-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IYQTKFBo3Vqg5iirWWa4tiw3wTAqWrZ6kComJhsBmA7iHg9SLGIXds8jxXQuLael 9VoUAodqcEGKEEB0hqh+SQ== 0001017062-96-000479.txt : 19961209 0001017062-96-000479.hdr.sgml : 19961209 ACCESSION NUMBER: 0001017062-96-000479 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRIP TECHNOLOGIES INC CENTRAL INDEX KEY: 0000046026 STANDARD INDUSTRIAL CLASSIFICATION: 3716 IRS NUMBER: 951980894 STATE OF INCORPORATION: CA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08485 FILM NUMBER: 96659560 BUSINESS ADDRESS: STREET 1: 10 CORPORATE PARK STREET 2: SUITE 130 CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7142528500 MAIL ADDRESS: STREET 1: GRIP TECHNOLOGIES INC STREET 2: 10 CORPORATE PARK STE 130 CITY: IRVINE STATE: CA ZIP: 92714 FORMER COMPANY: FORMER CONFORMED NAME: HARVEST RECREATION VEHICLES INC DATE OF NAME CHANGE: 19940114 10-K 1 10-K DATED 7-31-96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] for the fiscal year ended July 31, 1996 or [_] Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from to Commission file number 0-8485 Grip Technologies, Inc. (formerly Harvest Recreation Vehicles, Inc.) - - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) California 95-1980894 - - -------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S Employer of incorporation or organization) Identification No.) 10 Corporate Park, Suite 130 Irvine, California 92714-5140 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 252-8500 - - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, Without Par Value - - -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 1 State the aggregate market value of the voting stock held by non- affiliates of Registrant: $3,773,808. The aggregate market value was calculated on the basis of $1 7/16 per share, the last trading price of such Common Stock prior to October 28, 1996. Indicate the number of shares outstanding of Registrant's Common Stock, as of October 28, 1996: 5,581,925 Documents incorporated by reference: Not applicable. 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 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. [ ] 2 PART I. ITEM 1. BUSINESS Forward-Looking Statements - - -------------------------- From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company in this Report, as well as the Company's other periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, those factors set forth under the captions "Certain Factors Affecting the Golf Industry" and "Liquidity and Capital Resources" appearing in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Report. Company - - ------- The Company designs and markets golf grips for sale to original equipment manufacturers ("OEMs"), mail order houses, golf pro shops and specialty golf retailers. Prior to the commencement of fiscal 1996, the Company decided to outsource all manufacturing and, subsequently during fiscal 1996 ceased all in-house manufacturing operations. The Company is currently utilizing three outside contractors to manufacture its golf grips, using the Company's tooling and proprietary manufacturing techniques. Management believes that the Company's grips are superior to natural and other synthetic rubber grips based on their feel, high surface friction, material consistency and controlled weight tolerances. The Company utilizes a combination of premium materials, custom designs, proprietary tooling and manufacturing techniques, and a proprietary painting process, which allows GRIPTEC(TM) to offer distinctive grips in a wide variety of sizes, pattern designs, weights, softness and textures. The Company's objective is to lead in the design, development and merchandising of premium sport grips with superior quality and performance. The Company commenced initial operations on August 1, 1993 utilizing certain specified tangible and intangible assets it acquired from Poulin Progrip, Inc. The Company became a "public company" as a result of its acquisition on January 15, 1994 by a pre-existing public company, 3 Harvest Recreation Vehicles, Inc. ("Harvest"), that for several years prior to such date had no business, assets or operations - a so-called shell company. For financial statement purposes, as well as most other relevant purposes, the transaction was characterized as an acquisition of the shell company by the operating entity. As of July 31, 1994, the Company merged with and into Harvest. In September 1995, the Company completed the acquisition of USGRIPS(TM), Inc. ("USG") of Vista, California. USG was engaged in the business of designing and producing golf grips made from EPDM, a synthetic rubber compound that has wide acceptance by OEMs. The acquisition has added a full line of quality EPDM grips to the Company's product line which has helped the Company penetrate the OEM market. See "USGRIPS Merger." During fiscal 1996, the Company entered into a joint venture agreement with Talaurian Technologies, Inc. pursuant to which the Company agreed to license or sublicense, as the case may be, to Talaurian, its proprietary technology for industrial applications, and Talaurian agreed to cross-license its proprietary technology for sport grip applications to the Company. See "Talaurian Joint Venture." USGRIPS Merger -------------- On September 22, 1995, the Company acquired USG, a closely-held Florida corporation. The transaction was structured as a merger of USG into USG Acquisition Corporation, a California corporation ("GTI Sub"), a newly- formed wholly-owned subsidiary of the Company. In connection with the merger, the Company issued 600,000 shares of its Common Stock to the two shareholders of USG and agreed to issue up to an additional 400,000 shares over a three year period pursuant to an earn-out formula based on the gross margins to be achieved by the acquired USG business. All shares of the Company issued or to be issued in connection with the merger are "restricted securities" under federal securities laws. The merger was consistent with the Company's strategy to expand its product line to include quality EPDM grips to gain a greater foothold in the OEM market. The assets acquired included property and equipment consisting of machinery and equipment, molds, furniture and fixtures and leasehold improvements, and accounts receivable, inventories and prepaid expenses. The Company intends to continue to use the assets in a manner consistent with the business conducted by USG prior to the merger. Concurrent with the USG acquisition, the Company entered into a contract with USG's former supplier, ARC Equipment, Inc. of Chandler, Arizona for the manufacture and supply of golf grips made from EPDM, a synthetic rubber material which has become the material of choice for premium grips of many OEMs. USG and its two shareholders were not affiliated, nor did they have any material relationship with the Company prior to the merger. Subsequent to the merger, J. Barrie Ogilvie, USG's former majority shareholder, was appointed a director of the Company and Paul J. Herber, USG's former president, was appointed Vice President of OEM Sales of the Company. 4 Talaurian Joint Venture ----------------------- During fiscal 1996, the Company entered into a joint venture agreement (the "Talaurian Agreement") with Talaurian Technologies, Inc. ("Talaurian"), pursuant to which the Company agreed to license or sublicense, as the case may be, to Talaurian, its proprietary technology for industrial applications, and Talaurian agreed to cross-license its proprietary technology for sport grip applications to the Company. The term of the Talaurian Agreement is five years, and may be extended another five years should certain conditions be met. The Talaurian Agreement gives the Company the right to purchase 50% of the Common Stock of Talaurian for $1,000, and grants the Company a royalty of 5% of all revenues of Talaurian, whether derived from use of the Company's technology or not. The Company did not accrue or receive any amounts under the Talaurian Agreement during the year ended July 31, 1996. Products -------- Current Lines. The Company produces premium golf grips made from each of the materials that currently have wide use in the golf grip market: Ethylene Propylene Diene Monomer ("EPDM"), Thermoplastic Rubber ("TPR"), and EPDM with strands of embedded cord fibers ("cord"). These categories are represented by over fifty different models in various colors. Certain of the Company's grips are painted by filling molded logos with decorative paints. The paint used for the Company's TPR grips is based upon proprietary formulas. The Company also produces customized EPDM grips by using laser technology to engrave logos and names, which can then be painted. Each of the grip materials has characteristics which set it apart from the other, resulting in demand for each in the marketplace. Substantially all of the grips manufactured and sold by the Company during fiscal 1995 were made from advanced proprietary TPR compounds. Management believes that TPR offers many advantages over rubber and other synthetic rubber, including EPDM. However, in dealing with major OEMs, the Company has been told that TPR is viewed by some as an inexpensive, lower quality material because of the positioning of the several companies who are currently making TPR grips. Although the Company spent considerable time and money to develop high quality TPR compounds for its grips, there remains a TPR image problem. In addition, those OEMs that are interested in quality TPR grips have expressed concerns regarding the lack of a quality secondary source. As a result, by the end of fiscal 1995, the Company changed its strategy to focus primarily on EPDM grip sales to OEMs, although it sells, and intends to continue to sell, TPR grips to OEMs. The acquisition of USG in September 1995 implements this new strategy. The Company views TPR as the material of the future and is already working with OEMs on TPR grip projects, particularly where light weight grips are required. EPDM is the material of choice for most manufacturers of premium golf clubs. In addition to its inherently tacky feel, EPDM provides a consistent finish and can be manufactured to strict tolerances, thus meeting the quality standards of many OEMs. In addition, several producers provide high-quality EPDM grips, enabling OEMs to qualify alternative suppliers. 5 Cord grips have woven cotton threads embedded in the grip material much like the fiber materials embedded in belted automobile tires. Many high caliber and professional golfers believe cord grips give the player better control of the golf club, particularly in humid or wet weather. Products in Development. The Company's proprietary and patented painting processes can be used to apply various coatings to many surfaces, including gloves. When a coated glove is worn while using a TPR grip or a surface coated with TPR or certain other polymers, the coefficient of friction (i.e., resistance to slipping) between these two surfaces is substantially increased. This grip system technology has application in many sports, including golf, racquet sports, softball, baseball, cycling, hockey, and skiing. As an example, if the coating is applied to a golf glove that is used in conjunction with a golf grip made of TPR, the increased bond allows the golfer to swing the club with a minimum of hand pressure without fear of losing his or her grip on the club. A very thin coat of TPR can also be applied directly to wooden baseball bats by dipping the bat handle. In the case of metal bats, a TPR grip can be slipped over the bat handle in place of standard grips. This coating is impervious to water, which could be an advantage in some sports. The grip system technology is still in development and, to date, no sales have been made. Research and Development. The Company utilizes both in-house staff and independent consultants to conduct research and development of new products and to refine existing products. The Company has a consulting agreement with an independent consultant who obtained the original patent for the painting process, to provide certain consulting services for the Company. There can be no assurance that new products will be introduced as a result of such efforts, or that any new products will be successful, although the Company has been encouraged by the new compounds and painting techniques developed to date by this consultant. The Company continues its research and development in new compounds and with respect to a grip system. The Company's ongoing research and development effort is anticipated to generate new product applications covering grips and grip systems for future products. Adjunct Products. From time to time, the Company identifies opportunities to develop and /or market new products which, while not directly related to the Company's current golf grip line, represent potential line extensions or are salable into the same or similar markets. This is an area of potential growth that the Company is continually exploring. Patents, Technology and Trademarks. The Company uses and is developing technology that is protected by three United States patents which are very similar to each other. The Company acquired its patented technology by licensing from the inventor certain rights in and to the patented sport grip technology. The Company's license agreement provides for a payment of $2,000 per month for the worldwide exclusive rights to the patents and technology, including the exclusive rights under all issued, pending and future domestic and foreign patents related to the methods of coating surfaces with soft elastomeric polymers. United States patents have been issued for both the method claims of the original patent application made by the Company's licensor and the article claims under a divisional patent 6 application. Both patents are under the title "Soft, Elastomeric, Polymer Coated Contact Surface and Method of Preparing Same." A continuation-in-part application was filed with the United States Patent Office adding additional materials and specifications to the original application, and a new patent was issued by the United States Patent Office in February 1994. The coating of gloves with elastomeric polymers is included in the patent protection. An application for patent protection of the technology has also been filed in Japan, but no foreign patents have been issued. The Company relies extensively on trade secrets and non-disclosure agreements with its key employees and subcontractors to protect its proprietary processes related to the manufacture of seamless grips, the manufacture of tooling and the painting process. No assurances can be given that others, including competitors, might not design or develop a similar, non-infringing technology or be able to manufacture golf or other sport grips and grip systems with equal or better efficacy. The Company has also applied for United States trademark protection of its stylized "G" logo and the name GRIPTEC(TM). A California fictitious name application has been filed for the name "GRIPTEC(TM)." The Company's stylized "G" logo is not available in Japan and there the Company must use the name "Griptech" on its products. Current Customers ----------------- A list of the Company's OEM customers during the most recently completed fiscal year includes: Cobra Golf, Nicklaus Golf, Pinseeker, Ray Cook, Teardrop, Matzie, Pro Group, Mizuno, Titleist and Bullet Golf, among others. The replacement market was served primarily through sales to catalog resellers Golfsmith International, Dynacraft, The Golf Works and Austad's. Sales to Cobra Golf and Golfsmith International amounted to 23% and 13% of sales, respectively, for the year ended July 31, 1996. The Company is presently negotiating with several additional OEMs for future business and continues to expand its business with existing customers. Although the Company has an exclusive distributor contract with Yanase of America, Inc. for the sale of golf grips in Japan and certain other Asian countries, this agreement has resulted in few sales to date. The agreement is currently under review by the Company and Yanase. Marketing and Sales ------------------- Staff. The Company's marketing program relies on its sales staff, selected distributors and independent sales representatives to achieve its marketing objectives. The Company's product lines have been shown (and will continue to be shown) at the annual Professional Golf Association ("PGA") trade shows in Orlando, Florida and Las Vegas, Nevada. Information obtained at the shows has been used to pare the product line down to those samples that received favorable responses from members of the golf trade. Sales orders are not normally taken at the trade shows, but by follow-up calls on customers contacted at the shows. 7 Endorsements. The Company has endorsement agreements with Jack Nicklaus and Phil Mickelson, well-known PGA Tour players. The Company believes that the endorsement of players of this caliber enhances the Company's credibility with OEMs and promotes brand awareness within the replacement market. Advertising and Promotion. The Company utilizes a full service advertising and public relations firm to develop and coordinate an integrated promotional, marketing and advertising program aimed primarily at the replacement market. OEMs are serviced directly by the Company's sales management and staff, who work directly with OEMs to develop new products and qualify the Company as an approved source on existing products. The Company has historically focused its advertising and promotional efforts at using celebrity endorsers to promote the GRIPTEC(TM) brand as a credible, high-quality alternative to Golf Pride, Lamkin and Royal Grips. Advertising placed in consumer and trade magazines has resulted in high brand awareness within the industry, and has helped to generate demand in the replacement market. During fiscal 1996, the Company added as customers several major catalog resellers and retail chains, who effectively service pro shops, small retailers and other replacement market customers, an important market niche. The Company has seen significant sales increases, as well as a marked decrease in credit problems as a result of this change in strategy. The Company has consequently shifted a portion of its advertising to co-op advertising with the catalogs and retail chains, a strategy it plans to continue in fiscal 1997. The Company is also a sponsor of the developing Professional Long Drive Golf Association tour by offering additional prize money to the top three contestants using the Company's grips in the competition. Pricing Policies. The Company believes that it is viewed as moderately aggressive in terms of its pricing strategy, although some competitors have more aggressive pricing policies. See "Business - Products." The Company does not intend to compete on the basis of price sensitivity, but will concentrate its efforts on a premium quality product emphasizing the Company's capabilities in delivering custom features, including feel, color, weight, etc. The Company's focus is on developing products that should command higher prices due to their superior attributes. However, the Company's research and development department is concurrently pursuing alternative and less expensive products for the lower priced market. Manufacturing ------------- Facilities and Equipment. Prior to the USGRIPS merger in September 1995, the Company operated a full service facility with capability to design, manufacture and package golf and other sport grips made of TPR. In August 1995, the Company discontinued production at its Irvine, California facility, and in March 1996, subleased that facility, sold its injection molding equipment, and relocated into smaller space housing its executive offices. The Company subcontracts all manufacture and production of its golf grips. 8 The Company paints EPDM grips at its Vista, California facility and ships from that facility. The Company has subcontracted an outside facility to paint its TPR grips utilizing the Company's proprietary paint. The painting process is a significant component of a grip's processing cost, and has been the focus on management efforts to increase efficiencies. During fiscal 1996, the Company made significant investments in equipment and procedures to automate and otherwise further improve processing speed and quality. The Company believes the improvements will ultimately reduce processing costs. As part of the USGRIPS acquisition, the Company acquired certain equipment and software which allows it to engrave golf grips with logos and names using laser technology. The laser technology enables the Company to customize its grips without purchasing new tooling and adds to the Company's product lines. The laser operation is conducted by the Company at its Vista, California facility. For the OEM market, the Company works with each customer to custom design each grip with exacting specifications. Upon acceptance of a design by a customer, the Company then develops the appropriate tooling, known as a cavity. Costs for the tooling will vary, depending on the method used to build the cavity. The Company attempts to match tooling purchased to the expected sales of each grip model. Where expected sales quantities are large, multiple cavities will be purchased, in order to take advantage of manufacturing efficiencies. Conversely, some products will not sell enough units to justify significant tooling expenditures. Balancing the cost of tooling with the expected sales volume of any particular grip is one of the major challenges of the business. Further, the life cycle of a grip model is often shorter than the life of the tooling. Accordingly, the Company makes periodic reviews of its tooling, in order to identify any cavities related to discontinued products. Contract Manufacturing. The Company relies entirely on contract manufacturing for production of its grips. With the September 1995, acquisition of USG, the Company completed its transition to outsourced production. The Company uses three contract manufacturers who use the Company's tooling and in some cases, technology. The Company is dependent on a single supplier for each type of grip (EPDM, TPR and cord) in its product line. The Company has an exclusive arrangement (the "Arrangement") with the supplier who produces the EPDM grips which comprised the majority of sales for fiscal 1996. The Arrangement requires the Company to purchase a certain minimum number of grips per year, increasing each year throughout its ten-year term. Should the Company fail to meet certain terms of the Arrangement, including the purchase of the minimum number of grips required under the Arrangement, the supplier will have the right to cancel the Arrangement, and produce EPDM grips for other customers. To date, the Company has complied with the terms of the Arrangement. However, there can be no assurances that the Company will have sufficient demand for EPDM grips to fulfill its obligations under the Arrangement, nor can there be assurances that this supplier will increase capacity sufficiently to meet anticipated sales growth. Currently, the Company is working with this supplier to add new golf grip 9 products and capacity, including a grip that will enable the Company to enter the rapidly-growing market for large-butt shafts. Should any significant delay, disruption or decrease in quality occur at any of the key suppliers, it may have a material adverse effect on the Company's business. Sources of Raw Materials. The Company has worked with its consultants and suppliers to develop special formulations of EPDM and TPR to produce custom grips with desired specifications established by the Company or demanded by its customers. Management believes that EPDM and TPR are readily available in quantities and at acceptable prices from multiple suppliers, although any disruption in supply or significant increase in price may have a material adverse effect on the Company's business. Competition ----------- The sports grip business is highly competitive. The Company's principal competitors in the golf grip business are: Golf Pride (a division of Eaton Corporation), Lamkin and Royal Grip, Inc. Golf Pride, which has the greatest market share, and Lamkin, produce mostly rubber grips. Golf Pride, Lamkin and Royal also produce EPDM grips. Lamkin also manufactures seamless grips, which management believes are made from a TPR blend, but, to date, TPR grips have not been a significant part of Lamkin's product lines. To the best knowledge of the Company, none of its competitors can paint TPR grips. The market in which the Company does business is highly competitive, and is served by a number of well-established and well-financed companies with recognized brand names. Several companies have introduced new products in 1996 that have generated increased market competition. Others increased their marketing activities with respect to existing products in 1996. While the Company believes that its products and its marketing efforts continue to be competitive, there can be no assurance that these actions by others will not negatively impact the Company's future sales. A manufacturer's ability to compete is in part dependent upon its ability to satisfy various subjective requirements of golfers, including the product's look and feel, and the level of acceptance the product has among professional and other golfers. The subjective preferences of golf club purchasers may also be subject to rapid and unanticipated changes. There can be no assurance as to how long the Company's grips will maintain market acceptance. Government Regulations ---------------------- Prior to fiscal 1996, the Company outsourced all painting of grips. During fiscal 1996, the Company began painting EPDM grips at its Vista facility. The application of paint to golf grips requires compliance with applicable federal, state and local laws relative to hazardous materials, air pollution and health and safety. The imposition of more stringent regulations on the use of such chemicals or the ban of their use could increase the Company's product costs significantly. The Company presently has a single source which formulates and manufactures paint for the Company's TPR grips. No assurances can be given that, if necessary, the Company 10 would be able to find an acceptable outside source to provide such TPR paint. The Company has multiple sources for the paint used on its EPDM grips. Governmental regulations may restrict or eventually ban the use of various solvents and chlorinated hydrocarbons that are ingredients in the paint and used by the Company in the painting process. Although alternatives to the paint and painting process presently exist, certain characteristics may or may not be as good as the current paint formulations. Employees --------- The Company presently has 46 full-time employees: seven in Irvine, California and 39 in Vista, California. The Vista facility was occupied by USG prior to its acquisition by the Company. The employees currently located at Irvine include the President and Chief Executive Officer, three in sales management and support, and three in financial services. The staff in Vista includes two in sales management, three in operations management, one in administrative support and 33 in production. ITEM 2. PROPERTIES The Company leases 2,500 square feet of space at 10 Corporate Park, Suite 130, Irvine, California, for its corporate offices under a lease expiring in March 2000. During fiscal 1996, the Company ceased manufacturing in its 14,600 square foot manufacturing facility, and subleased it for the remaining term of the lease, which expires in October 1998. In September 1995, in connection with the acquisition of USG, the Company commenced occupation of approximately 6,600 square feet in a free-standing industrial building in Vista, California, pursuant to a lease which expired in September 1996, and was extended through September 1999. ITEM 3. LEGAL PROCEEDINGS The Company is not presently a party to any material pending legal proceedings. In 1988, prior to the exchange reorganization, certain then- existing major shareholders of the Company agreed to indemnify and hold the Company harmless from any creditor claims arising from activities prior to September 30, 1988. To date, no claims have been asserted against the Company which would trigger this indemnification obligation. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of fiscal 1996 to a vote of security holders through the solicitation of proxies or otherwise. 11 Executive Officers of the Company --------------------------------- The names and ages of all executive officers of the Company, and positions held by each for the last five years, are as follows:
Name Age Position ---- --- -------- Sam G. Lindsay 54 President, Chief Executive Offier and Director Greg Hopkins 41 Vice President of Sales and Marketing Paul J. Herber 38 Vice President of OEM Sales Michael R. Friedl 33 Treasurer/Chief Financial Office James E. McCormick III 48 Secretary and Director
SAM G. LINDSAY is, and has been, President, Chief Executive Officer and a director of the Company since its incorporation and served as Chief Financial Officer from January 1995 to February 1996. He is, and since September 1995 has been, the President, Chief Executive Officer and a director of USGRIPS, Inc., a wholly-owned subsidiary of the Company. From February 1993 through July 1994, he was also the President, Chief Executive Officer and a director of GTI Manufacturing, Inc., a wholly-owed subsidiary of the Company, which was merged into the Company on July 31, 1994. In January 1975, Mr. Lindsay co-founded The Sammis Company, a real estate development and management firm. He initially served as Executive Vice President of the firm and later became President, in which capacity he remained until his departure in January 1991 to form the S. G. Lindsay Company, a real estate investment and consulting firm. Mr. Lindsay served as President and Chief Executive Officer of the S. G. Lindsay Company until December 31, 1993. GREG HOPKINS is, and has been, Vice President of Sales and Marketing for the Company since September 15, 1993. Prior to joining the Company, Mr. Hopkins was employed by Taylor Made Golf Company for eight years. While at Taylor Made, Mr. Hopkins served as National Sales Manager and was an integral part of the executive decision making team. Prior to becoming National Sales Manager, Mr. Hopkins received numerous awards as a Sales Representative and Regional Sales Manager at Taylor Made. PAUL J. HERBER is, and has been, Vice President of OEM Sales for the Company since September 22, 1995. Prior to joining the Company, from 1992 until September 1995, Mr. Herber was President and Chief Operating Officer of USGRIPS, Inc., a designer and marketer of golf grips. He was Vice President of Sales and Marketing of Langert Golf Company from 1988 to 1992, and held various positions in sales and marketing for Taylor Made Golf Company from 1981 to 1988. Mr. Herber also is the majority owner of La Jolla Club, a company engaged in the assembly and marketing of children's golf equipment and the sale of lower to mid-priced golf grips. 12 MICHAEL R. FRIEDL is, and has been, the Treasurer/Chief Financial Officer of the Company since February 1, 1996, and prior thereto from October 1995 served as the Company's Director of Finance. From 1993 to 1995, Mr. Friedl served as controller for New Media Corporation, a high- tech manufacturing company. From 1990 to 1993, he worked for Arthur Andersen & Co. where he served as Audit Manager. He is a certified public accountant and is a graduate of Kent State University. JAMES E. MCCORMICK III is, and has been, the Corporate Secretary and a director of the Company since its incorporation. He is, and since September 1995 has been, the Corporate Secretary and a director of USGRIPS, Inc., a wholly-owned subsidiary of the Company. From February 1993 through July 1994, he was also the Corporate Secretary and a director of GTI Manufacturing, Inc., a subsidiary of the Company which was merged into the Company on July 31, 1994. Mr. McCormick has been engaged in the private practice of law for more than 20 years, specializing in corporate, securities and real estate matters. The officers are elected annually by the Board of Directors at the organizational meeting following the Annual Meeting of Shareholders. There is no family relationship between any of the officers, directors or persons nominated to become an officer or director. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information ------------------ The Company's Common Stock is traded on the over-the-counter electronic bulletin board. The Company believes that there is a limited public trading market, particularly because of the small number of shares available in the public float. The following table sets forth the range of high and low bid prices for each quarterly period during the two most recent fiscal years:
High Low ----- ----- Fiscal 1995 First Quarter $3 $2 1/4 Second Quarter $3 $2 3/8 Third Quarter $2 7/8 $2 1/4 Fourth Quarter $2 3/4 $2 1/4 Fiscal 1996 First Quarter $2 5/8 $1 7/8 Second Quarter $2 5/8 $1 7/8 Third Quarter $2 3/8 $1 3/8 Fourth Quarter $2 5/8 $1 1/4
The above information was compiled by J. Alexander Securities, Los Angeles. Holders ------- As of October 28, 1996, there were approximately 1,075 shareholders of record. Dividends --------- The Company has not paid any dividends of any kind on its issued and outstanding shares of Common Stock since inception. Payment of dividends is within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements and the operating and financial condition of the Company. At the present time, the Company has incurred losses and is unable to pay dividends. It is anticipated that the Company will follow a policy of retaining earnings in order to finance the development of its business. 14 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data is derived from the financial statements of the Company. It is qualified in its entirety by, and should be read in conjunction with, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data" and related notes included elsewhere herein.
For the Years Ended July 31, 1994 1995 1996 ------------- ------------- ------------- Statement of Operations Data - - ---------------------------- Net sales $ 895,878 $ 1,104,049 $ 3,062,948 Cost of sales 707,553 1,267,255 2,411,017 ------------ ------------ ------------ Gross profit (loss) 188,325 (163,206) 651,931 Operating expenses 1,488,011 3,145,977 2,078,425 ------------ ------------ ------------ Loss from operations (1,299,686) (3,309,183) (1,426,494) Interest expense 88,286 134,762 146,887 ------------ ------------ ------------ Loss before income taxes (1,387,972) (3,443,945) (1,573,381) Provision for income taxes 800 800 1,600 ------------ ------------ ------------ Net loss ($1,388,772) ($3,444,745) ($1,574,981) ============ ============ ============ Net loss per share ($0.64) ($1.11) ($0.33) ============ ============ ============ Shares used in computing net loss per share 2,171,167 3,102,497 4,832,107 ============ ============ ============ As of July 31, 1994 1995 1996 ------------ ------------ ------------ Balance Sheet Data - - --------------------- Current assets $ 511,826 $ 702,472 $ 1,093,040 Total assets 1,989,236 973,838 3,203,702 Current liabilities 1,259,487 732,886 2,533,588 Total liabilities 1,928,008 2,570,500 2,870,660 Stockholders' equity (deficit) 61,228 (1,596,662) 333,042
Grip Technologies, Inc. was incorporated in February 1993, but had no significant activity until August 1993. The Company became a "public company" as a result of its acquisition on January 15, 1994 by a pre-existing public company, Harvest Recreation Vehicles, Inc., that for several years prior to such date had no business, assets or operations - a so-called shell company. For financial statement purposes, as well as most other relevant purposes, the transaction was characterized as an acquisition of the shell company by the operating company. Accordingly, no financial information or data is provided for any period prior to August 1, 1993. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read together with the financial statements and notes thereto elsewhere herein. Forward-Looking Statements - - -------------------------- From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward- looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures made by the Company in this Report, as well as the Company's other periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company's business include, but are not limited to, those factors set forth under the captions "Certain Factors Affecting the Golf Industry" and "Liquidity and Capital Resources" appearing below. Results of Operations - - --------------------- Years Ended July 31, 1996, 1995 and 1994 ---------------------------------------- During fiscal 1996, the Company acquired USGRIPS, Inc., of Vista, California, which had a full product line and exclusive relationships with manufacturers of quality grips made of TPR, EPDM and cord. This acquisition has enabled the Company to outsource all of its production, which eliminated many of the production difficulties that resulted in poor gross margins in the past. It has further enabled the Company to focus on product development and marketing. Net sales for the year were $3,062,948, an increase of $1,958,899 or 177% over fiscal 1995. The increase was related to the acquired USGRIPS business, which provided a fuller product line, and the development of relationships with key OEMs and catalog resellers. Sales levels were in line with management expectations. The net sales increase represents a 28% increase over unaudited pro forma combined net sales of the Company and USGRIPS for the prior year. Net sales for fiscal 1995 were $1,104,049, an increase of $208,171 or 23% over fiscal 1994. During fiscal 1995, the Company was not able to achieve projected sales to OEMs due to their reluctance to commit to a TPR product line, especially with no viable second source. 16 During fiscal 1996, the Company invested heavily in tooling to fill out its product lines as it entered the EPDM and cord markets and to supply increased OEM demand. The Company's investment in tooling was $516,405 for fiscal 1996, plus $173,651 acquired in the USGRIPS acquisition. The Company invested $370,640 in tooling during fiscal 1995. During fiscal 1995, the Company entered into endorsement agreements with two world-famous PGA Tour players, Jack Nicklaus and Phil Mickelson. Management expects these endorsement agreements to continue to raise brand awareness within the golf community, and, particularly, the replacement grip market. Cost of sales for fiscal 1996 was $2,411,017, or 79% of sales, as compared to $1,267,255, or 115% of sales for fiscal 1995. The improvement in gross margin was largely due to improved efficiencies arising from the outsourcing of production. Further, improved inventory controls reduced inventory write-offs during the year. Cost of sales for fiscal 1995 was $1,267,255, or 115% of sales, as compared to $707,553 or 79% of sales for fiscal 1994. The decline in gross margin resulted primarily from production problems experienced by the Company. Since its inception, the Company has invested significantly in new tooling and machinery designs in order to manufacture a higher quality and more consistent product. Simultaneously, the Company conducted research and development to enhance the qualities of its raw materials, including new proprietary formulations of TPR and the introduction of a new cord grip made from a proprietary EPDM formulation. In spite of the substantial investment in the new tooling, problems associated with the introduction of these new formulations resulted in an abnormally high rejection rate and slower production cycles. Selling expenses increased only 3%, from $790,888 to $818,436 during fiscal 1996, as the Company's investment in sales and marketing began to result in sales increases. During the year, the Company discontinued telemarketing. Customers that responded to the telemarketing effort were typically too small for the Company to serve efficiently, and many credit problems arose. The Company has developed relationships with large catalog resellers, who better serve the needs of smaller customers, while significantly reducing the number of accounts to manage and the Company's credit risk. The Company successfully integrated the USGRIPS sales force, product lines and customers during fiscal 1996, while maintaining service levels and eliminating redundant functions. In addition, the Company continued to invest heavily in advertising and promotion, continuing to focus on the endorsements of PGA Tour players Jack Nicklaus and Phil Mickelson. Selling expenses, which continue to be disproportionately high, as compared to current sales levels, decreased from 72% of revenues in fiscal 1995 to 27% of revenues in fiscal 1996. Management believes that these costs were necessary in order to position the Company and its products in appropriate markets. Management believes that selling costs will decline as a percentage of sales as sales increase. Selling expenses for fiscal 1995 increased 40% over fiscal 1994, from $564,882 to $790,888, primarily as a result of the expansion of the Company's sales focus to include the replacement grip market. During this period, the Company added a telemarketing sales force, as well as additional sales support staff. However, the type of customers that typically responded to the telemarketing 17 effort were too small for the company to serve efficiently, and many credit problems arose. As a result, the telemarketing effort was discontinued in November 1995. General and administrative expenses increased 15%, from $688,935 in fiscal 1995 to $793,348 in fiscal 1996, as the Company integrated the USGRIPS' operation. Certain duplicate functions were eliminated during the year. General and administrative expenses for fiscal 1995 increased 39% over fiscal 1994, from $496,304 to $688,935, as a result of the addition of support personnel and additional legal and professional expenses. Intangible amortization during fiscal 1996 relates to the goodwill arising from the USGRIPS acquisition, which is being amortized over seven years. For fiscal 1995, intangibles amortization included the $491,166 write- off of intangible assets acquired from Poulin Progrip. Because of significant changes in the design and manufacturing of the products, it was management's opinion that these assets no longer had any significant value to the Company. The Company continues its research and development efforts, which are primarily aimed at developing new products for the golf markets. However, the Company has also focused efforts on grips for other sport applications, and glove-grip systems for baseball, tennis and racquetball. As part of management's overall plan to expand sales, the Company has investigated the possibility of marketing other golf products for vertical integration while utilizing its existing sales and marketing network. During the first quarter of fiscal 1995, the Company entered into an agreement with Dynalaser, Inc. to sell and distribute the "Stabilaser", a patented, laser- guided golf headwear training aid endorsed by PGA Tour player Nick Price. In management's opinion, sales were far less than forecasted because of Dynalaser's failure to provide committed advertising and marketing dollars and support required for such a product launch. As a result, the Company terminated its distribution of the Stabilaser in June 1995. Certain Factors Affecting the Golf Industry ------------------------------------------- The Company believes that the growth rate in the golf equipment industry in the United States has been modest for the past several years, and this trend is likely to continue through 1996. The Company also believes that the sales of all golf clubs in Japan, the world's second largest market for golf clubs next to the United States, have been declining during this same period, but should stabilize during 1996 and 1997. Sales to key OEM and catalog customers have been strong during fiscal 1996 and early fiscal 1997, but there can be no assurances that the demand for the Company's existing products or the introduction of new products will permit the Company to continue the revenue growth experienced in fiscal 1996. In the golf industry, sales to retailers are generally seasonal due to lower demand in the retail market in the cold weather months covered by the Company's first and second fiscal quarters. Sales to OEMs generally mirror the seasonal trends of retailers. The Company has become a supplier to several major golf club OEMs, and continues to seek to develop relationships with many others. Most major OEMs demand high standards of quality and service from all suppliers, and require 18 reliable second sources for most components, including grips. The Company's success with OEMs will be dependent upon its ability to supply high quality grips and provide a high level of service. Since it outsourced production, the Company is dependent on a single supplier for each type of grip (EPDM, TPR and cord) in its product line. The Company has an exclusive arrangement (the "Arrangement") with the supplier who produces EPDM grips which make up the majority of its sales. The Arrangement requires the Company to purchase a certain minimum number of grips per year, increasing each year throughout its ten-year term. Should the Company fail to meet certain terms of the Arrangement including the purchase of the minimum number of grips required under the Arrangement, the supplier will have the right to cancel the Arrangement and produce EPDM grips for other customers. To date, the Company has complied with the terms of the Arrangement. However, there can be no assurances that the Company will have sufficient demand for EPDM grips to fulfill its obligations under the Arrangement. Further, any significant delay or disruption at any of the key suppliers may have a material adverse effect on the Company's business. Liquidity and Capital Resources - - ------------------------------- Equity and Other Capital Resources ---------------------------------- During fiscal 1996, the Company raised $1,919,685, net of offering expenses, in private placements of 1,046,700 shares of Common Stock. In addition, the Company converted $535,000 of debt due to a stockholder in exchange for 356,667 shares of Common Stock. As of July 31, 1996, there were 1,287,500 shares of Series A Convertible Preferred Stock and 5,581,925 shares of Common Stock issued and outstanding. The Series A Convertible Preferred Stock entitles the holder to receive non-cumulative dividends at an annual rate of $0.10 per share, when and as declared by the Board of Directors. There were no accrued or unpaid dividends at July 31, 1996, 1995 or 1994. Each share of Preferred Stock is convertible into one share of Common Stock, subject to various anti-dilution adjustments. During the year ended July 31, 1996, 62,500 shares of Series A Convertible Preferred Stock were converted to Common Stock. In the event the Company elects to redeem the preferred shares, or upon liquidation of the Company, the preferred shareholders are entitled to receive $1.00 per share plus 10% per annum from the date of original issue. During fiscal 1995, the Company raised $1,605,630, net of expenses and commissions, in private placements of 1,077,598 shares of Common Stock. In addition, the Company converted $181,225 of debt in exchange for 122,402 shares of Common Stock. The Company raised $1,450,000 through the private sale of equity securities during fiscal 1994. During fiscal 1996, the Company increased its term loans from $600,000 to $780,000. The effective interest rate on these notes is 10% per annum; 4% payable monthly to the bank, and 6% payable to the stockholder whose assets are pledged as security for the loans. In June 1995, the bank extended the maturity dates to December 31, 1996, at which time the notes will be due. In September 1996, the Company entered into a revolving line of credit agreement with a bank in the amount of $400,000, all of which has been drawn down by the Company. The line of credit 19 bears interest at the bank's prime rate plus 2.5%, is partially secured by personal assets of a stockholder and is due on September 15, 1997. The Company obtained short-term borrowings from a trust and a corporation. The notes total $90,000, originally bore interest at 6% per annum, and were due on June 30, 1996. As further consideration for these loans, warrants to purchase 27,000 shares of Common Stock, with an exercise price of $2.50 per share, exercisable prior to May 31, 1998, were issued. In consideration for extending the maturities of these notes to October 31, 1996 and January 31, 1996, the interest rates were increased to 10%, and 2,250 stock purchase warrants with the same terms described above will be issued for each month that the balances remain unpaid after June 30, 1996. In addition, the Company obtained short-term loans from two partnerships. The notes total $250,000, bear interest at 8% per annum and are due through May 31, 1997. As further consideration for these loans, warrants to purchase 75,000 shares of Common Stock, with an exercise price of $2.50 per share, exercisable prior to May 31, 1998, were issued. During fiscal 1995, the Company obtained short-term borrowings through private individuals as follows: the selling agent for a private placement and an affiliate of the selling agent each loaned the Company $125,000. During the first quarter of fiscal 1995 the selling agent canceled $121,255 of its $125,000 loan plus $2,379 of interest in exchange for 82,402 shares issued as part of the pending private placement. The affiliate of the placement agent converted $60,000 of his loan into 40,000 shares of the Company in the same private placement. The remaining $65,000 due the placement agent's affiliate was paid in full during fiscal 1995. The loan from the placement agent's affiliate included a warrant to purchase 10,000 shares of the Company's Common Stock at $1.65 per share, exercisable between April 8, 1995 and April 8, 1997. The majority stockholder loaned the Company $310,000 during fiscal 1994 and an additional $225,000 during fiscal 1995. Each of these loans were represented by promissory notes, which were combined into one note in July 1995. The note bore interest at 10% per annum, with interest due at maturity. On July 31, 1996, the principal amount of the note was converted into 356,667 shares of Common Stock. Beginning in fiscal 1994, an officer who is also the major stockholder agreed to defer his salary and certain reimbursable business expenses until the Company becomes profitable. Beginning January 1, 1996, the officer elected to discontinue deferring his salary, but agreed to continue deferring reimbursement of expenses. At July 31, 1996 and 1995, the Company owed the majority stockholder $358,879 and $202,796 in salary and expenses. As of July 31, 1996 and 1995, the Company owed a stockholder $145,604 and $86,222, respectively, for providing legal services to the Company. In connection with the purchase of certain assets from Poulin Progrip, Inc. ("Poulin"), the Company agreed to assume $349,230 in notes payable to a bank. At July 31, 1996, one note, in the amount of $179,023, remained outstanding. This note payable bears interest at 12.5% per annum, is payable in principal and interest payments of $4,446 per month through November 2000. This note is secured by the property and equipment purchased by the Company from Poulin and certain assets of the principal shareholder. 20 Also in connection with the purchase of certain assets from Poulin, the Company agreed to pay to the majority shareholder of Poulin consulting fees of $12,500 per quarter from August 1, 1995 through July 31, 1999 and to pay for a covenant not to compete, in 26 quarterly payments of $12,500 each, commencing August 1, 1993. The consulting fees and covenant consideration liabilities have been recorded on the balance sheet of the Company, discounted to include interest imputed at 10% per annum. In exchange for an early payment, the payee has agreed to accept as full payment of the obligations $200,000 plus interest at 8% from July 31, 1996, if payment in full is made by December 31, 1996. In December 1993, the Company borrowed $50,000 from its landlord for leasehold improvements at its Irvine, California manufacturing facility. This loan is represented by a promissory note which bears interest at 7% per annum, with principal and interest payable monthly until December 1998. Liquidity --------- The Company continues to struggle with liquidity issues, primarily due to the significant operating losses it has sustained since inception. However, many factors that impact liquidity improved during fiscal 1996, and management anticipates this trend to continue in fiscal 1997. In management's opinion, the most significant development in fiscal 1996 was the improvement of gross margins, from -15% in fiscal 1995 to 21%. This improvement, together with increased revenues, is critical to achieving profitability. Management projects both revenues and gross margins to continue to improve in fiscal 1997, as improved inventory management procedures and economies of scale begin to take effect. Historically, the Company's fiscal third and fourth quarter have been the largest in terms of revenues, corresponding with the golf industry's selling season. This seasonality strains liquidity, as the Company is required to invest in tooling and build inventories during its first two quarters in order to meet spring delivery schedules. The Company must also support the corresponding increase in receivables during the initial portion of the prime selling season. The Company anticipates funding a portion of the cost associated with increased inventory and receivables through trade credit, but its supply contracts with grip manufacturers typically contain strict payment schedules, which limit its flexibility with its largest suppliers. The Company has implemented improved credit policies that have reduced the number of days sales in net receivables from 100 to 45, as well as reduced bad debt expense by 33% in fiscal 1996. Inventory management has improved as well, with a reduction in write- offs due to inventory obsolescence. However, due to the Company's broader product line, inventory balances have increased in fiscal 1996 relative to sales. Increasing inventory turns is an important component in the Company's plan for meeting liquidity goals for fiscal 1997. Due primarily to the broadening of the Company's product lines, and the addition of new OEM customers, the Company invested heavily in additional tooling. Total investment in new property and equipment amounted to $572,296 in fiscal 1996, compared to $386,048 in fiscal 1995. In addition, property and equipment of $315,406 was acquired in the USGRIPS acquisition. The 21 Company anticipates investing an additional $300,000 in tooling for fiscal 1997, and, to date, has expended approximately $100,000 of that amount. The Company intends to continue research and development efforts necessary to enter markets for other sport grips and introduce the Company's glove/grip system. The Company had a working capital deficit of $1,440,548 at July 31, 1996, as compared to a deficit of $30,414 at July 31, 1995. The increase in the deficit was due primarily to the net loss and the reclassification of certain liabilities to current. Included in current liabilities at July 31, 1996, are $504,483 due to two shareholders who are also officers of the Company, short- term borrowings of $90,000 that are due through January 31, 1997, and the Company's term loans with a bank in the amount of $780,000. Repayment of the amounts due the shareholders have historically been deferred, but further deferral is not assured. Subsequent to July 31, 1996, $25,000 due to Poulin was repaid, and $20,000 of the short-term borrowings were repaid. The Company has negotiated a discount of $103,572 with regard to the remaining obligation to Poulin if it can be repaid on or prior to December 31, 1996. The Company is not expected to generate sufficient cash from operations necessary to repay the remaining obligations as they come due. It will be required to either extend the maturities, sell additional equity to generate funds to repay them, or seek alternative financing. The Company funded a portion of projected cash needs in September 1996, by entering into a $400,000 revolving line of credit arrangement with a bank. Interest is payable monthly at the bank's prime rate plus 2.5%, and is partially secured by assets of a shareholder, who is the co-maker on this line of credit. The Company anticipates it will require an additional $2,000,000 to fund operating losses, as well as the expected continued sales growth and tooling purchases and to meet certain obligations as they come due. The Company intends to pursue all available options, including, the initiation of another private placement of its equity securities, a secondary offering by the Company of its Common Stock, or a private placement of a convertible or other debt instrument; seeking loans from other sources not yet identified; or pursuing a merger, consolidation or other similar corporate transaction. None of these sources or alternatives may be available to the Company and, if they become available, they may not occur within the timeframe required by the Company or they may require terms which management finds unacceptable. The inability of the Company to locate additional capital prior to the end of the second quarter of fiscal 1997 raises substantial doubt about the Company's ability to continue operating as a going concern. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Board of Directors of Grip Technologies, Inc. and Subsidiary: We have audited the accompanying consolidated balance sheets of GRIP TECHNOLOGIES, INC. (a California corporation) and subsidiary as of July 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years ended July 31, 1996, 1995 and 1994. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Grip Technologies, Inc. and subsidiary as of July 31, 1996 and 1995 and the consolidated results of its operations and its cash flows for the years ended July 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses, and has negative working capital. These factors raise substantial doubt about the Company'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. ARTHUR ANDERSEN LLP Orange County, California October 21, 1996 23 GRIP TECHNOLOGIES, INC. AND SUBSIDIARY -------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- JULY 31, 1996 AND 1995 ---------------------- ASSETS ------
1996 1995 ---------- -------- CURRENT ASSETS: Cash $ 16,975 $126,827 Accounts receivable, net of allowance for doubtful accounts of $190,669 and $174,099 at July 31, 1996 and 1995, respectively 537,445 279,304 Inventories 506,995 226,471 Note receivable - 50,000 Prepaids and other assets 31,625 19,870 ---------- -------- Total current assets 1,093,040 702,472 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $373,589 and $123,175 as of July 31, 1996 and 1995, respectively 887,242 271,366 INTANGIBLES, net of accumulated amortization of $924,490 and $754,260 as of July 31, 1996 and 1995, respectively 1,223,420 - ---------- -------- Total assets $3,203,702 $973,838 ========== ========
The accompanying notes are an integral part of these consolidated balance sheets. 24 GRIP TECHNOLOGIES, INC. AND SUBSIDIARY -------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- JULY 31, 1996 AND 1995 ---------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ----------------------------------------------
1996 1995 ------------ ------------ CURRENT LIABILITIES: Short-term borrowings $ 340,000 $ 3,775 Current portion of long-term obligations 976,412 139,138 Current portion of amounts due stockholder 358,879 - Accounts payable 528,392 412,900 Accrued liabilities 329,905 166,373 Other liabilities - 10,700 ----------- ----------- Total current liabilities 2,533,588 732,886 ----------- ----------- LONG-TERM LIABILITIES: Long-term obligations, net of current portion 337,072 1,099,818 Amounts due stockholder, net of current portion - 737,796 ----------- ----------- 337,072 1,837,614 ----------- ----------- Total liabilities 2,870,660 2,570,500 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Series A Convertible Preferred Stock Authorized -- 3,000,000 shares Issued and outstanding -- 1,287,500 and 1,350,000 shares, respectively 1,287,500 1,350,000 Common Stock Authorized -- 25,000,000 and 10,000,000 shares, respectively Issued and outstanding -- 5,581,925 and 3,516,058 shares, respectively 5,454,040 1,886,855 Accumulated deficit (6,408,498) (4,833,517) ----------- ----------- Total stockholders' equity (deficit) 333,042 (1,596,662) ----------- ----------- $ 3,203,702 $ 973,838 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. 25 GRIP TECHNOLOGIES, INC. AND SUBSIDIARY -------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- FOR THE YEARS ENDED JULY 31, 1996, 1995 AND 1994 ------------------------------------------------
1996 1995 1994 ----------- ----------- ----------- NET SALES $ 3,062,948 $ 1,104,049 $ 895,878 COST OF SALES 2,411,017 1,267,255 707,553 ----------- ----------- ----------- Gross profit (loss) 651,931 (163,206) 188,325 ----------- ----------- ----------- OPERATING EXPENSES: Selling 818,436 790,888 564,882 General and administrative 793,348 688,935 496,304 Research and development 39,616 87,360 128,945 Depreciation 256,795 266,323 167,154 Intangible amortization and write-off 170,230 623,534 130,726 Provision for abandonment and disposition of property and equipment and other - 688,937 - ----------- ----------- ----------- 2,078,425 3,145,977 1,488,011 ----------- ----------- ----------- Loss from operations (1,426,494) (3,309,183) (1,299,686) INTEREST EXPENSE 146,887 134,762 88,286 ----------- ----------- ----------- Loss before income taxes (1,573,381) (3,443,945) (1,387,972) PROVISION FOR INCOME TAXES 1,600 800 800 ----------- ----------- ----------- Net loss $(1,574,981) $(3,444,745) $(1,388,772) =========== =========== =========== NET LOSS PER COMMON AND EQUIVALENT SHARE $ (0.33) $ (1.11) $ (0.64) =========== =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,832,107 3,102,497 2,171,167 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 26 GRIP TECHNOLOGIES, INC. AND SUBSIDIARY -------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------------------
Series A Convertible Preferred Stock Common Stock --------------- --------------- Accumulated Shares Amount Shares Amount Deficit Total --------- ---------- --------- ---------- ----------- ----------- BALANCE, AUGUST 1, 1993 (inception) - $ - - $ - $ - $ - Initial sale of Common Stock - - 2,000,000 100,000 - 100,000 Initial sale of Preferred Stock 1,350,000 1,350,000 - - - 1,350,000 Net effect of reverse acquisition - - 316,058 - - - Net loss - - - - (1,388,772) (1,388,772) --------- ---------- --------- ---------- ----------- ----------- BALANCE, JULY 31, 1994 1,350,000 1,350,000 2,316,058 100,000 (1,388,772) 61,228 Sale of Common Stock, net of offering costs - - 1,077,598 1,605,630 - 1,605,630 Conversion of loans to Common Stock - - 122,402 181,225 - 181,225 Net loss - - - - (3,444,745) (3,444,745) --------- ---------- --------- ---------- ----------- ----------- BALANCE, JULY 31, 1995 1,350,000 1,350,000 3,516,058 1,886,855 (4,833,517) (1,596,662) Sale of Common Stock, net of offering costs - - 1,046,700 1,919,685 - 1,919,685 Conversion of loans to Common Stock - - 356,667 535,000 - - Conversion of Preferred Stock to Common Stock (62,500) (62,500) 62,500 62,500 - - Common Stock issued in acquisition of USGRIPS, Inc. - - 600,000 1,050,000 - 1,050,000 Net loss - - - - (1,574,981) (1,574,981) --------- ---------- --------- ---------- ----------- ----------- BALANCE, JULY 31, 1996 1,287,500 $1,287,500 5,581,925 $5,454,040 $(6,408,498) $ 333,402 ========= ========== ========= ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 27 GRIP TECHNOLOGIES, INC. AND SUBSIDIARY -------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED JULY 31, 1996, 1995 AND 1994 ------------------------------------------------
1996 1995 1994 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,574,981) $(3,444,745) $(1,388,772) Adjustments to reconcile net loss to net cash used in operating activities: Provision for abandonment and disposition of property and equipment and other - 688,937 - Depreciation 256,795 266,323 167,154 Intangible amortization and write-off 170,230 623,534 130,726 Increase in accounts receivable (77,650) (71,813) (207,491) (Increase) decrease in inventories (86,447) 41,956 (268,427) Increase in prepaids and other assets (6,925) (5,534) (14,336) Increase (decrease) in accounts payable (135,333) (45,763) 430,263 Increase in accrued liabilities 34,334 65,373 - Increase (decrease) in other liabilities (10,700) 10,700 - ----------- ----------- ----------- Net cash used in operating activities (1,430,677) (1,871,032) (1,150,883) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (572,296) (386,048) (461,732) Proceeds on disposal of property and equipment 9,500 - - Increase in note receivable - (50,000) - Purchases of intangibles (2,900) - (250,770) ----------- ----------- ----------- Net cash used in investing activities (565,696) (436,048) (712,502) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in deferred private placement costs - - (114,298) Proceeds from (payment of) short-term borrowings 136,225 (165,000) 350,000 Net increase in amounts due stockholder 156,083 347,617 390,179 Payments on amounts due former stockholder (400,000) - - Net proceeds from long-term obligations 180,000 600,000 - Principal payments on long-term obligations (105,472) (90,210) (90,924) Proceeds from issuance of preferred stock - - 1,350,000 Net proceeds from issuance of Common Stock 1,919,685 1,719,928 - ----------- ----------- ----------- Net cash provided by financing activities 1,886,521 2,412,335 1,884,957 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH (109,852) 105,255 21,572 CASH, beginning of period 126,827 21,572 - ----------- ----------- ----------- CASH, end of period $ 16,975 $ 126,827 $ 21,572 =========== =========== ===========
28 -2- 1996 1995 1994 ------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $93,613 $91,101 $53,893 ======= ======= ======= Cash paid for taxes $ 1,600 $ 800 $ 800 ======= ======= =======
On September 22, 1995, the Company completed the acquisition of USGRIPS, Inc., in exchange for 600,000 shares of Common Stock. The fair values of the assets acquired and the liabilities assumed are as follows: Fair values of assets acquired: Accounts receivable $ 180,491 Inventories 194,077 Prepaids and other assets 4,830 Property and equipment 315,406 Goodwill 1,390,750 ---------- 2,085,554 ---------- Liabilities assumed: Short-term borrowings 200,000 Amounts due former stockholder 400,000 Accounts payable 250,825 Accrued liabilities 184,729 ---------- 1,035,554 ---------- Fair market value of Common Stock issued $1,050,000 ==========
The Company converted certain notes payable into Common Stock during fiscal 1996 and 1995, with principal amounts totaling $535,000 and $181,225, respectively. For fiscal 1995, net proceeds from issuance of Common Stock was reduced by the amortization of deferred private placement costs of $114,298 that were incurred in fiscal 1994. Effective August 1, 1993, the Company purchased certain assets of Poulin Progrip, Inc. for $250,770. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired $600,000 Cash paid 250,770 -------- Liabilities assumed $349,230 ======== Recognition of consulting services and covenant not-to-compete payable $370,930 ========
The accompanying notes are an integral part of these consolidated financial statements. 29 GRIP TECHNOLOGIES, INC. AND SUBSIDIARY -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JULY 31, 1996 ------------- 1. Organization and Summary of Significant Accounting Policies ----------------------------------------------------------- a. Organization ------------ The accompanying consolidated financial statements reflect the accounts of Grip Technologies, Inc. and subsidiary (the Company). Located in Southern California, the Company designs and markets golf grips for sale to original equipment manufacturers ("OEMs"), mail order houses, golf pro shops and specialty golf retailers. Prior to the commencement of fiscal 1996, the Company decided to outsource all manufacturing and, subsequently during fiscal 1996 ceased all in-house manufacturing operations. The Company is currently utilizing three outside contractors to manufacture its golf grips, using the Company's tooling and proprietary manufacturing techniques. The Company's current product line includes grips made from each of the materials that currently have wide use in the golf grip market; Ethylene Propylene Diene Monomer (EPDM), Thermoplastic Rubber (TPR), and EPDM with strands of embedded cord fibers (cord). The Company, formerly Progrip Inc., a California corporation, commenced business on August 1, 1993 and acquired certain tangible and intangible assets from Poulin Progrip, Inc. (see Note 3). Effective January 15, 1994, the Company exchanged 100 percent of its issued and outstanding stock for 2,000,000 new shares of Common Stock and 1,350,000 new shares of Series A Convertible Preferred Stock with Harvest Recreational Vehicles, Inc. (HRV). The Company obtained a controlling interest in HRV and, as such, this transaction was accounted for as a reverse acquisition. All of the outstanding stock options and stock purchase warrants of the Company were replaced with identical securities of HRV, with the number of shares and exercise prices appropriately adjusted. In February 1994, HRV changed its name to Grip Technologies, Inc. Prior to the reverse acquisition, HRV had 316,058 shares of Common Stock outstanding. b. Acquisition ----------- On September 22, 1995, the Company acquired USGRIPS, Inc. (USG). In connection therewith, the Company issued 600,000 shares of Common Stock, valued at $1,050,000, to the two stockholders of USG, and agreed to issue up to an additional 400,000 shares over a three-year period pursuant to an earn-out formula based on the gross margins achieved by the acquired USG business. The acquisition has been accounted for as a purchase, and the results of USG have been included in the accompanying consolidated financial statements since the date of acquisition. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and the 30 liabilities assumed. This allocation resulted in goodwill of $1,390,750, which is being amortized over seven years. Because USG was acquired near the beginning of the fiscal year, the unaudited consolidated results of operations on a pro forma basis as though USG had been acquired as of the beginning of fiscal 1996 would not be materially different than the actual consolidated results of operations. The unaudited pro forma consolidated results of operations as though USG had been acquired as of the beginning of fiscal 1995 are as follows: Net sales $ 2,392,895 Gross profit 66,363 Net loss (3,934,911) Net loss per weighted average common share $(1.06)
The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the USG acquisition had been consummated as of the above dates, nor are they necessarily indicative of future operating results. In connection with the acquisition of USG, the Company elected to outsource production and discontinue all manufacturing in its Irvine, California, facility. Subsequent to the outsourcing of production, the Company began purchasing sport grips from contract manufacturers who use the Company's tooling, and in some cases, technology. Certain grips are then processed in the Company's Vista, California facility, where the grips are painted or engraved with custom logos, in accordance with customer requirements. c. Use of Estimates in Preparation of Financial Statements ------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. d. Long-lived Assets ----------------- The Company accounts for long-lived assets in accordance with Statement of Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This pronouncement requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is to be recognized when the sum of undiscounted cash flows is less than the carrying value of the asset. Measurement of the loss for assets that the entity expects to hold and use are to be based on the fair market value of the asset. The Company adopted SFAS No. 121 effective August 1, 1995, and determined that the adoption of this pronouncement had no material impact on the results of operations or financial condition as of August 1, 1995. 31 Provision for Abandonment and Disposition of Property and Equipment ------------------------------------------------------------------- In connection with the acquisition of USG and discontinuation of manufacturing in the Company's Irvine, California facility, the Company identified certain production equipment, leasehold improvements and tooling to be disposed of. These assets of $587,937 were written off as of July 31, 1995. In addition, the Company identified all costs related to the closing of the Irvine facility and recorded them as a one-time charge as of July 31, 1995. Substantially all costs provided for as of that date have been incurred as of July 31, 1996. Intangibles ----------- Included in Intangibles on the accompanying consolidated balance sheets is goodwill of $1,390,750 arising from the USG acquisition, which is being amortized over seven years. In addition, Intangibles consist of covenants not-to-compete, consulting service agreements and certain proprietary rights arising from the asset sale and purchase agreement between the Company and Poulin Progrip, Inc. As required under generally accepted accounting principles, the Company reviewed the intangibles and determined that they hold no further value because of the significant change in the design and manufacturing of the Company's products, and therefore the unamortized balance of $491,167 was written off as of July 31, 1995 (see Note 3). The amount written off has been included in intangible amortization and write-off in the accompanying consolidated statements of operations. Depreciation and Amortization ----------------------------- Depreciation and amortization on property and equipment and intangibles are provided using the straight-line method over the following estimated useful lives: Furniture and fixtures 5 to 7 years Leasehold improvements Life of lease Manufacturing equipment 7 years Tooling 3.5 years Intangibles 2 to 6 years
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments are capitalized. When assets are disposed of, the applicable costs and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in operations. e. Inventories ----------- Inventories are valued at the lower of cost (determined by the first-in, first-out method) or market value and during fiscal 1996, consist of purchased products, processing labor and factory overhead. During fiscal 1995, the Company manufactured all products, and inventory accordingly consisted of raw materials, work in process and factory overhead. 32 Inventories consisted of the following components as of July 31:
1996 1995 -------- -------- Raw materials $ - $ 84,179 Work in process - 32,803 Finished goods 506,995 109,489 -------- -------- $506,995 $226,471 ======== ========
f. Income Taxes ------------ The Company accounts for income taxes under the liability method as prescribed by SFAS No. 109, "Accounting for Income Taxes." g. Research and Development ------------------------ Research and development costs are charged to operations as incurred. h. Earnings Per Share ------------------ The earnings per share calculation for the year ended July 31, 1994 includes 316,058 shares of Common Stock of HRV from the date of acquisition. The weighted average number of shares does not include the outstanding common stock equivalents such as preferred stock, options and warrants as they are anti-dilutive. i. Stock-Based Compensation ------------------------ In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" The disclosure requirements of SFAS No. 123 are effective for the Company's 1997 fiscal year. The new pronouncement did not have an impact on the Company's consolidated results of operations since the intrinsic value-based method prescribed by Accounting Principles Board Opinion No. 25 and also allowed by SFAS No. 123 will continue to be used by the Company to account for its stock-based compensation plans. 2. Going Concern ------------- The Company has incurred net losses since its inception (August 1, 1993) in the amounts of $1,574,981, $3,444,745 and $1,388,772 for the years ended July 31, 1996, 1995 and 1994, respectively, and used $4,452,592 of cash in operating activities during that time. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. In order to provide working capital to support its operations, the Company has raised funds through private placements and is in the process of obtaining additional funding through additional private placements. In addition, the Company completed a strategic acquisition during fiscal 1996 which allowed for the outsourcing of all production. Management believes this outsourcing is critical to its efforts to improve the Company's gross margins. The ability of the Company to meet its existing and ongoing obligations is dependent upon raising additional capital from sources of funding, such as, banks and other lenders, additional private offerings, public offerings or through a merger. 33 However, there can be no assurances that any of these transactions may be consummated in a timely manner or on terms reasonably acceptable to the Company. The ability of the Company to continue as a going concern is ultimately dependent, in part, on achieving profitable operations and obtaining adequate financing. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 3. Poulin Acquisition ------------------ Effective August 1, 1993, the Company acquired various assets of Poulin Progrip, Inc. (PPG), including certain property and equipment, patents, patent applications, inventions, technology and trade secrets. The purchase price for the acquisition totaled $600,000, of which $250,770 was paid in cash with the balance consisting of the assumption of bank notes of $349,230. The Company also entered into certain covenants not-to-compete (see Note 6). The purchase price was allocated to assets acquired based on their estimated fair market values at the date of acquisition as follows: Property and equipment $445,000 Intangibles 155,000 -------- $600,000 ========
4. Property and Equipment ---------------------- Property and equipment, at cost, consisted of the following as of July 31,: Furniture and fixtures $ 115,979 $ 58,893 Leasehold improvements 1,758 4,265 Manufacturing equipment 138,802 17,148 Tooling 1,004,292 314,235 ---------- --------- 1,260,831 394,541 Less accumulated depreciation and amortization (373,589) (123,175) ---------- --------- $ 887,242 $ 271,366 ========== =========
5. Short-Term Borrowings ---------------------- Included in the Company's short-term borrowings at July 31, 1996 and 1995, are the following:
1996 1995 ------- -------- Notes payable to selling agent and promoter of private placement. $ - $ 3,775 Short-term note payable to a corporation, bearing interest at 10%, subsequently extended through January 31, 1997. 50,000 - Short-term note payable to an trust, bearing interest at 10%, subsequently extended through October 31, 1996. 40,000 -
34
1996 1995 -------- ------ Short-term note payable to a general partnership, bearing interest at 8%, convertible to Common Stock, principal and interest due May 31, 1997. $229,000 $ - Short-term note payable to a limited partnership, bearing interest at 8%, convertible to Common Stock, principal and interest due May 31, 1997. 21,000 - -------- ------ $340,000 $3,775 ======== ======
6. Long-Term Obligations --------------------- Long-term obligations consisted of the following as of July 31, 1996 and 1995:
1996 1995 ---------- --------- Bank Borrowings- Note payable to bank, bearing interest at 12.5 percent, principal and interest payable at $4,446 per month through November 2000. Secured by property and equipment and guaranteed by a stockholder. $ 179,023 $ 215,375 Term notes with a bank, bearing effective interest of 10 percent per annum; 4 percent payable monthly to a bank, and 6 percent payable quarterly to the stockholder whose assets are securing the notes. Principal due and payable on December 31, 1996; Secured by personal assets of a stockholder. 780,000 600,000 Covenant Not-to-Compete and Consulting/Licensing Agreements- Covenant not-to-compete and consulting agreements originally payable in quarterly installments of $12,500 each, continuing through January 2000, less interest imputed at 10 percent. Balance to be reduced to $200,000 if paid by December 31, 1996. 303,572 342,604 Licensing agreement, payable in monthly payments of $2,000 through August 1997, less interest imputed at 10 percent. 24,545 44,967
35
1996 1995 ---------- ---------- Other- Note payable to lessor for leasehold improvements, interest (7 percent per annum) and principal payable monthly through December 31, 1998. $ 26,344 $ 36,010 ---------- ---------- 1,313,484 1,238,956 Less current portion (976,412) (139,138) ---------- ---------- $ 337,072 $1,099,818 ========== ==========
The following schedule summarizes the future annual minimum principal payments on long-term obligations: Fiscal year ending July 31: 1997 $ 976,412 1998 138,568 1999 131,087 2000 62,340 2001 5,077 ---------- $1,313,484 ==========
7. Amounts Due Stockholders ------------------------ As of July 31, 1995, the Company was indebted to an officer who is also a stockholder, for loans made to the Company in the amount of $535,000. In July 1996, the principal portion of the note was converted into 356,667 shares of Common Stock. Payment of interest at 10% has been deferred until January 1, 1997. As of July 31, 1996 and 1995, interest payable to this stockholder was $106,520 and $45,712, respectively. In addition, in July 1995, the officer agreed to defer his salary and certain reimbursable business expenses until January 1, 1997. The amount payable for such expenses was $252,359 and $157,084 as of July 31, 1996 and 1995, respectively. These amounts are included in amounts due stockholder in the accompanying consolidated balance sheets. As of July 31, 1996 and 1995, the Company owed a stockholder $145,604 and $86,222, respectively, for providing legal services to the Company. These amounts are included in accrued liabilities in the accompanying consolidated balance sheets. 36 8. Income Taxes ------------ The components of the Company's deferred tax benefit as of July 31, 1996 and 1995, are as follows:
1996 1995 ----------- ----------- Allowance for doubtful accounts $ 76,268 $ 69,640 Inventory - 46,705 Accrued disposition costs - 270,839 Other non-deductible accruals 201,794 115,608 Depreciation 51,372 23,372 Net operating loss carryforwards 1,936,616 1,156,926 ----------- ----------- 2,266,050 1,683,090 Valuation allowance (2,266,050) (1,683,090) ----------- ----------- $ - $ - =========== ===========
As of July 31, 1996, the Company had approximately $4,900,000 of net operating loss carryforwards for federal income tax purposes, and $2,450,000 for California franchise tax purposes. The federal and California loss carryforwards begin to expire in 2009 and 1999, respectively, and may be subject to utilization limits resulting from ownership changes. 9. Capital Stock, Options and Warrants ----------------------------------- a. Series A Convertible Preferred Stock ------------------------------------ The Series A Convertible Preferred Stock entitles the holder to receive non- cumulative dividends at an annual rate of $.10 per share, when and as declared by the Board of Directors. There were no accrued and unpaid dividends at July 31, 1996 and 1995. Each share of preferred stock is convertible into one share of Common Stock. The Company has the option to redeem these shares after August 31, 1995 at a price of $1.00 per share plus 10% per annum from the date of original issuance. Upon liquidation of the Company, the preferred stockholders are entitled to receive the same price established for redemption. During the year ended July 31, 1996, holders of 62,500 shares of the Series A Convertible Preferred Stock converted their shares into 62,500 shares of Common Stock. b. Common Stock ------------ During fiscal 1996, the Company received $1,919,685, net of commissions, fees and offering expenses, in exchange for 1,046,700 shares of Common Stock. In July 1996, a note payable to a stockholder in the amount of $535,000 was converted to 356,667 shares of Common Stock. In addition, 600,000 shares were issued in connection with the USG acquisition (see note 1). During fiscal year 1995, the Company received $1,719,928, net of commissions, fees and offering expenses in exchange for 1,077,598 shares of Common Stock. These proceeds were reduced by deferred private placement costs of $114,298 which were previously capitalized during fiscal 1994. Also during the year, $181,225 in notes payable to promoters were exchanged for 122,402 shares of Common Stock. 37 c. Stock Options and Warrants -------------------------- In January 1994, the Board of Directors approved the 1994 Stock Option Plan (the Plan) which sets aside 600,000 shares of Common Stock for grant to key employees, officers, directors and consultants. The Plan will terminate in 2004 unless terminated sooner by the Board of Directors. At July 31, 1996 and 1995, options to purchase 435,000 and 395,000 shares of Common Stock have been granted under the Plan. The exercise price varies from $1.00 to $1.50 per share with various vesting periods. At July 31, 1996, options to purchase 225,000 shares were vested, and 4,000 shares had been issued under the Plan. In addition, the Company granted options to purchase 450,000 shares of Common Stock to certain celebrity endorsers. The exercise price of these options is $1.50 and they expire at various dates through 2001. As of July 31, 1996, none of the options had been exercised. In February 1996, the Company issued 400,000 shares of Common Stock as a result of the exercise of warrants by existing stockholders. Proceeds totaled $576,167, net of fees and expenses. The warrants originally had exercise prices of $2.50 to $3.00 per share. As an inducement to encourage the early exercise of these warrants, the Company lowered the exercise price to $1.50 per share. During the year ended July 31, 1996, 120,000 stock purchase warrants expired unexercised. As of July 31, 1996, 985,240 stock purchase warrants were outstanding. The exercise prices of these warrants range from $1.00 to $5.00 and they expire at various dates through 2000. Management estimated that the fair value of these warrants was immaterial and therefore no amount was assigned to these warrants. 10. Operating Leases ---------------- The Company leases its facilities and certain equipment under various noncancellable operating leases, with terms extending through June 2000. Rent expense amounted to $128,612, less sublease income of $39,200 for the year ended July 31, 1996. Rent expense for the years ended July 31, 1995 and 1994 amounted to $76,342 and $65,248, respectively. The future annual minimum payments under operating leases, as well as minimum sublease income, are as follows for the fiscal years ending July 31:
Less: Payments Sublease Net -------- -------- -------- 1997 $138,079 $ 90,000 $ 48,079 1998 133,402 90,000 43,402 1999 68,041 22,500 45,541 2000 28,405 - 28,405 -------- -------- -------- $367,927 $202,500 $165,427 ======== ======== ========
38 11. Major Customers and Suppliers ----------------------------- For the year ended July 31, 1996, the Company made sales to two customers which comprised 23% and 13% of sales, respectively. No customer comprised more than 10% of net sales during fiscal 1995. During fiscal 1994, sales to one customer comprised approximately 11% of net sales. Subsequent to the outsourcing of production, the Company began purchasing sport grips from three contract manufacturers who use the Company's tooling and in some cases, technology. Together the three contract manufacturers supply 100% of the Company's sport grips. The Company is dependent on a single supplier for each type of grip (EPDM, TPR and cord) in its product line. The Company has an exclusive arrangement (the Arrangement) with the supplier who produces EPDM grips which make up the majority of the Company's sales. The Arrangement requires the Company to purchase a certain minimum number of grips per year, increasing each year throughout its ten-year term. Should the Company fail to meet certain terms of the Arrangement, including the purchase of the minimum number of grips required under the Arrangement, the supplier will have the right to cancel the Arrangement, and produce EPDM grips for other customers. To date, the Company has complied with the terms of the Arrangement. However, there can be no assurances that the Company will have sufficient demand for EPDM grips to fulfill its obligations under the Arrangement. Further, should any significant delay or disruption occur at any of the key suppliers, it may have a material adverse effect on the Company's business. 12. Talaurian Technologies ---------------------- During the year ended July 31, 1996, the Company entered into a joint venture agreement (the Agreement) with Talaurian Technologies, Inc. (Talaurian), pursuant to which the Company agreed to license or sublicense, as the case may be, to Talaurian, its proprietary technology for industrial applications, and Talaurian agreed to cross-license its proprietary technology for sport grip applications to the Company. The term of the Agreement is five years, and may be extended another five years should certain conditions be met. The Agreement gives the Company the right to purchase 50% of the Common Stock of Talaurian for $1,000, and grants the Company a royalty of 5% of all revenues of Talaurian, whether derived from use of the Company's technology or not. The Company did not accrue or receive any amounts under the Agreement during the year ended July 31, 1996. 13. Subsequent Events ----------------- In August, 1996, the Company extended the maturity of its $40,000 short-term note payable to a trust until October 31, 1996. The terms of the extension provide for issuance of 1,000 stock purchase warrants for each month that the balance is outstanding past June 30, 1996. In September 1996, the Company entered into a revolving line of credit agreement with a bank in the amount of $400,000. The line of credit bears interest at the bank's prime rate plus 2.5%, is partially secured by personal assets of a stockholder and matures on September 15, 1997. In October, 1996, the Company extended the maturity of its $50,000 short-term note payable to a corporation until January 31, 1997. The terms of the extension provide for issuance of 1,250 stock purchase warrants for each month that the balance is outstanding past June 30, 1996. 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Incorporated by reference from the Company's definitive proxy statement to be filed with the Securities and Exchange Commission ("Commission") on or prior to November 18, 1996 pursuant to Regulation 14A. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the Company's definitive proxy statement to be filed with the Commission on or prior to November 18, 1996 pursuant to Regulation 14A. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the Company's definitive proxy statement to be filed with the Commission on or prior to November 18, 1996 pursuant to Regulation 14A. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the Company's definitive proxy statement to be filed with the Commission on or prior to November 18, 1996 pursuant to Regulation 14A. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements. --------------------- Report of Independent Certified Public Accountants (See Item 8 to this Form 10-K) Consolidated Balance Sheets as of July 31, 1996 and 1995 (See Item 8 to this Form 10-K) Consolidated Statements of Operations for the years ended July 31, 1996, 1995 and 1994 (See Item 8 to this Form 10-K) 40 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended July 31, 1996, 1995 and 1994 (See Item 8 to this Form 10-K) Consolidated Statements of Cash Flows for the years ended July 31, 1996, 1995 and 1994 (See Item 8 to this Form 10-K) Notes to Consolidated Financial Statements (See Item 8 to this Form 10-K) (b) Reports on Form 8-K. -------------------- None. (c). Exhibits. --------- 2.1 Agreement and Plan of Reorganization, dated September 20, 1995, by and among Registrant, USG Acquisition Corporation and USGRIPS, Inc., as amended 3.1(i) Restated Articles of Incorporation of Registrant 3.1(ii) Amended and Restated Bylaws of Registrant 4.1 Promissory Note, dated December 10, 1993, made payable by Registrant to Kwang Soo Kim and In Ho Kim in the original principal sum of $50,000 4.2 Fixed Rate Note, dated January 24, 1995, made payable by Registrant to First Interstate Bank in the original principal sum of $300,000, as amended by Modification of Note Agreement, dated February 8, 1995 (increasing principal amount of note to $400,000), Modification of Note Agreement, dated February 22, 1995 (increasing principal amount of note to $500,000), Modification of Note Agreement, dated March 22, 1995 (increasing principal amount of note to $600,000 and extending maturity date to December 31, 1995), and Change in Terms Agreement, dated July 31, 1995 (extending maturity date to December 31, 1996) 4.3 Promissory Note, dated January 11, 1996, made payable by Registrant to First Interstate Bank in the original principal sum of $100,000, as amended in Change in Terms Agreement, dated May 20, 1996 (increasing principal amount of note to $180,000 and extending maturity date to July 8, 1996) and Letter Agreement, dated July 17, 1996 (extending maturity date to December 31, 1996) 4.4 Revolving Line of Credit Note, dated September 23, 1996, made payable by Registrant to Wells Fargo Bank N.A. in the original principal sum of $400,000 41 4.5 The attached form of Convertible Note was issued by Registrant in May 1996 to the following lenders in the following amounts: $ 21,000 Z-Fund, a Maryland limited partnership 229,000 Third Century II, a Colorado general partnership 10.1 1994 Stock Option Plan 10.2 Employment Agreement, dated as of September 22, 1995, between Registrant and Paul Herber 10.3 Noncompetition Agreement, dated September 22, 1995, between Registrant and J. Barrie Ogilvie 10.4 Security Agreement, dated July 31, 1995, between Registrant and Sam G. Lindsay 10.5 Letter Agreement, dated August 1, 1995, between Registrant and Sam G. Lindsay re: deferral of compensation 10.6 Request to Convert and Investment Letter, dated July 31, 1996, between Registrant and Sam G. Lindsay 10.7 Agreement, dated September 22, 1995, between Registrant and ARC Equipment, Inc. 21.1 Subsidiaries of Registrant 27 Financial Data Schedule 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Grip Technologies, Inc. (Registrant) Date: November 8, 1996 /s/ Sam G. Lindsay ----------------------- Sam G. Lindsay President and Chief Executive Officer Date: November 8, 1996 /s/ Michael R. Friedl -------------------------------- Michael R. Friedl Chief Financial Officer and Principal Accounting 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 Registrant and in the capacities and on the dates indicated. Date: November 8, 1996 /s/ Sam G. Lindsay ---------------------- Sam G. Lindsay Director and President Date: November 8, 1996 /s/ James E. McCormick III -------------------------- James E. McCormick III Director and Secretary Date: November 8, 1996 /s/ David W. Hardee ------------------- David W. Hardee Director Date: November 8, 1996 /s/ J. Barrie Ogilvie --------------------- J. Barrie Ogilvie Director 43 EX-2.1 2 AGREEMENT - USG ACQUISITIONS & USGRIPS EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and entered into as of September 20, 1995, by and between GRIP TECHNOLOGIES, INC., a California corporation ("Griptec"), USG ACQUISITION CORPORATION, a California corporation ("GTI Sub"), USGRIPS, INC., a Florida corporation ("USG"), J. BARRIE OGILVIE, an individual ("Ogilvie"), PAUL J. HERBER, an individual ("Herber") (Ogilvie and Herber are sometimes hereafter individually referred to as a "USG Shareholder" or collectively as the "USG Shareholders"). RECITALS A. Griptec desires USG to merge with and into GTI Sub, and USG desires to merge with and into GTI Sub, upon the terms and subject to the conditions set forth in this Agreement (hereafter referred to as the "Merger"). B. In connection with the Merger, the parties hereto desire to adopt a plan of reorganization in accordance with the provisions of Section 354 and 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. Neither Griptec nor GTI Sub makes any representation or warranty regarding the tax treatment of the transactions contemplated by this Agreement, including, without limitation, the potential tax-deferred treatment of the Merger. C. The USG Shareholders own all of the issued and outstanding shares of one dollar ($1.00) par value common stock of USG, as set forth on Schedule 1 attached hereto and incorporated herein by this reference. TERMS AND CONDITIONS NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Adoption of the Plan. Griptec, GTI Sub and USG hereby adopt this plan -------------------- of reorganization. 2. Merger Transaction. ------------------ 2.1 Agreement to Merge. As of the Closing Date (as that term is ------------------ defined in Section 3.1 below), USG shall merge with and into GTI Sub and thereupon the separate existence of USG shall cease and GTI Sub shall succeed, without other transfer, to all the rights and property of USG and shall be subject to all the debts and liabilities thereof in the same manner as if GTI Sub had itself incurred them. All rights of creditors and all liens upon the property of each corporation shall be preserved unimpaired, provided that such liens upon property of USG shall be limited to the property affected thereby immediately prior to the time the Merger is effective. 2.2 Conversion of USG Shares and Issuance of New Griptec Shares. At ----------------------------------------------------------- the Closing (as that term is defined in Section 3.2 below), each share of one dollar ($1.00) par value common stock of USG shall be converted into an aggregate of 1,200 shares of Common Stock of Griptec. The conversion of USG shares shall occur automatically upon the Closing without action by the USG Shareholders. Each USG Shareholder shall surrender to Griptec his stock certificate or certificates representing his shares of USG and shall be entitled to receive in exchange therefor a new stock certificate or certificates representing the number of newly issued Griptec shares into which his USG shares so surrendered shall have been converted. 2.3 Procedure to Convert Shares. At or prior to the Closing Date, --------------------------- each USG Shareholder shall deliver to Griptec his stock certificate or certificates representing his shares of USG, together with a stock assignment separate from certificate, duly endorsed but undated. The form of stock assignment attached hereto as Exhibit "A" and is incorporated herein by this reference. In addition, each USG shareholder shall concurrently deliver to Griptec an Investment Letter in the form of Exhibit "B" attached hereto and incorporated herein by this reference 2.4 Earn-Out Shares. In addition to the shares described in Section --------------- 2.2 above, the USG Shareholders shall be entitled to earn up to an additional 400,000 shares of Common Stock of Griptec as provided in this Section 2.4: (a) For every $10,000 of Annual Net Revenues above the Annual Minimum Net Revenue, the USG Shareholders shall be issued 6,000 additional shares of Common Stock of Griptec up to a maximum of 400,000 additional shares. Should 85% of the Annual Minimum Net Revenue for the fiscal year ending July 31, 1996 not be achieved, the total maximum shares remaining to be earned shall be reduced by 30 1/3%. Should 85% of the Annual Minimum Net Revenue, as may be adjusted as provided 2 below, for the fiscal year ending July 31, 1997 not be achieved, the total maximum shares remaining to be earned shall be reduced by 50%. Should 85% of the Annual Minimum Net Revenue for both fiscal years 1996 and 1997 not be achieved, the total maximum shares remaining to be earned shall be reduced by 60 2/3%. (b) Should the Annual Net Revenue equal at least 85% of the required minimum for the fiscal year ending July 31, 1996, there shall be no reduction in the maximum number of shares that may be earned, except the Annual Minimum Net Revenue for fiscal year 1997 shall be increased by the amount of the shortfall. Should the Annual Net Revenue, as may be adjusted in accordance with the foregoing, equal at least 85% of the required minimum for the fiscal year ending July 31, 1997, there shall be no reduction in the total maximum number of shares that may be earned, except the Annual Minimum Net Revenue for fiscal year 1998 shall be increased by the amount of the total shortfall for both years. Should 85% of the required minimum not be earned in either fiscal year 1996 or 1997, the maximum shares that may be earned shall be reduced as provided above. Should the Annual Minimum Net Revenue, as may be adjusted as provided herein, not be exceeded in fiscal year 1998, the earn-out provision shall be terminated and the USG Shareholders shall forfeit any rights to any remaining unearned shares. (c) For purposes hereof, the Annual Minimum Net Revenue for the three applicable fiscal years is as follows:
Annual Minimum Net Revenue -------------------------- Fiscal Year Ending July 31, 1996 $1,000,000 Fiscal Year Ending July 31, 1997 $1,400,000 Fiscal Year Ending July 31, 1998 $1,800,000
(d) For purposes hereof, Annual Net Revenue shall be equal to the total amount of Annual Gross Sales for Griptec's fiscal years ending July 31, 1996, 1997 and 1998 less discounts, returns, allowances and freight), and further reduced by the cost of raw materials, grips (including shipping and handling), processing costs (including labor for painting, lasering, wiping, supervision and shipping), and consumables. Only Annual Net Revenue that equals or exceeds 38% of Annual Gross Sales for any fiscal year shall be included in the calculations for determining earn-out shares; provided, however, with respect to any customer with annual purchases (which are included in the definition of Annual Gross Sales below) from Griptec or GTI Sub in excess of $500,000 in any fiscal year of Griptec, those purchases will be included in determining the Annual Net Revenue if they equal or exceed 35% of Annual Gross Sales. Annual Gross Sales for any fiscal year shall be included in the calculations for 3 determining earn-out shares. Annual Gross Sales include only the following grip sales: (1) all EPDM grips; and (2) any split cavity TPR grips sold, other than split cavity grips being sold to existing OEM customers of Griptec, such as Matzie Golf. (e) Earn-out shares shall be issued as soon as the Annual Net Revenue has been determined. (f) Earn-out shares shall be allocated and issued eighty percent (80%) to Ogilvie and twenty percent (20%) to Herber. 2.5 "Restricted Securities". All shares of Griptec to be issued in ----------------------- connection with the Merger will be "restricted securities" as that term is defined in Rule 144(a)(3) promulgated under the U.S. Securities Act of 1933, as amended ("Securities Act"), and, as such, will not be freely tradeable except in accordance with the requirements of the Securities Act and all applicable Blue Sky laws. Griptec has not covenanted or undertaken to register any of such shares, or to pay any costs associated therewith, except as provided in Section 7 below. Griptec is issuing its shares in the Merger in reliance upon the accuracy of the representations and warranties set forth in this Agreement and in the Investment Letter attached hereto as Exhibit "B" and in Section 7 below. 2.6 Status of Outstanding Shares of GTI Sub. Upon the effectiveness --------------------------------------- of the Merger, each outstanding share of Common Stock of GTI Sub shall remain outstanding and shall not be affected by the Merger. 2.7 No Fractional Shares or Cash in Lieu of Fractional Shares. --------------------------------------------------------- Fractional shares shall not be issued and fractions of one-half or more shall be rounded to a whole number and fractions of less than one-half will be disregarded. No cash will be paid in lieu of fractional shares. 2.8 Execution and Delivery of Assignments. After the Merger becomes ------------------------------------- effective, USG, through the persons who were its officers immediately prior to the Merger, shall execute or cause to be executed such further assignments, assurances or other documents as may be necessary or desirable to confirm title to USG's properties, assets and rights in GTI Sub. 2.9 Agreement of Merger. The execution of this Agreement shall ------------------- constitute the approval of the USG Shareholders of the principal terms of the Merger. Griptec, GTI Sub and USG shall execute and deliver a short-form Agreement of Merger and Certificates of Approval of Agreement of Merger substantially in the form of Exhibit "C" attached hereto and incorporated herein by this reference, signed on behalf 4 of both Griptec, GTI Sub and USG, which shall be filed with the California Secretary of State. The parties hereto intend that this Agreement and the Agreement of Merger are to be construed as one and the same instrument in order to effectuate their purposes. The parties shall also take whatever action is necessary for USG, as a Florida corporation, to consummate the Merger, including the timely filing of appropriate documents with the Secretary of State of the State of Florida. 2.10 Assumption of Corporate Tax Liability. In order to file the ------------------------------------- Agreement of Merger with the California Secretary of State, Griptec agrees to execute and deliver to the California Franchise Tax Board an assumption of the tax liability of USG and an agreement to prepare and file all tax returns required to be filed by USG in order to obtain a tax clearance certificate prior to the Closing Date. Notwithstanding the execution and delivery by Griptec of the corporate assumption of tax liability, the USG Shareholders shall remain jointly and severally liable for the accuracy of all representations and warranties made by or on behalf of USG. 3. Closing; Closing Date. --------------------- 3.1 Closing Date. For purposes of this Agreement, the term Closing ------------ Date shall mean September 22, 1995; provided, however, Griptec has the right to extend the Closing Date for up to an additional thirty (30) days if it is diligently pursuing financing for the Merger. 3.2 Closing. For purposes of this Agreement, the term Closing shall ------- mean the closing of the Merger which is scheduled to take place at the offices of Griptec at 10:00 a.m. on the Closing Date and shall be effective upon the filing with the California Secretary of State of the Agreement of Merger and the Certificates of Approval of Agreement of Merger. 3.3 Appointment of Attorney-in-Fact to Date Stock Assignments --------------------------------------------------------- Separate from Certificate. Each USG Shareholder hereby designates and appoints - - ------------------------- any officer of Griptec as his attorney-in-fact to date his stock assignment separate from certificate with the Closing Date. 4. Representations and Warranties of Griptec. Griptec represents and ----------------------------------------- warrants to USG and the USG Shareholders that the following are true and correct as of the date hereof and will be true and correct on the Closing Date: 5 4.1 Organization and Good Standing; Qualification. Griptec is a --------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own its properties and to carry on its business as now owned and operated by it. 4.2 Authorization and Validity. The execution, delivery and -------------------------- performance by Griptec of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by Griptec, and, no other action is necessary on the part of Griptec to consummate the transactions contemplated hereby. This Agreement and each other agreement contemplated hereby constitute or will constitute legal, valid and binding obligations of Griptec, enforceable against Griptec in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. 4.3 Capitalization. The capitalization of Griptec consists of -------------- 10,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock of which 4,086,655 shares of Common Stock are presently issued and outstanding (including 570,600 shares issued in recent and/or pending private placements) and 1,350,000 shares of Series A Convertible Preferred Stock. Except as set forth on Schedule 4.3, there are no outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatever under which Griptec is or may become obligated to issue, assign or transfer any shares or other securities of Griptec. 4.4 Valid Issuance of Shares. The shares to be issued to the USG ------------------------ Shareholders in connection with the Merger, including the earn-out shares, when issued, will be validly issued and outstanding, fully paid and nonassessable. 4.5 No Violation. Neither the execution, delivery or performance of ------------ this Agreement or the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, or result in a violation or breach of the terms, conditions or provisions of, or constitute a default under, the Articles of Incorporation or Bylaws of Griptec or any agreement, indenture or other instrument under which Griptec is bound or to which any of its assets or properties are subject, or result in the creation or imposition of any security interest, lien, charge or encumbrance upon any of its assets or (ii) violate or conflict with any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over Griptec. 6 4.6 Consents. No authorization, consent, approval, permit or license -------- of, or filing with, any governmental or public body or authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements contemplated hereby on the part of Griptec. 4.7 Financial Statements. Griptec has delivered to USG and the USG -------------------- Shareholders a copy of its Annual Report on Form 10-K for its fiscal year ended July 31, 1994 and a copy of its Quarterly Report on Form 10-Q for its third quarter ended April 30, 1995 (the financial statements and notes thereto included in the Form 10-K and Form 10-Q are collectively referred to as the "Griptec Financial Statements"). The Griptec Financial Statements are true, correct and complete, are in accordance with the books and records of Griptec, fairly present the financial condition and results of operations of Griptec as of the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis with prior periods. 4.8 Absence of Certain Changes. Except as set forth on Schedule 4.8 -------------------------- attached hereto, since April 30, 1995, there has not been any: (a) Transaction by Griptec except in the ordinary course of business as conducted on that date; (b) Capital expenditure by Griptec exceeding $10,000; (c) Material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Griptec, whether or not caused by any deliberate act or omission of Griptec; (d) Mortgage or pledge of the assets or properties of Griptec or the creation of or subjection to any security interest, lien, lease or other charge or encumbrance thereon or therein; (e) Destruction, damage to or loss of any of the assets or properties (whether or not covered by insurance) that materially and adversely affect, or could materially and adversely affect, the financial condition, business or prospects of Griptec; (f) Acquisition or disposal of any of the assets or properties, except in the ordinary course of business; 7 (g) Revaluation by Griptec of any of its assets or properties; (h) Declaration, setting aside or payment of a dividend or other distribution in respect of the shares of Griptec, or any direct or indirect redemption, purchase or other acquisition by Griptec of any of its shares; (i) Increase in the salary or other compensation payable or to become payable by Griptec to any of its officers, directors or employees, or the declaration, payment or commitment or obligation of any kind for the payment by Griptec of a bonus or other additional salary or compensation to any such person; (j) Amendment or termination of any contract, agreement or license to which Griptec is a party or by which it is bound, except in the ordinary course of business; (k) Loan by Griptec to any person or entity, or guaranty by Griptec of any loan or obligation; (l) Waiver or release of any right or claim by Griptec, except in the ordinary course of business; (m) Commencement or notice or threat of commencement of any governmental proceeding against or investigation of Griptec or the affairs of Griptec; (n) Other event or condition of any character that has or might reasonably have a material and adverse effect on the condition (financial or otherwise), operations, assets, liabilities, business or prospects of Griptec, whether or not caused by any deliberate act or omission of Griptec; (o) Issuance or sale by Griptec of any of its shares or of any other securities except as noted in the Griptec Financial Statements; or (p) Agreement by Griptec to do any of the things described in the preceding clauses (a) through (o). 4.9 Taxes. All income, excise, corporate, franchise, property, ----- sales, use, payroll, withholding and other taxes related to taxable periods or portions thereof ending on or prior to the Closing Date, including without limitations governmental charges, assessments and required contributions of Griptec with respect to its business 8 that may result in the filing of a lien on the assets or properties of Griptec, have been accurately recorded and duly paid, collected or withheld and remitted to the appropriate governmental agency, except for current taxes not due and payable on or prior to the Closing Date (such taxes to be paid when due by Griptec). 4.10 Title to Assets. Griptec has good, valid and marketable --------------- title to all of its assets and properties, free and clear of mortgages, liens, pledges, security interests, leases, charges, encumbrances, equities, claims or conditional sale or other title retention agreement, except as set forth on Schedule 4.10. 4.11 Condition of Assets. Except as set forth on Schedule 4.11 all ------------------- equipment and fixed assets owned by Griptec are in working condition and repair, capable of utilization for their intended use in the ordinary course of business and, to the best knowledge of Griptec, conform in all material respects with all applicable ordinances, regulations and other laws and there are no known or latent defects therein. 4.12 Compliance with Laws. To the best knowledge of Griptec, Griptec -------------------- has complied in all material respects with all laws, regulations and licensing requirements relating to the its business and has filed with the proper authorities all necessary statements and reports. 4.13 Finder's Fee. Griptec has not incurred any obligation for any ------------ finder's, broker's or agent's fee in connection with the Merger or any transactions contemplated hereby. 4.14 Litigation. Except as set forth in Schedule 4.14, there are no ---------- legal actions or administrative proceedings or investigations instituted, or to the best knowledge of Griptec threatened, against or affecting, or that could affect, Griptec, any of its assets, or its business. Griptec is not (i) subject to any continuing court or administrative order, writ, injunction or decree affecting or relating to its assets or property or its business or (ii) in default with respect to any such order, writ, injunction or decree. Griptec does not know of any basis for any such action, proceeding or investigation. 4.15 Full Disclosure. None of the representations and warranties --------------- made by Griptec, or made in any certificate or other writing furnished or required to be furnished by any of them, or on their behalf, contains or will contain any untrue statement of a material fact, or omit any material fact the omission of which would be misleading. 9 5. Representations and Warranties of GTI Sub. GTI Sub represents and ----------------------------------------- warrants to USG and the USG Shareholders that the following are true and correct as of the date hereof and will be true and correct through the Closing Date: 5.1 Organization and Good Standing; Qualification. GTI Sub is a --------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own its properties and to carry on its business as now owned and operated by it. 5.2 Authorization and Validity. The execution, delivery and -------------------------- performance by GTI Sub of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by GTI Sub, and, no other action is necessary on the part of GTI Sub to consummate the transactions contemplated hereby except the approval of the outstanding shares of GTI Sub. This Agreement and each other agreement contemplated hereby constitute or will constitute legal, valid and binding obligations of GTI Sub, enforceable against GTI Sub in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. 5.3 No Violation. Neither the execution, delivery or performance of ------------ this Agreement or the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, or result in a violation or breach of the terms, conditions or provisions of, or constitute a default under, the Articles of Incorporation or Bylaws of GTI Sub or any agreement, indenture or other instrument under which GTI Sub is bound or to which any of its assets or properties are subject, or result in the creation or imposition of any security interest, lien, charge or encumbrance upon any of its assets or (ii) violate or conflict with any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over GTI Sub. 5.4 Consents. No authorization, consent, approval, permit or license -------- of, or filing with, any governmental or public body or authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements contemplated hereby on the part of GTI Sub. 5.5 Finder's Fee. GTI Sub has not incurred any obligation for any ------------ finder's, broker's or agent's fee in connection with the Merger or any transactions contemplated hereby. 10 6. Representations and Warranties of USG and the USG Shareholders. USG -------------------------------------------------------------- and the USG Shareholders, jointly and severally, represent and warrant to Griptec and GTI Sub that the following are true and correct as of the date hereof and will be true and correct through the Closing Date: 6.1 Organization and Good Standing; Qualification. USG is a --------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has all requisite corporate power and authority to own its properties and to carry on its business as now owned and operated by it. USG is duly qualified and licensed to transact intrastate business in the State of California and in each other jurisdiction in which the operation of its business, the residence of its employees and/or agents or the character of the properties owned, leased or operated by it make such qualification or licensing necessary. USG has delivered to Griptec complete and correct copies of its certificate of incorporation and by-laws and other organizational documents, as amended and in effect on the date hereof. 6.2 Capitalization. The capitalization of USG consists of 500 shares -------------- of one dollar ($1.00) par value common stock, of which all 500 shares are presently authorized, issued and outstanding shares. The names and addresses of all of the USG Shareholders are set forth on Schedule 1. There are no outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, convertible securities or other agreements or arrangements of any character or nature whatever under which USG or any USG Shareholder is or may become obligated to issue, assign or transfer any shares or other securities of USG. 6.3 Ownership of USG Shares. Each of the USG Shareholders is the ----------------------- lawful record and beneficial owner of the number of shares of USG capital stock set forth opposite his name on Schedule 1 annexed hereto, free and clear of any liens, pledges, claims, encumbrances or restrictions of any kind, and all of such shares are validly issued and outstanding, fully paid and nonassessable. 6.4 No Subsidiaries, Etc. USG has no subsidiaries. USG has no --------------------- interest, direct or indirect, and has no commitment to purchase any interest, direct or indirect, in any other corporation or in any partnership, limited liability company, joint venture or other business enterprise or entity. The business carried on by USG has not been conducted through any subsidiary or affiliate of USG. 6.5 Authorization and Validity. The execution, delivery and -------------------------- performance by USG and the USG Shareholders of this Agreement and the other agreements contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by USG, and, no other action is necessary 11 on the part of USG to consummate the Merger and the other transactions contemplated hereby. This Agreement and each other agreement contemplated hereby constitute or will constitute legal, valid and binding obligations of USG and the USG Shareholders, enforceable against USG and the USG Shareholders in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. 6.6 No Violation. Neither the execution, delivery or performance of ------------ this Agreement or the other agreements contemplated hereby nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with, or result in a violation or breach of the terms, conditions or provisions of, or constitute a default under, any certificate of incorporation or by-laws of USG or any agreement, indenture or other instrument under which USG is bound or to which any of its assets or properties are subject, or result in the creation or imposition of any security interest, lien, charge or encumbrance upon any of its assets or (ii) violate or conflict with any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over USG. 6.7 Consents. No authorization, consent, approval, permit or license -------- of, or filing with, any governmental or public body or authority, any lender or lessor or any other person or entity is required to authorize, or is required in connection with, the execution, delivery and performance of this Agreement or the agreements contemplated hereby on the part of USG except for the approval of Scripps Bank ("Bank") regarding the transfer of a bank loan in the unpaid principal balance of approximately $180,000 ("Bank Loan"). 6.8 Financial Statements. Set forth on Schedule 6.8 attached hereto -------------------- are copies of USG's audited balance sheet ("USG Balance Sheet") as at August 31, 1995 ("USG Balance Sheet Date"), audited statements of income and retained earnings for the ten-month period ended August 31, 1995, and audited statement of cash flow for the ten-month period ended August 31, 1995, and notes thereto; audited balance sheet as at October 31, 1994, audited statements of income and retained earnings for the year ended October 31, 1994, and audited statement of cash flow for the year ended October 31, 1994, and notes thereto; and compiled balance sheet as at October 31, 1993 and compiled statements of income and retained earnings for the year ended October 31, 1993 (collectively the "USG Financial Statements"). The USG Financial Statements are true, correct and complete, are in accordance with the books and records of USG, fairly present the financial condition and results of operations of USG as of the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis with prior periods. The audited financial statements of USG for the ten-month period ended August 31, 1995 and the year 12 ended October 31, 1994 which are included in the USG Financial Statements have been audited by independent certified public accountants and are unqualified except for going concern qualification. 6.9 Absence of Certain Changes. Since the USG Balance Sheet Date, -------------------------- there has not been any: (a) Transaction by USG except in the ordinary course of business as conducted on that date; (b) Capital expenditure by USG exceeding $10,000; (c) Material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of USG, whether or not caused by any deliberate act or omission of USG; (d) Mortgage or pledge of the assets or properties of USG or the creation of or subjection to any security interest, lien, lease or other charge or encumbrance thereon or therein; (e) Destruction, damage to or loss of any of the assets or properties (whether or not covered by insurance) that materially and adversely affect, or could materially and adversely affect, the financial condition, business or prospects of USG; (f) Acquisition or disposal of any of the assets or properties, except in the ordinary course of business or with the consent of USG; (g) Revaluation by USG of any of its assets or properties; (h) Declaration, setting aside or payment of a dividend or other distribution in respect of the shares of USG, or any direct or indirect redemption, purchase or other acquisition by USG of any of its shares; (i) Increase in the salary or other compensation payable or to become payable by USG to any of its officers, directors or employees, or the declaration, payment or commitment or obligation of any kind for the payment by USG of a bonus or other additional salary or compensation to any such person; (j) Amendment or termination of any contract, agreement or license to which USG is a party or by which it is bound; 13 (k) Loan by USG to any person or entity, or guaranty by USG of any loan or obligation; (l) Waiver or release of any right or claim by USG, except in the ordinary course of business; (m) Commencement or notice or threat of commencement of any governmental proceeding against or investigation of USG or the affairs of USG; (n) Other event or condition of any character that has or might reasonably have a material and adverse effect on the condition (financial or otherwise), operations, assets, liabilities, business or prospects of USG, whether or not caused by any deliberate act or omission of USG; (o) Issuance or sale by USG of any of its shares or of any other securities; or (p) Agreement by USG to do any of the things described in the preceding clauses (a) through (o). 6.10 Absence of Undisclosed Liabilities. Except as and to the extent ---------------------------------- reflected or reserved against on the face of the USG Balance Sheet (excluding the notes thereto), as of the USG Balance Sheet Date USG had no debts, liabilities or obligations (whether absolute, accrued, contingent or otherwise) of any nature whatever, including, without limitation, any foreign or domestic tax liabilities or deferred tax liabilities incurred in respect of or measured by USG's income, for any period prior to the close of business on the USG Balance Sheet Date, or any other debts, liabilities or obligation relating to or arising out of any act, omission, transaction, circumstance, sale of goods or services, state of facts or other condition which occurred or existed on or before the USG Balance Sheet Date, whether or not then known, due or payable. None of USG's employees is now or, will by the passage of time hereafter become, entitled to receive any vacation time, vacation pay or severance pay attributable to services rendered prior to the USG Balance Sheet Date except as disclosed on the face of the USG Balance Sheet (excluding the notes thereto). 6.11 Taxes. All income, excise, corporate, franchise, property, ----- sales, use, payroll, withholding and other taxes related to taxable periods or portions thereof ending on or prior to the Closing Date, including without limitations governmental charges, assessments and required contributions of USG with respect to its business that 14 may result in the filing of a lien on the assets or properties of USG, have been accurately recorded and duly paid, collected or withheld and remitted to the appropriate governmental agency, except for current taxes not due and payable on or prior to the Closing Date (such taxes to be paid when due by USG). 6.12 Schedules. --------- (a) Attached hereto as Schedule 6.12 is a separate schedule containing an accurate and complete list and description of: (1) All machinery, tools, equipment, motor vehicles, rolling stock and other tangible personal property (other than inventories and supplies), owned, leased or used by USG except for items having a value of less than $1,000 which do not, in the aggregate, have a total value of more than $5,000, setting forth with respect to all such listed property a summary description of all leases, liens, claims, encumbrances, charges, restrictions, covenants and conditions relating thereto, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. (2) All real property owned by USG or in which USG has a leasehold interest or which is used by USG in connection with the operation of its business, together with a description of each lease, sublease, or other instrument under which USG claims or holds such leasehold or other interest or right to use thereof or pursuant to which USG has assigned, sublet or granted any rights therein, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof. (3) All of USG's receivables (which shall include all accounts receivable, loans receivable and any advances), together with detailed information as to each such listed receivable which has been outstanding for more than thirty (30) days. (4) All fire, theft, casualty, liability and other insurance policies insuring USG, specifying with respect to each such policy the name of the insurer, the risk insured against, the limits of coverage, the deductible amount (if any), the premium rate and the date through which coverage will continue by virtue of premiums already paid. (5) All agency, sales, distribution or other similar franchises or agreements providing for the services of an independent contractor to which USG is a party or by which it is bound. 15 (6) All contracts, agreements, commitments or licenses relating to patents, trademarks, trade names, copyrights, inventions, processes, know-how, formulae or trade secrets to which Seller is a party or by which it is bound. (7) All loan agreements, mortgages, conditional sale or title retention agreements, security agreements, equipment obligations, guaranties, leases or lease purchase agreements to which USG is a party or by which it is bound. (8) All contracts, agreements, commitments or other understandings or arrangements to which USG is a party or by which it or any of its property is bound or affected but excluding (A) purchase and sales orders and commitments made in the ordinary course of business involving payments or receipts by USG of less than $500 in any single case but not more than $1,000 in the aggregate, (B) contracts entered into in the ordinary course of business involving payments or receipts by USG of less than $500 in the case of any single contract but not more than $1,000 in the aggregate, (C) contracts entered into in the ordinary course of business which are terminable by USG on less than thirty (30) days notice without penalty or consideration and involving payments or receipts by USG of less than $500 in the case of any single contract but not more than $1,000 in the aggregate. (9) All collective bargaining agreements, employment and consulting agreements, executive compensation plans, bonus plans, deferred compensation agreements, employee pension plans or retirement plans, employee stock option or stock purchase plans, group life, health and accident insurance plans, and any other employee benefit plans, agreements, arrangements or commitments, whether or not legally binding, and whether or not written or verbal, including, without limitation, holiday, vacation, Christmas and other bonus practices, to which USG is a party or by which it is bound or which relate to the operation of its business. (10) The names and current annual salary rates of all persons (including independent commission agents), and showing separately for each such person the amount paid or payable as salary, bonus payments and any indirect compensation. (11) The names of all of USG's directors and officers. (12) The name of each bank in which USG has an account or safe deposit box and the names of all persons authorized to draw thereon or have access thereto. (13) The names of all person, if any, holding tax or other powers of attorney from USG and a summary of the terms thereof. 16 (b) All of the contracts, agreements, leases, licenses and commitments required to be listed on Schedule 6.12 (other than those which have been fully performed) are valid and binding, enforceable in accordance with their respective terms, in full force and effect and, except as otherwise specified in Schedule 6.12, do not require notice to or the consent of any other party in connection with the Merger so that after the effectiveness of the Merger GTI Sub will be entitled to the full benefits thereof. Except as disclosed on Schedule 6.12, none of the payments required to be made under any contract, agreement, lease, license or commitment has been prepaid by more than thirty (30) days prior to the due date of such payment thereunder, and there is not thereunder any existing default, or event which, after notice or the lapse of time, or both, would constitute a default or result in a right to accelerate or loss or rights, and none of such contracts, agreements, leases, licenses or commitments is, either when considered singly or in the aggregate with others, unduly burdensome, onerous or materially adverse to USG's business, properties, assets, earnings or prospects or the like, either before or after the Closing, to result in any material loss or liability. True and complete copies of all such contracts, agreements, leases, licenses and other documents listed or described on Schedule 6.12 (together with any an all amendments thereto) have been delivered to Griptec and initialed by Griptec's Secretary and identified with a reference to this section of the Agreement. 6.13 Title to Assets. USG has good, valid and marketable title to all --------------- of its assets and properties, including, without limitation, those reflected in its books and records and in the USG Balance Sheet (except inventory sold after the Balance Sheet Date in the ordinary course of business), free and clear of mortgages, liens, pledges, security interests, leases, charges, encumbrances, equities, claims or conditional sale or other title retention agreement, except as set forth on Schedule 6.12 and except for the lien of Scripps Bank thereon. 6.14 Condition of Assets. All equipment and fixed assets owned by ------------------- USG are in good condition and repair, capable of utilization for their intended use in the ordinary course of business and, to the best knowledge of USG, conform in all material respects with all applicable ordinances, regulations and other laws and there are no known or latent defects therein. 6.15 Inventory. All items of USG's inventory and related supplies --------- (including raw materials, work-in-process and finished goods) reflected on the USG Balance Sheet or thereafter acquired (and not subsequently disposed of in the ordinary course of business) are merchantable, or suitable and usable for the production and completion of merchantable products, for sale in the ordinary course of business as first quality goods at normal mark-ups, none of such items is obsolete or below standard quality and each item of such inventory reflected in the USG Balance Sheet and the books 17 and records of USG is so reflected on the basis of a complete physical count and is valued at the lower of cost (on a first-in, first-out basis) or market in accordance with generally accepted accounting principles consistently applied. 6.16 Receivables. All receivables of USG (including accounts ----------- receivable, loans receivable and advances) which were reflected in the USG Balance Sheet, and all such receivables which will have arisen since the date thereof, shall have arise from bona fide transactions in the ordinary course of USG's business and shall be (or have been) fully collected when due, or in the case of each account receivable within ninety (90) days after it arose, without resort to litigation and without offset or counterclaim, in the aggregate face amounts thereof. 6.17 Patents, Etc. Schedule 6.17 sets forth copyrights, trademarks, ------------ service marks, service names, trade names, patents, trade secrets and other proprietary rights necessary to conduct its business as it is presently operated, including, without limitation, the software used to operate the laser cutting machines (collectively the "Intangible Property"). USG owns or possesses the royalty-free license or other rights to use the Intangible Property. USG is not infringing upon or otherwise acting adversely to any copyrights, trademarks, trademark rights, service marks, service names, trade names, patents, patent rights, licenses, trade secrets or other proprietary rights owned by any other person or persons, and there is not claim or action by any such person pending, or to the knowledge of USG or any of the USG Shareholders threatened, with respect thereto. 6.18 Customers. Schedule 6.18 sets forth the names and addresses of --------- all customers of USG, together with a summary of sales over the past twelve (12) months. Neither USG nor any of the USG Shareholders has received any notice or has any reason to believe that any significant customer of USG has ceased, or will cease, to purchase grips from USG, has substantially reduced or will substantially reduce its purchases, or has sought, or is seeking, to reduce prices it will pay for grips or any services provided by USG. 6.19 Suppliers and Vendors. Schedule 6.19 sets forth the names and --------------------- addresses of all major suppliers and vendors to USG, together with a summary of all purchases over the past twelve (12) months. Neither USG nor any of the USG Shareholders has received any notice or has any reason to believe that any such supplier or vendor has ceased, or will cease, to deal with USG, has substantially reduced or will substantially reduce its sales to USG, or has sought, or is seeking, to increase prices it will charge for any goods or services provided to USG. 18 6.20 Product Warranties. There are no warranties, express or ------------------ implied, written or oral, with respect to any of the products or services of USG except as set forth on Schedule 6.20. There are no claims pending or, to the best knowledge of USG or the USG Shareholders threatened with respect to any products of USG, or any product warranties. 6.21 Environmental Matters. USG has obtained all permits, licenses --------------------- and other authorizations which are required in connection with the conduct of its business, and is in compliance with all laws, statutes, regulations, permits, licenses and authorizations, relating to Hazardous Substances or protection of the environment, including, without limitation, regulations relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous waste into the environment (including, without limitation, ambient air, surface water, groundwater or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous wastes or Hazardous Substances. Neither USG nor any of the USG Shareholders is aware of or has received notice of any past, present or future events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent compliance or continued compliance with those laws or any regulation, code, plan order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, or which may give rise to any common law or legal liability, or otherwise form the basis for any claim, action, demand, suit, proceeding, hearing, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, transport or handling, or the emission, discharge, release or threatened release in the environment, of any pollutant, contaminant, chemical, or industrial, toxic or hazardous waste or Hazardous Substance. For purposes hereof, the term "Hazardous Substance" means and refers to any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials, is either: (i) potentially injurious to the public health, safety or welfare and/or the environment and/or the Property; (ii) regulated or monitored by any governmental authority; (iii) defined under any Environmental Laws as "hazardous materials," "hazardous substances" or any similar terminology; or (iv) a basis for liability to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by- products or fractions thereof. 19 6.22 Records. The books of account, minute books, stock certificate ------- books and stock transfer ledgers of USG are complete and correct in all material respects, and there have been no transactions involving the business of USG which properly should have been set forth therein and which have not been accurately so set forth. 6.23 No Guaranties. Except for the Bank Loan, none of the obligations ------------- or liabilities of USG is guaranteed by any person, firm or corporation, nor has USG guaranteed the obligations or liabilities of any other person, firm or corporation. 6.24 Compliance with Laws. To the best knowledge of USG, USG has -------------------- complied in all material respects with all laws, regulations and licensing requirements relating to the its business and has filed with the proper authorities all necessary statements and reports. 6.25 Finder's Fee. Neither USG nor any of the USG Shareholders ------------ has incurred any obligation for any finder's, broker's or agent's fee in connection with the Merger or any of the other transactions contemplated hereby. 6.26 Litigation. There are no legal actions or administrative ---------- proceedings or investigations instituted, or to the best knowledge of USG and the USG Shareholders threatened, against or affecting, or that could affect, USG, any of its assets, or its business. USG is not (i) subject to any continuing court or administrative order, writ, injunction or decree affecting or relating to its assets or property or its business or (ii) in default with respect to any such order, writ, injunction or decree. Neither USG nor any of the USG Shareholders knows of any basis for any such action, proceeding or investigation. 6.27 Full Disclosure. None of the representations and warranties --------------- made by USG, or made in any certificate or other writing furnished or required to be furnished by any of them, or on their behalf, contains or will contain any untrue statement of a material fact, or omit any material fact the omission of which would be misleading. 7. Matters Relating to the Issuance of Shares of Griptec. ----------------------------------------------------- 7.1 Exemption Under Securities Act. In connection with the Merger ------------------------------ transaction, Griptec is relying upon the exemptions set forth in Section 4(2) of Regulation D (to the extent applicable) and Rule 145 promulgated under the Securities Act of 1933, as amended. 7.2 Exemption Under California Corporate Securities Law. Griptec is --------------------------------------------------- relying upon the exemptions set forth in Sections 25103(e) and 25103(h) of the California Corporate Securities Law so as not to have to qualify the exchange of shares 20 incident to the Merger, including the issuance of the earn-out shares. The representations and warranties of the USG Shareholders set forth in the Investment Letters to be delivered at the Closing and in Section 7.3 below are incorporated herein. In addition, each of the USG Shareholders covenants, represents and warrants as follows: (a) USG has twenty (20) or fewer shareholders, each of whom is an equity security holders, including all equity security holders who are not residents of the State of California; (b) He hereby consents in writing to the Merger; (c) The offer and sale of Griptec's shares in the Merger has not been accomplished by the publication of any advertisement; and (d) The USG Shareholders will receive, as a result of the Merger, only one-class voting Common Stock of Griptec, cash, or a combination thereof. 7.3 Representations and Warranties of the USG Shareholders. Each USG ------------------------------------------------------ Shareholder, jointly and severally, covenants, represents and warrants to Griptec and GTI Sub that the following are true and correct as of the date hereof and will be true and correct on the Closing Date and on each date that any of the earn-out shares may be issued: (a) He has either: (i) a preexisting personal or business relationship with Griptec or any of its officers, directors or controlling persons, or (ii) by reason of his business or financial experience, or the business or financial experience of his professional advisor who is unaffiliated with and who is not compensated by Griptec or any affiliate or selling agent of Griptec, directly or indirectly, could be reasonably assumed to have the capacity to protect his own interest in connection with the Merger. (b) He is acquiring the shares of Griptec to be issued in connection with the Merger for his own account (or a trust account if the equity security holder is a trustee) and not with a view to or for sale in connection with any distribution. 7.4 Representations and Warranties of Ogilvie. Ogilvie represents ----------------------------------------- and warrants to Griptec and GTI Sub that he owns more than seventy-five percent (75%) of the issued and outstanding shares of USG and that his residence address is 140 Gravel Pit Road, R.R. #3, Dundas, Ontario, Canada. 7.5 Piggy-Back Registration Rights. For a period of two (2) years ------------------------------ from the Closing Date, Griptec shall offer to the USG Shareholders "piggy-back" 21 registration rights upon the terms and subject to the conditions set forth on Exhibit D attached hereto and incorporated herein by this reference. 8. Conduct of Business Prior to Closing. Prior to the Closing, USG shall ------------------------------------ conduct, and since the USG Balance Sheet Date USG has conducted, its business and affairs only in the ordinary course and consistent with its prior practice and shall maintain, keep and preserve its assets and properties in good condition and repair and maintain insurance thereon in accordance with present practices. USG and the USG Shareholders shall use their best efforts to: (i) preserve the business and organization of USG intact; (ii) to keep available to GTI Sub the services of USG's present officers, employees, agents and independent contractors; (iii) to preserve for the benefit of GTI Sub the goodwill of USG's suppliers, customers, landlords and others having business relations with it; and (iv) to cooperate with Griptec and use reasonable efforts to assist Griptec in obtaining the consent of the Bank or any landlord or other party to any lease or contract with USG where the consent of such landlord or other party may be required by reason of the transactions contemplated hereby. 9. Access to Information and Documents. Upon reasonable notice and ----------------------------------- during regular business hours, USG and the USG Shareholders will give Griptec and Griptec's attorneys, accountants and other representatives full access to USG's personnel and all properties, documents, contracts, books and records of USG and will furnish Griptec with copies of such documents (certified by USG's officers if so requested) and such information with respect to the affairs of USG as Griptec may from time to time request, and Griptec will not improperly disclose the same prior to the Closing. Any such furnishing of such information to Griptec or any investigation by Griptec shall not affect Griptec's right to rely on any representations and warranties made in this Agreement or in connection herewith or pursuant hereto. 10. Contracts with Ogilvie and Herber. --------------------------------- 10.1 Noncompetition Agreement with Ogilvie. Effective as of the ------------------------------------- Closing, Griptec and Ogilvie will execute and deliver a Noncompetition Agreement, substantially in the form of Exhibit E attached hereto and incorporated herein by this reference. 10.2 Employment Agreement with Herber. Effective as of the Closing, -------------------------------- Griptec and Herber will execute and deliver an Employment Agreement, substantially in the form of Exhibit F attached hereto and incorporated herein by this reference. 11. Additional Covenants and Obligations of Griptec. ----------------------------------------------- 22 11.1 Best Efforts to Raise Additional Funding. Griptec shall use ---------------------------------------- its best efforts to attempt to raise at least $1,290,000 of additional equity prior to the Closing, which may include funds received by Griptec from any private placement concluded on or after August 1, 1995, and an additional $1 million within ninety (90) days following the Closing Date. The failure of Griptec to raise $1,290,000 by the Closing Date shall not be a breach by Griptec of this Agreement, but shall only be the failure of a condition precedent to the obligations of USG and the USG Shareholders hereunder. 11.2 Obligations Regarding Bank Loan. Griptec shall use its best ------------------------------- efforts to negotiate an assumption or transfer of the Bank Loan, or, in Griptec's sole discretion, the pay-off of the Bank Loan. In connection therewith, if Griptec elects to assume or transfer the Bank Loan instead of paying if off, Griptec agrees to deposit up to $200,000 with the Bank as additional security in order to seek the release of the personal guaranty given to the Bank by Ogilvie. If Griptec offers to deposit $200,000 with the Bank on or prior to the Closing Date and the Bank fails or refuses to release the personal guaranty of Ogilvie, then the failure to obtain the Bank's consent shall not be a breach by Griptec of this Agreement, but shall only be the failure of a condition precedent to the obligations of USG and the USG Shareholders hereunder. 11.3 Appointment of Ogilvie as a Director. As of the Closing Date, ------------------------------------ and conditioned upon the effectiveness of the Merger, Griptec shall appoint Ogilvie as a director. Griptec agrees to reimburse Ogilvie for his reasonable and necessary travel and business expenses which he incurs after the Closing Date to attend Board of Directors meetings of Griptec and other business meetings and trade conferences at the request of Griptec and for telephone, facsimile and courier communications to Griptec. 12. Additional Covenants and Obligations of USG and the USG Shareholders. -------------------------------------------------------------------- 12.1 Transfer of Name. At the Closing, USG and the USG Shareholders ---------------- shall convey, transfer and assign to Griptec all of their rights, title and interest in and to the name "U.S. Grips", including all registrations and pending registrations related thereto. 12.2 Guaranteed Minimum Current Ratio. -------------------------------- (a) USG and the USG Shareholders covenant and agree that at all times from the date hereof through the Closing Date, USG shall maintain a Current Ratio of at least 1.15 to 1 ("Minimum Current Ratio"). Should the Adjusted Minimum Current Ratio fall below the Minimum Current Ratio, Griptec may reduce the Payables 23 by an amount necessary to achieve the Minimum Current Ratio, and any sums paid by Griptec in connection therewith shall be deducted from or setoff against any monies or other consideration payable to the USG Shareholders, including without limitation the Balance of the Remaining Ogilvie Debt (as that term is defined in Section 12.3 below) and/or the earn-out shares, or shall be immediately payable upon demand. (b) For purposes hereof, the following terms shall have the following definitions: (1) "Current Ratio" means the ratio of (A) all cash, Collectible Receivables, Inventories, and prepaid expenses approved in writing by Griptec to (B) all Payables, as of the relevant time. (2) "Collectible Receivables" means accounts receivables of USG generated in the ordinary course of business in connection with the valid sale of products or services which are owed to USG by creditworthy purchasers. No receivables older than ninety (90) days shall be included in Collectible Receivables unless otherwise agreed to in writing by Griptec. (3) "Inventories" means all useable and saleable inventory of USG values at the less of cost (determined on a first-in, first-out basis) or market. (4) "Payables" means all liabilities of USG, whether accrued, fixed, contingent or otherwise, with respect to any matter, as of the relevant time, including a loan payable to Griptec for $50,000, approximately $45,000 severance pay due Gary Garland and the approximate $22,000 note payable to Mr. Garland's parents, but excluding the unpaid principal balance of the Bank Loan. Payables shall be determined in accordance with generally accepted accounting principles. For a period of ninety (90) days after the Closing, any Payables that were incurred prior to the Closing but were not included in the calculations of the Current Ratio at the Closing shall be determined and a new Current Ratio shall be calculated ("Adjusted Current Ratio") as of the Closing Date. 12.3 Conversion of Ogilvie Debt. Prior to the Closing Date, Ogilvie -------------------------- shall contribute to the capital of USG, in a manner which will not cause USG to realize any income or to be subject to any taxation, all but $500,000 of the Ogilvie Debt (hereafter referred to as the "Remaining Ogilvie Debt"). No additional shares of USG shall be issued or delivered to Ogilvie in connection with such contribution to capital. For purposes hereof, the term Ogilvie Debt means and includes all indebtedness of any kind or nature whatever, owed to him by USG, including, without limitation, all loans, advances, unpaid salary and unreimbursed business expenses thereon. USG has not 24 repaid, and at any time prior to the Closing Date shall not repay, any principal or interest on or with respect to any of the Ogilvie Debt. Of the Remaining Ogilvie Debt, $400,000 shall be repaid by GTI Sub at the Closing and the balance of $100,000 (hereafter referred to as the "Balance of the Remaining Ogilvie Debt") shall be repaid by GTI Sub within one hundred fifty (150) days following the Closing Date and shall bear interest at the rate of five percent (5%) per annum from the Closing Date until paid in full. GTI Sub may credit, against payment of the Remaining Ogilvie Debt on the Closing Date, cancellation of the $60,000 loan made by Griptec to Ogilvie, which loan shall be deemed repaid when such credit has been taken. 12.4 Twelve Cavity Machine. Griptec is hereby granted the right and --------------------- option to purchase from U.S. Grips, Inc. Canada the twelve (12) cavity transfer mold and trim machine, subject to agreement between the parties regarding price and terms. 12.5 Transactions with the Garlands. Prior to the Closing, Ogilvie ------------------------------ shall have purchased all of the shares of USG held by Gary Garland ("Garland") and in connection therewith, Ogilvie shall have obtained from Garland a general release of all claims which Garland has or may claim to have against USG, whether suspected or unsuspected (in form and substance acceptable to Griptec and GTI Sub), and a disclosure letter signed by Garland acknowledging his knowledge and awareness of the terms of this Agreement and the Merger, and his willingness to conclude the sale of his shares of USG to Ogilvie. In addition, Ogilvie shall deliver to USG a general release from Garland's parents of all claims which they have or may claim to have against USG, whether suspected or unsuspected (in form and substance acceptable to Griptec and GTI Sub), upon payment of their notes payable as recorded on the books of USG. Ogilvie agrees to indemnify, defend, protect and hold Griptec and GTI Sub, and their respective officers, directors, shareholders, employees, agents, representatives, successors and assigns, harmless from and against any claim by Garland or Garland's parents. 13. Conditions Precedent to Closing. ------------------------------- 13.1 Conditions Precedent to Obligations of Griptec and GTI Sub. ---------------------------------------------------------- The obligations of Griptec and GTI Sub are subject to the fulfillment or satisfaction at or prior to the Closing Date of each of the following conditions: (a) The representations and warranties of USG and each of the USG Shareholders shall be true and correct in all material respects as of the Closing Date; and USG and the USG Shareholders shall have delivered to Griptec and GTI Sub a certificate of an executive officer, dated as of the Closing Date, to the foregoing effect. 25 (b) USG and the USG Shareholders shall have performed and complied with all covenants or conditions required of them by this Agreement to be performed and complied with by it prior to the Closing Date; and USG and the USG Shareholders shall have delivered to Griptec and GTI Sub a certificate of an executive officer, dated as of the Closing Date, to the foregoing effect. (c) No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of the business of USG shall have occurred, whether or not such change shall have been caused by the deliberate act or omission of USG and/or any of the USG Shareholders, and USG and the USG Shareholders shall have delivered to Griptec and GTI Sub a certificate of an executive officer, dated as of the Closing Date, to the foregoing effect. (d) The Bank shall have consented to the transfer of the Bank Loan on terms acceptable to Griptec or shall have agreed to terminate its security interest in the assets of USG upon payment in full of the Bank Loan. (e) Griptec shall have approved, in its sole and absolute discretion, the terms of all contracts to which USG is a party, including those with ARC Industries, Chandler, Arizona; Medway Plastics, Long Beach, California; and World-Line Inc., Red Springs, North Carolina; and the open purchase order from Cobra Golf, Vista, California. (f) Griptec shall have approved, in its sole and absolute discretion, the suitability of each of the USG Shareholders. (g) Each director and officer of USG, and each USG Shareholder, shall deliver to Griptec at or prior to the Closing a general release in form reasonably acceptable to Griptec and the general release from each director and officer shall also include a resignation. 13.2 Conditions Precedent to Obligations of USG and the USG ------------------------------------------------------ Shareholders. The obligations of USG and the USG Shareholders are subject to - - ------------ the fulfillment or satisfaction at or prior to the Closing Date of each of the following conditions: 26 (a) The representations and warranties of Griptec and GTI Sub shall be true and correct in all material respects as of the Closing Date; and Griptec and GTI Sub shall have delivered to USG and the USG Shareholders a certificate of an executive officer, dated as of the Closing Date, to the foregoing effect. (b) Griptec and GTI Sub shall have performed and complied with all covenants or conditions required of them by this Agreement to be performed and complied with by it prior to the Closing Date; and Griptec and GTI Sub shall have delivered to USG and the USG Shareholders a certificate of an executive officer, dated as of the Closing Date, to the foregoing effect. (c) No material adverse change in the condition (financial or otherwise), operations, assets, liabilities, business or prospects of the business of Griptec shall have occurred, whether or not such change shall have been caused by the deliberate act or omission of Griptec, and Griptec and GTI Sub shall have delivered to USG and the USG Shareholders a certificate of an executive officer, dated as of the Closing Date, to the foregoing effect. (d) On or prior to the Closing Date, Griptec shall have raised $1,290,000 of additional equity, which may include funds received by Griptec from any private placement concluded on or after August 1, 1995. 14. Closing Deliveries. The Closing of the Merger is conditioned upon all ------------------ of the following: 14.1 Deliveries by Griptec. At the Closing, Griptec shall deliver to --------------------- USG and the USG Shareholders the following, which, where applicable, shall be in a form satisfactory to counsel to USG: (a) A certified copy of the resolutions of the Board of Directors of Griptec authorizing the execution, delivery and performance of this Agreement and all related documents and agreements; (b) Certificates required by Sections 13.2(a) through (c) and evidence of compliance with Section 13.2(d) hereof; (c) A certificate, dated within ten (10) days of the Closing Date, of the Secretary of State of California, establishing that Griptec is in existence, has paid all franchise taxes and otherwise is in good standing to transact business in the State of California; 27 (d) The certificates representing the shares of Griptec to be delivered to the USG Shareholders as required by Section 2.2 hereof; and (e) The repayment of $400,000 of the Balance of the Ogilvie Debt as required by Section 12.3 hereof. 14.2 Deliveries by USG and the USG Shareholders. At the Closing, ------------------------------------------ USG and the USG Shareholders shall deliver to Griptec the following, which, where applicable, shall be in form satisfactory to Griptec: (a) A certified copy of the resolutions of the Board of Directors of USG authorizing the execution, delivery and performance of this Agreement and all related documents and agreements; (b) Certificates required by Sections 13.1(a) through (c) hereof; (c) Certificates, dated within ten (10) days of the Closing Date, from the Secretary of the States of California and Florida, establishing that USG is in existence, has paid all franchise taxes and otherwise is in good standing to transact business in such States; (d) The general releases and resignations required by Section 13.1(g) hereof; (e) The certificates representing the shares of USG to be surrendered in the Merger, together with the duly executed Stock Assignments Separate from Certificate and the Investment Letters signed by all of the USG Shareholders, as required by Section 2.3 hereof; (f) The Noncompetition Agreement, duly signed by Ogilvie; (g) The Employment Agreement, duly signed by Herber; (h) Any assignments with respect to the name "U.S. Grips" as required by Section 12.1 hereof; (i) Calculation of the Adjusted Current Ratio, if available, as required by Section 12.2(b)(4) hereof; and (j) Evidence of the contribution of the Ogilvie Debt to capital, as required by Section 12.3 hereof. 28 15. Indemnification. --------------- 15.1 Indemnification by the USG Shareholders. Each of the USG --------------------------------------- Shareholders, jointly and severally, hereby indemnify and agree to hold Griptec and GTI Sub harmless from, against and in respect of, and on demand shall reimburse Griptec and GTI Sub for: (i) any and all loss, liability or damage suffered or incurred by Griptec or GTI Sub by reason of any untrue representation, breach of warranty or nonfulfillment of any covenant by USG or any USG Shareholder contained herein or in any certificate, document or instrument delivered to Griptec or GTI Sub pursuant hereto or in connection herewith; (ii) any debts, liabilities or obligations of USG, direct or indirect, fixed, contingent or otherwise, which exist as at or as of the USG Balance Sheet Date or which arise after the USG Balance Sheet Date but which are based upon or arise from any act, omission, transaction, circumstance, sale of goods or service, state of facts or other condition which occurred or existed on or before the USG Balance Sheet Date, whether or not then known, due or payable, except to the extent reflected or reserved against o the face of the USG Balance Sheet (excluding the notes thereto); (iii) any and all loss, liability or damage suffered or incurred by Griptec and/or GTI Sub by reason of or in connection with any claim for finder's fee or brokerage or other commission arising by reason of the Merger and incurred or alleged to have been incurred at the instance of USG or any USG Shareholder; (iv) any and all loss, liability or damage suffered or incurred by Griptec and/or GTI Sub by reason of any claim for severance, holiday or vacation pay accruing or incurred at any time prior to the Closing Date; and (v) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including without limitation, legal fees costs and expenses, incident to any of the foregoing or incurred in investigation or attempting to avoid same or to oppose imposition thereof or in enforcing this indemnity. Neither USG Shareholder shall be entitled to seek or obtain indemnity or contribution from USG or GTI Sub in the event Griptec or GTI Sub seeks and/or obtains indemnity from either or both of the USG Shareholders. In the event of any breach of this Agreement by USG or the USG Shareholders, or if there is any misrepresentation, inaccuracy or omission in any representation or warranty made by USG or the USG Shareholders in this Agreement or in any agreement or certificate required to be delivered by them pursuant to this Agreement, then, in such event, in addition to all other rights and remedies which Griptec and/or GTI Sub may have, they shall also be entitled to setoff against the Balance of the Remaining Ogilvie Debt and the earn-out shares deliverable to the USG Shareholders pursuant to this Agreement. 15.2 Indemnification by Griptec Griptec hereby agrees to indemnify -------------------------- and hold USG and each USG Shareholder harmless from, against and in respect of: (i) any and all loss, liability or damage suffered or incurred by Griptec or GTI Sub by reason of any untrue representation, breach of warranty or nonfulfillment of any covenant by Griptec or GTI Sub contained herein or in any certificate, document or instrument delivered to USG or 29 the USG Shareholders pursuant hereto or in connection herewith; and (ii) any and all actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses, including without limitation, legal fees costs and expenses, incident to any of the foregoing or incurred in investigation or attempting to avoid same or to oppose imposition thereof or in enforcing this indemnity. 16. Post-Closing Obligations of Ogilvie. As soon after the Closing Date ----------------------------------- as is reasonably practicable, but in no event later than sixty (60) days thereafter, Ogilvie shall cause Mark E. Hayes, or any other independent certified public accountant reasonably acceptable to Griptec, to cause the compiled financial statements for USG for its fiscal year-ended October 31, 1993, to be fully audited and to include all appropriate disclosures, footnotes and schedules required by generally accepted accounting principles, and to issue the audited financial statements for such fiscal year and to deliver copies thereof to Griptec. In addition, during the same period of time, Ogilvie shall cause Coopers & Lybrand and Mark E. Hayes (or such other independent certified public accountant used to prepare the audited financial statements for fiscal 1993) to execute and deliver to Griptec appropriate consents to allow their reports on the audited financial statements of USG to be included in any Form 8- K, Form 10-K or any other filings by GTI with the Securities and Exchange Commission. All costs associated with the matters described in this Section 16 are subject to the provisions of Section 18 below. 17. Commissioner's Legend. The parties hereto acknowledge that Section --------------------- 25102(a) of the California Corporations Code requires (i) that no part of the purchase price is paid or received and none of the securities is issued until the sale of such securities is qualified under the California Corporate Securities Law of 1968, as amended, unless the sale of securities is exempt from qualification as provided thereunder, and (ii) that the following provision be included herein: "THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT." 18. Costs and Fees. All legal, accounting and other costs and fees which -------------- USG incurs in connection with the Merger and the preparation of audited financial statements in 30 excess of $12,000 shall be included as Payables and subject to the Minimum Ratio as described in Section 12.2 above. Any costs above the maximum shall may be offset against any monies or other consideration payable to the USG Shareholders, including without limitation, the Balance of the Remaining Ogilvie Debt or the earn-out shares, or is immediately payable upon demand. All legal, accounting and other costs and fees incurred by Griptec in connection with the transactions contemplated by this Agreement shall be paid by Griptec. 19. Survival of Representations and Warranties. Each statement, ------------------------------------------ representation, warranty, indemnity, covenant and agreement made by USG and any USG Shareholder in this Agreement or in any document, certificate or other instrument delivered by or on behalf of USG or any USG Shareholder pursuant to this Agreement or in connection herewith shall be deemed the joint and several statement, representation, warranty, indemnity, covenant and agreement of USG and each such USG Shareholder. All statements, representations, warranties, indemnities, covenants and agreements made by each of the parties hereto shall survive the Closing. 20. Notices. All notices, requests, demands and other communications ------- required or contemplated hereunder shall be in writing, shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, to the person to receive the notice, at the addresses indicated below: Griptec or GTI Sub: Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 Attn: Sam G. Lindsay, President USG: U.S. Grips, Inc. 2440 La Mirada Drive, Suite A Vista, California 92803 Attn: Barrie Ogilvie, CEO USG Shareholders: At the addresses set forth on Schedule 1 Notice of change of address shall be given by written notice but shall not be deemed effective until it has been given in the manner detailed in this Section. 21. Applicable Law. This Agreement shall be governed by, interpreted -------------- under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. 31 22. Attorneys' Fees and Litigation Costs. If any suit, legal proceeding ------------------------------------ or other action is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover its or his reasonable attorneys' fees and other costs incurred in such proceeding or action, in addition to any other relief to which it or he may be entitled. 23. Captions. The captions of the sections and subsections of this -------- Agreement are included for reference purposes only and are not intended to be a part of this Agreement or in any way to define, limit or describe the scope or intent of the particular provision to which they refer. 24. Gender; Singular and Plural Number. The neuter gender includes the ---------------------------------- feminine and masculine, the masculine includes the feminine and neuter, and the feminine includes the masculine and neuter, and each includes a corporation, partnership or other legal entity when the context so requires. Also, the singular shall include the plural number where the context so requires and visa versa. 25. Waivers. No waiver of any breach or default hereunder, or of any ------- condition precedent to the performance of any obligation hereunder, shall be considered valid unless in writing and signed by the parties giving such waiver or against whom such waive is to be enforced, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 26. Partial Invalidity and Severability. If any provision of this ----------------------------------- Agreement shall be held or deemed to be, or shall, in fact, be inoperative or unenforceable as applied in any particular case because if conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatsoever. The invalidity of any one or more phrases, sentences, clauses, sections or subsections of this Agreement shall not affect the remaining portions thereof. 27. Interpretation. The parties hereto acknowledge and agree that each -------------- has been given the opportunity to independently review this Agreement with legal counsel, and has the requisite experience and sophistication to understand, interpret and agree to the particular language of the provisions hereof. In the event of any ambiguity in or dispute regarding the interpretation of this Agreement, or any provision hereof, the interpretation of this 32 Agreement shall not be resolved by any rule providing for interpretation against the party who causes the uncertainty to exist or against the party who is the draftsman of this Agreement. 28. 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. 29. Entire Agreement; Amendment. This Agreement contains the entire --------------------------- understanding between the parties hereto with respect to the subject matter hereof and supersedes any and all prior or contemporaneous written or oral negotiations or agreements between them regarding the subject matter hereof. In addition, modification or amendment of or to any term or provision of this Agreement, or to this Agreement as a whole, shall not be effective unless set forth in a writing and signed by both of the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above mentioned. GRIP TECHNOLOGIES, INC., a USGRIPS, INC., a Florida California corporation corporation By: By: ------------------------ --------------------------- Sam G. Lindsay Paul J. Herber President President By: By: ------------------------ --------------------------- James E. McCormick III J. Barrie Ogilvie Secretary Secretary USG ACQUISITION CORPORATION, --------------------------- a California corporation J. BARRIE OGILVIE By: ------------------------ ---------------------------- Sam G. Lindsay PAUL J. HERBER President By: ------------------------ James E. McCormick III Secretary
33 TABLE OF EXHIBITS AND SCHEDULES Exhibit A Form of Stock Assignment Separate From Certificate Exhibit B Form of Investment Letter Exhibit C Agreement of Merger Exhibit D "Piggy Back" Registration Rights Exhibit E Noncompetition Agreement with Barrie Ogilvie Exhibit F Employment Agreement with Paul Herber Schedule 1 Schedule of USG Shareholders Schedule 4.3 Schedule of Subscriptions, Options, Warrants, Etc. (Griptec) Schedule 4.8 Schedule of Certain Changes (Griptec) Schedule 4.10 Title to Assets (Griptec) Schedule 4.11 Condition of Assets (Griptec) Schedule 4.14 Schedule of Litigation (Griptec) Schedule 6.8 USG Financial Statements Schedule 6.12 Schedules (USG) (1) Machinery, tools, equipment, etc. (2) Real property and real property leases (3) Receivables (4) Insurance (5) Independent contractor agreements (6) Agreements re trademarks, patents, etc. (7) Loan agreements (8) Other agreements (9) Employment related agreements (10) Salaries and benefits, etc. (11) List of officers and directors 34 (12) Bank accounts, etc. (13) Powers of attorney, etc. Schedule 6.17 Schedule of Intangible Property Schedule 6.18 Schedule of Customers Schedule 6.19 Schedule of Vendors and Suppliers Schedule 6.20 Schedule of Product Warranty Information 35 EXHIBIT A STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE ____________________________________ hereby transfers, assigns, conveys and delivers to Grip Technologies, Inc., a California corporation ("Company") ___________________________________________________ (________________) shares of Common Stock of U.S. Grips, Inc., a Florida corporation ("Company"), represented by Certificate Nos. __________________, and hereby appoints JAMES E. McCORMICK III, as ________________ attorney-in-fact to transfer said shares on the books and records of the Company. Dated: ___________, 1995 ______________________________________ ______________________________________ A-1 EXHIBIT B --------- INVESTMENT LETTER Mr. Sam G. Lindsay Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 Ladies and Gentlemen: The undersigned has received and reviewed that certain Agreement and Plan of Reorganization, dated June 16, 1995 ("Agreement"), by and between Grip Technologies, Inc., a California corporation ("Griptec"), and U.S. Grips, Inc. ("USG"). Pursuant to the Agreement, it is contemplated that USG shall be merge with and into Griptec and, in connection therewith, each outstanding share of Common Stock of USG will be converted into and exchanged for _____________ shares of Common Stock of Griptec (hereafter referred to as the "Merger"). The undersigned owns ___________ shares of Common Stock of USG (the "USG Shares"). Pursuant to the Merger, the undersigned will receive _________ shares of Common Stock of Griptec ("Griptec Shares") (see Schedule 1 to the Agreement). In contemplation of receipt of the Griptec Shares in the Merger, the undersigned hereby represents and warrants to Griptec as follows: (a) He has the power and authority to execute and deliver this Investment Letter. (b) The USG Shares owned by him are validly issued, fully paid and non-assessable. (c) He owns the USG Shares free and clear of any liens, encumbrances, pledges, security interests or rights of any third parties. (d) No consent of any third party or governmental authority is required in connection with the Merger, save the issuance of a permit by the California Commissioner of Corporations. B-1 (e) He is acquiring the Griptec Shares in the Merger for investment only and not with a view toward the sale or other distribution of any shares or other securities of Griptec. (f) He is an existing shareholder of Griptec and either has a preexisting personal or business relationship with the officers, directors or controlling persons of Griptec, or by reason of his business or financial experience or the business or financial experience of his professional advisor who is not affiliated with and who is not compensated by Griptec or any affiliate or selling agent of Griptec, directly or indirectly, has the capacity to protect his own interest in connection with the Merger. (g) He has a net worth, or joint net worth with his spouse, as of the date of this Investment Letter in excess of $1,000,000, or had income in excess of $200,000 in each of the two most recent years or joint income with his spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. The undersigned hereby :acknowledges and agrees that the Griptec Shares which he will receive in exchange for his USG Shares will be "restricted securities" and may not be transferred except in compliance with the U.S. Securities Act of 1933, as amended, and all applicable Blue Sky laws, and that the certificate representing the Griptec Shares shall bear a legend which reads substantially as follows: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (B) IN COMPLIANCE WITH RULE 145 UNDER THE SECURITIES ACT, OR (C) THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION IS REQUIRED BY SUCH TRANSFER." Dated: ____________, 1995 -------------------------------------- [signature of the Shareholder] -------------------------------------- [print name of the Shareholder] B-2 EXHIBIT C SHORT-FORM AGREEMENT OF MERGER AND CERTIFICATES OF APPROVAL OF AGREEMENT OF MERGER AGREEMENT OF MERGER THIS AGREEMENT OF MERGER ("Agreement") is made and entered into as of September _____, 1995, by and between GRIP TECHNOLOGIES, INC., a California corporation ("Griptec"), USG ACQUISITION CORPORATION, a California corporation ("GTI Sub") and USGRIPS, INC., a Florida corporation ("USG"). RECITALS A. Concurrently, the parties have entered in that certain Agreement and Plan of Reorganization ("Reorganization Agreement"). B. Griptec was incorporated on January 4, 1957 and currently has outstanding 4,086,655 shares of its Common Stock and 1,350,000 shares of its Series A Convertible Preferred Stock. C. GTI Sub was incorporated on September 14, 1995 and currently has outstanding 100 shares of its Common Stock, all of which are owned by Griptec. D. USG was incorporated on March _____, 1992 and currently has outstanding 500 shares of one dollar ($1.00) par value common stock. E. The parties desire to have USG merge with and into GTI Sub and, in connection therewith, the shareholders of USG shall receive shares of Common Stock of Griptec, all upon the terms and subject to the conditions set forth in this Agreement. TERMS AND CONDITIONS NOW, THEREFORE, the parties hereto agree as follows: C-1 1. Merger. USG shall be merged with and into GTI Sub. Upon such merger, ------ the separate existence of USG ceases and GTI Sub will succeed, without other transfer, to the rights and property of USG and shall be subject to all of the debts and liabilities thereof in the same manner as if GTI Sub had itself incurred them. All rights of creditors and all liens upon the property of each corporation shall be preserved unimpaired, provided that such liens upon property of USG shall be limited to the property affected thereby immediately prior to the time the merger is effected. 2. Effect of Merger; Conversion Ratio. ---------------------------------- 2.1 Conversion of Shares. Upon such merger, each outstanding share -------------------- of one dollar ($1.00) par value common stock of USG (hereafter referred to as the "USG Shares"), other than shares held by shareholders who perfect their rights as dissenting shareholders under applicable law, shall be converted to 1,200 shares of Common Stock of Griptec. The conversion of the USG Shares as provided in this Section 2.1 shall occur automatically upon the effective date without action by the holders thereof. Each holder of the USG Shares thereupon shall surrender his share certificate or certificates to Griptec and shall be entitled to receive in exchange therefor a certificate or certificates representing the number of shares of Common Stock of Griptec into which his USG Shares, theretofore represented by a certificate or certificates so surrendered, shall have been converted as provided in this Agreement. 2.2 Earn-Out Shares. In addition to the shares described in Section --------------- 2.1 hereof, Griptec agrees to issue, over a three (3) year period ending on July 31, 1998, up to 400,000 additional shares of its Common Stock to the USG shareholders pursuant to the earn-out provisions set forth in Section 2.4 of the Reorganization Agreement. Each USG shareholder shall be entitled to receive that percentage of the earn-out shares, when issued, as is described on Schedule 1 attached to the Reorganization Agreement. The USG shareholders will not have to convert or surrender any shares of either USG or Griptec in order to receive his proportionate percentage of the earn-out shares. 3. Affect on Surviving Corporations. Upon the merger, the outstanding -------------------------------- shares of Common Stock of Griptec and GTI Sub shall remain outstanding and are not affected by the merger. 4. Articles of Incorporation. Upon the effectiveness of the merger, ------------------------- Article 1 of the Articles of Incorporation of GTI Sub will be amended in its entirety to read as follows: "1. Name. The name of this corporation is USGRIPS, INC." ---- C-2 5. Fractional Shares. Fractional shares shall not be issued and fractions ----------------- of one-half or more shall be rounded to a whole share and fractions of less than one-half shall be disregarded. No cash will be paid in lieu of fractional shares. 6. Further Assurances. After the merger becomes effective, USG, through ------------------ the persons who were its officers immediately prior to the merger, shall execute or cause to be executed such further assignments, assurances or other documents as may be necessary or desirable to confirm title to properties, assets and rights in Griptec. 7. Plan of Reorganization. This Agreement is intended as a plan of ---------------------- reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended. This Agreement and the Reorganization Agreement are intended to be construed together in order to effectuate their purposes. 8. Termination; Abandonment. This Agreement may be terminated and the ------------------------ proposed merger abandoned at any time prior to the effective date of the merger and whether before or after approval of this Agreement by the Board of Directors or shareholders of either corporation as follows: (a) By mutual consent of the Board of Directors of Griptec and USG; or (b) Upon termination of the Reorganization Agreement. 9. Effective Date. The effective date of the merger is the date upon -------------- which a copy of this Agreement is filed with the Secretary of State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above mentioned. GRIP TECHNOLOGIES, INC., a California corporation USGRIPS, INC, a Florida Corporation By By -------------------------- ------------------------- Sam G. Lindsay Paul J. Herber President President C-3 By By -------------------------- -------------------------- James E. McCormick III J. Barrie Ogilvie Secretary Secretary USG ACQUISITION CORPORATION, a California corporation By -------------------------- Sam G. Lindsay President By -------------------------- James E. McCormick III Secretary C-4 CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER SAM G. LINDSAY and JAMES E. McCORMICK III certify that: 1. They are the President and Secretary, respectively of USG Acquisition Corporation, a California corporation ("GTI Sub"). 2. The Agreement of Merger in the form attached was duly approved by the Board of Directors of GTI Sub. 3. The shareholder approval was by holders of 100% of the outstanding shares of GTI Sub. 4. There is only one class of shares, Common Stock, no par value, and the number of shares outstanding is 100. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: September _____, 1995 USG ACQUISITION CORPORATION, a California corporation By: --------------------------------- Sam G. Lindsay, President By: ---------------------------------- James E. McCormick III, Secretary C-5 CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER SAM G. LINDSAY and JAMES E. McCORMICK III certify that: 1. They are the President and Secretary, respectively of Grip Technologies, Inc., a California corporation ("Griptec"). 2. The Agreement of Merger in the form attached was duly approved by the Board of Directors of Griptec. 3. The only classes of shares of Griptec which are outstanding are Common Stock and Series A Convertible Preferred Stock. There are 4,086,655 shares of Common Stock and 1,350,000 shares of Series A Convertible Preferred Stock which are presently issued and outstanding. 4. Pursuant to California Corporations Code Section 1201(b), no shareholder approval was required of the outstanding shares of Common Stock of Griptec. 5. Pursuant to Paragraph (d)(5) of the Certificate of Determination of Griptec filed with the Secretary of State on April 25, 1994, no vote of the Series A Convertible Preferred Stock is required. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: September _____, 1995 GRIP TECHNOLOGIES, INC., a California corporation By: ---------------------------------- Sam G. Lindsay, President By: ---------------------------------- James E. McCormick III, Secretary C-6 CERTIFICATE OF APPROVAL OF AGREEMENT OF MERGER PAUL J. HERBER and J. BARRIE OGILVIE certify that: 1. They are the President and Secretary, respectively of USGRIPS, Inc., a Florida corporation ("USG"). 2. The Agreement of Merger in the form attached was duly approved by the Board of Directors of USG. 3. The shareholder approval was by holders of 100% of the outstanding shares of USG. 4. There is only one class of shares, one dollar ($1.00) par value common stock, and the number of shares outstanding is 500. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this Certificate are true and correct of our own knowledge. Dated: September _____, 1995 U.S. Grips, Inc., a Florida corporation By: ----------------------------------- Paul J. Herber, President By: ----------------------------------- J. Barrie Ogilvie, Secretary C-7 EXHIBIT D "PIGGY BACK" REGISTRATION RIGHTS 1. Certain Definitions. As used in this Section 1 and elsewhere herein, ------------------- the following terms shall have the following respective meanings: "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Company" or "Griptec" means Grip Technologies, Inc., a California corporation. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Merger Agreement" means that certain Agreement and Plan of Reorganization, dated September 20, 1995, as amended, by and among the Company, USG Acquisition Corporation, USGRIPS, Inc. and Stockholders. "Registration Rights Period" means the two (2) year period commencing on September 22, 1995 and ending on September 21, 1997. "Registration Statement" means a registration statement filed with by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation). "Registration Expenses" means the expenses described in Section 1. "Registrable Shares" means the shares of Common Stock issued or issuable by the Company to Stockholder pursuant to the Merger Agreement; provided, however, that shares of Common Stock that are Registrable Shares shall cease to be Registrable Shares (i) upon any sale pursuant to a Registration Statement, or (ii) at such time as they are eligible for sale pursuant to Rule 144 under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. D-1 "Stockholders" means J. Barrie Ogilvie and Paul J. Herber. 2. Incidental Registration. ----------------------- (a) Whenever the Company proposes to file a Registration Statement at any time and from time to time during the Registration Rights Period, it will, prior to such filing, give written notice to all Stockholders of its intention to do so and, upon the written request of a Stockholder or Stockholders given within twenty (20) days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall use its best efforts to cause all Registrable Shares that the Company has been requested by such Stockholder or Stockholders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Stockholder or Stockholders; provided that the Company shall have the right to postpone or withdraw any registration effected pursuant to this Section 2 without obligation to any Stockholder. (b) In connection with any offering under this Section 2 involving an underwriting, the Company shall not be required to include any Registrable Shares in such offering unless the holders thereof accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (provided that such terms must be consistent with this Agreement), and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If in the opinion of the managing underwriter the registration of all, or part of, the Registrable Shares that the holders have requested to be included would materially and adversely affect such public offering, then the Company shall be required to include in the underwriting only that number of Registrable Shares, if any, that the managing underwriter believes may be sold without causing such adverse effect. If the number of Registrable Shares to be included in the underwriting in accordance with the foregoing is less than the total number of shares that the holders of Registrable Shares have requested to be included, then the holders of Registrable Shares who have requested registration and other holders of shares of Common Stock entitled to include shares of Common Stock in such registration shall participate in the underwriting pro rata based upon their total ownership of shares of Common Stock of the Company which they requested to be registered. 3. Registration Procedures. If and whenever the Company is required ----------------------- by the provisions of this Addendum to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall: D-2 (a) file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become and remain effective; (b) as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective, in the case of a firm commitment underwritten public offering, until each underwriter has completed the distribution of all securities purchased by it and, in the case of any other offering, until the earlier of the sale of all Registrable Shares covered thereby or one hundred twenty (120) days after the effective date thereof; (c) as expeditiously as possible furnish to each selling Stockholder such reasonable numbers of copies of the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the selling Stockholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the selling Stockholder; and (d) as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement under the securities or Blue Sky laws of such states as the selling Stockholders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the selling Stockholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the selling Stockholder; provided, however, that the Company shall not be required in connection with this paragraph (d) to qualify as a foreign corporation or execute a general consent to service or process in any jurisdiction. If the Company has delivered preliminary or final prospectuses to the selling Stockholders and after having done so the prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the selling Stockholders and, if requested, the selling Stockholders shall immediately cease making offers of Registrable Shares and return all prospectuses to the Company. The Company shall promptly provide the selling Stockholders with revised prospectuses and, following receipt of the revised prospectuses, the selling Stockholders shall be free to resume making offers of the Registrable Shares. 4. Allocation of Expenses. The Company will pay all Registration ---------------------- Expenses of all registrations hereunder. For purposes of this Section, the term "Registration Expenses" shall mean all expenses incurred by the Company in complying herewith, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, D-3 fees, and expenses of counsel for the Company, state Blue Sky fees and expenses, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions, and the fees and expenses of selling Stockholders' own counsel. 5. Indemnification and Contribution. -------------------------------- (a) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the seller of such Registrable Shares, each underwriter of such Registrable Shares, and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages, or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws, or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus, or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such seller, underwriter, and each such controlling person for any legal or any other expenses reasonably incurred by such seller, underwriter or controlling person in connection with the investigating or defending any such loss, claim, damage, liability, or action; provided, however, the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus, or final prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such seller, underwriter, or controlling person specifically for use in the preparation thereof. (b) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers and each underwriter (if any) and each person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities, joint or several, to which the Company, such directors and officers, underwriter, or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws, or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect D-4 thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information relating to such seller furnished in writing to the Company by or on behalf of such seller specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment, or supplement; provided, however, that the obligations of such Stockholders hereunder shall be limited to an amount equal to the proceeds to each Stockholder of Registrable Shares sold in connection with such registration. (c) Each party entitled to indemnification under this Section 5 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 5. The Indemnified Party may participate in such defense at such party's expense; provided however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to the actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that 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 of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. (d) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Registrable Shares exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 5 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the D-5 expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 5 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Stockholder or any such controlling person in circumstances for which indemnification is provided under this Section 5; then, in each such case, the Company and such Stockholder will contribute to the aggregate losses, claims, damages, or liabilities to which they may be subject (after contribution from others) in such proportions so that such holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Shares offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case (A) no such holder will be required to contribute any amount in excess of the proceeds to it of all Registrable Shares sold by it pursuant to such Registration Statement, and (B) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Securities Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation. 6. Information by Holder. Each holder of the Registrable Shares --------------------- included in any registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Addendum. 7. "Stand-Off" Agreement. Each Stockholder, if requested by the --------------------- Company and an underwriter of Common Stock or other securities of the Company, shall agree not to sell or otherwise transfer or dispose of any Registrable Shares or other securities of the Company held by such Stockholder for a specified period of time (not to exceed 120 days) following the effective date of a Registration Statement; provided, that: (a) such agreement shall only apply to the first such Registration Statement covering Common Stock of the Company to be sold on its behalf to the public in an underwritten offering; and (b) all Stockholders holding not less than the number of shares of Common Stock held by such Stockholder and all officers and directors of the Company enter into similar agreements. D-6 Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of the standoff period. D-7 EXHIBIT E NONCOMPETITION AGREEMENT WITH BARRIE OGILVIE NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into as of September _____, 1995, by and among GRIP TECHNOLOGIES, INC., a California corporation ("Griptec"), USG ACQUISITION CORPORATION, a California corporation ("GTI Sub"), and J. BARRIE OGILVIE, an individual ("Ogilvie"). RECITALS -------- A. Griptec, GTI Sub, Ogilvie and others are parties to that certain Agreement and Plan of Reorganization, dated as of September _____, 1995 ("Merger Agreement"), pursuant to which USGRIPS, Inc., a Florida corporation ("USG") was merged with and into GTI Sub, and in connection therewith, shares of Common Stock of Griptec, the parent of GTI Sub, were issued to all of the shareholders of USG. Ogilvie was the controlling shareholder of USG and was its Chief Executive Officer and a director. B. As a material inducement to Griptec and GTI Sub (Griptec and GTI Sub are sometimes hereafter collectively referred to as the "Company") to enter into the Merger Agreement, Ogilvie agrees not to compete with the Company upon the terms and subject to the conditions set forth herein. This Agreement is delivered pursuant to Section 10.1 of the Merger Agreement. TERMS AND CONDITIONS -------------------- NOW, THEREFORE, in consideration of the foregoing recitals and premises, and the mutual promises, agreements, representations and warranties herein contained, the parties hereto agree as follows: 1. Noncompetition Covenant. Ogilvie hereby agrees that he will not, ----------------------- at any time from and after the date hereof until September _____, 2000 ("Noncompetition Period"), directly or indirectly, engage in any business, trade or activity, or have any interest in any person, firm, corporation, entity, business or venture (whether as an E-1 employee, independent contractor, officer, director, agent, partner, joint venturer, shareholder, creditor, lender or otherwise) or advise or consult with any person or entity, that engages in any business, trade or activity in the Territory (as that term is defined in Section 2 hereof) which business, trade or activity is the same as, similar to or competitive with the Company's Business (as that term is defined in Section 3 hereof). 2. Definition of Territory. For purposes hereof, the term "Territory" ----------------------- means and refers to all of the following: (i) any county or counties in any state in the United States; (ii) each of the 58 counties of the State of California; (iii) each of the counties of each of the other states of the United States of America; and (iv) worldwide, including without limitation, the following foreign countries: all countries of European Community and Japan; in which USG has done business. For purposes hereof, the terms "doing business," "done business" and "does business" means and refers to any aspect of the Company's Business, including, without limitation, sales, marketing, distribution, receiving or taking orders, advertising, promoting, designing or manufacturing. 3. Definition of Company's Business. For purposes hereof, the term -------------------------------- Company's Business means the design, manufacture, marketing, sales and distribution of sports grips, including grips for golf clubs. 4. Covenant Consideration. The parties hereto acknowledge and agree ---------------------- that no portion of the consideration payable to Ogilvie pursuant to the Merger Agreement has been separately allocated to the covenants and obligations of Ogilvie set forth in this Agreement. 5. Specific Performance; Injunctive Relief. If Ogilvie breaches, or --------------------------------------- threatens to breach, the noncompetition covenant described in Section 1 hereof, the Company shall have the right, in addition to any other rights or remedies which it may have, to seek and obtain specific performance thereof and to enjoin such breach or threatened breach. The parties hereto acknowledge and agree that any such breach or threatened breach will cause irreparable injury to the Company, and that the Company could not be reasonably or adequately compensated in damages at law. The equitable remedies provided herein are not 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. 6. Interpretation and Enforceability. --------------------------------- 6.1 Severability of Covenants. The parties hereto intend that the ------------------------- noncompetition covenant described in Section 1 hereof shall be deemed to be a series of separate noncompetition covenants, one for each county and/or governmental jurisdiction E-2 in which USG has done business. Except as provided in the immediately preceding sentence, each such separate noncompetition covenant shall be deemed identical in terms to each other noncompetition covenant contained in Section 1 hereof. If, in any judicial proceeding, a court shall refuse to enforce any of the separate noncompetition covenants deemed included in Section 1, then such unenforceable noncompetition covenant(s) shall be deemed eliminated from the provisions thereof for the purpose of such proceedings to the extent necessary to permit the remaining separate noncompetition covenant(s) to be enforced in such proceedings. 6.2 Blue-Pencilling. If any court determines that any noncompetition --------------- covenant included in Section 1 hereof, or any part thereof, is unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. 6.3 Application of Other Law. Notwithstanding the provisions of ------------------------ Section 9 hereof, if the noncompetition covenant included in Section 1 hereof, as it relates to any Territory exclusive of the State of California (or any county thereof), would not be enforceable under California law but would be enforceable under the internal laws of that other jurisdiction, then such noncompetition covenant, solely as it relates to such other jurisdiction, shall be governed by, interpreted under and construed and enforced in accordance with the internal laws of such local jurisdiction. 7. Cross Default Provision. Any breach or default under the terms of ----------------------- this Agreement shall be deemed to be a breach and default under the Merger Agreement and any breach or default under the Merger Agreement shall be deemed to be a breach and default hereunder. 8. Notices. All notices, requests, demands and other communications ------- required or contemplated hereunder shall be in writing, shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, and shall be deemed to have been given upon the earlier of (a) the date of personal delivery to the person to receive such notice at the address indicated below or (b) if mailed to the person to receive such notice at the address indicated below, four (4) business days after the date of posting by the United States Post Office as evidenced by the execution of the return receipt. The parties addresses, for all purposes hereof, are as follows: Griptec or GTI Sub: Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 Attn: Mr. Sam G. Lindsay, President E-3 Ogilvie: Mr. J. Barrie Ogilvie 140 Gravel Pit Road R.R. #3 Dundas, Ontario, Canada L9H 5E3 Notice of change of address shall be given by written notice but shall not be deemed effective until it has been given in the manner detailed in this Section. 9. Applicable Law. Except as provided in Section 6.3 hereof, this -------------- Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. 10. Attorneys' Fees and Litigation Costs. If any suit, legal ------------------------------------ proceeding or other action is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs incurred in such proceeding or action, in addition to any other relief to which it may be entitled. 11. Waivers. No waiver of any breach or default hereunder, or of any ------- condition precedent to the performance of any obligation hereunder, shall be considered valid unless in writing and signed by the parties giving such waiver or against whom such waiver is to be enforced, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 12. Interpretation. The parties hereto acknowledge and agree that -------------- each has been given the opportunity to independently review this Agreement with legal counsel, and has the requisite experience and sophistication to understand, interpret and agree to the particular language of the provisions hereof. In the event of any ambiguity in or dispute regarding the interpretation of this Agreement, or any provision hereof, the interpretation of this Agreement shall not be resolved by any rule providing for interpretation against the party who causes the uncertainty to exist or against the party who is the draftsman of this Agreement. 13. Section Headings. The section headings in this Agreement are ---------------- included for convenience only, are not a part of this Agreement and shall not be used in construing it. E-4 14. Reference to Sections. All references to sections are deemed to --------------------- include references to the sections subsidiary to the section referred to when the context so requires. The term "this Section" refers to the Section of the Agreement in which the reference is made and all other Sections subsidiary to the Section referred. 15. Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of each corporate party hereto, their respective successors and permitted assigns, and each individual party hereto and his heirs, personal representatives, estates, successors and permitted assigns. 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. Entire Agreement; Amendment. This Agreement contains the entire --------------------------- understanding among the parties hereto with respect to the subject matter hereof and supersedes any and all prior or contemporaneous written or oral negotiations and agreements between them regarding the subject matter hereof. No addition, modification or amendment of or to any term or provision of this Agreement, or to this Agreement as a whole, shall be effective unless set forth in writing and signed by all of the parties hereto. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above mentioned. GRIP TECHNOLOGIES, INC., a California corporation By By ------------------------ ------------------------- Sam G. Lindsay J. BARRIE OGILVIE President By ------------------------ James E. McCormick III Secretary E-5 USG ACQUISITION CORPORATION, a California corporation By ------------------------ Sam G. Lindsay President By ------------------------ James E. McCormick III Secretary E-6 EXHIBIT F EMPLOYMENT AGREEMENT WITH PAUL HERBER EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of September _____, 1995, by and between USG ACQUISITION CORPORATION, a California corporation ("Company"), and PAUL HERBER, an individual ("Employee"). RECITALS -------- A. The Company desires to employ Employee upon the terms and subject to the conditions contained in this Agreement. B. Employee desires to be hired and employed by the Company upon the terms and subject to the conditions contained in this Agreement. TERMS AND CONDITIONS -------------------- NOW, THEREFORE, the parties hereto agree as follows: 1. Employment. The Company hereby employs Employee, and Employee hereby ---------- agrees to be employed by the Company, as the Vice President-Sales and Marketing on the terms and subject to the conditions set forth herein. Employee shall perform such duties for the Company as may be assigned to him from time to time by the executive officers or Board of Directors of the Company. Employee agrees to devote all of his working time and effort to the performance of his duties hereunder during normal business hours. Employee further agrees to perform his duties hereunder in an efficient, faithful, loyal and business like manner and to conduct himself at all times during the term of this Agreement in a manner which does not damage or otherwise adversely reflect upon the business reputation or integrity of the Company. 2. Term and Termination. -------------------- F-1 2.1 Term. The term of this Agreement shall commence as of the date ---- hereof and, subject to the earlier termination as provided in Section 2.2 hereof, shall expire at the close of business on September _____, 2000 ("Expiration Date"). 2.2 Termination. Notwithstanding the Expiration Date set forth in ----------- Section 2.1 hereof, the employment of Employee shall terminated upon the occurrence of any of the following events, to be effective as of the date hereinafter specified, and term of this Agreement shall thereupon terminate, subject to the executory duties and obligations contained herein: (a) The Company may, at any time, immediately terminate Employee for "just cause". For purposes hereof, "just cause" includes, but is not limited to, misconduct, dishonesty, extended absences, violation of Company policies and procedures, violation of any laws regarding or related to sexual harassment or discrimination in connection with his work or another employee of the Company, improper disclosure of Confidential Information (as that term is defined in Section 8 below), or any material and continuing failure of Employee to perform his duties under this Agreement (except as a result of death or Total Disability). Any termination for "just cause" shall become effective immediately upon written notice from the Company to Employee describing, in reasonable detail, the events or circumstances allegedly constituting "just cause". (b) The death of Employee shall immediately terminate his employment with the Company and this Agreement. (c) The "Total Disability" of Employee shall terminate his employment with the Company. For purposes of this Agreement, a condition of "Total Disability" shall exist if Employee is unable or unwilling to perform his duties hereunder, or it is determined by a medical doctor retained by the Company that he would be unable to perform his duties hereunder, for a period of at least three (3) consecutive months by reason of any medically determinable physical or mental impairment. The termination shall be effective as of the date it is first determined that Employee has suffered a total disability. 2.3 Terminable At Will Employment at Expiration of Term. The parties --------------------------------------------------- hereto agree that if this Agreement is not extended or superceded, in either case by another written instrument, and Employee continues his employment with the Company beyond the Expiration Date, then, from and after the Expiration Date the employment of Employee shall be terminable at will at any time, with or without reason or cause, irrespective of Employee's longevity, upon the giving of sixty (60) days prior written notice to the other party. F-2 2.4 No Additional Rights Conferred. Except as expressly provided ------------------------------ in this Agreement, nothing contained herein or in any other agreement concurrently or subsequently entered into between the Company and Employee, such as Stock Option Agreement(s), shall confer upon Employee any right with respect to the continuation of his employment by the Company or interfere in any way with the right of the Company to terminate his employment at any time or to increase or decrease the compensation or other perquisites payable to Employee. The inclusion of this Section 2.4 in this Agreement is not a promise, inducement, covenant or representation by the Company that it has agreed or will agree at any time in the future to enter into any other or additional agreements with Employee with respect to any matter. 3. Compensation. ------------ 3.1 Base Salary. As compensation for his employment hereunder, ----------- Employee shall receive from the Company a base salary of $85,000 per annum. The base salary shall be paid semi-monthly in accordance with the Company's usual payroll practices. The amount actually paid to Employee shall be the base salary less all applicable federal and state withholding taxes, F.I.C.A., unemployment and disability premiums or payment and all other applicable payroll taxes. 3.2 Discretionary Bonuses. Employee will be eligible to receive --------------------- discretionary bonuses, if and when determined and declared by the Company. The inclusion of this provision in this Agreement shall not be deemed to be, nor be construed as being, a commitment by the Company to pay Employee any bonus, or a bonus of any specified amount, nor does it preclude the Company from paying bonuses to some executive, management or other employees and not to others or to Employee, as the Company, in its sole and absolute discretion, determines. 4. Additional Employment Benefits. ------------------------------ 4.1 Major Medical Health Program. Employee shall be entitled to ---------------------------- participate in any major medical-health program or other group medical insurance program in which the Company is enrolled at any time, or from time to time, subject to the terms of the program or plan and any applicable waiting probationary period and any pre-existing conditions. 4.2 Other Employment Benefits. Employee shall be entitled to such ------------------------- other and further employment benefits and prerequisites as may be made available from time to time by the Company to other employees of the Company with similar jobs and responsibilities. F-3 5. Reimbursement for Expenses. The Company shall reimburse Employee for -------------------------- his ordinary and necessary business expenses incurred with respect to the business of the Company in accordance with policies and procedures adopted by the Company from time to time. Under no circumstance will Employee be entitled to reimbursement of any expense unless and until he submits complete and accurate substantiation of that expense, together with a detailed explanation of the nature and purpose of the expense and the person or persons involved. 6. Employees Manual. To the extent the Company has or at any time ---------------- hereafter adopts an Employees Manual, or modifies its Employees Manual from time to time, the provisions of the Employees Manual, as so modified, are incorporated herein and made a part of this Agreement and Employee hereby agrees to be bound by and to comply with all of the terms, conditions, rules and regulations set forth therein. 7. Tax Compliance Matters. The parties hereto agree that it shall be ---------------------- the responsibility of Employee to keep all appropriate records with respect to any business related expenses incurred by Employee in connection with the performance of his duties hereunder including the automobile allowance. It shall be further understood and agreed that the Company, to the extent required by applicable law, will report the payment or providing of any benefits or perquisites to Employee in accordance with applicable laws and regulations and, if required, will make appropriate payroll deductions with respect thereto. It will be Employee's sole responsibility to report such benefits and perquisites, to the extent applicable, as income. To the extent that Employee has not accounted to the Company for any benefits or perquisites to enable the Company to determine whether or not reporting or payroll deductions are appropriate, and the Company later determines that reporting or deduction was appropriate, then Employee agrees to indemnify and hold the Company harmless from and with respect to any liability which the Company incurs in connection therewith, including, without limitation, the tax-affected amount of the deduction and all penalties and interest with respect thereto. 8. Covenant of Nondisclosure and Non-use. Employee understands and ------------------------------------- acknowledges that he will be advised by the Company from time to time of certain matters, and will be provided access to certain documents and information, which are trade secrets or which the Company deems to be proprietary and confidential ("Confidential Information"), whether heretofore or hereafter obtained by Employee while providing services to the Company, and whether or not Employee assists the Company in the development of any such Confidential Information. Employee agrees to maintain the confidentiality of any Confidential Information provided to him in connection with the performance of his duties under this Agreement; provided, however, such obligation shall terminate upon the occurrence of any of the following: (a) where such information now or hereafter becomes part of the public domain, and Employee has not F-4 obtained or learned such information as a result of "misappropriation" or "improper means", as those terms are defined in California Civil Code Section 3426.1; (b) such information is already in the possession of Employee at the time of the disclosure so long as it was acquired otherwise than by "misappropriation" or "improper means"; (c) such information hereafter comes into the possession of Employee from a third party without breach of this covenant; or (d) such information is independently developed by Employee without otherwise violating this Agreement. Notwithstanding any of the foregoing, under no circumstance will Employee use or disclose any ideas, concepts, themes, inventions, designs, improvements and discoveries conceived, developed or written by him pursuant to this Agreement or in connection with this Agreement; all rights to which shall belong to the Company. 8.1 Return of Materials. Employee further agrees that at the ------------------- termination of this Agreement, he will not take, without the prior written consent of the Company, tangible manifestations of the Confidential Information on any memoranda, notes (whether or not prepared by Employee during the course of his engagement by the Company), extracts, summaries, plats, sketches, plans, data, lists, manuals, schedules, forms, programs, tapes, disks or other documents, papers, media or records of any kind relating to or used in the Company's business, or any reproductions thereof. 8.2 Unfair Competition. Any violation of this Section 8 shall be ------------------ deemed to be unfair competition, in addition to any other rights or remedies which the Company may have against Employee. 9. Nonsolicitation of Customers, Etc. Employee will not influence or --------------------------------- attempt to influence any of Company's customers, suppliers, vendors, lessees or any others having business with the Company, either directly or indirectly, to divert their business to any other person, firm or business similar to or in competition with the Company. 10. Organizing Competitive Business. Employee agrees that during the ------------------------------- term of this Agreement, Employee will not undertake the planning or organization of any business activity similar to or competitive with the business of the Company. Employee further agrees that he will not, for a period of two (2) years following the termination of this Agreement, either directly or indirectly, solicit any of the Company's employees to work for or with Employee, or its affiliates, or any other corporation, entity or individual, in a business similar to or competitive with the Company or to work for a competitor of the Company. 11. Notices. All notices, requests, demands and other communications ------- required or contemplated hereunder shall be in writing, shall be personally delivered or F-5 sent by registered or certified mail, postage prepaid, return receipt requested, and shall be deemed to have been given upon the earlier of (a) the date of personal delivery to the person to receive such notice at the address indicated below or (b) if mailed to the person to receive such notice at the address indicated below, four (4) business days after the date of posting by the United States Post Office as evidenced by the execution of the return receipt. The parties addresses, for all purposes hereof, are as follows: Company: USG Acquisition Corporation 1681 McGaw Irvine, California 92714 Employee: Paul Herber ------------------------------------------------ , California ------------------ ----------------- Notice of change of address shall be given by written notice but shall not be deemed effective until it has been given in the manner detailed in this Section. 12. Applicable Law; Venue. This Agreement shall be governed by, --------------------- interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. The sole forum for resolving disputes arising under or relating to this Agreement shall be the Municipal and Superior Courts for the County of Orange, California, or the Federal District Court for the Central District of California and all related appellate courts, and the parties hereby consent to the jurisdiction of such courts and agree that venue shall be in Orange County, California. 13. Attorneys' Fees and Litigation Costs. If any suit, legal proceeding ------------------------------------ or other action is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover its or his reasonable attorneys' fees and other costs incurred in such proceeding or action, in addition to any other relief to which it or he may be entitled. 14. Waivers. No waiver of any breach or default hereunder, or of any ------- condition precedent to the performance of any obligation hereunder, shall be considered valid unless in writing and signed by the parties giving such waiver or against whom such waive is to be enforced, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. F-6 15. Partial Invalidity and Severability. If any provision of this ----------------------------------- Agreement shall be held or deemed to be, or shall, in fact, be inoperative or unenforceable as applied in any particular case because if conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatsoever. The invalidity of any one or more phrases, sentences, clauses, sections or subsections of this Agreement shall not affect the remaining portions thereof. 16. Interpretation. The parties hereto acknowledge and agree that each -------------- has been given the opportunity to independently review this Agreement with legal counsel, and has the requisite experience and sophistication to understand, interpret and agree to the particular language of the provisions hereof. In the event of any ambiguity in or dispute regarding the interpretation of this Agreement, or any provision hereof, the interpretation of this Agreement shall not be resolved by any rule providing for interpretation against the party who causes the uncertainty to exist or against the party who is the draftsman of this Agreement. 17. 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. 18. Entire Agreement; Amendment. This Agreement contains the entire --------------------------- understanding between the parties hereto with respect to the subject matter hereof and supersedes any and all prior or contemporaneous written or oral negotiations or agreements between them regarding the subject matter hereof. No addition, modification or amendment of or to any term or provision of this Agreement, or to this Agreement as a whole, shall be effective unless set forth in writing and signed by all the parties hereto. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above mentioned. F-7 USG ACQUISITION CORPORATION, a California corporation By: ----------------------- -------------------------------------- Sam G. Lindsay PAUL HERBER President F-8 SCHEDULE 1 SCHEDULE OF USG SHAREHOLDERS
NAME OF SHAREHOLDER NO. OF % OF EARN-OUT SHARES SHARES TO BE OF USG RECEIVED - - ---------------------------------------------------------- James Barrie Ogilvie 400* 80% 140 Gravel Pit Road R.R. #3 Dundas, Ontario Canada L9H 5E3 - - ---------------------------------------------------------- Paul Joseph Herber 100 20% 20668 White Birch Drive Vista, California 92803 - - ----------------------------------------------------------
- - ------------------ *As of the date of this Schedule, Ogilvie actually owns 375 shares and he has a right to acquire 25 shares from Gary Garland. Ogilvie will acquire those shares prior to the closing and shall be solely responsible for all costs, expenses and liabilities associated therewith. SCHEDULE 4.3 SCHEDULE OF OUTSTANDING SHARES, OPTIONS AND WARRANTS (ALL INFORMATION IS AS OF SEPTEMBER 15, 1995) Number of shares of Common Stock outstanding: 4,086,655/(1)/ Number of shares of Series A Convertible Preferred Stock outstanding: 1,350,000 1994 Grip Technologies, Inc. Stock Option Plan (covering 600,000 shares):
Outstanding options 245,000 Shares issued upon exercise of options 4,000 Options cancelled 10,000 Stock options issued to PGA tour endorsers: Outstanding options 450,000 Outstanding stock purchase warrants: Mimides/McGarvey 120,000 Affiliate of Schneider Securities, Inc. 10,000 Placement Agent's warrants (re 11/94 offering) 80,000 Kennedy #1 warrants 360,000 Placement Agent's warrants (re Kennedy #1-6/95) 72,000/(2)/ Placement Agent warrants (Re 8/8/95 offering) 25,220/(3)/ Kennedy #2 warrants 444,500 Placement Agents warrants (re Kennedy #2-9/95) 88,900/(4)/
- - ----------------- /(1)/ This number is subject to variation as the original Harvest Recreation Vehicles, Inc. shareholders exchange their shares, but should not increase by more than 945 shares. /(2)/ Schneider Securities, Inc. holds warrants to purchase 36,000 Units. Each Unit consists of one share of Common Stock and one three-year warrant to purchase one share of Common Stock. /(3)/ Schneider Securities, Inc. holds a warrant to purchase 12,610 Units. Each Unit consists of one share of Common Stock and one five-year warrant to purchase one share of Common Stock. /(4)/ Schneider Securities, Inc. holds a warrant to purchase 44,450 Units. Each Unit consists of one share of Common Stock and one three-year warrant to purchase one share of Common Stock. SCHEDULE 4.8 SCHEDULE OF CERTAIN CHANGES (a) Griptec has decided to contract out substantially all of its manufacturing. (b) From time to time Griptec will purchase tooling (including cavities) which in the aggregate exceeds $10,000. (c) Griptec continued to incur operating losses during the fourth quarter and fiscal year ended July 31, 1995. (d) Griptec has granted a security interest in all of its technology to Sam Lindsay as security for the loans made by Mr. Lindsay to Griptec and as consideration for his guaranty of the $600,000 loaned Griptec by First Interstate Bank (which is secured by a certificate of deposit from Mr. Lindsay in a like amount) and of other corporate obligations. (f) In connection with its decision to contract out all of its manufacturing, GTI intends to sell its injection molding machines. (h) In connection with the exercise of a stock option granted to John Boykin, Griptec exchanged the option for 4,000 fully paid for shares of its Common Stock. (l) Griptec has agreed to enter into a Settlement Agreement with John Svenson, a former Vice President-Marketing and Promotions and, in connection therewith, to pay him $8,194 as severance pay and to reimburse him for $1,306 in expenses. (o) Since April 30, 1995, Griptec has issued and sold: (i) 360,000 Units, each Unit consisting of one share of Common Stock and one three-year warrant to purchase one share of Common Stock at $3.00 per shares, (ii) 126,100 Units, each Unit consisting of one share of Common Stock and one five-year warrant to purchase one share of Common Stock at $5.00 per share, (iii) 444,500 Units, each Unit consisting of one share of Common Stock and one three-year warrant to purchase one share of Common Stock at $2.50 per share, and (iv) 4,000 shares upon the exercise of a stock option. Griptec is continuing to sell Units similar to those described in clause (ii) above. Note: Although certain changes are described in response to certain - - ---- subparagraphs of Section 4.8, these disclosures are intended to be applicable to any and all appropriate items. SCHEDULE 4.10 SCHEDULE OF EXCEPTIONS TO TITLE TO ASSETS 1. Griptec is a party to that certain Standard Industrial/Commercial Single-Tenant Lease-Gross, dated September 21, 1993, with Soo Kwang Kim and In Ho Kim, regarding its offices and manufacturing facilities located at 1681 McGaw, Irvine, California. 2. Certain technology used by Griptec in its business is the subject of a License Agreement, dated as of July 31, 1993, with Elbert Davis and Laguna Industries, Inc. In addition, Griptec is party to a Consulting Services and Research and Development Agreement, dated as of July 31, 1993, with Elbert Davis which provides that any Inventions (as that term is defined) conceived, developed or written by Mr. Davis during the term of the agreement shall belong to and be the sole property of Griptec. 3. Certain office equipment is subject to leases. 4. All of the technology of Griptec has been assigned to Sam G. Lindsay as collateral for the loans he has made to Griptec and to secure any repayment liability of any default which may occur under the loans made by First Interstate Bank to Griptec, which is secured by a certificate of deposit of Mr. Lindsay, or under any other corporate liability guaranteed by Mr. Lindsay. 5. Griptec has tentatively agreed to a joint venture regarding the industrial applications of its technology, although neither party to the joint venture has signed any agreement. 6. Griptec has tentatively agreed to a joint venture regarding the development of a commercially marketable glove product for the golf industry, although neither party to the joint venture has signed any agreement. 7. The equipment of the Company is subject to a security interest in favor of a bank to secure a loan taken subject to by the Company in connection with the purchase of certain assets from Poulin Progrip, Inc. ("PPG"). Also, the equipment purchased from PPG is also subject to a security interest in favor of PPG and Don Poulin to secure payment of the consideration for the purchase of that equipment. SCHEDULE 4.11 SCHEDULE OF CONDITION OF ASSETS 1. Griptec believes there is a greater than usual amount of down-time and repairs required with respect to its injection molding equipment. SCHEDULE 4.14 SCHEDULE OF LITIGATION 1. Don Poulin, the owner of Poulin Progrip, Inc. ("PPG"), now known as Don & Olivine Associates, Inc., has demanded Griptec reimburse him for the costs of certain life insurance he claims he was required to maintain for a period of approximately 23 months subsequent to the acquisition of certain assets by Griptec from PPG. Pursuant to the acquisition agreement, Griptec agreed to assume certain bank loans and to cause certain guarantees given by Mr. Poulin to be released. In June 1995, Griptec substituted a new guarantor for Mr. Poulin. The range of Mr. Poulin's claim is between $5,000 and $8,000. 2. Griptec is in the process of documenting a settlement with John Svenson (see item (l) on Schedule 4.8). AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION ("Amendment") is made and entered into as of September 21, 1995, by and between GRIP TECHNOLOGIES, INC., a California corporation ("Griptec"), USG ACQUISITION CORPORATION, a California corporation ("GTI Sub"), USGRIPS, INC., a Florida corporation ("USG"), J. BARRIE OGILVIE, an individual ("Ogilvie"), PAUL J. HERBER, an individual ("Herber") (Ogilvie and Herber are sometimes hereafter individually referred to as a "USG Shareholder" or collectively as the "USG Shareholders"). RECITALS A. The parties entered in that certain Agreement and Plan of Reorganization dated September 20, 1995 ("Agreement"). B. The parties desire to amend the Agreement on the terms and subject to the conditions set forth herein. TERMS AND CONDITIONS NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Transactions with Garland. On September 20, 1995, Griptec loaned ------------------------- Ogilvie $50,000 which is represented by a Promissory Note due and payable on September 22, 1995. Ogilvie used the proceeds of this loan to acquire twenty- five (25) shares of USG from Gary F. Garland ("Garland"). On September 20, 1995, Griptec loaned USG $56,000, which is represented by a Promissory Note due and payable on September 22, 1995. USG used the proceeds of this loan to pay Garland severance pay of $40,000 and to repay loans to Bud F. and Dolores Garland and the Bud F. Garland Grandchildrens Trust in the amount of $16,000. 2. Determination of Current Ratio. Notwithstanding the fact that the ------------------------------ severance pay obligation to Garland and the notes payable to Garland's parents and a family trust have been paid, for purposes of determining the Current Ratio the amount of severance pay obligation shall be $45,000 and the amount of the notes payable shall be $21,869. In addition, all costs associated with reinstating USG shall be included in Payables for purposes of determining the Current Ratio. 3. Articles of Merger. The Articles of Merger, the form attached hereto ------------------ as Exhibit A, are hereby approved. The parties are authorized to file the Articles of Merger with the Division of Corporations of the State of Florida. 4. No Other Changes. Except for the amendments set forth herein, there ---------------- are no other changes or modifications to the Agreement and the Agreement, as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the date first above mentioned. GRIP TECHNOLOGIES, INC., a USGRIPS, INC., a Florida California corporation corporation By: By: --------------------------- --------------------------- Sam G. Lindsay Paul J. Herber President President By: By: --------------------------- --------------------------- James E. McCormick III J. Barrie Ogilvie Secretary Secretary USG ACQUISITION CORPORATION, --------------------------- a California corporation J. BARRIE OGILVIE By: --------------------------- --------------------------- Sam G. Lindsay PAUL J. HERBER President By: --------------------------- James E. McCormick III Secretary 2 EXHIBIT A Articles of Merger A-1 EX-3.1(I) 3 RESTATED ARTICLES OF INCORPORATION EXHIBIT 3.1(i) RESTATED ARTICLES OF INCORPORATION OF GRIP TECHNOLOGIES, INC. Sam G. Lindsay and James E. McCormick III certify that: 1. They are the President and Secretary, respectively, of Grip Technologies, Inc., a California corporation (the "Company"). 2. The Articles of Incorporation of the Company are restated in their entirety to read as follows: First: The name of this corporation is Grip Technologies, Inc. Second: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. Third: The number and class of shares the corporation is authorized to issue is as follows:
Number of Authorized Shares Class ----------------- ----- 25,000,000 Common (without par value) 3,000,000 Preferred (without par value)
The Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of that series. Fourth: The Board of Directors does hereby establish a series of Preferred Stock as follows: (a) Designation and Number. The designation of such series of ---------------------- Preferred Stock is Series A Convertible Preferred Stock. The number of shares of such series is 1,350,000. The Board of Directors is authorized to change the number of shares of such series not only before, but also after any shares of such series have been issued, but it may not reduce the authorized number of shares of such series below the number of shares of such series already issued and still outstanding. (b) Dividends. The Series A Convertible Preferred Stock is entitled --------- to receive, out of funds legally available therefor, dividends at the annual rate of $0.10 per share, when and as declared by the Board of Directors. No dividends or other distributions shall be made with respect to the Common Stock and no Common Stock shall be purchased during any fiscal year of the corporation until dividends in the total amount of $0.10 per share on the Series A Convertible Preferred Stock shall have been declared and paid or set apart during that fiscal year. Dividends on the Series A Convertible Preferred Stock shall not be cumulative and no right shall accrue to the Series A Convertible Preferred Stock by reason of the fact that the corporation may fail to declare or pay dividends on the Series A Convertible Preferred Stock in the amount of $0.10 per share or in any amount in any previous fiscal year of the corporation, whether or not the earnings of the corporation in that previous fiscal year were sufficient to pay such dividends in whole or in part. After dividends in the total amount of $0.10 per share on the Series A Convertible Preferred Stock shall have been declared and paid or set apart in any one fiscal year of the corporation, if the Board of Directors shall elect to declare additional dividends in that fiscal year, out of funds legally available therefor, such additional dividends shall be declared solely on the Common Stock. (c) Liquidation. ----------- (1) Upon the voluntary or involuntary liquidation, winding up or dissolution of the corporation, out of the assets available for distribution to shareholders the Series A Convertible Preferred Stock shall be entitled to receive, in preference to any payment on the Common Stock, an amount equal to $1.00 per share plus (i) any dividends previously declared and unpaid, and (ii) a premium of $0.10 per share per annum from the date of the original issuance of the Series A Convertible Preferred Stock to the date of the notice of liquidation, and no more. After the full preferential liquidation 2 amount has been paid to, or determined and set apart for, the Series A Convertible Preferred Stock, the remaining assets shall be paid to the Common Stock. In the event the assets of the corporation are insufficient to pay the full preferential liquidation amount required to be paid to the Series A Convertible Preferred Stock, the entire remaining assets shall be paid to the Series A Convertible Preferred Stock and the Common Stock shall receive nothing. Any "reorganization," as that term is defined in Section 181 of the California General Corporation Law, shall not be considered to be a liquidation, winding up or dissolution within the meaning of this subdivision (c) and, in such event, the holders of the Series A Convertible Preferred Stock shall be entitled only to the rights provided in the agreement and plan of reorganization and Chapters 12 and 13 of the California General Corporation Law. (2) Sections 502 and 503 of the Corporations Code do not apply to the corporation's purchase of shares of Common Stock from an employee or consultant of the corporation pursuant to any right of purchase granted to the corporation under a contract for the services of the employee or consultant or pursuant to the terms of the corporation's Stock Option Plan or any stock option agreements issued pursuant thereto. (d) Voting Rights. Without the approval of at least a majority of ------------- the outstanding shares of Series A Convertible Preferred Stock, the corporation shall not (1) Amend its Articles of Incorporation to alter or change any rights, preferences or privileges of the Preferred Stock so as materially and adversely affect the Series A Preferred Stock; (2) Increase the authorized number of shares of Preferred Stock; (3) Authorize another class of shares senior to the Series A Convertible Preferred Stock with respect to dividends or distributions of assets on liquidation; (4) Purchase any Common Stock except as described on subparagraph (c)(2) above; (5) Enter into a "reorganization," as that term is defined in Section 181 of the California General Corporation Law, or sell all or substantially all of its assets to any other corporation, if, and only to the extent that, a vote of the outstanding shares is required by the California General Corporation Law; 3 (6) Restrict the transfer or hypothecation of shares of Series A Convertible Preferred Stock other than as required by federal or state securities laws or regulations or as otherwise provided in the Subscription Agreement to be executed by persons acquiring any Series A Convertible Preferred Stock; or (7) Voluntarily elect to wind up and dissolve. (e) Conversion. ---------- (1) The Series A Convertible Preferred Stock shall be convertible into Common Stock at any time not later than the close of business on the fifth day prior to the date fixed for redemption in any notice of redemption at the option of the respective holders of the Series A Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock shall be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1.00 by the conversion price in effect at the date of conversion. The conversion price per share shall be $1.00 (the "basic conversion price"), which shall be subject to adjustment from time to time as provided in paragraphs (3), (4) and (5) of this subdivision (e). In effecting the conversion, accrued unpaid dividends on the Series A Convertible Preferred Stock shall be disregarded. Upon conversion, no fractional shares shall be issued and the corporation shall in lieu thereof pay in cash the fair value of the fraction. The corporation shall reserve and keep reserved out of its authorized but unissued shares of Common Stock sufficient shares to effect the conversion of all shares of Series A Convertible Preferred Stock outstanding from time to time. (2) A holder of Series A Convertible Preferred Stock desiring to convert shall deliver the share certificate to the corporation at its principal executive office, accompanied by a written request to convert, specifying the number of shares to be converted. The indorsement of the share certificate and the request to convert shall be in form satisfactory to the corporation. Upon the date of such delivery the conversion is deemed to have occurred and the person entitled to receive share certificates for Common Stock shall be regarded for all corporate purposes from and after such date as the holder of the number of shares of Common Stock to which he is entitled upon the conversion. (3) In case, at any time or from time to time after the issuance of the first share of Series A Convertible Preferred Stock, the corporation shall issue and sell any shares of Common Stock for a consideration per share less than the conversion price in effect immediately 4 prior to such issue or sale, then forthwith upon such issue or sale the conversion price shall be reduced to a price (calculated to the nearest cent) determined by dividing (A) an amount equal to the sum of (i) the number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing conversion price, and (ii) the consideration, if any, received by the corporation upon such issuance and sale, by (B) the total number of shares of Common Stock outstanding immediately after such issue or sale. No adjustment of the conversion price, however, shall be made in an amount less than five cents per share, but any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to ten cents per share or more. (4) For purposes of paragraph (3) above, the following subparagraphs (A) to (D), inclusive, shall also be applicable: (A) In case at any time the corporation shall grant any rights to subscribe for, or any rights or options to purchase, Common Stock or any stock or other securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such rights or options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such rights or options or upon conversion or exchange of such Convertible Securities (determined by dividing (aa) the total amount, if any, received or receivable by the corporation as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the corporation upon the exercise of such rights or options, plus, in the case of any such rights or options which relate to such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (bb) the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options) shall be less than the conversion price in effect immediately prior to the time of the granting of such rights or options, then the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon conversion or exchange of the total maximum number of shares of such Convertible Securities issuable upon the exercise of such rights or options shall 5 (as of the date of granting of such rights or options) be deemed to be outstanding and to have been issued for such price per share. No further adjustments of the conversion price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such rights or option or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (B) In case at any time the corporation shall issue or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (aa) the total amount received or receivable by the corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the corporation upon the conversion or exchange thereof, by (bb) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the conversion price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share, provided that (i) no further adjustments of the conversion price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (ii) if any such issue or sale of such Convertible Securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the conversion price have been or are to be made pursuant to other provisions of this paragraph (4), no further adjustment of the conversion price shall be made by reason of such issue or sale. (C) In case at any time the corporation shall declare a dividend or make any other distribution upon any stock of the corporation payable in Common Stock or Convertible Securities, any Common Stock or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. (D) In case at any time any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the 6 amount received by the corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions or discounts paid or allowed by the corporation in connection therewith. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the corporation shall be deemed to be the fair value of such consideration as determined by the Board of Directors, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions or discounts paid or allowed by the corporation in connection therewith. In case any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued in connection with any merger of another corporation into the corporation, the amount of consideration therefor shall be deemed to be the fair value of the assets of such merged corporation as determined by the Board of Directors after deducting therefrom all cash and other consideration (if any) paid by the corporation in connection with such merger. (5) For the purpose of paragraph (3) above, none of the following issuances shall be considered the issuance or sale of Common Stock: (A) The issuance of Common Stock upon conversion of any Series A Convertible Preferred Stock; or (B) The issuance of not more than 600,000 shares of Common Stock (subject to antidilution adjustments) to officers, directors, employees or consultants of the corporation pursuant to stock option or stock purchase plans approved by the Board of Directors of the corporation (including the reissuance of shares purchased by the corporation from officers, directors, employees or consultants of the corporation as specified in paragraph (2) of subdivision (c)). (6) In case at any time the corporation shall subdivide its outstanding shares of Common Stock into a greater number of shares, the conversion price in effect immediately prior to such subdivision shall be proportionately reduced and conversely, in case the outstanding shares of Common Stock of the corporation shall be combined into a smaller number of shares, the conversion price in effect immediately prior to such combination shall be proportionately increased. (7) Promptly after any change in the conversion price, the corporation shall cause to be prepared a written 7 statement setting forth in detail the facts and the revised conversion ratio. The statement shall be signed by the president or a vice-president and by the chief financial officer, the treasurer or an assistant treasurer and filed with the secretary. A copy of the statement shall be mailed to each holder of Series A Convertible Preferred Stock. (f) Redemption. ---------- (1) The Series A Convertible Preferred Stock is subject to redemption at any time on or after August 31, 1995, out of funds legally available therefor, in whole, or from time to time in part, at the option of the Board of Directors of the corporation. If only a part of the Series A Convertible Preferred Stock is to be redeemed, the redemption shall be carried out prorata. The redemption price shall be $1.00 per share plus (i) any dividends previously declared and unpaid, and (ii) $0.10 per share per annum from the date of original issuance to the date of the notice of redemption (herein called the "Redemption Price"). (2) The corporation shall mail a notice of redemption to each holder of record of shares to be redeemed addressed to the holder at the address of such holder appearing on the books of the corporation or given by the holder to the corporation for the purpose of notice, or if no such address appears or is given at the place where the principal executive office of the corporation is located, not earlier than 60 nor later than 20 days before the date fixed for redemption. The notice of redemption shall include (i) the class of shares or the part of a class of shares to be redeemed, (ii) the date fixed for redemption, (iii) the redemption price, (iv) the place at which the shareholders may obtain payment of the redemption price upon surrender of their share certificates, (v) the last date prior to the date of redemption that the right of conversion may be exercised. If funds are available on the date fixed for the redemption, then whether or not the share certificates are surrendered for payment of the redemption price, the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders of the corporation with respect to the shares redeemed on and after the date fixed for redemption and shall be entitled only to receive the redemption price without interest upon surrender of the share certificate. If less than all the shares represented by one share certificate are to be redeemed, the corporation shall issue a new share certificate for the shares not redeemed. (3) If, on or prior to any date fixed for redemption, the corporation deposits with any bank or trust 8 company in this state as a trust fund a sum sufficient to redeem, on the date fixed for redemption thereof, the shares called for redemption, with irrevocable instructions and authority to the bank or trust company to publish the notice of redemption thereof (or to complete such publication if theretofore commenced) and to pay, on and after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates, then from and after the date of the deposit (although prior to the date fixed for redemption) the shares so called shall be redeemed and dividends on those shares shall cease to accrue after the date fixed for redemption. The deposit shall constitute full payment of the shares to their holders and from and after the date of the deposit the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares without interest, upon surrender of their certificates therefor and the right to convert the shares in accordance with subdivision (e) of this Article. The bank or trust company forthwith shall return to the corporation funds deposited for shares converted. After two years, the bank or trust company shall return to the corporation funds deposited and not claimed and thereafter the holder of a share certificate for share redeemed shall look to the corporation for payment. Fifth: This corporation hereby elects to be governed by all of the provisions of the General Corporation Law effective January 1, 1977, not otherwise applicable to it under Chapter 23 thereof. Sixth: The authorized number of directors of this corporation shall be not less than four (4) nor more than seven (7). The exact number of directors within these limits shall be fixed and may be changed from time to time by a resolution adopted by the Board of Directors. Seventh: (a) Elimination of Directors' Liability. The liability of ----------------------------------- the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. (b) Indemnification of Corporate Agents. This corporation is ----------------------------------- authorized to provide indemnification of agents (as defined in Section 317 of the California General Corporation Law) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California General 9 Corporation Law, subject only to the applicable limits set forth in Section 204 of the California General Corporation Law with respect to actions for breach of duty to the corporation and its shareholders. (c) Repeal or Modification. Any repeal or modification of the ---------------------- foregoing provisions of this Article by the shareholders of this corporation shall not adversely affect any right or protection of an agent of this corporation existing at the time of that repeal or modification. 3. The foregoing restatement of Articles of Incorporation have been duly approved by the Board of Directors of the Company. 4. The foregoing restatement of Articles of Incorporation does not alter or amend the Articles of Incorporation except for alterations and amendments permitted by Sections 902(d) and 2302 of the California General Corporations Code to be adopted by the Board of Directors alone. Accordingly, pursuant to Section 910(b) of the California Corporations Code, no approval of the outstanding shares was required. We further declare under penalty under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Executed at Irvine, California on July ____, 1996. -------------------------------------- Sam G. Lindsay President -------------------------------------- James E. McCormick III Secretary 10 EX-3.1(II) 4 AMENDED & RESTATED BYLAWS EXHIBIT 3.1(ii) GRIP TECHNOLOGIES, INC. AMENDED AND RESTATED BYLAWS TABLE OF CONTENTS
Page ---- ARTICLE I - CORPORATE OFFICES................................. 1 1.1 PRINCIPAL OFFICES................................... 1 1.2 OTHER OFFICES....................................... 1 ARTICLE II - MEETINGS OF SHAREHOLDERS......................... 1 2.1 PLACE OF MEETINGS................................... 1 2.2 ANNUAL MEETING...................................... 2 2.3 SPECIAL MEETINGS.................................... 2 2.4 NOTICE OF SHAREHOLDERS' MEETINGS.................... 2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........ 3 2.6 QUORUM.............................................. 4 2.7 ADJOURNED MEETING; NOTICE........................... 4 2.8 VOTING.............................................. 4 2.9 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS........................................ 5 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................................. 6 2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS..................................... 7 2.12 PROXIES............................................. 8 2.13 INSPECTORS OF ELECTION.............................. 8 ARTICLE III - DIRECTORS....................................... 9 3.1 POWERS.............................................. 9 3.2 NUMBER AND QUALIFICATION............................ 9 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS............ 10 3.4 REMOVAL OF DIRECTOR FOR CAUSE....................... 10 3.5 REMOVAL OF DIRECTOR WITHOUT CAUSE................... 10 3.6 REMOVAL OF DIRECTOR BY SHAREHOLDERS' SUIT........... 11 RESIGNATIONS AND VACANCIES.......................... 11 3.8 PLACE OF MEETINGS................................... 12 3.9 MEETINGS BY CONFERENCE TELEPHONE, ETC............... 12 3.10 REGULAR MEETINGS.................................... 13 SPECIAL MEETINGS.................................... 13 3.12 QUORUM.............................................. 13 3.13 WAIVER OF NOTICE.................................... 14
i TABLE OF CONTENTS (Cont')
Page ---- 3.14 ADJOURNMENT.......................................... 14 3.15 NOTICE OF ADJOURNMENT................................ 14 3.16 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................................ 14 3.17 FEES AND COMPENSATION OF DIRECTORS................... 15 ARTICLE IV - COMMITTEES........................................ 15 4.1 COMMITTEES OF DIRECTORS.............................. 15 4.2 MEETINGS AND ACTION OF COMMITTEES.................... 16 ARTICLE V - OFFICERS........................................... 16 5.1 OFFICERS............................................. 16 5.2 ELECTION OF OFFICERS................................. 17 5.3 SUBORDINATE OFFICERS................................. 17 5.4 REMOVAL AND RESIGNATION OF OFFICERS.................. 17 5.5 VACANCIES IN OFFICES................................. 17 5.6 CHAIRMAN OF THE BOARD................................ 18 5.7 PRESIDENT............................................ 18 5.8 VICE PRESIDENTS...................................... 18 5.9 SECRETARY............................................ 18 5.10 CHIEF FINANCIAL OFFICER.............................. 19 ARTICLE VI - INDEMNIFICATION OF OFFICERS AND DIRECTORS......... 20 ARTICLE VII - RECORDS AND REPORTS.............................. 22 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER......... 22 7.2 MAINTENANCE AND INSPECTION OF BYLAWS................. 23 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.............................................. 23 7.4 INSPECTION BY DIRECTORS.............................. 23 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER................ 24 7.6 FINANCIAL STATEMENTS................................. 24 7.7 ANNUAL STATEMENT OF GENERAL INFORMATION.............. 25
ii TABLE OF CONTENTS (Cont')
Page ---- ARTICLE VIII - GENERAL CORPORATE MATTERS....................... 25 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................................... 25 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS............ 26 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED............................................. 26 8.4 CERTIFICATES FOR SHARES.............................. 26 8.5 LOST CERTIFICATES.................................... 26 8.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS....... 27 8.7 CONSTRUCTION AND DEFINITIONS......................... 27 ARTICLE IX - AMENDMENTS........................................ 27 9.1 AMENDMENT BY SHAREHOLDERS............................ 27 9.2 AMENDMENT BY DIRECTORS............................... 28
iii BYLAWS ------ Bylaws for the regulation, except as otherwise provided by statute or its Articles of Incorporation, of Grip Technologies, Inc., a California corporation ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICES The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside the State of California and the corporation has one or more business offices in that state, the board of directors shall fix and designate a principal business office in the State of California. 1.2 OTHER OFFICES The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to transact business. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS Meetings of shareholders shall be held at any place within or outside the State of California which may be designated either by the board of directors or by the written consent of all persons entitled to vote thereat given either before or after the meeting and filed with the secretary. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 1 2.2 ANNUAL MEETING The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held not more than five (5) months after the end of the fiscal year of the corporation nor more than within fifteen (15) months after the last annual meeting. At each annual meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETINGS Special meetings of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or the holders of shares entitled to cast not less than 10% of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS Written notice of each annual or special meeting of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting to each shareholder entitled to vote thereat. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted), or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject 2 to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. 3 An affidavit of the mailing or other means of giving any notice of any meeting of shareholders shall be executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, and shall be prima facie evidence of the giving of such notice. 2.6 QUORUM The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 ADJOURNED MEETING; NOTICE Any meeting of shareholders, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.8 VOTING The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Section 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). 4 The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting begins. Except as provided in the last paragraph of Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholders entitled to vote on any matter may vote part of his shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the articles of incorporation. At a meeting of shareholders at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a --- number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled, or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. 2.9 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either 5 in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill a vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holder, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. 6 If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders has not have been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. 2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the Board of Directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. 7 The record date for any other purpose shall be as provided in Section 8.1 of these bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission, or otherwise) by the shareholder or the shareholder's attorney-in- fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing delivered to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting, or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. 2.13 INSPECTORS OF ELECTION Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or any adjournment thereof. If no inspector of election is so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. The duties of the inspectors shall be as prescribed by Section 707(b) of the Code and shall include: 8 (a) determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity, and effect of proxies; (b) receiving votes, ballots, or consents; (c) hearing and determining all challenges and questions in any way arising in connection with the right to vote; (d) counting and tabulating all votes or consents; (e) determining when the polls shall close; (f) determining the result; and (g) doing any other acts that may be proper to conduct the election or vote with fairness to all shareholders. If there are three (3) inspectors of election, the decision, act, or certificate of a majority is effective in all respects as the decision, act, or certificate of all. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER AND QUALIFICATION The minimum and maximum number of directors is stated in the articles of incorporation and may be changed only by an amendment of the articles of incorporation. The exact number of directors within the range stated in the articles of incorporation shall be fixed and may from time to time be changed by a resolution adopted by the board of directors. 9 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each Director, including a Director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 REMOVAL OF DIRECTOR FOR CAUSE The board of directors may declare vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony. 3.5 REMOVAL OF DIRECTOR WITHOUT CAUSE (a) Any or all of the directors may be removed without cause if the removal is approved by the outstanding shares (as that term is defined in Section 152 of the Code), subject to the following: (1) Except as provided in subparagraph (3) below, no director may be removed (unless the entire board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director's most recent election were then being elected. (2) When by the provisions of the articles of incorporation the holders of the shares of any class or series, voting as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series. (3) A director of a corporation whose board of directors is classified pursuant to Section 301.5 of the Code may not be removed if the votes cast against removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively (without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors elected at the most recent annual meeting of shareholders, or if greater, the number of directors for who removal is being sought, were then being elected. 10 (b) Any reduction of the authorized number of directors or amendment reducing the number of classes of directors does not remove any director prior to the expiration of the director's term of office. (c) Except as provided in this Section and Sections 3.4 and 3.6 of these bylaws, a director may not be removed prior to the expiration of the director's term of office. 3.6 REMOVAL OF DIRECTOR BY SHAREHOLDERS' SUIT The superior court of the proper county may, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation any may bar from reelection any director so removed for a period prescribed by the court. The corporation shall be made a party to such action. 3.7 RESIGNATIONS AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary, or the board of directors, unless the notice specifies a later time for the resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required 11 quorum), or by the unanimous written consent of holders of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been duly elected and qualified. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.8 PLACE OF MEETINGS Regular or special meetings of the board of directors shall be held at any place within or outside the State of California which has been designated from time to time by resolution of the board. In the absence of such a designation, regular or special meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. 3.9 MEETINGS BY CONFERENCE TELEPHONE, ETC. Any meeting, regular or special, may be held by conference telephone, electronic video screen communication, or other communications equipment. Participation in a meeting pursuant to this Section constitutes presence in person at that meeting if all of the following apply: (a) Each member participating in the meeting can communicate with all of the other members concurrently; (b) Each member is provided the means of participating in all matters before the board, including the capacity to propose or to interpose an objection to a specific action to be taken by the corporation; and (c) The corporation adopts and implements some means of verifying both of the following: (1) A person communicating by telephone, electronic video screen, or other communications equipment is a director entitled to participate in the board meeting; and 12 (2) All statements, questions, actions or voices were made by that director and not by another person not permitted to participate as a director. 3.10 REGULAR MEETINGS Regular meetings of the board of directors may be held at such time as shall from time to time be fixed in the bylaws or by the board of directors. In addition, immediately following each annual meeting of shareholders, the board of directors shall hold a regular meeting for the purpose of organization, election of election of officers, and the transaction or other business. Call and notice of all regular meetings shall not be required. 3.11 SPECIAL MEETINGS Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board or the president or any vice president or the secretary or any two (2) directors. Notice of the time and place of special meetings shall be given by mail or personally or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means (hereafter collectively referred to as "telephonic or electronic means") to each director. If notice is given by mail, it shall be sent by first-class mail, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation and such notice shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephonic or electronic means, it shall be delivered personally or given by telephone or transmitted electronically at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.12 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn a meeting of the board of directors as provided in Section 3.15 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall 13 be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), and Section 317(e) of the Code (as to the indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.13 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.14 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting of the board of directors to another time and place. 3.15 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned. If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting, in the manner specified in Section 3.11 of these bylaws, to the directors who were not present at the time of the adjournment. 3.16 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the Board of directors may be taken without a meeting, provided that all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have 14 the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.17 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation for those services. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the Board or on any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; 15 (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and action of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.8 (place of meetings), 3.9 (meetings by telephone, electronic video screen communication or other communications equipment), 3.10 (regular meetings), 3.11 (special meetings and notice), 3.12 (quorum), 3.13 (waiver of notice), 3.14 (adjournment), 3.15 (notice of adjournment), and 3.16 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, special meetings of committees may also be called by resolution of the board of directors, and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committees. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 16 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board of directors, and each shall serve at the pleasure of the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, and may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the board of directors or the president, as the case may be, may from time to time determine. If an assistant officer to any officer shall be appointed, such assistant officer may exercise any of the powers of his superior officer, as provided in these bylaws or as authorized by the board of directors, and shall perform such other duties as are imposed upon him by these bylaws or the board of directors or the president, as the case may be. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 17 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the bylaws. If there is no president, or if so designated by the board of directors, the chairman of the board shall be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory and/or other powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors (unless the board of directors has bestowed that authority on the chairman of the board, in which event he shall be the chief operating officer of the corporation, unless otherwise provided, with such duties and authorities as may be granted by the board of directors from time to time), have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence of the chairman of the board, or if there be none, at all meetings of the board of directors. Except as otherwise provided, he shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked a vice president designated by the board of directors, shall perform all the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors or these bylaws, and the president or the chair of the board. The board of directors may designate certain general or specific areas of responsibility for each vice president, as it, in its sole discretion determines. 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of 18 minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer, unless he delegates this task to another officer or employee, shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other duties as may be prescribed by the board of directors or these bylaws. 19 ARTICLE VI INDEMNIFICATION OF OFFICERS AND DIRECTORS (a) The Company shall indemnify any person who was or is a party, or is threatened with being made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including all appeals (other than an action, suit or proceeding by or in the right of the Company) by reason of the fact that he is or was a director, officer or employee of the Company, or is or was serving at the request of the Company as a director, officer or employee of another company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith or in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal action, suit or proceeding, that he has reasonable cause to believe that his conduct was unlawful. (b) The Company shall indemnify any person who was or is a party or is threatened with being made a party to any threatened, pending, or completed action, suit or proceeding, including all appeals, by or the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Company, or is or was serving at the request of the Company as a director, officer or employee of another company, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action, suit or proceeding. The Company shall also indemnify any such person against amounts paid in settlement of such action, suit or proceeding up to the amount that would reasonably have been expended in his defense (determined in the manner provided for in subsection (d), if such action, suit or proceeding had been prosecuted to a conclusion. However, indemnification under this subsection shall be made only if the person to be indemnified acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and no such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been finally adjudged to be liable for negligence or misconduct in the performance of his duty to the Company, unless, and only to the extent that, the court or body in or before, which such action, suit or proceeding was finally determined, or any court of competent jurisdiction, 20 shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses or other amounts paid as such court shall deem proper. (c) Without limiting the right of any director, officer, or employee of the Company to indemnification under any other subsection hereof, if such person has been substantially and finally successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b), he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Except in a situation governed by subsection (c), any indemnification under subsections (a) and (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who are not or were not parties to or threatened with such action, suit or proceeding, or any other action, suit or proceeding arising from the same or similar operative facts, or (2) if such a quorum is not obtainable, if a majority of such quorum or disinterested directors so directs, by independent legal counsel (compensated by the Company) in a written opinion, or (3) if there be no interested directors, or if a majority of the disinterested directors, whether or not quorum, so directs, by vote in person or by proxy of the holders of a majority of the shares entitled to vote in the election of directors. (e) Expenses of such person indemnified hereunder incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding (including all appeals), or threat thereof, may be paid by the Company in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors, whether a disinterested quorum exists or not, upon receipt of an undertaking by or on behalf of the director, officer or employee to repay such expenses unless it shall ultimately be determined that he is entitled to be indemnified by the Company. (f) The indemnification provided by this Article shall not be deemed exclusive of or in any way to limit any other rights to which any person indemnified may be or may become entitled as a matter of law, by the articles, regulations, agreements, insurance, vote of shareholders, or otherwise, with respect to action in his official capacity and with respect to action in another capacity while holding such office and shall continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such person. 21 (g) Subsections (a) through (f) of this Article shall apply to such agents of the Company as are designated at any time by the board of directors. (h) If any part of this Article shall be found, in any action, suit or proceeding, to be invalid or ineffective, the validity and the effect of the remaining parts shall not be affected. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders, listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least 5% in the aggregate of the outstanding voting shares of the corporation or who holds at least 1% of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, and (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. 22 Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in California, the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in California, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and any committee or committees of the board of directors shall be kept at such place or places designated by the board of directors or, in the absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 23 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified by Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is not such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The annual report shall comply with the requirements of Section 1501 of the Code or the Securities Exchange Act of 1934, as amended, whichever is applicable. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least 5% of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. 24 The quarterly income statements and balance sheets referred to in this Section shall be accompanied by the report, if any, or any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 ANNUAL STATEMENT OF GENERAL INFORMATION The corporation shall file annually (and more frequently if there is any change in the information), with the Secretary of State of California, on the prescribed form, a statement setting forth the authorized number of directors, the names and complete business or residence addresses of all incumbent directors, the names and complete business or residence addresses of the chief executive officer, secretary, and chief financial officer, the street address of its principal executive office or principal business office in this state, and the general type of business constituting the principal business activity of the corporation, together with a designation of the agent of the corporation for the purpose of service of process, all in compliance with Section 1502 of the Code. ARTICLE VIII GENERAL CORPORATE MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent with a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 25 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authorization may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of any officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chair of the board or vice chair of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the corporation 26 and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chair of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of the corporation, or any other person authorized by resolution of the board of directors or the president or vice president, is authorized to vote, represent and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 8.7 CONSTRUCTION AND DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, the masculine gender includes the feminine and neuter, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1 AMENDMENT BY SHAREHOLDERS New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment of the articles of incorporation. 27 9.2 AMENDMENT BY DIRECTORS Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. 28 CERTIFICATE OF SECRETARY ------------------------ The undersigned hereby certifies: (a) That I am the duly elected and acting Secretary of Grip Technologies, Inc., a California corporation; and (b) That the foregoing Amended and Restated Bylaws, comprising 28 pages, were duly adopted by the Unanimous Written Consent of the Board of Directors, dated July 31, 1996. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of said corporation this 31st day of July, 1996. -------------------------------------- James E. McCormick III Secretary 29 EX-4.1 5 PROMISSORY NOTE DATED 12-10-93 EXHIBIT 4.1 INSTALLMENT NOTE - INTEREST INCLUDED $50,000 Irvine, California December 10, 1993 ------ ----------- For value received, the undersigned promises to pay in lawful money of the United States of America to the order of KWANG SOO KIM and IN HO KIM, at their office in this City, the principal sum of Fifty Thousand Dollars ($50,000) -------------- ------ together with interest from 12/10/93, on unpaid principal at the rate of Seven -------- Percent (7%) per annum, principal and interest payable in equal installments of Nine Hundred Ninety and 06/100s Dollars ($990.06) on the 10th day of each month, - - ------------------------------- ------ ---- beginning 1/10/94 and continuing on the same day of each month thereafter until ------- the 10th day of December, 1998, on which day the balance of principal and ---- -------- ---- interest then unpaid shall become due and payable. Should default be made in the payment of any installment of principal or interest when due, then the entire sum of principal and interest, at the option of the holder of this note, shall immediately become due and payable without demand or notice. In case this note shall not be paid when due according to its terms, the undersigned promises to pay in addition, all costs of collection and reasonable attorneys' fees, whether or not suit is filed herein. This note is secured by a Guaranty executed by Sam G. Lindsay on December 10, 1993. - - -- PRO GRIP, INC. now known as Grip Technologies, Inc. A California Corporation By: -------------------------------- President SAM G. LINDSAY BY: -------------------------------- Secretary JAMES E. MCCORMICK III EX-4.2 6 FIXED RATE NOTE DATED 01-24-95 EXHIBIT 4.2 [LOGO OF FIRST INTERSTATE FIXED RATE NOTE BANK] $300,000.00 NEWPORT BEACH, California ---------- ------------------------- Date JANUARY 24, 1995 -------------------- On JULY 31, 1995 for value received, the undersigned ("Borrower") promises ------------- to pay to the order of FIRST INTERSTATE BANK OF CALIFORNIA ("Bank") at its ORANGE COUNTY CORPORATE BNKG Office, at 5000 BIRCH ST., STE 10000, NEWPORT - - ---------------------------- ---------------------------------- BEACH, CA 92660 the principal sum of THREE HUNDRED THOUSAND AND NO/100 Dollars - - --------------- --------------------------------- ($300,000.00), with interest on the unpaid principal balance payable monthly ---------- ------- from the date of this Note until maturity, breach, acceleration or demand, at a rate per annum of 4.00 percent (4.00%), and thereafter, payable on demand, at ---- ---- the rate, calculated daily, which is the higher of (a) 2% per annum above the contractual rate set forth above or (b) 3% per annum above Bank's Prime Rate, until paid in full. Prime Rate is an index rate which Bank establishes from time to time in connection with pricing certain of its loans. Bank may make loans at, above or below its stated index rate. Information on the current index rate can be obtained by contacting Bank. Any change in such floating rate in (b) above shall be effective the day Prime Rate changes. Interest shall be calculated on the basis of a 360-day year for actual days elapsed. If interest is not paid when due, it shall thereafter bear like interest as principal. Borrower may prepay this Note, without premium or penalty, in whole or in part, with accrued interest to the date of such prepayment on the amount prepaid. Borrower shall pay any loss resulting from such prepayment incurred by Bank in liquidating or redeploying deposits from which such loan funds were obtained. Any of the following shall constitute an event of default under this Note whether committed by or against Borrower, any endorser or any guarantor: (a) The nonpayment when due of principal of or interest on this Note or any other obligation of any nature or description to Bank; (b) The death, dissolution or termination of business of any of them; (c) Any petition in bankruptcy being filed by or against any of them or any proceedings in bankruptcy, insolvency or under any other laws relating to the relief of debtors, being commenced for the relief or readjustment of any indebtedness of any of them, either through reorganization, composition, extension or otherwise; (d) The making by any of them of an assignment for the benefit of creditors; (e) The appointment of a receiver of any property of any of them; (f) Any seizure, vesting of rights of or intervention by or under any authority of any government; (g) The entry of a judgement against any of them which, in Bank's opinion, materially impairs the ability of any of them to meet their obligations to Bank; (h) The failure to furnish any financial information upon the reasonable request of Bank; or (i) Any misrepresentation to Bank in obtaining credit by any of them. At any time after the occurrence of any such event of default, this Note and any other obligations to Bank or Borrower may, at Bank's discretion, become immediately due and payable. Both principal and interest on this Note are payable in lawful currency of the United States of America without deduction for or on account of any present or future taxes, duties or other charges levied or imposed on this Note. If this Note is placed in the hands of an attorney for collection, Borrower, each endorser and each guarantor agree to pay all costs and expenses of Bank, including reasonable attorneys' fees, whether or not a suit is brought. "Reasonable attorneys' fees" shall include reasonable attorneys' fees and allocated costs of in-house counsel incurred in any and all judicial, bankruptcy and other proceedings (including appellate level proceedings) whether such proceedings arise before or after entry of a final judgment. All extensions of time for payment, whether by operation of law, judicial proceedings, or otherwise, shall be included in the computation of interest. Payments received by us Monday through Friday before 2:00 p.m. on a day the Bank is open for business ("Banking Day") at the address specified above will be credited as of the date received. Payments received later, or on a Saturday, Sunday or holiday will be credited as of the next Banking Day. All obligations under this Note shall be the individual obligation of Borrower unless requisite corporate action has been taken to make this Note an enforceable corporate obligation, and all such obligations shall be the joint and several obligations of each Borrower where there is more than one. Borrower, each endorser and each guarantor waive diligence, demand, presentment, protest and any type of notice. This Note shall be governed and construed in accordance with the laws of the State of California. Bank may sell, assign, transfer or participate to other parties all or part of the obligations arising under this Note. This Note shall be binding upon and inure to the benefit of the undersigned. Bank and their respective successors and assigns. The undersigned shall not assign its rights hereunder or any interest herein without the prior written consent of Bank. GTI MANUFACTURING, INC. - - ---------------------------- Name of Borrower 1681 MCGAW, IRVINE, CA 92714 - - ---------------------------- Address /s/ SAMUEL G. LINDSAY - - ---------------------------- Samuel G. Lindsay, President MODIFICATION OF NOTE AGREEMENT Obligor No. 3691216559, Obligation No. 34 NEWPORT BEACH, CALIFORNIA ---------- -- ------------- FEBRUARY 8, 1995 - - ---------------- (Date) TO: FIRST INTERSTATE BANK OF CALIFORNIA This Modification of Note Agreement is made this 8TH day of FEBRUARY, 1995, --- -------------- between FIRST INTERSTATE BANK OF CALIFORNIA, a California corporation (hereinafter called "Lender") and GTI MANUFACTURING, INC. (hereinafter called ---------------------- "Borrower"). RECITALS A. Borrower has executed a note (hereinafter called "Note") payable to Lender in the original principal amount of $300,000.00 dated January 24, 1995, upon ----------- ---------------- which there remains a unpaid balance of $300,000.00 with interest paid to ----------- January 24, 1995. ---------------- B. The Note is secured by a deed of trust (hereinafter called "Deed of Trust") recorded on ------ in ---N/A--- of Official Records of ---N/A --- County, ------- --------- ----------- California. C. The parties herein desire to amend the payment terms set forth in the Note. TERMS For valuable consideration, the parties hereto agree that the terms for payment of the unpaid balance owing on said Note and interest thereon are modified herein as follows: 1. TO INCREASE THE ORIGINAL LOAN AMOUNT FROM $300,000.00 to $400,000.00. 2. ALL OTHER TERMS AND CONDITIONS TO REMAIN THE SAME. In any event, the entire amount of principal and interest unpaid shall be due and payable on JULY 31, 1995. MODIFICATION OF NOTE AGREEMENT Obligor No. 3691216559, Obligation No. 34 NEWPORT BEACH, California FEBRUARY 24, ---------- ---------------- ----------- (Date) 1995 - - ---- TO: FIRST INTERSTATE BANK OF CALIFORNIA This Modification of Note Agreement is made this 24TH day of FEBRUARY, 1995, ---- -------------- between FIRST INTERSTATE BANK OF CALIFORNIA, a California corporation (hereinafter called "Lender") and GTI MANUFACTURING, INC. --------------------------------------------- - - ------------------------------------------------------------------------------- - - ------------------------------------------------(hereinafter called "Borrower"). RECITALS A. Borrower has executed a note (hereinafter called "Note") payable to Lender in the original principal amount of $300,000.00 dated JANUARY 21, 1995, upon ----------- ---------------- which there remains an unpaid balance of $400,000.00 with interest paid to ----------- FEBRUARY 1, 1995. ---------------- B. The Note is secured by a deed of trust (hereinafter called "Deed of Trust") recorded on in N/A of Official Records of N/A County, ---------------- --- --- California. C. The parties herein desire to amend the payment terms set forth in the Note. TERMS For valuable consideration, the parties hereto agree that the terms for payment of the unpaid balance owing on said Note and interest thereon are modified herein as follows: 1. TO INCREASE THE ORIGINAL NOTE/LOAN AMOUNT FROM $300,000.00 TO $500,000.00. 2. ALL OTHER TERMS AND CONDITIONS TO REMAIN THE SAME. In any event, the entire amount of principal and interest unpaid shall be due and payable on JULY 31, 1995. ------------- MODIFICATION OF NOTE AGREEMENT Obligor No. 3691216559, Obligation No. 34 NEWPORT BEACH, California MARCH 22, ---------- -- ------------- --------- (Date) 1995 - - ---- TO: FIRST INTERSTATE BANK OF CALIFORNIA This Modification of Note Agreement is made this 22ND day of MARCH, 1995, ---- ----------- between FIRST INTERSTATE BANK OF CALIFORNIA, a California corporation (hereinafter called "Lender") and GTI MANUFACTURING, INC. ------------------------------------------- - - ----------------------------------------------------------------------------- - - ---------------------------------------------(hereinafter called "Borrower"). RECITALS A. Borrower has executed a note (hereinafter called "Note") payable to Lender in the original principal amount of $300,000.00 dated JANUARY 21, 1995, upon which there remains an unpaid ----------- ---------------- balance of $500,000.00 with interest paid to FEBRUARY 2, 1995. ----------- ---------------- B. The Note is secured by a deed of trust (hereinafter called "Deed of Trust") recorded on in N/A of Official Records of N/A County, ----------------- --- --- California. C. The parties herein desire to amend the payment terms set forth in the Note. TERMS For valuable consideration, the parties hereto agree that the terms for payment of the unpaid balance owing on said Note and interest thereon are modified herein as follows: 1. TO EXTEND THE MATURITY DATE TO DECEMBER 31, 1995. 2. TO INCREASE NOTE AMOUNT TO $600,000.00. 3. ALL OTHER TERMS AND CONDITIONS TO REMAIN THE SAME. In any event, the entire amount of principal and interest unpaid shall be due and payable on DECEMBER 31, 1995. ----------------- [LOGO OF FIRST INTERSTATE BANK] CHANGE IN TERMS AGREEMENT ================================================================================ Borrower: GTI Manufacturing, Inc. Lender: First Interstate Bank 1681 McGaw Avenue of California Irvine, CA 92714 Orange County Corporate Banking 5000 Birch Suite 10000 Newport Beach, CA 92660 ================================================================================ Principal Amount: $600,000.00 Date of Agreement: July 31, 1995 DESCRIPTION OF EXISTING INDEBTEDNESS. A fixed rate note in the original amount of $300,000.00 dated January 24, 1995, at an original interest rate of 4,000%, maturing on July 31, 1995. DESCRIPTION OF CHANGE IN TERMS. The maturity date of the existing indebtedness described above is hereby extended to December 31, 1996, when the entire unpaid principal balance, all accrued and unpaid interest, and all other amounts payable thereunder shall be due and payable. CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender's right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non- signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions. PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT. BORROWER: GTI Manufacturing, Inc. By: /s/ Samuel G. Lindsay ------------------------------------ Samuel G. Lindsay, President ================================================================================ EX-4.3 7 PROMISSORY NOTE DATED 01-11-96 EXHIBIT 4.3 [LOGO OF FIRST INTERSTATE BANK] PROMISSORY NOTE ================================================================================ Borrower: GTI MANUFACTURING, INC. Lender: First Interstate Bank 1681 McGaw Avenue of California Irvine, CA 92714 Orange County Corporate Banking 5000 Birch Suite 10000 Newport Beach, CA 92660 ================================================================================ Principal Amount: $100,000.00 Interest Rate: 4.000% Date of Note: January 11, 1996 PROMISE TO PAY. GTI MANUFACTURING, INC. ("Borrower") promises to pay to First Interstate Bank of California ("Lender"), or order, in lawful money of the United States of America, the principal amount of One Hundred Thousand & 00/100 Dollars ($100,000.00), together with interest at the rate of 4.000% per annum on the unpaid principal balance from January 11, 1996, until paid in full. PAYMENT. Borrower will pay this loan in one principal payment of $100,000.00 plus interest on April 9, 1996. This payment due April 9, 1996, will be for all principal and accrued interest not yet paid. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning February 1, 1996, with all subsequent interest payments to be due on the same day of each month after that. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied in any order at Lender's sole discretion. PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension or credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any of the events described in this default section occurs with respect to any guarantor of this Note. (h) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the indebtedness is impaired. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the interest rate on this Note 3.000 percentage points. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Los Angeles County, the State of California. Subject to the provisions on arbitration, this Note shall be governed by and construed in accordance with the laws of the State of California. DEPOSIT ACCOUNTS. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA, Keogh, and trust accounts. ARBITRATION. Binding Arbitration. Upon the demand of any party ("Party/Parties"), to a Document (as defined below), whether made before the institution of any judicial proceeding or not more than 60 days after service of a complaint, third party complaint, cross-claim or counterclaim or any answer thereto or any amendment to any of the above, any Dispute (as defined below) shall be resolved by binding arbitration in accordance with the terms of this arbitration program ("Arbitration Program"). A "Dispute" shall include any action, dispute, claim or controversy of any kind, whether founded in contract, tort, statutory or common law, equity, or otherwise, now existing or hereafter arising between any of the Parties arising out of, pertaining to or in connection with any agreement, document or instrument to which this Arbitration Program is attached or in which it appears or is referenced or any related agreements, documents, or instruments ("Documents"). Any Party who fails to submit to binding arbitration following a lawful demand by another Party shall bear all costs and expenses, including reasonable attorneys' fees (including those incurred in any trial, bankruptcy proceeding or on appeal), incurred by the other Party in obtaining a stay of any pending judicial proceeding and compelling arbitration of any Dispute. The Parties agree that any agreement, document or instrument which includes, attaches to or incorporates this Arbitration Program represents a transaction involving commerce as that term is used in the Federal Arbitration Act, Title 9 United States Code ("FAA"). THE PARTIES UNDERSTAND THAT BY THIS AGREEMENT THEY HAVE DECIDED THAT THEIR DISPUTES SHALL BE RESOLVED BY BINDING ARBITRATION RATHER THAN IN COURT, AND ONCE DECIDED BY ARBITRATION NO DISPUTE CAN LATER BE BROUGHT, FILED OR PURSUED IN COURT. Governing Rules. Arbitrations conducted pursuant to this Arbitration Program shall be administered by the American Arbitration Association ("AAA"), or other mutually agreeable administrator ("Administrator") in accordance with the terms of this Arbitration Program and the Commerical Arbitration Rules of the AAA. Proceedings hereunder shall be governed by the provisions of the FAA. The arbitrator(s) shall resolve all Disputes in accordance with the applicable substantive law designated in the Documents. Judgment upon any award rendered hereunder may be entered in any court having jurisdiction; provided, however, that nothing herein shall be construed to be a waiver by any Party that is a bank of the protections afforded pursuant to 12 U.S.C. 91 or any similar applicable state law. 01-11-1996 PROMISSORY NOTE Page 2 (Continued) ================================================================================ Arbitrator Powers and Qualifications; Awards. The Parties agree to select a neutral qualified arbitrator or a panel of three qualified arbitrators to resolve any Dispute hereunder. "Qualified" means a retired judge or practicing attorney, with not less than 10 years practice in commercial law, licensed to practice in the state of the applicable substantive law designated in the Documents. A Dispute in which the claims or amounts in controversy do not exceed $1,000,000, shall be decided by a single arbitrator. A single arbitrator shall have authority to render an award up to but not to exceed $1,000,000.00 including all damages of any kind whatsoever, costs, fees, attorneys' fees and expenses. Submission to a single arbitrator shall be a waiver of all Parties' claims to recover more than $1,000,000.00. A Dispute involving claims or amounts in controversy exceeding $1,000,000.00 shall be decided by a majority vote of a panel of three qualified arbitrators. All three arbitrators on the arbitration panel must actively participate in all hearings and deliberations. The arbitrator(s) shall be empowered to, at the written request of any Party in any Dispute, (a) to consolidate in a single proceeding any multiple party claims that are substantially identical or based upon the same underlying transaction; (b) to consolidate any claims and Disputes between other Parties which arise out of or relate to the subject matter hereof, including all claims by or against borrowers, guarantors, sureties and/or owners of collateral; and (c) to administer multiple arbitration claims as class actions in accordance with Rule 23 of the Federal Rules of Civil Procedure. In any consolidated proceeding the first arbitrator(s) selected in any proceeding shall conduct the consolidated proceeding unless disqualified due to conflict of interest. The arbitrator(s) shall be empowered to resolve any dispute regarding the terms of this arbitration clause, including questions about the arbitrability of any Dispute, but shall have no power to change or alter the terms of the Arbitration Program. The prevailing Party in any Dispute shall be entitled to recover its reasonable attorneys' fees in any arbitration, and the arbitrator(s) shall have the power to award such fees. The award of the arbitrator(s) shall be in writing and shall set forth the factual and legal basis for the award. Real Property Collateral. Notwithstanding the provisions of the preceding paragraphs concerning arbitration, no Dispute shall be submitted to arbitration without the consent of all Parties if, at the time of the proposed submission, such Dispute arises from or relates to an obligation which is secured directly or indirectly and in whole or in part by real property collateral. If all Parties do not consent to submission of such a Dispute to arbitration, the Dispute shall be determined as provided in the paragraph below entitled "Judicial Reference". Judicial Reference. At the request of any Party, a Dispute which is not submitted to arbitration as provided and limited in the preceding paragraphs concerning arbitration shall be determined by a reference in accordance with California Code of Civil Procedure Section 638 et seq. If such an election is made, the Parties shall designate to the court a referee or referees selected under the auspices of the AAA, unless otherwise agreed to in writing by all parties. With respect to a Dispute in which the amounts in controversy do not exceed $1,000,000, a single referee shall be chosen and shall resolve the Dispute. The referee shall have authority to render an award up to but not to exceed $1,000,000, including all damages of any kind whatsoever, including costs, fees and expenses. A Dispute involving amounts in controversy exceeding $1,000,000 shall be decided by a majority vote of a panel of three referees (a "Referee Panel"), provided, however, that all three referees on the Referee Panel must actively participate in all hearings and deliberations. Referees, including any Referee Panel, may grant any remedy of relief deemed just and equitable and within the scope of this Arbitration Program and may also grant such ancillary relief as is necessary to make effective any award. The presiding referee of the Referee Panel, or the referee if there is a single referee, shall be a retired judge. Judgment upon the award rendered by such referee(s) shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. Determinations and awards by a referee or Referee Panel shall be binding on all Parties and shall not be subject to further review or appeal except as allowed by applicable law. Preservation of Remedies. No provision of, nor the excise of any rights under, this Arbitration Program shall limit the right of any Party to: (a) foreclose against and/or sale of any real or personal property collateral or other security, or obtain a personal or deficiency award; (b) exercise self- help remedies (including repossession and setoff rights); or (c) obtain provisional or ancillary remedies such as injunctive relief, sequestration, attachment, replevin, garnishment, or the appointment of a receiver from a court having jurisdiction. Such rights can be exercised at any time except to the extent such action is contrary to a final award or decision in any arbitration proceeding. The institution and maintenance of an action as described above shall not constitute a waiver of the right of any Party to submit the Dispute to arbitration, nor render inapplicable the compulsory exercise of any self-help, auxiliary or other rights under this paragraph shall be a Dispute hereunder. Miscellaneous. All statutes of limitation applicable to any Dispute shall apply to any proceeding in accordance with this Arbitration Program. The Parties agree, to the maximum extent practicable, to take any action necessary to conclude an arbitration hereunder within 180 days of the filing of a Dispute with the Administrator. The arbitrator(s) shall be empowered to impose sanctions for any Party's failure to proceed within the times established herein. Arbitrations shall be conducted in the state of the applicable substantive law designated in the Documents. The provisions of this Arbitration Program shall survive a termination, amendment, or expiration hereof or of the Documents unless the Parties otherwise expressly agree in writing. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or as required by applicable law or regulation. If any provision of this Arbitration Program is declared invalid by any court, the remaining provisions shall not be affected thereby and shall remain fully enforceable. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other that the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: GTI MANUFACTURING, INC. By:/s/ Samuel G. Lindsay ---------------------------- Samuel G. Lindsay, President ================================================================================ [LOGO OF FIRST INTERSTATE BANK] CHANGE IN TERMS AGREEMENT ================================================================================ Borrower: GTI MANUFACTURING, INC. 1681 McGaw Avenue Irvine, CA 92714 Lender: First Interstate Bank of California Orange County Corporate Banking 5000 Birch Suite 10000 Newport Beach, CA 92660 ================================================================================ Principal Amount: $180,000.00 Date of Agreement: May 20, 1996 DESCRIPTION OF EXISTING INDEBTEDNESS. That certain promissory note executed by Borrower on January 11, 1996 in the original amount of $100,000.00, as it may have been amended or renewed from time to time (the "Note"). DESCRIPTION OF CHANGE IN TERMS. The maturity date of the existing indebtedness described above is hereby extended to July 8, 1996, when the entire unpaid principal balance, all accrued and unpaid interest, and all other amounts payable thereunder shall be due and payable. Effective May 20, 1996, the face amount of the existing indebtedness described above is hereby increased to $180,000.00. ARBITRATION. BINDING ARBITRATION. Upon the demand of any party ("Party/Parties"), to a Document (as defined below), whether made before the institution of any judicial proceeding or not more than 60 days after service of a complaint, third party complaint, cross-claim or counterclaim or any answer thereto or any amendment to any of the above, any Dispute (as defined below) shall be resolved by binding arbitration in accordance with the terms of this arbitration program ("Arbitration Program"). A "Dispute" shall include any action, dispute, claim or controversy of any kind, whether founded in contract, tort, statutory or common law, equity, or otherwise, now existing or hereafter arising between any of the Parties arising out of, pertaining to or in connection with any agreement, document or instrument to which this Arbitration Program is attached or in which it appears or is referenced or any related agreements, documents, or instruments ("Documents"). Any Party who fails to submit to binding arbitration following a lawful demand by another Party shall bear all costs and expenses, including reasonable attorneys' fees (including those incurred in any trial, bankruptcy proceeding or on appeal), incurred by the other Party in obtaining a stay of any pending judicial proceeding and compelling arbitration of any Dispute. The Parties agree that any agreement, document or instrument which includes, attaches to or incorporates this Arbitration Program represents a transaction involving commerce as that term is used in the Federal Arbitration Act, Title 9 United States Code ("FAA"). THE PARTIES UNDERSTAND THAT BY THIS AGREEMENT THEY HAVE DECIDED THAT THEIR DISPUTES SHALL BE RESOLVED BY BINDING ARBITRATION RATHER THAN IN COURT, AND ONCE DECIDED BY ARBITRATION NO DISPUTE CAN LATER BE BROUGHT, FILED OR PURSUED IN COURT. GOVERNING RULES. Arbitrations conducted pursuant to this Arbitration Program shall be administered by the American Arbitration Association ("AAA"), or other mutually agreeable administrator ("Administrator") in accordance with the terms of this Arbitration Program and the Commercial Arbitration Rules of the AAA. Proceedings hereunder shall be governed by the provisions of the FAA. The arbitrator(s) shall resolve all Disputes in accordance with the applicable substantive law designated in the Documents. Judgment upon any award rendered hereunder may be entered in any court having jurisdiction; provided, however, that nothing herein shall be construed to be a waiver by any Party that is a bank of the protections afforded pursuant to 12 U.S.C. 91 or any similar applicable state law. ARBITRATOR POWERS AND QUALIFICATIONS; AWARDS. The Parties agree to select a neutral qualified arbitrator or a panel of three qualified arbitrators to resolve any Dispute hereunder. "Qualified" means a retired judge or practicing attorney, with not less than 10 years practice in commercial law, licensed to practice in the state of the applicable substantive law designated in the Documents. A Dispute in which the claims or amounts in controversy do not exceed $1,000,000.00, shall be decided by a single arbitrator. A single arbitrator shall have authority to render an award up to but not to exceed $1,000,000.00 including all damages of any kind whatsoever, costs, fees, attorneys' fees and expenses. Submission to a single arbitrator shall be a waiver of all Parties' claims to recover more than $1,000,000.00. A Dispute involving claims or amounts in controversy exceeding $1,000,000.00 shall be decided by a majority vote of a panel of three qualified arbitrators. All three arbitrators on the arbitration panel must actively participate in all hearings and deliberations. The arbitrator(s) shall be empowered to, at the written request of any Party in any Dispute, (a) to consolidate in a single proceeding any multiple party claims that are substantially identical or based upon the same underlying transaction; (b) to consolidate any claims and Disputes between other Parties which arise out of or relate to the subject matter hereof, including all claims by or against borrowers, guarantors, sureties and/or owners of collateral; and (c) to administer multiple arbitration claims as class actions in accordance with Rule 23 of the Federal Rules of Civil Procedure. In any consolidated proceeding the first arbitrator(s) selected in any proceeding shall conduct the consolidated proceeding unless disqualified due to conflict of interest. The arbitrator(s) shall be empowered to resolve any dispute regarding the terms of this arbitration clause, including questions about the arbitrability of any Dispute, but shall have no power to change or alter the terms of the Arbitration Program. The prevailing Party in any Dispute shall be entitled to recover its reasonable attorneys' fees in any arbitration, and the arbitrator(s) shall have the power to award such fees. The award of the arbitrator(s) shall be in writing and shall set forth the factual and legal basis for the award. REAL PROPERTY COLLATERAL. Notwithstanding the provisions of the preceding paragraphs concerning arbitration, no Dispute shall be submitted to arbitration without the consent of all Parties if, at the time of the proposed submission, such Dispute arises from or relates to an obligation which is secured directly or indirectly and in whole or in part by real property collateral. If all Parties do not consent to submission of such a Dispute to arbitration, the Dispute shall be determined as provided in the paragraph below entitled "Judicial Reference". JUDICIAL REFERENCE. At the request of any Party, a Dispute which is not submitted to arbitration as provided and limited in the preceding paragraphs concerning arbitration shall be determined by a reference in accordance with California Code of Civil Procedure Section 638 et seq. If such an election is made, the Parties shall designate to the court a referee or referees selected under the auspices of the AAA, unless otherwise agreed to in writing by all parties. With respect to a Dispute in which the amounts in controversy do not exceed $1,000,000, a single referee shall be chosen and shall resolve the Dispute. The referee shall have authority to render an award up to but not to exceed $1,000,000, including all damages of any kind whatsoever, including costs, fees and expenses. A Dispute involving amounts in controversy exceeding $1,000,000 shall be decided by a majority vote of a panel of three referees (a "Referee Panel"), PROVIDED, HOWEVER, that all three referees on the Referee Panel must actively participate in all hearings and deliberations. Referees, including any Referee Panel, may grant any remedy of relief deemed just and equitable and within the scope of this Arbitration Program and may also grant such ancillary relief as is necessary to make effective any award. The presiding referee of the Referee Panel, or the referee if there is a single referee, shall be a retired judge. Judgment upon the award rendered by such referee(s) shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. Determinations and awards by a referee or Referee Panel shall be binding on all Parties and shall not be subject to further 05-20-1996 CHANGE IN TERMS AGREEMENT PAGE 2 (CONTINUED) ================================================================================ review or appeal except as allowed by applicable law. PRESERVATION OF REMEDIES. No provision of, nor the excise of any rights under, this Arbitration Program shall limit the right of any Party to: (a) foreclose against and/or sale of any real or personal property collateral or other security, or obtain a personal or deficiency award; (b) exercise self-help remedies (including repossession and setoff rights); or (c) obtain provisional or ancillary remedies such as injunctive relief, sequestration, attachment, replevin, garnishment, or the appointment of a receiver from a court having jurisdiction. Such rights can be exercised at any time except to the extent such action is contrary to a final award or decision in any arbitration proceeding. The institution and maintenance of an action as described above shall not constitute a waiver of the right of any Party to submit the Dispute to arbitration, nor render inapplicable the compulsory exercise of any self-help, auxiliary or other rights under this paragraph shall be a Dispute hereunder. MISCELLANEOUS. All statutes of limitation applicable to any Dispute shall apply to any proceeding in accordance with this Arbitration Program. The Parties agree, to the maximum extent practicable, to take any action necessary to conclude an arbitration hereunder within 180 days of the filing of a Dispute with the Administrator. The arbitrator(s) shall be empowered to impose sanctions for any Party's failure to proceed within the times established herein. Arbitrations shall be conducted in the state of the applicable substantive law designated in the Documents. The provisions of this Arbitration Program shall survive a termination, amendment, or expiration hereof or of the Documents unless the Parties otherwise expressly agree in writing. Each Party agrees to keep all Disputes and arbitration proceedings strictly confidential, except for disclosures of information required in the ordinary course of business of the Parties or as required by applicable law or regulation. If any provision of this Arbitration Program is declared invalid by any court, the remaining provisions shall not be affected thereby and shall remain fully enforceable. CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender's right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non- signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions. PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT. BORROWER: GTI MANUFACTURING, INC. BY: /s/ Samuel G. Lindsay ---------------------------- Samuel G. Lindsay, President ================================================================================ [LETTERHEAD OF WELLS FARGO BANK] July 17, 1996 GTI Manufacturing, Inc. 1681 McGaw Ave. Irvine, CA 92714 Dear Sir: This letter is to confirm that Wells Fargo Bank, National Association ("Bank") has agreed to extend the maturity date of that certain credit accommodation granted by Bank to GTI Manufacturing, Inc. ("Borrower") in the original principal amount of One Hundred Thousand Dollars ($100,000.00), as evidenced by that certain promissory note dated as of January 11, 1996, executed by Borrower and payable to the order of Bank (the "Note"), a copy of which is attached hereto as Exhibit A, and as modified to increase the maximum principal amount available to One Hundred Eighty Thousand Dollars (S180,000.00), as evidenced by that certain change in terms agreement dated May 20, 1996, ("Change in Terms Agreement") a copy of which is attached as Exhibit B. The maturity date of said credit accommodation is hereby extended until December 31, 1996. The Note shall be deemed modified as of the date this letter is acknowledged by Borrower to reflect said new maturity date. All other terms and conditions of the Note remain in full force and effect, without waiver or modification. Borrower acknowledges that Bank has not committed to make any renewal or further extension of the maturity date of the above-described credit accommodation beyond the new maturity date specified herein, and that any such renewal or further extension remains in the sole discretion of Bank. This letter constitutes the entire agreement between Bank and Borrower with respect to the maturity date extension for the above-described credit accommodation, and supersedes all prior negotiations, discussions and correspondence concerning said extension. GTI Manufacturing, Inc. July 17, 1996 Page 2 Please acknowledge your acceptance of the terms and conditions contained herein by dating and signing one copy below and returning it to my attention at the above address on or before August 2, 1996. Very truly yours, WELLS FARGO BANK, NATIONAL ASSOCIATION By: /s/ Elliot Ichinose ------------------------------------ Elliot Ichinose Vice President Acknowledged and accepted as of 7/29/96: ------- GTI MANUFACTURING, INC. By: /s/ Samuel G. Lindsay -------------------------- Samuel G. Lindsay President EX-4.4 8 REVOLVING LINE OF CREDIT NOTE DATED 09-23-96 EXHIBIT 4.4 WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE - - -------------------------------------------------------------------------------- $400,000.00 Irvine, California September 23, 1996 FOR VALUE RECEIVED, the undersigned GRIP TECHNOLOGIES, INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at ORANGE COAST RCBO, 2030 MAIN STREET SUITE 900, IRVINE, CA 92714, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $400,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement as set forth herein. INTEREST: (a) Interest. The outstanding principal balance of this Note shall bear -------- interest (computed on the basis of a 360-day year, actual days elapsed) at a rate per annum 2.50000% above the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. (b) Payment of Interest. Interest accrued on this Note shall be payable on ------------------- the 15TH day of each MONTH, commencing OCTOBER 15, 1996. (c) Default Interest. From and after the maturity date of this Note, or such ---------------- earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. (d) Collection of Payments. Borrower authorizes Bank to collect all ---------------------- interest due hereunder by charging Borrower's demand deposit account number 4159-318914 with Bank, or any other demand deposit account maintained by any Borrower with Bank, for the full amount thereof. Should there be insufficient funds in any such demand deposit account to pay all such sums when due, the full amount of such deficiency shall be immediately due and payable by Borrower. BORROWING AND REPAYMENT: (a) Borrowing and Repayment. Borrower may from time to time during the ----------------------- term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of any document executed in connection with or governing this Note; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. The outstanding principal balance of this Note shall be due and payable in full on SEPTEMBER 15, 1997. (b) Advances. Advances hereunder, to the total amount of the principal sum -------- available hereunder, may be made by the holder at the oral or written request of (i) SAMUEL G. LINDSAY, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. (c) Application of Payments. Each payment made on this Note shall be ----------------------- credited first, to any interest then due and second, to the outstanding principal balance hereof. EVENTS OF DEFAULT: The occurrence of any of the followinq shall constitute an "Event of Default" under this Note: (a) The failure to pay any principal, interest, fees or other charges when due hereunder or under any contract, instrument or document executed in connection with this Note. (b) The filing of a petition by or against any Borrower, any guarantor of this Note or any general partner or joint venturer in any Borrower which is a partnership or a joint venture (with each such guarantor, general partner and/or joint venturer referred to herein as a "Third Party Obligor") under any provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time, or under any similar or other law relating to bankruptcy, insolvency, reorganization or other relief for debtors; the appointment of a receiver, Revolving Line of Credit Note (08/96), Page 1 trustee, custodian or liquidator of or for any part of the assets or property of any Borrower or Third Party Obligor; any Borrower or Third Party Obligor becomes insolvent, makes a general assignment for the benefit of creditors or is generally not paying its debts as they become due; or any attachment or like levy on any property of any Borrower or Third Party Obligor. (c) The death or incapacity of any individual Borrower or Third Party Obligor, or the dissolution or liquidation of any Borrower or Third Party Obligor which is a corporation, partnership, joint venture or other type of entity. (d) Any default in the payment or performance of any obligation, or any defined event of default, under any provisions of any contract, instrument or document pursuant to which any Borrower or Third Party Obligor has incurred any obligation for borrowed money, any purchase obligation, or any other liability of any kind to any person or entity, including the holder. (e) Any financial statement provided by any Borrower or Third Party Obllgor to Bank proves to be incorrect, false or misleading in any material respect. (f) Any sale or transfer of all or a substantial or material part of the assets of any Borrower or Third Party Obligor other than in the ordinary course of its business. (g) Any violation or breach of any provision of, or any defined event of default under, any addendum to this Note or any loan agreement, guaranty, security agreement, deed of trust, mortgage or other document executed in connection with or securing this Note. MISCELLANEOUS: (a) Remedies. Upon the occurrence of any Event of Default, the holder of -------- this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, notice of nonperformance, notice of protest, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), expended or incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. (b) Obligations Joint and Several. Should more than one person or entity ----------------------------- sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. (c) Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the state of California. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. GRIP TECHNOLOGIES, INC. By: /s/ Samuel G. Lindsay -------------------------- SAMUEL G. LINDSAY PRESIDENT Revolving Line of Credit Note (08/96), Page 2 ADDENDUM TO PROMISSORY NOTE THIS ADDENDUM is attached to and made a part of that certain promissory note executed by GRIP TECHNOLOGIES, INC. ("Borrower") and payable to WELLS FARGO BANK, NATIONAL ASSOCIATION, or order, dated as of September 23, 1996, in the principal amount of Four Hundred Thousand Dollars ($400,000.00) (the "Note"). The following arbitration provision is hereby incorporated into the Note: ARBITRATION: (A) ARBITRATION. Upon the demand of any party, any Dispute shall be ----------- resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Note. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, this Note and each other document, contract and instrument required hereby or now or hereafter delivered to Bank in connection herewith (collectively, the "Documents"), or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Governing Rules. Arbitration proceedings shall be administered by --------------- the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any aware rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. (S)91 or any similar applicable state law. (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No ---------------------------------------------------------- provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be -------------------------------------------- active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) Judicial Review. Notwithstanding anything herein to the contrary, in --------------- any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be -2- required to make specific, written findings of fact and conclusions of law. In such arbitrations (A) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (B) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (C) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (1) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (2) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Real Property Collateral; Judicial Reference. Notwithstanding anything -------------------------------------------- herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) Miscellaneous. To the maximum extent practicable, the AAA, the ------------- arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in -3- the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Documents or the subject matter of the Dispute shall control. This Note may be amended or modified only in writing signed by Bank and Borrower. If any provision of this Note shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Note. This arbitration provision shall survive termination, amendment or expiration of any of the Documents or any relationship between the parties. IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the Note . GRIP TECHNOLOGIES, INC. By: /s/ Samuel G. Lindsay ------------------------- Samuel G. Lindsay President EX-4.5 9 CONVERTIBLE NOTES / Z FUND & 3RD CENTURY EXHIBIT 4.5 CONVERTIBLE NOTE $ Irvine, California FOR VALUE RECEIVED, on or before May 31, 1997, the undersigned, Grip Technologies, Inc., a California corporation ("Borrower"), promises to pay to the order of , a , or its successors or assigns ("Holder"), at the principal sum of ------------------------------------------------ dollars ($ ) together with simple interest at eight percent (8%) per annum. The entire outstanding principal and interest amount shall be due and payable May 31, 1997. Borrower may prepay any or all amounts due under this Note at any time without penalty; provided, however, that Borrower, as a condition to prepayment of some or all of balance hereof, shall deliver written notice of its intention to prepay at least 14 calendar days prior to the date of such prepayment ("Prepayment Date") and cooperate with Holder in Holder's exercise of Holder's convertibility rights, as set forth below, if Holder elects to exercise such rights. Said payments shall first be applied to accrued interest and then to principal. All payments shall be made in lawful money of the United States. This Note is executed pursuant to a Subscription Agreement dated , -------- 1996, executed by Borrower and Holder. The principal and accrued interest on this Note are convertible, at the option and in the discretion of the Holder, wholly or in part for shares of Borrower's common stock at a conversion price of $1.75 per share until May 31, 1997 ("Expiration Date"). To exercise Holder's conversion rights, Holder shall deliver written notice to Borrower no later than 10:00 a.m. Pacific time on the Expiration Date or the Prepayment Date, whichever is earlier, indicating the amount of principal and accrued interest to be converted to shares of common stock. Such shares shall be "restricted securities," as defined in Rule 144 under the Securities Act of 1933, and shall bear a legend indicating their restricted nature. However, Holder shall have "piggyback" registration rights with respect to said shares in any registration statement filed by Holder on or prior to May 31, 1997, unless such registration statement is not suitable for the sale of such shares, for example, and not by limitation, the registration of transactions in connection with Borrower's benefit plans. Borrower shall give Holder written notice of the opportunity to exercise such registration rights at least ten (10) days prior to the effective date of such registration statement. The undersigned and each endorser, surety, and guarantor, if any, to the extent permitted by law, hereby jointly and severally waive presentment for payment, demand, notice of nonpayment, notice of dishonor, protest of any dishonor, notice of protest, and protest of this Note and all other notices in connection with the delivery, assignment, acceptance, performance, default, or enforcement of the payment of this Note; and they agree that the liability of the undersigned shall not in any manner be affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by the Holder hereof; and they agree that additional makers, guarantors, sureties, or endorsers may become parties hereto without affecting the liability of any of them hereunder. The Holder hereof shall not, by any act of omission or commission, be deemed to waive any of the Holder's rights, remedies, or powers hereunder or otherwise unless such waiver is in writing and signed by the Holder hereof, and then only to the extent specifically set forth therein. A waiver of one event of default shall not be construed as continuing or as a bar to or waiver of such right, remedy, or power on a subsequent event of default. If the Borrower fails to pay the full amount of unpaid principal and interest when due and payable, Borrower shall pay default interest at the rate of ten percent (10%) plus all expenses of collection with or without suit, including reasonable attorney's fees as may be permitted by law. The Holder may pursue any remedies singly, successively, or together against the undersigned, such remedies being cumulative and concurrent. The validity and interpretation of this Note shall be governed by the laws of the State of California. Executed this day of May, 1996. ------ GRIP TECHNOLOGIES, INC. By: ---------------------------- Sam G. Lindsay, President ATTEST: By: --------------------------------- James E. McCormick III, Secretary 2 EX-10.1 10 1994 STOCK OPTION PLAN EXHIBIT 10.1 GRIP TECHNOLOGIES, INC. 1994 STOCK OPTION PLAN 1. Definitions. As used herein, the following terms shall have the ----------- meanings hereinafter set forth unless the context clearly indicates to the contrary: 1.1 Agreement. The agreement between the Company and the Optionee --------- under which the Optionee may purchase Stock pursuant to the Plan. 1.2 Board. The Board of Directors of the Company. ----- 1.3 Committee. A committee of two (2) or more members of the --------- Board appointed by the Board to administer the Plan. 1.4 Company. Grip Technologies, Inc., a California corporation. ------- 1.5 Code. The United States Internal Revenue Code of 1986, as ---- amended. 1.6 Eligible Person. With respect to the granting of ISOs, --------------- any person who is a key. employee of the Company, a Parent or a Subsidiary, including executive officers thereof, as determined by the Board of the Committee, as the case may be. With respect to the granting of Non-ISOs, any person defined by the preceding sentence or otherwise any person who is a Board member, a member of the Board of Directors of a Parent or a Subsidiary or a key consultant or contractor to the Company, a Parent or a Subsidiary. As used herein, "full-time" shall mean employment on a regular and continuing basis. 1.7 Fair Market Value. The per share fair market value of the ----------------- Stock of the Company with respect to which Options may be granted pursuant to the Plan, determined without regard to any restriction upon the Stock other than a restriction which, by its terms, will never lapse. For purposes of determining whether a restriction upon the Stock will never lapse, limitations imposed by applicable registration requirements of state or federal securities or similar laws imposed with respect to resales or other dispositions of securities shall be disregarded. If the Stock of the Company is publicly traded on a national securities exchange or in the over-the-counter market, such per share fair market value shall be equal to the per share composite closing price for such Stock on such national securities exchange or the average of the per share closing bid and asked prices for such Stock in the over-the-counter market, as the case may be, on the date an Option is granted under the Plan or, in the absence of any reported sales on such date, the first preceding date on which there were such sales. If the Stock of the Company is not publicly traded, such fair market value shall be determined by and in accordance with such valuation procedures and methods as are established from time to time by the Committee or the Board, as the case may be, in good faith and in accordance with the provisions of the Code and any regulations promulgated thereunder. 1.8 ISO. An option to purchase Stock of the Company pursuant to --- the provisions of the Plan, which option at the time of grant is defined by, and intended to qualify as an incentive stock option pursuant to, Section 422 of the Code. 1.9 Non-ISO. An option to purchase Stock of the Company pursuant ------- to the provisions of the Plan, which option by its terms at the time of grant provides that it shall not be treated as an ISO. 1.10 Option. An ISO or a Non-ISO granted pursuant to the ------ provisions of the Plan. 1.11 Optionee. The Eligible Person to whom an Option has been -------- granted pursuant to the provisions of the Plan. 1.12 Option Price. The per share exercise price of the Stock with ------------ respect to which an option has been granted under the Plan. 1.13 Parent. Any corporation (other than the Company) in an ------ unbroken chain of corporations ending with the Company if, at the time of the granting of an Option, each of the corporations other than the Company owns securities possessing fifty percent (50%) or more of the total combined voting power of all classes of securities in one of the other corporations in such chain. 1.14 Plan. The Company's 1994 Stock Option Plan, the terms of ---- which are set forth herein. 1.15 Stock. The common stock, without par value, of the Company. ----- 1.16 Subsidiary. Any corporation (other than the Company) in an ---------- unbroken chain of corporations beginning with the Company if, at the time of the granting of an Option, each of the corporations other than the last corporation in the unbroken chain owns securities possessing fifty percent (50%) or more of the total combined voting power of all classes of securities in one of the other corporations in such chain. 2 2. Establishment and Purpose of Plan. --------------------------------- 2.1 Establishment of Plan. The Company hereby establishes the --------------------- Plan for the benefit of those Eligible Persons who are primarily responsible for the future growth, development and financial success of the Company. In order to maintain flexibility in the granting of Options, the Plan provides for Eligible Persons to receive ISOs, Non-ISOs or both. The grant of one type of Option shall not be construed to preclude or prohibit the grant of the other type of Option to the same Eligible Person or entitle such Eligible Person to the grant of the other type of Option by reason of the grant of one type of Option. 2.2 Purpose of Plan. The purpose of the Plan is to advance the --------------- interests of the Company and its shareholders by affording to Eligible Persons an opportunity to acquire or increase their proprietary interests in the Company by the grant to such Eligible Persons of Options to purchase Stock in the Company pursuant to the terms of the Plan. By encouraging such Eligible Persons to become owners of shares of Stock in the Company, the Company seeks to motivate, retain and attract those highly competent individuals upon whose judgment, initiative, leadership and continued efforts the success of the Company in large measure depends. 2.3 Effective Date of Plan. The effective date of the Plan shall ---------------------- be January 1, 1994; provided, however, that no Option shall be granted pursuant to the Plan until the Plan shall have been: (i) adopted (or corporate action taken) by the Board; and (ii) approved by shareholders holding a majority of all outstanding voting securities of the Company. Such shareholder approval shall be obtained within twelve (12) months before or after the date on which the Plan is so adopted by the Board. Such shareholder approval shall comply with all applicable provisions of the California state law prescribing the method and degree of shareholder approval required for the Plan. 2.4 Expiration of Plan. The Plan shall terminate ten (10) years ------------------ from its effective date as provided by Section 2.3 of the Plan, or such earlier date as the Board may determine pursuant to Section 7 of the Plan, and no Option shall be granted after such date. 2.5 Controlling Provisions. Except as otherwise provided in the ---------------------- Plan, each provision thereof shall apply to the grant, administration and exercise of all Options subject thereto, including ISOs and Non-ISOs. No such provisions shall be interpreted or applied in a manner inconsistent or otherwise at variance with the requirements of 3 Section 422 of the Code with respect to qualification of ISOs as incentive stock options, or the treatment of Non-ISOs not as incentive stock options, as the case may be. No inference to such qualification or treatment shall be drawn for any purpose under the Plan be reason of the grant of ISOs and Non-ISOs under the Plan. 3. Stock Subject to Plan. --------------------- 3.1 Limitations. Subject to adjustment pursuant to the provisions ----------- of Section 3.2 hereof, the aggregate number of shares of Stock of the Company which may be issued and sold under the Plan shall not exceed 600,000 shares. During the term of the Plan, the Company shall reserve and keep available or otherwise have authorized a sufficient number of shares to comply with the requirements of the Plan. 3.2 Adjustments. In the event that the outstanding shares of ----------- Stock of the Company are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation by reason of merger, consolidation, reorganization, recapitalization, reclassification, combination of shares, stock dividend, stock split or reverse stock split, the following adjustments shall be made: (a) Number and Kind of Shares. The aggregate number and kind of ------------------------- shares with respect to which Options may be granted hereunder shall be appropriately adjusted. (b) Outstanding Options. The rights of an Optionee holding ------------------- outstanding Options granted under the Plan both as to the number of shares and the Option Price shall be appropriately adjusted. (c) Nonsurvival of Company. Where dissolution or liquidation of ---------------------- the Company or any merger or combination in which the Company is not a surviving corporation is involved, each Option granted hereunder shall terminate as of the effective date of such liquidation, dissolution, merger or combination to the extent that such outstanding Options are not assumed by the surviving corporation; provided, however, subject to the further exception below, the Optionee shall have the right, for a period of thirty (30) days immediately prior to the consummation of such liquidation, dissolution merger or combination, to exercise his Option, in whole or in part, to the extent that such Option shall not have been previously exercised, without regard to any vesting provisions; provided further such Option is not assumed by, or replaced by equivalent options granted by, the surviving corporation in such liquidation, dissolution, merger or combination. 3.3 Effect of Exercise or Termination of Option. Shares of Stock ------------------------------------------- with respect to which an Option granted under the Plan shall have been exercised shall 4 not again be available for grant under the Plan. If Options granted under the Plan shall terminate for any reason without being wholly exercised, new Options may be granted under the Plan covering that number of shares of Stock with respect to which such termination relates. 4. Administration of the Plan. -------------------------- 4.1 Administration by Board or Committee. Subject to the provisions ------------------------------------ of the Plan, the Plan shall be administered by the Board. At any time during the existence of the Plan, the Board may appoint a Committee to administer the Plan, in which even the Plan shall be administered by the Committee until such time as the Committee is disbanded or its authority eliminated by the Board. 4.2 Powers and Duties. Subject to the provisions of the Plan, ----------------- the Board or Committee, as the case may be, shall have sole discretion and authority to determine the Eligible Persons to whom Options shall be granted, the number of shares of Stock to be covered by any such Option, the type of Option to be granted and the time or times at which any Option may be granted or exercised. The Board or Committee, as the case may be, shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the details and provisions of each Agreement executed pursuant to the Plan and to make all other determinations necessary or advisable in the administration of the Plan. 4.3 Quorum and Majority Rule. The majority of the then members ------------------------ of the Board or Committee, as the case may be, shall constitute a quorum and any action taken by a majority present at a meeting at which a quorum is present or any action taken without a meeting evidenced by a writing executed by all of the members of the Board or Committee, as the case may be, shall constitute the action of the Board or Committee. 4.4 Participation by Members of Board or Committee. Any member of ---------------------------------------------- the Board or Committee, as the case may be, shall not be disqualified from receiving an Option by virtue of the fact that he is a member of the Board or Committee; provided, however, that no grant of an Option to a member of the Board of Committee shall take place without the approval or consent of (i) a majority of the entire Board, a majority of which and a majority of whose members acting in the matter are disinterested persons, (ii) a majority of the Committee, all of the members of which are disinterested persons or (iii) a majority of the entire Board and a majority of the outstanding shares of the Company. For purposes of this Section 4.4, a "disinterested person" shall mean an administrator of the Plan who is not at the time he exercises discretion in administering the Plan an Eligible Person and has not at any time within one (1) year prior thereto been 5 an Eligible Person under the Plan or any other plan of the Company or any Parent or Subsidiary entitling the participants therein to acquire stock, stocks options or stock appreciation rights of the Company or any Parent or Subsidiary. 4.5 Liability of Board or Committee. No member of the Board ------------------------------- or Committee, as the case may be, shall be liable for any action, determination or interpretation under any provision of the Plan or otherwise if such action, determination or interpretation was done or made in good faith by such member of the Board of Committee. 5. Options Granted Under the Plan. ------------------------------ 5.1 Grant of Options. ISOs or Non-ISOs or both may be granted ---------------- to Eligible Persons under the Plan. No Option shall be granted under the Plan on a date more than ten (10) years from the earlier of the date the Plan is: (i) adopted by the Board; or (ii) approved by the shareholders of the Company as provided by Section 2.3 of the Plan. An Eligible Person may be granted one or more Options. Each Option granted under the Plan shall be evidenced by an Agreement dated as of the date such Option is granted by the Board of Committee, as the case may be. The Agreement shall contain such terms and conditions as shall be determined by the Board of Committee, as the case may be, consistent with the Plan. Each Option granted under the Plan shall be clearly identified by its terms as either an ISO or a Non-ISO. Each Agreement providing for ISOs or Non-ISOs shall be set forth in separate documents. Each ISO granted under the Plan shall designate, at the time of grant, that such Option shall be subject to, and treated as an incentive stock option pursuant to, Section 422 of the Code. Each Non-ISO granted under the Plan shall provide as of the time such Option is granted that it shall not be treated as an ISO. No Option shall be granted whose exercise shall affect, or be affected by, the exercise of any other Option, whether the granting of such Options shall occur concurrently or otherwise. As a further condition to the grant of an Option, but without limitation of any Optionee's rights as a shareholder, the Board or Committee, as the case may be, may require that the Agreement provide that the Company shall have an option to repurchase and redeem the Stock acquired by the Optionee as a result of the Optionee's exercise of the Option if the Optionee's employment with the Company or a Parent or Subsidiary is subsequently terminated for any reason or if the Optionee subsequently seeks to sell the Stock to another person. 5.2 Option Price. The Option Price shall be determined by the ------------ Board or committee, as the case may be; provided, however, that the per share Option Price of an ISO shall not be less than one hundred percent (100%) of the Fair Market Value of the Stock on the date the ISO is granted; and provided further, however, that if the Optionee owns securities possessing more than ten percent (10%) of the total combined 6 voting power of all classes of securities of the Company, a Parent or a Subsidiary, including indirect ownership of securities as determined by Section 424(d) of the Code, at the time an ISO is granted to him, the Option Price of such ISO shall not be less than one hundred ten percent (110%) of the Fair Market Value of the Stock on the date the ISO is granted to him. 5.3 Option Term. The term during which any Option granted under ----------- the Plan may be exercised shall be determined by the Board of Committee, as the case may be; provided, however, that in no instance shall the term during which any Option may exercised exceed ten (10) years from the date of grant of the Option; and provided further, however, that no ISO granted to an Optionee who then owns securities possessing more than ten percent (10%) of the total combined voting power of all classes of securities of the Company, a Parent of a Subsidiary, including indirect ownership of securities as determined by Section 424(d) of the Code, at the date the ISO is granted, may be exercisable after the expiration of five (5) years from the date such ISO is granted. 5.4 Option Exercise. An Option granted pursuant to the Plan --------------- may be exercised at any time or times prior to the termination of said Option, as provided by Section 5.8 of the Plan, by delivery by the Optionee of written notice to the Company specifying the number of shares of Stock to be purchased, accompanied by full payment for such shares of Stock. The Board or Committee, as the case may be, may provide the Optionee with a form of such written notice upon execution of the Agreement. Payment upon exercise shall be made by means of a cash payment, by delivery of shares of Stock then owned by the Optionee or by a combination of the foregoing. No Option shall be exercisable for a fraction of a shares of Stock. No such payment shall be made in full or in part with shares of Stock acquired by an Optionee through the prior exercise of an ISO where such shares shall not have been held by such Optionee within the requirements of Section 422(a)(1) of the Code. 5.5 Option Exercisability. The exercisability of any Option --------------------- granted under the Plan shall be determined by the Board or Committee, as the case may be. 5.6 Option Exercise Limitation Upon Qualification. The extent to --------------------------------------------- which any Option granted under the Plan shall be exercisable shall generally be determined by the Board of Committee, as the case may be. As a limitation upon the foregoing, and in accordance with Section 422(d) of the Code, to the extent the aggregate Fair Market Value of the Stock with respect to which: (i) ISOs granted under the Plan; and (ii) incentive stock options granted under all other plans of the Company, a Parent or a Subsidiary (determined without regard to Section 422(d) of the Code), are exercisable for the first time by any individual during any calendar year of all such plans 7 (inclusive of the Plan) shall exceed one hundred thousand dollars ($100,000), then all such options (inclusive of the ISOs granted under the Plan) shall be treated as options for Stock which are not ISOs. The limitations of the preceding sentence shall be applied by taking all such options (inclusive of the ISOs granted under the Plan) in order in which such options shall have been granted. The aggregate Fair Market Value of the Stock covered by any such option (inclusive of Stock covered by ISOs granted under the Plan) shall be determined in accordance with Section 1.7 of the Plan, or under a similar method with respect to any such option, as the product of the per share Fair Market Value of the Stock covered thereby times the number of shares of Stock covered thereby, determined as of the time such option is granted. 5.7 Nontransferability of ISOs. No ISO granted pursuant to the -------------------------- Plan may be transferred to an Optionee otherwise than by will or by the laws of descent and distribution. During the lifetime of an Optionee, an ISO shall be exercisable only by him. 5.8 Termination of Option. --------------------- (a) Expiration or Termination of Employment. Except as --------------------------------------- specifically in Sections 58(b) and 58(c) of the Plan, each Option granted under the Plan, and all rights thereunder, shall terminate as of the close of business on the earlier of the date of the expiration of the term of the Option stated in the Agreement or the expiration of no more than ninety (90) days after the date that the Optionee's employment with the Company, a Parent or a Subsidiary terminates for any reason. For this purpose, the employment relationship of such Optionee shall be deemed as continuing while the Optionee is on military, sick leave or other bona fide leave of absence, such as temporary employment by the government, if the period of such leave does not exceed three (3) months, or, if longer, so long as the right of such Optionee to re-employment by the Company, a Parent or a Subsidiary is guaranteed either by law or by an employment contract. Such Option may be so exercised by the Optionee only to the extent that it was exercisable but not exercised as of the date his termination of employment with the Company, a Parent or a Subsidiary, but in no event may the Option be exercised at any time after the expiration of the term of the Option stated in the Agreement. (b) Death of an Optionee. In the event that an Optionee dies, his -------------------- Option may be exercised by the Optionee's executors, administrators, heirs or legatees within no more than one (1) year after the Optionee's death provided such death shall have occurred during the Optionee's employment with the Company, a Parent or a Subsidiary or within no more than ninety (90) days following the termination of Optionee's employment with the Company, a Parent or a Subsidiary. Such Option may 8 be so exercised by the Optionee's executors, administrators, heirs and legatees only to the extent that it was exercisable but not exercised as of the date of the death of the Optionee or the date of his termination of employment, whichever occurred first, but in no event may the Option be exercised at any time after the expiration of the term of the Option stated in the Agreement. Such exercise shall be made pursuant to the terms of the Option,and any change in the terms of an ISO shall be subject to the rules of Section 424(h) of the Code. If so exercised, any such ISO shall be treated as an incentive stock option under Section 422 of the Code, notwithstanding whether such executor, administrator, heir, or legatee is then employed by the Company, provided the Optionee shall have met the foregoing employment requirement at the Optionee's death. (c) Permanent and Total Disability. In the event that the ------------------------------ employment of an Optionee shall have terminated by reason of such Optionee becoming permanently and totally disabled within the meaning of Section 22(e)(3) of the Code, the Optionee shall have the right, during the period ending no more than one hundred eighty (180) days after the date of such termination of employment, to exercise his Option. Such Option may be so exercised by the Optionee or by the conservator of the Optionee's estate only to the extent that it was exercisable but not exercised as of the date he became permanently and totally disabled or the date of his termination of employment, whichever occurred first, and in no event shall such Option be exercised at any time after the expiration of the term of the Option stated in the Agreement. 5.9 Rights as Shareholder. An Optionee or permitted transferee --------------------- of an Option shall have no rights as a shareholder of the Company with respect to any shares of Stock covered thereby prior to his purchase of such shares of Stock by exercise of such Option as provided in the Plan. Such Optionee or permitted transferee shall thereafter be deemed to have substantially all of the rights of ownership to the shares of Stock in respect of which such exercise shall be made. 5.10 Right of Company to Terminate Employment. Nothing ---------------------------------------- contained in the Plan (including the provisions of the succeeding sentence) or any Option granted under the Plan shall confer on an Optionee any right to be continued in the employ of the Company, a Parent or a Subsidiary or interfere in any way with the right of the Company, a Parent or a Subsidiary to terminate an Optionee's employment with it at any time for any reason. If requested by the Board or the Committee, as the case may be, an Optionee shall agree in writing as a condition of the granting of an Option to remain in the employ of the Company following the date of grant of an Option for a period specified by the Board or Committee. 9 5.11 Delivery of Financial Statements to Optionee. Within three -------------------------------------------- (3) months after the end of each fiscal year of the Company, the Company shall deliver to each Optionee a complete set of the Company's financial statements as of the end of such fiscal year. Said financial statements shall include a balance sheet and the related statements of income and cash flow for the fiscal year in question. 6. Delivery of Stock Certificates. The Company shall not be required to ------------------------------ issue or deliver any certificate for shares of Stock purchased upon the exercise of all or any portion of any Option granted under the Plan prior to the fulfillment of all of the following conditions: 6.1 Listing of Shares. If applicable, the admission of such shares ----------------- of Stock to listing on all stock exchanges on which the Stock of the Company is then listed. 6.2 Registration and/or Qualification of Shares. If applicable, ------------------------------------------- the completion of any registration or other qualification of such shares of Stock under any federal or state securities laws or under the regulations promulgated by the Securities and Exchange Commission or any other federal or state governmental regulatory body, which the Board or Committee, as the case may be, shall deem necessary or advisable. 6.3 Approval of Clearance. The obtaining of any approval or --------------------- clearance from any federal or state governmental agency which the Board or Committee, as the case may be, shall determine to be necessary or advisable. 6.4 Reasonable Lapse of Time. The lapse of such reasonable period ------------------------ of time following the exercise of the Option as the Board or Committee, as the case may be, may establish from time to time for reasons of administrative convenience. The issuance of such certificate shall be evidenced on the books of the Company with such reasonable period of time. 7. Termination, Amendment and Modification of Plan. The Board may, upon ----------------------------------------------- recommendation of the Committee, if any, appointed by it to administer the Plan, terminate the Plan at any time or amend or modify the Plan at any time or from time to time; provided, however, that no such action of the Board shall do any of the following: 7.1 Increase Number of Shares. Except as contemplated in Section ------------------------- 3.2 of the Plan, increase the total number of shares of Stock subject to the Plan without the approval of shareholders then holding a majority of the outstanding voting securities of the Company. 10 7.2 Change of Class of Eligible Persons. Change the class of ----------------------------------- Eligible Persons to whom Options may be granted under the Plan without the approval of shareholders then holding a majority of the outstanding voting securities of the Company. 7.3 Change Terms of Outstanding Options. Change the Option Price ----------------------------------- or otherwise alter or impair any Option previously granted to an Optionee under the Plan without the consent of the Optionee. 8. Miscellaneous. ------------- 8.1 Plan Binding on the Successors. The Plan shall be binding ------------------------------ upon the successors and assigns of the Company. 8.2 Section Headings. The headings of the sections of the Plan ---------------- have been inserted for convenience only and shall not be used in construing the Plan. 8.3 Gender and Number. Whenever used herein, nouns in the ----------------- singular shall include the plural and a masculine pronoun shall include the feminine gender. 8.4 Other Compensation Plans. The adoption of the Plan shall not ------------------------ affect any other stock option plan, incentive plan or any other compensation plan in effect for the employees of the Company, not shall the Plan preclude the Company from establishing any other form of stock option plan, incentive plan or any other compensation plan for employees of the Company. 8.5 Tax Information Statements. Upon the exercise of any ISO -------------------------- during any calendar year in which a transfer of Stock to an Optionee shall occur, the Company shall furnish to the Optionee an information statement pursuant to Section 6039 of the Code, and the regulations promulgated thereunder, on or before January 31 of the following calendar. [END OF PLAN] 11 EX-10.2 11 EMPLOYMENT AGREEMENT / PAUL HERBER EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of September 22, 1995, by and between GRIP TECHNOLOGIES, INC., a California corporation ("Company"), and PAUL J. HERBER, an individual ("Employee"). RECITALS -------- A. The Company desires to employ Employee upon the terms and subject to the conditions contained in this Agreement. B. Employee desires to be hired and employed by the Company upon the terms and subject to the conditions contained in this Agreement. TERMS AND CONDITIONS -------------------- NOW, THEREFORE, the parties hereto agree as follows: 1. Employment. The Company hereby employs Employee, and Employee hereby ---------- agrees to be employed by the Company, as the Vice President-OEM Sales on the terms and subject to the conditions set forth herein. Employee shall perform such duties for the Company as may be assigned to him from time to time by the executive officers or Board of Directors of the Company. Employee agrees to devote all of his working time and effort to the performance of his duties hereunder during normal business hours, except for that portion of Employee's time and effort that may be reasonably required by his contracts with Star Grip and La Jolla Clubs, but in no event more than five (5) hours per work week and in the event of any conflict regarding time demands, the Company shall have first priority. Employee further agrees to perform his duties hereunder in an efficient, faithful, loyal and business like manner and to conduct himself at all times during the term of this Agreement in a manner which does not damage or otherwise adversely reflect upon the business reputation or integrity of the Company. 2. Term and Termination. -------------------- 2.1 Term. The term of this Agreement shall commence as of the date ---- hereof and, subject to the earlier termination as provided in Section 2.2 hereof, shall expire at the close of business on September 22, 2000 ("Expiration Date"). 2.2 Termination. Notwithstanding the Expiration Date set forth in ----------- Section 2.1 hereof, the employment of Employee shall terminated upon the occurrence of any of the following events, to be effective as of the date hereinafter specified, and term of this Agreement shall thereupon terminate, subject to the executory duties and obligations contained herein but in no event shall the Company be obligated to pay or provide Employee any compensation or other benefits beyond the date of termination: (a) The Company may, at any time, immediately terminate Employee for "just cause". For purposes hereof, "just cause" includes, but is not limited to, misconduct, dishonesty, extended absences, violation of Company policies and procedures, violation of any laws regarding or related to sexual harassment or discrimination in connection with his work or another employee of the Company, improper disclosure of Confidential Information (as that term is defined in Section 8 below), or any material and continuing failure of Employee to perform his duties under this Agreement (except as a result of death or Total Disability). Any termination for "just cause" shall become effective immediately upon written notice from the Company to Employee describing, in reasonable detail, the events or circumstances allegedly constituting "just cause". (b) The death of Employee shall immediately terminate his employment with the Company and this Agreement. (c) The "Total Disability" of Employee shall terminate his employment with the Company. For purposes of this Agreement, a condition of "Total Disability" shall exist if Employee is unable or unwilling to perform his duties hereunder, or it is determined by a medical doctor retained by the Company that he would be unable to perform his duties hereunder, for a period of at least three (3) consecutive months by reason of any medically determinable physical or mental impairment. The termination shall be effective as of the date it is first determined that Employee has suffered a total disability. 2.3 Severance Pay. Notwithstanding the term of this Agreement ------------- described in Section 2.1 above, in the event Employee's employment is terminated by the Company prior to the Expiration Date for any reason other than for those reasons described in Section 2.2 above, then the Company shall pay Employee severance pay of $21,250 if the termination is within the first three (3) years of the term, $28,333 if the termination is during the fourth year of the term, and $35,417 if the termination is during the fifth year of the term, and all rights of Employee under this Agreement, including any rights to additional compensation or benefit, shall immediately terminate. 2.4 Terminable At Will Employment at Expiration of Term. The parties --------------------------------------------------- hereto agree that if this Agreement is not extended or superceded, in either case by another written instrument, and Employee continues his employment with the Company beyond the Expiration Date, then, from and after the Expiration Date the employment of 2 Employee shall be terminable at will at any time, with or without reason or cause, irrespective of Employee's longevity, upon the giving of sixty (60) days prior written notice to the other party. 2.5 No Additional Rights Conferred. Except as expressly provided in ------------------------------ this Agreement, nothing contained herein or in any other agreement concurrently or subsequently entered into between the Company and Employee, such as Stock Option Agreement(s), shall confer upon Employee any right with respect to the continuation of his employment by the Company or interfere in any way with the right of the Company to terminate his employment at any time or to increase or decrease the compensation or other perquisites payable to Employee. The inclusion of this Section 2.5 in this Agreement is not a promise, inducement, covenant or representation by the Company that it has agreed or will agree at any time in the future to enter into any other or additional agreements with Employee with respect to any matter. 3. Compensation. ------------ 3.1 Base Salary. As compensation for his employment hereunder, ----------- Employee shall receive from the Company a base salary of $85,000 per annum. The base salary shall be paid semi-monthly in accordance with the Company's usual payroll practices. The amount actually paid to Employee shall be the base salary less all applicable federal and state withholding taxes, F.I.C.A., unemployment and disability premiums or payment and all other applicable payroll taxes. 3.2 Discretionary Bonuses. Employee will be eligible to receive --------------------- discretionary bonuses, if and when determined and declared by the Company. The inclusion of this provision in this Agreement shall not be deemed to be, nor be construed as being, a commitment by the Company to pay Employee any bonus, or a bonus of any specified amount, nor does it preclude the Company from paying bonuses to some executive, management or other employees and not to others or to Employee, as the Company, in its sole and absolute discretion, determines. 4. Additional Employment Benefits. ------------------------------ 4.1 Major Medical Health Program. Employee shall be entitled to ---------------------------- participate in any major medical-health program or other group medical insurance program in which the Company is enrolled at any time, or from time to time, subject to the terms of the program or plan and any applicable waiting probationary period and any pre-existing conditions. 3 4.2 Other Employment Benefits. Employee shall be entitled to such ------------------------- other and further employment benefits and prerequisites as may be made available from time to time by the Company to other employees of the Company with similar jobs and responsibilities. 5. Reimbursement for Expenses. The Company shall reimburse Employee for -------------------------- his ordinary and necessary business expenses incurred with respect to the business of the Company in accordance with policies and procedures adopted by the Company from time to time. Under no circumstance will Employee be entitled to reimbursement of any expense unless and until he submits complete and accurate substantiation of that expense, together with a detailed explanation of the nature and purpose of the expense and the person or persons involved. 6. Employees Manual. To the extent the Company has or at any time ---------------- hereafter adopts an Employees Manual, or modifies its Employees Manual from time to time, the provisions of the Employees Manual, as so modified, are incorporated herein and made a part of this Agreement and Employee hereby agrees to be bound by and to comply with all of the terms, conditions, rules and regulations set forth therein. 7. Tax Compliance Matters. The parties hereto agree that it shall be the ---------------------- responsibility of Employee to keep all appropriate records with respect to any business related expenses incurred by Employee in connection with the performance of his duties hereunder including the automobile allowance. It shall be further understood and agreed that the Company, to the extent required by applicable law, will report the payment or providing of any benefits or perquisites to Employee in accordance with applicable laws and regulations and, if required, will make appropriate payroll deductions with respect thereto. It will be Employee's sole responsibility to report such benefits and perquisites, to the extent applicable, as income. To the extent that Employee has not accounted to the Company for any benefits or perquisites to enable the Company to determine whether or not reporting or payroll deductions are appropriate, and the Company later determines that reporting or deduction was appropriate, then Employee agrees to indemnify and hold the Company harmless from and with respect to any liability which the Company incurs in connection therewith, including, without limitation, the tax-affected amount of the deduction and all penalties and interest with respect thereto. 8. Covenant of Nondisclosure and Non-use. Employee understands and ------------------------------------- acknowledges that he will be advised by the Company from time to time of certain matters, and will be provided access to certain documents and information, which are trade secrets or which the Company deems to be proprietary and confidential ("Confidential Information"), whether heretofore or hereafter obtained by Employee while providing services to the Company, and whether or not Employee assists the Company in the development of any such Confidential Information. Employee agrees to maintain the 4 confidentiality of any Confidential Information provided to him in connection with the performance of his duties under this Agreement; provided, however, such obligation shall terminate upon the occurrence of any of the following: (a) where such information now or hereafter becomes part of the public domain, and Employee has not obtained or learned such information as a result of "misappropriation" or "improper means", as those terms are defined in California Civil Code Section 3426.1; (b) such information is already in the possession of Employee at the time of the disclosure so long as it was acquired otherwise than by "misappropriation" or "improper means"; (c) such information hereafter comes into the possession of Employee from a third party without breach of this covenant; or (d) such information is independently developed by Employee without otherwise violating this Agreement. Notwithstanding any of the foregoing, under no circumstance will Employee use or disclose any ideas, concepts, themes, inventions, designs, improvements and discoveries conceived, developed or written by him pursuant to this Agreement or in connection with this Agreement; all rights to which shall belong to the Company. 8.1 Return of Materials. Employee further agrees that at the ------------------- termination of this Agreement, he will not take, without the prior written consent of the Company, tangible manifestations of the Confidential Information on any memoranda, notes (whether or not prepared by Employee during the course of his engagement by the Company), extracts, summaries, plats, sketches, plans, data, lists, manuals, schedules, forms, programs, tapes, disks or other documents, papers, media or records of any kind relating to or used in the Company's business, or any reproductions thereof. 8.2 Unfair Competition. Any violation of this Section 8 shall be ------------------ deemed to be unfair competition, in addition to any other rights or remedies which the Company may have against Employee. 9. Nonsolicitation of Customers, Etc. The Company recognizes that --------------------------------- Employee may sell Star Grips to the customers listed on Exhibit A. Nonetheless, Employee will not influence or attempt to influence any of Company's customers, suppliers, vendors, lessees or any others having business with the Company, either directly or indirectly, to divert their business to any other person, firm or business similar to or in competition with the Company. 10. Organizing Competitive Business. Employee agrees that during the term ------------------------------- of this Agreement, Employee will not undertake the planning or organization of any business activity similar to or competitive with the business of the Company. Employee further agrees that he will not, for a period of two (2) years following the termination of this Agreement, either directly or indirectly, solicit any of the Company's employees to work for or with Employee, or its affiliates, or any other corporation, entity or individual, in a business similar to or competitive with the Company or to work for a competitor of the Company. 5 11. Notices. All notices, requests, demands and other communications ------- required or contemplated hereunder shall be in writing, shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, and shall be deemed to have been given upon the earlier of (a) the date of personal delivery to the person to receive such notice at the address indicated below or (b) if mailed to the person to receive such notice at the address indicated below, four (4) business days after the date of posting by the United States Post Office as evidenced by the execution of the return receipt. The parties addresses, for all purposes hereof, are as follows: Company: Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 Employee: Paul J. Herber 20668 White Birch Drive Vista, California 92803 Notice of change of address shall be given by written notice but shall not be deemed effective until it has been given in the manner detailed in this Section. 12. Applicable Law; Venue. This Agreement shall be governed by, --------------------- interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. The sole forum for resolving disputes arising under or relating to this Agreement shall be the Municipal and Superior Courts for the County of Orange, California, or the Federal District Court for the Central District of California and all related appellate courts, and the parties hereby consent to the jurisdiction of such courts and agree that venue shall be in Orange County, California. 13. Attorneys' Fees and Litigation Costs. If any suit, legal proceeding ------------------------------------ or other action is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover its or his reasonable attorneys' fees and other costs incurred in such proceeding or action, in addition to any other relief to which it or he may be entitled. 14. Waivers. No waiver of any breach or default hereunder, or of any ------- condition precedent to the performance of any obligation hereunder, shall be considered valid unless in writing and signed by the parties giving such waiver or against whom such waive is to be enforced, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 6 15. Partial Invalidity and Severability. If any provision of this ----------------------------------- Agreement shall be held or deemed to be, or shall, in fact, be inoperative or unenforceable as applied in any particular case because if conflicts with any other provision or provisions hereof or any constitution or statute or rule of public policy, or for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to any extent whatsoever. The invalidity of any one or more phrases, sentences, clauses, sections or subsections of this Agreement shall not affect the remaining portions thereof. 16. Interpretation. The parties hereto acknowledge and agree that each -------------- has been given the opportunity to independently review this Agreement with legal counsel, and has the requisite experience and sophistication to understand, interpret and agree to the particular language of the provisions hereof. In the event of any ambiguity in or dispute regarding the interpretation of this Agreement, or any provision hereof, the interpretation of this Agreement shall not be resolved by any rule providing for interpretation against the party who causes the uncertainty to exist or against the party who is the draftsman of this Agreement. 17. 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. 18. Entire Agreement; Amendment. This Agreement contains the entire --------------------------- understanding between the parties hereto with respect to the subject matter hereof and supersedes any and all prior or contemporaneous written or oral negotiations or agreements between them regarding the subject matter hereof. No addition, modification or amendment of or to any term or provision of this Agreement, or to this Agreement as a whole, shall be effective unless set forth in writing and signed by all the parties hereto. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above mentioned. GRIP TECHNOLOGIES, INC., a California corporation By: ------------------------------ ------------------------------- Sam G. Lindsay PAUL J. HERBER President 7 EX-10.3 12 NONCOMPETITION AGREEMENT / J. BARRIE OGILVIE EXHIBIT 10.3 NONCOMPETITION AGREEMENT THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into as of September 22, 1995, by and among GRIP TECHNOLOGIES, INC., a California corporation ("Griptec"), USG ACQUISITION CORPORATION, a California corporation ("GTI Sub"), and J. BARRIE OGILVIE, an individual ("Ogilvie"). RECITALS -------- A. Griptec, GTI Sub, Ogilvie and others are parties to that certain Agreement and Plan of Reorganization, dated as of September 20, 1995 ("Merger Agreement"), pursuant to which USGRIPS, Inc., a Florida corporation ("USG") was merged with and into GTI Sub, and in connection therewith, shares of Common Stock of Griptec, the parent of GTI Sub, were issued to all of the shareholders of USG. Ogilvie was the controlling shareholder of USG and was its Chief Executive Officer and a director. B. As a material inducement to Griptec and GTI Sub (Griptec and GTI Sub are sometimes hereafter collectively referred to as the "Company") to enter into the Merger Agreement, Ogilvie agrees not to compete with the Company upon the terms and subject to the conditions set forth herein. This Agreement is delivered pursuant to Section 10.1 of the Merger Agreement. TERMS AND CONDITIONS -------------------- NOW, THEREFORE, in consideration of the foregoing recitals and premises, and the mutual promises, agreements, representations and warranties herein contained, the parties hereto agree as follows: 1. Noncompetition Covenant. Ogilvie hereby agrees that he will not, at ----------------------- any time from and after the date hereof until September 22, 2000 ("Noncompetition Period"), directly or indirectly, engage in any business, trade or activity, or have any interest in any person, firm, corporation, entity, business or venture (whether as an employee, independent contractor, officer, director, agent, partner, joint venturer, shareholder, creditor, lender or otherwise) or advise or consult with any person or entity, that engages in any business, trade or activity in the Territory (as that term is defined in Section hereof) which business, trade or activity is the same as, similar to or competitive with the Company's Business (as that term is defined in Section hereof). 2. Definition of Territory. For purposes hereof, the term "Territory" ----------------------- means and refers to all of the following: (i) any county or counties in any state in the United States; (ii) each of the 58 counties of the State of California; (iii) each of the counties of each of the other states of the United States of America; and (iv) worldwide, including without limitation, the following foreign countries: all countries of European Community and Japan; in which USG has done business. For purposes hereof, the terms "doing business," "done business" and "does business" means and refers to any aspect of the Company's Business, including, without limitation, sales, marketing, distribution, receiving or taking orders, advertising, promoting, designing or manufacturing. 3. Definition of Company's Business. For purposes hereof, the term -------------------------------- Company's Business means the design, manufacture, marketing, sales and distribution of sports grips, including grips for golf clubs. 4. Covenant Consideration. The parties hereto acknowledge and agree that ---------------------- no portion of the consideration payable to Ogilvie pursuant to the Merger Agreement has been separately allocated to the covenants and obligations of Ogilvie set forth in this Agreement. 5. Specific Performance; Injunctive Relief. If Ogilvie breaches, or --------------------------------------- threatens to breach, the noncompetition covenant described in Section 1 hereof, the Company shall have the right, in addition to any other rights or remedies which it may have, to seek and obtain specific performance thereof and to enjoin such breach or threatened breach. The parties hereto acknowledge and agree that any such breach or threatened breach will cause irreparable injury to the Company, and that the Company could not be reasonably or adequately compensated in damages at law. The equitable remedies provided herein are not 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. 6. Interpretation and Enforceability. --------------------------------- 6.1 Severability of Covenants. The parties hereto intend that ------------------------- the noncompetition covenant described in Section 1 hereof shall be deemed to be a series of separate noncompetition covenants, one for each county and/or governmental jurisdiction in which USG has done business. Except as provided in the immediately preceding sentence, each such separate noncompetition covenant shall be deemed identical in terms to each other noncompetition covenant contained in Section 1 hereof. If, in any judicial proceeding, a court shall refuse to enforce any of the separate noncompetition covenants deemed included in Section 1, then such unenforceable noncompetition covenant(s) shall be 2 deemed eliminated from the provisions thereof for the purpose of such proceedings to the extent necessary to permit the remaining separate noncompetition covenant(s) to be enforced in such proceedings. 6.2 Blue-Pencilling. If any court determines that any noncompetition --------------- covenant included in Section 1 hereof, or any part thereof, is unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. 6.3 Application of Other Law. Notwithstanding the provisions of ------------------------ Section 1 hereof, if the noncompetition covenant included in Section 1 hereof, as it relates to any Territory exclusive of the State of California (or any county thereof), would not be enforceable under California law but would be enforceable under the internal laws of that other jurisdiction, then such noncompetition covenant, solely as it relates to such other jurisdiction, shall be governed by, interpreted under and construed and enforced in accordance with the internal laws of such local jurisdiction. 7. Cross Default Provision. Any breach or default under the terms of this ----------------------- Agreement shall be deemed to be a breach and default under the Merger Agreement and any breach or default under the Merger Agreement shall be deemed to be a breach and default hereunder. 8. Notices. All notices, requests, demands and other communications ------- required or contemplated hereunder shall be in writing, shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, and shall be deemed to have been given upon the earlier of (a) the date of personal delivery to the person to receive such notice at the address indicated below or (b) if mailed to the person to receive such notice at the address indicated below, four (4) business days after the date of posting by the United States Post Office as evidenced by the execution of the return receipt. The parties addresses, for all purposes hereof, are as follows: Griptec or GTI Sub: Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 Attn: Mr. Sam G. Lindsay, President Ogilvie: Mr. J. Barrie Ogilvie 140 Gravel Pit Road R.R. #3 Dundas, Ontario, Canada L9H 5E3 3 Notice of change of address shall be given by written notice but shall not be deemed effective until it has been given in the manner detailed in this Section. 9. Applicable Law. Except as provided in Section hereof, this Agreement -------------- shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. 10. Attorneys' Fees and Litigation Costs. If any suit, legal proceeding ------------------------------------ or other action is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs incurred in such proceeding or action, in addition to any other relief to which it may be entitled. 11. Waivers. No waiver of any breach or default hereunder, or of any ------- condition precedent to the performance of any obligation hereunder, shall be considered valid unless in writing and signed by the parties giving such waiver or against whom such waiver is to be enforced, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 12. Interpretation. The parties hereto acknowledge and agree that each -------------- has been given the opportunity to independently review this Agreement with legal counsel, and has the requisite experience and sophistication to understand, interpret and agree to the particular language of the provisions hereof. In the event of any ambiguity in or dispute regarding the interpretation of this Agreement, or any provision hereof, the interpretation of this Agreement shall not be resolved by any rule providing for interpretation against the party who causes the uncertainty to exist or against the party who is the draftsman of this Agreement. 13. Section Headings. The section headings in this Agreement are included ---------------- for convenience only, are not a part of this Agreement and shall not be used in construing it. 14. Reference to Sections. All references to sections are deemed to --------------------- include references to the sections subsidiary to the section referred to when the context so requires. The term "this Section" refers to the Section of the Agreement in which the reference is made and all other Sections subsidiary to the Section referred. 4 15. Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of each corporate party hereto, their respective successors and permitted assigns, and each individual party hereto and his heirs, personal representatives, estates, successors and permitted assigns. 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. Entire Agreement; Amendment. This Agreement contains the entire --------------------------- understanding among the parties hereto with respect to the subject matter hereof and supersedes any and all prior or contemporaneous written or oral negotiations and agreements between them regarding the subject matter hereof. No addition, modification or amendment of or to any term or provision of this Agreement, or to this Agreement as a whole, shall be effective unless set forth in writing and signed by all of the parties hereto. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above mentioned. GRIP TECHNOLOGIES, INC., a California corporation
By ----------------------------- ----------------------------- Sam G. Lindsay J. BARRIE OGILVIE President By ----------------------------- James E. McCormick III Secretary USG ACQUISITION CORPORATION, a California corporation By ------------------------------ Sam G. Lindsay President By ------------------------------- James E. McCormick III Secretary
5 EX-10.4 13 SECURITY AGREEMENT / SAM G. LINDSAY EXHIBIT 10.4 SECURITY AGREEMENT (Intangible Assets) THIS SECURITY AGREEMENT ("Agreement") is made and entered into as of July 31, 1995, by and between SAM G. LINDSAY, an individual ("Secured Party"), and GRIP TECHNOLOGIES, INC., a California corporation ("Debtor"). RECITALS A. Secured Party has: (1) made loans and advances to Debtor in the aggregate principal amount of $535,000, which amounts have been consolidated into a single promissory note, dated July 31, 1995, bearing interest at the rate of 10% per annum (collectively, the "Loans"); (2) provided certificates of deposit or other collateral to First Interstate Bank of California ("FIB") in connection with, and as security for, a $600,000 term loan obtained by Debtor from FIB; (3) guaranteed Debtor's obligation to American Pacific States Bank ("APSB") in the original principal sum of $322,000 and, in connection therewith, and as security therefor, pledged to APSB 50,234 shares of Common Stock of Cosmetic Group USA, Inc.; and (4) guaranteed Debtor's promissory note, dated December 10, 1993, made payable by Debtor to Kwang Soo Kim and In Ho Kim in the original principal sum of $50,000 delivered by Debtor in connection with the financing of the tenant improvements at the facilities occupied by Debtor located at 1681 McGaw, Irvine, California (collectively the "Obligations"). B. Secured Party and Debtor desire to enter into this Agreement to grant Secured Party a security interest in the Collateral (as that term is hereafter defined in Section 1 below) to secure the repayment of the Loans or advances made by Secured Party and all monies paid or losses incurred or sustained by Secured Party as a result of, or in any way connected with, the Obligations. TERMS AND CONDITIONS NOW, THEREFORE, the parties hereto agree as follows: 1. Definition of Collateral. For purposes of this Agreement, the term ------------------------ "Collateral" means and includes all of the following: (a) all trademarks, trade names, service marks, logos and/or trade dress owned or used by Debtor, whether registered, unregistered or subject of pending application for registration, including without limitation, those trademarks, trade names, service marks, logos and/or trade dress listed on Schedule A attached hereto and incorporated herein by this reference (collectively the "Trademarks"); (b) all copyrights owned or used by Debtor, whether registered, unregistered or subject of pending application for registration, including without limitation, those copyrights listed on Schedule A attached hereto and incorporated herein by this reference (collectively the "Copyrights"); (c) all patents, patent applications and any other similar rights owned by Debtor or in which Debtor has any rights, including without limitation, those patents Listed on Schedule A attached hereto and incorporated herein by this reference (collectively the "Patents"); (d) all trade secrets owned by Debtor or in which Debtor has any rights, including without limitation, any formula, pattern, device or compilation of information which is used in Debtor's business and which gives it an opportunity to obtain an advantage over competitors who do not know or use it, including without limitation, all unpatented technology and know-how (collectively the "Trade Secrets"); (e) all contract rights, general intangibles and any other intangible or intellectual right, asset or property owned by Debtor, or in which Debtor has any right, including, without limitation, any license agreements (whether as licensor or as licensee); (f) any proceeds from the sale, license, lease, hypothecation, mortgage, encumbrance or other disposition of any of the foregoing; (g) any documentation or writings which memorialize, embody, describe, incorporate or otherwise refer to any of the foregoing; and (h) any of the foregoing which is hereafter acquired by Debtor. 2. Attachment of Security Interest. Debtor hereby grants and assigns to ------------------------------- Secured Party a security interest in and to the Collateral to secure repayment of the Loan and all monies paid or losses incurred or sustained by Secured Party as a result of, or in any way connected with, the Obligations. In addition, the security interest thereby created shall attach immediately upon execution of this Agreement by Debtor and shall secure (a) any and all amendments, extensions, renewals of any documents which memorialize, embody, describe, incorporate or otherwise refer to any of the Obligations; (b) strict performance and observance of all agreements, warranties and covenants contained in this Agreement; (c) the repayment of all monies expended by Secured Party under the provisions hereof, including attorneys' fees, with interest thereon from the date of expenditure at the highest lawful rate; and (d) any and all other liabilities of Debtor to Secured Party, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising. 3. Security Interest in Proceeds. Debtor also hereby grants and transfers ----------------------------- to Secured Party a security interest in any and all proceeds as that term is defined in Section 9306 of the California Commercial Code, of the Collateral or any part of the Collateral. Nothing in this Section 3 shall constitute, or be deemed to constitute, a grant of authority to Debtor to sell or otherwise dispose of or encumber the Collateral or any part of the Collateral without the prior written consent of Secured Party or as otherwise permitted under Section 4 hereof. 2 4. Disposition of Collateral. The Collateral shall not be sold, ------------------------- transferred, licensed or leased, or otherwise encumbered, mortgaged or disposed of, nor be subjected to any unpaid charge or levy, including taxes, or to any subsequent interest of a third party created or suffered by debt, voluntarily or involuntarily, unless Secured Party gives prior written consent to such transfer, disposition, charge or subsequent interest. 5. Affirmative Covenants of Debtor. Debtor hereby covenants and agrees as ------------------------------- follows: 5.1 Financial Statements. Debtor shall furnish Secured Party -------------------- from time to time with financial statements reasonably requested by Secured Party; provided, however, unless Debtor prepares financial statements for any major institutional lender on a more frequent basis, Debtor need not deliver to Secured Party financial statements more frequently than annually, within 90 days after Debtor's fiscal year end. 5.2 Inspection. Debtor shall permit representatives of ---------- Secured Party to inspect Debtor's books and records and to make extracts at any reasonable time and arrange for verification of accounts, under reasonable procedures. 5.3 Notice of Attachment, Etc. Debtor shall immediately notify ------------------------- Secured Party of any attachment or other legal process levies against the Collateral. 5.4 Location of Collateral and Records. Debtor shall notify ---------------------------------- Secured Party of each office or location where Debtor keeps any of the Collateral and its books and records concerning the Collateral and shall not transfer, relocate or move the Collateral, or any portion of the Collateral, without the prior written approval of Secured Party. 5.5 Insurance. Debtor shall keep the Collateral insured, to the --------- extent of its reasonable replacement value, based upon Debtor's usual business practices. 6. Representations and Warranties of Debtor. Debtor hereby represents, ---------------------------------------- warrants, covenants, and agrees as follows: 6.1 Title to Trademarks. Debtor believes it has the sole, full ------------------- and clear title to the Trademarks in the United States for the goods and services with which the Trademarks are used, and believes that any registration thereof are valid and subsisting and in full force and effect. Debtor has used and will continue to use for the duration of this Agreement standards of quality in the manufacture of products sold under the Trademarks that are at least equal to those standards in effect as of the date of this Agreement. 3 6.2 Use of the Trademarks. Debtor (either itself or through --------------------- its licensees) will continue to use the Trademarks on each and every trademark class of goods applicable to its current lines of goods as reflected in its current catalogs, brochures and price lists in order to maintain the Trademarks in full force and effect free from any claim of abandonment for nonuse and Debtor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated; provided, however, that Debtor may choose to abandon any Trademark if, in Debtor's reasonable business judgment, to do so is in the best business interests of Debtor. Prior to the intentional abandonment of any Trademark, Debtor agrees to notify Secured Party in writing of its intention. 6.3 Title to Patents. Debtor believes it has the sole, full ---------------- and clear title to each of the Patents and believes that the issued patents are valid and subsisting and in full force and effect and have not been claimed or adjudged invalid or unenforceable in whole or in part. Debtor shall diligently prosecute any patent application now pending or acquired or made by it during the term of this Agreement, shall make application on unpatented but patentable inventions, and shall preserve and maintain all rights of any kind in the Patents. Debtor believes that none of the Patents has been abandoned or dedicated, and Debtor will not do any act, or omit to do any act, nor permit any licensee thereof to do any act, whereby any issued patent or patent application may become abandoned or dedicated and shall notify Secured Party immediately if it knows of any reason or has reason to know that any application or issued patent may become abandoned or dedicated; provided, however, that Debtor may chose to abandon or dedicate any issued patent or patent application, if, in Debtor's reasonable business judgment, to do so is in the best interest of Debtor. Prior to the intentional abandonment or dedication of any Patent, Debtor agrees to notify Secured Party in writing of its intention. 6.4 Title to Copyrights. Debtor believes it has the sole, full ------------------- and clear title to each of the Copyrights and believes that the registrations thereof are valid and subsisting and in full force and effect. Debtor (either itself or through the licensees) has placed and will continue to place appropriate notice of copyright on all copies embodying such copyrighted works which are publicly distributed and Debtor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Copyright may become invalidated or dedicated to the public domain; provided, however, that Debtor may choose to abandon or dedicate any Copyright if, in Debtor's reasonable business judgment, to do so is in the best business interest of Debtor. Prior to the intentional abandonment or dedication of any Copyright, Debtor agrees to notify the Secured Party in writing of its intention. 4 6.5 Perfection of Secured Party's Interest. Debtor will promptly -------------------------------------- perform all acts and execute all documents, including, without limitation, grants of security in forms suitable for recording with the United States Patent and Trademark Office and United States Register of Copyrights, when requested by Secured Party at any time to evidence, perfect, maintain, record or enforce Secured Party's interest in the Collateral or otherwise in furtherance of the provisions of this Agreement, and Debtor hereby authorizes Secured Party to execute and file one or more financing statements (and any similar documents) or copies thereof or of this Agreement with respect to the Collateral signed only by Secured Party. 6.6 Reimbursement of Expenses. Debtor will promptly pay Secured ------------------------- Party for any and all sums, costs, and expenses which Secured Party may pay or incur pursuant to the provisions of this Agreement or in enforcing the Obligations, the Collateral or the security interest granted hereunder, including, but not limited to, all filing and/or recording fees, court costs, collection charges, travel and reasonable attorneys' fees, all of which together with interest at the highest rate then payable on the Obligations shall be part of the Obligations and be payable on demand. 6.7 Covenant to Inform Secured Party. In the event that Debtor, -------------------------------- either itself or through any subsidiary, affiliate, agent, employee, licensee or assignee, shall file an application for the issuance of any Patent or registration of any Trademark with the United States Patent and Trademark Office, or for the registration of any Copyright with the United States Register of Copyrights, or shall obtain issuance of any Patent or registration of any Trademark or Copyright previously applied for, or shall adopt, acquire or obtain rights to any new trademark, patent application or work for which a copyright application has been or is expected to be filed, or become entitled to the benefit of any patent application or patent or any part thereof for reissue, re- examination, continuation, continuation-in-part, division, improvement or extension, Debtor shall promptly inform Secured Party, and, upon request of Secured Party, execute and deliver any and all assignments, agreements, instruments, documents and papers as Secured Party may request to evidence Secured Party's interest in such Trademark, Patent or Copyright and the goodwill and general intangibles of Debtor relating thereto or represented thereby. Debtor hereby constitutes Secured Party its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Obligations are paid in full. Debtor authorizes the amendment of the schedules hereto to include any future Trademark, Patent or Copyright registrations or applications which may be acquired or made by Debtor. 6.8 Authority. Debtor has the authority, right and power to enter --------- into this Agreement and to perform its terms and to grant the security interest herein granted, 5 and has not entered and will not enter into any oral or written agreements which would prevent Debtor from complying with the terms hereof; and the Collateral is not now, and at all times will not be, subject to any liens, charges, mortgages, assignments, security interests, licensees, claims, shop rights, covenants not to sue third persons, or encumbrances of any nature whatsoever, except in favor of Secured Party, and to the best knowledge of Debtor none of the Collateral is subject to any claims of any other party. 6.9 Covenant Not to Assign, Etc. Except to the extent that Secured --------------------------- Party, upon prior written notice from Debtor, shall consent, Debtor will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, encumber, grant any exclusive license, or otherwise dispose of any of the Collateral, and noting in this Agreement shall be deemed a consent by Secured Party to any such action except as expressly permitted herein. 6.10 No Other Trademarks, Patents or Copyrights. As of the ------------------------------------------ date hereof neither Debtor nor any affiliate or subsidiary thereof has any Trademarks, Patents or Copyrights registered, or the subject of any application, in the United State Patent and Trademark Office or the United State Register of Copyrights other than those described in Schedule A. 6.11 Maintenance of Registration. Debtor will take all necessary --------------------------- steps in any proceeding before the United States Patent and Trademark Office, United States Register of Copyrights or similar office or agency of the United States of any office of the Secretary of State (or equivalent) of any state thereof, to maintain each application and registration of the Collateral, including, without limitation, filing of renewals, extensions, affidavits of use and incontestability, and opposition, interference and cancellation proceedings. Debtor shall notify Secured Party promptly in writing if nay application or registration relating to any Collateral may become abandoned or dedicated or subject to an adverse final determination in any proceeding in the United States Patent and Trademark Office or United States Register of Copyrights or any court regarding Debtor's ownership of such Patent or Trademark, its right to register same, or to keep or maintain the validity of same. 6.12 Notice of Infringement. In the event that any Trademark, Patent ---------------------- or Copyright is infringed, misappropriated or diluted by a third party, Debtor shall promptly notify Secured Party and shall, unless Debtor shall determine in its reasonable business judgment that such Trademark, Patent or Copyright is of negligible economic value to the business of Debtor, promptly sue for infringement, misappropriation and/or dilution and to obtain injunctive relief and recover damages therefor, and shall take such other actions to protect such Trademark, Patent or Copyright as Debtor shall deem appropriate in its reasonable business judgment under the circumstances. Secured Party 6 shall have the right, but in no way shall be obligated, to bring suit in its own name to enforce the Trademarks, Patents and Copyrights and any licensees thereunder, in which event Debtor shall, at the request of Secured Party, do any and all lawful acts requested by Secured Party and execute any and all documents required by Secured Party to aid such enforcement, and Debtor shall, upon demand, promptly reimburse and indemnify Secured Party for all costs and expenses incurred in such enforcement. 7. Events of Default. Each of the following shall be deemed to be an ----------------- "Events of Default" for the purposes of this Agreement: (a) failure by Debtor to pay the Loan in accordance with its terms; or (b) failure to perform any obligation or any breach or event of default under any documents which memorialize, embody, describe, incorporate or otherwise refer to any of the Obligations; or (c) failure by Debtor to pay any loan to any other lender or the breach by Debtor of any material provision of any other security agreement; or (d) failure by Debtor to pay its debts as they become due; or (e) making a general assignment for the benefit of creditors of Debtor or if any third party shall commence any case, proceedings or other action seeking to have an order for relief entered on its behalf against Debtor or to adjudicate Debtor a bankrupt or insolvent or seeking a reorganization, arrangement, adjustment, liquidation, dissolution or composition of Debtor or its debts under any law relating to bankruptcy, insolvency, reorganization, or relief of debtors or seeking appointment of a receiver, trustee, custodian or other similar official for Debtor or for all or any substantial part of its properties. In such case or proceeding or other action (i) results in the entry of an order for relief against it which is not fully stayed within seven business after the entry thereof or (ii) shall remain undismissed for a period of forty-five days; or (f) any breach by Debtor of any provision of this Agreement. 8. Remedies in Favor of Secured Party. Upon the occurrence an Event of ---------------------------------- Default, Secured Party shall have the following rights and remedies: 8.1 All Rights Reserved. Secured Party shall have all rights and ------------------- remedies afforded the Secured Party by the chapter on "Default" of Division 9 of the California Commercial Code, in addition to the rights and remedies provided in this Agreement or any instrument or by any executed by Debtor, or otherwise permitted by law. 8.2 Acceleration of the Loan. The Loan shall be accelerated, ------------------------ and shall become immediately due and payable, notwithstanding the date of maturity thereof. 7 9. Financing Statement. Debtor shall sign and execute alone or with ------------------- Secured Party any financing statements, notices or other document or procure any document reasonably requested by Secured Party in order to perfect the security interest created by this Agreement. 10. Notices. All notices or other written communications required or ------- permitted to be given by Agreement shall be deemed given if personally delivered or five (5) days after it has been sent (the date of posting shall be considered as the first day and there shall be excluded any Sundays, legal holidays or other days upon which the United States mail generally is not delivered) by United States registered or certified mail, postage prepaid, property addressed to the party to receive the notice at the following address or any other address given to the other party in the manner provided by this Section 10: If to Secured Party: Mr. Sam G. Lindsay c/o Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 If to the Debtor: Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 11. Severability. If any provision of this Agreement is determined to be ------------ invalid or unenforceable, the provision shall be deemed to be severable from the remainder of this Agreement and shall not cause the invalidity or unenforceability of the remainder of this Agreement. 12. Attorneys' Fees and Litigation Costs. If any legal action or other ------------------------------------ proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any provision of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. 13. Governing Law; Venue. This Agreement shall be governed by, -------------------- interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of California applicable to agreements made and to be performed wholly within the State of California. The sole forum for resolving disputes arising under or relating to this Agreement shall be the 8 Municipal and Superior Courts for the County of Orange, California, or the Federal District Court for the Central District of California and all related appellate courts, and the parties hereby consent to the jurisdiction of such courts and agree that venue shall be in Orange County, California. 14. 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. 15. Captions. The captions of the sections and subsections of this -------- Agreement are included for reference purposes only and are not intended to be a part of the Agreement or in any way to define, limit or describe the scope or intent of the particular provision to which they refer. 16. Interpretation. The parties hereto acknowledge and agree that each -------------- has been given the opportunity to independently review this Agreement with legal counsel, and has the requisite experience and sophistication to understand, interpret, and agree to the particular language of the provisions hereof. In the event of any ambiguity in or dispute regarding the interpretation of this Agreement, or any provision hereof, the interpretation of this Agreement shall not be resolved by any rule providing for the interpretation against the party who causes the uncertainty to exist or against the party who is draftsman of this Agreement. 17. Entire Agreement; Amendment. This Agreement contains the entire --------------------------- understanding between the parties with respect to the subject matter hereof and supersedes any and all prior and contemporaneous written or oral negotiations and agreements between them regarding the subject matter hereof. This Agreement may be amended only in a writing signed by both of the parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above mentioned. GRIP TECHNOLOGIES, INC., a California corporation By: - - -------------------------------- --------------------------------- Sam G. Lindsay James E. McCormick III Secretary 9 EX-10.5 14 REQUEST TO CONVERT LETTER / SAM G. LINDSAY EXHIBIT 10.5 REQUEST TO CONVERT AND INVESTMENT LETTER Grip Technologies, Inc. 10 Corporate Park Irvine, California 92714 Ladies and Gentlemen: The undersigned ("Investor") hereby offers to convert $535,000 of the principal amount of the indebtedness (the "Debt") owed to him by Grip Technologies, Inc., a California corporation (the "Company"), into 356,667 shares ("Shares") of Common Stock of the Company at approximately $1.50 per share. In order to induce the Company to convert the Debt and to issue the Shares to him, Investor hereby represents, warrants and covenants as follows: 1. Investor is acquiring the Shares for his own account (or a trust account if the Investor is a trustee) and not with a view to or for sale in connection with any distribution of shares or other securities of the Company. 2. Investor acknowledges his understanding that the offering and sale of the Shares is intended to be exempt from registration under Federal and California securities laws as a transaction not involving a public offering and that the Shares he will receive will be "restricted securities" as that term is defined in Rule 144(a)(3) promulgated under the Securities Act of 1933, as amended (the "Act"). 3. Investor has the financial ability to bear the economic risk of his investment in the Company (including its possible loss), has adequate means of providing for his current needs and personal contingencies and has no need for liquidity with respect to his investment in the Company. 4. Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares and has obtained, in his judgment, sufficient information from the Company to evaluate the merits and risks of an investment in the Shares, including a review of all the Company's books and records. 5. Investor has been given the opportunity to ask questions of, and receive answers from, the officers and directors of the Company concerning the terms and conditions of this offering and other matters pertaining to the Company, and has been given the opportunity to obtain such additional information necessary to verify the information provided in order for him to evaluate the merits and risks of an investment in the Company. 6. Investor is not aware of any publication of any advertisement concerning the offer and sale of the Shares. 7. Investor is an "accredited investor" as that term is defined in Rule 501(a) promulgated under the Act, in that he is; (i) an officer and director of the Issuer; (ii) he is a natural person whose individual net worth, or joint net worth with his spouse, exceeds $1 million; and (iii) he is a natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with his spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year. 8. It is hereby acknowledged and agreed by Investor that a restrictive legend, in form and substance acceptable to the Company and its legal counsel, shall be imprinted on the certificate representing the Shares. 9. Investor covenants and agrees that, in addition to any other contractual restriction or limitation on transferability of the Shares, prior to any proposed sale, pledge, hypothecation, gift or other transfer, for value or otherwise, of any or all of the Shares or any interest or interest therein (hereinafter a "Transfer"), Investor shall give written notice to the Company. 10. Any Transfer must comply with all applicable registration, qualification and notification requirements of the Securities Act of 1933, as amended, and all applicable state securities laws, or otherwise be eligible or available for specific exemptions thereunder. If, in the opinion of the Company's legal counsel, the Transfer may not be effected without registration, qualification or notification, the Company shall promptly notify Investor in writing, and the Transfer shall not be made unless such compliance is then effected. The Company has not agreed to pay any of the costs or expenses required of either Investor or the Company in connection with a Transfer in order to comply with applicable securities laws. Investor understands that he shall be responsible for payment of all costs and fees associated therewith and, on demand, shall reimburse the Company for all costs and fees it incurs in connection therewith. 11. The parties hereto acknowledge that Section 25102(a) of the California Corporations Code requires (i) that no part of the purchase price is paid or received and none of the securities is issued until the sale of such securities is qualified under the 2 California Corporate Securities Law of 1968, as amended, unless the sale of securities is exempt from qualification as provided thereunder, and (ii) that the following provision be included herein: "THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 or 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT." Dated: July 31, 1996 -------------------------------------- SAM G. LINDSAY 3 EX-10.6 15 LETTER AGREEMENT / SAM G. LINDSAY EXHIBIT 10.6 SAM G. LINDSAY 211 Evening Canyon Road Corona del Mar, California 92625 August 1, 1995 Grip Technologies, Inc. 1681 McGaw Irvine, California 92714 Gentlemen: This letter will confirm my agreement to defer until January 1, 1997, all of the following: (1) any salary I earned from Grip Technologies, Inc. (the Company) through July 31, 1995, and (2) reimbursement of all business expenses I incurred through July 31, 1995. This letter modifies my prior agreement to defer all salary and expense reimbursement from prior periods, to extend that deferral through January 1, 1997. Very truly yours, /s/ Samuel G. Lindsay Samuel G. Lindsay EX-10.7 16 AGREEMENT DATED 9-22-96 EXHIBIT 10.7 AGREEMENT This Agreement made and entered into this 21st day of September, 1995, by and between GRIP TECHNOLOGIES, INCORPORATED, a California corporation (hereinafter referred to as "GRIPTEC") and ARC EQUIPMENT, INC., an Arizona corporation (hereinafter referred to as "ARC"). RECITALS: A. ARC is engaged in the manufacture, production and sale of rubber sports grips for sports equipment applications, including the manufacture, production and sale of vulcanized rubber sports grips. B. GRIPTEC maintains an in-house sales and marketing staff, including telemarketers and sales representatives for the United States, and utilizes various international distributors in Japan, Great Britain, Europe and Australia to market its sports grips (including vulcanized rubber sports grips). C. ARC and GRIPTEC have met and agreed upon the terms and conditions upon which ARC will sell certain of its products to GRIPTEC for world-wide distribution. NOW THEREFORE in consideration of the mutual promises set forth below, it is agreed by and between GRIPTEC and ARC as follows: COVENANTS: 1. Agreements to Buy and Sell. Subject to the terms and conditions of -------------------------- this Agreement and excepting specifically sales to those companies identified in Subsection 1.a. below, ARC hereby agrees to exclusively manufacture and sell to GRIPTEC and GRIPTEC hereby agrees to purchase, on an exclusive basis, GRIPTEC's total requirement of vulcanized rubber sports grips from ARC ("the subject sports grips"). GRIPTEC's commitment to purchase on an exclusive basis is conditioned on ARC being able to produce sports grips of comparable quality to the samples provided, at prices set forth on Exhibit "A" (with any modifications) and in sufficient quantities as may be reasonably requested by GRIPTEC. a. Excepting only sales to those companies listed on Exhibit "B" to which ARC sells its own proprietary vulcanized rubber sports grips ("ARC's proprietary sports grips") and provided GRIPTEC complies fully with all provisions of this Agreement, ARC will not sell or distribute, directly or indirectly, any of the subject sports grips to any other person or entity in the world other than GRIPTEC. b. Provided ARC complies fully with all provisions of this Agreement, and this Agreement is in full force and effect, GRIPTEC will not acquire, distribute or purchase, directly or indirectly, any of the subject sports grips from any other source in the world other than ARC. c. The provisions of Subsections 1.a. and 1.b. above shall apply to GRIPTEC and ARC as well as to their respective subsidiaries, affiliates, partners and other entities in which GRIPTEC or ARC has an ownership interest (direct or indirect through officers and/or directors) in excess of five percent (5%) or entities which own a controlling interest in either GRIPTEC or ARC. d. The parties acknowledge and agree that this Agreement does not pertain to the purchase or sale of cord or TPR grips by GRIPTEC. e. ARC shall initially appoint Paul Herber of Vista, California as its sales representative for its proprietary sports grips to be sold only to those companies listed on Exhibit "B." GRIPTEC consents to Mr. Herber's retention in that capacity. GRIPTEC and ARC agree that sales of ARC's proprietary vulcanized rubber sports grips may not exceed 2,000,000 units in any consecutive twelve (12) month period. Furthermore, if ARC is unable to timely produce orders for GRIPTEC due to a lack of production capacity, ARC agrees to process GRIPTEC's orders ahead of orders for ARC's proprietary sports grips. 2. Conditions Precedent. This Agreement is expressly conditioned upon the -------------------- proposed acquisition of all of the stock or assets of U.S. Grips, Inc. ("U.S. Grips") by GRIPTEC. Should such acquisition fail to take place on or before October 1, 1995, it is agreed by the parties that this Agreement shall be null and void and of no effect whatsoever, and ARC shall be free to pursue any customers and sell any products which it wishes to sell without any constraint arising from this Agreement or its negotiation. Likewise, GRIPTEC shall be free to purchase grips from any manufacturer and sell any products which it wishes to sell without any constraint arising from this Agreement or its negotiation. This Agreement is further conditional upon the receipt by ARC of an inducement letter from U.S. Grips in which U.S. Grips (i) consents to GRIPTEC and ARC negotiating and entering into this Agreement, (ii) acknowledges that none of the terms of this Agreement and/or its negotiation create any implied contractual rights or obligations between ARC and U.S. Grips, and (iii) that, as of the date of the inducement letter, U.S. Grips, its officers, directors and shareholders release all claims of any nature whatsoever against ARC, its officers, directors and/or shareholders. 3. Term. Subject to the provisions of Section 2, and those other ---- provisions herein pertaining to early termination, the term of this Agreement shall be ten (10) years commencing on the date upon which the acquisition of U.S. Grips by GRIPTEC shall be deemed to have taken place. The commencement date shall be confirmed in writing by the parties or, in the absence of such confirmation, shall be deemed to be October 1, 1995. Any renewal or extension of this Agreement shall be based upon mutually agreeable terms and conditions set forth in writing and signed by the parties. 4. Inclusion of Additional Products. From time to time, as GRIPTEC and -------------------------------- ARC may mutually agree in writing, additional products may become subject to the terms and provisions of this Agreement; provided, however, that nothing herein shall be construed to obligate GRIPTEC or ARC to agree to add additional products to be included hereunder. -2- 5. Production Responsibilities. a. ARC shall provide the required labor, raw materials, injection presses, molding tools (consistent with and meeting designs current as of the date of this Agreement), and associated equipment to produce the subject sports grips at its production facility or facilities. b. For all standard types of sports grips included within the subject sports grips, GRIPTEC shall supply a minimum of 21 cavities and 11 end caps for shuttle molds and 11 cavities and 11 end caps for non-shuttle molds; for putters, GRIPTEC shall supply a minimum of 11 cavities and 11 end caps. All mold cavities and end caps provided to ARC by GRIPTEC shall comply with the specifications provided by ARC to assure proper production of the subject sports grips as contemplated herein. All end cap sidewalls shall be a minimum of .110 inches high and subgated. It is specifically acknowledged by GRIPTEC that improperly manufactured cavities (such as occurred in the past with respect to cavities for ladies grips and Daiwa grips by U.S. Grips) will produce damage for which ARC shall not be responsible. Notwithstanding the foregoing, GRIPTEC shall supply enough end caps and cavities to enable ARC to meet the monthly minimum units of the subject sports grips set forth in Section 8 based on a production capacity of 60,000 units of the subject sports grips per month, per machine. This provisions relates only to assuring that ARC is capable of producing the monthly minimums set forth in Section 8 and that ARC's failure to do so will not be a breach of ARC's requirement in Section 1 to produce "sufficient quantities" if caused by GRIPTEC's failure to provide necessary end caps and cavities. c. GRIPTEC shall maintain and, when necessary, replace or repair at its expense, cavities and end caps rendered unserviceable during normal production use (e.g., parting line repair, re-chrome, etc.). d. Any cavities and end caps damaged in production as a result of acts or omissions of ARC, other than normal production procedures and other than normal wear and tear, shall be replaced at ARC's expense. e. A $150 set up charge shall be paid by GRIPTEC if GRIPTEC requests any production runs of the subject sports grips under 8,000 units. A $250 set up charge shall be paid by GRIPTEC for any color changes requested by GRIPTEC. 6. Pricing. Prices for the subject sports grips and related set up of ------- ARC's production equipment shall be as set forth on Exhibit "A." The prices set forth on Exhibit "A" may be adjusted up or down, but not more frequently than once every year, to reflect changes in the costs of ARC. Specifically, such changed prices shall be determined by: (i) taking the total percentage of any increases or decreases in ARC's cost of direct labor and raw materials, including, but not limited to, factory labor and other allocated items, and multiplying the percentage of the increase or decrease for each item by the individual cost percentage of that particular item as a component of the price set forth on Exhibit "A," and (ii) adding or subtracting the product of (i) above to the prices for the subject sports grips set forth therein. -3- 7. Quality. The subject sports grips supplied by ARC shall be of good ------- and merchantable quality consistent with the samples provided to and approved by GRIPTEC. GRIPTEC acknowledges and agrees that the sports grip products currently provided to U.S. Grips meets its quality standards: Should any of the subject sports grips sold by ARC to GRIPTEC be defective, or fail to meet the specifications previously provided by GRIPTEC to ARC, or are not of a quality consistent with the samples provided, ARC agrees, at ARC's election to: (i) accept the return of the defective goods and refund GRIPTEC the full price paid, including shipping costs associated with the return, or (ii) replace the defective goods at ARC's expense, including all shipping costs, with goods complying with the previously agreed upon specifications. 8. Quantities. ---------- a. During the term of this Agreement, GRIPTEC shall place orders for not less than the individual units of the subject sports grips per calendar month set out in Subsection 8.b. GRIPTEC shall place all orders in writing far enough in advance as is reasonably practicable, but in no event less than two (2) weeks in advance. Orders may be modified subject to the requirements of Section 5.e. b. This Agreement is entered into with the express understanding and agreement that GRIPTEC will purchase and accept delivery of a minimum of 100,000 individual units of the subject sports grips per month for the first twelve months of this Agreement and a minimum of 120,000 individual units of the subject sports grips per month for the remaining term of this Agreement. Notwithstanding the monthly minimums above, GRIPTEC shall purchase and take delivery of at least 1,500,000 units of the subject sports grips in the first year; 2,000,000 the second year; 2,500,000 the third year; 3,000,000 the fourth year; and 3,500,000 the fifth year; 4,000,000 the sixth year, 4,500,000 the seventh year; 5,000,000 the eighth year; 5,500,000 the ninth year; and 6,000,000 the tenth year. c. Each time GRIPTEC fails to meet any of the minimum requirements set out in this Section 8, it shall be deemed an event of default hereunder. 9. Payment Terms. ------------- a. GRIPTEC shall pay ARC's invoices for the subject sports grips within thirty (30) days of ARC's shipment thereof. Invoices for goods and services other than the subject sports grips shall be due and payable within ten (10) days of ARC's shipment of such goods or providing of services. A non-cash discount of two percent (2%) shall be offered for any GRIPTEC payment made within ten (10) days of ARC's shipment of the subject sports grips. There shall be no discount for goods and services other than the subject sports grips. The discount shall be a quantity of subject sports grips without charge but equal to the amount of the discount determined at the prices then in effect on ARC's next subsequent shipment. Freight shall be F.O.B. Chandler, Arizona. b. ARC shall supply a weekly accounts receivable listing via facsimile transmission. A confirmation journal evidencing receipt of a facsimile transmission shall be -4- conclusive proof that the transmission was received by GRIPTEC. Should GRIPTEC fail to pay within thirty days of shipment, ARC shall notify GRIPTEC via facsimile transmission or overnight delivery that an invoice has not been paid as required herein ("a five-day notice"). GRIPTEC shall have five (5) business days after receipt of the notification of the unpaid invoice from ARC within which to pay. If GRIPTEC fails to make the payment within five (5) business days thereafter, it shall be deemed an event of default hereunder. Whether paid within five (5) business days or not, GRIPTEC shall pay a late charge of $50.00 for each invoice for which ARC has properly sent a five-day notice. 10. Termination. ------------ a. Except as provided in Subsection 10.b. below with respect to specified events of default, if either party fails to perform any of its obligations under this Agreement, the non-breaching party may give notice to the breaching party of its intent to terminate this Agreement. The notice shall contain particulars of the alleged breach, shall indicate the remedy sought by the notifying party, and shall be effective at the end of thirty (30) days unless the party in breach shall remedy the breach during said period. If the failure is ARC's, then ARC shall (at GRIPTEC's election) continue to supply the subject sports grips to GRIPTEC thereafter throughout the remaining term of the Agreement on the terms and at the prices set forth on Exhibit "A." If the failure is GRIPTEC's, then ARC (at ARC's election) may continue to supply the subject sports grips. If the failure arises from GRIPTEC's failure to make payments pursuant to Subsection 9.b. and ARC terminates this Agreement in accordance with Subsection 10.b., then ARC shall not be obligated to further provide the subject sports grips to GRIPTEC and shall be free from any constraints set forth in this Agreement. b. With respect to those matters identified as events of default in Sections 8 and 9, the occurrence of three (3) events of default during any twelve (12) month period shall be sufficient grounds for ARC to terminate this Agreement and ARC may thereafter so terminate by providing written notice to GRIPTEC. 11. Force Majeure. ARC shall be excused for failure to perform any part ------------- of this Agreement due to events beyond its control. These events shall include but not be limited to fire, storm, flood, earthquake, explosion, accidents, enemy action, sabotage, strikes, labor disputes, labor shortages, work stoppages, or transportation embargoes. Similar events shall excuse GRIPTEC for failure (i) to take items as ordered, except those already in transit or specially manufactured which are not readily saleable without loss to ARC, and (ii) to purchase the minimums set forth in Section 8. When the events operating to excuse the performance of either ARC or GRIPTEC cease, this Agreement shall continue in full force for the remainder of its term, provided that ARC shall not be obligated to ship, and GRIPTEC shall not be obligated to purchase or accept, items the shipment of which was excused. 12. Confidentiality. --------------- a. Each party agrees to keep confidential and not disclose, directly or indirectly, any information concerning the other party's business (except to the extent such -5- information is available to the general public) or any other information which the other party designates as confidential, except to the extent required by applicable law. b. GRIPTEC acknowledges and agrees: (i) that the technology utilized by ARC in producing the subject sports grips (including ARC's production equipment, the processes, the production methods and the designs pertaining to the foregoing which are not generally known to the public), are the exclusive and proprietary property of ARC and that GRIPTEC has no right, title or interest therein; (ii) that any exclusive and proprietary information which ARC has disclosed or discloses to GRIPTEC during the term of this Agreement has been disclosed to enable it to provide mold cavities and end caps during the term of this Agreement and GRIPTEC will not use the exclusive and proprietary information in any other business or capacity; and (iii) that it will adopt and implement reasonable procedures to prevent unauthorized use or disclosure of such exclusive and proprietary information. 13. Multiple Counterparts. This Agreement is being executed in multiple --------------------- counterparts, each of which shall be deemed an original without the necessity of producing any of the other counterparts. 14. Applicable Law. The provisions of this Agreement shall be interpreted --------------- according to the internal laws of Arizona. 15. Titles. The numbering of sections and titles of sections are ------ intended for identification and ease of reference only and do not limit, define, or otherwise describe legal content. 16. Remedy for Breach. In the event any party brings a proceeding to ----------------- enforce any provision hereof, or to collect damages for any breach of this Agreement, the prevailing party shall be entitled to all costs, all expenses arising out of or incurred by reason of the proceeding and any reasonable attorneys' fees expended or incurred in any such proceeding, and all such costs and expenses shall be included in the final award. 17. Consent to Arbitration. All disputes, issues or declarations arising ---------------------- from, or related to, this Agreement, shall be decided by binding arbitration in Phoenix, Arizona according to the then prevailing commercial arbitration rules of the American Arbitration Association. Any award in such arbitration shall be enforceable by any court having jurisdiction. 18. Non-Assignment. This Agreement and the interests of the parties -------------- hereunder shall not be assigned or transferred to any other person or entity, other than a related party. For purposes hereof, a related party shall be an entity which is at least fifty percent (50%) owned by one of the parties to this Agreement. 19. Entire Agreement. This Agreement is the entire agreement of the ---------------- parties and all prior oral or written agreements are merged herein. This Agreement may be amended only by a written document signed by both parties referencing this Agreement. 20. Notices. Except as provided in Section 9, service of all notices ------- under this Agreement shall be sufficient if given personally by hand-delivery or mailed to either party at -6- such party's principal place of business or such other address as may be provided in writing from time to time by one party to the other. Any mailed notice shall be effective three (3) days after depositing it in the U.S. Mail, duly addressed with postage prepaid. Hand-delivered notices shall be effective upon receipt. 21. Right to Purchase. ----------------- a. During the term of this Agreement or any extension hereof, ARC agrees not to sell: (i) all of its stock, (ii) any portion of its stock which would effectuate a change of controlling ownership in ARC from Jim Jennett (iii) any instruments or securities constituting ownership interests in ARC or convertible to stock in ARC which, when sold, would effectuate a change of controlling ownership in ARC from Jim Jennett ("ownership interests"), or (iv) substantially all of its assets (items i, ii, iii and iv being collectively referred to as the "restricted sales"), to a person or entity in direct competition in the sports grip field with GRIPTEC, including, but not limited to, Golf Price (Eaton), Lamkin, Royal Grips, Kel-Mac, Avon, TackiMac, Mint or Percise (AMI). b. Should ARC, during the term of this Agreement or any extension hereof, wish to make one of the restricted sales to a person or entity not in competition with GRIPTEC in the sports grip field, it shall first give GRIPTEC the first opportunity to purchase such stock, assets or ownership interests. ARC shall give GRIPTEC thirty (30) days prior written notice of the terms under which ARC would sell and the parties shall have within said thirty (30) day period to enter into a binding purchase and sale agreement. Should such an agreement not be entered into within said thirty (30) day period, ARC shall be free to offer the stock, assets or ownership interests to any third party not in competition with GRIPTEC in the sports grip field upon substantially the terms and conditions. Should ARC materially change the purchase price or payment terms or if the transaction with the third party is not closed within one hundred twenty (120) days following the last notification to GRIPTEC, ARC must provide GRIPTEC with the first opportunity again; however, GRIPTEC shall thereafter only have a period of fifteen (15) days to enter into a binding purchase and sale agreement with ARC. The first opportunity provided herein shall also arise if the sale to the third party is not closed. c. For a period of three years from the date hereof, ARC hereby grants to GRIPTEC a right of first refusal to purchase its stock, assets or ownership interests in the event of one of the restricted sales. On each occasion ARC receives an offer to purchase any of its stock, assets or ownership interests which would constitute a restricted sale, and ARC elects to sell under the terms and conditions contained in the offer, ARC must notify GRIPTEC of the terms of the offer and GRIPTEC shall have fifteen (15) days within which to agree to all of the terms and provisions of the offer in a binding purchase and sale agreement. Should GRIPTEC fail to enter into such an agreement with ARC within the specified time period, ARC shall be free to sell to the third party making the offer under the same terms and conditions contained in the offer. d. Should ARC receive an offer to sell its stock, assets or ownership interests which would constitute one of the a restricted sales, at any time after the third anniversary of this Agreement, to a third party not in competition with GRIPTEC in the sports grip field, then -7- ARC shall provide GRIPTEC with notice that it has received such an offer within seven (7) days of ARC's receipt of same. The notice shall state whether the offer is for stock, assets or ownership interests. The terms of the offer need not be disclosed. GRIPTEC shall have the right during the next succeeding thirty (30) day period to make an offer to purchase the stock, assets or ownership interests in ARC that has been identified in the offer. ARC shall be free to accept or reject any offer from GRIPTEC or the third party. GRIPTEC shall be promptly advised of ARC's decision. e. No sale by ARC of its stock, assets or ownership interests may be made hereunder unless the purchaser agrees in writing to be bound by the terms and conditions of this Agreement. f. This provision shall not apply to transfers other than the restricted sales, sales of assets in the ordinary course of business, transfers between existing shareholders of ARC (but shall apply to any such transfer which would effectuate a change of controlling ownership in ARC from Jim Jennett), or to any transfer to a family member, partnership or trust for estate planning purposes. IN WITNESS WHEREOF the parties hereto have entered into this Agreement as of the day and year first above written. ARC EQUIPMENT, INC., an Arizona corporation By: /s/ Jim A. Jennett, President ------------------------------------ Jim Jennett, President GRIP TECHNOLOGIES, INCORPORATED, a California corporation By: /s/ Samuel G. Lindsay ------------------------------------ Its: PRESIDENT ----------------------------------- -8- EX-21.1 17 SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT Name of Subsidiary State of Incorporation Percent Ownership ------------------ ---------------------- ----------------- USGRIPS, Inc.* California 100% * doing business as USGRIPS and Griptec EX-27 18 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 31, 1996 AUDITED FINANCIAL STATEMENTS AND IS QUALILFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR YEAR JUL-31-1996 JUL-31-1995 AUG-01-1995 AUG-01-1994 JUL-31-1996 JUL-31-1995 $16,975 $126,827 0 0 728,114 453,403 190,669 174,099 506,995 226,471 1,093,040 702,472 1,260,831 394,541 373,589 123,175 3,203,702 973,838 2,533,588 732,886 0 0 0 0 1,287,500 1,350,000 5,454,040 1,886,855 (6,408,498) (4,833,517) 3,203,702 973,838 3,062,948 1,104,049 3,062,948 1,104,049 2,411,017 1,267,255 2,411,017 1,267,255 2,078,425 3,145,977 (1,426,494) (3,309,183) 146,887 134,762 (1,573,381) (3,443,945) 1,600 800 (1,574,981) (3,444,745) 0 0 0 0 0 0 (1,574,981) (3,444,745) (0.33) (1.11) 0 0
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