written, printed or
otherwise recorded materials of any kind whatsoever effecting or relating to
Employer's business, whether or not specified in paragraph 6, which are in his
possession or under his control.
8. Termination of Employment
8.1 This Agreement and the employment of Employee
hereunder may be terminated at any time prior to the expiration of the term of
this Agreement as follows:
(a) Upon the mutual agreement of Employer
and Employee;
(b) By Employer, if Employee dies or becomes
disabled by reason of sickness, physical or mental disability or any other
cause which materially impairs his ability to perform his duties under this
Agreement for one hundred twenty (120) consecutive days or more than one
hundred eighty (180) days during any one (1) year period;
(c) By Employer, in the event (i) of conduct of
Employee involving material financial improprieties, embezzlement or fraud,
(ii) Employee has been convicted of plead guilty or no contest to any felony
involving monies or other property; or (iii) of willful misconduct by Employee
causing material harm to Employer, but only if (x) Employee shall have failed
to discontinue such misconduct within ten (10) days after receiving notice from
Employer that it will consider the continuation of such misconduct cause for
termination of this Agreement, or (y) the misconduct is of such nature that
Employer would be materially prejudiced thereby whether or not Employee
discontinues such misconduct;
(d) By Employer, if Employee shall otherwise
materially default in the performance of his obligations, services or duties
hereunder or shall materially breach any provision of this Agreement, but only
if Employee shall not have discontinued the conduct giving rise to the right of
termination within thirty (30) days after receiving written notice from
Employer that it will consider the continuation of such conduct cause for
termination of this Agreement; or
(e) By Employer, without cause, upon thirty (30)
days written notice to Employee, or if there is a "change in control" (as
defined below) at any time during the Term and Employee elects to terminate
this Agreement; provided, however, that in such event, Employee shall be
entitled to the severance benefits set forth in paragraph 8.3 below. As used
herein, a "change in control" means: (i) (A) a merger of Employer or an
Affiliate with or into any other entity in which Employer or an Affiliate is
not the surviving corporation or survives as a subsidiary of another entity,
(B) a consolidation of Employer or an Affiliate with any other entity, or (C)
the sale, lease or other disposition of all or substantially all of Employer's
or an Affiliate's
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assets or the adoption of a plan of complete liquidation of Employer or an
Affiliate or (ii) the acquisition by any person, entity or "group" (as
contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) of beneficial ownership or control of securities representing (A)
fifty percent (50%) or more of the combined voting power of Employer's
then-outstanding securities or (B) less than fifty percent (50%) of the
combined voting power of Employer's then-outstanding securities if, in
connection with such acquisition, the persons who were directors before such
transaction shall cease to constitute a majority of Employer's Board of
Directors; provided, however, that a change in control shall not be deemed to
have occurred solely as a result of any transaction between Employer and an
Affiliate. As used herein, "merger or asset sale" means any transaction
described in clause (i) of the above definition of "change in control"; "change
of controlling shares" means any transaction described in clause (ii) of the
above definition of "change in control".
Termination of Employee's employment under paragraph 8.1(c) or 8.1(d) shall not
be in limitation of any other right or remedy Employer may have under this
Agreement or at law or in equity.
8.2 If this Agreement is terminated by Employer pursuant
to paragraph 8.1(c) or 8.1(d), such termination shall be deemed "with cause".
In such event, or if Employee terminates this Agreement, Employer shall pay to
Employee, on the last day of his employment, all of Employee's Base Salary,
amounts payable pursuant to paragraph 3.3, pay in lieu of vacation, and other
benefits theretofore accrued but unpaid or untaken, and Employer shall pay to
Employee, within 10 days after availability of audited financial statements for
Employer's relevant fiscal year, bonuses (determined on a pro rata basis of the
amount provided for in paragraph 3.2). The pro rata portion of Employee's bonus
payable hereunder shall be determined by multiplying the amount otherwise due
to Employee under paragraph 3.2 had he remained employed by Employer through
the end of the then current fiscal year by a fraction, the numerator of which
is the number of full weeks he was employed in such fiscal year and the
denominator of which is fifty-two (52), provided, however, that the Employee
shall not be entitled to either such bonus if he terminates this Agreement
without giving at least 90 days prior written notice to Employee.
8.3 If this Agreement is terminated pursuant to paragraph
8.1(b) or (e), in addition to the amounts provided in paragraph 8.2, Employee
shall receive: (a) an amount equal to the Base Salary, as provided in paragraph
3.1, for a continuing period of one (1) year following the date of termination,
provided, however, that, in the case of a termination pursuant to paragraph
8.1(b), the amounts so payable to Employee shall be reduced by the amounts
which Employee receives under the disability insurance policy described in
paragraph 5.2 above; (b) continuing medical, dental, and vision insurance
benefits as provided in paragraph 5.1 above, for Employee, his spouse and
dependents throughout the one (1) year period following the date of
termination; and (c) reimbursement of any outplacement fees incurred by
Employee for counseling and employment searches, up to a maximum aggregate
amount of such reimbursement of $7,500. The amounts due Employee under this
paragraph 8.3 shall continue to be paid in the event of Employee's death or
total disability occurring within the one (1) year period following termination
and shall not be subject to any reduction in the event Employee commences other
employment during such period.
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<PAGE> 9
8.4 In the event Employee becomes entitled to any
payments under this paragraph 5, he acknowledges and agrees that such payments
shall be made in full satisfaction of all rights of Employee arising as a
result of the termination of his employment hereunder. Such payments shall be
subject to withholding for federal, state and local income taxes, social
security, disability and the like. In the event a payment is required for any
period which is less than a full month, the amount of the payment shall be
prorated.
8.5 Nothing contained in this paragraph 5 shall be
construed as imposing on Employer an obligation to make a severance payment to
Employee if the employment of Employee is terminated pursuant to the provisions
of paragraph 8.1(a).
9. Other Covenants
9.1 During the term of his employment, Employee agrees
that he will not undertake any planning for or organization of any business
activity competitive with Employer's business or combine or conspire with other
employees or representatives of Employer's business for the purpose of
organizing any such competitive business activity.
9.2 During the term of his employment and for two (2)
years following his termination as an employee (the "Post-Termination
Period"), Employee agrees that he will not, directly or indirectly or by action
in concert with others, induce or influence (or seek to induce or influence)
any person who is engaged (as an employee, agent, independent contractor or
otherwise) by Employer to terminate his or her employment or engagement with
Employer.
9.3 During the term of his employment and the
Post-Termination Period, Employee agrees that he will not, directly or
indirectly or by action in concert with others, induce or influence (or seek to
induce or influence) any corporation, partnership, proprietorship, firm,
association or other entity which is a customer or a supplier of goods or
services to Employer to terminate or alter its business relations with
Employer.
10. Severable Provisions
The provisions of this Agreement are severable, and, if any
one or more provisions may be determined to be judicially unenforceable, in
whole or in part, the remaining provisions, and any partially unenforceable
provision to the extent enforceable, in any jurisdiction, shall nevertheless be
binding and enforceable.
11. Waiver
Either party's failure to enforce any provision or provisions
of this Agreement shall not in any way be construed as a waiver of any such
provision or provisions or prevent that party thereafter from enforcing each
and every other provision of this Agreement.
12. Enforcement
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<PAGE> 10
Employer and Employee recognize and acknowledge that Employee
is employed hereunder in a position where Employee will be rendering personal
services of a special, unique, unusual and extraordinary character. Employee
agrees that the breach by him of this Agreement, including its covenants, could
not reasonably or adequately be compensated in damages in an action at law and
that Employee shall be entitled to injunctive relief, which may include but
shall not be limited to restraining Employee from rendering any services that
would breach this Agreement. However, no remedy conferred by any of the
specific provisions of this Agreement (including this paragraph 12) is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by Employer shall not constitute a waiver
of the right to pursue other available remedies.
13. Governing Law
This Agreement and performance under it shall be construed in
accordance with and under the laws of the State of California. Should a court
or other body of competent jurisdiction determine that any term or provision of
this Agreement is excessive in scope, such term or provision shall be adjusted
rather than voided and interpreted so as to be enforceable to the fullest
extent possible, and all other terms and provisions of this Agreement shall be
deemed valid and enforceable to the fullest extent possible.
14. Employee's Representations
Employee represents and warrants that he is free to enter into
this Agreement and to perform each of the terms and covenants of it. Employee
represents and warrants that he is not restricted or prohibited, contractually
or otherwise, from entering into and performing this Agreement and that his
execution and performance of this Agreement is not a violation or breach of any
other agreement between Employee and any other person or entity.
15. Notices
Any notice or other communication to be given hereunder shall
be in writing and shall be personally delivered, sent by United States
certified mail, sent by Federal Express or similar overnight express delivery
service, or sent by electronic facsimile (fax) or other similar electronic
means, with a copy to be sent the same day by regular U.S. mail. Notices to
Employer shall be addressed to Employer at its principal place of business, to
the attention of the President; notices to Employee shall be addressed to him
at 1110 Chantilly Road, Los Angeles, CA 90077, or, if different, the home
address last shown on the records of Employer, with a copy to Robert C. Kopple,
Esq., Kopple & Klinger, 2029 Century Park East, Suite 1040, Los Angeles, CA
90067. Any party may hereafter designate in writing to the other a different
address. Any such notice shall be deemed given (a) when personally delivered,
(b) 48 hours after deposit in the United States mail, addressed as aforesaid
with postage and certification fee prepaid, (c) one business day after having
been delivered to Federal Express or similar overnight express delivery
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<PAGE> 11
service for overnight delivery, or (d) upon transmission by facsimile (fax) or
other similar electronic means.
16. Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
17. Attorneys' Fees
If any action at law or in equity is necessary to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements, in
addition to any other relief to which such party may be entitled at law or in
equity.
18. Entire Agreement
This Agreement and any Stock Option Agreement entered into by
and between the parties are the entire agreement between them and supersede all
prior agreements and understandings between the parties (whether written or
oral) regarding the subject matter hereof and may not be modified or terminated
orally. No modification, termination or attempted waiver shall be valid unless
in writing and signed by the party against whom the same is sought to be
enforced.
///
///
///
///
///
///
///
///
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<PAGE> 12
19. Binding Agreement
The rights and obligations of Employer under this Agreement
shall inure to the benefit of and shall be binding on the successors and
assigns of Employer. Employee's obligations under paragraphs 6, 7, and 9 shall
continue in effect beyond the term hereof and shall be binding on Employee's
assigns, heirs, executors, administrators and other legal representatives.
Employer's obligation under paragraphs 8.2 and 8.3 shall continue in effect
beyond the term hereof and shall be binding of Employer's assigns and
successors.
20. Titles and Headings
Titles and headings to paragraphs in this Agreement are for
the purpose of reference only and shall in no way limit, define or otherwise
affect the provisions of it.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first set forth above.
"Employer" REDDI BRAKE SUPPLY CORPORATION,
a Nevada corporation
By: _______________________________________
Its: Chairman of the Board
"Employee" _______________________________________
S. Gerald Birin
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<PAGE> 1
Exhibit 10.42
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of May 28, 1996 by and among Reddi Brake Supply Corporation, a Nevada
corporation ("Purchaser"), and Allen J. Sheerin ("Sheerin") and Bryan Morford
("Morford," and together with Sheerin, "Sellers").
A. Sheerin owns 75 shares of common stock of Express
Undercar Parts Warehouse, Inc., Nevada (the "Company"), and Morford owns 25
shares of common stock of the Company. Together, the Sellers own 100% of the
issued and outstanding shares of stock of the Company. All of the stock of the
Company is referred to as the "Shares."
B. Sellers wish to sell the Shares to Purchaser, and
Purchaser desires to purchase the Shares, all on the terms and conditions of
this Agreement.
THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to the
terms and conditions of this Agreement, at the Closing (as defined below),
Sellers shall sell, transfer, convey and deliver to Purchaser the Shares, and
Purchaser shall purchase the Shares, free and clear of all claims, liens,
charges, encumbrances, restrictions on transfer, options and security
interests.
2. PURCHASE PRICE.
2.1 PURCHASE PRICE. The purchase price (the
"Purchase Price") for the Shares shall be an amount (payable in Purchaser's
stock as provided in Section 2.2 below) equal to 1.3 times the "Net Asset
Value" of the Company, as of the close of business on April 30, 1996 (the
"Valuation Date"). The Net Asset Value on such date and the Purchase Price
have been determined as follows:
<TABLE>
<CAPTION>
Assets of the Company at April 30, 1996 Value
- --------------------------------------- ------------
<S> <C>
Inventory and Miscellaneous Assets $ 1,395,720
Accounts Receivable 155,299
------------
Total Fixed Assets $ 1,551,019
Accounts Payable & Miscellaneous Liabilities (429,459)
Bank Loans (250,000)
------------
Net Asset Value $ 871,560
Estimated Purchase Price at 130% $ 1,133,028
</TABLE>
<PAGE> 2
The Purchase Price shall be allocated among Sheerin and Morford in accordance
with written instructions provided to the Purchaser on behalf of the Sellers.
2.1.1 GOOD FAITH DEPOSIT. Purchaser has
previously delivered to Sellers a good faith cash deposit of $75,000 (the
"Deposit") pursuant to the letter of intent between the parties hereto dated
April 23, 1996 (the "Letter"). At the Closing (as defined in Section 3 below),
the Deposit shall be returned to Purchaser. Notwithstanding the foregoing, if
this Agreement is terminated prior to Closing, the Deposit shall be refunded to
Purchaser.
2.2 MANNER OF PAYMENT. The Purchase Price shall
be paid to Sellers at the Closing, as follows:
The Purchase Price shall be paid in shares of
Purchaser's Common Stock determined by dividing the Purchase Price by $1.63,
the deemed value of a share of Common Stock. Such deemed value is the average
between the closing offer and bid prices of the Purchaser's common stock in the
over the counter market on April 16, 1996, the date on which the Purchaser's
Board of Directors approved this transaction, discounted by 10%.
3. CLOSING. The closing (the "Closing") of the
transactions described herein shall take place at 2:00 p.m. on June 3, 1996, or
such later date as the parties may agree to (the "Closing Date") at the offices
of Alschuler, Grossman & Pines, 2049 Century Park East, Suite 3900, Los
Angeles, California 90067. If the Closing does not occur by June 5, 1996, the
Deposit shall be refunded to Purchaser immediately, and this Agreement shall be
terminated, with neither party having any obligation or liability to the other.
Notwithstanding the actual date of Closing (if the Closing occurs), the Closing
shall be deemed to have occurred as of the close of business on the Valuation
Date so that the Shares shall be deemed to be beneficially owned by Purchaser
as of that time with all income received by the Company and all payments made
and obligations and liabilities incurred by the Company after such time
remaining the income, expenses, obligations and liabilities of the Company on
and after the Closing Date.
4. INDIVIDUAL REPRESENTATIONS AND WARRANTIES. Sheerin
and Morford, each separately and individually as to his own Shares of the
Company, represents and warrants to Purchaser that:
4.1 TITLE TO SHARES. Sheerin is the sole owner
of 75 Shares, and Morford is the sole owner of 25 Shares, each having good and
marketable title to his Shares and owning his Shares beneficially and of
record, free and clear of all liens, claims, security interests or agreements,
shareholder or buy-sell
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<PAGE> 3
agreements, proxies, voting trust agreements, encumbrances, options, charges
and restrictions (collectively, "Encumbrances"). Each has the full right,
power and authority to sell, convey, transfer and deliver his Shares, without
obtaining the approval or consent of any other person; except for the consent
of Sheerin's spouse and Morford's spouse in form reasonably satisfactory to
Purchaser, which shall be obtained prior to the Closing Date. Together,
Sheerin and Morford own beneficially and of record all of the issued and
outstanding capital stock of the Company.
4.2 BINDING AGREEMENT. Sheerin and Morford each
have full right, power and authority to enter into and perform their respective
obligations under this Agreement. This Agreement and all other agreements,
documents and instruments to be executed by Sellers in connection herewith have
been (or upon execution will have been) duly executed and delivered by each
Seller and constitute (or upon execution will constitute) legal, valid and
binding obligations of each Seller, enforceable in accordance with their
respective terms.
4.3 NO CONFLICTS. The execution and delivery of
this Agreement, the sale of the Shares, the compliance by Sheerin and Morford
with all of the provisions of this Agreement and the consummation of the
transactions contemplated by this Agreement (a) will not conflict with or
result in a breach or violation of the Company's Articles of Incorporation or
Bylaws, or to Sellers' actual knowledge, any federal, state or local law,
statute, code, rule, regulation or ordinance (collectively, "Laws"), or any
judgment, order, writ, decree of any court, tribunal or other governmental body
or instrumentality, or any of the terms or provisions of, or constitute a
default under, or require notice, approval, or consent under, any bond or other
agreement, document or instrument to which either Sheerin, Morford, or Company
is a party, or by which any of the Company's properties is subject or bound, or
(b) results in the creation of any Encumbrance upon any of the Shares or any
"Lien" (as defined in Paragraph 5.8 below) on the assets or properties of the
Company.
4.4 ENTIRETY OF INTEREST. 75 Shares represent
Sheerin's and 25 Shares represent Morford's complete legal, equitable and
beneficial interest in Company.
4.5 COMPLIANCE WITH SECURITIES LAWS. Each Seller
represents and warrants to Purchaser that (a) he understands that the shares of
Purchaser's Common Stock issuable to him under Paragraph 2.2 hereof have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state, and are being issued and sold in
reliance upon exemptions afforded thereunder for transactions not involving any
public offering; (b) each such Seller is an "accredited investor" within the
meaning of Rule 501(a) promulgated under the Securities Act; (c) each such
Seller is a
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<PAGE> 4
bona fide resident and domiciliary of the State of Nevada; (d) the shares of
Purchaser's Common Stock to be acquired by such Seller hereunder are being
acquired for such Seller's own account for investment and without any view
toward or for sale in connection with any distribution thereof to any other
person; (e) such Seller will neither sell nor otherwise dispose of the
Purchaser's Common Stock being issued to him hereunder except in compliance
with the registration requirements or exemptive provisions of the Securities
Act and the rules and regulations thereunder, and under any applicable state
securities laws; (f) such Seller has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the acquisition of the Purchaser's Common Stock; (g) such Seller has consulted
with counsel, to the extent he deemed necessary, as to all matters covered by
this Agreement; (h) such Seller has, to his full satisfaction, made such
investigation into the business, financial condition and operations of
Purchaser as he deemed necessary; (i) such Seller has not relied upon the
Purchaser for any explanation of the application of the various federal or
state securities laws with regard to the acquisition of the Purchaser's Common
Stock; (j) such Seller acknowledges that Purchaser has made no representations
or warranties with respect to the Purchaser's Common Stock other than those
expressly set forth herein; and (k) such Seller agrees that the Purchaser may
endorse on each certificate representing shares of Purchaser's Common Stock
being delivered to such Seller hereunder a restrictive legend consistent with
the information set forth in this paragraph. Sellers acknowledge that Sellers
are receiving certain registration rights as to the shares of Purchaser's
Common Stock pursuant to a Registration Rights Agreement as set forth in
Paragraph 8.3 herein.
5. JOINT REPRESENTATIONS AND WARRANTIES OF SELLERS.
Sellers, jointly and severally, hereby represent and warrant to Purchaser that:
5.1 ORGANIZATION, GOOD STANDING AND
QUALIFICATION. Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada, and has full power and
authority to own its properties and assets and to conduct its business as it is
now being conducted; and is entitled to own, lease or operate the properties
and assets it now owns, leases or operates. Seller has delivered to Purchaser
(a) a true and correct copy of the Company's Articles of Incorporation, with
copies of amendments, if any, all certified by the Secretary of State of
Nevada; (b) the Bylaws and all minutes and resolutions of any meeting, or
written consent or action in lieu thereof, of the Company's shareholders or
Board of Directors (or any committee thereof); (c) all permits, orders and
consents issued by the State of Nevada relating to the Company, and all
applications for such permits, orders and consents; and (d) the stock transfer
book of the Company (collectively, the "Corporate Documents").
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<PAGE> 5
5.2 CAPITAL STOCK. The Company has an authorized
capitalization solely consisting of 2500 shares of common stock, of which 100
shares are issued and outstanding. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable, and have
not been issued in violation of any preemptive rights of stockholders. No
other class of capital stock of the Company is authorized or outstanding.
There are (and at the Closing will be) no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, preemptive
rights, commitments, plans or other agreements of any character providing for
the purchase, issuance or sale of any shares of the capital stock of the
Company, or of any options, warrants or other securities of the Company.
5.3 SUBSIDIARIES. The Company has no
subsidiaries and does not own, directly or indirectly, any interest in any
corporation, partnership, business, joint venture, partnership, trust or
investment (whether debt or equity) or other entity.
5.4 FINANCIAL STATEMENTS. Sellers have delivered
to Purchaser balance sheets of the Company as of April 30, 1996, and the
related statements of earnings and retained earnings for the periods ended
April 30, 1996, and changes in financial position as of April 30, 1996, all of
which Purchaser acknowledges receiving. Each of the foregoing financial
statements was prepared in the Company's ordinary course of business, is the
sole financial statement that was prepared for the time period covered and is
the financial statement used by the Company in the conduct of its business.
Each of the foregoing financial statements was prepared in accordance with the
books and records of the Company applied consistently during the periods
covered thereby, and presents fairly the Company's financial condition at the
dates of said statements and the Company's results of operations for the period
covered thereby. (Each of the foregoing financial statements, as well as any
financial statements for subsequent periods prior to the Closing, is referred
to, in the singular, as a "Financial Statement", and, in the plural, as the
"Financial Statements.")
5.5 LIABILITIES. The Company has no material
liabilities, obligations and debts of any nature, whether accrued, absolute,
contingent or otherwise (collectively, the "Liabilities"), except as set forth
on the face of the Balance Sheet dated as of April 30, 1996, or as otherwise
set forth in any Schedule attached to this Agreement. Any material liabilities
incurred since that date have been incurred in the ordinary course of the
Company's business as previously conducted. Neither Seller has any actual
knowledge of any basis for an assertion against the Company of any other
Liability other than those set forth in any Schedule referenced in this
Paragraph 5.
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<PAGE> 6
5.6 NO ADVERSE CHANGE. Since April 30, 1996, the
Company has operated its business in the ordinary course as previously
conducted, and there has not been, and there is not threatened, (a) any change
in the Company's business or other occurrence that would be materially adverse
to the Company's properties, assets business, or financial condition, or (b)
any event or occurrence that, if taken during the time period between the date
hereof and the Closing, would have constituted a material violation of
Paragraph 7.3, 7.4, 7.6, 7.7, 7.8 or 7.10.
5.7 TAXES. Sellers have delivered to the
Purchaser true, correct and complete federal, foreign, state and local tax
returns and reports filed by the Company through the date of this Agreement.
Neither the Company nor the Sellers have knowledge that the Company has failed
to properly file all federal, foreign, state, local and other tax returns and
reports which are required to be filed by it, or that it has failed to pay all
taxes owing as indicated on the Sellers' Financial Statements to be due and
owing by it, except taxes which have not yet accrued or otherwise become due
for which adequate provision has been made in the Balance Sheet referred to in
Paragraph 5.5 above. Sellers have no knowledge that the federal income tax
returns of the Company have been examined by the Internal Revenue Service since
the Company's inception or that any extension of time for the assessment of
deficiencies for any year is in effect. To the knowledge of each of the
Sellers, neither the Internal Revenue Service nor any other taxing authority is
now asserting or threatening to assert against the Company any deficiency or
claim for additional taxes or interest thereon or penalties in connection
therewith.
5.8 REAL PROPERTY. The Company does not own any
real property. Attached as Schedule 5.8 is a complete list of all real
property leases (collectively, the "Leases") to which the Company is a party.
Except as described on Schedule 5.8, (a) no event has occurred that
constitutes, or that with the giving of notice or passage of time, or both,
would constitute a material default by the Company or any other party under any
of the Leases, (b) the Leases constitute all of the real property that is used
or held for use by the Company in connection with its business, (c) the
Company's interest in each of the Leases is free and clear of any liens,
charges, claims, security interests or other encumbrances (collectively,
"Liens") created by, through or under the Company or any person or entity
controlling, controlled by or under common control with the Company
(collectively, "Affiliates"), (d) there are no parties in possession of any
portion of the properties (the "Leased Lands") subject to the Leases as
sublessees, subtenants or otherwise, (e) neither the Company nor the Sellers
have knowledge of any pending or threatened condemnation, eminent domain or
similar proceeding affecting the properties subject to the Leases or that the
Leased Lands are not in compliance with all Laws applicable thereto, and (f)
neither of Sellers, nor any officer, director,
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<PAGE> 7
shareholder, employee, relative or Affiliate of either Seller or the Company,
owns, directly or indirectly, in whole or in part, any interest in the Leased
Lands. The Sellers have delivered to the Purchaser true, correct and complete
copies of each of said Leases, together with any amendments thereto. Also
listed in Schedule 5.8 is the amount of the security deposits, if any, and
advance rentals paid, if any.
5.9 CONTRACTS, LEASES AND COMMITMENTS. Sellers
have caused the Company to furnish to Purchaser true and complete copies of all
contracts, leases, agreements, licenses and commitments to which the Company is
a party or by which any of its assets or properties are bound or are subject
and which are material to the operation of the Company's business or any of its
stores, all of which are listed in Schedule 5.9 hereto, including summaries of
the terms of any unwritten commitments (collectively, the "Contracts"). Except
as set forth in Schedule 5.9, the Contracts are valid and enforceable, in full
force and effect and there exists no event or condition which does, or that
with the giving of notice or the passage of time, or both, would, constitute a
material default under or give rise to a right to accelerate or terminate any
provision thereof, or give rise to any Lien or restriction on any of the assets
or properties of the Company. The Company has not assigned or otherwise
transferred any interest in or any of its rights or benefits accruing from any
of the Contracts.
5.10 CUSTOMERS AND SUPPLIERS. Except as disclosed
in Schedule 5.10 hereto, during the Company's fiscal year ended June 30, 1995
and the ten-month period ended April 30, 1996, (a) not more than 10% of the
Company's revenues were attributable to any single customer or (to the
knowledge of Sellers) to any group of affiliated customers, and (b) not more
than 10% of the Company's inventory was attributable to any single supplier or
(to the knowledge of Sellers) to any group of affiliated suppliers. The
Company is engaged in no material disputes with any customers, suppliers,
airlines or other entities with which the Company does business. Sellers have
no actual knowledge that any customer, supplier, or other entity with which the
Company does business is considering termination, non-renewal, or any adverse
modification of its arrangements with the Company, and the transactions
contemplated by this Agreement will not have a material adverse effect on the
Company's relationship with any of its suppliers, customers, airlines or other
entities with which the company does business.
5.11 ACCOUNTS RECEIVABLE. Schedule 5.11 hereto is
an aging list of all of the Company's accounts receivable as of April 30, 1996.
The Company's accounts receivable arose in the ordinary course of business for
goods or services delivered or rendered and were recorded consistently in
accordance with the Company's past practice.
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<PAGE> 8
5.12 PERMITS; COMPLIANCE WITH LAWS. Neither the
Company nor the Sellers have knowledge that the Company has failed to comply
with all applicable Laws or that the Company's business is and has been
operated other than in compliance with all applicable Laws, or that any
required reports and filings with governmental authorities have not been
properly made by the Company. To the Company and the Sellers' knowledge, the
Company possesses, and Schedule 5.12 sets forth a complete list of, all of the
permits, licenses, authorizations and approvals required by any governmental
body or instrumentality or political subdivision in connection with the conduct
of the Company's business as presently conducted (collectively, the "Permits").
The execution and delivery of this Agreement, the sale of the Shares, the
compliance by Sellers with all of the provisions of this Agreement and the
consummation of the transaction contemplated by this Agreement will not result
in any violation of any Law, or any Permit of the Company, or any rule,
judgment, writ, decree or order of any court, tribunal or other governmental
body or instrumentality. No consent, registration or qualification of, or
filing or registration with, any person, court, or governmental agency is
required for the sale of the Shares, the compliance by the Sellers with the
provisions of this Agreement, the maintenance by Purchaser of any of the
Permits immediately following the Closing, or the consummation of the
transactions contemplated hereby.
5.13 EMPLOYEES. Other than as set forth in
Schedule 5.13, the Company is not a party to or subject to any written
agreement, or any oral agreement providing for any bonus, severance payment,
deferred compensation, pensions, options, profit sharing or similar benefits
not terminable within 30 days by and without penalty or further liability to
the Company, with any employee, consultant, officer, director, agent or
representative. The Company has no "Employee Benefit Plans" as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended. All obligations of the Company with respect to all of its
Employees, consultants, directors, officers, agents and representatives and due
on or prior to the date hereof have been paid by the Company.
5.14 LITIGATION. Neither the Company nor the
Sellers have knowledge of any pending or threatened actions, suits,
proceedings, claims, judgments, orders, arbitration proceedings, administrative
or governmental investigations against the Company or any of its properties or
assets, or, in connection with the Company's business, any of the Company's
officers, directors, employees, consultants, agents or representatives.
5.15 BANK ACCOUNTS. Schedule 5.15 is an accurate
and complete list showing the name of each bank, savings and loan or other
financial institution in which the Company has an account, outstanding debt,
credit line or safe deposit box, the
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<PAGE> 9
number of each of the foregoing and the names of all persons authorized to draw
thereon or to have access thereto.
5.16 TRANSACTIONS WITH INTERESTED PERSONS. Except
as set forth in Schedule 5.16, there is no (a) obligation or liability incurred
by the Company to either of Sellers or any of its officers, directors or
shareholders, or any loans or advances made by the Company to either of Sellers
or any of its officers, directors or employees, except normal compensation
payable in accordance with past practice, and (b) neither of Sellers owns,
directly or indirectly, any interest in, or serves as an officer or director
of, any entity which has any contract, commitment or arrangement with the
Company.
5.17 NO BROKERS. Neither of Sellers nor the
Company have entered, directly or indirectly, into any agreement, understanding
or commitment with any person or entity that provides for the payment of any
commission, brokerage or "finder's fee" arising out of the transaction
contemplated by this Agreement.
5.18 TANGIBLE PERSONAL PROPERTY. Sellers have
caused the Company to furnish to Purchaser computer schedules showing all
leasehold improvements, fixtures, machinery, equipment (including office
equipment), computer hardware, vehicles, furniture and other tangible personal
property used in connection with the Company's business (the "Tangible Personal
Property"). To the Company's and to the Sellers' knowledge, such list is
complete and accurate in all material respects. To Sellers' knowledge or
except as set forth in Schedule 5.18, the Company has good and marketable title
to each item of Tangible Personal Property free and clear of all Liens.
5.19 INVENTORY. Sellers have caused the Company
to furnish to Purchaser a computer schedule of all inventory of the Company as
of April 30, 1996. To the Company's and to the Sellers' knowledge, such list
is complete and accurate in all material respects.
5.20 INTELLECTUAL PROPERTY. Except for the trade
name "Express Undercar Parts Warehouse", neither the Company nor the Sellers
have knowledge of tradenames, trademarks, copyrights or registrations or
applications related to the foregoing or any other intellectual property rights
(collectively, "Intangibles"). Neither the Company nor the Sellers have any
actual knowledge of any pending or threatened claim, action or proceeding
against the Company contesting the Company's right to use any Intangibles.
5.21 INSURANCE. Schedule 5.21 sets forth a list
of all insurance policies maintained by or for the benefit of the Company. The
Company has not received and the Sellers have no actual knowledge of any notice
cancelling or threatening to
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<PAGE> 10
cancel, or amending or increasing the annual or other premiums payable under
any of such policies.
5.22 HAZARDOUS SUBSTANCES. Neither the Company
nor the Sellers have any actual knowledge (a) of any Hazardous Materials
present on any of the Leased Land or the premises or improvements located
thereon, or on any property in the immediate vicinity of the Leased Lands (b)
that Hazardous Materials have been disposed or otherwise released into the
environment by or on behalf of the Company or its Affiliates, and (c) that any
of the following items is located on the Leased Land: underground containers
or vessels or water, gas or oil wells. Neither the Company nor the Sellers
have actual knowledge of any receipt of any notice or other communications
concerning any violation or alleged violation of any Laws relating to the
protection of health and the environment (collectively "Environmental
Requirements"). Neither the Company nor the Sellers have actual knowledge of
the existence of any writ, injunction, decree, order or judgment outstanding,
nor any pending or threatened claim, action or proceeding, relating to any
alleged or suspected violation of Environmental Requirements arising out of the
ownership, use or operation of the Leased Lands and the premises or
improvements thereon pertaining to the property or any properties in the
immediate vicinity of the Leased Lands or the operation of the Company's
business. As used herein, "Hazardous Materials" shall mean any substances
(including, without limitation, any asbestos, formaldehyde, radioactive
substance, hydrocarbons, polychlorinated biphenyls, industrial solvents,
flammables, explosives and any other hazardous substance, solid waste or toxic
material) that are defined as hazardous or toxic substances under Environmental
Requirements or that are known, as of the date of this Agreement, to pose a
threat to or to endanger health or the environment, except for those substances
that are contained within products sold by Seller at its stores, the handling,
labeling and sale of which does not require a permit or other authorization
from, delivery of notice to, or filing with any court, tribunal or other
governmental body or instrumentality.
5.23 REPRESENTATIONS TRUE AT CLOSING. All
representations by the Sellers in Sections 4 and 5 shall be true and accurate
as of the date when made and shall be deemed to be made again at the Closing as
of the Closing Date and shall then be true and accurate in all respects.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to Sellers that:
6.1 BINDING AGREEMENT. Purchaser has all
requisite corporate right, power and authority to enter into and perform its
obligations under this Agreement. This Agreement has been duly authorized,
executed and delivered by Purchaser and
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<PAGE> 11
constitutes a valid and legally binding obligation of Purchaser, enforceable in
accordance with its terms.
6.2 PURCHASE OF SHARES NOT FOR DISTRIBUTION. The
Shares are being purchased for investment and not with a view to distribution,
it being understood that the Shares are not registered or qualified under the
Securities Act, or any state law.
6.3 STOCK OF PURCHASER. Purchaser has the
requisite number of shares of its Common Stock authorized and available to
issue the shares to be issued by it hereunder, and to issue the shares to be
issued by it pursuant to the warrants and options described in Paragraph 8.2.
6.4 NO CONFLICTS. The execution and delivery of
this Agreement, the purchase of the Shares, the compliance by Purchaser with
all of the provisions of this Agreement and the consummation of the
transactions contemplated by this Agreement will not conflict with or result in
a breach or violation of the Articles of Incorporation or Bylaws of Purchaser.
This Agreement and all other agreements, documents and instruments to be
executed by Purchaser in connection herewith have been (or upon execution will
have been) authorized by Purchaser's Board of Directors, duly executed and
delivered by the Purchaser and constitute (or upon execution will constitute)
legal, valid and binding obligations of Purchaser, enforceable in accordance
with their respective terms, or any of the terms or provisions of, or
constitute default under, or require notice, approval, or consent under, any
bond or other agreement, document or instrument to which Purchaser is a party,
or to Purchaser's knowledge, any Laws or any judgment, order, writ, decree of
any court, tribunal or other governmental body or instrumentality.
6.5 PERMITS; COMPLIANCE WITH LAWS. To the
knowledge of Purchaser's Chief Executive Officer and Chief Financial Officer,
Purchaser has complied, and continues to comply, with all applicable Laws, and
the Purchaser's business is and has been operated in compliance with all
applicable Laws and all required reports and filings with governmental
authorities have been properly made by Purchaser. To Purchaser's knowledge,
Purchaser possesses all of the Permits and approvals required by any
governmental body or instrumentality or political subdivision in connection
with the conduct of Purchaser's business as presently conducted. The execution
and delivery of this Agreement, the purchase of the Shares, the compliance by
Purchaser with all of the provisions of this Agreement and the consummation of
the transaction contemplated by this Agreement will not result in any violation
of any Law, or any Permit of the Purchaser, or any rule, judgment, writ,
decree, or order of any court, tribunal or other governmental body or
instrumentality. No consent, registration or qualification of, or filing or
registration with, any person, court, or governmental agency is
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<PAGE> 12
required for the purchase of the Shares, the compliance by the Purchaser with
the provisions of this Agreement, or the consummation of the transactions
contemplated hereby.
6.6 LITIGATION. Except as set forth on Schedule
6.6, there are no material actions, suits, proceedings, claims, judgments,
orders, arbitration proceedings, administrative or governmental investigations
pending or, to the knowledge of Purchaser, threatened against Purchaser or any
of its properties or assets, or, in connection with the Purchaser's business,
or any of Purchaser's officers, directors, employees, consultants, agents or
representatives.
6.7 SECURITIES FILINGS. Purchaser has delivered
to Seller copies of its most recent Reports on Form 10-Q, 10-K, and Proxy
Statement, each of which, as of its respective date, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make statements and facts contained therein, in
light of the circumstances in which they were made, not false or misleading.
6.8 CAPITAL STOCK. The Purchaser has an
authorized capitalization consisting of 35,000,000 shares of common stock,
$.0001 par value, and 2,500,000 shares of preferred stock, $.0001 par value,
400,000 of which are designated as Class A Preferred Stock and 550,000 of which
are designated as Class B Preferred Stock. As of May 8, 1996, 16,624,344
shares of common stock and 400,000 shares of Class A Preferred Stock are issued
and outstanding. All such outstanding shares have been duly authorized and
validly issued and are fully paid and non-assessable, and have not been issued
in violation of any preemptive rights of stockholders. No other class of
capital stock of the Purchaser is authorized or outstanding. There are (and at
the Closing will be) no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, preemptive rights,
commitments, plans or other agreements of any character providing for the
purchase, issuance or sale of any shares of the capital stock of the Purchaser,
or of any options, warrants or other securities of the Purchaser.
6.9 FINANCIAL STATEMENTS. Purchaser has
delivered to Sellers a balance sheet of the Purchaser as of March 31, 1996, and
the related statements of operations and cash flow for the periods ended March
31 1996, and changes in financial position as of March 31, 1996, all of which
Purchaser acknowledges receiving. Each of the foregoing financial statements
was prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby. Each of
the foregoing financial statements was prepared in accordance with the books
and records
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<PAGE> 13
of the Purchaser and presents fairly the Purchaser's financial condition at the
dates of said statements and the Purchaser's results of operations and cash
flow for the period covered thereby.
6.10 LIABILITIES. The Purchaser has no material
liabilities, obligations and debts of any nature, whether accrued, absolute,
contingent or otherwise (collectively, the "Liabilities"), except as set forth
on the face of the Balance Sheet as described in its Report on Form 10-Q for
the quarter ended March 31, 1996, or as otherwise set forth in any Schedule
attached to this Agreement. Any liabilities incurred since that date have been
incurred in the ordinary course of the Purchaser's business as previously
conducted.
6.11 NO ADVERSE CHANGE. Since March 31, 1996, the
Purchaser has operated its business in the ordinary course as previously
conducted, and, except for matters disclosed in Purchaser's Report on Form 10-Q
for the quarter ended March 31, 1996, there has not been, and there is not
threatened, any change in the Purchaser's business or other occurrence that
would be materially adverse to the Purchaser's properties, assets business, or
financial condition.
6.12 NO BROKERS. The Purchaser has not entered,
directly or indirectly, into any agreement, understanding or commitment with
any person or entity that provides for the payment of any commission, brokerage
or "finder's fee" arising out of the transaction contemplated by this
Agreement.
6.13 REPRESENTATIONS TRUE AT CLOSING. All
representations by the Purchaser in this Section 6 shall be true and accurate
as of the date when made and shall be deemed to be made again at the Closing as
of the Closing Date and shall then be true and accurate in all respects.
7. COVENANTS AND AGREEMENTS OF SELLERS. Sellers
covenant and agree as follows:
7.1 REPRESENTATIONS AND WARRANTIES. Between the
date hereof and the Closing, Sellers shall not, and shall cause the Company not
to, take any action which would cause any of the representations and warranties
made herein or the documents or Schedules delivered to Purchaser not to be true
and correct on and as of the Closing Date with the same force and effect as if
such representations and warranties had been made on and as of the Closing
Date.
7.2 ACCESS BY PURCHASER. Between the date hereof
and the Closing, Sellers shall allow Purchaser and its representatives and
advisers to have free and full access during normal business hours to the
Company's assets, properties, premises, books and records, agreements,
documents and
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<PAGE> 14
instruments, and be given the opportunity to meet with the Company's key
employees, accountants, and major suppliers and customers. Purchaser shall be
furnished with such information and copies of such documents as it may
reasonably request. Purchaser shall be promptly furnished with all Financial
Statements of the Company that are prepared in the ordinary course of business.
If, during its due diligence, Purchaser obtains actual knowledge of any breach
of any representation or warranty by Sheerin, Morford, or the Company,
Purchaser may elect not to purchase the Shares, but may not purchase the Shares
and then make a claim against Sheerin, Morford, or the Company for losses
suffered by Purchaser as a result of such breach, except to the extent that
Purchaser brings such breach to Seller's attention prior to making such claim
and subsequently suffers losses attributable to material facts or information
relating to such breach which Seller withheld from Purchaser or misrepresented
to Purchaser.
7.3 CONDUCT OF BUSINESS. Between the date hereof
and the Closing, Sellers shall cause the Company to conduct its business in the
ordinary course, consistent with its prior conduct, and to use its best efforts
to maintain, preserve, and protect its assets and goodwill, and to maintain its
business organization intact (including maintaining its present employees and
preserving its present relationships with suppliers, customers, and others
having business relationships with the Company). Without limiting the
generality of the foregoing, Seller shall not allow the Company to (except with
the prior written consent of the Purchaser) (a) purchase or commit to purchase
or lease capital or fixed assets exceeding $10,000, (b) take any action which
would create a Lien on any of the Company's assets or properties, (c) dispose
of any interest in any of the Company's assets or properties other than sales
of inventory in the ordinary course of business, consistent with past practice,
(d) in any manner pledge the credit of the Company, except in the ordinary
course of business consistent with past practice, or (e) enter into any lease,
agreement, instrument, commitment or arrangement with any Affiliate. Further,
between the date hereof and the Closing, Sellers shall cause the Company to (a)
in a timely manner make all payments due under and otherwise perform in all
material respects all of the obligations under all Leases, Contracts, Permits
and Intangibles in accordance with their respective terms, and not cancel,
amend, modify, abandon, extend or renew any of the same, or permit any of the
same to lapse; (b) maintain the Tangible Personal Property and the improvements
and premises on the Leased Lands in their current condition, ordinary wear and
tear excepted, and in accordance with past practice; and (c) to comply in all
material respects with and fulfill its obligations and responsibilities under
all Laws. Sellers shall cooperate with Purchaser in the collection of accounts
receivable from periods through the Closing due and payable following the
Closing.
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<PAGE> 15
7.4 MAINTENANCE OF INSURANCE. Sellers shall
cause the Company to continue to carry its existing insurance through the date
of Closing and to provide whatever information is needed to enable Purchaser,
at its option, to obtain new insurance coverage.
7.5 SUPPLEMENTS. Sellers shall, within two
business days after they occur, inform Purchaser of all material developments,
whether favorable or adverse, relating to the Company's business, properties or
financial condition. If any representation, warranty or statement made herein,
or any Schedule delivered to Purchaser, shall be or become incorrect, Sellers
shall promptly deliver to Purchaser a supplement in order that said
representation, warranty, statement or Schedule, as so supplemented, shall be
true and correct.
7.6 CORPORATE MATTERS. Between the date hereof
and the Closing, Sellers shall cause the Company not to (a) amend its Articles
of Incorporation or Bylaws; (b) issue any shares of stock; (c) issue or create
any warrants, obligations, subscriptions, options, convertible securities, or
other commitments under which shares may be authorized or issued; or (d)
declare or pay any dividend or distribution on any securities of the Company.
7.7 EMPLOYEES AND COMPENSATION. Between the date
hereof and the Closing, Sellers shall cause the Company not to, and not to
agree to do any of the following: (a) Make or commit to make any change in
compensation payable or to become payable to any officer, director, employee,
consultant, sales agent or representative; (b) pay any benefits to any officer,
director, employee, sale agent or representative under any bonus plan, Employee
Benefit Plan or other agreement; (c) negotiate or enter into any employment
agreement, or (d) hire or fire any employees, consultants or agents or
representatives except in the ordinary course of business, consistent with past
practice.
7.8 NEW TRANSACTIONS. Between the date hereof
and the Closing, Sellers shall cause the Company not to, without Purchaser's
written consent, do or agree to do any of the following: (a) Enter into any
contract, commitment or transaction not in the usual and ordinary course of
business; or (b) enter into any contract, commitment or transaction in the
ordinary and usual course of business involving an amount exceeding $10,000
individually or $20,000 in the aggregate.
7.9 NO NEGOTIATIONS. Sellers shall not, through
May 31, 1996, negotiate with, or make any agreement, proposal, or commitment
with or to any other party concerning the sale or disposition of the Shares or
the business of the Company.
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<PAGE> 16
7.10 EXISTING AGREEMENTS. Between the date hereof
and the Closing, Sellers shall cause the Company not to modify, amend, cancel,
or terminate any of its existing contracts or agreements, or agree to do any of
these acts.
7.11 RESIGNATIONS OF SELLERS. At the Closing,
Sellers shall deliver to the Company, in form acceptable to Purchaser, each of
their resignations as employees, officers, and directors of the Company, as
applicable, effective as of the Closing Date.
7.12 COVENANT NOT TO COMPETE. The parties
acknowledge that the Company carries on its business throughout the United
States. For a period of three (3) years after the Closing, Sheerin agrees that
he will not, without the prior written consent of Purchaser in (a) the counties
in which the Company's stores are located and any adjacent county thereto, and
(b) any county where Purchaser presently operates stores and any adjacent
county thereto by or for himself or as the employee or other agent of or for
another or through others as his employees or agents, own (other than stock in
Purchaser and passive ownership of up to 2% of the stock in any other public
company), manage, operate, join, control, be employed by or participate in the
ownership, management, control or operation of or be connected with, in any
way, any business which "competes" with the business of Purchaser. For
purposes of this Agreement, a business shall be deemed to "compete" with the
business of Purchaser if it is in the retail or wholesale automotive parts
supply business. It is expressly recognized and agreed that any breach of this
paragraph will cause irreparable harm to Purchaser which cannot be fully
compensable by damages, so that, in addition to any and all of the rights and
remedies available to Purchaser by operation of law, in the event of breach of
this covenant, Purchaser shall be entitled to injunctive relief enjoining or
restraining whatever violation may have occurred or be occurring. It is
expressly agreed that if any provision of this paragraph is determined by a
court of competent jurisdiction to be unenforceable, such court shall limit the
scope or duration of such provision and enforce any lesser restriction or
restrictions determined by it to be reasonable.
8. COVENANTS AND AGREEMENTS OF PURCHASER.
8.1 INVENTORY. Purchaser shall, for 2 years from
the Closing, purchase as much of its inventory from Standard Motor Products,
Inc. -- EIS Brake Division as is required by that company's agreement with the
Company or the Sellers.
8.2 WARRANTS AND OPTIONS. Purchaser shall make
the following adjustments to the below listed warrants and options to purchase
shares of Purchaser's common stock effective on the Closing:
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<PAGE> 17
<TABLE>
<CAPTION>
========================================================================================
Warrants/ Existing Adjusted
Name Options Quantity Price Price
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allen J. Sheerin Class D 312,500 $3.50 $2.50
Warrants
- ----------------------------------------------------------------------------------------
Patsy Bennitt Class D 25,000 $3.50 $2.50
Warrants
- ----------------------------------------------------------------------------------------
Bryan Morford Class D 12,500 $3.50 $2.50
Warrants
- ----------------------------------------------------------------------------------------
Allen J. Sheerin Class C 50,000 $2.50 $2.50
Warrants
- ----------------------------------------------------------------------------------------
Allen J. Sheerin Option Dated 150,000 $4.41 $3.00
--------
- ----------------------------------------------------------------------------------------
Allen J. Sheerin Option Dated 20,000 $5.00 $3.00
--------
========================================================================================
</TABLE>
The exercise period of the above listed warrants and options by each person
stated above or his heirs, affiliates or assigns shall be extended to (if they
expire before) June 30, 1998.
8.3 REGISTRATION RIGHTS. Sellers shall have
demand registration rights to compel a registration by Purchaser as to the
shares of Purchaser's stock being acquired by Sellers under Paragraph 2.3
hereof 18 months after the Closing Date. Sellers shall also have "piggyback"
registration rights as to any other registration by Purchaser of Purchaser's
stock. At the Closing, the parties shall enter into a Registration Rights
Agreement in connection with the registration rights granted to Sellers
hereunder.
8.4 ADDITIONAL CONSIDERATIONS. At the Closing,
Purchaser shall sell, transfer, deliver and convey to Sheerin a sufficient
number of shares of Purchaser (valued at the average between the closing offer
and bid prices one trading day before the Closing Date less twenty percent
(20%) to equal a market value of $17,500.
8.5 AVAILABILITY OF PURCHASER'S STOCK. Purchaser
shall reserve a sufficient number of shares of its stock to issue shares to
Sellers as described in Paragraph 2.2 and to allow for issuance of shares upon
exercise of the warrants and options described in Paragraph 8.2.
8.6 STATUS REPORT ON LAWSUITS. Within five days
prior to the Closing, Purchaser shall deliver to Sellers an accurate report by
its litigation counsel describing the status
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<PAGE> 18
of James P. Delano, et al. v. Reddi Brake Supply Corporation, et al. (U.S.
District Court for the Central District of California) and Thomas M. Jeffrey
and Debra A. Jeffrey v. Reddi Brake Supply Corp., et al. (Superior Court of
Maricopa County, Arizona), and any other material lawsuit filed or otherwise
pending against Purchaser, and such report shall include an analysis of
settlement possibilities and amounts, including a discussion of whether such
amounts are anticipated to be covered by insurance. Each of Sellers hereby
agrees to maintain all information given to them by Purchaser concerning such
lawsuits in the strictest confidence, and shall not disclose any such
information to any other person or entity for any purpose whatsoever and shall
not acquire or dispose of any securities of Purchaser, except for the shares of
Common Stock being issued to Sellers pursuant to Paragraph 2.2 hereof, in
reliance on or as a result of obtaining any such information.
8.7 REPAYMENT OF AMBANK LOAN. On or before the
Closing Date, Purchaser shall have paid any and all amounts due to American
Bank of Commerce by Company and by Express Undercar Parts Warehouse, Inc.,
California.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, at or before the Closing, of
each of the following conditions, except to the extent waived by Purchaser in
writing, and Sellers shall use their best efforts to cause such conditions to
be fulfilled:
9.1 REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Sellers of the Company in this Agreement
(including the Schedules hereto), shall be true and correct on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
9.2 PERFORMANCE BY SELLERS. Sellers shall have
performed and complied with all agreements, covenants, and conditions required
herein to be performed or complied with by them on or before the Closing.
9.3 CONSENTS. On or before the Closing, Sellers
shall have delivered to Purchaser all required consents, approvals, or waivers
from regulatory authorities and third parties, if any are required for the
execution, delivery, and performance of Sellers' obligations hereunder or for
the Company's continued maintenance of all Permits, Intangibles, Leases, and
Contracts after the Closing.
9.4 LITIGATION. No action, suit or proceeding
shall be pending or threatened before any court, tribunal, or governmental
body, and no claim or demand shall have been made against Purchaser, the
Company, or Sellers seeking to restrain or
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<PAGE> 19
prohibit the transactions contemplated herein, and no claim or demand shall
have been made against Purchaser or the Company to obtain damages or other
relief in connection with the consummation of the transactions contemplated
herein.
9.5 RESIGNATIONS. Sellers shall have delivered
to Purchaser the written resignations described in Paragraph 7.11.
9.6 GOOD STANDING AND OTHER CERTIFICATES.
Sellers shall have delivered to the Purchaser a Good Standing Certificate from
the Nevada Secretary of State for the Company, dated no earlier than ten (10)
days prior to the Closing Date. Each of Sellers and the Company shall have
delivered to Purchaser written certification that the conditions set forth in
Paragraphs 9.1 and 9.2 have been fulfilled.
9.7 STOCK CERTIFICATES. Sheerin and Morford
shall each have delivered to Purchaser the share certificate(s) evidencing
each's respective ownership of his Shares duly endorsed in blank for transfer,
or accompanied by a Stock Assignment Separate From Certificate duly endorsed in
blank for transfer.
9.8 COMPLETION OF DUE DILIGENCE. Purchaser shall
have completed its due diligence investigation of the Company, and be satisfied
with the financial, operating, and business affairs and prospects of the
Company.
9.9 AUDITABLE FINANCIAL STATEMENTS. If
Purchaser's public accountants, KPMG Peat Marwick, LLP, determine that the
Financial Statements of the Company must be audited for purposes of Purchaser's
compliance with federal securities laws, then such accountants must further
determine that such Financial Statements are auditable within the requisite
time period and at a price reasonably satisfactory to Purchaser.
9.10 NO ADVERSE CHANGE. There shall not have
occurred between the date hereof and the Closing Date any material adverse
change in the results of operations, condition (financial or otherwise),
assets, liabilities (whether absolute, accrued, contingent or otherwise),
business or prospects of the Company.
9.11 SPOUSAL CONSENTS. Morford's spouse and
Sheerin's spouse shall have consented in writing to the sale of Morford's
shares and Sheerin's shares respectively, in a form reasonably satisfactory to
Purchaser ("the Spousal Consents").
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS. The
obligations of Sellers to consummate the transactions contemplated by this
Agreement are subject to the satisfaction,
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<PAGE> 20
at or before the Closing, of each of the following conditions, except to the
extent waived by the Sellers in writing, and Purchaser shall use its best
efforts to cause such conditions to be fulfilled:
10.1 REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Purchaser in this Agreement shall be true and
correct on and as of the Closing Date with the same force and effect as though
the same had been made on and as of the Closing Date.
10.2 PERFORMANCE BY PURCHASER. Purchaser shall
have performed and complied with all agreements, covenants, and conditions
required herein to be performed or complied with by him on or before the
Closing.
10.3 LITIGATION. No action, suit or proceeding
shall be pending or threatened before any court, tribunal, or governmental
body, and no claim or demand shall have been made against Purchaser, the
Company, or Sellers seeking to restrain or prohibit or to obtain damages or
other relief, in connection with the consummation of the transactions
contemplated herein. Sellers shall be satisfied with the report from
Purchaser's counsel regarding the class action lawsuit and broker lawsuit.
10.4 WRITTEN CERTIFICATION. Purchaser shall have
delivered to Sellers written certification that the conditions set forth in
Paragraphs 10.1 and 10.2 have been fulfilled.
10.5 NO ADVERSE CHANGE. There shall not have
occurred between the date hereof and the Closing Date any material adverse
changes in the results of operations, condition (financial or otherwise),
assets, liabilities (whether absolute, accrued, contingent or otherwise),
business or prospects of the Purchaser.
10.6 STATUS REPORT. Sellers shall be satisfied
with the status report rendered pursuant to Section 8.6 above.
11. CLOSING OBLIGATIONS.
11.1 DELIVERIES OF SELLERS. At the Closing,
Sellers shall deliver, or shall cause to be delivered, to Purchaser the
following:
(a) Certificates representing the
Shares, registered in the name of Sheerin and Morford, as to each of their
respective Shares, duly endorsed in blank for transfer or accompanied by a
Stock Assignment Separate From Certificate duly endorsed in blank for transfer,
together with all such other documents as may be required to affect a valid
transfer of the Shares, free and clear of any and all liens, encumbrances,
charges or claims.
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<PAGE> 21
(b) Executed copies of the governmental
and third party consents, approvals, or waivers, if any, required to consummate
the transactions described herein.
(c) The written resignations described
in Paragraph 7.11.
(d) An executed copy of the Registration
Rights Agreement, and Escrow Agreement.
(e) The Spousal Consents.
11.2 DELIVERIES OF PURCHASER. At the Closing,
Purchaser shall deliver or cause to be delivered to Sellers the following:
(a) Stock certificates for the shares of
Purchaser's Common Stock issuable to Sheerin under Paragraph 2.2 hereof in
100,000 increments (or any fraction thereof, as appropriate) and to Morford
under Paragraph 2.2 hereof in 20,000 increments (or any fraction thereof, as
appropriate).
(b) Amendments to the options and
warrants, as described in Paragraph 8.2.
(c) Payment of the attorneys' fees and
costs.
(d) Resolutions of Board of Directors of
Purchaser approving the transaction.
(e) An executed copy of the Registration
Rights Agreement, and Escrow Agreement.
12. ESCROW; INDEMNIFICATION.
12.1 ESCROW. At the Closing, Sellers shall
deposit with an escrow agent a sufficient number of shares of Purchaser's stock
(valued at $1.63 per Share) to equal a market value of $125,000 (the "Escrow").
Six months after the Closing Date, such number of shares shall be adjusted
based on the average between the closing offer and bid prices on such date (the
"Six Month Adjustment"); provided, however, that any number of shares subject
to a claim made by Purchaser prior to the Six Month Adjustment shall not be so
adjusted. The Escrow shall be maintained for a period of one year (the "Escrow
Period") from the earlier of the Closing Date of that certain purchase and sale
agreement by and between Purchaser and Sheerin for Purchaser's purchase of
Sheerin's stock in Express Undercar Parts Warehouse, Inc., California (the
"California Agreement") and June 30, 1996.
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12.2 INDEMNIFICATION. Subject to the terms of this
Paragraph 12.2, Sellers, jointly and severally, shall indemnify and hold
harmless Purchaser, promptly upon demand at any time and from time to time,
against any and all losses, liabilities, claims, actions, damages and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
(collectively, "Losses") arising out of or in connection with any
misrepresentation or breach of any warranty, representation, covenant or
agreement made by either Seller in this Agreement. If Purchaser determines
that it is entitled to indemnification for Losses, Purchaser shall give prompt
written notice to Sellers of each claim (a "Claimed Loss") for a Loss
specifying the amount and nature of such claim, and of any matter which in the
opinion of Purchaser is likely to give rise to claim for a Loss. Purchaser's
notice of Claimed Loss shall include its estimate of its fees and expenses,
including without limitation reasonable attorney's fees and disbursements, in
any claim or legal proceeding related thereto, subject to adjustment once the
claim or legal proceeding has concluded and Purchaser's actual fees and
expenses are known. Sellers, within twenty (20) days after Purchaser has given
such notice, shall respond in writing, either acknowledging their obligation
for such Claimed Loss or denying such obligation. If Sellers acknowledge such
obligation, Purchaser may withdraw from the Escrow a number of shares (valued
as set forth above) equal to the amount of the Claimed Loss, to the maximum
amount then remaining in the Escrow. If Sellers deny such obligation for a
Claimed Loss, Sellers and Purchaser shall proceed to arbitration pursuant to
paragraph 12.3. If either or both of Sellers are found by the arbitration
provided for below (or by any other body which can make a final determination)
to be liable, in whole or in part, for a Claimed Loss, Purchaser may withdraw
from the Escrow a number of shares equal to the amount of the Claimed Loss, to
the maximum amount then remaining in the Escrow, and shall, in addition
thereto, be entitled to cash payment or reimbursement by Sellers, jointly and
severally, of Purchaser's reasonable attorneys' fees and costs (provided that
if the Loss awarded is only part of that Claim, any payment for attorneys' fees
and costs shall be proportionate thereto). The Escrow is being established to
protect Purchaser against all Claimed Losses and Purchaser may resort to the
Escrow established hereunder in such event. The maximum liability of Sellers
for any and all Losses under this Agreement, in the aggregate, shall be the
amount of the Escrow, and except as provided in Section 7.12 above, Purchaser
shall have no other recourse against Sellers hereunder. Any claim by Purchaser
for a Loss under this Agreement must be filed by the end of the Escrow Period.
With respect to any Claimed Loss which has been asserted hereunder that is
pending or unresolved at the end of the Escrow Period, the number of shares
subject to such Claimed Loss shall remain in the Escrow, and the Escrow Period
shall be extended until the matter relating to such Claimed Loss has been
terminated or otherwise resolved. If no claims have been filed by the end of
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<PAGE> 23
the Escrow Period, the shares held in Escrow shall automatically, and without
need for further action or approval by Purchaser, be delivered to Sellers. The
parties shall enter into an escrow agreement with the escrow holder
incorporating the terms of this Agreement.
12.3 ARBITRATION. If Sellers deny any obligation
for a Claimed Loss as described in Section 12.2 above, a determination of
whether a Loss exists shall be made by a three-person panel of arbitrators
designated according to the rules of the American Arbitration Association. The
arbitration procedure shall be governed according to the rules of the American
Arbitration Association.
12.4 INDEMNIFICATION BY PURCHASER. Purchaser
shall indemnify, defend, and hold harmless Sellers, promptly upon demand at any
time and from time to time, against any and all Losses arising out of or in
connection with any misrepresentation or breach of any warranty,
representation, covenant or agreement made by Purchaser in this Agreement.
12.5 INDEMNIFICATION PROCEDURE. If Sellers seek
indemnification under 12.4 hereof, Seller shall give prompt written notice to
Purchaser of each claim for indemnification hereunder, specifying the amount
and nature of the claim, and of any matter which in the opinion of the Sellers
is likely to give rise to an indemnification claim. In the event of any claim
for indemnification hereunder resulting from or in connection with any claim or
legal proceeding brought by, or which the Sellers reasonably believe is likely
to be brought by, a third party, such notice shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
Purchaser, within ten (10) days after the Sellers has given such notice (or
within such shorter period of time as an answer or responsive motion may be
required), shall acknowledge in writing its obligation to indemnify. Purchaser
shall then have the right to control, at its sole cost and expense, the defense
of such claim or proceeding, with counsel reasonably satisfactory to the
Sellers. The Sellers shall not settle or compromise such claim or proceeding
without the written consent of the Purchaser, which consent shall not
unreasonably be withheld or delayed. The Sellers may in any event participate
in any such defense with its own counsel and at its own expense. Each of the
parties hereto shall cooperate in the defense of any claim and shall provide
the other with access to records as may reasonably be required.
Notwithstanding the foregoing, the rights of Sellers
to be indemnified hereunder shall not be adversely affected by the Sellers'
failure to give notice in accordance with the foregoing unless and only to the
extent that the Purchaser is materially prejudiced by such failure.
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<PAGE> 24
If the Purchaser, within twenty (20) days of receipt
of notice of a claim (or within such shorter time as may be required for an
answer or responsive motion), fails to assume the defense, the Sellers shall
have the right to undertake the defense, compromise or settlement on behalf of
and for the account and risk of the Purchaser.
12.6 SURVIVAL OF INDEMNIFICATION. The
indemnifications contained in Section 12.4 shall survive for one year after the
Closing. Any matter as to which a claim has been asserted hereunder that is
pending or unresolved at the end of such period shall continue to be covered by
this indemnification until finally terminated or otherwise resolved.
13. TERMINATION. This Agreement may be terminated prior
to the Closing:
(a) By written agreement of the parties hereto;
(b) Automatically, without further action by any
party, if the Closing shall not have occurred on or before May 31, 1996 or such
later date, if any, to which Purchaser and Sellers shall agree in writing;
(c) By Purchaser or Sellers if a condition to
their respective obligations to consummate the transactions contemplated hereby
has not been met by the Closing Date; or
(d) By Purchaser if, in the course of its due
diligence review, it discovers information which Purchaser believes has a
material adverse effect on or relating to the value, business, properties,
financial condition, prospects, liabilities or obligations of the Company; or
(e) By Sellers, if in the course (i) of their due
diligence review, Sellers discover information which Sellers believe has a
material adverse effect on or relating to the value, business, properties,
financial condition, prospects, liabilities or obligations of the Purchaser, or
(ii) they are not satisfied with the status report it receives pursuant to
paragraph 8.6.
14. MISCELLANEOUS.
14.1 SURVIVAL. All representations, warranties,
indemnities, covenants, and agreements made by the parties in connection with
the transaction described herein shall survive the Closing for a period of one
year after the Closing, provided, however, that any matter as to which an
indemnification claim has been asserted under Paragraph 12 that is pending or
unresolved at the end of such period shall continue to be covered by such
indemnification until finally terminated or otherwise resolved.
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<PAGE> 25
14.2 FURTHER ASSURANCES. The parties shall
cooperate and take such actions, and execute such other documents, at the
Closing or subsequently, as either may reasonably request in order to carry out
the provisions or purpose of this Agreement.
14.3 NOTICES. All notices or other communications
in connection with this Agreement shall be in writing and shall be considered
given when personally delivered or five (5) days after mailing when mailed by
registered or certified mail, postage prepaid, return receipt requested, or
upon receipt when sent via commercial courier or facsimile (with telephonic or
electronic confirmation of receipt) directed, as follows:
If to Purchaser:
Reddi Brake Supply Corporation
1376 Walter Street
Ventura, CA 93003
Attention: S. Gerald Birin
Executive Vice President
With a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard, Ninth Floor
Beverly Hills, CA 90212
Attention: Kenneth A. Luer, Esq.
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<PAGE> 26
If to Sellers:
If to Sheerin to:
Mr. Allen Jim Sheerin
2657 Windmill Parkway
Henderson, Nevada 89014
With a copy to:
Alschuler, Grossman & Pines
2049 Century Park East, 39th Floor
Los Angeles, California 90067
Attention: Gerald B. Kagan, Esq.
If to Morford to:
Mr. Bryan Morford
2001 Sedona Path Way
Las Vegas, NV 89128
With a copy to:
Schreck, Jones, Bernhard, Woloson & Godfrey
600 E. Charleston Blvd.
Las Vegas, NV 89104
Attention: Kenneth A. Woloson, Esq.
The above addresses may be changed by notice given in accordance with this
Paragraph.
14.4 ENTIRE AGREEMENT. This Agreement (which
includes the Schedules and Exhibits hereto) sets forth the parties' final and
entire agreement with respect to its subject matter (except for the matters to
be covered by the Registration Rights Agreement, the Escrow Agreement and the
Covenant Not to Compete) and supersedes any and all prior understandings and
agreements. This Agreement may be amended, supplemented, or changed, and any
provision hereof may be waived, only by a written instrument signed by both
parties.
14.5 SUCCESSORS. The rights under this Agreement
shall not be assignable nor the duties delegable by Purchaser or Sellers
without the written consent of the other, provided, however, that Purchaser
shall have the right to transfer the assets or stock of the Company to, or
merge the Company with and into, Purchaser's wholly-owned subsidiary, Reddi
Brake Supply Company, Inc., a California corporation. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors, and assigns.
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<PAGE> 27
14.6 PARAGRAPH HEADINGS. The paragraph headings
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
14.7 SEVERABILITY. If any provision of this
Agreement shall be held by any court of competent jurisdiction to be illegal,
invalid, or unenforceable, such provision shall be construed and enforced as if
it had been more narrowly drawn so as not to be illegal, invalid or
unenforceable, and such illegality, invalidity or unenforceability shall have
no effect upon and shall not impair the enforceability of any other provision
of this Agreement.
14.8 GOVERNING LAW. This Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of California.
14.9 COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
14.10 ATTORNEYS' FEES. In the event that any party
shall bring an action in connection with the performance, breach or
interpretation of this Agreement, or in any action related to the transaction
contemplated hereby, the prevailing party in such action, as may be determined
by the court or other tribunal having jurisdiction, shall be entitled to
recover from
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<PAGE> 28
the losing party in such action all actual costs and expenses of such
litigation, including attorneys' fees, court costs, costs of investigation,
accounting, and other costs reasonably related to such litigation, in such
amount as may be determined in the discretion of the court or other tribunal
having jurisdiction of such action.
EXECUTED as of the date first above written.
PURCHASER:
---------
Reddi Brake Supply Corporation
By:
---------------------------------------
S. Gerald Birin
Executive Vice President and CFO
By:
---------------------------------------
Title:
------------------------------------
SELLERS:
-------
-------------------------------------------
Allen J. Sheerin
-------------------------------------------
Bryan Morford
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<PAGE> 1
Exhibit 10.43
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as
of May 28, 1996 is entered into by and among REDDI BRAKE SUPPLY CORPORATION, a
Nevada corporation (the "Company"), and Allen J. Sheerin ("Sheerin") and Bryan
Morford ("Morford") (Sheerin and Morford are sometimes referred to herein
collectively as the "Holders" and individually as a "Holder").
R E C I T A L S:
A. Pursuant to a Stock Purchase Agreement dated May 28,
1996 between Company, Sheerin and Morford (the "Stock Purchase Agreement"),
Sheerin and Morford are simultaneously with the signing of this Agreement
selling all of the common stock of Express Undercar Parts Warehouse, Inc.,
Nevada to the Company in exchange for a total of 704,442 shares of common stock
of Company (the "Shares") and for cash (the "Transaction").
B. Company, Sheerin and West Covina Unitrust have
formerly entered a Registration Rights Agreement dated October 31, 1994 (the
"1994 Registration Rights Agreement"). Nothing contained herein is intended to
in any way modify or supplant the registration rights granted under the 1994
Registration Rights Agreement which remains effective.
C. This Agreement is intended to grant registration
rights in connection with all of the Shares.
NOW, THEREFORE, in consideration of the premises set forth
above and the mutual promises and covenants hereinafter set forth, the parties
agree as follows:
Section 1. Registration Rights.
1.1 Definitions. As used in this Agreement, the
following capitalized terms shall have the following respective meanings:
(a) Common Stock. The issued shares of Common
Stock of the Company with a $.0001 par value.
(b) Exchange Act. The Securities Exchange Act of
1934, as amended, or any similar federal statute then in effect, and a
reference to a particular section thereof shall be deemed to include a
reference to the comparable section, if any, of any such similar federal
statute.
(c) Holder. Each Person described as a "Holder"
in the first paragraph of this Agreement and any and all permitted transferees,
as described in Paragraph 2.1 below.
<PAGE> 2
(d) Person. An individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof.
(e) Registrable Securities. Any Shares, provided
that any particular Shares shall cease to be Registrable Securities when: (i) a
registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (ii) they
shall have been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, (iv)
they shall have ceased to be outstanding, (v) they shall have been transferred
to any person or entity other than in a private transaction in which the
transferror's rights under this Agreement may be assigned pursuant to Section
2.1 hereof, or (vi) they have become transferrable without any further holding
or volume limitations pursuant to Rule 144(k) (or any successor provision then
in effect).
(f) Registration Expenses. Any and all expenses
incident to performance of or compliance with this Agreement, including without
limitation: (i) all SEC and stock exchange or National Association of
Securities Dealers registration and filing fees, (ii) all fees and expenses of
complying with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger
and delivery expenses, (iv) the fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of
any special audits and/or "cold comfort" letters required by or incident to
such performance and compliance, and (v) any fees and disbursements of
underwriters customarily paid by issuers or Holders of securities, including
liability insurance if the Company so desires, and the reasonable fees and
expenses of any special experts retained by the Company in connection with the
requested registration, but excluding underwriting discounts and commissions
and transfer taxes, if any.
(g) Securities Act. The Securities Act of 1933,
as amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
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<PAGE> 3
(h) SEC. The Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act or the
Exchange Act.
(i) Shares. The securities which are described
in the third recital to this Agreement.
1.2 Incidental Registration.
(a) Right to Include Registrable Securities.
Subject to the further terms and conditions of the Agreement, if the Company at
any time proposes to register any class of equity security on any form for the
general registration of securities under the Securities Act (other than a
registration form relating to (i) a registration of a stock option, stock
purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan, or any other
registration on Form S-8 (or any successor form then in effect), (ii) a
registration of securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with, another
corporation, (iii) a registration of securities proposed to be issued in
exchange for other securities of the Company), or (iv) any registration on Form
S-4 (or any successor form then in effect), then the Company will at such time
give prompt written notice to each Holder of its intention to do so and of each
such Holders' rights under this Paragraph 1.2. Upon the written request of any
such Holder or Holders made within fifteen (15) days after the effectiveness of
any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its commercially reasonable efforts
to cause the Registrable Securities which the Company has been so requested to
register by the Holders thereof to be registered under the Securities Act,
provided that (i) if, at any time after giving written notice of its intention
to register any securities but prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities, and (ii) if such registration involves an
underwritten offering, all Holders of Registrable Securities requesting to be
included in such registration must sell their Registrable Securities to the
underwriters of such offering on the same terms and conditions as apply to the
Company or the Holder for whose account securities are to be sold, as the case
may be. If a registration requested pursuant to this Paragraph 1.2(a) involves
an underwritten public offering, any Holder of Registrable Securities
requesting to be included in such registration may elect in writing to withdraw
its securities in connection from such registration, but only during the time
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<PAGE> 4
period and on terms agreed upon by the underwriters for such offering. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this Paragraph 1.2; provided,
however, (i) all underwriting discounts and commissions attributable to the
Registrable Securities shall be borne by the selling Holder(s), and (ii) any
other fees or expenses incurred by one of the parties, including fees and
expenses of attorneys and accountants, shall be borne by such party.
(b) Priority in Incidental Registrations. In
connection with any registration pursuant to this Paragraph 1.2 involving any
underwritten offering, if the managing underwriter or underwriters advise the
Company in writing that, in its or their opinion, the number of securities
requested to be included in such registration would have a material adverse
effect on such offering (including, without limitation, a material decrease in
the price at which such securities can be sold), then the amount of the
Registrable Securities included in the offer shall be reduced and the
Registrable Securities and the other shares to be offered shall participate in
such offering as follows: (i) shares to be sold by the Company ("Company Common
Stock") shall have priority over all shares to be offered by stockholders of
the company, including the Holders, and (ii) if shares in the excess of the
Company's Common Stock can, in the good faith judgment of such managing
underwriter or underwriters, successfully be marketed in such offering, the
Registrable Securities and the other shares of Common Stock to be offered by
stockholders of the Company, including the Holders, shall be included in such
offering, subject to reduction pro rata in proportion to the number of shares
of Common Stock proposed to be included in such offering by each Holder or
other stockholder.
1.3 Demand Registration.
(a) Request for Registration. Not sooner than
sixteen (16) months from the date of "Closing" (as defined in the Stock
Purchase Agreement), any Holder may make a written request for the registration
under the securities Act of all or part (provided, however, that such demand
must equal at least 50% of the shares issued to Holder and [Allen J.
Sheerin/Bryan Morford] in the stock purchase effected pursuant to that Stock
Purchase Agreement dated as of May 28, 1996) of its Registrable Securities (a
"Demand Registration") provided that such Holder provides sixty (60) days prior
written notice to the Company of such Demand Registration, and the Company
shall use its commercially reasonable efforts to effect such Demand
Registration. Any request for a Demand Registration shall specify the
aggregate number of the Registrable Securities proposed to be sold. The right
to cause a registration of the Registrable Securities provided for in this
Paragraph 1.3(a) shall be limited to one (1) such registration, and if one of
the Holders does not request to be included in such registration he shall be
deemed to have
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<PAGE> 5
waived all rights to a Demand Registration. In any registration initiated as a
Demand Registration, the Company shall pay all Registration Expenses in
connection therewith; provided, however, (i) all underwriting discounts and
commissions attributable to the Registrable Securities shall be borne by the
selling Holder(s), and (ii) any other fees or expenses incurred by one of the
Holders, including fees and expenses of attorneys and accountants, shall be
borne by such party. A Demand Registration shall not be counted as a Demand
Registration hereunder until such Demand Registration has been declared
effective by the SEC and maintained continuously effective for a period of at
least six (6) months or such shorter period when all Registrable Securities
included therein have been sold in accordance with such Demand Registration,
provided that a Demand Registration shall be counted as a Demand Registration
hereunder if the Company ceases its efforts in respect of such Demand
Registration at the request of the Holder for a reason other than a material
and adverse change in the business, financial condition or prospects of the
Company and its subsidiaries taken as a whole or in general economic or market
conditions. The Company shall be entitled to include in any registration
pursuant to this Paragraph 1.3(a) any other securities of the Company whether
offered by the Company or by and other holder(s) of its securities.
(b) Priority in Demand Registrations. If in any
Demand Registration the managing underwriter or underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration is sufficiently large to materially and adversely
affect the success of such offering (including, without limitation, a material
decrease in the proposed offering price), the Company will include in such
registration only a number of Registrable Securities and other securities equal
to the total number which in the opinion of such managing underwriter or
underwriters or Holder(s) can be sold without any such material adverse effect,
as follows: Registrable Securities pro rata in proportion to the number of
shares proposed to be included in such registration by any holder of shares
having rights to have his or her shares registered in such offering, and by the
Company.
(c) Selection of Underwriters. If any Demand
Registration is in the form of an underwritten offering, the Holder(s) of
Registrable Securities to be sold pursuant to such Demand Registration will
select and obtain the investment banker or investment bankers and manager or
managers that will administer the offering.
1.4 Registration Not Required. Notwithstanding the
provisions of Paragraphs 1.2 and 1.3 of this Agreement:
(a) the Company shall not be required to effect or
cause the registration of Registrable securities pursuant to
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<PAGE> 6
Paragraph 1.2 or 1.3 hereof if, within twenty-five (25) days after its receipt
of a request to register such Registrable Securities (i) counsel for the
Company delivers an opinion to the Holder requesting registration of such
Registrable Securities, in form and substance satisfactory to counsel to such
Holder, that the entire number of shares of Registrable Securities proposed to
be sold by such Holder may otherwise be sold, in the manner proposed by such
Holder, without registration under the Securities Act, or (ii) the SEC shall
have issued a no-action position, in form and substance satisfactory to counsel
for the Holder requesting registration of such Registrable Securities, that the
entire number of Registrable Securities proposed to be sold by such Holder may
be sold by him, in the manner proposed by such Holder, without registration
under the Securities Act;
(b) The Company shall not be required to prepare and
file a registration statement pursuant to this Section 1.4 within 90 days of
the effective date of any registration statement pertaining to securities of
the Company, other than a registration of securities pertaining to an employee
benefit plan or dividend reinvestment plan; and
(c) The Company shall not be required to file a
registration statement under this Section 1.4 during any period of time when
(i) the Company is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time, and, in
the opinion of counsel to the Company, such information would have to be
disclosed if a registration statement was filed at that time; or (ii) the
Company determines, in its reasonable judgment, that such registration would
interfere with any financing or acquisition involving the registration of
securities of the Company under the Securities Act.
1.5 Registration Procedures. If and whenever the company
is required to use its commercially reasonable efforts to, effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will, as expeditiously as possible:
(a) prepare and, in any event within ninety (90)
days after the end of the period within which requests for registration may be
given to the Company (but subject to the provisions of Sections 1.4(b) and
1.4(c) and of the second sentence of Paragraph 1.2(a) hereof), file with the
SEC a registration statement with respect to such Registrable Securities and
use its commercially reasonable efforts to cause such registration statement to
become effective as soon thereafter as practicable. The Company will promptly
notify each Holder of such Registrable Securities and confirm such advice in
writing, (i) when such registration statement becomes effective, (ii) when any
post-effective amendment to such registration statement becomes effective and
(iii) of any request by the SEC
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<PAGE> 7
for any amendment or supplement to such registration statement or any
prospectus relating thereto or for additional information;
(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least six (6) months (subject to tolling during the effective
period of any lock-up agreement to which the Registrable Securities are
subject, or for such shorter period in which the Holder has sold all of the
Registrable Shares included in such registration statement) and to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holder or Holders of
Registrable Securities set forth in such registration statement. If at any
time the SEC should institute or threaten to institute any proceedings for the
purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each Holder of such
Registrable Securities and will use all commercially reasonable efforts to
prevent the issuance of any such stop order or to obtain the withdrawal thereof
as soon as possible;
(c) furnish to each Holder of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and summary prospectus), in conformity
with the requirements of the Securities Act and such other documents as such
Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities by such Holder;
(d) use its commercially reasonable efforts to
register or qualify such Registrable Securities covered by such registration
statement under such securities or blue sky laws of any State of the United
States as the managing underwriter, if any, shall reasonably request, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable each Holder and underwriter, if any, to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
Holder, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this Paragraph 1.5(d), it would not be
obligated to be so qualified, to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(e) use its commerically reasonable efforts to
cause such Registrable Securities covered by such registration
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<PAGE> 8
statement to be registered with or approved by such other governmental agencies
or authorities of the United States or any State thereof as the parties may
agree that may be necessary to enable the Holder or Holders thereof to
consummate the disposition of such Registrable Securities;
(f) promptly notify each Holder of any such
Registrable Securities covered by such registration statement, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act within the appropriate period mentioned in Paragraph 1.5(b), of the Company
becoming aware that the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and at the request of any such Holder promptly prepare and furnish to
such Holder a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing;
(g) otherwise use its commercially reasonable
efforts to comply with all applicable rules and regulations of the SEC, and
make available to its securities holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months,
beginning with the first month after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(h) use its commercially reasonable efforts to
list such Registrable Securities on any securities exchange on which the Common
Stock is then listed, if such Registrable Securities are not already so listed
and if such listing is then permitted under the rules of such exchange, and to
provide a transfer agent and registrar for such Registrable Securities covered
by such registration statement not later than the effective date of such
registration statement;
(i) use all commercially reasonable efforts to
obtain a "cold comfort" letter or letters from the Company's independent public
accountants in customary form and covering matters of the type customarily
covered by "cold comfort" letters as the underwriters shall reasonably request;
and
(j) make available for inspection by any Holder
of such Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any
8
<PAGE> 9
attorney, accountant or other agent retained by any such Holder or, any such
underwriter, in each case upon receipt of an appropriate confidentiality
agreement, all financial and other records, corporate documents and properties
of the Company and its subsidiaries, and cause all of the Company's officers,
directors and employees to supply all information, as may be reasonably
requested by any such Holder, underwriter, attorney, accountant or agent in
connection with such registration statement.
(k) Each Holder of Registrable Securities as to
which any registration is being effected shall furnish the Company in writing
such information and documents regarding such Holder and the distribution of
such securities as the Company may reasonably request, and Holder shall execute
all Questionnaires, Powers of Attorney, Indemnities, Stand Still Agreements,
Hold-Back Agreements, Underwriting Agreements and other documents required
under the terms of Underwriting Agreements as may be necessary or appropriate
to effect a registration of the Registerable Shares under any other applicable
securities or blue sky laws of the jurisdictions referred to in Paragraph
1.5(d), as reasonably determined by the Company.
(l) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Paragraph 1.5(f), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Paragraph 1.5(f), and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Paragraph 1.5(b) shall be
extended by the number of days during the period from and including the date of
the giving of such notice pursuant to Paragraph 1.5(f) to and including the
date when each Holder of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by Paragraph 1.5(f).
(m) If requested by the managing underwriter of any
underwritten offering of securities of the Company, Holder shall agree not to
effect any public sale or distribution of any Shares (except pursuant to the
registration statement), including any sale pursuant to Rule 144, during the
10-day period prior to and the 90-day period following the effectiveness of the
registration statement related to such offering.
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<PAGE> 10
1.6 Indemnification.
(a) Indemnification by the Company. In the event
of any registration of any securities of the Company under the Securities Act
pursuant to this Agreement, the Company will, and it hereby does, indemnify and
hold harmless, to the extent permitted by law, the Holder of any Registrable
Securities covered by such registration statement, its directors and officers
or general and limited partners (any directors and officers thereof), each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Holder or any such
underwriter within the meaning of the Securities Act, against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with the Company's
written consent) to which such Holder, any such director or officer or general
or limited partner or such underwriter or controlling person may become subject
under the Securities Act, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such Holder and each
such director, officer, general or limited partner, underwriter and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding, provided, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon any
breach by the indemnified person of its obligations under this Agreement,
including, without limitation, those contained in Paragraphs 1.5 (k), (l) or
(m) or any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment or supplement thereto
or in any such preliminary, final or summary prospectus or amendment or
supplement thereto, in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such Holder or
underwriter for use in the preparation thereof; and provided, further, that the
Company will not be liable to any Person who participates as an underwriter in
the offering or sale of Registrable Securities, or to any other Person who
controls such underwriter, within the meaning of the Securities Act, under the
indemnity agreement in this Paragraph 1.6(a) with respect to any preliminary
prospectus or the final prospectus, or the final prospectus as amended or
supplemented, as the case may be, to the
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<PAGE> 11
extent that any such loss, claim, damage or liability of such underwriter or
controlling Person results from the fact that such underwriter sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus (including
any documents incorporated by reference therein) or of the final prospectus as
then amended or supplemented (including any documents incorporated by reference
therein), whichever is most recent, if the Company has previously furnished
copies thereof to such underwriter and such final prospectus, as then amended
or supplemented, has corrected any such misstatement or omission. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder or any such director, officer, general or
limited partner, underwriter or controlling Person and shall survive the
transfer of such securities by such Holder.
(b) Indemnification by the Holders. Each Holder
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in Paragraph 1.6(a)) the Company, each director of the Company, each
officer of the Company who shall sign the registration statement and its
controlling Persons, if any, and all other prospective Holders and their
respective directors, officers and controlling Persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity
with information furnished to the Company in writing by or on behalf of such
Holder for use in the preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any of the prospective Holders or any of their
respective directors, officers or controlling Persons and shall survive the
transfer of such securities by such Holder.
(c) Notices of Claims, etc. Promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Paragraph 1.6, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Paragraph 1.6, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties exists in
11
<PAGE> 12
respect of such claim, the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof. No indemnifying party will be required to
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. Any indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
(d) Other Indemnification. Indemnification
similar to that specified in the preceding subdivisions of this Paragraph 1.6
(with appropriate modifications) shall be given by the Company to each Holder
and any underwriter of Registrable Securities with respect to any required
registration or other qualification of securities under any federal or state
law or regulation other than the Securities Act.
(e) Contribution. If the indemnification
provided for in Paragraphs 1.6(a). 1.6(b) or 1.6(d) is unavailable to a party
that would have been an indemnified party under any such section in respect of
any and all losses, claims, damages or liabilities, joint or several (or
actions in respect thereof), referred to therein, then each party that would
have been an indemnifying party thereunder shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party, on the one hand, and such indemnified party,
on the other, in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, joint or several (or actions in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statements of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Paragraph 1.6(e) were determined by pro rata allocation or by any other method
of allocation which does not
12
<PAGE> 13
take account of the equitable considerations referred to above in this
Paragraph 1.6(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Paragraph 1.6(e) shall include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in Paragraph 1.6(c) hereof if the indemnifying party has assumed the
defense of any such action in accordance with the provisions thereof). No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
1.7 Rule 144. The Company covenants that it will use its
commercially reasonable efforts under the circumstances to file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder to the extent required from time to time to
enable the Holders to sell shares of Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any successor rule then in effect. Upon the request
of any Holder of Registrable Securities, the Company will deliver to such
Holder a written statement as to whether it has complied with such
requirements.
1.8 Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the surviving corporation
shall, prior to such merger, consolidation or reorganization, agree in writing
to assume the obligations of the Company under this Agreement, and for that
purpose references hereunder to "Registrable Securities" shall be deemed to
include the securities which the Holders would be entitled to receive in
exchange for Common Stock under any such merger, consolidation or
reorganization, provided that to the extent such securities to be received are
convertible into shares of common stock of the issuer thereof, then any such
shares of common stock as are issued or issuable upon conversion of said
convertible securities shall also be included within the definition of
"Registrable Securities;" provided, however, that, notwithstanding the
foregoing provisions, if the issuance of securities to the Holders in such
merger, consolidation or reorganization is registered under the Securities Act,
this Agreement shall terminate upon the effective date of such registration.
Section 2. Miscellaneous.
2.1 Transfer of Certain Rights. The rights granted to
the Holders pursuant to this Agreement may not be transferred, except as set
forth in this Paragraph 2.1. Notwithstanding
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<PAGE> 14
anything contained herein to the contrary, nothing herein shall prohibit: (i)
any Holder which is a trust or other entity from transferring any of its rights
under this Agreement to a beneficiary of the trust when such beneficiary
receives Registrable Securities in a distribution from the trust or other
entity, or (ii) any Holder who is an individual from transferring any of its
rights under this Agreement to such Holder's spouse, siblings, ancestors or
lineal descendants, or to a trust for the benefit of the Holder, or his or her
spouse, siblings, ancestors or lineal descendants; provided that any such
transferee under subparagraphs (i), or (ii) above must, as a condition to the
effectiveness of such transfer, agree in writing to be bound by the terms and
conditions of this Agreement.
2.2 Amendments. Except as otherwise provided in this
Agreement, the terms and provisions of this Agreement may not be modified or
amended except in a writing executed by the Company and the Holders. Waivers
and exceptions to the requirements and limitations of the covenants hereof may
be given, and shall be effective if given, in writing by the Holders. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be or construed as, a further
or continuing waiver of any such term, condition or provision.
2.3 Other Agreements. To the extent that the Company
enters into any agreement which grants any person registration rights with
respect to any securities of the Company having provisions more favorable to
the holders thereof than the provisions contained in this Agreement, the
Company will confer comparable rights on the Holders.
2.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first-class certified or registered mail, return receipt
requested, postage prepaid:
(a) If to the Company, at 1376 Walter Street,
Ventura, CA 93003, Attention: President, or at such other address or addresses
as may have been furnished in writing by the Company to the Holder, with a copy
to Ervin, Cohen & Jessup, 9401 Wilshire Boulevard, 9th Floor, Beverly Hills, CA
90212, Attn: Kenneth A. Luer, Esq.; or
(b) If to a Holder, at the address set forth
opposite such Holder's name on the signature page hereto or such other address
or addresses as may have been furnished to the Company in writing by such
party.
All such notices shall be deemed effective when
actually delivered by hand or, if mailed, three (3) days after deposit in the
U.S. mail properly addressed in accordance with this Paragraph 2.4.
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<PAGE> 15
2.5 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
2.6 Headings. The headings of the sections, subsections
and paragraphs of this Agreement have been added for convenience only and shall
not be deemed to be a part of this Agreement.
2.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
2.8 Entire Agreement. All other prior or contemporary
representations, warranties, covenants or agreements, if any, between the
parties hereto, or their representatives, with respect to the subject matter
hereof are superseded by and merged into this Agreement. This Agreement
shall constitute the entire understanding between the parties with respect
hereto.
2.9 Delay of Registration. Neither Holder shall take,
and Holders hereby acknowledge and agree that they shall not have any right to
take, any action to restrain, enjoin or otherwise delay any registration of
securities of the Company as a result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
2.10 Successors and Assigns; No Third Party Beneficiaries.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their permitted successors and assigns. Except as otherwise
specifically provided herein, this Agreement does not create, and shall not be
construed as creating, any rights enforceable by any Person not a party to this
Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date set forth on the first page hereof.
REDDI BRAKE SUPPLY CORPORATION
By:
----------------------------
S. Gerald Birin, President
15
<PAGE> 16
HOLDERS:
------------------------------------
Allen J. Sheerin
2657 Windmill Parkway
------------------------------------
(Address)
Henderson, NV 89014
------------------------------------
(City/State/Zip)
------------------------------------
Bryan Morford
2001 Sedona Path Way
------------------------------------
(Address)
Las Vegas, NV 89128
------------------------------------
(City/State/Zip)
16
<PAGE> 1
Exhibit 10.44
ESCROW AGREEMENT
June 3, 1996
Corporate Stock Transfer, Inc.
Republic Plaza
370 17th Street, Suite 2350
Denver, Colorado 80202
Attention: Ms. Carylyn Bell
Ladies and Gentlemen:
Reference is hereby made to that certain Stock Purchase
Agreement, dated as of May 28, 1996 (the "Purchase Agreement"), by and among
Reddi Brake Supply Corporation, a Nevada corporation ("Reddi Brake"), Allen J.
Sheerin and Bryan Morford. Capitalized terms used and not otherwise defined
herein shall have the meanings ascribed to such terms in the Purchase
Agreement.
You are hereby appointed "Escrow Agent" with the duties and
upon the terms and conditions hereinafter set forth.
1. Deposit of Shares into Escrow. Concurrently
herewith, Reddi Brake has instructed you to issue Seventy-Six Thousand Six
Hundred Eighty-Seven (76,687) shares of Reddi Brake Common Stock (collectively,
the "Shares"), having a current market value of $125,000, to Allen J. Sheerin
(the "Shareholder") as part of the "Purchase Price" under the Purchase
Agreement. Such Shares, and the Stock Certificates representing them, shall be
deposited by you in a segregated trust account (the "Escrow Account").
Shareholder shall concurrently deliver to you a stock power, endorsed in blank
with his signature guaranteed by a Medallian bank; Shareholder further agrees
to deliver such further stock powers, so endorsed, as may from time to time be
necessary to accomplish (a) the adjustment specified in Section 3 hereof or (b)
any distributions under Section 4 hereof. You shall hold all Shares in the
Escrow Account in accordance with these instructions.
2. Term of Escrow. The term of the Escrow (the "Escrow
Period") shall commence on the date hereof and shall terminate on the one year
anniversary of the earlier of (a) the closing date of that certain Purchase and
Sale Agreement by and between Reddi Brake and Shareholder for Reddi Brake's
purchase of Shareholder's stock in Express Undercar Parts Warehouse, Inc., a
California corporation, which date shall be reported to you by Reddi Brake not
later than thirty (30) days after such closing, and (b) June 30, 1996;
provided, however, that, pursuant to Paragraph 12.2 of the Purchase Agreement,
if any Claimed Loss which has been asserted by Purchaser is pending or
unresolved at the end of the Escrow Period, then Reddi
<PAGE> 2
Brake shall notify you in writing, not later than one day prior to the end of
the Escrow Period, that the specified number of Shares subject to such Claimed
Loss shall remain in the Escrow Account, and the Escrow Period shall be
extended until the matter relating to such Claimed Loss has been terminated or
otherwise resolved.
3. Adjustment to Number of Shares. Pursuant to
Paragraph 12.1 of the Purchase Agreement, effective December 3, 1996, the
number of Shares deposited into the Escrow Account shall be adjusted so that
the market value of the Shares then held in the Escrow Account (based on the
average closing and bid prices on such date, as reported by The NASDAQ Stock
Market or, if Reddi Brake's Common Stock is no longer reported thereon, the
then-relevant market or system) equals $125,000; provided, however, that any
number of Shares subject to a Claimed Loss asserted by Purchaser prior to such
date shall not be so adjusted. If on such date additional Shares must be
deposited into the Escrow Account in order to bring the market value of the
Shares up to $125,000, Shareholder shall deliver to you stock certificates
representing the requisite number of additional Shares of Reddi Brake Common
Stock, which Shares shall be held in the Escrow Account in accordance with
these instructions. If on such date Shares must be released from the Escrow
Account in order to bring the market value of the Shares down to $125,000
(subject to the proviso at the end of the first sentence of this Section 3),
promptly following a written certificate executed by Reddi Brake and
Shareholder in the form attached hereto as Exhibit A, you shall deliver to
Shareholder the number of Shares indicated therein from the Escrow Account.
4. Instructions to Escrow Agent. Escrow Agent shall
hold the Shares subject to the following provisions:
4.1 Distribution Pursuant to Purchase Agreement.
Pursuant to Paragraph 12.2 of the Purchase Agreement, if Sellers acknowledge
their obligation for a Claimed Loss, Reddi Brake may promptly withdraw from the
Escrow Account a number of Shares equal to the sum arrived at by dividing (a)
the amount of the Claimed Loss by (b) the "Relevant Value" of the Shares. For
this purpose, the "Relevant Value" of the Shares shall be (a) with respect to
any Claimed Loss for which Purchaser has given notice to Sellers by December 3,
1996, $1.63, or (b) with respect to any Claimed Loss for which Purchaser has
given Sellers notice on or after December 3, 1996, the average between the
closing offer and bid prices on such date (as reported on The NASDAQ Stock
Market or, if Reddi Brake's Common Stock is no longer reported thereon, the
then-relevant market or system). In connection therewith, promptly follow
receipt of a written certificate executed by Reddi Brake and Sellers in the
form attached hereto as Exhibit B, you shall deliver to Reddi Brake, for
cancellation or to be held as treasury shares, at the sole option and direction
of Reddi Brake, the number of Shares indicated therein from the Escrow Account.
4.2 Distribution Pursuant to Arbitration.
Pursuant to Paragraphs 12.2 and 12.3 of the Purchase Agreement, if Sellers deny
such obligation for a Claimed Loss, Sellers and Purchaser shall proceed to
arbitration, with a determination of whether a Loss exists to be made by a
three-person panel of arbitrators designated according to the rules of the
American
2
<PAGE> 3
Arbitration Association. Upon Reddi Brake's delivering to you a written
determination by such panel of arbitrators that Reddi Brake is entitled to
Shares from the Escrow Account, you shall deliver to Reddi Brake, for
cancellation or holding as treasury shares, at the sole option and direction of
Reddi Brake, the number of Shares indicated therein from the Escrow Account.
4.3 Distribution Following Termination. Promptly
after termination of this Escrow pursuant to Section 2 and without any demand
by Shareholder, you shall deliver to Shareholder all of the Shares then held in
the Escrow Account; provided, however, that with respect to any Claimed Loss
which has been asserted that is pending or unresolved at the end of the Escrow
Period, you shall continue to hold in the Escrow Account the number of Shares
subject to such Claimed Loss and the Escrow Period shall be extended until the
matter relating to such Claimed Loss has been terminated or otherwise resolved.
5. Escrow Agent's Duties.
5.1 Nature of Duties. You hereby undertake to
perform only such duties as are expressly set forth herein. You shall have no
obligation to determine the sufficiency of any written certificate delivered
pursuant to Sections 3 or 4 hereof except to determine that the form thereof
conforms to the form attached hereto as Exhibit A or Exhibit B, as the case may
be.
5.2 Custody of Shares. You shall use reasonable
care in the custody of any Shares or other property delivered to you, and in no
event shall you maintain such Shares and property in a less secure manner than
you maintain property similar in nature for your other trust or escrow customer
accounts. In no event shall any Shares be used by you to offset against any
amounts due you, whether pursuant to Section 7 or 8 hereof or otherwise.
5.3 Maintenance of Ledgers; Reports Regarding
Escrow Account. You shall keep and maintain complete and accurate stock
ledgers showing all Shares held in and distributed from the Escrow Account.
Promptly, but in no event later than twenty (20) days following a distribution
pursuant to Sections 3 or 4 hereof, you shall deliver to Reddi Brake and
Shareholder a statement specifying the number of Shares then held in the Escrow
Account.
6. Understanding. It is understood and agreed that you:
(a) are not a party to, and are not bound by, any
agreement referred to herein other than as Escrow Agent, and are not bound by
any agreement among the other parties hereto or their respective heirs,
administrators, successors or assigns, other than as specifically set forth
herein;
(b) are acting hereunder as an escrow agent only
and are not responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any instrument deposited with you, or
for the form of execution of any such instrument, or for the identity,
authority or rights of any person executing or deposing it;
3
<PAGE> 4
(c) shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or document reasonably
believed by you to be genuine and to have been made, signed, sent or presented
by the proper party or parties;
(d) shall not be liable for any error of
judgment, or for any act done or omitted by you in good faith, or for any
mistake of fact or law or for anything which you may do or refrain from doing
in connection herewith, except your own negligence or willful misconduct;
(e) shall not be required to make any
distribution under Sections 3 or 4 hereof or take any other action required
hereunder if such action has been enjoined by a court of competent jurisdiction
(as determined by you as set forth in clause (f) below);
(f) may consult with your own legal counsel in
the event of any dispute or question as to the construction of any of the
provisions hereof or your duties hereunder and shall incur no liability and
shall be fully protected in acting in accordance with the opinion and
instructions of any such counsel; and
(g) shall not, by act, delay, omission or
otherwise, be deemed to have waived any rights or remedies, or both, hereunder
unless such waiver is in writing, and no waiver shall be valid unless in
writing, signed by you, and only to the extent therein set forth, and a waiver
by you of any right or remedy, or both, granted to you hereunder on any one
occasion shall not be construed as a bar to or waiver of any such right or
remedy, or both, which you would otherwise have had on any future occasion.
7. Compensation and Indemnity. You shall receive as
compensation for the performance of your duties the fees set forth on Exhibit C
hereto. Such compensation shall be split equally between Reddi Brake and
Shareholder. Reddi Brake and Shareholder each agree to hold harmless and
indemnify you and your directors, officers, employees and agents for any cost
or expense, including attorneys' fees, arising out of or relating to the Escrow
Account or the performance of your duties hereunder; provided, however, that no
indemnification will be made for any act of willful misconduct or negligence by
you. The covenants contained in Sections 7 and 8 hereunder shall continue
after your resignation or removal or the distribution of all Shares held
hereunder.
8. Expenses. All out-of-pocket expenses reasonably
incurred by you in connection with the performance of your duties as such
hereunder shall be split equally between Reddi Brake and Shareholder. Such
expenses shall be reimbursed upon written request therefor by you to Reddi
Brake and Shareholder specifying in detail the nature of such expenses.
9. Termination and Resignation of Escrow Agent. You may
be removed at any time for any reason upon delivery to you of a written notice
jointly executed by Reddi Brake and Shareholder. You may at any time resign by
giving written notice of such resignation to Reddi Brake and Shareholder. Upon
receiving such notice of resignation or upon your removal,
4
<PAGE> 5
Reddi Brake and Shareholder shall promptly appoint a successor Escrow Agent by
an instrument in writing.
Any removal or resignation of you and appointment of a
successor Escrow Agent shall not become effective until acceptance of
appointment by the successor Escrow Agent. If no successor Escrow Agent shall
have been appointed and have accepted appointment within thirty (30) days of
giving notice of removal or notice of resignation as aforesaid, you, Reddi
Brake or Shareholder may petition any court of competent jurisdiction for the
appointment of a successor Escrow Agent, and such court may thereupon, after
such notice (if any) as it may deem proper, appoint such successor Escrow
Agent. Any successor Escrow Agent appointed hereunder shall signify its
acceptance of such appointment by executing and delivering to Reddi Brake,
Shareholder and you a written acceptance thereof, and thereupon such successor
Escrow Agent, without any further act, shall succeed to all of your estates,
properties, rights, powers, trusts, duties and obligations hereunder, with like
effect as if originally named Escrow Agent herein; but, nevertheless, at the
written request of Reddi Brake, Shareholder or the successor Escrow Agent, you
shall execute and deliver any and all instruments of conveyance or further
assurance and do such other things as may reasonably be required for more fully
and certainly vesting in and confirming to such successor Escrow Agent all of
your right, title and interest in and to any property held by you hereunder and
shall pay over, transfer, assign and deliver to the successor Escrow Agent
hereunder any Shares or other property subject to the terms and conditions
herein set forth. Upon the request of the successor Escrow Agent, Reddi Brake
and Shareholder shall execute and deliver any and all instruments as may be
reasonably required for more fully and certainly vesting in and confirming to
such successor Escrow Agent all such monies, estates, properties, rights,
powers, trusts, duties and obligations.
10. Rights of Shares Subject to Escrow.
10.1 Voting Rights. Shareholder shall be entitled
to exercise any and all voting rights pertaining to the Shares held of record
by Shareholder for any purpose not prohibited by the terms of this Agreement or
the Purchase Agreement. You and Reddi Brake shall execute and deliver (or
cause to be executed and delivered) to Shareholder all proxies and other
instruments as Shareholder may reasonably request for the purpose of enabling
Shareholder to exercise the voting rights pertaining to the Shares.
10.2 Economic Rights. Shareholder shall not be
entitled to receipt of any dividends paid on or distributions in liquidation
made with respect to the Shares (collectively, "Distributions") for the period
that such Shares are subject to this Escrow. Any and all monies representing
Distributions received by you in respect of Shares subject to this Escrow shall
be the property of Reddi Brake and shall be paid over promptly to Reddi Brake.
11. Notices. Whenever notice is required or permitted by
this Escrow Agreement to be given, such notice shall be in writing (including
telecopy or similar writing) and shall be given to the following persons at the
addresses and telecopy numbers indicated below, or at such other addresses or
telecopy numbers as such persons may specify from time to time
5
<PAGE> 6
by written notice to the Escrow Agent. Any party hereto shall be entitled to
change the names, addresses or telephone or telecopier numbers for any person
to whom copies of any notice to such person are to be addressed by written
notice to the other persons hereto in accordance with the terms and provisions
of this Section 11. Each such notice shall be effective (a) if given by telex
or telecopy, upon receipt, if confirmed by return telecopy, telex or telephonic
confirmation or otherwise, or (b) if given by mail or any other means, when
delivered to the address of such person specified as aforesaid; provided,
however, that no notice to a person shall be deemed received on a day that is
not a Business Day in the jurisdiction in which notices are to be addressed to
such person. Any such notice shall not be effective until the next Business
Day in such jurisdiction. "Business Day" shall mean any day which is not a
Saturday, Sunday or other day on which banks in Los Angeles, California are
authorized or obligated to close.
(i) If to Reddi Brake:
Reddi Brake Supply Corporation
1376 Walter Street
Ventura, California 93003
Telephone: (805) 644-8355
Telecopier No.: (805) 658-2377
Attention: S. Gerald Birin
Chief Financial Officer
with a copy to:
Kenneth A. Luer, Esq.
Ervin, Cohen & Jessup
9401 Wilshire Boulevard
Suite 900
Beverly Hills, CA 90212
Telephone: (310) 273-6333
Telecopier No.: (310) 859-2325
(ii) If to Shareholder to:
Allen J. Sheerin
2657 Windmill Parkway
Henderson, NV 89014
with a copy to:
Gerald B. Kagan, Esq.
Alschuler, Grossman & Pines
2049 Century Park East
39th Floor
Los Angeles, CA 90067
6
<PAGE> 7
(iii) If to you, to:
Corporate Stock Transfer, Inc.
Republic Plaza
370 17th Street, Suite 2350
Denver, CO 80202
Telephone: (303) 595-3300
Telecopier No.: (303) 592-8821
Attention: Carylyn Bell
12. Survival. This Escrow Agreement shall be binding
upon the parties hereto and upon their respective successors in interest and
assigns.
13. Headings. Headings in this Escrow Agreement are for
reference purposes only and shall not be deemed to have any substantive effect.
14. Governing Law. This Escrow Agreement shall be
construed and enforced in accordance with the substantive laws of the State of
California, without regard to the choice of law provisions thereof.
15. Amendments. The terms and provisions of this Escrow
Agreement may be amended or waived only by a written instrument executed by
you, Reddi Brake and Shareholder.
///
///
///
///
///
///
///
///
///
///
7
<PAGE> 8
16. Counterparts. This Escrow Agreement may be executed
in one or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same document.
Very truly yours,
REDDI BRAKE SUPPLY
By:
----------------------------
S. Gerald Birin
Chief Financial Officer
SHAREHOLDER
----------------------------
Allen J. Sheerin
The foregoing is accepted and
agreed to as of ________________, 1996
CORPORATE STOCK TRANSFER, INC.
By:
------------------------------------------
Carylyn Bell, President
8
<PAGE> 9
EXHIBIT A
FORM OF CERTIFICATE
Pursuant to Section 3 of that certain Escrow Agreement, dated
June 3, 1996 (the "Escrow Agreement"), by and among Reddi Brake Supply
Corporation, a Nevada corporation ("Reddi Brake"), Allen J. Sheerin and
Corporate Stock Transfer, Inc., as Escrow Agent, the undersigned do hereby
request the distribution to Allen J. Sheerin (the "Shareholder") of
______________ shares of the Common Stock, par value $.0001 per share, issued
in the name of such Shareholder (the "Released Shares") and do hereby certify
as follows:
(i) This certificate is being furnished in
conformity with the terms of Section 3 of the Escrow Agreement; and
(ii) The Shareholder is entitled to receipt of the
Released Shares pursuant to the provisions of Section 12.1 of that certain
Stock Purchase Agreement, dated as of May 28, 1996, among Reddi Brake, Allen J.
Sheerin and Bryan Morford.
REDDI BRAKE SUPPLY CORPORATION
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
----------------------------------------
Allen J. Sheerin
A-1
<PAGE> 10
EXHIBIT B
FORM OF CERTIFICATE
Pursuant to Section 4.1 of that certain Escrow Agreement,
dated June 3, 1996 (the "Escrow Agreement"), by and among Reddi Brake Supply
Corporation, a Nevada corporation ("Reddi Brake"), Allen J. Sheerin and
Corporate Stock Transfer, Inc., as Escrow Agent, the undersigned do hereby
request the distribution to Reddi Brake, for [cancellation or holding as
treasury shares], of ______________ shares of Reddi Brake Common Stock, par
value $.0001 per share, issued in the name of Allen J. Sheerin (the "Released
Shares") and do hereby certify as follows:
(i) This certificate is being furnished in
conformity with the terms of Section 4.1 of the Escrow Agreement; and
(ii) Reddi Brake is entitled to receipt of the
Released Shares pursuant to the provisions of Section 12.2 of that certain
Stock Purchase Agreement, dated as of May 28, 1996, among Reddi Brake, Allen J.
Sheerin and Bryan Morford.
REDDI BRAKE SUPPLY CORPORATION
By:
------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SELLERS
---------------------------------------------
Allen J. Sheerin
---------------------------------------------
Bryan Morford
B-1
<PAGE> 11
EXHIBIT C
ESCROW AGENT FEE SCHEDULE
ANNUAL ESCROW AGENT FEE, per one-year period or
portion thereof $500.00
Out-of-pocket expenses, including any
safekeeping charges, will be charged at the
actual cost thereof, including counsel fees
and expenses, if necessary. If the Escrow
Agent is required to assume duties or
responsibilities not included in the
schedule, additional reasonable fees will be
assessed based upon the nature of the
services and the responsibility involved.
C-1
<PAGE> 1
Exhibit 10.45
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of June 28, 1996 by and between Reddi Brake Supply Corporation, a
Nevada corporation ("Purchaser"), and Allen J. Sheerin ("Seller").
A. Seller owns 52,000 shares of common stock of Express
Undercar Parts Warehouse of California, Inc. (the "Company") constituting 100%
of the issued and outstanding shares of stock of the Company. All of the stock
of the Company is referred to as the "Shares."
B. Seller wishes to sell the Shares to Purchaser, and
Purchaser desires to purchase the Shares, all on the terms and conditions of
this Agreement.
THEREFORE, the parties agree as follows:
1. PURCHASE AND SALE OF THE SHARES. Subject to the
terms and conditions of this Agreement, at the Closing (as defined below),
Seller shall sell, transfer, convey and deliver to Purchaser the Shares, and
Purchaser shall purchase the Shares, free and clear of all claims, liens,
charges, encumbrances, restrictions on transfer, options and security
interests.
2. PURCHASE PRICE.
2.1 PURCHASE PRICE. The purchase price (the
"Purchase Price") for the Shares shall be an amount (payable in Purchaser's
stock as provided in Section 2.2 below) equal to 1.3 times the "Net Asset
Value" of the Company, as of the close of business on May 31, 1996 (the
"Valuation Date"). The Net Asset Value on such date and the Purchase Price
have been determined as follows:
<TABLE>
<CAPTION>
Assets of the Company at May 31, 1996 Value
- ------------------------------------- ---------------
<S> <C>
Inventory and Miscellaneous Assets $ 1,865,423.63
Accounts Receivable 222,382.18
---------------
Total Fixed Assets $ 2,087,805.81
Accounts Payable & Miscellaneous Liabilities (1,342,067.09)
Bank Loans 0
---------------
Net Asset Value $ 745,738.72
Purchase Price at 130% $ 969,460.33
</TABLE>
<PAGE> 2
2.1.1 GOOD FAITH DEPOSIT. Purchaser has
previously delivered to Seller a good faith cash deposit of $50,000 (the
"Deposit") pursuant to the letter of intent between the parties hereto dated
April 23, 1996 (the "Letter"). At the Closing (as defined in Section 3 below),
the Deposit shall be returned to Purchaser. Notwithstanding the foregoing, if
this Agreement is terminated prior to Closing, the Deposit shall be refunded to
Purchaser.
2.2 MANNER OF PAYMENT. The Purchase Price shall
be paid to Seller at the Closing, as follows:
The Purchase Price shall be paid in shares of
Purchaser's Common Stock determined by dividing the Purchase Price by $1.63,
the deemed value of a share of Common Stock. Such deemed value is the average
between the closing offer and bid prices of the Purchaser's common stock in the
over the counter market on April 16, 1996, the date on which the Purchaser's
Board of Directors approved this transaction, discounted by 10%.
3. CLOSING. The closing (the "Closing") of the
transactions described herein shall take place at 2:00 p.m. on June 28, 1996,
or such later date as the parties may agree to (the "Closing Date") at the
offices of Alschuler Grossman & Pines LLP, 2049 Century Park East, Suite 3900,
Los Angeles, California 90067. If the Closing does not occur by June 30, 1996,
the Deposit shall be refunded to Purchaser immediately, and this Agreement
shall be terminated, with neither party having any obligation or liability to
the other. Notwithstanding the actual date of Closing (if the Closing occurs),
the Closing shall be deemed to have occurred as of the close of business on the
Valuation Date so that the Shares shall be deemed to be beneficially owned by
Purchaser as of that time with all income received by the Company and all
payments made and obligations and liabilities incurred by the Company after
such time remaining the income, expenses, obligations and liabilities of the
Company on and after the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller
represents and warrants to Purchaser that:
4.1 TITLE TO SHARES. Seller is the sole owner of
52,000 Shares, has good and marketable title to his Shares and owning his
Shares beneficially and of record, free and clear of all liens, claims,
security interests or agreements, shareholder or buy-sell agreements, proxies,
voting trust agreements, encumbrances, options, charges and restrictions
(collectively, "Encumbrances"). Seller has the full right, power and authority
to sell, convey, transfer and deliver his Shares, without obtaining the
approval or consent of any other person; except for the consent of Seller's
spouse in form reasonably satisfactory to Purchaser, which shall be obtained
prior to the Closing Date.
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<PAGE> 3
Seller owns beneficially and of record all of the issued and outstanding
capital stock of the Company.
4.2 BINDING AGREEMENT. Seller has full right,
power and authority to enter into and perform his obligations under this
Agreement. This Agreement and all other agreements, documents and instruments
to be executed by Seller in connection herewith have been (or upon execution
will have been) duly executed and delivered by Seller and constitute (or upon
execution will constitute) legal, valid and binding obligations of Seller,
enforceable in accordance with their respective terms.
4.3 NO CONFLICTS. Except as specified in any of
the Schedules herein, the execution and delivery of this Agreement, the sale of
the Shares, the compliance by Seller with all of the provisions of this
Agreement and the consummation of the transactions contemplated by this
Agreement (a) will not conflict with or result in a breach or violation of the
Company's Articles of Incorporation or Bylaws, or to Seller's actual knowledge,
any federal, state or local law, statute, code, rule, regulation or ordinance
(collectively, "Laws"), or any judgment, order, writ, decree of any court,
tribunal or other governmental body or instrumentality, or any of the terms or
provisions of, or constitute a default under, or require notice, approval, or
consent under, any bond or other agreement, document or instrument to which
Seller or Company is a party, or by which any of the Company's properties is
subject or bound, or (b) results in the creation of any Encumbrance upon any of
the Shares or any "Lien" (as defined in Paragraph 4.13 below) on the assets or
properties of the Company.
4.4 ENTIRETY OF INTEREST. 52,000 Shares
represent Seller's complete legal, equitable and beneficial interest in
Company.
4.5 COMPLIANCE WITH SECURITIES LAWS. Seller
represents and warrants to Purchaser that (a) he understands that the shares of
Purchaser's Common Stock issuable to him under Paragraph 2.2 hereof have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state, and are being issued and sold in
reliance upon exemptions afforded thereunder for transactions not involving any
public offering; (b) Seller is an "accredited investor" within the meaning of
Rule 501(a) promulgated under the Securities Act; (c) Seller is a bona fide
resident and domiciliary of the State of Nevada; (d) the shares of Purchaser's
Common Stock to be acquired by Seller hereunder are being acquired for Seller's
own account for investment and without any view toward or for sale in
connection with any distribution thereof to any other person; (e) Seller will
neither sell nor otherwise dispose of the Purchaser's Common Stock being issued
to him hereunder except in compliance with the registration requirements or
exemptive provisions of the Securities Act and
3
<PAGE> 4
the rules and regulations thereunder, and under any applicable state securities
laws; (f) Seller has knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the acquisition of the
Purchaser's Common Stock; (g) Seller has consulted with counsel, to the extent
he deemed necessary, as to all matters covered by this Agreement; (h) Seller
has, to his full satisfaction, made investigation into the business, financial
condition and operations of Purchaser as he deemed necessary; (i) Seller has
not relied upon the Purchaser for any explanation of the application of the
various federal or state securities laws with regard to the acquisition of the
Purchaser's Common Stock; (j) Seller acknowledges that Purchaser has made no
representations or warranties with respect to the Purchaser's Common Stock
other than those expressly set forth herein; and (k) Seller agrees that the
Purchaser may endorse on each certificate representing shares of Purchaser's
Common Stock being delivered to Seller hereunder a restrictive legend
consistent with the information set forth in this paragraph. Seller
acknowledges that Seller is receiving certain registration rights as to the
shares of Purchaser's Common Stock pursuant to a Registration Rights Agreement
as set forth in Paragraph 7.2 herein.
4.6 ORGANIZATION, GOOD STANDING AND
QUALIFICATION. Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has full power
and authority to own its properties and assets and to conduct its business as
it is now being conducted; and is entitled to own, lease or operate the
properties and assets it now owns, leases or operates. Seller has delivered to
Purchaser (a) a true and correct copy of the Company's Articles of
Incorporation, with copies of amendments, if any, all certified by the
Secretary of State of California; (b) the Bylaws and all minutes and
resolutions of any meeting, or written consent or action in lieu thereof, of
the Company's shareholders or Board of Directors (or any committee thereof);
(c) all permits, orders and consents issued by the State of California relating
to the Company, and all applications for such permits, orders and consents; and
(d) the stock transfer book of the Company (collectively, the "Corporate
Documents").
4.7 CAPITAL STOCK. The Company has an authorized
capitalization solely consisting of 1,000,000 shares of common stock, of which
52,000 shares are issued and outstanding. All such outstanding shares have
been duly authorized and validly issued and are fully paid and non-assessable,
and have not been issued in violation of any preemptive rights of stockholders.
No other class of capital stock of the Company is authorized or outstanding.
There are (and at the Closing will be) no outstanding options, warrants,
rights, calls, commitments, conversion rights, rights of exchange, preemptive
rights, commitments, plans or other agreements of any character providing for
the purchase, issuance or sale of any shares of the capital
4
<PAGE> 5
stock of the Company, or of any options, warrants or other securities of the
Company.
4.8 SUBSIDIARIES. The Company has no
subsidiaries and does not own, directly or indirectly, any interest in any
corporation, partnership, business, joint venture, partnership, trust or
investment (whether debt or equity) or other entity.
4.9 FINANCIAL STATEMENTS. Seller has delivered
to Purchaser balance sheets of the Company as of May 31, 1996, and the related
statements of earnings and retained earnings for the periods ended May 31,
1996, and changes in financial position as of May 31, 1996, all of which
Purchaser acknowledges receiving. Each of the foregoing financial statements
was prepared in the Company's ordinary course of business, is the sole
financial statement that was prepared for the time period covered and is the
financial statement used by the Company in the conduct of its business. Each
of the foregoing financial statements was prepared in accordance with the books
and records of the Company applied consistently during the periods covered
thereby, and presents fairly the Company's financial condition at the dates of
said statements and the Company's results of operations for the period covered
thereby. (Each of the foregoing financial statements, as well as any financial
statements for subsequent periods prior to the Closing, is referred to, in the
singular, as a "Financial Statement", and, in the plural, as the "Financial
Statements.")
4.10 LIABILITIES. The Company has no material
liabilities, obligations and debts of any nature, whether accrued, absolute,
contingent or otherwise (collectively, the "Liabilities"), except as set forth
on the face of the Balance Sheet dated as of May 31, 1996, or as otherwise set
forth in any Schedule attached to this Agreement. Any material liabilities
incurred since that date have been incurred in the ordinary course of the
Company's business as previously conducted. Seller has no actual knowledge of
any basis for an assertion against the Company of any other Liability other
than those set forth in any Schedule referenced in this Paragraph 4.
4.11 NO ADVERSE CHANGE. Since May 31, 1996, the
Company has operated its business in the ordinary course as previously
conducted, and there has not been, and there is not threatened, (a) any change
in the Company's business or other occurrence that would be materially adverse
to the Company's properties, assets business, or financial condition, or (b)
any event or occurrence that, if taken during the time period between the date
hereof and the Closing, would have constituted a material violation of
Paragraph 6.3, 6.4, 6.6, 6.7, 6.8 or 6.10.
4.12 TAXES. Seller has delivered to the Purchaser
true, correct and complete federal, foreign, state and local tax
5
<PAGE> 6
returns and reports filed by the Company through the date of this Agreement.
Neither the Company nor the Seller has knowledge that the Company has failed to
properly file all federal, foreign, state, local and other tax returns and
reports which are required to be filed by it, or that it has failed to pay all
taxes owing as indicated on the Seller's Financial Statements to be due and
owing by it, except taxes which have not yet accrued or otherwise become due
for which adequate provision has been made in the Balance Sheet referred to in
Paragraph 4.10 above. Seller has no knowledge that the federal income tax
returns of the Company have been examined by the Internal Revenue Service since
the Company's inception or that any extension of time for the assessment of
deficiencies for any year is in effect. To the knowledge of the Seller,
neither the Internal Revenue Service nor any other taxing authority is now
asserting or threatening to assert against the Company any deficiency or claim
for additional taxes or interest thereon or penalties in connection therewith.
4.13 REAL PROPERTY. The Company does not own any
real property. Attached as Schedule 4.13 is a complete list of all real
property leases (collectively, the "Leases") to which the Company is a party.
Except as described on Schedule 4.13, (a) no event has occurred that
constitutes, or that with the giving of notice or passage of time, or both,
would constitute a material default by the Company or any other party under any
of the Leases, (b) the Leases constitute all of the real property that is used
or held for use by the Company in connection with its business, (c) the
Company's interest in each of the Leases is free and clear of any liens,
charges, claims, security interests or other encumbrances (collectively,
"Liens") created by, through or under the Company or any person or entity
controlling, controlled by or under common control with the Company
(collectively, "Affiliates"), (d) there are no parties in possession of any
portion of the properties (the "Leased Lands") subject to the Leases as
sublessees, subtenants or otherwise, (e) neither the Company nor the Seller has
knowledge of any pending or threatened condemnation, eminent domain or similar
proceeding affecting the properties subject to the Leases or that the Leased
Lands are not in compliance with all Laws applicable thereto, and (f) neither
Seller nor any officer, director, shareholder, employee, relative or Affiliate
of Seller or the Company, owns, directly or indirectly, in whole or in part,
any interest in the Leased Lands. Seller has delivered to the Purchaser true,
correct and complete copies of each of said Leases, together with any
amendments thereto. Also listed in Schedule 4.13 is the amount of the security
deposits, if any, and advance rentals paid, if any.
4.14 CONTRACTS, LEASES AND COMMITMENTS. Seller
has caused the Company to furnish to Purchaser true and complete copies of all
contracts, leases, agreements, licenses and commitments to which the Company is
a party or by which any of its assets or properties are bound or are subject
and which are
6
<PAGE> 7
material to the operation of the Company's business or any of its stores, all
of which are listed in Schedule 4.14 hereto, including summaries of the terms
of any unwritten commitments (collectively, the "Contracts"). Except as set
forth in Schedule 4.14, the Contracts are valid and enforceable, in full force
and effect and there exists no event or condition which does, or that with the
giving of notice or the passage of time, or both, would, constitute a material
default under or give rise to a right to accelerate or terminate any provision
thereof, or give rise to any Lien or restriction on any of the assets or
properties of the Company. The Company has not assigned or otherwise
transferred any interest in or any of its rights or benefits accruing from any
of the Contracts.
4.15 CUSTOMERS AND SUPPLIERS. Except as disclosed
in Schedule 4.15 hereto, during the Company's fiscal year ended June 30, 1995
and the ten-month period ended May 31, 1996, (a) not more than 10% of the
Company's revenues were attributable to any single customer or (to the
knowledge of Seller) to any group of affiliated customers, and (b) not more
than 10% of the Company's inventory was attributable to any single supplier or
(to the knowledge of Seller) to any group of affiliated suppliers. The Company
is engaged in no material disputes with any customers, suppliers, airlines or
other entities with which the Company does business. Seller has no actual
knowledge that any customer, supplier, or other entity with which the Company
does business is considering termination, non-renewal, or any adverse
modification of its arrangements with the Company, and the transactions
contemplated by this Agreement will not have a material adverse effect on the
Company's relationship with any of its suppliers, customers, airlines or other
entities with which the company does business.
4.16 ACCOUNTS RECEIVABLE. Schedule 4.16 hereto is
an aging list of all of the Company's accounts receivable as of May 31, 1996.
The Company's accounts receivable arose in the ordinary course of business for
goods or services delivered or rendered and were recorded consistently in
accordance with the Company's past practice.
4.17 PERMITS; COMPLIANCE WITH LAWS. Neither the
Company nor Seller has knowledge that the Company has failed to comply with all
applicable Laws or that the Company's business is and has been operated other
than in compliance with all applicable Laws, or that any required reports and
filings with governmental authorities have not been properly made by the
Company. To the Company and the Seller's knowledge, the Company possesses, and
Schedule 4.17 sets forth a complete list of, all of the permits, licenses,
authorizations and approvals required by any governmental body or
instrumentality or political subdivision in connection with the conduct of the
Company's business as presently conducted (collectively, the "Permits"). The
execution and delivery of this Agreement, the sale of the
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<PAGE> 8
Shares, the compliance by Seller with all of the provisions of this Agreement
and the consummation of the transaction contemplated by this Agreement will not
result in any violation of any Law, or any Permit of the Company, or any rule,
judgment, writ, decree or order of any court, tribunal or other governmental
body or instrumentality. No consent, registration or qualification of, or
filing or registration with, any person, court, or governmental agency is
required for the sale of the Shares, the compliance by Seller with the
provisions of this Agreement, the maintenance by Purchaser of any of the
Permits immediately following the Closing, or the consummation of the
transactions contemplated hereby.
4.18 EMPLOYEES. The Company is not a party to or
subject to any written agreement, or any oral agreement providing for any
bonus, severance payment, deferred compensation, pensions, options, profit
sharing or similar benefits not terminable within 30 days by and without
penalty or further liability to the Company, with any employee, consultant,
officer, director, agent or representative. The Company has no "Employee
Benefit Plans" as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. All obligations of the
Company with respect to all of its Employees, consultants, directors, officers,
agents and representatives and due on or prior to the date hereof have been
paid by the Company.
4.19 LITIGATION. Neither the Company nor Seller
has knowledge of any pending or threatened actions, suits, proceedings, claims,
judgments, orders, arbitration proceedings, administrative or governmental
investigations against the Company or any of its properties or assets, or, in
connection with the Company's business, any of the Company's officers,
directors, employees, consultants, agents or representatives.
4.20 BANK ACCOUNTS. Schedule 4.20 is an accurate
and complete list showing the name of each bank, savings and loan or other
financial institution in which the Company has an account, outstanding debt,
credit line or safe deposit box, the number of each of the foregoing and the
names of all persons authorized to draw thereon or to have access thereto.
4.21 TRANSACTIONS WITH INTERESTED PERSONS. Except
as set forth in Schedule 4.21, there is no (a) obligation or liability incurred
by the Company to Seller or any of its officers, directors or shareholders, or
any loans or advances made by the Company Seller or any of its officers,
directors or employees, except normal compensation payable in accordance with
past practice, and (b) Seller does not own, directly or indirectly, any
interest in, or serves as an officer or director of, any entity which has any
contract, commitment or arrangement with the Company.
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4.22 NO BROKERS. Neither Seller nor the Company
have entered, directly or indirectly, into any agreement, understanding or
commitment with any person or entity that provides for the payment of any
commission, brokerage or "finder's fee" arising out of the transaction
contemplated by this Agreement.
4.23 TANGIBLE PERSONAL PROPERTY. Seller has
caused the Company to furnish to Purchaser computer schedules showing all
leasehold improvements, fixtures, machinery, equipment (including office
equipment), computer hardware, vehicles, furniture and other tangible personal
property used in connection with the Company's business (the "Tangible Personal
Property"). To the Company's and to the Seller's knowledge, such list is
complete and accurate in all material respects. To Seller's knowledge or
except as set forth in Schedule 4.23, the Company has good and marketable title
to each item of Tangible Personal Property free and clear of all Liens.
4.24 INVENTORY. Seller has caused the Company to
furnish to Purchaser a computer schedule of all inventory of the Company as of
May 31, 1996. To the Company's and to the Seller's knowledge, such list is
complete and accurate in all material respects.
4.25 INTELLECTUAL PROPERTY. Except for the trade
name "Express Undercar Parts Warehouse", neither the Company nor Seller has
knowledge of tradenames, trademarks, copyrights or registrations or
applications related to the foregoing or any other intellectual property rights
(collectively, "Intangibles"). Neither the Company nor Seller has any actual
knowledge of any pending or threatened claim, action or proceeding against the
Company contesting the Company's right to use any Intangibles.
4.26 INSURANCE. Schedule 4.26 sets forth a list
of all insurance policies maintained by or for the benefit of the Company. The
Company has not received and Seller has no actual knowledge of any notice
cancelling or threatening to cancel, or amending or increasing the annual or
other premiums payable under any of such policies.
4.27 HAZARDOUS SUBSTANCES. Neither the Company
nor Seller has any actual knowledge (a) of any Hazardous Materials present on
any of the Leased Land or the premises or improvements located thereon, or on
any property in the immediate vicinity of the Leased Lands (b) that Hazardous
Materials have been disposed or otherwise released into the environment by or
on behalf of the Company or its Affiliates, and (c) that any of the following
items is located on the Leased Land: underground containers or vessels or
water, gas or oil wells. Neither the Company nor the Seller have actual
knowledge of any receipt of any notice or other communications concerning any
violation or alleged violation of any Laws relating to the protection of
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health and the environment (collectively "Environmental Requirements").
Neither the Company nor Seller has actual knowledge of the existence of any
writ, injunction, decree, order or judgment outstanding, nor any pending or
threatened claim, action or proceeding, relating to any alleged or suspected
violation of Environmental Requirements arising out of the ownership, use or
operation of the Leased Lands and the premises or improvements thereon
pertaining to the property or any properties in the immediate vicinity of the
Leased Lands or the operation of the Company's business. As used herein,
"Hazardous Materials" shall mean any substances (including, without limitation,
any asbestos, formaldehyde, radioactive substance, hydrocarbons,
polychlorinated biphenyls, industrial solvents, flammables, explosives and any
other hazardous substance, solid waste or toxic material) that are defined as
hazardous or toxic substances under Environmental Requirements or that are
known, as of the date of this Agreement, to pose a threat to or to endanger
health or the environment, except for those substances that are contained
within products sold by Seller at its stores, the handling, labeling and sale
of which does not require a permit or other authorization from, delivery of
notice to, or filing with any court, tribunal or other governmental body or
instrumentality.
4.28 REPRESENTATIONS TRUE AT CLOSING. All
representations by Seller in Section 4 shall be true and accurate as of the
date when made and shall be deemed to be made again at the Closing as of the
Closing Date and shall then be true and accurate in all respects.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser hereby represents and warrants to Seller that:
5.1 BINDING AGREEMENT. Purchaser has all
requisite corporate right, power and authority to enter into and perform its
obligations under this Agreement. This Agreement has been duly authorized,
executed and delivered by Purchaser and constitutes a valid and legally binding
obligation of Purchaser, enforceable in accordance with its terms.
5.2 PURCHASE OF SHARES NOT FOR DISTRIBUTION. The
Shares are being purchased for investment and not with a view to distribution,
it being understood that the Shares are not registered or qualified under the
Securities Act, or any state law.
5.3 NO CONFLICTS. The execution and delivery of
this Agreement, the purchase of the Shares, the compliance by Purchaser with
all of the provisions of this Agreement and the consummation of the
transactions contemplated by this Agreement will not conflict with or result in
a breach or violation of the Articles of Incorporation or Bylaws of Purchaser.
This Agreement and all other agreements, documents and instruments to be
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executed by Purchaser in connection herewith have been (or upon execution will
have been) authorized by Purchaser's Board of Directors, duly executed and
delivered by the Purchaser and constitute (or upon execution will constitute)
legal, valid and binding obligations of Purchaser, enforceable in accordance
with their respective terms, or any of the terms or provisions of, or
constitute default under, or require notice, approval, or consent under, any
bond or other agreement, document or instrument to which Purchaser is a party,
or to Purchaser's knowledge, any Laws or any judgment, order, writ, decree of
any court, tribunal or other governmental body or instrumentality.
5.4 PERMITS; COMPLIANCE WITH LAWS. To the
knowledge of Purchaser's Chief Executive Officer and Chief Financial Officer,
Purchaser has complied, and continues to comply, with all applicable Laws, and
the Purchaser's business is and has been operated in compliance with all
applicable Laws and all required reports and filings with governmental
authorities have been properly made by Purchaser. To Purchaser's knowledge,
Purchaser possesses all of the Permits and approvals required by any
governmental body or instrumentality or political subdivision in connection
with the conduct of Purchaser's business as presently conducted. The execution
and delivery of this Agreement, the purchase of the Shares, the compliance by
Purchaser with all of the provisions of this Agreement and the consummation of
the transaction contemplated by this Agreement will not result in any violation
of any Law, or any Permit of the Purchaser, or any rule, judgment, writ,
decree, or order of any court, tribunal or other governmental body or
instrumentality. No consent, registration or qualification of, or filing or
registration with, any person, court, or governmental agency is required for
the purchase of the Shares, the compliance by the Purchaser with the provisions
of this Agreement, or the consummation of the transactions contemplated hereby.
5.5 LITIGATION. Except as set forth on Schedule
5.5, there are no material actions, suits, proceedings, claims, judgments,
orders, arbitration proceedings, administrative or governmental investigations
pending or, to the knowledge of Purchaser, threatened against Purchaser or any
of its properties or assets, or, in connection with the Purchaser's business,
or any of Purchaser's officers, directors, employees, consultants, agents or
representatives.
5.6 SECURITIES FILINGS. Purchaser has delivered
to Seller copies of its most recent Reports on Form 10-Q, 10-K, and Proxy
Statement, each of which, as of its respective date, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make statements and facts contained therein, in
light of the circumstances in which they were made, not false or misleading.
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5.7 CAPITAL STOCK. The Purchaser has an
authorized capitalization consisting of 35,000,000 shares of common stock,
$.0001 par value, and 2,500,000 shares of preferred stock, $.0001 par value,
400,000 of which are designated as Class A Preferred Stock and 550,000 of which
are designated as Class B Preferred Stock. As of June 26, 1996, 11:00 a.m.,
Pacific Time, 17,328,786 shares of common stock, 400,000 shares of Class A
Preferred Stock and 490,000 shares of Class B Preferred Stock are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable, and have not been issued in
violation of any preemptive rights of stockholders. No other class of capital
stock of the Purchaser is authorized or outstanding. There are (and at the
Closing will be) no outstanding options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, preemptive rights, commitments, plans or
other agreements of any character providing for the purchase, issuance or sale
of any shares of the capital stock of the Purchaser, or of any options,
warrants or other securities of the Purchaser.
5.8 FINANCIAL STATEMENTS. Purchaser has
delivered to Seller a balance sheet of the Purchaser as of March 31, 1996, and
the related statements of operations and cash flow for the periods ended March
31 1996, and changes in financial position as of March 31, 1996, all of which
Purchaser acknowledges receiving. Each of the foregoing financial statements
was prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered thereby. Each of
the foregoing financial statements was prepared in accordance with the books
and records of the Purchaser and presents fairly the Purchaser's financial
condition at the dates of said statements and the Purchaser's results of
operations and cash flow for the period covered thereby.
5.9 LIABILITIES. The Purchaser has no material
liabilities, obligations and debts of any nature, whether accrued, absolute,
contingent or otherwise (collectively, the "Liabilities"), except as set forth
on the face of the Balance Sheet as described in its Report on Form 10-Q for
the quarter ended March 31, 1996, or as otherwise set forth in any Schedule
attached to this Agreement. Any liabilities incurred since that date have been
incurred in the ordinary course of the Purchaser's business as previously
conducted.
5.10 NO ADVERSE CHANGE. Since March 31, 1996, the
Purchaser has operated its business in the ordinary course as previously
conducted, and, except for matters disclosed in Purchaser's Report on Form 10-Q
for the quarter ended March 31, 1996, there has not been, and there is not
threatened, any change in the Purchaser's business or other occurrence that
would be materially adverse to the Purchaser's properties, assets business, or
financial condition.
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5.11 NO BROKERS. The Purchaser has not entered,
directly or indirectly, into any agreement, understanding or commitment with
any person or entity that provides for the payment of any commission, brokerage
or "finder's fee" arising out of the transaction contemplated by this
Agreement.
5.12 REPRESENTATIONS TRUE AT CLOSING. All
representations by the Purchaser in this Section 5 shall be true and accurate
as of the date when made and shall be deemed to be made again at the Closing as
of the Closing Date and shall then be true and accurate in all respects.
6. COVENANTS AND AGREEMENTS OF SELLER. Seller covenants
and agrees as follows:
6.1 REPRESENTATIONS AND WARRANTIES. Between the
date hereof and the Closing, Seller shall not, and shall cause the Company not
to, take any action which would cause any of the representations and warranties
made herein or the documents or Schedules delivered to Purchaser not to be true
and correct on and as of the Closing Date with the same force and effect as if
such representations and warranties had been made on and as of the Closing
Date.
6.2 ACCESS BY PURCHASER. Between the date hereof
and the Closing, Seller shall allow Purchaser and its representatives and
advisers to have free and full access during normal business hours to the
Company's assets, properties, premises, books and records, agreements,
documents and instruments, and be given the opportunity to meet with the
Company's key employees, accountants, and major suppliers and customers.
Purchaser shall be furnished with such information and copies of such documents
as it may reasonably request. Purchaser shall be promptly furnished with all
Financial Statements of the Company that are prepared in the ordinary course of
business. If, during its due diligence, Purchaser obtains actual knowledge of
any breach of any representation or warranty by Seller or the Company,
Purchaser may elect not to purchase the Shares, but may not purchase the Shares
and then make a claim against Seller or the Company for losses suffered by
Purchaser as a result of such breach, except to the extent that Purchaser
brings such breach to Seller's attention prior to making such claim and
subsequently suffers losses attributable to material facts or information
relating to such breach which Seller withheld from Purchaser or misrepresented
to Purchaser.
6.3 CONDUCT OF BUSINESS. Between the date hereof
and the Closing, Seller shall cause the Company to conduct its business in the
ordinary course, consistent with its prior conduct, and to use its best efforts
to maintain, preserve, and protect its assets and goodwill, and to maintain its
business organization intact (including maintaining its present employees and
preserving its present relationships with suppliers,
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customers, and others having business relationships with the Company). Without
limiting the generality of the foregoing, Seller shall not allow the Company to
(except with the prior written consent of the Purchaser) (a) purchase or commit
to purchase or lease capital or fixed assets exceeding $10,000, (b) take any
action which would create a Lien on any of the Company's assets or properties,
(c) dispose of any interest in any of the Company's assets or properties other
than sales of inventory in the ordinary course of business, consistent with
past practice, (d) in any manner pledge the credit of the Company, except in
the ordinary course of business consistent with past practice, or (e) enter
into any lease, agreement, instrument, commitment or arrangement with any
Affiliate. Further, between the date hereof and the Closing, Seller shall
cause the Company to (a) in a timely manner make all payments due under and
otherwise perform in all material respects all of the obligations under all
Leases, Contracts, Permits and Intangibles in accordance with their respective
terms, and not cancel, amend, modify, abandon, extend or renew any of the same,
or permit any of the same to lapse; (b) maintain the Tangible Personal Property
and the improvements and premises on the Leased Lands in their current
condition, ordinary wear and tear excepted, and in accordance with past
practice; and (c) to comply in all material respects with and fulfill its
obligations and responsibilities under all Laws. Seller shall cooperate with
Purchaser in the collection of accounts receivable from periods through the
Closing due and payable following the Closing.
6.4 MAINTENANCE OF INSURANCE. Seller shall cause
the Company to continue to carry its existing insurance through the date of
Closing and to provide whatever information is needed to enable Purchaser, at
its option, to obtain new insurance coverage.
6.5 SUPPLEMENTS. Seller shall, within two
business days after they occur, inform Purchaser of all material developments,
whether favorable or adverse, relating to the Company's business, properties or
financial condition. If any representation, warranty or statement made herein,
or any Schedule delivered to Purchaser, shall be or become incorrect, Seller
shall promptly deliver to Purchaser a supplement in order that said
representation, warranty, statement or Schedule, as so supplemented, shall be
true and correct.
6.6 CORPORATE MATTERS. Between the date hereof
and the Closing, Seller shall cause the Company not to (a) amend its Articles
of Incorporation or Bylaws; (b) issue any shares of stock; (c) issue or create
any warrants, obligations, subscriptions, options, convertible securities, or
other commitments under which shares may be authorized or issued; or (d)
declare or pay any dividend or distribution on any securities of the Company.
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6.7 EMPLOYEES AND COMPENSATION. Between the date
hereof and the Closing, Seller shall cause the Company not to, and not to agree
to do any of the following: (a) Make or commit to make any change in
compensation payable or to become payable to any officer, director, employee,
consultant, sales agent or representative; (b) pay any benefits to any officer,
director, employee, sale agent or representative under any bonus plan, Employee
Benefit Plan or other agreement; (c) negotiate or enter into any employment
agreement, or (d) hire or fire any employees, consultants or agents or
representatives except in the ordinary course of business, consistent with past
practice.
6.8 NEW TRANSACTIONS. Between the date hereof
and the Closing, Seller shall cause the Company not to, without Purchaser's
written consent, do or agree to do any of the following: (a) Enter into any
contract, commitment or transaction not in the usual and ordinary course of
business; or (b) enter into any contract, commitment or transaction in the
ordinary and usual course of business involving an amount exceeding $10,000
individually or $20,000 in the aggregate.
6.9 NO NEGOTIATIONS. Seller shall not, through
June 30, 1996, negotiate with, or make any agreement, proposal, or commitment
with or to any other party concerning the sale or disposition of the Shares or
the business of the Company.
6.10 EXISTING AGREEMENTS. Between the date hereof
and the Closing, Seller shall cause the Company not to modify, amend, cancel,
or terminate any of its existing contracts or agreements, or agree to do any of
these acts.
6.11 RESIGNATION OF SELLER. At the Closing,
Seller shall deliver to the Company, in form acceptable to Purchaser, his
resignation as employee, officer, and director of the Company, as applicable,
effective as of the Closing Date.
6.12 COVENANT NOT TO COMPETE. The parties
acknowledge that the Company carries on its business throughout the United
States. For a period of three (3) years after the Closing, Seller agrees that
he will not, without the prior written consent of Purchaser in (a) the counties
in which the Company's stores are located and any adjacent county thereto, and
(b) any county where Purchaser presently operates stores and any adjacent
county thereto by or for himself or as the employee or other agent of or for
another or through others as his employees or agents, own (other than stock in
Purchaser and passive ownership of up to 2% of the stock in any other public
company), manage, operate, join, control, be employed by or participate in the
ownership, management, control or operation of or be connected with, in any
way, any business which "competes" with the business of Purchaser. For
purposes of this Agreement, a business shall be deemed to "compete" with the
business of Purchaser if it is in the retail or wholesale automotive parts
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supply business. It is expressly recognized and agreed that any breach of this
paragraph will cause irreparable harm to Purchaser which cannot be fully
compensable by damages, so that, in addition to any and all of the rights and
remedies available to Purchaser by operation of law, in the event of breach of
this covenant, Purchaser shall be entitled to injunctive relief enjoining or
restraining whatever violation may have occurred or be occurring. It is
expressly agreed that if any provision of this paragraph is determined by a
court of competent jurisdiction to be unenforceable, such court shall limit the
scope or duration of such provision and enforce any lesser restriction or
restrictions determined by it to be reasonable.
7. COVENANTS AND AGREEMENTS OF PURCHASER.
7.1 INVENTORY. Purchaser shall, for 2 years from
the Closing, purchase as much of its inventory from Standard Motor Products,
Inc. -- EIS Brake Division as is required by that company's agreement with the
Company or the Seller.
7.2 REGISTRATION RIGHTS. Seller shall have
demand registration rights to compel a registration by Purchaser as to the
shares of Purchaser's stock being acquired by Seller under Paragraph 2.2 hereof
18 months after the Closing Date. Seller shall also have "piggyback"
registration rights as to any other registration by Purchaser of Purchaser's
stock. At the Closing, the parties shall enter into a Registration Rights
Agreement in connection with the registration rights granted to Seller
hereunder.
7.3 ADDITIONAL CONSIDERATIONS. At the Closing,
Purchaser shall sell, transfer, deliver and convey to Seller a sufficient
number of shares of Purchaser (valued at the average between the closing offer
and bid prices one trading day before the Closing Date less twenty percent
(20%) to equal a market value of $17,500.
7.4 AVAILABILITY OF PURCHASER'S STOCK. Purchaser
shall reserve a sufficient number of shares of its stock to issue shares to
Seller as described in Paragraph 2.2 and to allow for issuance of shares upon
exercise of the warrants and options pursuant to the Stock Purchase Agreement
dated May 28, 1996 between Reddi Brake, Sheerin and Bryan Morford.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.
The obligations of Purchaser to consummate the transactions contemplated by
this Agreement are subject to the satisfaction, at or before the Closing, of
each of the following conditions, except to the extent waived by Purchaser in
writing, and Seller shall use his best efforts to cause such conditions to be
fulfilled:
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8.1 REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Seller and of the Company in this Agreement
(including the Schedules hereto), shall be true and correct on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
8.2 PERFORMANCE BY SELLER. Seller shall have
performed and complied with all agreements, covenants, and conditions required
herein to be performed or complied with by them on or before the Closing.
8.3 CONSENTS. On or before the Closing, Seller
shall have delivered to Purchaser all required consents, approvals, or waivers
from regulatory authorities and third parties, if any are required for the
execution, delivery, and performance of Seller's obligations hereunder or for
the Company's continued maintenance of all Permits, Intangibles, Leases, and
Contracts after the Closing.
8.4 LITIGATION. No action, suit or proceeding
shall be pending or threatened before any court, tribunal, or governmental
body, and no claim or demand shall have been made against Purchaser, the
Company, or Seller seeking to restrain or prohibit the transactions
contemplated herein, and no claim or demand shall have been made against
Purchaser or the Company to obtain damages or other relief in connection with
the consummation of the transactions contemplated herein.
8.5 RESIGNATIONS. Seller shall have delivered to
Purchaser the written resignations described in Paragraph 6.11.
8.6 GOOD STANDING AND OTHER CERTIFICATES. Seller
shall have delivered to the Purchaser a Good Standing Certificate from the
California Secretary of State for the Company, dated no earlier than ten (10)
days prior to the Closing Date. Seller and the Company shall have delivered to
Purchaser written certification that the conditions set forth in Paragraphs 8.1
and 8.2 have been fulfilled.
8.7 STOCK CERTIFICATES. Seller shall have
delivered to Purchaser the share certificate(s) evidencing his ownership of his
Shares duly endorsed in blank for transfer, or accompanied by a Stock
Assignment Separate From Certificate duly endorsed in blank for transfer.
8.8 COMPLETION OF DUE DILIGENCE. Purchaser shall
have completed its due diligence investigation of the Company, and be satisfied
with the financial, operating, and business affairs and prospects of the
Company.
8.9 AUDITABLE FINANCIAL STATEMENTS. If
Purchaser's public accountants, KPMG Peat Marwick, LLP, determine
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that the Financial Statements of the Company must be audited for purposes of
Purchaser's compliance with federal securities laws, then such accountants must
further determine that such Financial Statements are auditable within the
requisite time period and at a price reasonably satisfactory to Purchaser.
8.10 NO ADVERSE CHANGE. There shall not have
occurred between the date hereof and the Closing Date any material adverse
change in the results of operations, condition (financial or otherwise),
assets, liabilities (whether absolute, accrued, contingent or otherwise),
business or prospects of the Company.
8.11 SPOUSAL CONSENT. Seller's spouse shall have
consented in writing to the sale of Seller's shares, in a form reasonably
satisfactory to Purchaser ("the Spousal Consent").
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The
obligations of Seller to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, at or before the Closing, of each of
the following conditions, except to the extent waived by the Seller in writing,
and Purchaser shall use its best efforts to cause such conditions to be
fulfilled:
9.1 REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Purchaser in this Agreement shall be true and
correct on and as of the Closing Date with the same force and effect as though
the same had been made on and as of the Closing Date.
9.2 PERFORMANCE BY PURCHASER. Purchaser shall
have performed and complied with all agreements, covenants, and conditions
required herein to be performed or complied with by him on or before the
Closing.
9.3 LITIGATION. No action, suit or proceeding
shall be pending or threatened before any court, tribunal, or governmental
body, and no claim or demand shall have been made against Purchaser, the
Company, or Seller seeking to restrain or prohibit or to obtain damages or
other relief, in connection with the consummation of the transactions
contemplated herein. Seller shall be satisfied with the report from
Purchaser's counsel regarding the class action lawsuit and broker lawsuit.
9.4 WRITTEN CERTIFICATION. Purchaser shall have
delivered to Seller written certification that the conditions set forth in
Paragraphs 9.1 and 9.2 have been fulfilled.
9.5 NO ADVERSE CHANGE. There shall not have
occurred between the date hereof and the Closing Date any material adverse
changes in the results of operations, condition (financial or otherwise),
assets, liabilities (whether absolute,
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accrued, contingent or otherwise), business or prospects of the Purchaser.
10. CLOSING OBLIGATIONS.
10.1 DELIVERIES OF SELLER. At the Closing, Seller
shall deliver, or shall cause to be delivered, to Purchaser the following:
(a) Certificates representing the
Shares, registered in the name of Allen ("Jim") Sheerin, as to his Shares, duly
endorsed in blank for transfer or accompanied by a Stock Assignment Separate
From Certificate duly endorsed in blank for transfer, together with all such
other documents as may be required to affect a valid transfer of the Shares,
free and clear of any and all liens, encumbrances, charges or claims.
(b) Executed copies of the governmental
and third party consents, approvals, or waivers, if any, required to consummate
the transactions described herein.
(c) The written resignation described in
Paragraph 6.11.
(d) An executed copy of the Registration
Rights Agreement, and Escrow Agreement.
(e) The Spousal Consent.
10.2 DELIVERIES OF PURCHASER. At the Closing,
Purchaser shall deliver or cause to be delivered to Seller the following:
(a) Stock certificates for the shares of
Purchaser's Common Stock issuable to Seller under Paragraph 2.2 hereof in
100,000 increments (or any fraction thereof, as appropriate).
(b) Payment of the attorneys' fees and
costs.
(c) Resolutions of Board of Directors of
Purchaser approving the transaction.
(d) An executed copy of the Registration
Rights Agreement, and Escrow Agreement.
11. ESCROW; INDEMNIFICATION.
11.1 ESCROW. At the Closing, Seller shall deposit
with an escrow agent a sufficient number of shares of Purchaser's stock (valued
at $1.63 per Share) to equal a market value of $125,000 (the "Escrow"). Six
months after the Closing Date, such
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<PAGE> 20
number of shares shall be adjusted based on the average between the closing
offer and bid prices on such date (the "Six Month Adjustment"); provided,
however, that any number of shares subject to a claim made by Purchaser prior
to the Six Month Adjustment shall not be so adjusted. The Escrow shall be
maintained for a period of one year (the "Escrow Period") from the earlier of
the Closing Date and June 30, 1996.
11.2 INDEMNIFICATION. Subject to the terms of this
Paragraph 11.2, Seller shall indemnify and hold harmless Purchaser, promptly
upon demand at any time and from time to time, against any and all losses,
liabilities, claims, actions, damages and expenses, including, without
limitation, reasonable attorneys' fees and disbursements, (collectively,
"Losses") arising out of or in connection with any misrepresentation or breach
of any warranty, representation, covenant or agreement made by Seller in this
Agreement. If Purchaser determines that it is entitled to indemnification for
Losses, Purchaser shall give prompt written notice to Seller of each claim (a
"Claimed Loss") for a Loss specifying the amount and nature of such claim, and
of any matter which in the opinion of Purchaser is likely to give rise to claim
for a Loss. Purchaser's notice of Claimed Loss shall include its estimate of
its fees and expenses, including without limitation reasonable attorney's fees
and disbursements, in any claim or legal proceeding related thereto, subject to
adjustment once the claim or legal proceeding has concluded and Purchaser's
actual fees and expenses are known. Seller, within twenty (20) days after
Purchaser has given such notice, shall respond in writing, either acknowledging
his obligation for such Claimed Loss or denying such obligation. If Seller
acknowledges such obligation, Purchaser may withdraw from the Escrow a number
of shares (valued as set forth above) equal to the amount of the Claimed Loss,
to the maximum amount then remaining in the Escrow. If Seller denies such
obligation for a Claimed Loss, Seller and Purchaser shall proceed to
arbitration pursuant to paragraph 11.3. If Seller is found by the arbitration
provided for below (or by any other body which can make a final determination)
to be liable, in whole or in part, for a Claimed Loss, Purchaser may withdraw
from the Escrow a number of shares equal to the amount of the Claimed Loss, to
the maximum amount then remaining in the Escrow, and shall, in addition
thereto, be entitled to cash payment or reimbursement by Seller, of Purchaser's
reasonable attorneys' fees and costs (provided that if the Loss awarded is only
part of that Claim, any payment for attorneys' fees and costs shall be
proportionate thereto). The Escrow is being established to protect Purchaser
against all Claimed Losses and Purchaser may resort to the Escrow established
hereunder in such event. The maximum liability of Seller for any and all
Losses under this Agreement, in the aggregate, shall be the amount of the
Escrow, and except as provided in Section 6.12 above, Purchaser shall have no
other recourse against Seller hereunder. Any claim by Purchaser for a Loss
under this Agreement must be filed by the end of the Escrow Period. With
respect to any
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<PAGE> 21
Claimed Loss which has been asserted hereunder that is pending or unresolved at
the end of the Escrow Period, the number of shares subject to such Claimed Loss
shall remain in the Escrow, and the Escrow Period shall be extended until the
matter relating to such Claimed Loss has been terminated or otherwise resolved.
If no claims have been filed by the end of the Escrow Period, the shares held
in Escrow shall automatically, and without need for further action or approval
by Purchaser, be delivered to Seller. The parties shall enter into an escrow
agreement with the escrow holder incorporating the terms of this Agreement.
11.3 ARBITRATION. If Seller denies any obligation
for a Claimed Loss as described in Section 11.2 above, a determination of
whether a Loss exists shall be made by a three-person panel of arbitrators
designated according to the rules of the American Arbitration Association. The
arbitration procedure shall be governed according to the rules of the American
Arbitration Association.
11.4 INDEMNIFICATION BY PURCHASER. Purchaser
shall indemnify, defend, and hold harmless Seller, promptly upon demand at any
time and from time to time, against any and all Losses arising out of or in
connection with any misrepresentation or breach of any warranty,
representation, covenant or agreement made by Purchaser in this Agreement.
11.5 INDEMNIFICATION PROCEDURE. If Seller seeks
indemnification under 11.4 hereof, Seller shall give prompt written notice to
Purchaser of each claim for indemnification hereunder, specifying the amount
and nature of the claim, and of any matter which in the opinion of Seller is
likely to give rise to an indemnification claim. In the event of any claim for
indemnification hereunder resulting from or in connection with any claim or
legal proceeding brought by, or which Seller reasonably believes is likely to
be brought by, a third party, such notice shall specify, if known, the amount
or an estimate of the amount of the liability arising therefrom. Purchaser,
within ten (10) days after the Seller has given such notice (or within such
shorter period of time as an answer or responsive motion may be required),
shall acknowledge in writing its obligation to indemnify. Purchaser shall then
have the right to control, at its sole cost and expense, the defense of such
claim or proceeding, with counsel reasonably satisfactory to the Seller.
Seller shall not settle or compromise such claim or proceeding without the
written consent of the Purchaser, which consent shall not unreasonably be
withheld or delayed. Seller may in any event participate in any such defense
with its own counsel and at its own expense. Each of the parties hereto shall
cooperate in the defense of any claim and shall provide the other with access
to records as may reasonably be required.
Notwithstanding the foregoing, the rights of Seller
to be indemnified hereunder shall not be adversely
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<PAGE> 22
affected by Seller's failure to give notice in accordance with the foregoing
unless and only to the extent that the Purchaser is materially prejudiced by
such failure.
If the Purchaser, within twenty (20) days of receipt
of notice of a claim (or within such shorter time as may be required for an
answer or responsive motion), fails to assume the defense, Seller shall have
the right to undertake the defense, compromise or settlement on behalf of and
for the account and risk of the Purchaser.
11.6 SURVIVAL OF INDEMNIFICATION. The
indemnifications contained in Section 11.4 shall survive for one year after the
Closing. Any matter as to which a claim has been asserted hereunder that is
pending or unresolved at the end of such period shall continue to be covered by
this indemnification until finally terminated or otherwise resolved.
12. TERMINATION. This Agreement may be terminated prior
to the Closing:
(a) By written agreement of the parties hereto;
(b) Automatically, without further action by any
party, if the Closing shall not have occurred on or before June 30, 1996 or
such later date, if any, to which Purchaser and Seller shall agree in writing;
(c) By Purchaser or Seller if a condition to
their respective obligations to consummate the transactions contemplated hereby
has not been met by the Closing Date; or
(d) By Purchaser if, in the course of its due
diligence review, it discovers information which Purchaser believes has a
material adverse effect on or relating to the value, business, properties,
financial condition, prospects, liabilities or obligations of the Company; or
(e) By Seller, if in the course of his due
diligence review, Seller discovers information which Seller believes has a
material adverse effect on or relating to the value, business, properties,
financial condition, prospects, liabilities or obligations of the Purchaser.
13. MISCELLANEOUS.
13.1 SURVIVAL. All representations, warranties,
indemnities, covenants, and agreements made by the parties in connection with
the transaction described herein shall survive the Closing for a period of one
year after the Closing, provided, however, that any matter as to which an
indemnification claim has been asserted under Paragraph 11 that is pending or
unresolved at
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<PAGE> 23
the end of such period shall continue to be covered by such indemnification
until finally terminated or otherwise resolved.
13.2 FURTHER ASSURANCES. The parties shall
cooperate and take such actions, and execute such other documents, at the
Closing or subsequently, as either may reasonably request in order to carry out
the provisions or purpose of this Agreement.
13.3 NOTICES. All notices or other communications
in connection with this Agreement shall be in writing and shall be considered
given when personally delivered or five (5) days after mailing when mailed by
registered or certified mail, postage prepaid, return receipt requested, or
upon receipt when sent via commercial courier or facsimile (with telephonic or
electronic confirmation of receipt) directed, as follows:
If to Purchaser:
Reddi Brake Supply Corporation
1376 Walter Street
Ventura, CA 93003
Attention: S. Gerald Birin
Executive Vice President
With a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard, Ninth Floor
Beverly Hills, CA 90212
Attention: Kenneth A. Luer, Esq.
If to Seller:
Mr. Allen Jim Sheerin
2657 Windmill Parkway
Henderson, Nevada 89014
With a copy to:
Alschuler Grossman & Pines LLP
2049 Century Park East, 39th Floor
Los Angeles, California 90067
Attention: Gerald B. Kagan, Esq.
The above addresses may be changed by notice given in accordance with this
Paragraph.
13.4 ENTIRE AGREEMENT. This Agreement (which
includes the Schedules and Exhibits hereto) sets forth the parties' final and
entire agreement with respect to its subject matter (except for the matters to
be covered by the Registration Rights Agreement, the Escrow Agreement and the
Covenant Not to
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<PAGE> 24
Compete) and supersedes any and all prior understandings and agreements. This
Agreement may be amended, supplemented, or changed, and any provision hereof
may be waived, only by a written instrument signed by both parties.
13.5 SUCCESSORS. The rights under this Agreement
shall not be assignable nor the duties delegable by Purchaser or Seller without
the written consent of the other, provided, however, that Purchaser shall have
the right to transfer the assets or stock of the Company to, or merge the
Company with and into, Purchaser's wholly-owned subsidiary, Reddi Brake Supply
Company, Inc., a California corporation. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, personal representatives, successors, and
assigns.
13.6 PARAGRAPH HEADINGS. The paragraph headings
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
13.7 SEVERABILITY. If any provision of this
Agreement shall be held by any court of competent jurisdiction to be illegal,
invalid, or unenforceable, such provision shall be construed and enforced as if
it had been more narrowly drawn so as not to be illegal, invalid or
unenforceable, and such illegality, invalidity or unenforceability shall have
no effect upon and shall not impair the enforceability of any other provision
of this Agreement.
13.8 GOVERNING LAW. This Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of California.
13.9 COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
13.10 ATTORNEYS' FEES. In the event that any party
shall bring an action in connection with the performance, breach or
interpretation of this Agreement, or in any action related to the transaction
contemplated hereby, the prevailing party in such action, as may be determined
by the court or other tribunal having jurisdiction, shall be entitled to
recover from the losing party in such action all actual costs and expenses of
such litigation, including attorneys' fees, court costs, costs of
investigation, accounting, and other costs reasonably related to such
litigation, in such amount as may be determined in the
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<PAGE> 25
discretion of the court or other tribunal having jurisdiction of such action.
EXECUTED as of the date first above written.
PURCHASER:
---------
Reddi Brake Supply Corporation
By:
------------------------------
S. Gerald Birin
Executive Vice President
and CFO
By:
------------------------------
Title:
--------------------------
SELLER:
------
----------------------------------
Allen J. Sheerin
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<PAGE> 1
Exhibit 10.46
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") dated as
of June 28, 1996 is entered into by and between REDDI BRAKE SUPPLY CORPORATION,
a Nevada corporation (the "Company"), and Allen J. Sheerin ("Sheerin") (Sheerin
is sometimes referred to herein as the "Holder").
R E C I T A L S:
A. Pursuant to a Stock Purchase Agreement dated June 28,
1996 between Company and Sheerin (the "Stock Purchase Agreement"), Sheerin is,
simultaneously with the signing of this Agreement, selling all of the common
stock of Express Undercar Parts Warehouse of California Inc. to the Company in
exchange for a total of 606,331 shares of common stock of Company (the
"Shares") (the "Transaction").
B. Company, Sheerin and West Covina Unitrust have
formerly entered a Registration Rights Agreement dated October 31, 1994 (the
"1994 Registration Rights Agreement"). Nothing contained herein is intended to
in any way modify or supplant the registration rights granted under the 1994
Registration Rights Agreement which remains effective.
C. Company, Sheerin and Bryan Morford have formerly
entered into a Registration Rights Agreement dated May 28, 1996 (the "1996
Registration Rights Agreement"). Nothing contained herein is intended to in
any way modify or supplant the registration rights granted under the 1996
Registration Rights Agreement which remains effective.
D. This Agreement is intended to grant registration
rights in connection with all of the Shares and its supplements and is in
addition to the Agreements referred to above.
NOW, THEREFORE, in consideration of the premises set forth
above and the mutual promises and covenants hereinafter set forth, the parties
agree as follows:
Section 1. Registration Rights.
1.1 Definitions. As used in this Agreement, the
following capitalized terms shall have the following respective meanings:
(a) Common Stock. The issued shares of Common
Stock of the Company with a $.0001 par value.
(b) Exchange Act. The Securities Exchange Act of
1934, as amended, or any similar federal statute then in effect, and a
reference to a particular section thereof shall be deemed
<PAGE> 2
to include a reference to the comparable section, if any, of any such similar
federal statute.
(c) Holder. The Person described as a "Holder"
in the first paragraph of this Agreement and any and all permitted transferees,
as described in Paragraph 2.1 below.
(d) Person. An individual, partnership, joint
venture, corporation, trust, unincorporated organization or government or any
department or agency thereof.
(e) Registrable Securities. Any Shares, provided
that any particular Shares shall cease to be Registrable Securities when: (i) a
registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (ii) they
shall have been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any similar state law then in force, (iv)
they shall have ceased to be outstanding, (v) they shall have been transferred
to any person or entity other than in a private transaction in which the
transferror's rights under this Agreement may be assigned pursuant to Section
2.1 hereof, or (vi) they have become transferrable without any further holding
or volume limitations pursuant to Rule 144(k) (or any successor provision then
in effect).
(f) Registration Expenses. Any and all expenses
incident to performance of or compliance with this Agreement, including without
limitation: (i) all SEC and stock exchange or National Association of
Securities Dealers registration and filing fees, (ii) all fees and expenses of
complying with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger
and delivery expenses, (iv) the fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of
any special audits and/or "cold comfort" letters required by or incident to
such performance and compliance, and (v) any fees and disbursements of
underwriters customarily paid by issuers or Holders of securities, including
liability insurance if the Company so desires, and the reasonable fees and
expenses of any special experts retained by the Company in connection with the
requested registration, but excluding underwriting discounts and commissions
and transfer taxes, if any.
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<PAGE> 3
(g) Securities Act. The Securities Act of 1933,
as amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.
(h) SEC. The Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act or the
Exchange Act.
(i) Shares. The securities which are described
in the first recital to this Agreement.
1.2 Incidental Registration.
(a) Right to Include Registrable Securities.
Subject to the further terms and conditions of the Agreement, if the Company at
any time proposes to register any class of equity security on any form for the
general registration of securities under the Securities Act (other than a
registration form relating to (i) a registration of a stock option, stock
purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan, or any other
registration on Form S-8 (or any successor form then in effect), (ii) a
registration of securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with, another
corporation, (iii) a registration of securities proposed to be issued in
exchange for other securities of the Company), or (iv) any registration on Form
S-4 (or any successor form then in effect), then the Company will at such time
give prompt written notice to each Holder of its intention to do so and of each
such Holders' rights under this Paragraph 1.2. Upon the written request of any
such Holder or Holders made within fifteen (15) days after the effectiveness of
any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its commercially reasonable efforts
to cause the Registrable Securities which the Company has been so requested to
register by the Holders thereof to be registered under the Securities Act,
provided that (i) if, at any time after giving written notice of its intention
to register any securities but prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities, and (ii) if such registration involves an
underwritten offering, all Holders of Registrable Securities requesting to be
included in such registration must sell their Registrable Securities to the
underwriters of such offering on the same terms and conditions as apply to the
Company or the
3
<PAGE> 4
Holder for whose account securities are to be sold, as the case may be. If a
registration requested pursuant to this Paragraph 1.2(a) involves an
underwritten public offering, any Holder of Registrable Securities requesting
to be included in such registration may elect in writing to withdraw its
securities in connection from such registration, but only during the time
period and on terms agreed upon by the underwriters for such offering. The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this Paragraph 1.2; provided,
however, (i) all underwriting discounts and commissions attributable to the
Registrable Securities shall be borne by the selling Holder(s), and (ii) any
other fees or expenses incurred by one of the parties, including fees and
expenses of attorneys and accountants, shall be borne by such party.
(b) Priority in Incidental Registrations. In
connection with any registration pursuant to this Paragraph 1.2 involving any
underwritten offering, if the managing underwriter or underwriters advise the
Company in writing that, in its or their opinion, the number of securities
requested to be included in such registration would have a material adverse
effect on such offering (including, without limitation, a material decrease in
the price at which such securities can be sold), then the amount of the
Registrable Securities included in the offer shall be reduced and the
Registrable Securities and the other shares to be offered shall participate in
such offering as follows: (i) shares to be sold by the Company ("Company Common
Stock") shall have priority over all shares to be offered by stockholders of
the company, including the Holders, and (ii) if shares in the excess of the
Company's Common Stock can, in the good faith judgment of such managing
underwriter or underwriters, successfully be marketed in such offering, the
Registrable Securities and the other shares of Common Stock to be offered by
stockholders of the Company, including the Holders, shall be included in such
offering, subject to reduction pro rata in proportion to the number of shares
of Common Stock proposed to be included in such offering by each Holder or
other stockholder.
1.3 Demand Registration.
(a) Request for Registration. Not sooner than
sixteen (16) months from the date of "Closing" (as defined in the Stock
Purchase Agreement), any Holder may make a written request for the registration
under the securities Act of all or part (provided, however, that such demand
must equal at least 50% of the shares issued to Holder and [Allen J. Sheerin]
in the stock purchase effected pursuant to that Stock Purchase Agreement dated
as of June 28, 1996) of its Registrable Securities (a "Demand Registration")
provided that such Holder provides sixty (60) days prior written notice to the
Company of such Demand Registration, and the Company shall use its commercially
reasonable efforts to effect such Demand Registration. Any request for a
Demand
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<PAGE> 5
Registration shall specify the aggregate number of the Registrable Securities
proposed to be sold. The right to cause a registration of the Registrable
Securities provided for in this Paragraph 1.3(a) shall be limited to one (1)
such registration, and if one of the Holders does not request to be included in
such registration he shall be deemed to have waived all rights to a Demand
Registration. In any registration initiated as a Demand Registration, the
Company shall pay all Registration Expenses in connection therewith; provided,
however, (i) all underwriting discounts and commissions attributable to the
Registrable Securities shall be borne by the selling Holder(s), and (ii) any
other fees or expenses incurred by one of the Holders, including fees and
expenses of attorneys and accountants, shall be borne by such party. A Demand
Registration shall not be counted as a Demand Registration hereunder until such
Demand Registration has been declared effective by the SEC and maintained
continuously effective for a period of at least six (6) months or such shorter
period when all Registrable Securities included therein have been sold in
accordance with such Demand Registration, provided that a Demand Registration
shall be counted as a Demand Registration hereunder if the Company ceases its
efforts in respect of such Demand Registration at the request of the Holder for
a reason other than a material and adverse change in the business, financial
condition or prospects of the Company and its subsidiaries taken as a whole or
in general economic or market conditions. The Company shall be entitled to
include in any registration pursuant to this Paragraph 1.3(a) any other
securities of the Company whether offered by the Company or by and other
holder(s) of its securities.
(b) Priority in Demand Registrations. If in any
Demand Registration the managing underwriter or underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration is sufficiently large to materially and adversely
affect the success of such offering (including, without limitation, a material
decrease in the proposed offering price), the Company will include in such
registration only a number of Registrable Securities and other securities equal
to the total number which in the opinion of such managing underwriter or
underwriters or Holder(s) can be sold without any such material adverse effect,
as follows: Registrable Securities pro rata in proportion to the number of
shares proposed to be included in such registration by any holder of shares
having rights to have his or her shares registered in such offering, and by the
Company.
(c) Selection of Underwriters. If any Demand
Registration is in the form of an underwritten offering, the Holder(s) of
Registrable Securities to be sold pursuant to such Demand Registration will
select and obtain the investment banker or investment bankers and manager or
managers that will administer the offering.
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<PAGE> 6
1.4 Registration Not Required. Notwithstanding the
provisions of Paragraphs 1.2 and 1.3 of this Agreement:
(a) the Company shall not be required to effect or
cause the registration of Registrable securities pursuant to Paragraph 1.2 or
1.3 hereof if, within twenty-five (25) days after its receipt of a request to
register such Registrable Securities (i) counsel for the Company delivers an
opinion to the Holder requesting registration of such Registrable Securities,
in form and substance satisfactory to counsel to such Holder, that the entire
number of shares of Registrable Securities proposed to be sold by such Holder
may otherwise be sold, in the manner proposed by such Holder, without
registration under the Securities Act, or (ii) the SEC shall have issued a
no-action position, in form and substance satisfactory to counsel for the
Holder requesting registration of such Registrable Securities, that the entire
number of Registrable Securities proposed to be sold by such Holder may be sold
by him, in the manner proposed by such Holder, without registration under the
Securities Act;
(b) The Company shall not be required to prepare and
file a registration statement pursuant to this Section 1.4 within 90 days of
the effective date of any registration statement pertaining to securities of
the Company, other than a registration of securities pertaining to an employee
benefit plan or dividend reinvestment plan; and
(c) The Company shall not be required to file a
registration statement under this Section 1.4 during any period of time when
(i) the Company is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time, and, in
the opinion of counsel to the Company, such information would have to be
disclosed if a registration statement was filed at that time; or (ii) the
Company determines, in its reasonable judgment, that such registration would
interfere with any financing or acquisition involving the registration of
securities of the Company under the Securities Act.
1.5 Registration Procedures. If and whenever the company
is required to use its commercially reasonable efforts to, effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will, as expeditiously as possible:
(a) prepare and, in any event within ninety (90)
days after the end of the period within which requests for registration may be
given to the Company (but subject to the provisions of Sections 1.4(b) and
1.4(c) and of the second sentence of Paragraph 1.2(a) hereof), file with the
SEC a registration statement with respect to such Registrable Securities and
use its commercially reasonable efforts to cause such registration statement to
become effective as soon
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<PAGE> 7
thereafter as practicable. The Company will promptly notify each Holder of
such Registrable Securities and confirm such advice in writing, (i) when such
registration statement becomes effective, (ii) when any post-effective
amendment to such registration statement becomes effective and (iii) of any
request by the SEC for any amendment or supplement to such registration
statement or any prospectus relating thereto or for additional information;
(b) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least six (6) months (subject to tolling during the effective
period of any lock-up agreement to which the Registrable Securities are
subject, or for such shorter period in which the Holder has sold all of the
Registrable Shares included in such registration statement) and to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Holder or Holders of
Registrable Securities set forth in such registration statement. If at any
time the SEC should institute or threaten to institute any proceedings for the
purpose of issuing a stop order suspending the effectiveness of any such
registration statement, the Company will promptly notify each Holder of such
Registrable Securities and will use all commercially reasonable efforts to
prevent the issuance of any such stop order or to obtain the withdrawal thereof
as soon as possible;
(c) furnish to each Holder of such Registrable
Securities such number of copies of such registration statement and of each
such amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and summary prospectus), in conformity
with the requirements of the Securities Act and such other documents as such
Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities by such Holder;
(d) use its commercially reasonable efforts to
register or qualify such Registrable Securities covered by such registration
statement under such securities or blue sky laws of any State of the United
States as the managing underwriter, if any, shall reasonably request, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable each Holder and underwriter, if any, to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
Holder, except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this Paragraph 1.5(d), it would not be
obligated to be so qualified, to subject itself to taxation in any such
7
<PAGE> 8
jurisdiction, or to consent to general service of process in any such
jurisdiction;
(e) use its commerically reasonable efforts to
cause such Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
of the United States or any State thereof as the parties may agree that may be
necessary to enable the Holder or Holders thereof to consummate the disposition
of such Registrable Securities;
(f) promptly notify each Holder of any such
Registrable Securities covered by such registration statement, at any time when
a prospectus relating thereto is required to be delivered under the Securities
Act within the appropriate period mentioned in Paragraph 1.5(b), of the Company
becoming aware that the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and at the request of any such Holder promptly prepare and furnish to
such Holder a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing;
(g) otherwise use its commercially reasonable
efforts to comply with all applicable rules and regulations of the SEC, and
make available to its securities holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months,
beginning with the first month after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act;
(h) use its commercially reasonable efforts to
list such Registrable Securities on any securities exchange on which the Common
Stock is then listed, if such Registrable Securities are not already so listed
and if such listing is then permitted under the rules of such exchange, and to
provide a transfer agent and registrar for such Registrable Securities covered
by such registration statement not later than the effective date of such
registration statement;
(i) use all commercially reasonable efforts to
obtain a "cold comfort" letter or letters from the Company's independent public
accountants in customary form and covering matters of the type customarily
covered by "cold comfort" letters as the underwriters shall reasonably request;
and
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<PAGE> 9
(j) make available for inspection by any Holder
of such Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by any such Holder or, any such underwriter, in each case upon receipt of an
appropriate confidentiality agreement, all financial and other records,
corporate documents and properties of the Company and its subsidiaries, and
cause all of the Company's officers, directors and employees to supply all
information, as may be reasonably requested by any such Holder, underwriter,
attorney, accountant or agent in connection with such registration statement.
(k) Each Holder of Registrable Securities as to
which any registration is being effected shall furnish the Company in writing
such information and documents regarding such Holder and the distribution of
such securities as the Company may reasonably request, and Holder shall execute
all Questionnaires, Powers of Attorney, Indemnities, Stand Still Agreements,
Hold-Back Agreements, Underwriting Agreements and other documents required
under the terms of Underwriting Agreements as may be necessary or appropriate
to effect a registration of the Registerable Shares under any other applicable
securities or blue sky laws of the jurisdictions referred to in Paragraph
1.5(d), as reasonably determined by the Company.
(l) Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Paragraph 1.5(f), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Paragraph 1.5(f), and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Paragraph 1.5(b) shall be
extended by the number of days during the period from and including the date of
the giving of such notice pursuant to Paragraph 1.5(f) to and including the
date when each Holder of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by Paragraph 1.5(f).
(m) If requested by the managing underwriter of any
underwritten offering of securities of the Company, Holder shall agree not to
effect any public sale or distribution of any Shares (except pursuant to the
registration statement), including
9
<PAGE> 10
any sale pursuant to Rule 144, during the 10-day period prior to and the 90-day
period following the effectiveness of the registration statement related to
such offering.
1.6 Indemnification.
(a) Indemnification by the Company. In the event
of any registration of any securities of the Company under the Securities Act
pursuant to this Agreement, the Company will, and it hereby does, indemnify and
hold harmless, to the extent permitted by law, the Holder of any Registrable
Securities covered by such registration statement, its directors and officers
or general and limited partners (any directors and officers thereof), each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Holder or any such
underwriter within the meaning of the Securities Act, against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with the Company's
written consent) to which such Holder, any such director or officer or general
or limited partner or such underwriter or controlling person may become subject
under the Securities Act, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such Holder and each
such director, officer, general or limited partner, underwriter and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding, provided, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon any
breach by the indemnified person of its obligations under this Agreement,
including, without limitation, those contained in Paragraphs 1.5 (k), (l) or
(m) or any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment or supplement thereto
or in any such preliminary, final or summary prospectus or amendment or
supplement thereto, in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of such Holder or
underwriter for use in the preparation thereof; and provided, further, that the
Company will not be liable to any Person who participates as an underwriter in
the offering or sale of Registrable Securities, or to any other Person who
controls
10
<PAGE> 11
such underwriter, within the meaning of the Securities Act, under the indemnity
agreement in this Paragraph 1.6(a) with respect to any preliminary prospectus
or the final prospectus, or the final prospectus as amended or supplemented, as
the case may be, to the extent that any such loss, claim, damage or liability
of such underwriter or controlling Person results from the fact that such
underwriter sold Registrable Securities to a person to whom there was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
final prospectus (including any documents incorporated by reference therein) or
of the final prospectus as then amended or supplemented (including any
documents incorporated by reference therein), whichever is most recent, if the
Company has previously furnished copies thereof to such underwriter and such
final prospectus, as then amended or supplemented, has corrected any such
misstatement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Holder or any such
director, officer, general or limited partner, underwriter or controlling
Person and shall survive the transfer of such securities by such Holder.
(b) Indemnification by the Holders. Each Holder
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in Paragraph 1.6(a)) the Company, each director of the Company, each
officer of the Company who shall sign the registration statement and its
controlling Persons, if any, and all other prospective Holders and their
respective directors, officers and controlling Persons with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement, if such statement or alleged statement
or omission or alleged omission was made in reliance upon and in conformity
with information furnished to the Company in writing by or on behalf of such
Holder for use in the preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any of the prospective Holders or any of their
respective directors, officers or controlling Persons and shall survive the
transfer of such securities by such Holder.
(c) Notices of Claims, etc. Promptly after
receipt by an indemnified party hereunder of written notice of the commencement
of any action or proceeding with respect to which a claim for indemnification
may be made pursuant to this Paragraph 1.6, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Paragraph 1.6, except to the extent that the indemnifying
party is actually
11
<PAGE> 12
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties exists in respect of such claim, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof. No indemnifying party will
be required to consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation. Any indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim.
(d) Other Indemnification. Indemnification
similar to that specified in the preceding subdivisions of this Paragraph 1.6
(with appropriate modifications) shall be given by the Company to each Holder
and any underwriter of Registrable Securities with respect to any required
registration or other qualification of securities under any federal or state
law or regulation other than the Securities Act.
(e) Contribution. If the indemnification
provided for in Paragraphs 1.6(a). 1.6(b) or 1.6(d) is unavailable to a party
that would have been an indemnified party under any such section in respect of
any and all losses, claims, damages or liabilities, joint or several (or
actions in respect thereof), referred to therein, then each party that would
have been an indemnifying party thereunder shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party, on the one hand, and such indemnified party,
on the other, in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, joint or several (or actions in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statements of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity
12
<PAGE> 13
to correct or prevent such statement or omission. The Company agrees that it
would not be just and equitable if contribution pursuant to this Paragraph
1.6(e) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Paragraph 1.6(e). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this Paragraph 1.6(e) shall
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim
(which shall be limited as provided in Paragraph 1.6(c) hereof if the
indemnifying party has assumed the defense of any such action in accordance
with the provisions thereof). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
1.7 Rule 144. The Company covenants that it will use its
commercially reasonable efforts under the circumstances to file the reports
required to be filed by it under the Exchange Act and the rules and regulations
adopted by the SEC thereunder to the extent required from time to time to
enable the Holders to sell shares of Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any successor rule then in effect. Upon the request
of any Holder of Registrable Securities, the Company will deliver to such
Holder a written statement as to whether it has complied with such
requirements.
1.8 Mergers, Etc. The Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization in which the
Company shall not be the surviving corporation unless the surviving corporation
shall, prior to such merger, consolidation or reorganization, agree in writing
to assume the obligations of the Company under this Agreement, and for that
purpose references hereunder to "Registrable Securities" shall be deemed to
include the securities which the Holders would be entitled to receive in
exchange for Common Stock under any such merger, consolidation or
reorganization, provided that to the extent such securities to be received are
convertible into shares of common stock of the issuer thereof, then any such
shares of common stock as are issued or issuable upon conversion of said
convertible securities shall also be included within the definition of
"Registrable Securities;" provided, however, that, notwithstanding the
foregoing provisions, if the issuance of securities to the Holders in such
merger, consolidation or reorganization is registered under the Securities Act,
this Agreement shall terminate upon the effective date of such registration.
13
<PAGE> 14
Section 2. Miscellaneous.
2.1 Transfer of Certain Rights. The rights granted to
the Holders pursuant to this Agreement may not be transferred, except as set
forth in this Paragraph 2.1. Notwithstanding anything contained herein to the
contrary, nothing herein shall prohibit: (i) any Holder which is a trust or
other entity from transferring any of its rights under this Agreement to a
beneficiary of the trust when such beneficiary receives Registrable Securities
in a distribution from the trust or other entity, or (ii) any Holder who is an
individual from transferring any of its rights under this Agreement to such
Holder's spouse, siblings, ancestors or lineal descendants, or to a trust for
the benefit of the Holder, or his or her spouse, siblings, ancestors or lineal
descendants; provided that any such transferee under subparagraphs (i), or (ii)
above must, as a condition to the effectiveness of such transfer, agree in
writing to be bound by the terms and conditions of this Agreement.
2.2 Amendments. Except as otherwise provided in this
Agreement, the terms and provisions of this Agreement may not be modified or
amended except in a writing executed by the Company and the Holders. Waivers
and exceptions to the requirements and limitations of the covenants hereof may
be given, and shall be effective if given, in writing by the Holders. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be or construed as, a further
or continuing waiver of any such term, condition or provision.
2.3 Other Agreements. To the extent that the Company
enters into any agreement which grants any person registration rights with
respect to any securities of the Company having provisions more favorable to
the holders thereof than the provisions contained in this Agreement, the
Company will confer comparable rights on the Holders.
2.4 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first-class certified or registered mail, return receipt
requested, postage prepaid:
(a) If to the Company, at 1376 Walter Street,
Ventura, CA 93003, Attention: President, or at such other address or addresses
as may have been furnished in writing by the Company to the Holder, with a copy
to Ervin, Cohen & Jessup, 9401 Wilshire Boulevard, 9th Floor, Beverly Hills, CA
90212, Attn: Kenneth A. Luer, Esq.; or
(b) If to a Holder, at the address set forth
opposite such Holder's name on the signature page hereto or such other address
or addresses as may have been furnished to the Company in writing by such
party.
14
<PAGE> 15
All such notices shall be deemed effective when
actually delivered by hand or, if mailed, three (3) days after deposit in the
U.S. mail properly addressed in accordance with this Paragraph 2.4.
2.5 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
2.6 Headings. The headings of the sections, subsections
and paragraphs of this Agreement have been added for convenience only and shall
not be deemed to be a part of this Agreement.
2.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
2.8 Entire Agreement. All other prior or contemporary
representations, warranties, covenants or agreements, if any, between the
parties hereto, or their representatives, with respect to the subject matter
hereof are superseded by and merged into this Agreement. This Agreement
shall constitute the entire understanding between the parties with respect
hereto.
2.9 Delay of Registration. Neither Holder shall take,
and Holders hereby acknowledge and agree that they shall not have any right to
take, any action to restrain, enjoin or otherwise delay any registration of
securities of the Company as a result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
2.10 Successors and Assigns; No Third Party Beneficiaries.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their permitted successors and assigns. Except as otherwise
specifically provided herein, this Agreement does not create, and shall not be
construed as
15
<PAGE> 16
creating, any rights enforceable by any Person not a party to this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date set forth on the first page hereof.
REDDI BRAKE SUPPLY CORPORATION
By:
------------------------------------
S. Gerald Birin, President
HOLDER:
---------------------------------------------
Allen J. Sheerin
2657 Windmill Parkway
---------------------------------------------
(Address)
Henderson, NV 89014
---------------------------------------------
(City/State/Zip)
16
<PAGE> 1
Exhibit 10.47
FIRST AMENDMENT TO ESCROW AGREEMENT (THE "AMENDMENT")
June 28, 1996
Corporate Stock Transfer, Inc.
Republic Plaza
370 17th Street, Suite 2350
Denver, Colorado 80202
Attention: Ms. Carylyn Bell
Ladies and Gentlemen:
Reference is hereby made to that certain Escrow Agreement,
dated as of June 3, 1996 (the "Escrow Agreement"), by and among Reddi Brake
Supply Corporation, a Nevada corporation ("Reddi Brake"), Allen J. Sheerin (the
"Shareholder") and Corporate Stock Transfer, Inc. Capitalized terms used and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Escrow Agreement.
1. Deposit of Additional Shares into Escrow.
Concurrently herewith, Reddi Brake has instructed you to issue Seventy-Six
Thousand Six Hundred Eighty-Seven (76,687) shares of Reddi Brake Common Stock
(the "Additional Shares"), valued at $125,000, to the Shareholder as part of
the "Purchase Price" under the Stock Purchase Agreement, dated June 28, 1996,
between Reddi Brake and the Shareholder. The Additional Shares, and the Stock
Certificates representing them, shall be deposited by you into the Escrow
Account. Shareholder shall concurrently deliver to you a stock power, endorsed
in blank with his signature guaranteed by a Medallion bank; Shareholder further
agrees to deliver such further stock powers, so endorsed, as may from time to
time be necessary to accomplish (a) the adjustment specified in Section 3 of
the Escrow Agreement or (b) any distributions under Section 4 of the Escrow
Agreement. You shall hold all Additional Shares in the Escrow Account in
accordance with the instructions contained in the Escrow Agreement. The Escrow
Agreement is hereby amended so that all references to "Shares" include the
Additional Shares deposited into the Escrow Account in accordance herewith.
2. Term of Escrow. Section 2 of the Escrow Agreement is
hereby amended to read in its entirety as follows:
"The term of the Escrow (the "Escrow Period") shall commence
on the date hereof and shall terminate on June 28, 1997;
provided, however, that, pursuant to Paragraph 12.2 of the
Purchase Agreement and Paragraph 11.2 of the Stock Purchase
Agreement (the "Second Purchase Agreement"), dated June 28,
1996, between
<PAGE> 2
Reddi Brake and the Shareholder, if any Claimed Loss under
either the Purchase Agreement or the Second Purchase Agreement
which has been asserted by Reddi Brake is pending or
unresolved at the end of the Escrow Period, then Reddi Brake
shall notify you in writing, not later than one day prior to
the end of the Escrow Period, that the specified number of
Shares subject to such Claimed Loss shall remain in the Escrow
Account, and the Escrow Period shall be extended until the
matter relating to such Claimed Loss has been terminated or
otherwise resolved."
3. Adjustment to Number of Shares. Section 3 of the
Escrow Agreement is hereby amended to read in its entirety as follows:
"Pursuant to Paragraph 12.1 of the Purchase Agreement,
effective December 3, 1996, the number of Shares deposited
into the Escrow Account on June 3, 1996 in accordance with the
Purchase Agreement shall be adjusted so that the market value
of such Shares then held in the Escrow Account (based on the
average closing and bid prices on such date, as reported by
The NASDAQ Stock Market or, if Reddi Brake's Common Stock is
no longer reported thereon, the then-relevant market or
system) equals $125,000, and pursuant to Paragraph 11.1 of the
Second Purchase Agreement, effective December 28, 1996, the
number of Shares deposited into the Escrow Account on June 28,
1996 in accordance with the Second Purchase Agreement shall be
adjusted so that the market value of such Shares then held in
the Escrow Account (based on the average closing and bid
prices on such date, as reported by The NASDAQ Stock Market
or, if Reddi Brake's Common Stock is no longer reported
thereon, the then-relevant market or system) equals $125,000;
provided, however, that any number of Shares subject to a
Claimed Loss asserted by Purchaser under either the Purchase
Agreement or the Second Purchase Agreement prior to such dates
shall not be so adjusted. If on such dates additional Shares
must be deposited into the Escrow Account in order to bring
the market value of the relevant Shares up to $125,000,
Shareholder shall deliver to you stock certificates
representing the requisite number of additional Shares of
Reddi Brake Common Stock, which Shares shall be held in the
Escrow Account in accordance with these instructions. If on
such dates Shares must be released from the Escrow Account in
order to bring the market value of the relevant Shares down to
$125,000 (subject to the proviso at the end of the first
sentence of this Section 3), promptly following a written
certificate executed by Reddi Brake and Shareholder in the
form attached hereto as Exhibit A, you
<PAGE> 3
shall deliver to Shareholder the number of Shares indicated
therein from the Escrow Account."
4. Instructions to Escrow Agent. Sections 4.1 and 4.2
of the Escrow Agreement are hereby amended to read in its entirety as follows:
"4.1 Distribution Pursuant to Purchase Agreements.
Pursuant to Paragraphs 12.2 and 11.2, respectively, of the
Purchase Agreement and the Second Purchase Agreement, if
Sellers or Shareholder, as the case may be, acknowledge their
obligation for a Claimed Loss, Reddi Brake may promptly
withdraw from the Escrow Account a number of Shares equal to
the sum arrived at by dividing (a) the amount of the Claimed
Loss by (b) the "Relevant Value" of the Shares. For this
purpose, the "Relevant Value" of the Shares shall be (a) with
respect to any Claimed Loss under the Purchase Agreement for
which Purchaser has given notice to Sellers by December 3,
1996, or with respect to any Claimed Loss under the Second
Purchase Agreement for which the Purchaser has given notice to
Shareholder by December 28, 1996, $1.63, or (b) with respect
to any Claimed Loss under the Purchase Agreement for which
Purchaser has given Sellers notice on or after December 3,
1996, or with respect to any Claimed Loss under the Second
Purchase Agreement for which the Purchaser has given
Shareholder notice on or after December 28, 1996, the average
between the closing offer and bid prices on such date (as
reported on The NASDAQ Stock Market or, if Reddi Brake's
Common Stock is no longer reported thereon, the then-relevant
market or system). In connection therewith, promptly follow
receipt of a written certificate executed by the appropriate
parties in the form attached hereto as Exhibit B-1 or B-2, as
applicable, you shall deliver to Reddi Brake, for cancellation
or to be held as treasury shares, at the sole option and
direction of Reddi Brake, the number of Shares indicated
therein from the Escrow Account.
4.2 Distribution Pursuant to Arbitration.
Pursuant to Paragraphs 12.2 and 12.3 and 11.2 and 11.3,
respectively, of the Purchase Agreement, and the Second
Purchase Agreement, if Sellers or Shareholder, as the case may
be, deny such obligation for a Claimed Loss, Sellers or
Shareholder, as the case may be, and Purchaser shall proceed
to arbitration, with a determination of whether a Loss exists
to be made by a three- person panel of arbitrators designated
according to the rules of the American Arbitration
Association. Upon Reddi Brake's delivering to you a written
determination by such panel of arbitrators that Reddi Brake
<PAGE> 4
is entitled to Shares from the Escrow Account, you shall
deliver to Reddi Brake, for cancellation or holding as
treasury shares, at the sole option and direction of Reddi
Brake, the number of Shares indicated therein from the Escrow
Account."
5. No Other Changes to Escrow Agreement. Except as
provided herein, the Escrow Agreement shall remain unchanged and in full force
and effect.
///
///
///
///
///
///
///
///
///
///
///
///
<PAGE> 5
6. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same document.
Very truly yours,
REDDI BRAKE SUPPLY
By:
------------------------------------
S. Gerald Birin
Chief Financial Officer
SHAREHOLDER
---------------------------------------------
Allen J. Sheerin
The foregoing is accepted and
agreed to as of ________________, 1996
CORPORATE STOCK TRANSFER, INC.
By:
---------------------------------
Carylyn Bell, President
<PAGE> 6
EXHIBIT A
FORM OF CERTIFICATE
Pursuant to Section 3 of that certain Escrow Agreement, dated
June 3, 1996 (the "Escrow Agreement"), by and among Reddi Brake Supply
Corporation, a Nevada corporation ("Reddi Brake"), Allen J. Sheerin and
Corporate Stock Transfer, Inc., as Escrow Agent, the undersigned do hereby
request the distribution to Allen J. Sheerin (the "Shareholder") of
______________ shares of the Common Stock, par value $.0001 per share, issued
in the name of such Shareholder (the "Released Shares") and do hereby certify
as follows:
(i) This certificate is being furnished in
conformity with the terms of Section 3 of the Escrow Agreement; and
(ii) The Shareholder is entitled to receipt of the
Released Shares pursuant to the provisions of [Section 12.1 of that certain
Stock Purchase Agreement, dated as of May 28, 1996, among Reddi Brake, Allen J.
Sheerin and Bryan Morford] or [Section 11.1 of that certain Stock Purchase
Agreement, dated as of June 28, 1996, between Reddi Brake and Allen J.
Sheerin].
REDDI BRAKE SUPPLY CORPORATION
By:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
---------------------------------------------------
Allen J. Sheerin
A-1
<PAGE> 7
EXHIBIT B-1
FORM OF CERTIFICATE
Pursuant to Section 4.1 of that certain Escrow Agreement,
dated June 3, 1996 (the "Escrow Agreement"), by and among Reddi Brake Supply
Corporation, a Nevada corporation ("Reddi Brake"), Allen J. Sheerin and
Corporate Stock Transfer, Inc., as Escrow Agent, the undersigned do hereby
request the distribution to Reddi Brake, for [cancellation or holding as
treasury shares], of ______________ shares of Reddi Brake Common Stock, par
value $.0001 per share, issued in the name of Allen J. Sheerin (the "Released
Shares") and do hereby certify as follows:
(i) This certificate is being furnished in
conformity with the terms of Section 4.1 of the Escrow Agreement; and
(ii) Reddi Brake is entitled to receipt of the
Released Shares pursuant to the provisions of Section 12.2 of that certain
Stock Purchase Agreement, dated as of May 28, 1996, among Reddi Brake, Allen J.
Sheerin and Bryan Morford.
REDDI BRAKE SUPPLY CORPORATION
By:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
SELLERS
---------------------------------------------------
Allen J. Sheerin
---------------------------------------------------
Bryan Morford
B-1
<PAGE> 8
EXHIBIT B-2
FORM OF CERTIFICATE
Pursuant to Section 4.1 of that certain Escrow Agreement,
dated June 3, 1996 (the "Escrow Agreement"), by and among Reddi Brake Supply
Corporation, a Nevada corporation ("Reddi Brake"), Allen J. Sheerin and
Corporate Stock Transfer, Inc., as Escrow Agent, the undersigned do hereby
request the distribution to Reddi Brake, for [cancellation or holding as
treasury shares], of ______________ shares of Reddi Brake Common Stock, par
value $.0001 per share, issued in the name of Allen J. Sheerin (the "Released
Shares") and do hereby certify as follows:
(i) This certificate is being furnished in
conformity with the terms of Section 4.1 of the Escrow Agreement; and
(ii) Reddi Brake is entitled to receipt of the
Released Shares pursuant to the provisions of Section 11.2 of that certain
Stock Purchase Agreement, dated as of June 28, 1996, between Reddi Brake and
Allen J. Sheerin.
REDDI BRAKE SUPPLY CORPORATION
By:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
SELLER
---------------------------------------------------
Allen J. Sheerin
B-2
<PAGE> 1
Exhibit 10.48
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of June 28,
1996, by and between Allen J. Sheerin ("Sheerin") and Reddi Brake Supply
Corporation, a Nevada corporation ("Reddi Brake"), with reference to the
following facts:
A. Sheerin has executed an Amended and Restated Promissory Note
(the "Note"), dated April 7, 1994, in favor of Reddi Brake, the outstanding
balance of which, as of May 1, 1996, is Four Hundred Fifty-Nine Thousand Six
Hundred Nine Dollars and Ninety-Six Cents ($459,609.96).
B. Sheerin currently owes Reddi Brake an additional sum of Fifty
Thousand Dollars ($50,000) (the "Good Faith Deposit") pursuant to that certain
Stock Purchase Agreement, dated June 28, 1996, between Sheerin and Reddi Brake.
C. As of April 30, 1996, pursuant to that certain Settlement
Agreement, dated April 7, 1994, by and between Reddi Brake and Sheerin (the
"Settlement Agreement"), Reddi Brake owed Sheerin Two Hundred Seventy-Seven
Thousand Eight Hundred Eleven Dollars and Seventy-Two Cents ($277,811.72) (the
"Indebtedness").
D. The parties agree that Reddi Brake shall reduce the balance of
the Note by an amount equal to the difference between the Indebtedness and the
Good Faith Deposit in consideration of Sheerin's cancellation of the
Indebtedness, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements contained herein, the parties agree as follows:
1. Reddi Brake hereby agrees to (a) reduce, effective
immediately, the outstanding balance of principal and accrued but unpaid
interest on the Note by the net amount of Two Hundred Twenty-Seven Thousand
Eight Hundred Eleven Dollars and Seventy-Two Cents ($227,811.72) to Two Hundred
Thirty-One Thousand Seven Hundred Ninety-Eight Dollars and Twenty Four Cents
($231,798.24) pursuant to an Addendum to Amended and Restated Promissory Note
of even date herewith and (b) cancel Sheerin's obligations to return to Reddi
Brake the Good Faith Deposit.
2. In consideration of the foregoing reduction in the balance of
the Note, Sheerin hereby agrees to cancel, effective immediately, the full
amount of the Indebtedness and any other obligations remaining under the
Settlement Agreement.
/////
<PAGE> 2
3. This Agreement may be executed by facsimile in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Reddi Brake Supply Corporation, a Nevada
- ------------------------------- corporation
Allen J. Sheerin
By:
-----------------------------------------
S. Gerald Birin, Executive Vice President
<PAGE> 1
Exhibit 10.49
Addendum to Amended and Restated Promissory Note dated April
7, 1994 by and between Allen J. Sheerin, as Maker, and Reddi
Brake Supply Company, Inc. (formerly known as Wesco Auto
Parts, Inc.), a California corporation, as Holder (the "Note")
1. This Addendum modifies the Note. It is the intention of the
parties affected by this Addendum that the terms of this instrument shall
govern and take precedence over any provisions contained in the Note that are
inconsistent with the terms of this instrument.
2. The parties agree that the Note shall be and is hereby
modified as follows:
(a) The principal sum is hereby reduced to Two Hundred
Thirty-One Thousand Seven Hundred Ninety-Eight Dollars and Twenty-Four Cents
($231,798.24); and
(b) the entire unpaid principal balance of the Note and
all accrued interest thereon shall be fully due and payable to Holder on July
13, 1996.
Dated: June 28, 1996
- ---------------------------------------------
Allen J. Sheerin
Reddi Brake Supply Corporation,
a Nevada corporation
By:
------------------------------------------
S. Gerald Birin, Chief Financial Officer
<PAGE> 1
Exhibit 10.50
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE
UPON THE EXERCISE OF THIS WARRANT ARE TRANSFERABLE
ONLY IN ACCORDANCE WITH SECTIONS G AND H, HEREOF.
Void after 5:00 P.M., New York Time, on June 25, 2001
Warrant to Purchase
340,000 Shares
of Common Stock
WARRANT TO PURCHASE COMMON STOCK
This is to Certify That, FOR VALUE RECEIVED, BAYTREE ASSOCIATES, INC. (the
"Holder") is entitled to purchase, subject to the provisions of this Warrant,
from Reddi Brake Supply Corporation, a Nevada corporation (the "Company"), an
aggregate of 340,000 shares (the "Warrant Shares") of the Company's Common
Stock, par value $.0001 per share (Common Stock) at a price of $1.50 per share
(or such other price computed by applying all adjustments made on or before
June 25, 2001, in accordance with Section F. hereof, to $1.50) at any time on
or after June 26, 1996 until 5:00 P.M. New York Time, on June 25, 2001. The
number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for a share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price."
A. EXERCISE OF WARRANT. Subject to the following conditions precedent and
the provisions of Section H. hereof, this Warrant may be exercised in
whole or in part at any time or from time to time on or after June 26,
1996, and before 5:00 P.M. New York Time on June 25, 2001, or, if
either such day is a day on which banking institutions are authorized
by law to close, then on the next succeeding day which shall not be
such a day, by presentation and surrender hereof to the Company at any
office maintained by it at 1376 Walter Street, Ventura, California
93003, or at the office of its Warrant Agent, if the Company has given
notice thereof to the Holder, with the Purchase Form annexed hereto
duly executed and accompanied by payment (in cash or by cashier's or
certified checks or by wire transfer) of the Exercise Price for the
number of shares specified in such form. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this
Warrant for cancellation, execute and deliver a new Warrant evidencing
the rights of the Holder hereof to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant at
its office, or by the Warrant Agent of the Company at its office, in
proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer
<PAGE> 2
books of the Company shall then be closed or that certificate
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Each Warrant not exercised by its expiration
date shall become void, and all rights thereunder and all rights in
respect thereof under this Agreement shall cease on such date.
B. RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be
required for issuance of delivery upon exercise of this Warrant.
C. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.
With respect to any fraction of a share called for upon exercise
hereof, the Company shall pay to the Holder, in lieu of such fraction,
an amount in cash equal to the then "Current Market Price" (as defined
in Section F(3)(b) below) multiplied by such fraction.
D. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and
surrender hereof to the company or at the office of the Warrant Agent
for other Warrants of different denominations entitling the holder
thereof to purchase in aggregate the same number of shares of Common
Stock purchasable hereunder. The term Warrant as used herein includes
any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction, or mutilation of this Warrant, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant,
if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date.
E. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company (including,
without limitation, the right to receive dividends or other
distributions, to exercise any preemptive rights, to vote or to
consent or to receive notice as shareholders in respect of the
meetings of shareholders or the election of directors of the Company
or any other mater, except as specifically provided for herein) either
at law or equity, and the rights of the Holder are limited to those
expressed in the Warrant and are not enforceable against the Company
except to the extent set forth herein.
F. STOCK DIVIDENDS, RECLASSIFICATION, REORGANIZATION, ANTIDILUTION
PROVISIONS. ETC. This Warrant is subject to the following further
provisions:
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<PAGE> 3
1. In case, prior to the expiration of this Warrant by exercise
or by its terms, the Company shall issue any shares of its
Common Stock as a stock dividend or subdivide the number of
outstanding shares of Common Stock into a greater number of
shares, then, in either of such cases, the Exercise Price per
share of the Warrant Shares purchasable pursuant to this
Warrant in effect at the time of such action shall be
proportionately reduced and the number of Warrant Shares at
that time purchasable pursuant to this Warrant shall be
proportionately increased; and conversely, in the event the
Company shall reduce the number of outstanding shares of
Common Stock by combining such shares into a smaller number of
shares, then, in such case, the Exercise Price per share of
the Warrant Shares purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately
increased and the number of Warrant Shares at that time
purchasable pursuant to this Warrant shall be proportionately
decreased. Any dividend paid or distributed upon the Common
Stock in stock of any other class of securities convertible
into shares of Common Stock shall be treated as a dividend
paid in Common Stock to the extent that shares of Common Stock
are issuable upon the conversion thereof. There shall be no
adjustment of the Exercise Price (and no corresponding
adjustment in the number of Warrant Shares) pursuant to this
subsection (1) if the amount of such adjustment would be less
than $.05 per share of Common Stock; provided, however, that
any adjustment which by reason of this provision is not
required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
2. In case, prior to the expiration of this Warrant by exercise
or by its terms, the Company shall be recapitalized by
reclassifying its outstanding Common Stock, par value $.0001
per share, into stock with a different par value or by
changing its outstanding Common Stock with par value to stock
without par, the Company or a successor corporation shall be
consolidated with or merge into or convey all or substantially
all of its or of any successor corporation's property and
assets to any other corporation or corporations (any such
corporation being included within the meaning of the term
"Successor Corporation" in the event of any consolidation with
or merger into any such corporation, or the sale of all or
substantially all of the property of any such corporation), in
exchange for stock or securities of a Successor Corporation,
the holder of this Warrant shall thereafter have the right to
purchase upon the terms and conditions and during the time
specified in this Warrant, in lieu of the Warrant Shares
theretofore purchasable upon the exercise of this Warrant, the
kind and amount of shares of stock and other securities
receivable upon such recapitalization or consolidation, merger
or conveyance by a holder of the number of shares of Common
Stock which the holder of this Warrant would have been
entitled to receive upon the occurrence of such
recapitalization or consolidation, merger
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<PAGE> 4
or conveyance had this Warrant been exercised immediately
prior to such occurrence.
3. (a) If the Company shall issue any additional Shares
(other than as provided in the foregoing subsections (1), (2)
and (5) of this Section F) at a price per share that is less
than the Current Market Price (as defined hereafter), then the
number of Warrant Shares issuable hereunder shall be adjusted
to that number determined by multiplying the number of Shares
issuable upon exercise of a Warrant immediately prior thereto
by a fraction:
(i) the numerator of which shall be equal to the
number of Shares outstanding immediately after the issuance of
such additional Shares, and
(ii) the denominator of which shall be equal to
the sum of (I) the number of Shares outstanding immediately
prior to the issuance of such additional Shares plus (II) a
number equal to the quotient obtained by dividing (w) an
amount equal to the aggregate consideration received by the
Company for the additional Shares so issued by (x) the Current
Market Price. Whenever the number of Warrant Shares are
adjusted as provided in this Section F(3)(a), the Exercise
Price per share of the Warrant Shares shall be adjusted by
multiplying such Exercise Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the
number of Warrant Shares purchasable upon the exercise of such
Warrant immediately prior to such adjustment, and the
denominator of which shall be the number of Warrant Shares so
purchasable immediately thereafter.
(b) For purposes of this Subsection 3, "Current Market
Price" on any date shall mean the average of the daily market
price per Share for the 30 consecutive trading days preceding
such date. The market price for each such day shall be the
last sale price on such date as quoted on the Nasdaq Stock
Market's National Market, or, if no sale takes place on such
day, then the Current Market Price for each such trading day
shall be the average of the reported closing bid and asked
price quotations on such day in the over-the-counter market,
as reported by Nasdaq, or, if not so reported, as furnished by
the National Quotation Bureau, Inc., or, if such firm at the
time is not engaged in the business of reporting such prices,
as furnished by any similar firm then engaged in such business
as selected by the Company, or if there is no such firm, as
furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company. If at any
time the Shares are not listed on any domestic exchange or
quoted on the domestic over-the-counter market, the Current
Market Price shall be the fair market
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<PAGE> 5
value per Share as determined in good faith by the Board of
Directors of the Company.
(c) No adjustment of the number of Warrant Shares
issuable shall be made under this subsection upon the issuance
of any additional Shares which are issued pursuant to any
Common Stock Equivalent (as defined hereafter) if, upon the
issuance of such Common Stock Equivalent, (1) any adjustment
shall have been made pursuant to subsection (5) of this
Section F or (2) no adjustment was required pursuant to
subsection (5) of this Section F.
4. Upon the occurrence of each event requiring an adjustment of
the Exercise Price and of the number of Warrant Shares
purchasable at such adjusted Exercise Price by reason of such
event in accordance with the provisions of this Section F.,
the Company shall compute the adjusted Exercise Price and the
adjusted number of Warrant Shares purchasable at such adjusted
Exercise Price by reason of such event in accordance with the
provisions of this Section F. and shall prepare a certificate
setting forth such adjusted Exercise Price and the adjusted
number of Warrant Shares and showing in detail the facts upon
which such conclusions are based. The Company shall mail
forthwith to each holder of this Warrant a copy of such
certificate, and thereafter said certificate shall be
conclusive and shall be binding upon such holder unless
contested by such holder by written notice to the Company
within thirty (30) days after receipt of the certificate by
such holder.
5. If the Company shall issue any Common Stock Equivalent and the
price per Share (including any consideration paid for the
Common Stock Equivalent) for such additional Shares as may be
issuable pursuant thereto shall be less than the Current
Market Price, then the number of Warrant Shares issuable
hereunder shall be adjusted as provided in subsections 3(a)
and 3(b) of this Section F on the basis that (i) the maximum
number of additional shares issuable pursuant to all such
Common Stock Equivalents shall be deemed to have been issued
(whether or not such Common Stock Equivalents are actually
then exercisable, convertible or exchangeable in whole or in
part) as of the earlier of (A) the date on which the Company
shall enter into a firm contract for the issuance of such
Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent, and (ii) the aggregate
consideration received for such maximum number of additional
Shares shall be deemed to be the minimum consideration
received or receivable as of such time by the Company for the
issuance of such additional Shares, plus any consideration for
such Common Stock Equivalents. No adjustment of the number of
Warrant Shares issuable hereunder shall be made under this
subsection (5) upon the issuance of any Convertible Security
(as defined
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<PAGE> 6
hereafter) which is issued pursuant to the exercise of any
options, warrants or other subscription or purchase rights
therefor, if any adjustment shall previously have been made in
the number of Warrant Shares then in effect upon the issuance
of such options, warrants or other rights pursuant to this
subsection (5).
For purposes of this Section F, "Common Stock Equivalent"
shall mean any evidence of indebtedness, shares of capital
stock or other securities which are or may be at any time
convertible into or exchangeable for additional Shares
(collectively, "Convertible Securities"), or any warrant,
option or other right to subscribe for or purchase any
additional Shares or any Convertible Security, other than this
Warrant.
6. In case the Company shall sell or issue Common Stock or Common
Stock Equivalents containing the right to subscribe for or
purchase Common Stock for a consideration consisting, in whole
or in part, of property other than cash or its equivalent,
then, in determining the "price per Share" of Common Stock and
the "consideration received by the Company" for purposes of
Section 3(a) or the first sentence of Section F(5), the Board
of Directors shall determine the fair value of said property,
and such determination, if based upon the Board of Directors'
good faith business judgment, shall be binding upon the
registered holders. In determining the "price per share" of
Common Stock, any underwriting discounts or commissions paid
to brokers, dealers or other selling agents shall not be
deducted from the price received by the Company for sales of
securities registered under the Act or issued in a private
placement.
7. Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised,
the number of shares of Common Stock purchasable upon exercise
of a Warrant and the Exercise Price, to the extent a Warrant
has not then been exercised, shall, upon such expiration, be
readjusted and shall thereafter be such as they would have
been had they been originally adjusted (or had the original
adjustment not been required, as the case may be) on the basis
of (A) the fact that the only shares of Common Stock so issued
were the shares of Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or
conversion privileges, and (B) the fact that such shares of
Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such
exercise plus the consideration, if any, actually received by
the Company for the issuance, sale or grant of all such
privileges, options, warrants or conversion privileges whether
or not exercised; provided, however, that no such readjustment
shall have the effect of increasing the Exercise Price by an
amount in excess of the amount of the adjustment initially
made in respect of the issuance, sale or grant of such rights,
options, warrants or conversion privileges.
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<PAGE> 7
8. No adjustment under Subsections (3) or (5) of this Section F
in the number of shares of Common Stock purchasable pursuant
to the Warrant (and no corresponding change in the Exercise
Price per Share) shall be required unless such adjustment
would require an increase or decrease of at least one percent
in the number of shares of Common Stock then purchasable upon
the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of shares of Common Stock purchasable
upon the exercise of the Warrants on the first date thereafter
that the Warrants become exercisable; provided, however, that
any adjustments which by reason of this subsection (8) are not
required to be made immediately shall be carried forward and
taken into account in any subsequent adjustment.
9. In case:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to
receive a dividend or any other distribution in
respect of the Common Stock (including cash),
pursuant to without limitation, any spin-off,
split-off or distribution of the Company's assets; or
(b) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to
subscribe for or purchase any shares of stock of any
class or to receive any other rights; or
(c) of any classification, reclassification or other
reorganization of the capital stock of the Company,
the Company's consolidation with or merger into
another corporation, or conveyance of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, and in any such case, the Company shall mail to the
Holder, at least twenty (20) days prior thereto, a notice
stating the date or expected date on which a record is to be
taken for the purpose of such dividend or distribution of
rights, or the date on which such classification,
reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation, or winding up is to take
place, as the case may be. Such notice shall also specify the
date or expected date, if any is to be fixed, as of which
holders of Common Stock of record shall be entitled to
participate in said dividend on distribution of rights, or
shall be entitled to exchange their shares of Common stock for
securities or other property deliverable upon such
classification, reclassification,
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<PAGE> 8
reorganization, consolidation, merger, conveyance,
dissolution, liquidation, or winding up, as the case may be.
The failure to give such notice shall not affect the validity
of any such proceeding or transaction and shall not affect the
right of the holder of this Warrant to participate in said
dividend, distribution of rights, or any such exchange and
acquire the kind and amount of cash, securities or other
property as the Holder would have been entitled to acquire if
it was the record holder of the Warrant Shares which could be
obtained upon the exercise of the Warrants immediately before
such proceeding or transaction; provided that, the Holder
exercises the Warrants within 30 days after discovery that
such action or proceeding has taken place.
10. (a) Except as specifically provided in Section F hereof,
no adjustment in respect of any dividends or distributions out
of earnings shall be made during the term of a Warrant or upon
the exercise of a Warrant.
(b) No adjustments shall be made pursuant to Section F
hereof in connection with the issuance of the Company's Class
A Preferred Stock or Class B Preferred Stock (or the shares of
Common Stock issuable upon conversion thereof), or the
Warrants (or the underlying shares of Common Stock). No
adjustments shall be made pursuant to Section F hereof in
connection with (i) the conversion of the 9.0% Subordinated
Convertible Notes of the Company, (ii) the exercise of options
or warrants of the Company outstanding at the date of this
Agreement, (iii) the issuance of any securities under the
Company's stock option, stock purchase, stock bonus,
retirement or similar employee benefit plans in existence on
the date hereof, and any such plans which hereafter shall be
adopted or approved by the shareholders of the Company, or
(iv) anti-dilution provisions applicable to any other
security. No adjustment shall be made pursuant to subsections
(3) or (5) of this Section F if, as a result of such
adjustment, either (i) the number of shares of Common Stock
purchasable upon the exercise of each Warrant immediately
after such adjustment would be less than the number of shares
of Common Stock otherwise purchasable upon exercise of each
Warrant immediately prior to such adjustment, or (ii) the
Exercise Price immediately after such adjustment would be more
than the Exercise Price immediately prior to such adjustment.
G. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. Neither this
Warrant, the Warrant Shares, nor any other security issued or issuable
upon exercise of this Warrant may be sold or otherwise disposed or
except as follows: (a) to a person who, in the opinion of counsel
reasonably satisfactory to the Company, is a person to whom the
Warrant or Warrant Shares may legally be transferred without
registration and without the delivery of a current prospectus under
the Securities Act of 1933, as amended (the "Act") with respect
thereto, or (b) to any person pursuant to an effective
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<PAGE> 9
registration under the Act and upon delivery of a prospectus then
meeting the requirements of the Act relating to such securities and
the offering thereof for such sale or disposition and, in either case
and only against receipt of a Warrant Agreement substantially
identical to this Agreement executed by such person.
H. REGISTRATION RIGHTS.
1. The Warrant Shares have not been registered under the Act.
Upon exercise, in part or in whole, certificates representing
the Warrant Shares shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act") and may not be offered or sold except pursuant to (i)
an effective registration under the Act or (ii) an opinion of
counsel, if such opinion shall be reasonably satisfactory to
counsel to the issuer, that an exemption from registration
under the Act is available."
2. Subject to the further terms and conditions of this Agreement,
if the Company at any time during the period from June 26,
1996 to June 25, 2003 proposes to register any Common Stock on
any form for the general registration of securities under the
Act, other than in connection with an exchange offer, a
dividend reinvestment plan or any registration on Form S-4 or
Form S-8 (or any successor forms then in effect), the Company
shall at such time give prompt written notice to the Holder of
its intention to do so and of the Holder's rights under this
Section H. Upon the written request of the Holder made within
15 days after receipt of any such notice (which request shall
specify the number of "Registrable Shares" (as defined below)
intended to be disposed of by the Holder and the intended
method of disposition thereof), the Company shall use its
reasonable efforts to cause the Registrable Shares for which
the Holder has requested registration to be registered under
the Act, provided that (i) if, at any time after giving
written notice of its intention to register Common Stock but
prior to the effective date of the registration statement
filed in connection with such registration, the Company shall
determine for any reason not to register such Common Stock,
the Company may, at its election, give written notice of such
determination to the Holder, and, thereupon, shall be relieved
of its obligation to register any Registrable Shares, and (ii)
if such registration involves an underwritten offering, the
Holder must sell his Registrable Shares (if the Holder
continues to desire such Registrable Shares to be registered)
to the underwriters of such offering on the same terms and
conditions as apply to the Company or the stockholders for
whose account securities are to be sold, as the case may be.
As used herein,
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<PAGE> 10
"Registrable Shares" shall mean any Warrant Shares, provided
that any particular Warrant Shares shall cease to be
Registrable Shares when: (i) a registration statement with
respect to the sale of such securities shall have been
declared effective under the Act and such securities shall
have been disposed of in accordance with such registration
statement, (ii) they shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the
Act, (iii) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration
or qualification of them under the Act or any similar state
law then in force, (iv) they shall have ceased to be
outstanding, or (v) they have become transferable without any
further holding or volume limitations pursuant to Rule 144(k)
(or any successor provision then in effect).
3. In connection with any registration pursuant to this Section H
involving an underwritten offering, if the managing
underwriter or underwriters advise the Company in writing
that, in its or their opinion, the number of securities
requested to be included in such registration would adversely
affect such offering (including, without limitation, a
decrease in the price at which such securities can be sold),
then the amount of the Registrable Shares included in the
offering shall be reduced, and the Registrable Shares and the
other shares of Common Stock to be included in the offering
shall participate in such offering as follows: (i) shares to
be sold by the Company shall have priority over all shares to
be offered by any other stockholders of the Company, including
the Holder, and (ii) if shares in the excess of the Common
Stock to be sold on behalf of the Company can, in the good
faith judgment of such managing underwriter or underwriters,
successfully be marketed in such offering, the Registrable
Shares and the other shares of Common Stock to be to be
offered by any other stockholders of the Company, including
the Holder, shall be included in such offering, subject to
reduction pro rata in proportion to the number of shares of
Common Stock proposed to be included in such offering by the
Holder and each other selling stockholder, provided, however,
that, in the event the foregoing would result in the exclusion
of the Holder's Registrable Shares, from the registration
statement, then the Holder shall have the right to include
such shares in the registration statement subject only to a
binding agreement in a form acceptable to the managing
underwriter not to sell the registered shares for a period not
exceeding twelve months following the effective date of the
registration statement.
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4. Registration Procedures.
(a) Company Obligations. If and whenever the Company is
required to use its reasonable efforts to effect the
registration of any Registrable Shares under the Act as
provided in this Agreement, the Company shall, as promptly as
practicable:
(i) prepare and file with the SEC a registration
statement with respect to such Registrable Shares and use its
reasonable efforts to cause such registration statement to
become effective as soon thereafter as reasonably practicable.
The Company will promptly notify the Holder and, if requested
by the Holder, confirm such advice in writing, (x) when such
registration statement becomes effective, (y) when any
post-effective amendment to such registration statement
becomes effective, and (z) of any request by the SEC for any
amendment or supplement to such registration statement or any
prospectus relating thereto or for additional information;
(ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective for at least six
months (or for such shorter period in which the Holder has
sold all of the Registrable Shares included in such
registration statement) and to comply with the provisions of
the Act with respect to the disposition of all securities
covered by such registration statement during such period in
accordance with the intended methods of disposition by the
Holder set forth in such registration statement;
(iii) furnish to the Holder at least one copy of
such registration statement and of each amendment and
supplement thereto (in each case including all exhibits) and
such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus)
and of each supplement thereto and of such other documents as
the Holder may reasonably request in order to facilitate the
disposition of the Registrable Shares by the Holder:
(iv) use its reasonable efforts to register or
qualify the Registrable Shares covered by the registration
statement under such securities or blue sky laws of the States
of New York, New Jersey and Connecticut, as the Holder or the
managing underwriter, if any, shall reasonably request, except
that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in
any jurisdiction where, but for the requirements of this
Section H(4)(a)(iv), it would not be obligated to be so
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qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in
any such jurisdiction;
(v) promptly notify the Holder at any time when a
prospectus is required to be delivered under the Act during
the period mentioned in Section H(4)(a)(ii) and the Company
becomes aware that the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in the light of the
circumstances then existing; and, at the request of the
Holder, promptly prepare and furnish to the Holder a
reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Shares, such
prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
and
(vi) make available for inspection by the Holder,
by any underwriter participating in any disposition to be
effected pursuant to such registration statement and by any
attorney, accountant or other agent retained by the Holder or
any such underwriter, in each case upon receipt of an
appropriate confidentiality agreement, all financial and other
records, corporate documents and properties of the Company and
its subsidiaries, and cause the Company's officers and
employees to supply all information, as may be reasonably
requested by the Holder or any such underwriter, attorney,
accountant or agent in connection with such registration
statement.
(b) The Holder Obligations.
(i) In connection with any registration of
Registrable Shares pursuant to this Agreement, the Holder
shall furnish the Company in writing such information and
documents regarding the Holder and the distribution of the
Registrable Shares as the Company may reasonably request, and
the Holder shall execute all questionnaires, powers of
attorney, indemnities, standstill agreements, hold-back
agreements, underwriting agreements and other documents
required under the terms of underwriting agreements as may be
necessary or appropriate to effect the registration of the
Registrable Shares under the Act and state securities or blue
sky laws, as reasonably determined by the Company.
(ii) The Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the
kind described in Section
12
<PAGE> 13
(H)(4)(a)(v), the Holder shall forthwith discontinue
disposition of Registrable Shares pursuant to the registration
statement covering such Registrable Shares until the Holder's
receipt of copies of the supplemented or amended prospectus
contemplated by Section (H)(4)(a)(v), and, if so directed by
the Company, the Holder shall deliver to the Company all
copies, other than permanent file copies then in the Holder's
possession, of the prospectus covering such Registrable Shares
in effect at the time of receipt of such notice. In the event
the Company shall give any such notice, the period mentioned
in (H)(4)(a)(v) shall be extended by the number of days during
the period from and including the date of the giving of such
notice pursuant to (H)(4)(a)(v) to and including the date when
the Holder shall have received the copies of the supplemented
or amended prospectus contemplated by (H)(4)(a)(v).
(iii) If requested by the managing underwriter of
any underwritten offering of securities of the Company, the
Holder shall agree not to effect any public sale or
distribution of any Shares (except pursuant to the
registration statement), including any sale pursuant to Rule
144, during the ten-day period prior to and the 90-day period
following the effectiveness of the registration statement
relating to such offering.
(iv) The Holder will not, during the distribution
of the securities contemplated by the Registration Statement,
purchase or sell any securities of the Company in a manner
which may constitute a "manipulative" or "deceptive" practice
as defined in the rules and regulations promulgated under
Section 10(b) of the Securities Exchange Act of 1934, as
amended.
5. Expenses. The Company shall bear and pay all of the
Registration Expenses in connection with each registration of
Registrable Shares pursuant to Section H(1); provided,
however, that (a) all underwriting discounts and commissions
and fees, discounts and commissions of brokers and dealers
attributable to the Registrable Shares shall be borne and paid
by the Holder, (b) any other fees or expenses incurred by any
of the parties, including fees and expenses of attorneys and
accountants, shall be borne by the party that incurred them,
and (c) the Holder shall bear and pay its pro-rata share of
the expenses described in clauses (i) and (ii) below (the
"Registration Fees"). As used herein, "Registration Expenses"
shall mean any and all expenses incident to performance of or
compliance with this Agreement, including without limitation:
(i) all stock exchange or NASD registration and filing fees,
(ii) all fees and expenses of complying with state securities
or blue sky laws (including reasonable fees and disbursements
of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Shares), (iii) all printing,
messenger and delivery expenses, (iv) the fees and
disbursements of counsel for
13
<PAGE> 14
the Company and of its independent public accountants, (v) any
fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, and (vi) the fees and
disbursements of any special experts retained by the Company
in connection with the requested registration, but excluding
underwriting discounts and commissions, fees, discounts and
commissions of brokers and dealers, transfer taxes and the
fees and disbursements of counsel for the Holder. As used
herein, "pro rata share" shall mean the product of (a) the
aggregate Registration Fees multiplied by (b) a fraction whose
numerator shall be the number of the Holder's Registrable
Shares included in the Registration Statement and whose
denominator shall be the total number of Shares of the
Company's Common Stock included in the Registration Statement.
6. Indemnification.
(a) In the event of any registration of Registrable
Shares under the Act pursuant to this Agreement, the Company
shall indemnify and hold harmless, to the extent permitted by
law, the Holder, each Person who participates as an
underwriter in the offering or sale of such securities and
each other Person, if any, who controls any such underwriter
within the meaning of the Act, against any and all losses,
claims, damages or liabilities to which the Holder or such
underwriter or controlling Person may become subject under the
Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement under which such
securities were registered under the Act, any preliminary,
final or summary prospectus contained therein, or any
amendment or supplement thereto, or (b) any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, and the Company shall reimburse the Holder and
each such underwriter and controlling Person for any legal or
any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim,
liability, action or proceeding; provided, however, that the
Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) arises out of or is based upon
any breach by the indemnified person of its obligations under
this Agreement, including, without limitation, those contained
in Section H(4)(b), or any untrue statement or alleged untrue
statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or
in any such preliminary, final or summary prospectus, or
amendment or supplement thereto, in reliance upon and in
conformity with information furnished to the Company by or on
behalf
14
<PAGE> 15
of the Holder or any such underwriter or controlling Person
for use in the preparation thereof, and provided further, that
the Company shall not be liable to the Holder or any Person
who participates as an underwriter in the offering or sale of
Registrable Shares, or to any other Person who controls such
underwriter within the meaning of the Act, under the indemnity
agreement set forth in this Section H(6)(a), with respect to
any such untrue statement or omission in any preliminary
prospectus or the final prospectus, or the final prospectus as
amended or supplemented, as the case may be, to the extent
that any such loss, claim, damage or liability of the Holder
or such underwriter or controlling Person results from the
fact that the Holder or such underwriter sold Shares to a
person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final
prospectus (including any documents incorporated by reference
therein) or of the final prospectus as then amended or
supplemented (including any documents incorporated by
reference therein), whichever is most recent, if the Company
has previously furnished copies thereof to the Holder or such
underwriter and such final prospectus, as then amended or
supplemented, has corrected any such untrue statement or
omission. The indemnity provided for herein shall remain in
full force and effect regardless of any investigation made by
or on behalf of the Holder or any such underwriter or
controlling Person.
(b) In the event of any registration of Registrable
Shares under the Act pursuant to this Agreement, the Holder
shall indemnify and hold harmless (in the same manner and to
the same extent as set forth in Section H(6)(a)) the Company,
each director of the Company, each officer of the Company who
shall sign the registration statement and its controlling
Persons, if any, and all other prospective sellers and their
respective directors, officers and controlling Persons with
respect to any untrue statement or alleged untrue statement in
or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, if
such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Holder for use in the preparation of such
registration statement, preliminary, final or summary
prospectus or amendment or supplement. Such indemnity shall
remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any of
the other prospective sellers or any of their respective
directors, officers or controlling Persons.
(c) Any Person entitled to indemnification hereunder
shall (a) give prompt notice to the indemnifying party of any
claim with respect to which it seeks indemnification, and (b)
permit such indemnifying party to assume the defense
15
<PAGE> 16
of such claim with counsel reasonably satisfactory to the
indemnified party; provided, however, that any Person entitled
to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at
the expense of such Person and not of the indemnifying party
unless (a) the indemnifying party has agreed to pay such fees
or expenses, (b) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably
satisfactory to such Person, or (c) the Person to be
indemnified shall have been advised by counsel in writing that
a conflict of interest exists between such Person and the
indemnifying party with respect to such claims (in which case,
if the Person notifies the indemnifying party in writing that
such Person elects to employ separate counsel at the expense
of the indemnifying party, the indemnifying party shall not
have the right to assume the defense of such claim on behalf
of such Person). The indemnifying party will not be subject to
any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No
indemnified party will be required to consent to entry of any
judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by all claimants
or plaintiffs to such indemnified party and its Affiliates of
a release from all liability in respect to such claim or
litigation. Any indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party
with respect to such claim.
(d) Indemnification similar to that specified in the
preceding subdivisions of this Section H(6) (with appropriate
modifications) shall be given by the Company to the Holder and
each underwriter of Registrable Shares, and by the Holder to
the Company, with respect to any required registration or
other qualification of securities under any federal or state
law or regulation other than the Act.
I. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the holder as follows:
1. The Company is duly organized and, as of the date of the
original issuance hereof, existing under the laws of the state
of Nevada.
2. The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the
purpose of issuing Warrant Shares upon the exercise of this
Warrant, such shares as may be issuable upon the exercise
hereof.
16
<PAGE> 17
3. Warrant Shares, when issued and paid for in accordance with
the terms of this Warrant, will be fully paid and not
assessable.
4. This Warrant has been duly authorized and approved by all
required corporate action by the Company and does not violate
the certificate of incorporation or bylaws of the Company.
[CORPORATE SEAL]
-----------------------------------------
Richard McGorrian, President
Dated:
ATTEST:
- -----------------------------------------
S. Gerald Birin, Executive Vice President
17
<PAGE> 18
PURCHASE FORM
TO BE EXECUTED
UPON EXERCISE OF WARRANTS
TO: Reddi Brake Supply Corporation
1376 Walter Street
Ventura, CA 93003
The undersigned hereby irrevocably exercises, according to the terms
and conditions thereof, the right to purchase ___________ Shares of Common
Stock, evidenced by the within Warrant to Purchaser Common Stock, and herewith
makes payment of the purchase price in full,
Dated:
---------------------------------------------
Name:
----------------------------------------------
Address:
-------------------------------------------
Signature:
-----------------------------------------
UPON EXERCISE OF THIS WARRANT PAYMENT SHOULD BE MADE TO THE ORDER OF
REDDI BRAKE SUPPLY CORPORATION.
18
<PAGE> 1
Exhibit 10.51
Martin E. Janis & Company, Inc.
Public Relations
919 North Michigan Avenue
Chicago, Illinois 60611
(312) 943-1100
June 11, 1996
Mr. Richard McGorrian
Chief Executive Officer
Reddibrake Supply Co.
1376 Walter St.
Ventura, CA 93003
Dear Dick;
I am delighted with the decision of Reddibrake Supply Co. to retain Martin E.
Janis & Company, Inc., and wish to assure you that we shall apply our best
efforts to carry out a public relations program consistent with our
conversations and meeting on this subject.
The following shall outline the mutual areas of responsibility in our program.
- -- Martin E. Janis & Company, Inc. shall be retained for a period of one
year, beginning July 1, 1996 to June 30, 1997.
- -- Martin E. Janis & Company. Inc. shall initiate and implement a
lead-generation program, based on the mailing of 100,000 pieces of
literature to a selected list of potential shareholders.
- -- The agency shall create an appropriate mailing piece, designed to have the
maximum impact to be used in the above mailing. This will either be a four
page or six page brochure with a coupon response reply. All copy, layout
and design shall be approved by Reddibrake Supply Co.
- -- The agency shall install a special 800 number in our offices to receive
calls initiated from the mailing.
<PAGE> 2
- -- The agency shall take the leads generated by the mailing card-coupon
response and the 800 number response, and turn them over to appropriate
brokers at designated brokerage firms.
- -- The agency shall diligently follow through with each selected broker to
make certain that he or she pursues these leads. The brokers' results must
be verified by confirmation tickets before additional leads will be given.
- -- The agency shall supply appropriate kits and/or graphic materials for the
broker to send out to his prospective customers.
- -- The above implementation with brokers will be arranged for, and directed
and followed through by the staff of Martin E. Janis & Company. Inc.
- -- A careful record will be made of the results of stock sales by each
broker, and the collective results so that the overall success of the
lead-generation program can be measured by actual total stock sales in
shares and dollars.
A further activity, carried out concurrent with the lead-generation program, is
the introduction of Reddibrake Supply Co. to security analysts of brokerage
firms; the money managers and research departments of certain funds and
institutions; special situation people or special situation investing groups;
and other persons or entities who may have a direct interest in the stock,
through a series of group breakfast, luncheon and/or aftermarket meetings -- or
one on one meetings, The agency shall continue to maintain communications after
these initial meetings with the above described by follow-up contact via
written correspondence, personal visits, individual telephone conversations and
teleconferencing.
The selected financial centers we shall cover during the one year program are
initial meetings in New York; Chicago; Boston; Philadelphia; Atlanta; Denver;
San Diego, Los Angeles area (separate meetings in downtown LA: the Beverly
Hills-Century City location and Newport Beach); San Francisco and Seattle.
The agency shall also create and carry out a financial public relations and
publicity program timed to coincide with the lead-generation effort, and the
financial meeting presentations in the various cities. The publicity shall be
placed in the following areas -- financial newspapers, magazines and
periodicals; news, feature and financial sections of the national news
magazines; wire services and feature syndicates; financial news and feature
sections of daily newspapers; on financial TV and radio programs; and trade
periodicals circulating in Reddibrake Supply Co.'s areas of activity. This
publicity will be placed on a national level, as well as localized in the
cities described above where we are holding financial meetings. This will
follow the pattern described in the agency's conversations and meetings on the
subject.
2
<PAGE> 3
The public relations and publicity program shall be centered around corporate
activity; growth plans; acquisitions; company personnel and executives;
corporate history; future goals; sales and earnings; expansion programs;
management and management philosophy; and other salient subjects that will
enhance the corporate image. Such publicity will result from the agency's
distribution of press releases, from press presentations, and from special
press interviews.
The agency shall write, develop and create the financial written and graphic
materials -- the annual report; the interim reports; and special communiques to
the shareholder and to the financial community.
Martin E. Janis & Company, Inc. shall apply its efforts to provide appropriate
coverage for Reddibrake Supply Co. on the Internet System.
The cost for the above outlined program shall be two hundred thousand dollars
($200,000.00) in cash and the warrant described below.
Payment shall be made as follows:
On July 1, 1996, Martin E. Janis & Company, Inc. shall receive a partial
payment of twenty five thousand dollars ($25,000.00), covering the fee for the
period July 1-31, 1996, of $15,000.00, and the last fee of $10,000.00, covering
the period June 1-30, 1997.
Thereafter, on the first day of each month for the next five months, on Aug. 1;
Sept. 1, Oct. 1; Nov. 1; and Dec. 1; Martin E. Janis & Company, Inc. shall be
paid a fee of fifteen thousand dollars ($15,000.00) per month. During the
period January 1 through May 1, 1997, Martin E. Janis & Company, Inc. shall be
paid ten thousand dollars ($10,000.00) per month on the first day of each
month, Jan. 1; Feb. 1; Mar. 1; April 1; and May 1.
When it is deemed appropriate, the mailing and implementation of the
lead-generation program shall begin. At the inception of this facet of the
program, Martin E. Janis & Company, Inc. shall be paid fifty thousand dollars
($50,000.00).
The timetable for the program shall be:
July 1-Sept. 30, 1996 - Meetings in approximately 5-6 financial centers.
Commencement of an aggressive financial publicity program, and the commencement
of the work on the lay-out, writing, and general preparation of a mailing
piece.
October 1-Dec. 31, 1996 - A continuation of the above, including visits to an
additional 5-6 financial centers. The operation of the 800 number shall
commence. The mailing and lead generation program shall begin in this three
month segment, or if the timing is appropriate, in the previous three month
period (July 1-Sept. 30).
3
<PAGE> 4
Jan. 1-June 30, 1997 - A continuation of all of the above, along with an
aggressive follow-up program to maximize the result of the program.
Martin E. Janis & Company, Inc. shall receive warrants to purchase 150,000
shares of Reddibrake Supply Co. common stock at $3.00 per share. The term of
these warrants shall be three years, commencing on July 1, 1996 through June
30, 1999. The warrant agreement will be delivered to this firm at the
inception of this contract, on or around July 1, 1996.
If services beyond the scope of this agreement are desired by Reddibrake Supply
Co., and if Reddibrake initiates the request for these services (i.e.,
additional lead-generation mailings, added cities for financial meetings, and
re-visits to initial cities, etc.), then these services shall be made available
for a mutually agreed upon sum of money.
An account team shall be assigned to work on this program. This team will be
comprised of agency senior executives and staff on both the financial facet and
the publicity facet of this program. Jim Janis, head of the company's
financial services division, shall serve as the Account Director on the
financial side -- and Beverly Jedynak, an agency Executive Vice President,
shall be in charge of the publicity operations, working with the publicity
staff. Martin E. Janis shall be involved with various agency executives and
staff and Reddibrake Supply Co. executives, in the overall coordination,
direction and implementation of the program.
I believe this letter covers the pertinent points in our working relationship.
Will you kindly indicate your approval by signature on the attached copy and
return same to me at your earliest convenience.
I look forward to seeing you soon, and to a successful relationship with you
and your organization over this next year.
Cordially,
MARTIN E. JANIS & COMPANY, INC.
By: /s/ Martin E. Janis
---------------------------------------------------
Martin E. janis, Chairman of the Board
MEJ/mdc
APPROVED:
By: /s/ Richard McGorrian
Richard McGorrian, Chief Executive Officer
Reddibrake Supply Co.
4
<PAGE> 1
Exhibit 10.52
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS REGISTERED AND QUALIFIED UNDER APPLICABLE FEDERAL AND STATE
SECURITIES LAWS OR UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL, IN
FORM AND SUBSTANCE REASONABLY SATISFACTORY TO IT, TO THE EFFECT THAT THE
PROPOSED TRANSACTION DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
effective as of the 1st day of July, 1996, by and between Reddi Brake Supply
Corporation, a Nevada corporation ("Optionor"), and Martin E. Janis & Company,
Inc. ("Optionee") with reference to the following facts:
A. Pursuant to the terms of a consulting agreement dated June 11,
1996, Optionor has agreed to grant to Optionee an option to purchase up to
150,000 authorized and unissued shares of Optionor's common stock, par value
$.0001 per share (the "Common Stock"), as consideration for Optionee's service
as a public relations consultant during the one year period commencing July 1,
1996.
B. The Board of Directors of Optionor has approved the grant by
Optionor to Optionee of an option to purchase up to 150,000 shares of the
Common Stock, upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties agree as follows:
1. GRANT OF OPTION; TERM AND CONSIDERATION.
1.1 Subject to the terms of Paragraph 7, Optionor hereby
grants to Optionee an irrevocable option (the "Option") to purchase up to
150,000 shares of Common Stock (the "Option Shares") at a purchase price equal
to Three Dollars and No Cents ($3.00) per Option Share (the "Exercise Price"),
all on the terms, covenants and conditions set forth in this Agreement.
1.2 The term of the Option shall commence as of the date
hereof and shall expire, and all rights to purchase the Option Shares shall
terminate, at 5:00 p.m. Pacific Standard Time on June 30, 1999 (the "Term"),
unless sooner terminated or sooner exercised, as provided herein. The Option
shall be immediately exercisable.
<PAGE> 2
2. EXERCISE OF OPTION.
Optionee may exercise the Option, if at all, at any time
during the Term by delivering a Notice of Exercise to Optionor specifying the
number of Option Shares to be purchased and accompanied by cash or a certified
or bank cashier's check, payable to the order of Optionor, in the amount of the
Exercise Price times the number of Option Shares to be purchased. As soon as
practicable after any exercise of this Option in accordance with the foregoing
provisions, Optionor shall deliver to Optionee at the main office of Optionee,
or at such other place as shall be mutually acceptable, a certificate or
certificates representing the Option Shares as to which the Option has been
exercised. In no event shall Optionor be required to issue any fractional
Option Shares.
3. RESTRICTION ON ISSUANCE OF OPTION SHARES AND DELIVERY.
If authorization of any regulatory commission or agency is
required for the lawful delivery of any certificate representing Option Shares,
Optionor may withhold delivery of such certificate until such authorization has
been granted. Optionor will use its best efforts to obtain such
authorizations, but if Optionor is unable to obtain such authorizations from
such regulatory commission or agency, which counsel for Optionor deems
necessary for the lawful delivery of such certificate, Optionor shall be
relieved from any liability for failure to deliver such certificate until such
time that such authorization is obtained or is obtainable.
4. RIGHTS AS SHAREHOLDER.
Optionee shall have no rights as a shareholder with respect to
any Option Shares covered by the Option until the date of issuance of a stock
certificate to Optionee for such Option Shares. No adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
5. CHANGES IN CAPITAL STRUCTURE.
5.1 The number and class of shares subject to the Option and
the Exercise Price (but not the total price) shall be proportionately adjusted
in the event of any increase or decrease in the number of the issued shares of
the Common Stock of Optionor which results from a split-up or consolidation of
shares, payment of a stock dividend or stock dividends exceeding a total of
five percent for which the record dates occur in any one fiscal year, a
recapitalization (other than the conversion of convertible securities according
to their terms), a combination of shares or other like capital adjustment, so
that upon exercise of the Option, Optionee shall receive the number and class
of shares he would have received had he been the holder of the number of shares
of the Common Stock for which the Option is being exercised upon the date of
such change or increase or decrease in the number of issued shares of Optionor.
5.2 Upon a reorganization, merger or consolidation of
Optionor with one or more corporations as a result of which Optionor is not the
surviving corporation, a sale of all or substantially all of the property of
Optionor to another corporation or any dividend or distribution to stockholders
of more than ten percent of Optionor's assets, adequate adjustment
2
<PAGE> 3
or other provisions shall be made by Optionor or other party to such
transaction so that there shall remain and/or be substituted for the Option
Shares provided for herein, the shares, securities or assets which would have
been issuable or payable in respect of or in exchange for the Option Shares
then remaining under the Option, as if Optionee had been the owner of such
shares as of the applicable date. Any securities so substituted shall be
subject to similar successive adjustments.
6. RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES ACT OF
1933.
6.1 Optionee represents, warrants and agrees that:
a. Optionee understands that the issuance of the
Option has not been, and the issuance of the Option Shares will not be,
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or under any state securities law, and that the Option and the Option Shares
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being, or will be, acquired from the Optionor in a
transaction or transactions not involving a public offering.
b. The Option has been acquired by Optionee for
investment, for Optionee's own account and not with a view to or for sale in
connection with any distribution thereof. Upon the exercise of the Option, or
any part thereof, Optionee will acquire the Option Shares for investment, for
Optionee's own account and not with a view to or for sale in connection with
any distribution thereof.
c. Optionee will not sell, transfer, assign,
hypothecate or otherwise dispose of the Option or any Option Shares without
compliance with the transfer restrictions and procedures set forth in this
Agreement.
6.2 The Option may not be assigned, transferred, pledged
or hypothecated in any way, shall not be assignable by operation of law and
shall not be subject to attachment, execution, garnishment, sequestration, the
law of bankruptcy or any other legal or equitable process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition contrary to
the provisions of this Agreement, and the levy of any execution, attachment or
similar process on the Option, shall be null and void and without effect.
6.3 No Option Shares may be sold, transferred, pledged or
hypothecated unless (i) the transaction has been registered under the
Securities Act and the registration statement relating thereto is then in
effect, or (ii) the Optionor shall have been supplied with a written notice of
the proposed transfer, setting forth the circumstances and details thereof, and
an opinion of counsel, in form and substance reasonably satisfactory to the
Optionor, to the effect that such transfer may be made without registration
under the Securities Act and without registration or qualification under any
applicable state securities laws.
3
<PAGE> 4
6.4 Each agreement representing the Option and each
certificate for Option Shares issued upon exercise of the Option or to any
subsequent transferee shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or registered
or qualified under any state securities laws. The securities may not
be sold, transferred, pledged or hypothecated unless registered and
qualified under applicable federal and state securities laws or unless
the issuer has received an opinion of counsel, in form and substance
reasonably satisfactory to it, to the effect that the proposed
transaction does not require such registration or qualification."
6.5 Optionor shall be entitled to notify its transfer
agent of the status of any Option Shares issued pursuant to this Agreement and
to take such other action as shall be reasonable and proper to prevent any
violation of the Securities Act or any state securities law.
7. COVENANTS OF OPTIONOR.
Optionor covenants and agrees that all Option Shares which may
be issued upon the exercise of the Option will, upon issuance, be validly
issued, fully-paid and nonassessable and free from all liens, encumbrances or
charges of any kind, other than any liens, encumbrances or charges created by a
holder of the Option. Optionor has advised Optionee that it does not presently
have sufficient authorized but unissued shares of Common Stock to meet its
aggregate existing potential obligations under outstanding options, warrants,
convertible notes and preferred stock. Accordingly, Optionor covenants and
agrees that it will promptly undertake reasonable efforts to obtain shareholder
approval of an amendment to its Articles of Incorporation increasing its
authorized Common Stock and following such approval, during the period in which
the Option may be exercised, will reserve and keep available out of its
authorized and unissued shares of Common Stock the full number of shares
necessary to provide for the exercise of the rights of purchase represented by
the Option.
8. NOTICES.
All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by telex or
telecopy (and promptly confirmed by mail) to the parties as follows (or at such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notices of changes of address shall only be
effective upon receipt):
If to Optionor to:
Reddi Brake Supply Corporation
1376 Walter Street
Ventura, California 93003
4
<PAGE> 5
with a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard
Suite 900
Beverly Hills, California 90212
Attn: Kenneth A. Luer
If to Optionee to:
Martin E. Janis & Company, Inc.
919 North Michigan Avenue
Chicago, Illinois 60611
9. NUMBER AND GENDER.
Terms used herein in any number or gender include other
numbers or genders, as the context may require.
10. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
11. GOVERNING LAW.
This Agreement and performance under it, shall be construed in
accordance with and under the laws of the State of California. Should a court
or other body of competent jurisdiction determine that any term or provision of
this Agreement is excessive in scope, such term or provision shall be adjusted
rather than voided and interpreted so as to be enforceable to the fullest
extent possible, and all other terms and provisions of this Agreement shall be
deemed valid and enforceable to the fullest extent possible.
12. BINDING EFFECT; PARTIES IN INTEREST.
This Agreement shall be binding upon, inure to the benefit of,
and be enforceable by the successor and assigns of the parties hereto. Nothing
expressed or referred to in this Agreement is intended or shall be construed to
give any person other than the parties to this Agreement, or their respective
successors or assigns, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision contained herein.
13. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. This Agreement may
be amended or modified at any time and in all respects only by an instrument in
writing executed by Optionor and Optionee.
5
<PAGE> 6
14. FURTHER ASSURANCES.
Each of the parties hereto shall execute and deliver any and
all additional papers and documents, and shall do any and all further acts and
thing, as may be reasonably necessary in connection with the performance of
their obligations hereunder and to carry out the intent of this Agreement.
15. ATTORNEYS FEES.
In the event that any party hereto brings an action or
proceeding for a declaration of the rights of the parties under this Agreement,
for injunctive relief, for an alleged breach or default, or any other action
arising out of this Agreement or the transactions contemplated hereby, or in
the event that any party is in default of its obligations pursuant hereto,
whether or not suit is filed or prosecuted to final judgement, the prevailing
party shall be entitled to reasonable attorneys' fees, in addition to any other
court costs incurred and any other damages or relief awarded.
16. MODIFICATIONS, AMENDMENTS AND WAIVERS.
No amendment, change or modification of this Agreement shall
be valid unless it is in writing, is signed by all of the parties hereto, and
expressly states that an amendment, change or modification of this Agreement is
being made. No claim of waiver, consent or acquiescence with respect to any
provision of this Agreement shall be made against any party hereto except on
the basis of a written instrument executed by or on behalf of such party. The
party hereto for whose benefit a condition is herein inserted shall have the
unilateral right to waive such condition.
17. FURTHER ASSURANCES.
Each of the parties hereto shall execute and deliver any and
all additional papers and documents, and shall do any and all further acts and
thing, as may be reasonably necessary in connection with the performance of
their obligations hereunder and to carry out the intent of this Agreement.
18. ATTORNEYS FEES.
In the event that any party hereto brings an action or
proceeding for a declaration of the rights of the parties under this Agreement,
for injunctive relief, for an alleged breach or default, or any other action
arising out of this Agreement or the transactions contemplated hereby, or in
the event that any party is in default of its obligations pursuant hereto,
whether or not suit is filed or prosecuted to final judgement, the prevailing
party shall be entitled to reasonable attorneys' fees, in addition to any other
court costs incurred and any other damages or relief awarded.
19. MODIFICATIONS, AMENDMENTS AND WAIVERS.
No amendment, change or modification of this Agreement shall
be valid unless it
6
<PAGE> 7
is in writing, is signed by all of the parties hereto, and expressly states
that an amendment, change or modification of this Agreement is being made. No
claim of waiver, consent or acquiescence with respect to any provision of this
Agreement shall be made against any party hereto except on the basis of a
written instrument executed by or on behalf of such party. The party hereto
for whose benefit a condition is herein inserted shall have the unilateral
right to waive such condition.
IN WITNESS WHEREOF, Optionor and Optionee have executed this Agreement
as of the date first above written.
"OPTIONOR"
REDDI BRAKE SUPPLY CORPORATION
By:___________________________________________________
S. Gerald Birin, Executive Vice President
"OPTIONEE"
MARTIN E. JANIS & COMPANY, INC.
By:___________________________________________________
Its:__________________________________________________
7
<PAGE> 1
Exhibit 10.53
Lease No. 12966
MASTER LEASE AGREEMENT ("Master Agreement") made as of Sept. 13, 1996 between
DATA GENERAL CORPORATION, a Delaware corporation with a principal place of
business at 4400 Computer Drive, Westboro MA 01580 ("Lessor") and Reddi Brake
Supply Corporation with a principal place of business at 1376 Walter St.
Ventura, CA 93003 ("Lessee")
1. LEASE. Lessor leases to Lessee, and Lessee hires from Lessor,
the equipment, software licenses and other tangible or intangible personal
property described in each Lease Schedule executed under this Master Agreement.
All such property is referred to as "Leased Property." When Leased Property is
installed, the parties shall promptly complete and execute a Lease Schedule in
the form attached as Schedule A.
2. SCHEDULES.
2.1 Each Lease Schedule shall evidence a separate "Lease
Agreement" covering the Leased Property described therein and incorporating the
terms of this Master Agreement and any additional terms agreed to in the Lease
Schedule.
2.2 Each Lease Schedule shall be executed in one or more
counterparts, each bearing a unique number, only one of which shall be
"Counterpart No. 1." Each executed counterpart shall be deemed an original as
between the parties, but it and to the extent that a Lease Schedule constitutes
"chattel paper" as defined in the Uniform Commercial Code, no security interest
in the Lease Schedule may be created through the transfer or possession of any
counterpart other than Counterpart No. 1. This Master Agreement shall not itself
be chattel paper.
3. TERM.
3.1 This Master Agreement shall take effect on the date
when signed by both parties, and shall continue in effect so long as any Lease
Agreement made hereunder remains in effect or, if no Lease Agreement is in
effect, until either party gives a notice of cancellation to the other.
3.2 The Lease Term of each Lease Agreement shall have the
commencement date and duration specified in the Lease Schedule. No Lease
Agreement shall be cancelable or terminable by Lessee before the end of its
Lease Term except as provided in this Master Agreement.
4. TITLE AND OWNERSHIP.
4.1 Supply Contracts. Lessor shall acquire Leased
Property pursuant to the sale and license terms ("Supply Contracts") of the
respective suppliers. Except while there is an uncured Event of Default,
Lessor, to the extent of its power to do so, assigns to Lessee, and Lessee
shall have the benefit of, any warranties, service agreements and patent and
copyright indemnities given to Lessor with respect to Leased Property under the
Supply Contracts. Lessee's sole remedy for the breach of any such warranty,
service agreement or indemnity shall be against the manufacturer, licensor or
supplier by whom it was given (including, if applicable, Data General
Corporation in its capacity as manufacturer, licensor or supplier) but not
against Lessor, nor shall any such breach alter the respective obligations of
Lessor and Losses under this Master Agreement or any Lease Agreement.
4.2 Title. Lessee acknowledges Lessor's title to Leased
Property. Lessee has only a lessee's interest and no other right, title or
interest in Leased Property. Lessee shall not sell, mortgage, assign,
transfer, sub-lease, lend, relinquish possession of or encumber any Leased
Property, or permit or attempt any of the acts stated above, without Lessor's
prior written consent.
4.3 Encumbrances. At Lessee's cost, Lessee shall protect
and defend Lessor's ownership against all claims, liens, charges and legal
processes of Lessee, its creditors and all other persons, and take such action
as may be necessary (a) to remove any such encumbrance, and (b) to prevent any
third party from acquiring any interest in Leased Property including, without
limitation, avoiding any action by which Leased Property may be deemed to be a
part of any real estate. At Lessor's request, Lessee shall obtain written
waiver of the right to secure a lien on Leased Property from the owner,
mortgagee and beneficiaries under deeds of trust of each Installation Location.
4.4 Identification. Lessee shall, upon the request of
Lessor and at Lessee's expense, firmly affix to the Leased Property, in a
conspicuous place, such identification as Lessor may supply showing Lessor as
owner and Lessor of the Leased Property. Lessee shall not remove any logos,
marks or other such identification without the prior written consent of Lessor.
5. RENT AND PAYMENT OBLIGATIONS.
5.1 Payments. Lessee shall pay Lessor the rental amounts
specified in the pertinent Lease Schedule. The first rental payment shall be
due and payable on the payment date specified in the Lease Schedule.
Subsequent rental payments shall be due on the same day of each succeeding
month of the Lease Term, unless a longer interval is specified in the Lease
Schedule. A pro-rata rental payment shall be made with and in addition to the
first rental payment for the period, if any, from the acceptance date to the
day preceding the first rental payment date. All rents and other payments
shall be made to Lessor at the address specified in the Lease Schedule or at
such other address as may be designated to Lessee in writing by Lessor or by an
assignee of Lessor pursuant to Section 11.
5.2 Late Payments. Lessee agrees to pay a late charge on
any periodic payment not paid within ten (10) days after its due date, equal to
one and one-half percent (1.5%) of the overdue payment for each payment period
that the payment remains unpaid. Collection of a late payment charge shall not
prejudice any other remedies Lessor may have for default.
5.3 NET LEASE. EACH LEASE AGREEMENT SHALL BE A NET
LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS WHEN DUE AND TO
PERFORM ALL OTHER OBLIGATIONS UNDER EACH LEASE AGREEMENT SHALL BE ABSOLUTE AND
UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT, REDUCTION, SET-OFF,
DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR RECOUPMENT FOR ANY REASON.
No obligation of Lessee shall be affected by any defect in or damage to or loss
<PAGE> 2
or destruction of all or any part of the Leased Property from any cause
whatsoever, or by any interference with Lessee's use of the Leased Property by
any person or for any cause whatsoever. Any claims respecting the condition or
operation of the Leased Property shall be made solely against the manufacturers,
licensors and suppliers of the Leased Property, and Lessee shall nevertheless
pay Lessor or its successors and assigns all amounts due and payable under the
Lease Agreement.
6. TAXES.
6.1 Lessee shall pay when due or reimburse to Lessor, and
shall defend and indemnify Lessor on a net after tax basis against all sales,
use, value add, excise and other taxes, fees, assessments and all other charges
(including interest and penalties) imposed by any governmental body or agency
upon the purchase, ownership, license, possession, leasing, operation, use or
disposition of any Leased Property, any Lease Agreement or the rentals or other
payments, excluding only taxes on/or measured by Lessor's net income. Lessee
shall prepare and file promptly with the appropriate offices any and all tax and
similar returns required to be filed (sending copies to Lessor) or, if requested
by Lessor, shall notify Lessor of such requirement and furnish Lessor with all
information required by Lessor to effect such filing. Lessee's obligation under
this Sub-section shall commence with the Acceptance Date of each Lease Agreement
and shall survive the expiration or earlier termination of such Lease Agreement.
6.2 Taxable Status. Lessor disclaims all liability
arising from Lessee's treatment of any Lease Agreement or rental payment for
financial, accounting or tax purposes. Lessee represents that it is relying
solely on its own legal counsel and accountants with respect to such matters.
7. MAINTENANCE: ALTERATIONS. Lessee at its expense. shall keep
all Leased Property in good condition and working order, ordinary wear and tear
from proper use excepted. Lessee shall keep in force maintenance and support
agreements with the suppliers of Leased Property or other qualified service
vendors reasonably acceptable to Lessor. Lessee shall not make or suffer any
alteration or attachment which would violate the maintenance and support
agreements or relieve the service vendors of their obligations. Lessor's consent
shall be required for all alterations and attachments except those which do not
impair the commercial value or usefulness of the Leased Property and which can
be readily removed without causing damage. All attachments and alterations
requiring Lessor's consent shall be removed by Lessee before the return of the
Leased Property. All attachments and alterations not removed shall constitute
accessions to the Leased Property owned by Lessor.
8. USE AND LOCATION. Lessee shall use Leased Property only in the
ordinary conduct of its business, operated by qualified employees adhering to
instructions of the manufacturer applicable to operation, condition and
maintenance of the Leased Property. Lessee shall obtain all permits and
licenses necessary for the operation of the Leased Property and comply with all
other applicable laws and regulations, Lessee shall not relocate Leased Property
from its Installation Location, or part with possession or control of Leased
Property, without Lessor's prior written consent. Lessee shall be responsible
for all charges and expenses of such relocation. Lessor shall have the right to
inspect Leased Property during normal business hours any time after delivery.
9. RETURN. Unless Lessee exercises a purchase or renewal option
provided in the Lease Agreement, Lessee shall at its expense return the Leased
Property to the location specified by Lessor within the contiguous forty-eight
United States or the District of Columbia upon the termination of the Lease
Term, unencumbered and in the name condition and repair as when it was first
installed, ordinary wear and tear from proper use excepted. Lessee further
agrees that the Leased Property may remain on Lessee's premises for a reasonable
period after termination or expiration of the Lease Term at no charge to Lessor
for the purposes of repair, refurbishing and storage pending return shipment.
Lessor and its representatives may enter upon Lessee's premises for these
purposes.
10. WARRANTIES: DISCLAIMER.
10.1 Quiet Enjoyment, Lessor warrants that so long as no
event of default has occurred, neither Lessor nor its successors or assigns nor
anyone claiming by, under or through Lessor will interfere with Lessee's quiet
enjoyment and use of Leased Property.
10.2 DISCLAIMER. LESSOR LEASES THE LEASED PROPERTY "AS
IS." EXCEPT FOR LESSOR'S WARRANTY OF QUIET ENJOYMENT. LESSOR MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE LEASED PROPERTY, AND DISCLAIMS
ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY. LESSEE
HEREBY WAIVES ALL CLAIMS AGAINST LESSOR, INCLUDING ANY BASED ON STRICT OR
ABSOLUTE LIABILITY IN TORT, WHICH LESSEE MIGHT HAVE AGAINST LESSOR FOR ANY LOSS
OR DAMAGES, INCLUDING INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES. LESSEE
ASSUMES SOLE RESPONSIBILITY FOR THE SELECTION OF LEASED PROPERTY AND THE
SUPPLIERS THEREOF (INCLUDING DATA GENERAL CORPORATION) BASED UPON ITS OWN
JUDGEMENT, AND DISCLAIMS ANY RELIANCE ON STATEMENTS MADE BY DATA GENERAL
CORPORATION OR ITS AGENTS.
11. ASSIGNMENT. LESSOR'S RIGHTS, TITLE, AND INTEREST IN AND TO
THIS MASTER AGREEMENT, OR ANY LEASE AGREEMENT OR LEASED PROPERTY MAY BE
TRANSFERRED AND ASSIGNED BY LESSOR WITHOUT NOTICE, AND LESSOR'S ASSIGNEE SHALL
HAVE ALL THE RIGHTS, POWERS, PRIVILEGES AND REMEDIES OF LESSOR UNDER THIS MASTER
AGREEMENT. LESSEE ALSO AGREES AND CONSENTS TO FURTHER ASSIGNMENTS OR SALES BY
THE THEN ASSIGNEE.
LESSEE AGREES NOT TO ASSERT AGAINST ANY ASSIGNEE ANY DEFENSE,
SET-OFF, RECOUPMENT, CLAIM OR COUNTERCLAIM WHICH LESSEE MAY HAVE AGAINST LESSOR,
WHETHER ARISING UNDER A LEASE AGREEMENT OR OTHERWISE. LESSOR AND ALL SUCH
ASSIGNEES ARE INDEPENDENT CONTRACTORS AND NONE SHALL BE DEEMED TO BE THE
PRINCIPAL, AGENT, REPRESENTATIVE, PARTNER OR JOINT VENTURER OF THE OTHER.
LESSEE SHALL NOT BE ENTITLED TO TERMINATE, AMEND OR ASSIGN
THIS MASTER AGREEMENT OR ANY LEASE AGREEMENT WITHOUT THE WRITTEN CONSENT OF SUCH
ASSIGNEE.
12. ADDITIONAL ASSURANCES. At Lessor's request, Lessee shall
execute, acknowledge and deliver such documents and take such action as Lessor
deems necessary to more effectively evidence Lessor's title to the Leased
Property covered by each Lease Agreement and protect Lessor's interests therein,
in accordance with the Uniform Commercial Code or other
<PAGE> 3
applicable law including, without limitation, the filing of financing and
continuation statements. Where permitted by law, Lessee authorizes Lessor to
make such filings without Lessee's signature.
13. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee,
shall fail to perform its obligations under this Master Agreement or any Lease
Agreement, Lessor or any assignee of Lessor may, at its option, perform the
obligation for the account of Lessee without waiving the default and without
discharging Lessee from the obligation. All expenses paid or incurred by
Lessor in such performance shall be payable by Lessee on demand in addition to
rental payments, together with interest at the rate of one and a half percent
(1.5%) per month or the highest lawful rate, whichever is less.
14. REPORTS. Lessee agrees to deliver to Lessor, within ninety
(90) days of the close of each fiscal year of Lessee, Lessee's current Annual
Report or other financial statements satisfactory to Lessor, certified by
certified public accountants. Lessee represents such reports shall be a true
and complete statement of Lessee's financial condition which Lessor may show to
financial institutions of Lessor's choice on a confidential basis.
15. INDEMNITY. Lessee shall indemnify, defend and hold harmless
Lessor its successors and assigns from and against all losses, damages,
injuries, claims, fines, liabilities, demands, and expenses, including
attorney's fees and court costs, arising out of or pertaining to any Lease
Agreement or Leased Property, including the purchase, ownership,
transportation, delivery, installation, leasing, possession, use, operation,
maintenance, storage and return of the Leased Property, except any liability
resulting from the gross negligence or wilful misconduct of Lessor. Lessee and
Lessor each agree to give the other prompt written notice of any claim or
liability indemnified against. This indemnity shall survive the expiration or
termination of this Master Agreement or any Lease Agreement.
16. RISK OF LOSS. From the delivery of Leased Property until its
return pursuant to Section 9, Lessee shall bear the entire risk of loss,
damage, theft or destruction of Leased Property from any and every cause, and
no such event shall relieve Lessee of its obligation to pay rent or perform its
other obligations under any Lease Agreement. In the event of damage to Leased
Property, Lessee shall at its own expense repair the damage and restore the
Leased Property to its previous condition. If any Leased Property is lost,
stolen or damaged beyond repair, Lessee shall promptly notify Lessor and
shall, at Lessor's option, (a) replace the Leased Property with like property
in good condition and working order acceptable to Lessor, and transfer title to
the replacement property to Lessor, free and clear of all liens, claims and
encumbrances, which replacements shall then be subject to the applicable Lease
Agreement; or (b) pay Lessor an amount determined in accordance with
Sub-section 19.5, whereupon the Lease Agreement shall terminate as to such
Leased Property and Lessor's interest therein shall pass to Lessee on an as-is,
where-is basis, without recourse or warranty.
17. INSURANCE. From the delivery of Leased Property until its
return pursuant to Section 9, Lessee shall at Lessee's expense carry and
maintain the coverages specified in paragraphs 17.1 and 17.2 with insurance
companies reasonably satisfactory to Lessor:
17.1 Property insurance providing "all risk" coverage in an
amount not less than the replacement cost of the Leased Property;
17.2 General liability insurance covering liability for
damage to third party property and bodily injury to third parties, in amounts
satisfactory to Lessor. Such insurance shall name Lessor (or any successor,
assignee or secured party of Lessor who requests it) as loss payee for the all
risk coverage and as an additional insured for the liability coverage, and
provide thirty (30) days' written notice of any lapse, cancellation or material
change of coverage. Lessee will promptly provide to Lessor evidence of
insurance coverage at the commencement of each Lease Agreement and annually
thereafter. As long as no Event of Default is uncured, Lessor shall remit all
risk insurance proceeds to Lessee when Lessee either provides satisfactory
evidence of restoration or pays Lessor the amount due upon an event of loss
under Section 16. AT LESSEE'S OPTION, COVERAGE UNDER A DGC BUSINESS RECOVERY
ON-SITE SERVICE ADDENDUM WILL BE ACCEPTABLE IN LIEU OF COVERAGE REQUIRED BY
PARAGRAPH 17.1.
18. DEFAULT. Each of the following shall be deemed an Event of
Default:
18.1 Lessee shall default in the payment when due of any
rental payment or other sums payable under any Lease Agreement; or
18.2 Lessee shall default in the observance or performance
of any other obligation in this Master Agreement or any Lease Agreement and
such default shall continue for a period of fifteen (15) days; or
18.3 Lessee shall default in the performance of any
obligation or in the payment of any sum due to Lessor under any other
agreement; or
18.4 Lessee (which term, for purposes of this Sub-section
and Sub-sections 18.5, 18.6 and 18.7 below shall mean Lessee and any guarantor
or other person liable upon Lessee's obligations under this Lease) shall
dissolve or become insolvent or bankrupt, commit any act of bankruptcy, make an
assignment for the benefit of creditors, suspend the transaction or its usual
business or consent to the appointment of a trustee or receiver, or a trustee
or a receiver shall be appointed for Lessee or for a substantial part of its
property, or bankruptcy, reorganization, insolvency or similar proceedings
shall be instituted by or against Lessee; or
18.5 An order, judgment or decree is entered against
Lessee by a court of competent jurisdiction and such order, judgment or decree
shall continue unpaid or unsatisfied and in effect for a period of sixty (60)
days, or any execution or writ or process shall be issued in connection with
any action or proceeding against Lessee or its property, by which Leased
Property or any substantial part of Lessee's property may he taken or
restrained; or
18.6 An attachment, levy or execution is threatened or
levied upon or against Leased Property; or
18.7 Any warranty, representation or statement made in
writing by Lessee, is found to be incorrect or misleading in any material
respect as of the date made; or
18.8 Any insurance carrier cancels the insurance on the
Leased Property and
<PAGE> 4
Lessee fails to replace such coverage within the notice period specified in
Section 17; or
18.9 The Leased Property or any part of it is abused,
illegally used, or misused; or
18.10 Any indebtedness of Lessee for borrowed money shall
become due and payable by acceleration of its maturity.
In any such event, Lessor may, by written notice to Lessee, and to the
extent permitted by law, exercise any one or more of the remedies listed in
Section 19 below, as Lessor shall lawfully elect in order to protect the
interests and reasonably expected profits and bargains of Lessor.
19. REMEDIES. Lessor's remedies for the events of default listed
in Section 18 are as follows:
19.1 Upon notice by Lessor, terminate any Lease Agreement,
either in its entirety or as to such items of Leased Property as Lessor shall
specify in the notice. Any Lease Agreement not terminated in its entirety
shall continue in effect as to the remaining items.
19.2 Declare immediately due and payable each and all
rental payments and other amounts due and to become due, including any renewal
or purchase obligations.
Lessor shall have the right to offset any monies being held in escrow
or due and payable to Lessee from Lessor under this Agreement or any other
agreement between Lessee and Lessor.
19.3 Require Lessee, at its expense, to promptly return Leased
Property to Lessor, or Lessor may enter the premises where Leased Property is
located and take possession of or disable any part or all of the Leased
Property without demand or notice, without any court order or other process of
law and without liability for any damage occasioned by taking possession. Such
return or taking of possession shall not constitute a termination of any Lease
Agreement unless Lessor expressly so notifies Lessee in writing.
19.4 Proceed by appropriate court action or actions,
either at law or in equity, to enforce performance by Lessee of the applicable
covenants of any Lease Agreement or to recover damages for its breach.
19.5 With or without terminating any Lease Agreement,
recover from Lessee, not as a penalty, but as liquidated damages, an amount
equal to the sum of (i) any rent accrued and unpaid under the Lease Agreement
as of the date of entry of judgment in favor of Lessor plus interest at the
rate of eighteen percent (18%) per annum; (ii) the present value (discounted at
4%) of all future rentals reserved in the Lease Agreement and contracted to be
paid over the unexpired term of the Lease Agreement: (iii) all commercially
reasonable costs and expenses, including reasonable attorney's fees and costs,
incurred by Lessor in any repossession, recovery, storage, or repair, sale,
re-lease or other disposition of the Leased Property in connection with or
otherwise resulting from Lessee's default; (iv) the estimated residual value of
the Leased Property as of the expiration of the Lease Agreement or any renewal
thereof; and (v) any indemnity, if then determinable, plus interest at eighteen
percent (18%) per annum.
19.6 In Lessor's sole discretion, re-lease or sell any or
all of the Leased Property at a public or private sale an such terms and notice
an Lessor shall deem reasonable and recover from Lessee, not as a penalty, but
as liquidated damages, an amount equal to the sum of (i) any accrued and unpaid
rent as of the "Default Date" here defined as the later of the date of default
or the date that Lessor obtains possession of the Leased Property or such other
date as Lessee makes an effective tender of possession of the Leased Property
back to Lessor; plus rent at the rate provided for in the Lease Agreement for
an "Additional Period" here defined as the period commencing on the Default
Date and ending on the earlier of the date all the Leased Property is resold or
re-let by Lessor or the date of entry of judgment in favor of Lessor; (ii) the
present value (discounted at 4%) of all future rentals reserved in the Lease
Agreement and contracted to be paid over the unexpired term of the Lease
Agreement, and the present value (discounted at 4%) of the estimated residual
value of the Leased Property as of the expiration of the Lease Agreement or any
renewal thereof; (iii) all commercially reasonable costs and expenses,
including reasonable attorney's fees and costs, incurred by Lessor in any
repossession, recovery, storage, or repair, sale, re-lease or other disposition
of the Leased Property in connection with or otherwise resulting from Lessee's
default; and (iv) any indemnity, if then determinable, plus interest at
eighteen percent (18%) per annum; LESS the amount received by Lessor upon
public or private sale or re-lease of the Leased Property, it any.
In any event, Lessee shall continue to be liable for all indemnities
under this Master Agreement and any Lease Agreement, and for all Lessor's legal
fees and other costs and expenses resulting from any event of default or
incurred in the enforcement of any right or remedy under this Master Agreement.
No remedy under this provision is intended to be exclusive, but each shall be
cumulative and in addition to any other remedy set forth herein or otherwise
available to Lessor at law or in equity.
20. MISCELLANEOUS.
20.1 Headings used in this Master Agreement or any Lease
Schedule are for reference purposes only and shall not be given any substantive
effect.
20.2 Failure of a party to insist in any instance upon
strict performance by the other party of any of the provisions of any Lease
Agreement or this Master Agreement shall not be construed or deemed to be a
permanent waiver of that or any other provision.
20.3 All notices issued in connection with this Master
Agreement or any Lease Agreement shall be in writing (unless otherwise
specifically provided in the Lease Schedule) and shall be sent by (i) certified
or registered mail, postage prepaid; (ii) facsimile transmission; or (iii)
overnight express courier with receipted delivery. Notices shall be addressed
as follows: If to Lessor: Data General Corporation
Attn: Director, Data General Leasing
4400 Computer Drive, Mail Stop E-111
Westboro, Massachusetts 01580
If to Lessee: Lessee's address as first noted above or the billing address
specified on the pertinent Lease Schedule.
Either party may change its address for notification purposes by
notice given to the other party. All notices shall be effective on the third
business day after issuance unless a different period in specified elsewhere in
this Master Agreement.
20.4 Each Lease Agreement and this Master Agreement shall be
construed in accordance with and governed by the laws of
<PAGE> 5
the Commonwealth of Massachusetts excluding its conflict of law rules.
20.5 Any provision of this Master Agreement or any Lease Agreement
which is invalid under the law or any state shall to the extent of such
prohibition be ineffective in such state only, without invalidating the
remaining provisions of this Master Agreement in such state.
20.6 Each Lease Agreement, including this Master Agreement,
constitutes the complete and exclusive statement of the agreement of the
parties and supersedes all prior oral and written communications, agreements,
representations, statements, negotiations and undertakings between the parties
relating to the subject matter of that Lease Agreement. No modification,
termination, extension, renewal or waiver of any provision or this Master
Agreement or any Lease Agreement shall be binding upon a party unless made in
writing and signed by an authorized representative of that party. If more than
one Lessee is named in this Master Agreement, their liability shall be joint
and several.
LESSOR AND LESSEE ACKNOWLEDGE THAT THEY HAVE READ THIS MASTER AGREEMENT,
UNDERSTAND IT, AND AGREE TO BE BOUND BY IT AS OF THE DATE FIRST ABOVE WRITTEN,
BUT ONLY AFTER ITS EXECUTION BY THEIR AUTHORIZED REPRESENTATIVES. LESSEE
FURTHER ACKNOWLEDGES RECEIPT FROM LESSOR OF A TRUE COPY OF THIS MASTER
AGREEMENT.
21. UCC ARTICLE 2A PROVISIONS.
insofar as Article 2A of the Uniform Commercial Code ("UCC")
may become applicable to any Lease Agreement, Lessee hereby waives any rights
and remedies which may be given to Lessee by UCC Sections 2A-508 through
2A-522.
DATA GENERAL CORPORATION, LESSOR LESSEE: REDDI BRAKE SUPPLY CORPORATION
Signature: RICHARD C. LEUCHTE Signature: [SIG]
------------------------- -------------------------
Authorized Representative Authorized Representative
Title: Leasing Manager Title: President / CEO
----------------------------- -----------------------------
Data General Leasing
Date: 09/25/96 Date: 09/23/96
<PAGE> 6
LEASE SCHEDULE NO. 001 DATED SEPTEMBER 13, 1996
TO MASTER LEASE AGREEMENT NO. 12966 DATED SEPTEMBER 13, 1996
BETWEEN DATA GENERAL CORPORATION AS LESSOR
AND REDDI BRAKE SUPPLY CORPORATION AS LESSEE
This is counterpart #1 of 1 serially numbered, manually
executed counterparts. To the extent that this document
constitutes chattel paper under the Uniform Commercial
Code, no security interest in this document may be created
through the transfer and possession of any counterpart
other than Counterpart No. 1.
Term of Lease: 62 months starting LESSEE'S PURCHASE ORDER NO.
on the first day of the calendar --------------
month beginning on or next following
the Acceptance Date stated below.
Pmts: 1-2 at $15,000.00/Mo.
Pmts: 3-6 at $33,000.00/Mo.
Pmts: 7-12 at $38,000.00/Mo.
Pmts: 13-62 at $35,500.09/Mo. LEASE SCHEDULE VALUE: $1,784,807.00
Acceptance Date: 10/1/96 ADVANCE PAYMENT (if any): $35,500.09+Tax
Installation Location: LESSEE'S BILLING ADDRESS
1376 Walter St. -----------------------------------------
Ventura, CA 93003
-----------------------------------------
The Master Lease Agreement referenced above is hereby incorporated into this
Schedule. The Master Lease Agreement and this Schedule together form one Lease
Agreement by which Lessor leases to Lessee the "Leased Property" as defined in
the Master Lease Agreement and listed in the Configuration Attachment attached
to this Schedule.
The first rental payment and any other amounts due at the commencement of the
Lease Agreement shall be due and payable on the first day of the calendar month
beginning on or next following the Acceptance Date shown above. Subsequent
rental payments shall be due on the first day of each succeeding month of the
Lease Term, unless a longer interval is specified above. All rents and other
payments shall be made to Lessor at the address specified above or at such other
address as may be designated to Lessee in writing by Lessor, or by any assignee
of Lessor.
Lessee acknowledges that Lessee selected the products and suppliers of the
Leased Property and authorized Lessor to acquire the Leased Property upon the
sale and license terms and conditions ("Supply Contracts") of the respective
suppliers, and arrange for its shipment at Lessee's expense to the Installation
Location. Lessee acknowledges that it has received, reviewed and approved each
Supply Contract under which Lessor acquired the Leased Property. Lessor has
informed Lessee that Lessee may have rights against the suppliers, that the
Lease Agreement does not preclude such rights or discharge the obligations of
any Supplier (including Data General Corporation in its capacity as the
Supplier) under a Supply Contract. Any claims respecting the condition or
operation of the Leased Property shall be made solely against the suppliers of
the Leased Property, and Lessee shall nevertheless pay Lessor or its successors
and assigns all amounts due and payable under this Lease Agreement.
Lessee acknowledges that it has had reasonable opportunity to inspect the Leased
Property and that the Leased Property conforms with the Supply Contracts, the
Lease Agreement and the Configuration Attachment. By signing this Schedule, or
by putting the Leased Property to productive use, whichever first occurs, Lessee
accepts the Leased Property listed on the Configuration Attachment as of the
Acceptance Date written above. Lessee acknowledges that on such date, the Leased
Property was installed in good working order by its respective suppliers using
their standard installation procedures and diagnostic programs applicable to
such Leased Property, which define good working order, and that as of such date,
the Leased Property was ready for use under the Lease Agreement.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly
executed and delivered by their authorized representatives.
DATA GENERAL CORPORATION, LESSOR LESSEE: REDDI BRAKE SUPPLY CORPORATION
Signature: RICHARD C. LEUCHTE Signature: [SIG]
------------------------- ---------------------------
Authorized Representative Authorized Representative
Richard C. Leuchte
Title: Leasing Manager Title: Pres/CEO
Data General Leasing ---------------------------
- ------------------------------------------------------------------------------
CERTIFICATE OF ACCEPTANCE Lease Schedule No. 12966-001
Lessee certifies that the Leased Property described in the Lease Schedule is
installed in good working order and ready for use. Lessee accepts the Leased
Property as satisfactory for all purposes of the Lease.
Lessee: REDDI BRAKE SUPPLY CORPORATION
by: [SIG]
----------------------------------
Signature (Title)
---------------------------------
Print Name of Signer
9-25-96
---------------------------------
Date
7/94
<PAGE> 7
Leased Property for Lease Agreement No. 12966-001
<TABLE>
<CAPTION>
ITEM# QTY MODEL# DESCRIPTION
- ----- --- ---------- -----------
<S> <C> <C> <C>
1 85 92578-A AV2000-166, UNI, 16MB, FDD, CD, NO HD, DWM
2 85 R2503 REPLACE 16MB MEMORY W/32MB MEMORY
3 85 26044 4GB 7200RPM SCSI HARD DRIVE
4 85 6810-B 320/525MB SCSI TAPE DRIVE
5 85 26030 14" EPA L.R. MULTISCAN MONITOR
6 85 7446 PCI LAN CONTROLLER/100
7 85 2943 DO NOT AUTOLOAD STD DOS WINDOWS ON PC
8 85 7060-A ENABLE DG/UX - AV2000/3000, N.AMERICA
9 85 P001AFA1CD DG/UX FOR INTEL L/M/D 4-USER
10 85 13S1008P05 CUSTOM STAGING & IMPLEMENTATION
11 85 10909 APC SMART-UPS 600VA UPS
12 85 12418E015 DATA GUARD CABLE D89 TO DB25
13 85 15456E006 6' SCSI-2 CABLE FOR AV/2000 CDAC
14 85 12192 US ROBOTICS SPORTSTER V.34 EXT MODEM
15 85 1338 MODEM CABLE
16 1 70675 AV3600 PENT. PRO 200 MHZ, 64MB, UNI, NIC, CDROM, FLP
17 1 R7362 REPLACE EXISTING 64MB WITH 256MB MEMORY BOARD
18 16 79012-HF 4GB 7200 RPM DISK FOR CLARIION ARRAYS
19 1 79201D HIGH PERFORMANCE HA ARRAY PKG - DESK
20 1 545OTD DLT4000 TT DIFF TAPE LIB 5-CART
21 2 6945G D16001 14" TERMINAL, GREEN, ERGONOMIC
22 2 G6001A-A D12001/D16001 101-KEYBOARD, PWR CORD
23 4 40538PKG 10BASET CABLE CONNECTOR ADPTR 10-PACK
24 1 4839T32A T/S ANNEX THREE, 32 PORT 10BASET/FM
25 2 7444 DIFF PCI TO SCI HOST BUS ADAPTER
26 1 7446 PCI LAN CONTROLLER/100
27 1 DG/UX DG/UX OP SYSTEM DESIGNATOR
28 1 P001AFA1CD DG/UX FOR INTEL L/M/D 4-USER
29 1 P001AQA61D DG/UX FOR INTEL S- 32-USER
30 1 P001AQA9FN DG/UX FOR INTEL UPGRADE TO 32 USERS
31 1 P001AZU7AN AVIION IMPLEMENTATION SERVICE - MED
32 1 R057AQA4LD DSK ARRAY MGT LIC IN. CODE SVC.INTEL
33 1 12350-A 2KVA UPS 208V AC INPUT 240:120 OUTPUT
34 1 12418E01S DATA GUARD CABLE DB9 TO DB25
35 1 1545E005 5' SCSI-2 68 PIN HD TO 50 PIN CHAMP
36 6 40740-C CCI XYLOGIC HYDRA CABLE 6 LEGS
37 1 13INST20-S HARDWARE INSTALL - CLARIION DSK ARRAY
38 1 13INST51-B H/W INSTALL-CLASS 2 NETWORK DEVICE
39 2 15485E010 SCSI CABLE, 68P HD -68P HD 10FT
40 12 12192 US ROBOTICS SPORTSTR V.34 EXT MODEM
41 12 1338 MODEM CABLE
3RD PARTY SOFTWARE LICENSE AGREEMENT #
------------------
DATED TO INCLUDE:
-------------------
42 DATA BASE LICENSES
------------------
2 ORACLE7**
165 ORACLE7**
43 APPLICATIONS LICENSES
---------------------
6 CORE SOLUTION MODULES
20 APPLICATION BUNDLE
1 APPLICATION OBJECT LIBRARY
20 APPLICATION DISPLAY MANAGER
1 DEVELOPER/2000&***
1 ORACLE ALERT
44 DEVELOPER AND END-USER TOOLS
----------------------------
1 DEVELOPER/2000***
32 DISCOVERER/2000
</TABLE>
<PAGE> 8
REDDI BRAKE SUPPLY CORPORATION
LEASE AGREEMENT NO. 1296-001
Page 2 of 2
- --------------------------------------------------------------------------------
ITEM # QTY MODEL # DESCRIPTION
- --------------------------------------------------------------------------------
45 ORACLE OFFICE LICENSES
900 ORACLE OFFICE
46 1 YEAR SOFTWARE MAINTENANCE
47 3 YEAR HARDWARE MAINTENANCE
LESSEE HAS SELECTED THE LEASED PROPERTY ON THIS SCHEDULE BASED UPON ITS OWN
JUDGEMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON STATEMENTS MADE BY LESSOR.
LESSEE ACKNOWLEDGES THAT THE LEASE IMPOSES NO RESPONSIBILITY OR LIABILITY UPON
LESSOR FOR PERFORMANCE OR OPERATION OF THE SCHEDULED PRODUCTS. THE LEASE GRANTS
NO WARRANTIES, EXPRESS OR IMPLIED, BY OPERATION OF LAW OR OTHERWISE, WITH
RESPECT TO THE SCHEDULED PRODUCTS AND LESSOR DISCLAIMS ALL IMPLIED WARRANTIES OR
MERCHANTABILITY AND FITNESS FOR PURPOSE. HOWEVER, THE LEASE PRESERVES LESSEE'S
RIGHTS AGAINST THE VENDORS OF THE SCHEDULED PRODUCTS AND LESSEE SHALL LOOK TO
THE VENDORS OF THE PRODUCTS CONCERNING PERFORMANCE AND OPERATION OF THEIR
RESPECTIVE PRODUCTS.
Data General Corporation Reddi Brake Supply Corporation
- ------------------------------- -------------------------------
Lessor Lessee
[SIG] [SIG]
- ------------------------------- -------------------------------
Authorized Representative Authorized Representative
ROBERT C. LEUCHTE
LEASING MANAGER
Title: DATA GENERAL LEASING Title: President/CEO
------------------------ -----------------------
Date: 09/25/96 Date: 09/23/96
------------------------ -----------------------
<PAGE> 9
PURCHASE OPTION RIDER
Rider attached to and made a part of this LEASE AGREEMENT # 12966-001
The provisions of the aforementioned printed LEASE AGREEMENT notwithstanding,
Lessor and Lessee mutually agree that:
1. Subject to the Lessee having performed all of its obligations under
the LEASE AGREEMENT between the Lessor, the Lessee and any other
parties named therein, and provided that the Lessee is not in default
therein, the Lessee shall have the option to purchase or renew all,
but not, less than all, of the Equipment described in said LEASE
AGREEMENT, at the expiration of the stated LEASE AGREEMENT Term
thereof.
2. This option may be exercised by the Lessee only upon delivery of a
written notice of intent to purchase to the Lessor not less than sixty
(60) days nor more then ninety (90) days before the expiration of
such LEASE AGREEMENT Term. In the event that Lessee fails to give
notice to Lessor, Monthly Rental Payments shall continue at the then
existing Payment Amount until sixty (60) days after notice is given by
Lessee.
3. The purchase option price, which must be paid in full, for the
Equipment at the expiration of such LEASE AGREEMENT shall be the then
fair market value of the Equipment either as mutually agreed upon by
the Lessor and Lessee or as determined by an independent appraiser
selected by the Lessor and satisfactory to the Lessee, Lessee bearing
all fees and expenses. If the purchase option price cannot be agreed
upon as determined hereby within thirty (30) days after the date of
delivery to the Lessor of the notice of intent to purchase hereunder,
then this option shall expire and be null and void.
4. The payment of the purchase option price by the Lessee to the Lessor
shall be in cash or by certified or bank check. Upon such payment,
the Lessor shall transfer to the Lessee all its right, title and
interest in and to the Equipment described in said LEASE AGREEMENT on
an "AS IS", "WHERE IS" basis.
5. Lessee shall have the option to renew the Lease Agreement for the then
fair rental value upon (60) days notice before or any time after
expiration of the Lease Agreement term. The fair rental value shall be
mutually agreed upon by the Lessor and Lessee or as determined by an
independent appraiser selected by Lessor and satisfactory to Lessee,
with the Lessee bearing all fees and expenses.
6. This Agreement shall not be effective until signed on behalf of the
Lessor by a duly authorized representative. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Massachusetts and shall bind and inure to the benefit of the parties
and their respective heirs, personal representative, successor and
assigns, provided that the Lessee shall not assign this Agreement or
any right thereunder or interest therein without the prior written
consent of the Lessor.
7. Lessee will receive credit equal to one (1) monthly payment for each
four (4) consecutive payments made promptly for a maximum of twelve
(12) payments credit to be applied to the last twelve (12) payments of
the term of the Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their authorized representatives.
Data General Corporation Reddi Brake Supply Corporation
- ------------------------------- -------------------------------
Lessor Lessee
[SIG] [SIG]
- ------------------------------- -------------------------------
Authorized Representative Authorized Representative
ROBERT C. LEUCHTE
LEASING MANAGER
Title: DATA GENERAL LEASING Title: President/CEO
------------------------ -----------------------
Date: 09/25/96 Date: 09/23/96
------------------------ -----------------------
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Reddi Brake Supply Corporation and Subsidiaries
We consent to incorporation by reference in the registration statements ((Form
S-8 No. 33-66462) pertaining to the Wesco Auto Parts Corporation 1992 Incentive
Stock Option Plan, (Form S-8 No. 33-44544) pertaining to the Wesco Auto Parts
Corporation 1991 Christmas Bonus Plan, and the Wesco Auto Parts Corporation
1991 Incentive Stock Option Plan, and the Wesco Auto Parts Corporation 1990
Incentive Stock Option Plan; (Form S-8 No. 33-71380) pertaining to the Wesco
Auto Parts Corporation Director's Stock Option Plans, Wesco Auto Parts
Corporation Software Consultants Stock Option Plan and the Wesco Auto Parts
Corporation Consultant's Compensation Plan; (Form S-3 No. 33-89810) pertaining
to shares of Common Stock being offered for sale pursuant to outstanding Class
C Warrants, outstanding Class D Warrants and offerings for sale by selling
shareholders; and (Form S-3 No. 33-98838) pertaining to shares of Common Stock
issuable upon conversion of outstanding 9.0% Adjustable Convertible
Subordinated Notes), of our report dated September 19, 1996, relating to the
consolidated balance sheets of Reddi Brake Supply Corporation and Subsidiaries
as of June 30, 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended June 30, 1996, and the
related schedule, which report appears in the June 30, 1996 annual report on
Form 10-K of Reddi Brake Supply Corporation and Subsidiaries.
Our report dated September 19, 1996 contains an explanatory paragraph that
states that the Company has suffered significant operating losses, used
$7,976,653 of cash in operations in fiscal 1996 and does not expect to be in
compliance with certain debt covenants in fiscal 1997 and has an accumulated
deficit of $26,685,249 as of June 30, 1996. These matters raise substantial
doubt about the entity's ability to continue as a going concern. Managements'
plans in regard to these matters are also described in the notes to the
consolidated financial statements. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Los Angeles, California
October 10, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-66462) pertaining to the Wesco Auto Parts Corporation 1992
Incentive Stock Option Plan, (Form S-8 No. 33-44544) pertaining to the Wesco
Auto Parts Corporation 1991 Christmas Bonus Plan, the Wesco Auto Parts
Corporation 1991 Incentive Stock Option Plan and the Wesco Auto Parts
Corporation 1990 Incentive Stock Option Plan, (Form S-8, No. 33-71380)
pertaining to the Wesco Auto Parts Corporation Director's Stock Option Plans,
Wesco Auto Parts Corporation Software Consultant's Stock Option Plan and the
Wesco Auto Parts Corporation Consultant's Compensation Plan, (Form S-3 No.
33-89810) pertaining to the registration of 5,231,583 shares of Reddi Brake
Supply Corporation's common stock, (Form S-3 No. 33-98838) pertaining to the
registration of 1,100,478 shares of Reddi Brake Supply Corporation's common
stock of our report dated September 7, 1995, except for Note 6, as to which the
date is October 12, 1995 with respect to the consolidated financial statements
and schedule of Reddi Brake Supply Corporation included in the Annual Report
(Form 10-K) for the year ended June 30, 1996.
Ernst & Young LLP
Los Angeles, California
October 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 571,156
<SECURITIES> 0
<RECEIVABLES> 6,624,675
<ALLOWANCES> 560,000
<INVENTORY> 24,921,223
<CURRENT-ASSETS> 33,031,284
<PP&E> 6,701,516
<DEPRECIATION> 3,081,225
<TOTAL-ASSETS> 39,926,249
<CURRENT-LIABILITIES> 18,190,283
<BONDS> 7,840,926
0
9,547,244
<COMMON> 1,786
<OTHER-SE> 3,879,011
<TOTAL-LIABILITY-AND-EQUITY> 39,926,240
<SALES> 62,725,488
<TOTAL-REVENUES> 62,725,488
<CGS> 36,548,308
<TOTAL-COSTS> 21,802,718
<OTHER-EXPENSES> 9,494,208
<LOSS-PROVISION> 304,941
<INTEREST-EXPENSE> 124,940
<INCOME-PRETAX> 8,542,838
<INCOME-TAX> 20,000
<INCOME-CONTINUING> 8,562,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,562,836
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
