-----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, RFQ1nO1f2KP2qnWwUfHfAcauoibHIdZULf4rTwxtQy/RGvtucusqws0scmgHJ1Mz DXYEtsLNrkeRCyWQRYqm7g== 0001017062-98-001514.txt : 19980709 0001017062-98-001514.hdr.sgml : 19980709 ACCESSION NUMBER: 0001017062-98-001514 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980708 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMA INDUSTRIES CENTRAL INDEX KEY: 0000062262 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 951240978 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07755 FILM NUMBER: 98661799 BUSINESS ADDRESS: STREET 1: 21250 HAWTHORNE BLVD., SUITE 500 CITY: TORRANCE STATE: CA ZIP: 90503 BUSINESS PHONE: 3107927024 MAIL ADDRESS: STREET 1: 1101 CALIFORNIA AVE STE 200 CITY: CORONA STATE: CA ZIP: 91719 FORMER COMPANY: FORMER CONFORMED NAME: SUMMA INDUSTRIES INC DATE OF NAME CHANGE: 19951212 FORMER COMPANY: FORMER CONFORMED NAME: MOREHOUSE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MAXAD INC DATE OF NAME CHANGE: 19740304 10-Q 1 FOR THE PERIOD OF MAY 31, 1998 U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended May 31, 1998 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from N/A to N/A ------- ------- Commission File No. 1-7755 Summa Industries (Name of registrant as specified in its charter) Delaware 95-1240978 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 21250 Hawthorne Boulevard, Suite 500, Torrance, California 90503 (Address of principal executive offices, including Zip Code) Registrant's Telephone Number: (310) 792-7024 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The number of shares of common stock outstanding as of June 19, 1998 was 4,249,649. Summa Industries INDEX PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements: Condensed Consolidated Balance Sheets - August 31, 1997 and May 31, 1998 (unaudited)........................ 3 Condensed Consolidated Statements of Income (unaudited) - three months and nine months ended May 31, 1997 and 1998............ 4 Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended May 31, 1997 and 1998............................. 5 Notes to Condensed Consolidated Financial Statements (unaudited).... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 8 PART II - OTHER INFORMATION.................................................. 11 Item 1. Legal Proceedings................................................... 11 Item 2. Changes in Securities............................................... 11 Item 5. Other Information................................................... 12 Item 6. Exhibits and Reports on Form 8-K.................................... 12 Signature Page............................................................... 13 2 Summa Industries CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, 1997 May 31, 1998 (unaudited) --------------- ------------ ASSETS Current assets: Cash $ 3,020,000 $ 19,000 Accounts receivable 6,603,000 14,030,000 Inventories 2,976,000 9,578,000 Prepaid expenses and other 1,598,000 2,483,000 ----------- ----------- Total current assets 14,197,000 26,110,000 Property, plant and equipment 19,998,000 26,594,000 Less accumulated depreciation 3,776,000 6,030,000 ----------- ----------- Net property, plant and equipment 16,222,000 20,564,000 Other assets 2,331,000 2,074,000 Net assets of discontinued operations 1,273,000 1,499,000 Goodwill and other intangibles, net 1,628,000 18,709,000 ----------- ----------- $35,651,000 $68,956,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,819,000 $ 5,037,000 Accrued liabilities 2,496,000 5,921,000 Current maturities of long-term debt 2,673,000 1,956,000 ----------- ----------- Total current liabilities 6,988,000 12,914,000 Long-term debt, net of current maturities 5,571,000 24,394,000 Other long-term liabilities 2,127,000 5,096,000 ----------- ----------- Total liabilities 14,686,000 42,404,000 Stockholders' equity: Common stock, par value $.001; 10,000,000 shares authorized; issued and outstanding: 4,099,004 at August 31, 1997 4,245,999 at May 31, 1998 16,226,000 18,434,000 Retained earnings 4,739,000 8,118,000 ----------- ----------- Total stockholders' equity 20,965,000 26,552,000 ----------- ----------- $35,651,000 $68,956,000 =========== ===========
See accompanying notes. 3 Summa Industries CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three months ended Nine months ended --------------- --------------- --------------- --------------- May 31, 1997 May 31, 1998 May 31, 1997 May 31, 1998 --------------- --------------- --------------- --------------- Net sales $12,023,000 $23,854,000 $26,634,000 $60,698,000 Cost of sales 8,329,000 16,377,000 18,438,000 42,121,000 ----------- ----------- ----------- ----------- Gross profit 3,694,000 7,477,000 8,196,000 18,577,000 Selling, general and administrative 2,595,000 4,565,000 6,115,000 11,917,000 ----------- ----------- ----------- ----------- Operating income from continuing operations 1,099,000 2,912,000 2,081,000 6,660,000 Interest expense, net 105,000 506,000 186,000 1,159,000 Other expense 220,000 84,000 235,000 214,000 ----------- ----------- ----------- ----------- Income from continuing operations before provision for taxes 774,000 2,322,000 1,660,000 5,287,000 Provision for income taxes 316,000 988,000 676,000 2,207,000 ----------- ----------- ----------- ----------- Income from continuing operations 458,000 1,334,000 984,000 3,080,000 Income from discontinued operations net of the effect of income tax 162,000 66,000 478,000 299,000 ----------- ----------- ----------- ----------- Net Income $ 620,000 $ 1,400,000 $ 1,462,000 $ 3,379,000 =========== =========== =========== =========== Earnings per common share Income from continuing operations basic $.11 $.32 $.30 $.74 diluted .11 .29 .30 .68 Income from discontinued operations basic $.04 $.01 $.15 $.07 diluted .04 .01 .14 .06 Net Income basic $.15 $.33 $.45 $.81 diluted .15 .30 .44 .74 Weighted average common shares outstanding basic 4,059,000 4,244,000 3,240,000 4,181,000 diluted 4,105,000 4,661,000 3,286,000 4,544,000
See accompanying notes. 4 Summa Industries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended -------------------------------------- May 31, 1997 May 31, 1998 --------------- --------------- Operating activities: Net income $ 1,462,000 $ 3,379,000 --------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,510,000 2,720,000 Loss (gain) on disposition of property, plant and equipment (2,000) 117,000 Net change in assets and liabilities Accounts receivable 342,000 (1,591,000) Inventories 89,000 (474,000) Prepaid expenses and other 115,000 73,000 Accounts payable (839,000) 130,000 Accrued liabilities (587,000) 350,000 --------------- --------------- Total adjustments 628,000 1,325,000 --------------- --------------- Net cash provided by operating activities 2,090,000 4,704,000 --------------- --------------- Investing activities: Purchase of business (Note 3) --- (22,859,000) Property, plant & equipment (1,246,000) (2,072,000) Proceeds from sale of equipment 5,000 6,000 Net decrease in unexpended revenue bond proceeds 204,000 371,000 Proceeds from cash surrender value of life insurance 254,000 --- --------------- --------------- Net cash used in investing activities (783,000) (24,554,000) --------------- --------------- Financing activities: Net proceeds from line of credit (275,000) 6,865,000 Proceeds from issuance of long-term debt (612,000) 13,500,000 Payments on long-term debt --- (4,380,000) Proceeds from exercise of stock options 40,000 864,000 Cash acquired from acquisition of businesses, net of cash paid 318,000 --- --------------- --------------- Net cash provided by financing activities (529,000) 16,849,000 --------------- --------------- Net decrease in cash 778,000 (3,001,000) Cash at beginning of period 567,000 3,020,000 --------------- --------------- Cash at end of period $ 1,345,000 $ 19,000 =============== =============== Supplemental cash flow information: Cash paid during the period for: Interest $ 302,000 $ 1,196,000 =============== =============== Income tax $ 857,000 $ 2,052,000 =============== =============== Non-cash investing and financing activities Common stock issued and value assigned to stock options for acquisitions (Note 3) $ 9,842,000 $ 1,345,000 =============== =============== Details of acquisitions (Note 3): Fair value of assets acquired $ 24,064,000 $ 37,317,000 Liabilities assumed or incurred 14,027,000 11,707,000 Common stock issued and value assigned to stock options 9,842,000 1,345,000 --------------- --------------- Cash paid 195,000 24,265,000 Less cash acquired (513,000) (1,406,000) --------------- --------------- Net cash (acquired) used in acquisitions $ (318,000) $ 22,859,000 --------------- ---------------
See accompanying notes. 5 Summa Industries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of presentation The accompanying condensed consolidated financial statements of Summa Industries (the "Company"), some of which are unaudited, have been condensed in certain respects and should, therefor, be read in conjunction with the audited financial statements and notes related thereto contained in the Company's Annual Report on Form 10-K for the year ended August 31, 1997. In the opinion of the Company, the accompanying unaudited interim consolidated financial statements contain all adjustments necessary for a fair presentation for the interim period. (See Notes 3 and 4 below.) The results of operations for the three months and nine months ended May 31, 1998 are not necessarily indicative of the results to be expected for the full year ending August 31, 1998. 2. Inventories Inventories of the continuing businesses at August 31, 1997 and May 31, 1998 were as follows:
August 31, 1997 May 31, 1998 (unaudited) --------------- ------------ Finished goods $ 885,000 $3,703,000 Work in process 13,000 70,000 Material and parts 2,078,000 5,805,000 ---------- ---------- $2,976,000 $9,578,000 ========== ==========
3. Acquisitions On May 1, 1998, the Company completed the acquisition of Falcon Belting, Inc. ("Falcon") of Oklahoma City, Oklahoma, a manufacturer of modular plastic conveyor belting used in food processing industries. The operations of Falcon have been consolidated with the Company's KVP Falcon Plastic Belting, Inc. subsidiary (formerly KVP Systems, Inc.). The total acquisition cost was $5,625,000, consisting of $2,639,000 in cash and the present value of obligations to make future payments to the former owner of Falcon and liabilities assumed or incurred of $2,986,000. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets purchased and liabilities assumed or incurred based upon their fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired amounted to $2,295,000 and has been recorded as goodwill which is being amortized on a straight-line basis over 30 years. On October 28, 1997, the Company completed the acquisition of Calnetics Corporation ("Calnetics"). The total acquisition cost was $31,692,000, consisting of cash due to former Calnetics shareholders of $22,335,000, acquisition costs of $50,000, liabilities assumed or incurred of $7,962,000 and an estimated fair value of $1,345,000 for options issued in conjunction with the transaction, primarily replacement options issued to Calnetics employees who continued with the Company. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to identifiable tangible and intangible assets purchased and liabilities assumed or incurred based upon their fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired amounted to $14,081,000 and has been recorded as goodwill which is being amortized on a straight-line basis over 30 years. 6 As a consequence of the foregoing acquisitions, the consolidated balance sheet of the Company at May 31, 1998 includes the balance sheets of Calnetics and Falcon along with preliminary purchase accounting adjustments. The results of operations of Calnetics and Falcon have been included in the consolidated results of operations and the consolidated statements of cash flows of the Company since October 28, 1997 and May 1, 1998, the respective dates of the acquisitions. The results of operations of LexaLite International Corporation ("LexaLite") have been included in the consolidated results of operations and the consolidated statements of cash flow since November 22, 1996, the date of the acquisition of LexaLite. The following proforma financial information presents the results of operations of the continuing businesses of the Company with LexaLite and Calnetics as though both acquisitions had been made as of September 1, 1996. Proforma adjustments have been made to give the effect to the amortization of goodwill and other intangibles, adjustments in depreciation and inventory value, a reduction in redundant operating expense, interest expense related to acquisition debt, the related tax effects and the effect upon basic and diluted earnings per share of the additional shares of stock given in exchange for LexaLite stock and of stock options issued in conjunction with the acquisitions. The following proforma financial information does not include adjustments to give effect to the Falcon acquisition as such adjustments would not be material.
Three months ended Nine months ended --------------------------- --------------------------- May 31, 1997 May 31, 1998 May 31, 1997 May 31, 1998 ------------ ------------ ------------ ------------ Net sales $21,284,000 $23,854,000 $61,534,000 $66,416,000 Income from continuing operations 785,000 1,334,000 1,512,000 3,188,000 =========== =========== =========== =========== Net income from continuing operations per common share basic $.19 $.32 $.39 $.76 diluted $.18 $.29 $.37 $.68
Such proforma results are not necessarily indicative of what the actual consolidated results of operations might have been if the acquisitions had been effective at the beginning of the periods presented or the results which may be achieved in the future. 4. Divestiture On June 26, 1998, the Company completed the previously-announced divestiture of GST Industries, Inc. ("GST"), a manufacturer of industrial firefighting and defense aerospace equipment located in Santa Ana, California. Accordingly, the business of GST is being accounted for as a discontinued operation and results of operations are segregated in the accompanying consolidated statements of income. The assets and liabilities of discontinued operations have been classified in the consolidated balance sheets as "Net assets of discontinued operations." Discontinued operations have not been segregated in the consolidated statements of cash flows. 7 Statements of Income of the Company, restated for the last three completed fiscal years to reflect the divestiture, are:
Fiscal year ended --------------------------------------------------- August 31, 1995 August 31, 1996 August 31, 1997 --------------- --------------- --------------- Net sales $6,567,000 $8,124,000 $39,093,000 Cost of sales 3,474,000 4,339,000 27,097,000 --------------- --------------- --------------- Gross profit 3,093,000 3,785,000 11,996,000 Selling, general and administrative expenses 2,487,000 3,144,000 8,767,000 --------------- --------------- --------------- Income from operations 606,000 641,000 3,229,000 Interest (income) - (27,000) (200,000) Interest expense - 12,000 475,000 Other expense - 30,000 254,000 --------------- --------------- --------------- Income from continuing operations before provision for taxes 606,000 626,000 2,700,000 Provision for income taxes 217,000 253,000 1,088,000 --------------- --------------- --------------- Income from continuing operations 389,000 373,000 1,612,000 Income from discontinued operations, net of the effect of income tax of $253,000 in 1995, $102,000 in 1996 and $426,000 in 1997 259,000 195,000 640,000 --------------- --------------- --------------- Net income $648,000 $568,000 $2,252,000 Income per common share: Income from continuing operations basic $.25 $.24 $.47 diluted $.25 $.23 $.46 Income from discontinued operations basic $.17 $.12 $.18 diluted $.17 $.12 $.18 Net income basic $.42 $.36 $.65 diluted $.42 $.35 $.64 Weighted average common shares outstanding basic 1,539,000 1,565,000 3,450,000 diluted 1,553,000 1,603,000 3,521,000
The sales from the discontinued operations of GST Industries, Inc. were $3,670,000 for fiscal 1995, $4,618,000 for fiscal 1996, $4,144,000 for fiscal 1997, and $2,607,000 for the nine months ended May 31, 1998. 5. Recent Accounting Pronouncement The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", issued by the Financial Accounting Standards Board ("FASB"), and accordingly has restated prior period earnings per share. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to statements regarding Summa's expectations, hopes, beliefs, intentions or strategies regarding the future. Actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, including those detailed in this "Management's Discussion and Analysis" section (including the potential material adverse consequences to the Company of the Year 2000 issue) and elsewhere herein and in the Company's Annual Report on 8 Form 10-K for the fiscal year ended August 31, 1997. The forward-looking statements are made as of the date hereof, and the Company assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements. Recent Events - ------------- Divestiture of GST Industries, Inc. Subsidiary On June 26, 1998, the Company completed the previously-announced divestiture of GST Industries, Inc. ("GST"), a manufacturer of industrial firefighting and defense aerospace equipment located in Santa Ana, California. The businesses operated by GST do not fit the Company's focus on plastic products. Additionally, while GST is profitable, it is not expected to grow significantly in the near term. The total purchase price paid by the buyers was $2,700,000, consisting of $1,200,000 in cash and a $1,500,000 seven-year subordinated, convertible, secured promissory note bearing interest at 10% per annum. In addition, the Company may receive a maximum of $2,000,000 in royalty payments over the next five years based upon a percentage of future sales in excess of a base amount. It is expected that the royalties actually received, if any, will be substantially less than $2,000,000 and the value of the conversion rights of the note is highly speculative. Acquisition of Falcon Belting, Inc. On May 1, 1998, the Company completed the acquisition of Falcon Belting, Inc. ("Falcon") of Oklahoma City, Oklahoma, a manufacturer of modular plastic conveyor belting used in food processing industries. The operations of Falcon have been consolidated with the Company's subsidiary KVP Falcon Plastic Belting, Inc. (formerly KVP Systems, Inc.). The combined company will continue to operate in California and Oklahoma. For the year ended January 31, 1998, Falcon recorded sales of $4.8 million. For additional information, see Note 3 "Acquisitions" to the condensed consolidated financial statements of the Company set forth above. Reincorporation in Delaware Effective April 1, 1998, the Company was reincorporated from the State of California to the State of Delaware (the "Reincorporation"). The Reincorporation was previously approved by the requisite vote of the Company's shareholders at the Annual Meeting of Shareholders held in Torrance, California on January 26, 1998. The definitive proxy statement describing the Reincorporation was filed with the Securities and Exchange Commission on December 10, 1997. Results of Operations - --------------------- The following table sets forth certain income information for the Company's continuing operations as a percent of sales for the quarters and nine months ended May 31, 1997 and 1998.
Three months ended Nine months ended --------------------------------- --------------------------------- May 31,1997 May 31,1998 May 31,1997 May 31,1998 Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 69.3% 68.7% 69.2% 69.4% --------------- -------------- --------------- --------------- Gross profit 30.7% 31.3% 30.8% 30.6% S, G & A 21.6% 19.1% 23.0% 19.6% --------------- -------------- --------------- --------------- Operating income from continuing 9.1% 12.2% 7.8% 11.0% operations Interest expense, net .9% 2.1% .7% 1.9% Other expense 1.8% .4% .9% .4% --------------- -------------- --------------- --------------- Income from continuing operations before provision for taxes 6.4% 9.7% 6.2% 8.7% Provision for income taxes 2.6% 4.1% 2.5% 3.6% --------------- -------------- --------------- --------------- Income from continuing operations 3.8% 5.6% 3.7% 5.1% =============== ============== =============== =============== Effective tax rate 40.8% 42.5% 40.7% 41.7%
9 Sales for the third quarter, ended May 31, 1998, increased $11,831,000, or 98% compared to the same period in the prior year, due primarily to the inclusion of the sales of recently acquired Calnetics for the quarter, not included in the prior year third quarter, increases in the sales of the previously owned businesses and inclusion of one month of sales of newly acquired Falcon. Sales for the nine months ended May 31, 1998 increased $34,064,000, or 128% compared to the same period in the prior fiscal year, due primarily to the inclusion of the sales of recently acquired Calnetics for seven months, inclusion of sales of LexaLite for the full nine months in the current year results compared to six months in the prior year nine month period, increases in the sales of the previously owned businesses and, to a lesser extent, inclusion of the sales of recently acquired Falcon for one month. Consolidated gross profit for the third quarter increased $3,783,000, or 102% primarily due to inclusion of the results of recently acquired Calnetics, growth in the previously owned businesses and, to a lesser extent, inclusion of Falcon for one month. The gross profit percentage increased from 30.7% to 31.3% as a result of blending newly acquired operations with previously owned operations, management initiatives to reduce costs and the benefit of increased volumes. Consolidated gross profit for the nine months ended May 31, 1998 increased $10,381,000, or 127% due to inclusion of seven month's results of Calnetics, inclusion of the results of LexaLite for the full nine months in this year's results compared to six months in the lasts year's nine months, growth in the previously owned businesses and, to a lesser extent, inclusion of one month's results of Falcon. Operating expenses for the third quarter increased $1,970,000, or 76% from the comparable prior year quarter, but as a percentage of sales, decreased from 21.6% to 19.1% primarily because of the inclusion of sales and operating expenses of the newly acquired businesses. Operating margin increased from 9.1% to 12.2% as a result of the changes in gross margin and operating expense discussed above. The increase in net interest expense incurred in the current periods related to interest expense on debt acquired with the acquisition of LexaLite and interest on debt incurred in connection with the acquisitions of Calnetics and Falcon (see "Liquidity and Capital Resources" below). Operating expenses for the nine months ended May 31, 1998 increased $5,802,000, or 95% from the prior year nine month period primarily because of the inclusion of the operating expenses of Calnetics for seven months, inclusion of the operating expenses of LexaLite for the full nine months in the current year compared to six months of the prior year nine month period and inclusion of Falcon for one month. Operating margins increased from 7.8% to 11.0% as a result of the changes in gross margin and operating expense discussed above. The increase in the effective tax rate in the current three and nine month periods is primarily associated with the non-deductible amortization of goodwill related to the recent acquisitions offset by a lower effective combined state income tax rate. The Company's backlog of the continuing businesses, believed to be firm, increased from $6,530,000 at February 28, 1997 to $7,050,000, at May 31, 1998, primarily as a result of the backlog acquired in the Falcon acquisition. The Company's order backlog is not a significant indicator of future sales volumes. Liquidity and Capital Resources - ------------------------------- The Company's working capital at May 31, 1998 was $13,196,000 compared to $7,209,000 at August 31, 1997. The primary reason for the increase was the inclusion of the balance sheet of newly acquired Calnetics and, to a lesser extent, Falcon. In connection with the acquisition of Calnetics, the Company entered into a new $34 million credit agreement with a bank. At May 31, 1998, total borrowings under the credit agreement were $19,865,000, and the Company had additional debt of $6,485,000. The weighted average interest rate for all of the Company's debt at May 31, 1998 was 7.6%, and unused bank credit totaled $13,135,000. All of the Company's assets are pledged to secure the debt described above. The Company believes that cash flows from operations and available lines of credit will be sufficient to fund working capital 10 requirements, planned capital expenditures and debt service for the next twelve months. Although the effects on liquidity of the divestiture of GST are not yet known, the Company does not expect the divestiture to materially effect liquidity in an adverse manner. The Company has a strategy of growth by acquisition. In the event an acquisition plan is adopted which requires funds exceeding the availability described above, an alternate source of funds to accomplish the acquisition would have to be developed. The Company has 10,000,000 shares of common stock authorized, of which 4,245,999 shares were outstanding at May 31, 1998 and 5,000,000 shares of "blank check" preferred stock authorized of which none is outstanding. The Company could issue additional shares of common or preferred stock to raise funds. Year 2000 Compliance - -------------------- The Company is continuing to analyze operations to determine and implement the procedures necessary to ensure timely Year 2000 compliance. The Company is also in the process of identifying and contacting key customers, vendors and suppliers to request confirmation of timely external Year 2000 compliance. Each of the Company's facilities utilizes and is dependent upon data processing systems and software to conduct business. The Company has received confirmation from vendors of the principal business software used by the Company that such software is designed to be Year 2000 compliant. Further, for reasons generally unrelated to the Year 2000 issue, the Company is in the process of purchasing and installing new systems for certain operations. The Company currently anticipates that all internally used software will be Year 2000 compliant in a timely manner. Additionally, various machines and other types of personal property at each facility have computer controls and/or contain integrated circuits that may be affected, and the Company is in the process of identifying and analyzing such property to determine Year 2000 compliance. Although, the Company currently believes that becoming internally Year 2000 compliant will not have a significant impact on the financial condition or results of future operations of the Company, the Company remains concerned that the failure to comply by a relatively small number of large customers and/or vendors, including banking institutions and transportation companies, could significantly disrupt operations at one or more of the Company's facilities. PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- The Company encounters lawsuits from time to time in the ordinary course of business and, at May 31, 1998, the Company or its affiliates were parties to several civil lawsuits, one of which is described below. Any losses that the Company may suffer from current or future lawsuits, and the effect such litigation may have upon the reputation and marketability of the Company's products, could have a material adverse impact on the future results of operations, the financial condition and prospects of the Company. Laitram, et. al. v. KVP Systems, Inc., et. al. was filed in the U.S. District - ---------------------------------------------- Court in Eastern Louisiana in September 1993. The plaintiffs claim KVP has infringed upon two patents. The venue was changed to the Federal District Court in Sacramento, California. KVP contended the claims were invalid and filed certain counterclaims. On April 24, 1997, the District Court ruled that KVP's products do not infringe plaintiff's patents and also dismissed the counterclaims. The parties appealed, and on May 5, 1998, the Court of Appeals affirmed the District Court's ruling in its entirety. Both sides have a limited amount of time remaining to petition for review by the U.S. Supreme Court. Although the Company believes it has a reasonable expectation of prevailing on petition, if any, in the absence of applicable insurance, the consequences of an adverse determination would be borne by the Company. Item 2. Changes in Securities - ------------------------------ In connection with the shareholder-approved Reincorporation, the Company adopted a new Certificate of Incorporation and Bylaws and became subject to Delaware state law. As a result, the rights of the holders of outstanding shares of the 11 Company's common stock were materially modified. For a detailed description of each material modification, see the "Changes in Summa's Charter to be Effected by Reincorporation" and "Certain Differences in State Corporation Laws" sections set forth in the Company's definitive proxy statement describing the Reincorporation filed with the Securities and Exchange Commission on December 10, 1997. Such sections to the definitive proxy statement and Appendices II and III thereto (the Certificate of Incorporation and Bylaws) are incorporated herein by this reference and made a part hereof. Item 3. Default upon Senior Securities - --------------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None. Item 5. Other Information - -------------------------- Prior to October 1986, a previously owned business unit of one of the Company's subsidiaries operated a facility on property within an area subsequently designated as a federal Superfund site. The Company learned that hazardous substances have been identified in the subsurface of the property and that the current owner has been requested by a state agency to undertake additional investigation at the property. The Company is also aware that the property has been subject to a general notice letter issued by the United States Environmental Protection Agency under the federal Superfund law. The Company, as the successor to one of several prior operators of the property, may be held responsible for the contamination at the site regardless of whether its subsidiary caused the contamination. The Company does not believe it is responsible for any contamination at the property, and has not been notified or contacted by any governmental authority in that regard, nor named in any proceeding relating to the property. However, if the Company were held liable under federal Superfund law, or other environmental law, or had to defend itself against such a claim, the consequences could be material to future results of operations of the Company, but would not be expected to have a material effect on its financial condition. The Internal Revenue Service ("IRS") previously completed an examination regarding the tax exempt status of one of the Company's industrial revenue bonds and informed the Company that its findings indicated that the bond is not tax exempt. During the quarter ended May 31, 1998, the Company and the IRS tentatively agreed to a settlement of this matter which will include leaving the tax exempt bond in place. The consequences of such settlement, if and when finalized, will not be material to future results of operations or to the financial condition of the Company. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits. 10.1 Stock Purchase Agreement and Amendment No. 1 thereto dated April 8, 1998 and April 24, 1998, respectively, by and among Mr. William G. Faulkner, KVP Systems, Inc. and the Company relating to the acquisition by the Company of Falcon Belting, Inc. 10.2 Stock Purchase Agreement dated June 12, 1998 by and between P&L Growth Industries, Inc., a California corporation, and the Company relating to the divestiture by the Company of GST Industries, Inc. 10.3 Subordinated Convertible Promissory Note, Security Agreement and Guaranty dated June 26, 1998 by and among P&L Growth Industries, Inc., GST Industries, Inc. and the Company relating to the divestiture by the Company of GST Industries, Inc. 27.1 Financial Data Schedule In addition, each of the exhibits previously filed with the Commission in connection with (i) the 12 Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997 (File No. 1-7755), (ii) the Company's Registration Statement on Form S-4 (File No. 333-11571), and (iii) the Calnetics' Annual Report on Form 10-K for the fiscal year ended June 30, 1997 (File No. 0-08767), as well as Appendix I to the Calnetics' definitive Proxy Statement on Schedule 14A (File No. 0-08767) for the Special Meeting of Shareholders held October 28, 1997, and Appendices I, II and III to the Company's definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders held on January 26, 1998, are incorporated herein. (b) Current Reports on Form 8-K. --------------------------- Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 1998 relating to the Reincorporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on July 1, 1998. Summa Industries /s/ James R. Swartwout /s/ Trygve M. Thoresen - ---------------------- ---------------------------- James R. Swartwout Trygve M. Thoresen President and Chief Financial Officer Vice President and Secretary 13 EX-10.1 2 STOCK PURCHASE AGREEMENT AND AMEND. #1 EXHIBIT 10.1 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement") is made and entered into as of April 8, 1998 by and among Mr. William G. Faulkner, as an individual and a resident of the State of Florida ("Faulkner") and as Trustee of the William G. Faulkner 1994 Revocable Trust under Agreement dated August 8, 1994 ("Shareholder"), KVP Systems, Inc., a California corporation (the "Company"), and Summa Industries, a Delaware corporation and parent of the Company ("Summa"). WHEREAS, Shareholder is the sole owner of all of the issued and outstanding shares of capital stock of Falcon Belting, Inc., an Oklahoma corporation ("Falcon"); and WHEREAS, Shareholder desires to sell to the Company, and the Company desires to purchase from Shareholder, all of the issued and outstanding shares of capital stock of Falcon (the "Shares") upon the terms, subject to the conditions and for the consideration hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE I THE PURCHASE 1.1 Purchase and Sale of the Shares. On the terms and subject to the ------------------------------- conditions set forth in this Agreement, Shareholder will sell, assign, transfer and deliver to the Company, and the Company will purchase from Shareholder, all of his right, title and interest in and to the Shares, consisting of seventy thousand (70,000) shares of Falcon common stock, $.50 par value. ARTICLE II THE PURCHASE PRICE; OTHER PAYMENTS 2.1 Purchase Price. At the Closing (as defined in Section 3.1 below), the -------------- ----------- Company shall cause to be paid and delivered to Shareholder cash and debt for the Shares (the "Purchase Price") as follows: (a) Cash. Two Million Three Hundred and Nine Thousand Five Hundred ---- Twenty Five and No/100 Dollars ($2,309,525.00), which includes the first $12,500.00 quarterly payment for the Covenant Not to Compete due under Section ------- 10.2 hereof, less all amounts previously paid or paid after the date hereof and - ---- prior to the Closing as a deposit under Section 8.3 hereof. ----------- (b) Promissory Note. A subordinated promissory note from Summa in --------------- substantially the form attached hereto as Exhibit A (the "Note") in the --------- principle amount equal to the outstanding balance due on Falcon's line of credit at the Bank of Oklahoma, N.A. on the Closing Date (as defined in Section 3.1 ----------- below), not to exceed Three Hundred Thousand Dollars ($300,000.00), due in eighteen (18) months from the Closing Date and bearing interest at the prime rate (as reported in The Wall Street Journal) less one (1) percent per annum, with interest payable quarterly. 2.2 Other Amounts Due and Payable. On the Closing Date (as defined in ----------------------------- Section 3.1 below), the Company shall cause Falcon to pay the following: (i) - ----------- Three Hundred Fifty Four Thousand Nine Hundred Seventy Five and No/100 Dollars ($354,975.00) to Faulkner representing the total amount due for accrued but unpaid royalties under that certain Second Amended and Restated License Agreement dated January 14, 1995 and related promissory note, and (ii) One Hundred Ninety Eight Thousand Dollars ($198,000.00) to certain employees of Falcon for previously declared but unpaid bonuses, in the individual amounts and to the persons set forth in the books and records of Falcon and as shown on Schedule 2.2 hereto. - ------------ ARTICLE III THE CLOSING 3.1 Closing. The purchase and sale described in this Agreement shall be ------- consummated at a closing (the "Closing") to be held at 10:00 a.m. Eastern Time on May 1, 1998, or on such earlier or later date and time as may be mutually agreed by the parties (the "Closing Date") at a mutually agreeable location in Orlando, Florida. 3.2 Deliveries to or Between the Parties. At the Closing, the Company ------------------------------------ shall deliver to Shareholder the cash portion of the Purchase Price and the Note. At the Closing, Shareholder shall deliver to the Company certificates representing the Shares, duly endorsed in blank or accompanied by stock powers duly endorsed in blank in proper form for transfer, with appropriate transfer stamps, if any, affixed thereto. In addition, at the Closing the Company and Shareholder shall deliver to and receive from each other all documents required to be delivered and received pursuant to Article IX hereof (Conditions Precedent to Closing). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER AND FAULKNER Shareholder and Faulkner jointly and severally hereby represent and warrant to the Company as of the date hereof and as of the Closing Date as follows: 4.1 Ownership of Shares. Except as set forth in Schedule 4.1 hereto, ------------------- ------------ Shareholder owns, beneficially and of record, the Shares, free and clear of all liens, pledges, charges, claims, equities, restrictions or encumbrances, and Shareholder has and will have the full right, power and authority to sell, transfer and deliver the Shares to the Company at the Closing. Upon delivery of the Shares to the Company at the Closing and upon receipt by Shareholder of the Purchase Price, good and valid title to the Shares will pass to the Company free and clear of all liens, pledges, charges, claims, equities, restrictions and encumbrances. The sale by Shareholder of the Shares does not constitute a breach or violation of, or default under, any will, deed, trust, agreement or other instrument, whether written or oral, by which Shareholder or Faulkner is bound. 4.2 Organization of Falcon. Falcon is a corporation duly organized, ---------------------- validly existing and in good standing under the laws of the State of Oklahoma, and has its principal place of business at 8338 S.W. 15th Street, Oklahoma City, Oklahoma 73128. A true and complete copy of the Articles of Incorporation of Falcon and all amendments thereto certified by the Secretary of State of Oklahoma, and a true copy of the Bylaws of Falcon certified by the Secretary of Falcon, will be delivered to the Company prior to the Closing. Falcon is not qualified to do business in any jurisdiction other than Oklahoma and its failure to be so qualified will not have a material adverse effect on its business, its prospects, its results of operations or its financial condition. Falcon has no subsidiaries and no investments, directly or indirectly, or other financial interests in any other corporation or business organization, joint venture or partnership of any kind whatsoever except as may be reflected in the Schedules hereto. 4.3 Authorized Capital. Falcon has an authorized capital of one hundred ------------------ thousand (100,000) shares of common stock, $.50 par value, of which seventy thousand (70,000) shares are validly issued and outstanding, fully paid and nonassessable, all of which are held of record and beneficially by Shareholder. Except as set forth in Schedule 4.3 hereto, here are no (i) outstanding stock ------------ options, warrants, privileges or rights to purchase or subscribe for any capital stock of Falcon, (ii) obligations or securities issued by Falcon convertible into or exchangeable for capital stock of Falcon, (iii) agreements providing for or relating to any options, warrants, privileges, rights, convertible obligations or securities to which Falcon is a party, (iv) voting trust agreements or other contractual obligations restricting or otherwise relating to the voting, dividend rights or disposition of any capital stock of Falcon, or (v) any agreements by Falcon to issue, sell, or acquire any of its capital stock. Falcon does not directly or indirectly own capital stock of or other equity interests in any other person, entity or venture. 4.4 No Breach or Default; Consents and Approvals. -------------------------------------------- (a) No Breach or Default. Except as set forth in Schedule 4.4 hereto, -------------------- ------------ the execution and delivery by Shareholder and Faulkner of this Agreement and other documents referenced herein to which Shareholder, Faulkner or Falcon is a party and the consummation of the transactions contemplated hereby and thereby will not result in or constitute any of the following: (i) a default or an event that, with the giving of notice or lapse of time, or both, would be a default, breach or violation of any contractual obligation of Falcon, Faulkner or Shareholder or the Articles of Incorporation or Bylaws of Falcon, (ii) an event that would permit any party to terminate any contract, agreement or understanding or to accelerate the maturity of any indebtedness or other obligation of Falcon, Faulkner or Shareholder, (iii) the creation or imposition of any lien or other obligation of any type on any of the properties of Falcon, Faulkner or Shareholder, or (iv) a violation of any order, writ, injunction, decree, statute, rule or regulation applicable to Falcon, Faulkner or Shareholder. (b) Consents and Approvals. Except as set forth in Schedule 4.4 ---------------------- ------------ hereto, no authorization, consent or approval of any governmental authority or any third party is necessary for the consummation by Shareholder, Faulkner or Falcon of the transactions contemplated by this Agreement and the other documents referenced herein to which either will be a party. 4.5 Permits. Falcon holds all permits, licenses, franchises, ------- certificates and authorizations that are required by any governmental agency to permit it to conduct its business as now conducted and as previously conducted by it, and all such permits, licenses, franchises, certificates and authorizations are valid and in full force and effect and will remain so upon consummation of the transactions contemplated by this Agreement. No suspension, cancellation or termination of any of such permits, licenses, franchises, certificates and authorizations is threatened or imminent. 4.6 Financial Statements; Undisclosed Liabilities. --------------------------------------------- (a) Financial Statements. Faulkner has furnished to the Company (i) -------------------- an unaudited balance sheet of Falcon as of February 28, 1998 (the "Balance Sheet"), (ii) an unaudited income statement of Falcon for the one month ended February 28, 1998, and (iii) unaudited balance sheets and income statements of Falcon for the fiscal years ended January 31, 1997 and 1998 (collectively, the "Financial Statements"), as such Financial Statements are attached to Schedule -------- 4.6 hereto. The Financial Statements fairly present the financial condition of - --- Falcon as of the respective dates indicated, and the results of its operations for the respective periods indicated, and were prepared in accordance with generally accepted accounting principles consistently applied, except for the absence of complete footnotes and as otherwise stated within the Financial Statements. From and after the date hereof until the Closing, Shareholder and/or Faulkner shall cause Falcon to deliver to the Company, within twenty (20) days after each month end, monthly unaudited balance sheets and income statements which, at the time they are delivered to the Company, will fairly present the assets and aggregate liabilities and results of operations of Falcon as of their respective dates. (b) Undisclosed Liabilities. Falcon has and will have no ----------------------- indebtedness, obligations or liabilities, whether accrued, absolute, contingent or otherwise and whether due or to become due, known or unknown, including without limitation tax liabilities due or to become due, as of date of the Balance Sheet or as of the Closing Date, which are not reflected or reserved for in the Balance Sheet or Closing Date balance sheet, respectively. 4.7 Absence of Certain Changes or Events. Except as set forth on ------------------------------------ Schedule 4.7 hereto, since December 31, 1997, there has not been a material - ------------ adverse change in the assets, liabilities, business, prospects, financial condition or results of operations of Falcon. Since the date of the Balance Sheet, Faulkner has caused Falcon to conduct its business in the ordinary course consistent with past practices, and neither Shareholder, Faulkner nor Falcon has taken any action that, if taken after the date hereof, would constitute a breach of any of the covenants set forth in Section 7.2 below. ----------- 4.8 Taxes. Falcon has, since its inception, duly and timely filed all ----- federal, state, county and local tax returns required to have been filed by it in those jurisdictions where the nature or conduct of its business required such filing and where the failure to so file would be adverse to Falcon. Copies of all tax returns for the past three years have been delivered to the Company prior to the execution hereof. All federal, state, county and local taxes, including but not limited to those taxes due with respect to Falcon's properties, income, gross receipts, excise, occupation, franchise, permit, licenses, sales, payroll, and inventory due and payable as of the date hereof have been paid or validly extended. The amounts reflected in the Balance Sheet or the Closing Date balance sheet as liabilities or reserves for taxes which are due but not yet payable are sufficient for the full payment of all accrued and unpaid taxes of the types referred to hereinabove. No consent to the application of Section 341(f)(2) of the Internal Revenue Code of 1986, as amended, has been filed with respect to Falcon, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax returns, and all of the tax information set forth in the financial records of Falcon relating to tax matters is true and complete. 4.9 Assets Other than Real Property Interests. Set forth in Schedule 4.9 ----------------------------------------- ------------ hereto is a complete list of all items of tangible personal property (including without limitation all items of tooling) owned, leased or otherwise used by Falcon in the current conduct of its business, wherever located, for which the original cost was in excess of $10,000.00, and the original cost, location and ownership or lease of each such asset is indicated on the Schedule. Except as set forth in Schedule 4.9, Falcon has, and at the Closing Date will have, good ------------ and marketable title to, or in the case of leased equipment a valid leasehold interest in, and is in the possession of, all such items of personal property owned or leased by it, free and clear of all title defects, mortgages, pledges, security interests, condition sales agreements, liens, restrictions or encumbrances whatsoever. Included in Schedule 4.9 is a list of all outstanding ------------ equipment leases and maintenance agreements to which Falcon is a party as lessee and which individually provide for future lease payments in excess of $5,000 per month, with the identities of the other parties to all such leases and agreements shown thereon. All leases of tangible personal property to which Falcon is a party and which are material to the business of Falcon are fully effective in accordance with their respective terms, and there exists no material default on the part of Falcon or termination thereof, except as may be set forth in Schedule 4.9. Each item of capital equipment reflected in the ------------- Balance Sheet which is used in the current conduct of Falcon's business is in good operating and usable condition and repair, ordinary wear and tear excepted, is suitable for use in the ordinary course of Falcon's business and fit for its intended purposes and conforms with all applicable ordinances, regulations and other laws, except as may be set forth in Schedule 4.9. ------------ 4.10 Real Property. Set forth in Schedule 4.10 hereto is a complete and ------------- ------------- accurate description of each parcel of real property leased to and/or occupied by Falcon, including any easement, covenants, rights of way or similar restrictions, and Falcon does not own, lease nor occupy any other real property. Except as set forth in Schedule 4.10, the buildings and all fixtures and ------------- improvements located on such real property are in good operating condition, ordinary wear and tear excepted. To the best Knowledge and belief of Falcon and Shareholder, Falcon is not in violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of such properties, the violation of which may have a material adverse affect upon Falcon, its condition (financial or otherwise), assets, liabilities, properties or business, and Falcon has not received any notice of violation with which it has not complied or is not taking steps to comply. All leases of real property to which Falcon is a party were entered into at arms length and are fully effective in accordance with their respective terms and afford Falcon peaceful and undisturbed possession of the subject matter of the lease, and there exists no material default on the part of Falcon or termination thereof, except as may be set forth in Schedule 4.10. ------------- 4.11 Intellectual Property. Schedule 4.11 hereto sets forth a list of all --------------------- ------------- patents, trademarks, trade names, brand names, service marks and copyrights and all applications therefor, registered and unregistered, other than those relating to computer software, owned, used, filed by or licensed to Falcon (collectively, "Intellectual Property"). With respect to registered patents and trademarks, Schedule 4.11 contains a list of all jurisdictions in which such ------------- patent and trademarks are registered or applied for and all registration and application numbers. Except as disclosed on Schedule 4.11, ------------- Falcon owns or has the unrestricted right to use, free and clear of any rights of others and without payment to any other party, the Intellectual Property listed on such Schedule 4.11 plus all trade secrets, customer lists, ------------- manufacturing and secret processes owned or used by Falcon, and the consummation of the transactions contemplated hereby will not alter or impair any such items nor the right of Falcon to use such items; provided that, the License Agreement set forth in Exhibit B hereto between Faulkner and the Company has been --------- executed. Except as disclosed on Schedule 4.11, neither Falcon, Faulkner nor ------------- Shareholder has licensed to any third party, on an exclusive basis or otherwise, the right to use or exploit any Intellectual Property in any jurisdiction or otherwise transferred or assigned any Intellectual Property to any third party in any jurisdiction. Except as set forth on Schedule 4.11, no claims are pending ------------- or threatened against Shareholder, Faulkner or Falcon by any person or entity with respect to the ownership, validity, enforceability or use of any Intellectual Property listed on Schedule 4.11 or otherwise challenging or ------------- questioning the validity or effectiveness of any such Intellectual Property, and neither Shareholder, Faulkner nor Falcon has received any verbal or written notice, opinion or claim of any kind that any Falcon product may infringe any intellectual property rights of any third party. Falcon has not used and is not making use of any confidential information or trade secrets of any present or past employee of Falcon that has not been assigned to Falcon or that Falcon does not have the right to use. 4.12 Contracts. Falcon has no contract, agreement, obligation or --------- commitment, written or oral, expressed or implied, which was not incurred in the ordinary course of business, or involves a commitment or liability in excess of $10,000, or is for a term of more than one year or whose terms do not permit cancellation without liability on 30 days' notice or less (other than obligations which are included in accounts payable), and has no union contracts, employee or consultant contracts, loan, credit or other financing agreements, inventory flooring arrangements, debtor or creditor arrangements, security agreements, licenses, franchise, manufacturing, distributorship or dealership agreements, leases, or bonus, health or stock option plans, except for those described in Schedule 4.12 hereto, copies of all of which have been delivered to ------------- the Company prior to the execution hereof. As of the date hereof, there exists no circumstances which would affect the validity or enforceability of any of such contracts and other agreements in accordance with their respective terms. Except as set forth in Schedule 4.12, Falcon has performed and complied in all ------------- material respects with all obligations required to be performed by it to date under, and is not in default (without giving effect to any required notice or grace period) under, or in breach of, the terms, conditions or provisions of any of such contracts and other agreements. Except as set forth in Schedule 4.12, ------------- the validity and enforceability of any contract or other agreement described herein has not been and shall not in any manner be affected by the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. Except as set forth in Schedule 4.12, Falcon has no material contract, ------------- agreement, obligation or commitment which requires or will require future expenditures (including internal costs and overhead) in excess of reasonably anticipated receipts, nor which is likely to be materially adverse to Falcon's business, assets or condition (financial and otherwise). 4.13 Accounts Receivable. The accounts receivable reflected in the ------------------- Balance Sheet constituted all accounts receivable of Falcon as of the date thereof, other than accounts receivable fully written off as uncollectible as of such date in accordance with consistently applied prior practice. All such accounts receivable arose from valid sales made (as opposed to consignments) or services rendered in the ordinary course of business, and are not subject to any return privileges, set-off or counterclaim. Except as disclosed on Schedule 4.13 hereto, such accounts receivable have been collected ------------- in full since the date of the Balance Sheet or are collectible at their full respective amounts (net of allowance for doubtful accounts established in accordance with consistently applied prior practice). Based upon the prior experience of Falcon, the "allowance for doubtful accounts" shown on the Balance Sheet is sufficient to cover all doubtful accounts. 4.14 Inventories. Falcon has good and marketable title to all of its ----------- inventories of raw materials, work-in-process and finished goods, including models and samples, free and clear of all security interests, liens, claims and encumbrances, except as set forth in Schedule 4.14 hereto. All such inventories ------------- consist of items that are usable and salable in the ordinary course of business of Falcon for an amount at least equal to the book value thereto, plus the costs of disposition thereof, and represent quantities, individually and in the aggregate, not in excess of one year's requirements for its business as currently conducted, except as may be set forth in Schedule 4.14. ------------- 4.15 Litigation. Except as set forth in Schedule 4.15 hereto, there ---------- ------------- are no actions, suits or proceedings pending or, to the Knowledge of Shareholder, Faulkner or Falcon, threatened against or affecting Falcon, Faulkner, Shareholder or any Intellectual Property used by Falcon (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or foreign, or affecting any of the officers, directors or Shareholder in connection with the business, operations or affairs of Falcon, which could reasonably be expected to result in any material adverse change in the business, properties, assets or condition (financial or otherwise) of Falcon, or which question or challenge the transactions contemplated hereby, and Shareholder and Faulkner know of no facts which given the passage of time are likely to result in any such an action, suit or proceeding. Except as set forth in Schedule 4.15, neither Shareholder, Faulkner nor Falcon have, during ------------- the past five (5) years, been threatened with any action, suit, proceedings or claim (including actions, suits, proceedings or claims where its liabilities may be adequately covered by insurance) for personal injuries allegedly attributable to products sold or services performed by Falcon asserting a particular defect or hazardous property in any of Falcon's products, services or business practices or methods, nor has Shareholder, Faulkner or Falcon been a party to or threatened with proceedings brought by or before any federal or state agency; and Shareholder, Faulkner and Falcon have no Knowledge of any defect or hazardous property, claimed or actual, in any such product, service, business practice or method. Neither Shareholder, Faulkner nor Falcon is subject to any voluntary or involuntary proceeding under the United States Bankruptcy Code and neither has made an assignment for the benefit of creditors. 4.16 Environmental Matters. --------------------- (a) Except as set forth on Schedule 4.16 hereto, and to the best ------------- Knowledge and belief of Falcon and Shareholder: (i) Falcon has complied with all applicable Environmental Laws; (ii) Falcon's Property (including soils, groundwater, surface water, buildings or other structures) is not contaminated with any Hazardous Substances that may subject Falcon or the Company to liability under any Environmental Law; (iii) all properties formerly owned or operated by Falcon are not contaminated with Hazardous Substances that may subject Falcon or the Company to liability under any Environmental Law; (iv) Falcon is not subject to liability under any Environmental Law for any Hazardous Substance disposal or contamination on any third party property; (v) Falcon has not been associated with any release or threat of release of any Hazardous Substance that may subject Falcon or the Company to liability under any Environmental Law; (vi) Falcon has not received any notice, demand, letter, claim or request for information alleging that Falcon may be in violation of, or liable under, any Environmental Law; (vii) Falcon is not subject to any orders, decrees, injunctions or other arrangements with any governmental entity, nor is subject to any indemnity or other agreement with any third party relating to liability under any Environmental Law or relating to Hazardous Substances; (viii) there are no circumstances or conditions involving Falcon that could reasonably be expected to result in any claims, liability, investigations, costs or restrictions on the ownership, use or transfer of any of Falcon's Property pursuant to any Environmental Law; and (ix) Falcon's Property does not contain any underground storage tanks, asbestos-containing material, lead-based products, halogenated solvents or polychlorinated biphenyls. (b) "Environmental Law" means any federal, state, local or foreign law, statute, ordinance, rule, regulation, or treaty; all judicial administrative, and regulatory orders, judgments, decrees, permits, and authorizations; and common law relating to: (1) the protection, investigation, remediation or restoration of the environment or natural resources, (2) the handling, use, storage, treatment, disposal, release or threatened release of any Hazardous Substance; or (3) noise, odor, pollution, contamination, land use, or any injury or threat of injury to persons or property. (c) "Hazardous Substance" means any substance, material or waste that is: (1) listed, classified or regulated in any concentration pursuant to any Environmental Law; (2) any petroleum product or by-product, asbestos- containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon; or (3) any other substance, material or waste which may be the subject of regulatory action by any governmental entity pursuant to any Environmental Law. (d) "Property" means any real property and improvements owned, leased, used, operated or occupied by Falcon. 4.17 Compliance With Laws. To the best Knowledge and belief of -------------------- Falcon and Shareholder, Falcon has complied with, and is complying with, all applicable laws, orders, rules and regulations promulgated by any federal, state, municipal or other governmental authority relating to the operation and conduct of the property and business of Falcon, and there are no material violations of any such law, order, rule or regulation existing or threatened. Falcon has not received any notices of violation of any applicable zoning regulation or order, or other law, order, regulation or requirement relating to the operation of its business or to its properties. 4.18 Insurance. Falcon maintains insurance with reputable insurance --------- companies on such of its equipment, tools, machinery, inventory and properties as are usually insured by companies similarly situated in the same geographic location and to the extent customarily insured, and maintains products and personal liability insurance, and such other insurance against hazards, risks and liability to persons and property as is customary for companies similarly situated in the same geographic location. A true and complete listing and general description of each of Falcon's insurance policies as currently in force, including all policies of life, group medical and/or dental insurance, is set forth in Schedule 4.18 hereto, copies of all of which have previously been ------------- made available to the Company. All such insurance policies currently are in full force and effect. 4.19 Employee and Labor Matters. -------------------------- (a) Employee. Except as set forth in Schedule 4.19 hereto, no -------- ------------- shareholder, director, officer or employee of Falcon is presently a party to any transaction with Falcon, including without limitation any contract, loan or other agreement or arrangements providing for the furnishing of services by, the rental of real or personal property from or to, or otherwise requiring loans or payments to, any such shareholder, director, officer or employee, or to any member of the family of any of the foregoing, or to Shareholder's and Faulkner's Knowledge, to any corporation, partnership, trust or other entity in which any shareholder, director, officer or employee or any member of the family of any of them has a substantial interest or is an officer, director, trustee, partner or employee. There is set forth in Schedule 4.19 a list showing (i) the name, ------------- title, date and amount of last compensation increase, and aggregate compensation, including amounts paid or accrued pursuant to any bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect as of the date of this Agreement, of each officer or employee of Falcon whose salary and other compensation, in the aggregate, received from Falcon or accrued is at an annual rate (or aggregated for the most recently completed fiscal year) in excess of $40,000, as well as any employment and/or severance agreements relating to any such persons; (ii) a description of any and all bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect for any of Falcon's employees as of the date of this Agreement; (iii) a description of any noncompetition or similar agreements to which Falcon or any shareholder, director, officer or employee of Falcon is a party; (iv) all powers of attorney from Falcon to any person or entity; and (v) the name of each person or entity authorized to borrow money or incur or guarantee indebtedness on behalf of Falcon. Falcon has delivered to the Company copies of all written personnel policies, including without limitation vacation, severance, bonus, profit sharing and commission policies, applicable to any of Falcon's employees. Neither the execution and delivery of this Agreement by Falcon, nor the consummation by Falcon of any of the transactions contemplated hereby, or compliance by Falcon with any of the provisions hereof, shall create any obligation or liability on the part of Falcon under any bonus, profit sharing, deferred compensation or other plan or arrangement in effect as of the date of this Agreement and the Closing Date. (b) Labor. None of the facilities or operations of Falcon has ----- been the subject of any strike, work stoppage, boycott, union organizational effort, unfair labor practice charge or employment discrimination charge; and, to the Knowledge of Shareholder, Faulkner and Falcon, no such action is pending or threatened. 4.20 Warranties; Product Returns. Except as described in Schedule --------------------------- -------- 4.20 hereto, Falcon does not offer any warranties for its products and services. - ---- Falcon's warranty reserve reflected in the Financial Statements and in the Closing Date financial statements is adequate to cover all pending warranty claims. Except where: (i) Falcon has a contractual right of return and full refund with the suppliers of such products; (ii) the terms of routine sales documentation (which contain provision for a restocking charge upon return); and (iii) items which cannot be resold on Falcon premises in the "Demo" section thereof, Falcon does not currently hold inventory, nor is Falcon obligated to take back into inventory, products having an aggregate cost to Falcon of more than five thousand dollars ($5,000.00). 4.21 Relationships with Customers and Suppliers. Except as set ------------------------------------------ forth in Schedule 4.21, no present customer or substantial supplier to Falcon ------------- has indicated an intention to terminate or materially and adversely alter its existing business relationship therewith, and Falcon has no reason to believe that any of the present customers of or substantial suppliers to Falcon intends to do so. 4.22 Bank Accounts. All bank and savings accounts, and other ------------- accounts at similar financial institutions, of Falcon are listed in Schedule -------- 4.22 hereto, and copies of all signature cards or other documentation reflecting - ---- all individuals who are authorized to withdraw funds from any such accounts have been delivered to the Company. 4.23 Minute Books. The minute books of Falcon accurately reflect all ------------ actions and proceedings taken to date by Shareholder and by the Board of Directors of Falcon, and such minute books contain true and complete copies of the Articles of Incorporation and Bylaws of Falcon and all related amendments. 4.24 Brokerage. Neither Shareholder, Faulkner nor Falcon has any --------- obligation to any person or entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement. 4.25 Disclosure; Knowledge. Neither this Agreement nor any --------------------- certificate, exhibit, or other written document or statement, furnished to the Company by or on behalf of Shareholder or Falcon in connection with the transactions contemplated by this Agreement contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to be stated in order to make the statements contained herein or therein, in the light of the circumstances in which they were made, not misleading. Neither Shareholder, Faulkner nor Falcon has any Knowledge of any fact which has not been disclosed in writing to the Company which may reasonably be expected to materially and adversely affect the business, operations, properties, assets, condition (financial or other), and/or results of operations of Falcon or the ability of Shareholder, Faulkner or Falcon to perform all of the obligations to be performed by Shareholder under this Agreement and/or the obligations under any other agreement between the Company and Shareholder, Faulkner or Falcon to be entered into pursuant to any provision of this Agreement. As used in this Agreement, "Knowledge" means, with respect to an entity, such knowledge as would be obtained after due inquiry by the officers of that entity and, with respect to an individual, such knowledge as would be obtained by that individual after due inquiry. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Shareholder as of the date hereof and as of the Closing Date as follows: 5.1 Authorization to Purchase. The Company and Summa are duly organized ------------------------- and validly existing corporations under the laws of the State of California and Delaware, respectively, have all of the corporate powers and authority necessary to carry on the business each now conducts, and the Company has the power and authority to purchase the Shares from Shareholder on the terms, conditions and for the Purchase Price set forth herein. 5.2 Availability of Funds. The Company has a commitment as to the --------------------- availability of all funds necessary to consummate the transactions contemplated hereby. 5.3 Litigation. There are no actions, suits or proceedings pending or, to ---------- the Company's knowledge, threatened against or affecting the Company or Summa (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or foreign, or affecting any of the shareholders, officers or directors of the Company or Summa in connection with the business, operations or affairs of the Company or Summa, which could reasonably be expected to have a material adverse effect on the ability of the Company or Summa to consummate the transactions contemplated hereby. The Company and Summa are not subject to any voluntary or involuntary proceeding under the United States Bankruptcy Code and has not made an assignment for the benefit of creditors. 5.4 Brokerage. The Company and Summa have no obligation to any person or --------- entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement. ARTICLE VI MUTUAL COVENANTS 6.1 Confidentiality. Faulkner and the Company agree that the terms and --------------- conditions set forth in that certain Confidentiality Agreement entered into as of September 30, 1997 (the "Confidentiality Agreement") between Faulkner and Summa remain in full force and effect and apply to the parties to this transaction, and that neither party shall, without the prior written consent of the other as to substance, existence and timing, disclose publicly or to any third party (except such party's professional advisors) the existence of the transaction or the terms and conditions hereof, or any prior correspondence or any subsequent negotiations between the parties, including any confidential information obtained thereby, except to the extent required by law or as may be required in connection with the financing and due diligence of the proposed transaction. The parties will cooperate with each other to coordinate any and all public statements and releases with respect to the Agreement, if any, and the transactions contemplated hereby. From the date hereof until the Closing, neither Shareholder, Faulkner nor Falcon nor any of their representatives shall purchase, directly or indirectly, in the public marketplace or otherwise, any of Summa's securities. Following the Closing, Faulkner shall keep confidential and shall not disclose to any third party all information not then in the public domain relating in any manner to Falcon, including, without limitation, information relating to the Intellectual Property licensed to or used by Falcon. 6.2 Existing Business Opportunities. There are three (3) identified ------------------------------- business opportunities whereby Faulkner has proposed to build proprietary belt tooling for specific customers who wish to manufacture their own belts. Faulkner and the Company agree that the status of these opportunities will be determined during due diligence and an arrangement will be made to compensate Faulkner for further work on them if the Company elects to proceed. If desirable, Faulkner and the Company shall use their respective best efforts to amend this Agreement to incorporate any agreed-upon arrangement. 6.3 Claims of Infringement. Faulkner and the Company agree as ---------------------- follows: (a) At the Closing, Faulkner will relinquish any and all claims Faulkner may have against the Company and/or its affiliates for infringement of any of Faulkner's patents, including patent number 5,339,946 relating to Falcon's Series 80 belt (the "Release"). The Release shall be substantially in the form attached hereto as Exhibit D. --------- (b) After the Closing, the Company and/or Falcon will be solely responsible for payment of all costs (including attorneys' fees) and expenses (and will be the sole beneficiaries of any settlements, judgments and/or other payments) relating to any and all legal actions initiated after the Closing by the Company and/or Falcon with respect to one or more of Faulkner's patents. (c) After the Closing, the Company and/or Falcon, on the one hand, and Faulkner and/or Shareholder on the other will be responsible on an equal (fifty-fifty) basis for the payment of all costs (including attorneys' fees) and expenses, judgments, settlements and other payments relating to any and all legal actions initiated after the Closing by any third parties against Falcon, the Company, Summa, Faulkner and/or Shareholder with respect to one or more of Faulkner's patents or Falcon's products; provided that, in no event shall Shareholder's and Faulkner's aggregate liability hereunder exceed the sum of three hundred and fifty thousand dollars ($350,000). 6.4 Consents. Each of the parties shall use its best business -------- efforts to obtain any and all necessary permits, approvals, qualifications, consents or authorizations from third parties and governmental authorities which are required to be obtained prior to the Closing Date, and shall use its best efforts to make or complete all filings, proceedings and waiting periods required to be made or completed prior to the Closing Date. 6.5 No Equitable Conversion. Prior to the Closing Date, neither the ----------------------- execution of this Agreement nor the performance of any provision contained herein shall cause either the Company, on the one hand, or Falcon, on the other hand, to be or become liable for or in respect of the operations or business of the other, for the cost of any labor or materials furnished to or purchased by the other, for compliance with any laws, requirements or regulations of, or taxes, assessments or other charges now or hereafter due to, any governmental authority, or for any other charges or expenses whatsoever pertaining to the conduct of the business or the ownership, title, possession, use or occupancy of the property of the other. ARTICLE VII COVENANTS OF SHAREHOLDER AND FAULKNER 7.1 Access to Properties and Records. Subject to the confidentiality -------------------------------- provisions set forth in Section 6.1 above, until the Closing or abandonment ----------- hereof, Shareholder and Faulkner shall cause Falcon to give the Company and its authorized representatives full access, during reasonable business hours, in such a manner as not unduly to disrupt normal business activities, to any and all of its premises, properties, contracts, books, records and affairs, and will cause its officers to furnish any and all data and information pertaining to its business that the Company may from time to time reasonably require. If the transactions contemplated hereby are not consummated, the Company will return or destroy, if requested, all documents (and copies thereof) obtained hereunder. 7.2 Conduct of Business. Until the Closing or prior abandonment ------------------- hereof, unless Shareholder and Faulkner shall have first obtained the Company's written consent, which consent will not be unreasonably withheld, Shareholder and Faulkner shall cause Falcon (a) to conduct its business only in the ordinary course as presently conducted, (b) to maintain its books and records in accordance with existing practices, (c) to not declare or pay dividends, royalties or other distributions, (d) to not hire additional employees nor become obligated for additional rental payments, (e) to not modify the compensation or benefits paid to any employee, (f) to not undertake any material expenditures, including, without limitation, the purchase of equipment or the prepayment of debt, and (g) to not prepay any debt, other than the existing line of credit. In addition, Shareholder, Faulkner and Falcon will not negotiate or enter into any intellectual property agreements or licenses with any third parties. 7.3 Exclusive Negotiations. From the date hereof until the earlier ---------------------- of the Closing or the Termination Date (as defined in Section 11.1 below), ------------ Shareholder and Faulkner will negotiate exclusively with the Company for the acquisition of the Shares and will not, directly or indirectly, whether through any of Shareholder's or Faulkner's representatives or agents or otherwise, encourage, solicit or entertain any inquiries or proposals by, or engage in any discussions or negotiations with, or furnish any non-public information to, any person concerning the sale or other disposition of the Shares or any material portion thereof, or the merger, consolidation, sale of assets or other acquisition involving Falcon or any material portion thereof, and will promptly notify the Company of the substance of any inquiry or proposal concerning any such transactions which may be received. 7.4 Corporate Existence, Rights and Franchises. Shareholder and ------------------------------------------ Faulkner shall cause Falcon to take all necessary actions to maintain in full force and effect its corporate existence, rights, franchises and good standing. No change shall be made to the Articles of Incorporation or Bylaws of Falcon. 7.5 Insurance. Shareholder and Faulkner shall cause Falcon to take --------- all necessary actions to maintain in force all of its existing insurance policies (or replacements therefor), subject only to variations in amounts required by the ordinary operation of its business. 7.6 Resignations. On the Closing Date, Shareholder shall cause to be ------------ delivered to the Company a duly signed resignation, effective immediately after the Closing, of Faulkner as sole director of Falcon and as President, Treasurer and Secretary thereof. 7.7 Existing Litigation. ------------------- Set forth on Schedule 4.15 hereto is a listing of all pending legal ------------- actions, suits or other proceedings involving Falcon. From and after the Closing Date, Falcon shall be responsible for payment of any and all damages, losses, payments and expenses (including, without limitation, attorneys' fees and costs, costs of investigation, judgments and settlement payments) incurred on or after the Closing Date that result from, are based upon, arise under or in connection with such legal actions not to exceed Seventy-Five Thousand Dollars ($75,000.00) in the aggregate, and Shareholder and Faulkner hereby, jointly and severally, indemnify and agree to promptly pay or reimburse Falcon and/or its affiliates for any and all damages, losses, payments and expenses (including, without limitation, attorneys' fees and costs, costs of investigation, judgments and settlement payments) incurred in excess of such Seventy-Five Thousand Dollars ($75,000.00). In the event there is a recovery benefiting Falcon from any of the existing litigation, the proceeds therefrom shall be used to reimburse Falcon for any and all damages, losses, payments and expenses (including, without limitation, attorney's fees and costs, costs of investigation, judgements and settlement payments) incurred on or after the Closing Date that result from, are based upon, arise under or in connection with such legal actions, up to Seventy- Five Thousand Dollars ($75,000.00) in the aggregate. The balance of any recovery benefiting Falcon in excess of Seventy-Five Thousand Dollars ($75,000.00) shall be paid promptly to Faulkner. ARTICLE VIII COVENANTS OF THE COMPANY 8.1 Financing. The Company shall use its best efforts to consummate --------- the financing required to fund full payment of the cash portion of the Purchase Price payable to Shareholder at the Closing pursuant to the terms hereof, and Falcon, Faulkner and Shareholder shall provide all reasonable cooperation to the Company in connection therewith. 8.2 Stock Options. At the Closing, the Company shall cause Summa to ------------- grant to those persons set forth on Schedule 8.2 hereto nonqualified stock ------------ options exercisable for shares of Summa's common stock with an exercise price equal to the average of the high and low trading prices for a share of Summa common stock for a ten (10) trading day period ending two (2) trading days prior to the Closing, distributed as set forth in Schedule 8.2 hereto, with an ------------ aggregate exercise price of $750,000, in substantially the form set forth in Exhibit B hereto. - --------- 8.3 Deposit; Expenses. The Company has made an initial non-refundable ----------------- earnest money deposit to Shareholder of $15,000, and shall deposit an additional $5,000 per month thereafter, each of which shall be non-refundable, until consummation of the transactions contemplated hereby or abandonment thereof, subject to a maximum deposit of $25,000 (collectively, the "Deposit"). The Deposit will be used by Shareholder for legal and accounting expenses incurred in connection herewith. At the Closing, the Deposit will be credited against the cash portion of the Purchase Price. Except for the Deposit, each party shall bear its or his respective fees and expenses in connection with this transaction, including attorneys' fees and costs. ARTICLE IX CONDITIONS PRECEDENT TO CLOSING 9.1 Conditions to Obligations of the Company. The obligations of the ---------------------------------------- Company to purchase the Shares shall be subject to the fulfillment at or prior to the Closing of all of the following, one or more of which may be waived in writing in whole or in part by the Company: (a) Representations and Warranties. The representations and ------------------------------ warranties of Shareholder and Faulkner contained in this Agreement shall be true and correct on the date hereof and as of the Closing with the same force and effect as though made at such time, except with respect to representations and warranties which, by their terms, speak as of a different time, which shall have been or will be true and correct as of that time. Shareholder and Faulkner shall have performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by Shareholder and Faulkner at or prior to the Closing. (b) Regulatory Approvals. There shall have been obtained any and all -------------------- permits, approvals and qualifications of, and there shall have been made or completed all filings, proceedings and waiting periods, required by any governmental body, agency or regulatory authority which, in the reasonable opinion of counsel to the parties, are required for the consummation of the transactions contemplated hereby. (c) No Action or Proceeding. No claim, action, suit, investigation or ----------------------- other proceeding shall be pending or threatened before any court or governmental agency, and no statute, rule or regulation shall have enacted or entered by a governmental body of competent jurisdiction, which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement or the obtaining of material damages or other relief in connection therewith. No law or order shall have been enacted, entered, issued, promulgated or enforced by any governmental entity, nor shall any claim have been instituted and remain pending or threatened and remain so at what would otherwise be the Closing, which would not permit the business of Falcon as presently conducted to continue unimpaired in any material aspect following the Closing. (d) No Material Adverse Change. Prior to the Closing, there shall not -------------------------- have been any material adverse change in the business of Falcon. (e) Stock Certificates, Stock Ledger and Minute Book. Shareholder ------------------------------------------------ shall have delivered to the Company the stock certificates representing the Shares, each duly executed in blank or accompanied by duly executed instruments of transfer, all remaining blank certificates, Falcon's stock ledger(s) and Falcon's minute book(s). (f) Consents. Shareholder and Faulkner shall have obtained all -------- necessary third party and/or governmental consents, waivers and approvals to the transaction contemplated hereunder, including, without limitation, the consent of the Bank of Oklahoma, N.A. and of Falcon's landlord. (g) Debt; Guarantees. There shall be no agreements or instruments ---------------- evidencing loans to or interest bearing indebtedness incurred by Falcon, and Shareholder and/or Faulkner shall have paid the entire then existing balance on Falcon's line of credit with the Bank of Oklahoma, N.A. and, at the Closing, shall have paid all of Falcon's other interest bearing indebtedness and shareholder loans, including current portions thereof. All guarantees by Falcon of any type of obligation shall have been terminated. (h) Termination of Encumbrances. All liens and encumbrances on the --------------------------- assets and property of Falcon shall have been terminated, and Falcon shall have received and delivered to the Company duly executed UCC termination statements with respect to all UCC financing statements covering such assets and property. (i) License. Falcon and Faulkner shall have entered into, and there ------- shall be in effect as of the Closing, a License pursuant to which Faulkner shall grant to Falcon and/or the Company an exclusive worldwide license for the products listed therein in substantially the form attached hereto as Exhibit C --------- (the "License"). (j) Releases. Shareholder and Faulkner shall have executed and -------- delivered to the Company and Summa the Release in substantially the form set forth as Exhibit D hereto. In addition, Faulkner shall have obtained an --------- executed release of judgment from Marie-Francoise Bigot and shall have delivered such release of judgment to the Company, and Faulkner shall have obtained and delivered to the Company releases from one or more employees of Falcon as reasonably requested by the Company. (k) Lease. Falcon and EP, L.C., an Oklahoma limited liability company ----- ("EP"), shall have entered into, and there shall be in effect as of the Closing, a real property lease pursuant to which Falcon shall lease its current premises from EP for five (5) years plus one (1) additional five (5) year option, in substantially the form attached hereto as Exhibit E (the "Lease"). --------- (l) Due Diligence. The Company shall have completed its due diligence ------------- investigations, and the results of such investigations shall be acceptable to the Company in its sole and absolute discretion. (m) Board Approval. The Board of Directors of Summa shall have -------------- approved consummation of the transactions contemplated hereby in their sole and absolute discretion. (n) Legal Opinion. The Company shall have received opinions dated as ------------- of the Closing Date of McAlister McAlister & Burnett, counsel to Shareholder, Faulkner and Falcon, as to the matters set forth in Exhibit F hereto. --------- (o) Resignations. Faulkner shall have submitted his resignation as an ------------ officer and director of Falcon in writing to the Company, effective as of the Closing. Neither Falcon nor the Company shall incur any cost or expense in connection with, or as a result of, the termination of employment of Faulkner, including, but not limited to, severance benefits. (p) Tax Returns. Falcon shall have filed its federal and state tax ----------- returns for the fiscal year ended January 31, 1998, with copies of all such returns delivered to the Company. (q) Employment Arrangements. Falcon shall have entered into ongoing ----------------------- employment arrangements in the form and substance satisfactory to the Company with such employees of Falcon as the Company shall reasonably designate. 9.2 Conditions to Obligations of Shareholder. The obligations of ---------------------------------------- Shareholder to sell the Shares shall be subject to the fulfillment at or prior to the Closing of all of the following, one or more of which may be waived in writing by in whole or in part by Shareholder: (a) Representations and Warranties. The representations and ------------------------------ warranties of the Company and Summa contained in this Agreement shall be true and correct on the date hereof and as of the Closing with the same force and effect as though made at such time, except with respect to representations and warranties which, by their terms, speak as of a different time, which shall have been or will be true and correct as of that time. The Company and Summa shall have performed all obligations and complied with all covenants and conditions required by this Agreement to be performed or complied with by the Company or Summa at or prior to the Closing. (b) Regulatory Approvals. There shall have been obtained any and all -------------------- permits, approvals and qualifications of, and there shall have been made or completed all filings, proceedings and waiting periods, required by any governmental body, agency or regulatory authority which, in the reasonable opinion of counsel to the parties, are required for the consummation of the transactions contemplated hereby. (c) No Action or Proceeding. No claim, action, suit, investigation or ----------------------- other proceeding shall be pending or threatened before any court or governmental agency, and no statute, rule or regulation shall have enacted or entered by a governmental body of competent jurisdiction, which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement or the obtaining of material damages or other relief in connection therewith. (d) Payment of Purchase Price. Shareholder shall have received the ------------------------- cash portion of the Purchase Price as calculated in accordance with Sections -------- 2.1(a) and 8.3 above. - ------ --- (e) Delivery of Note. The Company shall have caused Summa to execute ---------------- and deliver to Shareholder, and Shareholder shall have received, the Note. (f) License. Falcon and Faulkner shall have entered into, and there ------- shall be in effect as of the Closing, the License. (g) Lease. Falcon and EP shall have entered into, and there shall be ----- in effect as of the Closing, the Lease. (h) Guarantees. All guarantees by Faulkner of obligations of Falcon ---------- shall have been terminated. (i) Refinancing. EP and Faulkner shall have refinanced their ----------- obligations with respect to the land and building owned by EP to be leased to Falcon pursuant to the Lease. ARTICLE X COVENANT NOT TO COMPETE 10.1 Covenant Not to Compete. Faulkner agrees that he will not, directly ----------------------- or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed or connected in any manner with or by, any business or operation which engages in or competes with the manufacture and/or design and/or distribution of material handling components or systems, including without limitation plastic conveyor belts and similar or related products (the "Business"), worldwide (the "Restricted Territory") for a period of fifteen (15) years from the date hereof (the "Term"). In addition, Faulkner will not solicit any employees of Falcon to leave their current positions nor induce any Falcon customers or suppliers to cease doing business with Falcon and/or the Company. 10.2 Consideration. In consideration of the covenants made by Faulkner in ------------- Section 10.1 above, and except as otherwise set forth herein, the Company shall - ------------ pay Faulkner the total sum of Seven Hundred Fifty Thousand Dollars ($750,000.00), payable over the Term in quarterly increments of Twelve Thousand Five Hundred Dollars ($12,500.00) each, with the first payment payable at Closing and each subsequent payment within twenty (20) days after the end of each fiscal quarter. Faulkner acknowledges and agrees that he will receive a direct, material and substantial benefit for his covenant not to compete and that such direct, material and substantial benefit is good and sufficient consideration to him for the performance of his obligations under this Article X. 10.3 Limited Guaranty. Provided that Shareholder and/or Faulkner have not ---------------- breached any of their respective representations, warranties and covenants under this Agreement (including the Covenant Not to Compete), the Note, the Lease, the License or any other document executed by either of them in connection herewith, Summa guarantees to Faulkner the complete and timely performance of the covenants of the Company set forth in Sections 10.2 and 10.7 hereof. ------------- ---- 10.4 Reasonableness of Covenant. Faulkner recognizes and acknowledges that -------------------------- the Covenant Not to Compete together with Faulkner 's performance thereunder is necessary in order to protect and maintain the proprietary interests and other legitimate business interests of the Company and to afford the Company the benefit of its bargain under this Agreement and that such covenants are reasonable in all respects. 10.5 Separate Covenants; Severability. The parties intend for the -------------------------------- covenants contained in this Article X to comply with the provisions of the laws of each country and each state in the United States and to be construed as a series of separate covenants, one for each city, county, market area or business area in the Restricted Territory, for each year. Except for geographic coverage, each such covenant shall be deemed identical in terms to the covenants contained herein. The failure of a trier of fact to enforce any portion of the Term in one or more area(s) of the Restricted Territory shall not affect its enforceability in any other area(s). 10.6 Equitable Relief. The parties hereto agree that the obligations ---------------- contained in this Article X are of a special and unique character which gives them a peculiar value, and that the Company may not be reasonably or adequately compensated in damages in an action at law in the event that Faulkner breaches such obligations. Faulkner therefore expressly agrees that the Company shall be entitled to preliminary and permanent injunctive and other equitable relief to prevent a breach of said obligations, without the necessity of posting a bond, in addition to any other rights and remedies that the Company may have. 10.7 Cross Default. An uncured breach of or default under any of the ------------- Event of Default provisions set forth in the Note or Lease or under any material provision of the License shall be deemed a breach of or default under this Article X, entitling Shareholder and Faulkner to terminate the Covenant Not to Compete, including the Company's payment obligations set forth in Section 10.2 ------------ above; provided that, Shareholder and Faulkner shall have no right to terminate the Covenant Not to Compete if either is in breach of or default under any terms of the License, the Note or this Agreement. ARTICLE XI TERMINATION OF OBLIGATIONS; NO SURVIVAL OF LIABILITIES 11.1 Termination of Agreement. Anything herein to the contrary ------------------------ notwithstanding, this Agreement and the transactions contemplated by this Agreement may be terminated by either party in writing if the Closing does not occur on or before the close of business on July 12, 1998 ("Termination Date"), and may otherwise be terminated at any time before the Closing as follows and in no other manner: (a) Mutual Consent. By mutual written consent of Shareholder and the -------------- Company. (b) Conditions to the Company's Performance Not Met. By the Company ----------------------------------------------- in writing if any event occurs which would render impossible the satisfaction of one or more conditions to the obligations of the Company to consummate the transaction contemplated by this Agreement as set forth in Section 9.1. ----------- (c) Conditions to Shareholder's Performance Not Met. By Shareholder ----------------------------------------------- in writing if any event occurs which would render impossible the satisfaction of one or more conditions to the obligation of Shareholder to consummate the transaction contemplated by this Agreement as set forth in Section 9.2. ----------- (d) Breach of Representation, Warranty or Covenant. By Shareholder or ---------------------------------------------- the Company in writing if there has been a material misrepresentation or material breach on the part of the other party in its representations, warranties and covenants set forth herein, which, if curable, has not been cured within ten (10) business days after receipt of notice from the other party of its intention to terminate if such misrepresentation or breach continues. 11.2 Effect of Termination. If this Agreement is terminated and the --------------------- transactions contemplated hereby are abandoned as described in this Article XI, this Agreement shall become void and of no further force and effect, except for the provisions of (i) Section 6.1 relating to the obligations to keep ----------- confidential certain information and data, (ii) Sections 8.3 and 13.5 relating ------------ ---- to certain expenses, (iii) Section 13.6 relating to attorneys' fees and ------------ expenses, (iv) Sections 4.24 and 5.4 relating to finder's fees and broker's ------------- --- fees, (v) Section 13.13 relating to jurisdiction and forum selection, and (vi) ------------- this Article XI; provided, however, that if any party hereto willfully fails to perform its obligations herein or willfully neglects to perform acts that are necessary to the fulfillment of conditions hereof or willfully prevents the fulfillment of a condition hereof, the other party may seek any available legal and equitable remedies in addition to those provided herein. ARTICLE XII INDEMNIFICATION AND REMEDIES 12.1 Obligation to Indemnify. ----------------------- (a) Indemnification by Shareholder and Faulkner. Except as otherwise ------------------------------------------- provided on Schedule 12.1 hereto, Shareholder and Faulkner jointly and severally -------------- agree to indemnify and hold harmless the Company, Falcon and their directors, officers, employees, parent, affiliates, agents and assigns (each, a "Company Party") from and against any and all damages, losses, payments and expenses (including, without limitation, attorneys' fees and costs, costs of investigation, judgments and settlement payments) of any such parties as a result of, or based upon, arising from or in connection with (i) any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by Shareholder or Faulkner in or pursuant to this Agreement, or (ii) the conduct of the business of Falcon prior to the Closing Date (including, without limitation, all liability for pre-closing tax periods, including amounts not paid or provided for through estimated taxes or deposits for the partial period ending at the close of business on the day preceding the Closing Date), or (iii) any claims or demands by any governmental authority or third party arising under any Environmental Law to the extent attributable to Falcon's use and/or occupancy of any premises owned or used by Falcon at any time prior to the Closing Date, or to Hazardous Substances transported by or on behalf of Falcon prior to the Closing Date. (b) Indemnification by the Company and Summa. The Company and Summa ---------------------------------------- jointly and severally agree to indemnify and hold harmless the Shareholder and Faulkner and their heirs, successors and assigns from and against any and all damages, losses, payments and expenses (including, without limitation, attorneys' fees and costs, costs of investigation, judgments and settlement payments) of any such parties as a result of, or based upon, arising from or in connection with any inaccuracy in or breach or nonperformance of any of the representations, warranties, covenants or agreements made by the Company or Summa in or pursuant to this Agreement. (c) Waiver of Certain Indemnification. Faulkner agrees that, from and --------------------------------- after the Closing, he shall waive any and all rights that he may have for indemnification or advancement of expenses by Falcon (or the Company as Falcon's successor in interest) under law, the Articles of Incorporation of Falcon, Bylaws of Falcon or any agreement with Falcon. 12.2 Certain Indemnification Procedures. ---------------------------------- (a) Notice of Claim. If and whenever a party to this Agreement (the --------------- "Indemnified Party") shall claim indemnification under Section 12.1, such party ------------ shall send written notice of the same to the other party (the "Indemnifying Party") at such person's address set forth in Section 13.2 below (a "Notice of ------------ Claim"). A Notice of Claim hereunder (which in the case of third party claims shall be delivered within a reasonable time after the Indemnified Party receives actual written notice of such third party claim) shall state the basis for such claim supported by relevant information and documentation with respect thereto and the total amount claimed, and if such claim is based upon an action, proceeding or claim by a third party, offer the Indemnifying Party the right to participate in (but not control) the defense of such action, proceeding or claim at the Indemnifying Party's own expense insofar as such action, proceeding or claim is the basis on which indemnity is sought. (b) Claim Response. Within twenty (20) days after receipt of a Notice -------------- of Claim, the Indemnifying Party shall give written notice to the Indemnified Party as to whether it objects to or acquiesces in the claim, in whole or in part (the "Claim Response"). If the Indemnifying Party acquiesces to the claim, in whole or in part, it shall state its acquiescence, or the extent thereof, in the Claim Response and shall pay the claim in whole, or that part to which it acquiesces, within such twenty (20) day period. If the Indemnifying Party objects to the claim, in whole or in part, within such twenty (20) day period, its Claim Response shall set forth with reasonable particularity the grounds, amount of, and basis upon which the claim is disputed. If the Indemnifying Party fails to object to the claim, in whole or in part, within twenty (20) days after receipt of the Notice of Claim, it shall pay the same in whole, or that portion of the claim to which it failed to object, within ten (10) days after the expiration of such twenty (20) day period. (c) Meet and Confer. In the event the Indemnifying Party disputes the --------------- whole or a portion of a claim as set forth in this Section 12.2, the ------------ Indemnifying and Indemnified Parties shall meet within five (5) days of the Indemnifying Party's delivery of the Claim Response and attempt in good faith to resolve the dispute without third party intervention. The parties shall have ten (10) days in which to resolve their dispute. If the parties cannot resolve their dispute within such ten (10) day period, then the dispute may be submitted to binding arbitration only by mutual agreement. 12.3 Right to Cure. Prior to any party making a claim for monetary damages ------------- under this Agreement, adequate notice of an alleged right to indemnity must be provided in writing to the other party, with a subsequent twenty (20) day period for the other to investigate the claim and to cure it if possible. 12.4 Survival of Representations and Warranties. The representations, ------------------------------------------ warranties and covenants of each of the parties to this Agreement shall survive the execution of this Agreement and the consummation of the purchase and sale herein described. ARTICLE XIII MISCELLANEOUS 13.1 Best Efforts; Further Assurances. Both before and after the Closing, -------------------------------- each party will use its reasonable best efforts to cause all conditions to its obligations under this Agreement to be timely satisfied and to perform and fulfill all covenants and obligations on its part to be performed and fulfilled under this Agreement, to the end that the transaction contemplated by this Agreement shall be effected substantially in accordance with its terms as soon as reasonably practicable. The parties shall cooperate with each other in such actions and in securing requisite approvals. Each party shall execute and deliver both before and after the Closing such further certificates, agreements and other documents and take such other actions as may be necessary or appropriate to consummate or implement the transactions contemplated hereby or to evidence such events or matters. 13.2 Notices. All notices or other communications required or ------- permitted to be given hereunder shall be in writing and shall be delivered by hand or sent prepaid telex, cable or telecopy, or sent, postage prepaid, by registered, certified or express mail, or reputable overnight courier service and shall be deemed given when so delivered by hand, telexed, cabled or telecopied, or if mailed, three days after mailing (one Business Day in the case of express mail or overnight courier service), as follows: (i) if to the Company: KVP Systems, Inc. c/o Summa Industries 21250 Hawthorne Blvd., Suite 500 Torrance, CA 90503 FAX: (310) 792-7079 Attention: Trygve M. Thoresen with a copy to: Summa Industries 21250 Hawthorne Blvd., Suite 500 Torrance, CA 90503 FAX: (310) 792-7079 Attention: James R. Swartwout (ii) if to Summa: Summa Industries 21250 Hawthorne Blvd., Suite 500 Torrance, CA 90503 FAX: (310) 792-7079 Attention: James R. Swartwout (iii) if to Shareholder and/or Faulkner: Mr. William G. Faulkner c/o McAlister McAlister & Burnett 15 E. 15th Street, Suite 200 Edmond, OK 73083 FAX: (405) 359-0806 with a copy to: McAlister McAlister & Burnett 15 E. 15th Street, Suite 200 Edmond, OK 73083 FAX: (405) 359-0806 Attention: Kevin W. Burnett, Esq. 13.3 Assignment. This Agreement and the rights and obligations ---------- hereunder shall be binding upon each party hereto and shall inure to the benefit of and be binding upon each party's successors, heirs and permitted assigns prior to the Closing. Following the Closing, this Agreement and the rights and obligations hereunder may not be assigned nor transferred (including transfers by operation of law) by Shareholder or Faulkner without the prior written consent of the Company in its sole and absolute discretion. 13.4 No Third-Party Beneficiaries. Except as provided in Article XII ---------------------------- as to Company Parties, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder. 13.5 Expenses. Whether or not the transactions contemplated hereby -------- are consummated, and except as otherwise provided in this Agreement, all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses. 13.6 Attorneys' Fees. Should any litigation be commenced concerning --------------- this Agreement or the rights and duties of any party with respect to it, the party prevailing shall be entitled, in addition to such other relief as may be granted, to a reasonable sum for such party's attorneys' fees and expenses determined by the court in such litigation or in a separate action brought for that purpose. 13.7 Amendments. No amendment to this Agreement shall be effective ---------- unless it shall be in writing and signed by both parties hereto. 13.8 Interpretation; Exhibits and Schedules. The headings contained -------------------------------------- in this Agreement, in any Exhibit or Schedule hereto and in the table of contents to this Agreement, are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit, but not otherwise defined therein, shall have the meaning as defined in this Agreement. 13.9 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. 13.10 Entire Agreement. This Agreement and the Confidentiality ---------------- Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior oral and written agreements and understandings relating to the subject matter hereof. 13.11 Severability. If any provision of this Agreement or the ------------ application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof or the portion, if any, of such provision that may be enforceable. 13.12 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the internal laws of the State of Delaware applicable to agreements made and to be performed entirely within such State, without regard to the conflicts of law principles of such State. 13.13 Consent to Jurisdiction: Forum Selection. The parties agree ---------------------------------------- that all actions or proceedings arising in connection with this Agreement shall be tried and litigated exclusively in the Federal courts located in the County of Los Angeles, State of California. The aforementioned choice of venue is intended by the parties to be mandatory and not permissive in nature, thereby precluding the possibility of litigation between the parties with respect to or arising out of this Agreement in any jurisdiction other than those specified in this section. Each party hereby waives any right it may have to assert the doctrine of forum non conveniens or similar doctrine or to object to venue with respect to any proceeding brought in accordance with this section, and stipulates that the Federal courts located in the County of Los Angeles, State of California shall have in personam jurisdiction and venue over each of them for the purpose of litigating any dispute, controversy or proceeding arising out of or related to this Agreement. Each party hereby authorizes and accepts service of process sufficient for personal jurisdiction in any action against it as contemplated by this paragraph by registered or certified mail, return receipt requested, postage prepaid, to its address for the giving of notices as set forth in this Agreement, or in the manner set forth in Section 13.2 of this ------------ Agreement for the giving of notice. Any final judgment rendered against a party in any action or proceeding shall be conclusive as to the subject of such final judgment and may be enforced in other jurisdictions in any manner provided by law. IN WITNESS WHEREOF, the parties hereto, intending legally to be bound hereby, have each caused this Agreement to be duly executed as of the date first above written. "SHAREHOLDER" /s/ William G. Faulkner ----------------------------------- William G. Faulkner, Trustee of the William G. Faulkner 1994 Revocable Trust under Agreement dated August 8, 1994 "FAULKNER" /s/ William G. Faulkner ----------------------------------- William G. Faulkner, an individual "THE COMPANY" KVP SYSTEMS, INC., a California corporation By: /s/ James R. Swartwout ------------------------------ James R. Swartwout, Chairman of the Board "SUMMA" SUMMA INDUSTRIES, a Delaware corporation By: /s/ James R. Swartwout ------------------------------ James R. Swartwout, Chairman of the Board AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT This Amendment No. 1 ("Amendment") to that certain Stock Purchase Agreement ("Agreement") dated April 8, 1998 by and among Mr. William G. Faulkner, as an individual and a resident of the State of Florida ("Faulkner") and as Trustee of the William G. Faulkner 1994 Revocable Trust under Agreement dated August 8, 1994 ("Shareholder"), KVP Systems, Inc., a California corporation (the "Company"), and Summa Industries, a Delaware corporation and parent of the Company ("Summa"), is made and entered into as of April 24, 1998. Capitalized terms used herein but not defined shall have the meanings ascribed to them in the Agreement. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, intending to be legally bound, the parties hereto hereby agree as follows: 1. Section 2.1(a) of the Agreement is hereby amended and restated in its entirety to read as follows: "(a) Cash. Two Million Three Hundred and Ten Thousand Five Hundred ---- Twenty Five and No/100 Dollars ($2,310,525.00), which includes the first $12,500.00 quarterly payment for the Covenant Not to Compete due under Section ------- 10.2 hereof, less all amounts previously paid or paid after the date hereof and - ---- prior to the Closing as a deposit under Section 8.3 hereof." ----------- 2. Section 2.2 of the Agreement is hereby amended and restated in its entirety to read as follows: "2.2 Other Amounts Due and Payable. On the Closing Date (as defined ----------------------------- in Section 3.1 below), the Company shall cause Falcon to pay the following: (i) ----------- Three Hundred Fifty Four Thousand Nine Hundred Seventy Five and No/100 Dollars ($354,975.00) to Faulkner representing the total amount due for accrued but unpaid royalties under that certain Second Amended and Restated License Agreement dated January 14, 1995 and related promissory note, and (ii) One Hundred Ninety Seven Thousand Dollars ($197,000.00) to certain employees of Falcon for previously declared but unpaid bonuses, in the individual amounts and to the persons set forth in the books and records of Falcon and as shown on Schedule 2.2 hereto." - ------------ 3. Schedule 2.2 of the Agreement is hereby amended and restated in its entirety to read as set forth on Schedule I hereto. ---------- 4. Schedule 4.11 of the Agreement is hereby amended and restated in its entirety to read as set forth on Schedule II hereto. ----------- 5. Schedule 8.2 of the Agreement is hereby amended and restated in its entirety to read as set forth on Schedule III hereto. ------------ 6. Schedule 12.1 of the Agreement is hereby amended and restated in its entirety to read as set forth on Schedule IV hereto. ----------- 7. Exhibit A to the License Agreement is hereby amended and restated in its entirety to read as set forth on Schedule V hereto. ---------- Except as expressly modified by this Amendment, the Agreement remains in full force and effect as of the date hereof. All of the terms and conditions set forth in Article XIII of the Agreement (Miscellaneous) are incorporated herein by this reference. IN WITNESS WHEREOF, the parties hereto, intending legally to be bound hereby, have each caused this Amendment No. 1 to be duly executed as of the date first above written. "SHAREHOLDER" /s/ William G. Faulkner ------------------------------------ William G. Faulkner, Trustee of the William G. Faulkner 1994 Revocable Trust under Agreement dated August 8, 1994 "FAULKNER" /s/ William G. Faulkner ------------------------------------ William G. Faulkner, an individual "THE COMPANY" KVP SYSTEMS, INC., a California corporation By: /s/ James R. Swartwout -------------------------------- James R. Swartwout, Chairman of the Board "SUMMA" SUMMA INDUSTRIES, a Delaware corporation By: /s/ James R. Swartwout -------------------------------- James R. Swartwout, Chairman of the Board EX-10.2 3 STOCK PURCHASE AGREEMENT DTD. JUNE 12, 1998 EXHIBIT 10.2 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (this "Agreement") dated effective as of June 12, 1998, is made and entered into by and between P&L GROWTH INDUSTRIES, INC., a California corporation ("Buyer"), and SUMMA INDUSTRIES, a Delaware corporation ("Seller"), relating to the sale by the Seller and purchase by the Buyer of all of the outstanding shares of capital stock of GST Industries, Inc., a California corporation (the "Company"). WHEREAS, there are currently outstanding four hundred thousand (400,000) shares of Common Stock of the Company (the "Shares"), all of which are owned beneficially and of record by the Seller. WHEREAS, Buyer desires to purchase the Shares and the Seller desires to sell the Shares on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Purchase and Sale of Shares. Subject to the terms and conditions ---------------------------- hereof, at the Closing to be held in accordance with the provisions of Section 3 hereof, Buyer agrees to purchase the Shares from Seller, and Seller agrees to sell the Shares to Buyer. 2. Purchase Price. The aggregate purchase price to be paid by Buyer for --------------- the Shares (the "Purchase Price") shall be determined and paid as follows: (a) At the Closing (as defined in Section 3 below), Buyer shall pay to Seller the sum of One Million Two Hundred Thousand Dollars ($1,200,000.00) in cash by transfer from the account of Buyer to the account of Seller at Comerica Bank California (the "Bank"), or by cashier's or certified check or checks in immediately available funds, at Seller's election; and (b) At the Closing, Buyer shall execute and deliver to Seller a subordinated promissory note in the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000.00) (the "Note"), which shall be substantially in the form of Exhibit A attached hereto. --------- 3. Closing. The Closing shall take place at the offices of Seller in ------- Torrance, California, at 10:00 a.m., local time, on June 22, 1998 (the "Closing Date"), or at such other time, date and place as may be mutually agreed upon in writing by the parties hereto. If the Closing fails to occur by June 22, 1998, or by such later date to which the Closing may be extended as provided hereinabove, this Agreement shall automatically terminate, all parties shall pay their own expenses incurred in connection herewith, and neither Buyer nor Seller shall have any further obligations hereunder; provided, however, that no such ------------------ termination shall constitute a waiver by either Buyer or Seller who is not in default of any of its respective representations, warranties or covenants herein, of any rights or remedies it might have at law if the other is in default of any of its respective representations, warranties or covenants under this Agreement. At the Closing, Buyer shall pay the Purchase Price in cash and by issuance of the Note, as provided in Section 2, and Seller shall assign and transfer to Buyer good and valid title in and to the Shares, free and clear of all liens, by delivering to Seller a certificate or certificates representing the Shares, duly endorsed in blank or accompanied by duly executed stock powers in form reasonably satisfactory to Seller endorsed in blank. At the Closing, there shall also be delivered to Seller and Buyer the opinions, certificates and other contracts, documents and instruments to be delivered under Sections 7.3 and 7.4 hereof. 4. Representations and Warranties of Seller. Seller hereby represents and ----------------------------------------- warrants to, and covenants with, Buyer as follows (it being acknowledged that Buyer is entering into this Agreement in material reliance upon each of the following representations and warranties, and that the truth and accuracy in all material respects of each of which constitutes a condition precedent to Buyer's obligations hereunder): 4.1 Organization and Corporate Power. Seller is a corporation duly -------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware. Seller has full corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and is duly qualified and in good standing to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a materially adverse effect upon the Company. The Company has all requisite corporate power and authority to conduct its business as now being conducted and to own and lease the properties which it now owns and leases. The Articles of Incorporation, as amended to date, certified by the Secretary of State of California, and the Bylaws of the Company, as amended to date, which have previously been provided to Buyer by Seller, are true and complete copies thereof as currently in effect. 4.2 Authorizations. This Agreement, and each and every other ----------------- agreement, document and instrument to be executed by Seller in connection herewith, has been effectively authorized by all necessary action on the part of Seller, has been duly and validly executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general application relating to or affecting creditors' rights and to general equity principles. The resolutions of Seller's Board of Directors authorizing the execution and delivery of this Agreement by Seller, which have previously been provided to Buyer by Seller, are true and complete copies thereof as currently in effect. 4.3 Capitalization of the Company. The authorized capital stock of ------------------------------ the Company consists of 500,000 shares of Common Stock. As of the date hereof, there are 400,000 shares of Common Stock issued and outstanding, all of which are owned, beneficially and of record, by Seller. Except as may be disclosed in the Disclosure Schedule attached hereto as Exhibit B, all of such shares are --------- free and clear of (i) any lien, charge, mortgage, pledge, conditional sale agreement, or other encumbrance of any kind or nature whatsoever, and (ii) any claim as to ownership thereof or any rights, powers or interest therein by any third party, whether legal or beneficial, and whether based on contract, proxy or other document or otherwise. The delivery of a certificate or certificates at the Closing representing the Shares in the manner provided in Section 2 above will transfer to Buyer good and valid title to the Shares, free of any liens or encumbrances. As of the date hereof, except as expressly set forth hereinabove, there are no warrants, options, calls, commitments or other rights to subscribe for or to purchase from the Company any capital stock of the Company or any securities convertible into or exchangeable for any shares of capital stock of the Company, or any other securities or agreements pursuant to which the Company is or may become obligated to issue any shares of its capital stock, nor is there outstanding any commitment, obligation or agreement on the part of the Company to repurchase, redeem or otherwise acquire any of the outstanding shares of its capital stock. 4.4 No Conflicts. Except as set forth in the Disclosure Schedule, ------------- neither the execution and delivery of this Agreement, nor the consummation by Seller of any of the transactions contemplated hereby, or compliance with any of the provisions hereof, will (i) conflict with or result in a breach of, violation of, or default under, any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, license, lease, credit agreement or other agreement, document, instrument or obligation to which Seller or the Company is a party or by which any of their respective assets or properties may be bound, or (ii) violate any judgment, order, injunction, decree, statute, rule or regulation applicable to Seller or the Company, or any of the assets or properties of either of them. No authorization, consent or approval of any public body or authority is necessary for the consummation by Seller of the transactions contemplated by this Agreement. 4.5 Financial Statements. Attached hereto as Exhibit C are (i) --------------------- --------- unaudited financial statements of the Company for each of its fiscal years ended August 31, 1995 through 1997, consisting of the Company's balance sheets as of such dates, the related income statements for the periods then ended, and (ii) unaudited financial statements of the Company as of and for the eight months ended April 30, 1998, consisting of the Company's balance sheet as of such date (the "Balance Sheet") and the related income statement for the period then ended. Such financial statements are herein sometimes collectively referred to as the "Financial Statements." The Financial Statements (i) are derived from the books and records of the Company, which books and records have been consistently maintained in a manner which reflects, and such books and records do fairly and accurately reflect in all material respects, the assets and liabilities of the Company, (ii) fairly and accurately present in all material respects the financial condition of the Company on the respective dates of such statements and the results of its operations for the periods indicated, except as may be disclosed in the Disclosure Schedule, and (iii) have been prepared in all material respects in accordance with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise disclosed in the notes thereto). 4.6 Absence of Undisclosed Liabilities. Except as and to the extent ---------------------------------- reflected or reserved against in the Balance Sheet or set forth in the Disclosure Schedule, the Company has no liability or obligation (whether accrued, to become due, contingent or otherwise) which individually or in the aggregate could reasonably be expected to have a materially adverse effect on the business, assets, condition (financial or otherwise) or prospects of the Company. 4.7 Absence of Certain Developments. Except as set forth in the -------------------------------- Disclosure Schedule, since the date of the Balance Sheet there has been (i) no declaration, setting aside or payment of any dividend or other distribution with respect to the Shares or redemption, purchase or other acquisition of any Shares or any split-up or other recapitalization relative to any Shares or any action authorizing or obligating the Company to do any of the foregoing; (ii) no loss, destruction or damage to any material property or asset of the Company, whether or not insured; (iii) no acquisition or disposition of assets (or any contract or arrangement therefor), or any other transaction by the Company otherwise than for fair value and in the ordinary course of business; (iv) no discharge or satisfaction by the Company of any lien or encumbrance or payment of any obligation or liability (absolute or contingent) other than current liabilities shown on the Balance Sheet, or current liabilities incurred since the date thereof in the ordinary course of business, (v) no sale, assignment or transfer by the Company of any of its tangible or intangible assets except in the ordinary course of business, cancellation by the Company of any debts, claims or obligations, or mortgage, pledge, subjection of any assets to any lien, charge, security interest or other encumbrance, or waiver by the Company of any rights of value which, in any such case, is material to the business of the Company; (vi) no payment by the Company of any bonus to or change in the compensation of any director, officer or employee, whether directly or by means of any bonus, pension plan, contract or commitment; (vii) no write-off or material reduction in the carrying value of any asset which is material to the business of the Company; (viii) no disposition or lapse of rights as to any intangible property which is material to the business of the Company (other than as contemplated by the License Agreement specified in Section 7.4(c) below); (ix) except for ordinary travel advances, no loans or extensions of credit to shareholders, officers, directors or employees of the Company, (x) no agreement to do any of the things described in this Section 4.7, and (xi) no materially adverse change in the condition (financial or otherwise) of the Company or in its assets, liabilities, properties, business or prospects. 4.8 Real Property. The Company does not own any real property. The -------------- Disclosure Schedule contains a complete and accurate description of each parcel of real property leased to and occupied by the Company. The buildings and all fixtures and improvements located on such real property are in good operating condition, ordinary wear and tear excepted. The Company is not in violation of any material zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of leased properties, and the Company has not received any notice of violation with which it has not complied. The Company has valid leasehold interests in all such real property, free and clear of all liens, mortgages, encumbrances, easements, leases, restrictions and claims of any kind whatsoever except for (i) those matters shown on the Disclosure Schedule; (ii) liens for taxes and tax assessments not yet due and payable; and (iii) mechanics' or similar liens for materials or services furnished or to be furnished after the date hereof. All leases of real property to which the Company is a party and which are material to the business of the Company are fully effective in accordance with their respective terms and afford the Company peaceful and undisturbed possession of the subject matter of the lease, and there exists no default on the part of the Company or termination thereof, except as may be set forth on the Disclosure Schedule. 4.9 Tangible Personal Property. The Disclosure Schedule sets forth a -------------------------- complete list of all items of tangible personal property owned or leased and used by the Company in the current conduct of its business, where the original cost was in excess of $1,000. Except as set forth on the Disclosure Schedule, the Company has, and at the Closing will have, good and marketable title to, or in the case of leased equipment a valid leasehold interest in, and is in possession of, all such items of personal property owned or leased by it, free and clear of all material title defects, mortgages, pledges, security interests conditional sales agreements, liens, restrictions or encumbrances whatsoever. Included in the Disclosure Schedule is a list of all outstanding equipment leases and maintenance agreements to which the Company is a part as lessee and which individually provide for future lease payments in excess of $1,000 per month, with the identities of the other parties to all such leases and agreements shown thereon. True and complete copies of all such equipment leases and maintenance agreements listed on the Disclosure Schedule have been made available to Buyer prior to the execution hereof. All leases of tangible personal property to which the Company is a party and which are material to the business of the Company are fully effective in accordance with their respective terms, and there exists no default on the part of the Company or termination thereof, except as may be set forth on the Disclosure Schedule. Each item of capital equipment reflected in the Balance Sheet which is used in the current conduct of the Company's business is, and on the date of the Closing will be, in good operating and usable condition and repair, ordinary wear and tear excepted, and is and will be suitable for use in the ordinary course of the Company's business and fit for its intended purposes, except as may be set forth on the Disclosure Schedule. 4.10 Taxes. The Company has, since 1991, duly filed all federal, ------ state, county and local tax returns required to have been filed by it in those jurisdictions where the nature or conduct of its business requires such filing and where the failure to so file would be materially adverse to the Company. Copies of all such tax returns have been made available for inspection by Buyer prior to the execution hereof. All federal, state, county and local taxes, including but not limited to those taxes due with respect to the Company's properties, income, gross receipts, excise, occupation, franchise, permit, licenses, sales, payroll, and inventory due and payable as of the date of the Closing by the Company have been paid. The amounts reflected in the Balance Sheet as liabilities or reserves for taxes which are due but not yet payable is sufficient for the payment of all accrued and unpaid taxes of the types referred to hereinabove. No consent to the application of Section 341(f)(2) of the Internal Revenue Code of 1986, as amended, has been filed with respect to the Company. 4.11 Accounts Receivable. The accounts receivable reflected in the -------------------- Balance Sheet constituted all accounts receivable of the Company as of the date thereof, other than accounts receivable fully written off as uncollectible as of such date. All such accounts receivable arose from valid sales, were recorded in the ordinary course of business and, to Seller's knowledge, are not subject to any set-off or counter claim, except as set forth in the Disclosure Schedule. Such accounts receivable have been collected in full since the date of the Balance Sheet or, to Seller's knowledge, are collectible at their full respective amounts (net of allowance for doubtful accounts established in accordance with consistently applied prior practice). Based upon the prior experience of the Company, the "allowance for doubtful accounts" shown on the Balance Sheet is sufficient to cover all doubtful accounts. The accounts receivable of the Company existing as of the close of business on the Closing Date will be fully collectable within one year from the Closing Date. 4.12 Inventories. The Company has, and on the Closing Date will ------------ continue to have, good and marketable title to all of its inventories of raw materials, work-in-process and finished goods, including models and samples, free and clear of all security interests, liens, claims and encumbrances, except as set forth in the Disclosure Schedule. All such inventories consist of items that are usable and salable in the ordinary course of business of the Company for an amount at least equal to the book value thereto, plus the costs of disposition thereof, and represent quantities not in excess of one year's requirements for its business as currently conducted. 4.13 Contracts and Commitments. The Company has no contract, -------------------------- agreement, obligation or commitment, written or oral, expressed or implied, which involves a commitment or liability in excess of $10,000 or for a term of more than 6 months (other than obligations which are included in accounts payable), and no union contracts, employee or consulting contracts, financing agreements, debtor or creditor arrangements, licenses, franchise, manufacturing, distributorship or dealership agreements, leases, or bonus, health or stock option plans, except as described in the Disclosure Schedule. True and complete copies of all such contracts and other agreements listed on the Disclosure Schedule have been made available to Buyer prior to the execution hereof. As of the date hereof, to Seller's knowledge there exists no circumstances which would affect the validity or enforceability of any of such contracts and other agreements in accordance with their respective terms. The Company has performed and complied in all material respects with all obligations required to be performed by it to date under, and is not in default (without giving effect to any required notice or grace period) under, or in breach of, the terms, conditions or provisions of any of such contracts and other agreements. The validity and enforceability of any contract or other agreement described herein has not been and shall not in any manner be affected by the execution and delivery of this Agreement without any further action. To Seller's knowledge, the Company has no contract, agreement, obligation or commitment which requires or will require future expenditures (including internal costs and overhead) in excess of reasonably anticipated receipts, nor which is likely to be materially adverse to the Company's business, assets, condition (financial and otherwise) or prospects. 4.14 Patents, Trade Secrets and Customer Lists. The Company does not ----------------------------------------- have any patents, applications for patents, trademarks, applications for trademarks, trade names, licenses or service marks relating to the business of the Company, except as set forth in the Disclosure Schedule, nor does any present or former shareholder, officer, director or employee of the Company own any patent rights relating to any products manufactured, rented or sold by the Company. Except as disclosed on the Disclosure Schedule and as set forth in the License Agreement, the Company has the unrestricted right to use, free and clear of any claims or rights of others, all trade secrets, customer lists, and manufacturing and secret processes reasonably necessary to the manufacture and marketing of all products made or proposed to be made by the Company, and the continued use thereof by the Company following the Closing will not conflict with, infringe upon, or otherwise violate any rights of others. The Company has not used and is not making use of any confidential information or trade secrets of any present or past employee of the Company. 4.15 No Pending Litigation or Proceedings. Except as set forth in the ------------------------------------ Disclosure Schedule, there are no actions, suits or proceedings pending or, to Seller's knowledge, threatened against or affecting the Company (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or foreign, or, to Seller's knowledge, affecting any of the shareholders, officers or directors of the Company in connection with the business, operations or affairs of the Company, which could reasonably be expected to result in any adverse change in the business, properties or assets, or in the condition (financial or otherwise) or prospects of the Company, or which question or challenge the sale of the Shares by Seller to Buyer. Except as disclosed in the Disclosure Schedule, the Company has not, during the past three years, been threatened with any action, suit, proceedings or claim (including actions, suits, proceedings or claims where its liabilities may be adequately covered by insurance) for personal injuries allegedly attributable to products sold or services performed by the Company asserting a particular defect or hazardous property in any of the Company's products, services or business practices or methods, nor has the Company been a party to or threatened with proceedings brought by or before any federal or state agency; and the Company has no knowledge of any defect or hazardous property, claimed or actual, in any such product, service or business practice or method. The Company is not subject to any voluntary or involuntary proceeding under the United States Bankruptcy Code and has not made an assignment for the benefit of creditors. 4.16 Insurance. The Company maintains insurance with reputable ---------- insurance companies on such of its equipment, tools, machinery, inventory and properties as it deems necessary, and maintains products and personal liability insurance, and such other insurance against hazards, risks and liability to persons and property as it deems necessary. A true and complete listing and general description of each of the Company's insurance policies as currently in force is set forth on the Disclosure Schedule. All such insurance policies currently are, and through the Closing shall be, in full force and effect. 4.17 Arrangements with Personnel. Except as set forth in the --------------------------- Disclosure Schedule, no stockholder, director, officer or employee is presently a party to any transaction with the Company, including without limitation any contract, loan or other agreement or arrangement providing for the furnishing of services by, the rental of real or personal property from or to, or otherwise requiring loans or payments to, any such stockholder, director, officer or employee, or to any member of the family of any of the foregoing, or to any corporation, partnership, trust or other entity in which any stockholder, director, officer or employee or any member of the family of any of them has a substantial interest or is an officer, director, trustee, partner or employee. There is set forth on the Disclosure Schedule a list showing (i) the name, title, date and amount of last compensation increase, and aggregate compensation, including amounts paid or accrued pursuant to any bonus, pension, profit sharing, commission, deferred compensation or other plans or arrangements in effect as of the date of this Agreement, of each officer, employee, agent or contractor of the Company whose salary and other compensation, in the aggregate, received from the Company or accrued is at an annual rate (or aggregated for the most recently completed fiscal year) in excess of $50,000 as well as any employment agreements relating to any such persons; (ii) all powers of attorney from the Company to any person or entity; (iii) the name of each person or entity authorized to borrow money or incur or guarantee indebtedness on behalf of the Company; and (iv) all bank and savings accounts, and other accounts at similar financial institutions, of the Company. 4.18 Labor Relations. The Company has no obligations under any --------------- collective bargaining agreement or other contract with a labor union, under any employment contract or consulting agreement, or under any executive's compensation plan, agreement or arrangement nor, to Seller's knowledge, is any union, labor organization or group of employees of the Company presently seeking the right to enter into collective bargaining with the Company on behalf of any of its employees. The Company has made available to Buyer a copy of all written personnel policies, including without limitation vacation, severance, bonus, pension, profit sharing and commissions policies, applicable to any of the Company's employees. 4.19 Absence of Questionable Payments. Neither the Company nor, to -------------------------------- Seller's knowledge, any shareholder, director, officer, agent, employee, consultant or other person associated with or acting on behalf of any of them, has (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) made any direct or indirect unlawful payments to governmental officials or others from corporate funds, engaged in any payments or activity which would be deemed a violation of the Foreign Corrupt Practices Act or rules or regulations promulgated thereunder, or (c) established or maintained any unlawful or unrecorded accounts. 4.20 Compliance with Laws. The Company holds all licenses, -------------------- franchises, permits and authorizations necessary for the lawful conduct of its business as presently conducted, has complied with all applicable statutes, laws, ordinances, rules and regulations of all governmental bodies, agencies and subdivisions having, asserting or claiming jurisdiction over it, with respect to any part of the conduct of its business and corporate affairs, where the failure to so hold or comply could reasonably be expected to have a material adverse affect upon the Company's condition (financial or otherwise), business, assets, properties or prospects. 4.21 Environmental Matters. Since 1991 the Company has not, nor to ---------------------- Seller's knowledge, has any previous owner, tenant, occupant, user or operator of any of the real property owned, leased or otherwise occupied by the Company, used, generated, manufactured, installed, released, discharged, stored or disposed of any "Hazardous Materials," as defined below, on, under, in or about the site of such real property, except as set forth in the Disclosure Schedule. To Seller's knowledge, all such real property complies with all applicable Federal, state and local laws, ordinances and regulations pertaining to air and water quality, Hazardous Materials, waste, disposal or other environmental matters, including the Clean Water Act, the Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste Disposal Act, the Resource Conservation Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, and the rules, regulations and ordinances of the city and county in which such real property is located, the California Department of Health Services, the Regional Water Quality Control Board, the State Water Resource Control Board, the Environmental Protection Agency and all other applicable Federal, state, regional and local agencies and bureaus. The term "Hazardous Materials" shall mean any substance, material or waste which is regulated by any local government authority, the State of California, or the United States Government, including, without limitations, any mater or substance which is (a) defined as a "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste" or "restricted hazardous waste" under any provision of California law, (b) petroleum, (c) asbestos, (d) designated as a "hazardous substance" pursuant to section 311 of the Clean Water Act or listed pursuant to Section 307 of the Clean Water Act, (e) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act. 4.22 Relationships with Customers and Suppliers. No present customer ------------------------------------------ or substantial supplier to the Company has indicated an intention to terminate or materially and adversely alter its existing business relationship therewith, and Seller has no knowledge that any of the present customers of or substantial suppliers to the Company intends to do so. 4.23 Brokerage. Except as set forth in the Disclosure Schedule, --------- neither Seller nor the Company has any obligation to any person or entity for brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement, and Seller shall indemnify and hold Buyer harmless against any liability or expenses arising out of such a claim asserted against either Buyer or the Company by any party. 4.24 Disclosure. Neither this Agreement, the Disclosure Schedule, any ---------- exhibit to the Disclosure Schedule, nor any certificate furnished to Buyer by or on behalf of Seller pursuant to the provisions hereof, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to be stated in order to make the statements contained herein or therein not misleading. Neither Seller nor the Company has any knowledge of any fact which has not been disclosed in writing to Buyer which may reasonably be expected to materially and adversely affect the business, properties, operations, and/or prospects of the Company or the ability of the Company to perform all of the obligations to be performed by the Company under this Agreement and/or any other agreement between Buyer and the Company to be entered into pursuant to any provision of this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows (it being acknowledged and agreed that Seller entering into this Agreement in material reliance upon each of the following representations and warranties, and that the truth and accuracy in all material respects of each of which constitutes a condition precedent to the obligations of Seller hereunder): 5.1 Organization and Authorization. Buyer is a corporation duly ------------------------------ organized, validly existing and in good standing under the laws of the State of California, with full power, corporate or otherwise, legal capacity and authority to enter into and perform its obligations under this Agreement, and to execute, deliver and perform all attendant documents and instruments and to consummate the transactions herein contemplated, including all attendant acts. The execution and delivery of the this Agreement and all attendant documents, and the consummation by Buyer of the transactions contemplated hereby and thereby, have been duly and validly authorized by the Board of Directors of Buyer, which authorization remains in full force and effect, and no other corporate proceedings on the part of Buyer are necessary to authorize this Agreement and all attendant documents and the transactions contemplated thereby and hereby. This Agreement constitutes the legal, valid and binding act of Buyer and is enforceable with respect to Buyer in accordance with its terms, except as enforcement hereof may be limited by bankruptcy, insolvency, reorganization, priority, or other laws relating to or affecting generally the enforcement of creditors rights or by laws affecting generally the availability of equitable remedies. Neither the execution and delivery by Buyer nor the consummation by Buyer of the transactions contemplated by this Agreement and all attendant documents, nor compliance by Buyer with any of the provisions thereof or hereof, will (i) conflict with or result in a breach or violation of, or default under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation (including, without limitation, its Articles of Incorporation and Bylaws) to which Buyer is a party or by which it is bound, or (ii) violate any judgment, order, injunction, decree, statute, rule or regulation applicable to Buyer or any of its properties or assets. 5.2 Consents. No governmental consents, approvals or authorizations, --------- and no consents or approvals by any third party, are required to be obtained Buyer, and no registration or declarations are required to be filed by Buyer, in connection with the execution and delivery of this Agreement and all attendant documents or the consummation of the transactions contemplated hereby and thereby. 5.3 No Pending Material Litigation or Proceedings. There are no --------------------------------------------- actions, suits or proceedings pending or, to Buyer's knowledge, threatened, against or affecting Buyer (including actions, suits or proceedings where liabilities may be adequately covered by insurance) at law or in equity or before or by any federal, state, municipal or other governmental department, commission, court, board, bureau, agency or instrumentality, domestic or foreign, which might prevent the purchase of the Shares by Buyer from Seller pursuant to this Agreement or the performance by Buyer of any of the obligations to be performed by Buyer hereunder. 5.4 Brokerage. Buyer has no obligation to any person or entity for --------- brokerage commissions, finder's fees or similar compensation in connection with the transactions contemplated by this Agreement, and shall indemnify and hold Seller harmless against any liability or expenses arising out of such a claim asserted against Seller by any party. 5.5 Purchase for Investment. Buyer is acquiring, and at the Closing ------------------------ shall acquire, the Shares for investment only, and not for distribution within the meaning of the Federal securities laws, and no one else has, or at the time of the Closing will have, any beneficial ownership or interest in the Shares to be purchased pursuant hereto, nor are the Shares to be subject to any lien or pledge. Buyer acknowledges and agrees that no further transfer of the Shares shall be made except in compliance with applicable Federal and state securities laws. Buyer, through its principal shareholders, has the knowledge and experience in business and financial matters to meaningfully evaluate the merits and risks of the purchase of the Shares contemplated hereby and has determined that it is both willing and able to undertake the economic risk of this purchase. Buyer understands and acknowledges that the Shares are being offered and sold by Seller pursuant to one or more exemptions from the registration requirements of the Securities Act of 1933, as amended, the availability of which depends upon the bona fide nature of the foregoing representations and warranties, and agrees to indemnify and hold Seller and its officers, directors, employees, agents, and stockholders harmless from and against any and all damages suffered and liabilities incurred by any of them (including costs of investigation and defense and attorneys' fees) arising out of any inaccuracy in such representations and warranties. 6. COVENANTS OF THE PARTIES PRIOR TO THE CLOSING Seller and Buyer hereby covenant to and agree with the other that between the date hereof and the Closing: 6.1 Access to Properties and Records. --------------------------------- (a) The Company shall give to Buyer and its authorized representatives full access, during reasonable business hours, in such a manner as not unduly to disrupt normal business activities, to any and all of the Company's premises, properties, contracts, books, records and affairs, and will cause its officers to furnish any and all data and information pertaining to its business that Buyer may from time to time reasonably require. (b) Unless and until the transactions contemplated by this Agreement have been consummated, Buyer and its representatives shall hold in confidence all information so obtained and if the transactions contemplated hereby are not consummated will return all documents hereinabove referred to and obtained therefrom, and all copies thereof and notes relating thereto. Such obligation of confidentiality shall not extend to any information which as shown to have been previously (i) known to Buyer, (ii) generally known to others engaged in the trade or business of the Company, (iii) part of public knowledge or literature, or (iv) lawfully received by the Buyer from a third party not under a duly of confidentiality. 6.2 Corporate Existence, Rights and Franchises. Seller shall take ------------------------------------------- all necessary actions to cause the Company to maintain in full force and effect its corporate existence, rights, franchises and good standing. No change shall be made in the Articles or Bylaws of the Company. 6.3 Insurance. Seller shall take all necessary actions to cause the ---------- Company to maintain in force until the Closing all of its existing insurance policies, subject only to variations in amounts required by the ordinary operation of the Company's business. 6.4 Conduct of Business in the Ordinary Course. Seller shall not ------------------------------------------- permit to be done any act which would result in the breach of any of the covenants of the Company contained herein or which would cause the representations and warranties of the Company contained herein to become untrue or inaccurate as of any date subsequent to the date hereof. Without limiting the generality of the foregoing, except as may be contemplated by this Agreement, Seller shall take all necessary actions to cause the Company to (i) operate its business diligently in the ordinary course of business as an ongoing concern, and will use their best efforts to preserve intact the Company's organization and operations at current levels and to make available to Buyer the services of the Company's present employees and to preserve for Buyer the Company's relationships with its suppliers and customers and others having business relationships with the Company; (ii) maintain in good operating condition, ordinary wear and tear excepted, all of the Company's assets and properties which are in such condition as of the date hereof; (iii) maintain the books, accounts and records of the Company in the usual, regular and ordinary manner, on a basis consistent with past practice in recent periods; (iv) refrain from entering into any contract, agreement, sales order, lease, capital expenditure or other commitment of a value in excess of $10,000 (other than purchases of raw materials and sales of inventory in the ordinary course of business), or from modifying, amending, canceling or terminating any of such contracts, agreements, leases or other commitments presently in force, except as expressly contemplated by this Agreement, without the prior approval of Buyer (which approval shall not be unreasonably withheld and which may be verbal to be followed by written confirmation); (v) refrain from paying any bonus to any employee, officer or director, and from declaring or paying any dividend, or making any other distribution in respect of, or from redeeming, the Shares; and (vi) refrain from issuing any capital stock or other securities convertible into capital stock. 6.5 Risk of Loss. In the event that all or a material part of the ------------- assets or properties of the Company are destroyed or substantially damaged prior to the Closing, or are taken by eminent domain by any governmental entity, Buyer shall be entitled to elect within five (5) business days of notice thereof to terminate this Agreement, in which case all parties hereto shall pay their own expenses. In the event that Buyer elects not to terminate this Agreement as provided immediately above, Buyer shall have a period of (5) business days within which to obtain the agreement of Seller as to an appropriate adjustment to the aggregate Purchase Price for the Shares, at the end of which period this Agreement shall terminate if such further agreement has not been reached, and all parties shall pay their own expenses. 6.6 Consents. Each of the parties shall use its best efforts to -------- obtain any and all necessary permits, approvals, qualifications, consents or authorizations from third parties and governmental authorities which are required to be obtained prior to the Closing, and shall use its best efforts to make or complete all filings, proceedings and waiting periods required to be made or completed prior to the Closing. 6.7 Release of Security Interests in Assets. Seller shall cause the --------------------------------------- Company to use its best efforts to obtain consents, in form and substance satisfactory to Buyer, from any and all lienholders and those holding security interests any of the Company's assets, to all of the transactions contemplated by this Agreement, without acceleration of any indebtedness secured by such deeds of trust, mortgages, liens and security interests. 6.8 No Equitable Conversion. Prior to the Closing, neither the ----------------------- execution of this Agreement nor the performance of any provision contained herein shall cause either Buyer, on the one hand, or the Company or Seller, on the other hand, to be or become liable for or in respect of the operations or business of the other, for the cost of any labor or materials furnished to or purchased by the other, for compliance with any laws, requirements or regulations of, or taxes, assessments or other charges now or hereafter due to, any governmental authority, or for any other charges or expenses whatsoever pertaining to the conduct of the business or the ownership, title, possession, use or occupancy of the property of the other, and each hereby agrees to indemnify and hold the other harmless from any such liability. 7. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES The respective obligations of the parties hereto to consummate the transactions contemplated hereby shall be subject to the fulfillment or written waiver, at or prior to the Closing, of the following conditions: 7.1 Regulatory Approvals. There shall have been obtained any and all -------------------- permits, approvals and qualifications of, and there shall have been made or completed all filings, proceedings and waiting periods, required by any governmental body, agency or regulatory authority which, in the reasonable opinion of counsel to Buyer and Seller, are required for the consummation of the transactions contemplated hereby. 7.2 No Action or Proceeding. No claim, action, suit, investigation ----------------------- or other proceeding shall be pending or threatened before any court or governmental agency which presents a substantial risk of the restraint or prohibition of the transactions contemplated by this Agreement or the obtaining of material damages or other relief in connection therewith. 7.3 Obligations of Buyer. The obligation of Buyer hereunder to -------------------- consummate the transactions contemplated by this Agreement are expressly subject to the satisfaction of each of the further conditions set forth below, any or all of which may be waived by Buyer in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver - ------------------ by Buyer of any other condition or of any of its rights or remedies, at law or in equity, if Seller shall be in default or breach of any of any of the representations, warranties or covenants of Seller under this Agreement: (a) Seller shall have performed the agreements and covenants required to be performed by Seller under this Agreement prior to the Closing, there shall have been no material adverse change in the condition (financial or otherwise), assets, liabilities, earnings, business or prospects of the Company since the date hereof, and the representations and warranties of Seller contained herein shall, except as contemplated or permitted by this Agreement or as qualified in a writing dated as of the date of the Closing delivered by the Company to Buyer with the approval of Buyer indicated thereon (which writing is to be attached hereto as Exhibit D, be true in all material respects on and as --------- of the Closing Date as if made on and as of such date, and Buyer shall have received certificates, dated as of the Closing Date, signed by the chief executive and financial officers of Seller, reasonably satisfactory to Buyer and its counsel, to such effect. (b) Seller shall have provided Buyer with certified copies of resolutions (certified as of the Closing Date as being in full force and effect by the President of Seller) duly adopted by the Board of Directors of Seller authorizing the making and performance by Seller of this Agreement. (c) Buyer shall have been provided with written releases of Buyer, in form and substance reasonably satisfactory to Buyer, from each person, if any, who may be entitled to receive a finders fee or other commission from the Company as a consequence of the transactions contemplated hereby. (d) Each of the current officers and directors of the Company shall have resigned all of their respective offices of the Company, effective as of the Closing. (e) Buyer shall have obtained the financing for consummation of the transactions contemplated hereby, as provided in paragraph 8 of the letter of intent between the parties hereto dated May 12, 1998 (the "Letter of Intent"). 7.4 Obligations of Seller. The obligation of Seller hereunder to ---------------------- consummate the transactions contemplated by this Agreement are expressly subject to the satisfaction of each of the further conditions set forth below, any or all of which may be waived, in whole or in part, by Seller, without prior notice; provided, however, that no such waiver of a condition shall constitute a ------------------ waiver by Seller of any other condition or of any of their rights or remedies, at law or in equity, if Buyer shall be in default or breach of any of its representations, warranties or covenants under this Agreement: (a) Buyer shall have performed the agreements and covenants required to be performed by Buyer under this Agreement prior to the Closing, and the representations and warranties of Buyer contained herein shall, except as contemplated or permitted by this Agreement or as qualified in a writing dated as of the date of the Closing delivered by the Buyer to the Company with the approval of the Company indicated thereon (which writing is to be attached hereto as Exhibit E), be true in all material respects on and as of the date of --------- Closing as if made on and as of such date, and Buyer shall have provided Seller with a certificate, dated as of the date of Closing, signed by the chief executive and financial officers of Buyer, reasonably satisfactory to the Company and its counsel, to such effect. (b) Buyer shall have provided Seller with certified copies of resolutions (certified as of the Closing Date as being in full force and effect by the President of Buyer) duly adopted by the Board of Directors of Buyer authorizing the making and performance by Buyer of this Agreement. (c) The Company shall have entered into a License Agreement substantially in the form of Exhibit F attached hereto setting forth the terms and conditions upon which the Company would be obligated to pay Seller annual royalties. 8. ADDITIONAL AGREEMENTS OF THE PARTIES 8.1 Taxes and Expenses. ------------------- (a) Except as otherwise expressly provided in (b) immediately below, each of Seller and Buyer shall pay all of their own respective taxes, attorneys' fees and other costs and expenses payable in connection with or as a result of the transactions contemplated hereby and the performance and compliance with all agreements and conditions contained in this Agreement respectively to be performed or observed by each of them. (b) Seller shall pay any and all income taxes which become due on account of the sale and transfer of the Shares to Buyer, and Buyer shall pay all California sales and use taxes, if any, which become due on account of the sale of the Shares to Buyer, each party reserving the right to contest any assessment of taxes as a consequence of the sale and transfer of the Shares to Buyer. 8.2 Expiration of Representations and Warranties. -------------------------------------------- (a) The representations and warranties of Seller contained herein and in any other document or instrument delivered by or on behalf of Seller and/or the Company pursuant hereto, as such may be qualified in Exhibit D hereto, shall survive the Closing and any investigations made by or on behalf of Buyer made prior to the Closing, and shall remain in full force and effect for a period of eighteen (18) months from the date of the Closing (the "Warranty Period"), and thereupon expire. (b) Nothing contained in Section 8.2(a) shall in any way affect any obligations of any party under this Agreement that are to be performed, in whole or in part, after the Closing, nor shall it prevent or preclude either party from pursuing any and all available remedies at law or in equity for actual fraud in the event that, prior to the Closing, either had actual knowledge of any material breach of any of their respective representations and warranties herein but failed to disclose to or actively concealed such knowledge from the other party prior to the Closing. After expiration of the Warranty Period, Buyer's sole recourse shall be for claims of actual fraud. 8.3 Indemnification. ---------------- (a) Seller hereby agrees to indemnify and hold Buyer and the Company harmless with respect to any and all claims, losses, damages, obligations, liabilities and expenses, including without limitation reasonable legal and other costs and expenses of investigating and defending any actions or threatened actions, which Buyer and/or the Company may incur or suffer following the Closing by reason of (i) any debts, obligations and liabilities of the Company existing as of the Closing which in accordance with generally accepted accounting principles would be required to be reflected in the balance sheet of the Company as of the date of Closing that were not disclosed to Buyer prior to or at the Closing, and (ii) any breach of any of the representations and warranties of Seller contained herein. (b) Buyer hereby agrees to indemnify and hold Seller harmless with respect to any and all claims, losses, damages, obligations, liabilities and expenses, including without limitation reasonable legal and other costs and expenses of investigating and defending any actions or threatened actions, which Seller may incur or suffer following the Closing by reason of (i) any breach of the representations and warranties of Buyer contained herein, and (ii) the conduct and operations of the Company following the Closing. (c) Whenever any claim shall arise for indemnification hereunder, the party asserting the claim for indemnification shall give written notice to the other of its claim for indemnification prior to the expiration of the Warranty Period, which notice shall set forth the amount involved in the claim for indemnification and contain a reasonably thorough description of the facts constituting the basis of such claim. Resolution of such claim for indemnification shall be determined in accordance with the procedures specified in Section 8.4 below. Buyer shall have the right to offset and deduct from any amounts remaining to be payable by Buyer to the Seller hereunder, or otherwise, the amount of an claim for indemnification when, and only when, the amount of such claim has been agreed upon by the parties in writing or determined a court of competent jurisdiction as provided in Section 8.4 below. (d) If a third party claim is asserted which would likely result in a claim for indemnification hereunder, the party seeking indemnification shall, with reasonable promptness, provide the other with notice of any such claim, make available to the other all information within the knowledge or control of the party seeking indemnification which reasonably might be deemed relevant and material to the defense of any such claim, and otherwise cooperate with the other in the defense of the claim. Neither party shall settle or compromise any such claim without the prior written consent of the other unless suit shall have been instituted against the party seeking indemnification and the other party shall have failed, after reasonable notice of institution of the suit, to take control of such suit as provided below. If the party against which indemnification is sought admits in writing that it will be required to fully indemnify the other party with respect to a third party claim alleging damages, up to the maximum amount for which such party may be liable under this Section 8.3, should the third party prevail in such suit, then the party against which indemnification is sought in respect of such suit shall have the right to assume full control of the defense of such claim, and the other party shall be entitled to participate in the defense of such claim only with the consent of the party in control of such defense. As to any third party claim alleging damages in excess of the maximum amount for which Seller may be liable under this Section 8.3, Buyer and the Company shall have and retain the right to control the defense of such claim, and Seller shall be entitled to participate in the defense of such claim only with the consent of Buyer. (e) Except as otherwise expressly provided below in this subsection 8.3(e), (i) Seller shall have no obligation to indemnify Buyer and the Company under the provisions of Section 8.3(a)(ii) above unless and until the aggregate amount as to which Buyer and the Company seek indemnification exceeds $25,000, and then only to the extent of such excess, and (ii) the maximum aggregate liability of Seller to Buyer and the Company as a consequence of any one or more breach or breaches of one or more of the representations and warranties of Seller contained herein shall be limited to the aggregate amount paid and payable to Seller in cash as the Purchase Price for the Shares. In the case of actual fraud, Buyer may, in addition to the foregoing right of indemnification, pursue any and all legal and equitable remedies it may have against Seller. 8.4 Dispute Resolution. Any dispute arising out of or relating to ------------------- this Agreement shall be resolved in accordance with the following procedures: (a) The parties shall first attempt in good faith to resolve any claim or controversy arising out of or relating to the execution, interpretation and performance of this Agreement (including the validity, scope and enforceability of these dispute resolution provisions) promptly by negotiations between executives who have authority to settle the controversy. (b) Any party may give the other party written notice of any dispute not resolved in the ordinary course of business (the "Notice"). Within thirty (30) days from the receipt of such Notice, the receiving party shall submit to the other a written response setting forth a statement of the responding party's position and a summary of the arguments supporting that position, together with the name and title of the executive who will represent the responding party and any other person who will accompany the named executive. Within thirty (30) days after receipt of the responsive notice, executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they deem necessary, and shall use their respective best efforts to attempt in good faith to agree upon a mutually acceptable resolution of the dispute, in which case the parties shall promptly prepare and sign a memorandum setting forth such agreement. All reasonable requests for information made by one party to the other will be honored. All negotiations pursuant hereto shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. (c) Any party to a dispute who is not satisfied with the outcome of the dispute resolution provisions of Sections 8.4(a) and (b) above may file suit in any court of competent jurisdiction located in Orange County or Los Angeles County, California. The parties hereby waive any objection to the foregoing location based upon venue or forum non-conveniens. The parties hereby waive the right to trial by jury to the fullest extent permissible under applicable law. (d) The substantially prevailing party in any litigation under Section 8.4(c) hereof shall be entitled to recover the amount of any and all fees and costs (including reasonable attorney's fees) incurred by the substantially prevailing party if and to the extent that the amount awarded to such party in such litigation (excluding the recovery of fees and costs) exceeds the last written offer in settlement given by the other party thereto. 8.5 Non-Competition. Seller shall not, at any time within a five (5) year ---------------- period commencing immediately following the Closing (the "Effective Period"), directly or indirectly engage in, or have any interest in any person, firm, corporation or business (whether as an employee, officer, director, agent, security holder, creditor, consultant, contractor or otherwise) that engages in the design, development, marketing, manufacture and/or sale, in any county or counties in any area throughout the world, of any product which is the same as or directly competitive with any product manufactured, marketed or sold by the Company in any such area as of the date of Closing, for either the above- mentioned five-year period or for so long as the Company or any of its successors shall engage in any of such activities in any such area (whichever period is the lesser), it being expressly understood and agreed that the Buyer is purchasing the Shares for the purpose of causing the Company to continue to engage in such activities within such areas. Seller further agrees that during the Effective Period Seller will not (i) divulge, communicate, use to the detriment of the Company or any of its successors or for the benefit of any other person or persons, or misuse in any way, any confidential information, trade secrets, secret processes, know-how, customer lists, marketing strategies or other technical data, unless required by law; (ii) directly or indirectly, either for itself or for any other person, firm or other entity, divert or take away or solicit or attempt to divert or take away any present or former customers of the Company (provided that this provision shall not apply to the solicitation of such customers relating to a business activity that is not the same as or directly competitive with any activity of the Company); nor (iii) initiate any offer of employment to, or in any other manner solicit the services of, directly or indirectly, any person who is an employee of or service provider to the Company as of the date hereof, unless Seller first obtains the Company's prior written consent or such person's relationship with the Company has been terminated for at least on full year prior thereto. Notwithstanding anything to the contrary hereinabove, nothing contained herein shall prevent Seller from acquiring (whether through a purchase of assets or stock), at any time and from time to time during the last four years of the Effective period, one or more businesses or product lines from any third party(s), provided that the net sales of products of any such businesses or product lines so acquired that are the same as or directly competitive with any product manufactured, marketed or sold by the Company as of the date of Closing comprise less than ten percent (10%) of the total annual net sales of any such businesses or product lines as of the acquisition date. 9. MISCELLANEOUS 9.1 Other Documents. Each of the parties hereto shall execute and --------------- deliver such other and further documents and instruments, and take such other and further actions, as may be reasonably requested of them for the implementation and consummation of this Agreement and the transactions herein contemplated. 9.2 Parties in Interest. This Agreement shall be binding upon and ------------------- inure to the benefit of the parties hereto, the heirs, personal representatives, successors and assigns of Seller and of Buyer, but shall not confer, expressly or by implication, any rights or remedies upon any other party. 9.3 Governing Law. This Agreement is made and shall be governed in ------------- all respects, including validity, interpretation and effect, by the laws of the State of California. 9.4 Notices. All notices, requests or demands and other ------- communications hereunder must be in writing and shall be deemed to have been duly made if personally delivered or two days after mailed, postage prepaid, to the parties as follows: (a) If to Seller, to: Summa Industries 21250 Hawthorne Blvd., Ste. 500 Torrance, CA 90503 Attn: James R. Swartwout (b) If to Buyer, to: James M. Phillips, Jr. 2603 Main Street East Tower, Suite 1300 Irvine, CA 92614 Any party hereto may change its address by written notice to the other party given in accordance with this Section 9.4. 9.5 Entire Agreement. This Agreement, together with the exhibits ---------------- attached hereto, contains the entire agreement between the parties and supersede all prior agreements, understandings and writings between the parties with respect to the subject matter hereof and thereof, including without limitation the Letter of Intent. Each party hereto acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting with authority on behalf of any party, which are not embodied herein or in an exhibit hereto, and that no other agreement, statement or promise may be relied upon or shall be valid or binding. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally. This Agreement may be amended or any term hereof may be changed, waived, discharged or terminated by an agreement in writing signed by both Seller and Buyer. 9.6 Headings. The captions and headings used herein are for -------- convenience only and shall not be construed as a part of this Agreement. 9.7 Attorneys' Fees. In the event of a dispute between Seller and ---------------- Buyer, the non-prevailing party shall pay the reasonable expenses, including attorneys' fees, of the prevailing party in connection therewith as provided in Section 8.4(d) above. 9.8 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed an original but all of which taken together shall constitute but one and the same document. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day and year first above written. SUMMA INDUSTRIES By: /s/ James R. Swartwout ---------------------------- James R. Swartwout, President P&L GROWTH INDUSTRIES, INC. By: /s/ Robert S. Levine ---------------------------- Robert S. Levine, Chief Executive Officer EX-10.3 4 SUBORDINATED CONVERTIBLE PROMISSORY NOTE EXHIBIT 10.3 SUBORDINATED CONVERTIBLE PROMISSORY NOTE, SECURITY AGREEMENT AND GUARANTEE $1,500,000.00 June 26, 1998 Torrance, California THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE, SECURITY AGREEMENT AND GUARANTEE (this "Agreement") is made and entered into as of the date above by and among P&L Growth Industries, Inc., a California corporation ("Maker"), Summa Industries, a Delaware corporation ("Payee"), and GST Industries, Inc., a California corporation all of whose capital stock is concurrently being purchased by Maker from Payee (the "Company"). RECITALS WHEREAS, Maker was recently established with the issuance of 1,000,000 shares of its common stock for the purpose of purchasing of all of the issued and outstanding capital stock of the Company (the "Shares"); WHEREAS, Maker and Payee have previously entered into that certain Stock Purchase Agreement dated as of June 18, 1998 (the "Stock Purchase Agreement") providing for the purchase by Maker from Payee of all of the Shares. As set forth in Section 2(b) of the Stock Purchase Agreement, a portion of the ------------ Purchase Price (as defined therein) for the Shares is to be paid by Maker to Payee pursuant to the terms and conditions of this Agreement, the form of which is attached as Exhibit A to the Stock Purchase Agreement; and --------- WHEREAS, this Agreement is being executed and delivered in order to set forth the terms and conditions upon which the indebtedness evidenced hereby is to be paid to Payee by Maker, together with interest thereon as set forth herein, to provide for the subordination of such payment in certain circumstances, to provide for optional conversion of a portion of the principal balance hereunder, and to provide for a guarantee of and security for the payment all amounts due Payee hereunder. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants herein contained, the parties hereto hereby agree as follows: 1. Promise to Pay. Maker promises to pay to the order of Payee, at -------------- Torrance, California, or at such other place as Payee may designate and so notify Maker , the principal sum of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00), with simple interest thereon from the date hereof through June 30, 2005 at the rate of ten percent (10.0%) per annum. Unless sooner due as hereinafter provided, but subject in all events to the provisions of Section 2 --------- below, principal and interest shall be due and payable as follows: (a) Interest Payments. Interest on the unpaid principal balance shall ----------------- be due and payable in arrears on a monthly basis on the last day of each full or partial calendar month until all principal and accrued but unpaid interest due and payable hereunder has been paid. (b) Principal Payments. Principal shall be due and payable on a ------------------ calendar quarterly basis as follows: (i) no principal shall be due and payable until September 30, 2000; (ii) twelve quarterly payments of fifty thousand dollars ($50,000.00) each shall be due and payable on the last day of each quarter, with the first payment commencing on September 30, 2000 and continuing through and until June 30, 2003; (iii) eight quarterly payments of seventy five thousand dollars ($75,000.00) each shall be due and payable on the last day of each quarter commencing on September 30, 2003 and continuing through and until June 30, 2005; and (iv) on June 30, 2005, any and all unpaid principal and accrued interest shall be immediately due and payable in full. Any payment under this Agreement shall first be applied to interest due and owing at the date of such payment, and whatever remains after the amount of such interest is deducted from such payment shall be applied to the principal balance due hereunder. (c) Prepayment. Maker shall have the right, without penalty, to prepay ---------- the indebtedness represented hereby in part or in full at any time or times during the continuance hereof. Any prepayment pursuant hereto shall first be applied to interest due and owing at the date of such payment, and whatever remains after the amount of such interest is deducted from such prepayment shall be applied to the principal balance due hereunder in reverse order of the maturity schedule set forth in Section 1(b) above. ------------ (d) Default Interest Rate. If the indebtedness represented hereby is --------------------- not paid in full at maturity (or earlier upon the acceleration thereof as provided in Section 4 below), it shall thereupon accrue, and Maker hereby --------- expressly agrees to pay as liquidated damages and not as a penalty, interest on the remaining unpaid balance of principal and accrued but unpaid interest at fourteen percent (14%) per annum or the highest rate then permitted by law, whichever is greater, until all unpaid principal and interest is paid in full. (e) Certain Waivers. Maker hereby waives demand, presentment for --------------- payment, protest, notice of protest, notice of nonpayment and diligence in collecting the indebtedness represented hereby. 2. Subordination. The payment of principal and interest hereunder is ------------- expressly subordinated to the full payment of up to a maximum of one million six hundred twenty five thousand dollars ($1,625,000.00) in the aggregate of indebtedness of Maker for money borrowed from Comerica Bank-California (the "Senior Lender"), whether currently outstanding or from time to time incurred hereafter (collectively, the "Senior Debt"). Concurrently with the execution and delivery hereof, Seller and Senior Lender will enter into a mutually acceptable agreement setting forth in more detail the terms and conditions upon which payments hereunder shall be subordinated to the Senior Debt. It is expressly understood, however, that so long as there is no default in payment of principal or interest on the Senior Debt, Maker shall make all payments hereunder when due, and may make prepayments of principal and interest hereunder. 3. Events of Default. The failure of Maker to fully pay or perform or ----------------- observe, on a timely basis, any of its obligations contained in this Agreement shall constitute a default hereunder and shall entitle Payee to the rights and remedies provided in Section 4 below. --------- Without limiting the foregoing, a default hereunder shall also occur in the event that, without the prior written consent of Payee: (a) Bankruptcy. A voluntary or involuntary petition is filed for the ---------- bankruptcy or reorganization of Maker and/or the Company under the Federal bankruptcy or reorganization laws, or if a receiver or keeper is appointed for Maker or the Company or any of their respective assets, or if Maker or the Company makes a voluntary assignment for the benefit of creditors, or if an attachment is levied against a substantial part of the assets of Maker or of the Company, and any such event or condition has not terminated or been removed within thirty (30) days after commencement of such event or condition; (b) Merger. Maker and/or the Company is a party to any merger or ------ consolidation with one or more other entities, sells all or a substantial portion of its assets or equity, or otherwise engages in any transaction which results in a change in control of Maker or the Company; (c) Additional Indebtedness. Maker and/or the Company incurs, ----------------------- additively and cumulatively during the continuance hereof, new interest-bearing indebtedness for borrowed money exceeding $500,000.00 in the aggregate (excluding amounts borrowed from Senior Lender that are subject to the provisions of Section 2 above) or makes, cumulatively during the continuance --------- hereof, new capital expenditures exceeding $500,000.00 in the aggregate; (d) Acquisitions. Maker and/or the Company acquires another company ------------ for a purchase price of $250,000.00 or more, whether as an acquisition of stock or assets; (e) Company Quick Ratio. The Quick Ratio (as defined below) of the ------------------- Company becomes less than 0.35 at any time during any full or partial fiscal year during the continuance hereof, as reflected in the financial reports from the Company to Payee specified in Section 3(i) below. For purposes of Sections ------------ -------- 3(e) and 3(f), the Quick Ratio shall be calculated by dividing (i) the sum of - ------------- all cash and cash equivalents and all trade accounts receivable not greater than sixty (60) days old, by (ii) the sum of all current liabilities, including principal payments due to Senior Lender and/or Payee within twelve (12) months; (f) Maker Quick Ratio. The Quick Ratio of Maker (on a consolidated ----------------- basis, calculated as provided in Section 3 (e) above), becomes less than 0.35 at ------------- any time during any full or partial fiscal year during the continuance hereof, as reflected in the consolidated financial reports from Maker to Payee specified in Section 3(j) below; ------------ (g) Company Specified Net Worth. The tangible net worth of the --------------------------- Company shall at any time be less than Specified Net Worth (as defined below). For purposes of this Section 3(g), the Specified Net Worth shall be $800,000.00 ------------ during the first full year following the date hereof, with the Specified Net Worth to be increased by at least $150,000.00 in the first year thereafter and by at least $200,000.00 each year thereafter during the continuance hereof, in each case as reflected in the financial reports to Payee specified in Section ------- 3(i) below; - ---- (h) Maker Specified Net Worth (Deficit). The tangible net worth of ----------------------------------- Maker, on a consolidated basis, shall at any time be less than Specified Net Worth (Deficit) (as defined below). For purposes of this Section 3(h), the ------------ Specified Net Worth (Deficit) shall be ($1,200,000.00) during the first full year following the date hereof, with the Specified Net Worth to be increased by at least $150,000.00 in the first year thereafter and by at least $200,000.00 each year thereafter during the continuance hereof, in each case as reflected in the financial reports to Payee specified in Section 3(j) below; ------------ (i) Company Financial Statements. The Company shall fail to provide ---------------------------- to Payee (i) internally prepared quarterly reports of the Company (within 25 days following the end of each fiscal quarter), consisting of income statements for the preceding calendar quarter and the fiscal year to date, a balance sheet as of the end of the calendar quarter, and a receivables listing as of the end of the calendar quarter, and (ii) internally prepared annual financial statements of the Company (within 90 days following the end of each fiscal year), in all cases prepared in accordance with generally accepted accounting principles applied on a basis consistent with that on which the historical financial statements of the Company were most recently prepared prior to the date hereof; (j) Maker Consolidated Financial Statements. Maker shall fail to --------------------------------------- provide to Payee (i) internally prepared consolidated quarterly reports pertaining to Maker (within 25 days following the end of each fiscal quarter), consisting of consolidated income statements for the preceding calendar quarter and the year to date and a consolidated balance sheet as of the end of the calendar quarter, and (ii) annual consolidated financial statements of Maker (within 90 days following the end of each fiscal year) which have been reviewed by an independent, certified public accounting firm reasonably acceptable to Payee, in all case prepared in accordance with generally accepted accounting principles applied on a basis consistent with that on which the historical financial statements of the Company were most recently prepared prior to the date hereof; (k) No Material Transfers of Company Assets. During the continuance --------------------------------------- hereof, the Company shall transfer, in any single action or a series of related actions, a material quantity of the assets of the Company to any other person or entity, other than the sale or disposition of products in the ordinary course of business and as may be permitted under Section 3(l) below; ------------ (l) Company Distributions. Other than in connection with --------------------- participation in group benefit plans, the Company shall make any payment or other distribution of any kind to or for the account or benefit of Maker or any owners of Company equity, whether as salary, fees, expenses, corporate charges or other remuneration, dividends, repurchases or redemptions of capital stock, or otherwise, which exceed $100,000.00 in the aggregate on an annual basis; provided, however, that Buyers may distribute to Maker amounts necessary to pay - ----------------- (i) principal and interest on this Agreement, (ii) principal and interest on the Senior Debt, (iii) amounts required to pay Maker's and the Company's portion of lawful taxes if Maker files on a consolidated basis, and (iv) amounts due Payee pursuant to that certain License Agreement between Payee and the Company entered into concurrently herewith; (m) Cross Default - Senior Lender. There shall have occurred an event ----------------------------- which constitutes, or with the passage of time or the giving of notice would constitute, a default under any agreements now or hereafter existing between Maker and/or the Company, on the one hand, and Senior Lender on the other, and any such event has not terminated or been removed within ten (10) days after Maker or the Company has received written notice of the commencement of such event; or (n) Cross Default - Stock Purchase Agreement. There shall have ---------------------------------------- occurred an event which constitutes, or with the passage of time or the giving of notice would constitute, a default under any term or condition of the Stock Purchase Agreement or the documents related thereto (including the License Agreement referenced therein), or any other agreement to which the Company and/or Maker is a party, or by which any of their respective assets or properties may be bound, involving an amount in excess of $10,000.00 or having a term of six (6) months or more, and any such event has not terminated or been removed within ten (10) days after Maker or the Company has received written notice of the commencement of such event. 4. Acceleration Upon Default. Upon the occurrence of a default ------------------------- specified in Section 3 above, but subject in all events to the provisions of --------- Section 2 above, the principal amount of all indebtedness then owing hereunder - --------- and all unpaid accrued interest thereon, together with any and all additional indebtedness owed by Maker and/or the Company to Payee, shall become immediately due and payable, without notice, presentment or demand of any kind, all of which are expressly waived by each of Maker and the Company. In such event, Payee may proceed to satisfy such default by enforcing its rights under this Agreement in any manner provided by law, which may include, without limitation, proceeding against the Pledged Stock, the Guarantor and/or the Collateral pursuant to the provisions of Sections 5, 6 and 7 below. The amount involved in the default ------------------- shall include the costs and expenses, including attorneys' fees, incurred by Payee in enforcing its rights hereunder. Payee may exercise all of its rights and remedies concurrently or in such order as it may determine, and the failure of Payee to exercise any rights or remedies it may have upon a default hereunder shall not be deemed a waiver of any rights, or a release of the Company or Maker from any obligation hereunder, unless such waiver or release is given in writing by Payee, and, in such event, no such waiver shall be deemed to constitute a waiver of any succeeding default. In the event that Payee is precluded from enforcing any of its rights hereunder by virtue of the provisions of Section 2 --------- above, and for so long as the restrictions imposed under Section 2 shall --------- continue, neither the Company nor Maker shall incur any new interest bearing indebtedness for borrowed money, make any new capital expenditures, acquire any other company, whether as an acquisition of stock or assets, or enter into any transaction specified in Section 3(b) above. ------------ 5. Pledged Stock. ------------- (a) Pledge of the Shares. As security for the prompt and full -------------------- performance by Maker of all of its obligations hereunder, Maker grants a security interest in and pledges to Payee the Shares. Concurrently with the execution hereof, Maker shall deliver to Senior Lender, as "Pledgeholder," the stock certificates evidencing ownership of the Shares. The Shares, as such may be adjusted by any reclassification, stock split, stock dividend or similar adjustment, or pursuant to any merger, consolidation, sale of assets or reorganization, and any and all subsequently issued ownership interests in the Company held by anyone other than Payee (all of which shall be delivered to Pledgeholder to hold as provided herein), are hereinafter collectively referred to as the "Pledged Stock". Pledgeholder shall hold the Pledged Stock as security for the performance by Maker and the Company of all of their obligations under and in accordance with the terms of this Agreement. (b) Ownership of Pledged Stock. During the continuance of this -------------------------- Agreement, except for the security interest created hereby and any of the Shares obtained by Payee as provided herein, Maker shall remain the sole owner of the Pledged Stock, free from any adverse claim of ownership or any lien, security interest or encumbrance of any kind, and shall retain all dividend, voting and other rights with respect to any securities subject hereto, except for the right to sell, assign, encumber or otherwise transfer the Pledged Stock or any interest therein without the prior written consent of Payee, to be given or withheld in Payee's sole discretion. (c) Future Obligations. During the continuance of this Agreement, the ------------------ security interest granted hereby shall also cover any present or future indebtedness or obligations of Maker and/or the Company to Payee, whether absolute or contingent, which Payee may permit Maker and/or the Company to incur during the continuance hereof. (d) Release of Pledged Stock. Upon the full and complete discharge of ------------------------ all of the indebtedness and obligations guaranteed hereby, the Pledged Stock shall be released from the security interest created hereby. Pledgeholder will thereupon promptly take such actions and deliver such documents and instruments as may be necessary to reconvey and return the Pledged Stock to Maker and to release the security interest therein created hereby, and this Agreement shall thereafter terminate. 6. Guarantee. Subject in all events to the provisions of Section 2 above, --------- --------- the Company (as used herein, the "Guarantor") hereby unconditionally guarantees to Payee the timely payment and performance of all of the obligations of Maker hereunder. The obligations of Guarantor shall be independent of the obligations of Maker and a separate action or actions may be brought and prosecuted by Payee against Guarantor. Guarantor authorizes Payee, without notice or demand and without exonerating or otherwise affecting the liability of Maker, to compromise, extend, accelerate or otherwise change the time for payment or to modify any other term(s) of payment of the indebtedness guaranteed hereby, or to take, hold or release additional security for the performance of this guarantee or the payment of the indebtedness and obligations of Maker guaranteed hereby, or to apply any and all security in whatever manner Payee may determine. Guarantor waives any right to require Payee to proceed against Maker, to proceed against or exhaust any security, including without limitation the Pledged Stock specified in Section 5 above and the Collateral specified in Section 7 below, or --------- --------- to pursue any other remedy in Payee's power whatsoever. Guarantor waives all demand or notice of nonpayment or nonperformance by Maker of the indebtedness and obligations hereby guaranteed. Any indebtedness of Maker now or hereafter owed to Guarantor is hereby subordinated to any amounts or other monies due and payable by Maker to Payee. Guarantor agrees to pay all attorneys' fees and other costs and expenses which may be incurred by Payee in enforcement of this guarantee. In the event that the right to receive the payment and performance of Maker guaranteed hereby is assigned, this guarantee shall continue and the assignee shall be entitled to the full benefits hereof. 7. Security for Performance of Guarantee. ------------------------------------- (a) Grant of Security Interest. As security for the prompt and full -------------------------- performance by Guarantor of the obligations of Guarantor to Payee under the provisions of Section 6 above, the Company hereby grants to Payee a security --------- interest in those tangible and intangible assets of the Company (the "Assets") described on the Financing Statement on Form UCC-1 attached hereto as Exhibit A and by this reference --------- incorporated herein which the Company has executed and is delivering to Payee concurrently with the execution of this Agreement, together with such other documents and instruments as may be necessary or appropriate to enable Payee to perfect this security interest in the Assets. (b) Collateral. The Assets, together with any other property of the ---------- Company that may become subject hereto, are hereinafter collectively referred to as the "Collateral." The security interest granted hereby covers all properties of the same kind and character as those which are covered by and subject hereto which the Company may hereafter acquire at any time until the termination of this Agreement, as well as any and all of the proceeds resulting from therefrom. (c) Future Obligations. The security interest granted hereby shall ------------------ also cover any present or future indebtedness or obligations of the Company to Payee, whether absolute or contingent, which Payee may permit the Company to incur during the continuance hereof. (d) Collateral Ownership. Except for the security interest created -------------------- hereby and the security interest therein granted by the Company to Senior Lender as contemplated by the agreements between such parties, the Company is the owner of the Collateral free from any adverse claim of ownership or any lien, security interest or encumbrance of any kind, and shall retain all rights therein subject to the terms and conditions hereof, except for the right to sell, assign, encumber or otherwise transfer the Collateral or any interest therein (other than in connection with the acquisition by the Company of new assets wherein one or more third parties from whom such new assets are obtained reserves a purchase money or comparable security interest therein) without the prior written consent of Payee, to be given or withheld in Payee's sole discretion. (e) Subordination to Senior Lender. Payee understands and agrees that ------------------------------ the security interest in the Collateral granted hereby shall be subordinate to the security interest therein granted by the Company to Senior Lender in the agreements between such parties. 8. Convertibility. -------------- (a) Conversion of Principal. Payee, at its sole option at any time ----------------------- during the term of this Agreement, may elect by written notice delivered to Maker at its address set forth in Section 9 hereof to convert up to five hundred --------- and twenty five thousand dollars ($525,000.00) of unpaid principal due hereunder into shares of common stock (or any other form of equity into which shares of such common stock have been converted) of Maker ("Conversion Stock") at a conversion price equal to three dollars ($3.00) per share ("Conversion Price"). NO PORTION OF THE PRINCIPAL DUE HEREUNDER SHALL BE CONVERTED INTO SECURITIES OF MAKER IF SUCH CONVERSION WOULD VIOLATE FEDERAL SECURITIES LAWS OR APPLICABLE STATE SECURITIES LAWS. (b) Antidilution. The number of shares of Conversion Stock and the ------------ Conversion Price thereof shall be proportionately adjusted for any and all declared or actual increases or decreases in the number of issued securities of Maker resulting from any subdivisions or consolidations or the payment of any stock dividends, stock splits or any other increases or decreases in the number of issued securities effected without receipt of consideration by Maker. If Maker is a party to or involved in any mergers or consolidations or changes in control, the conversion rights in subsection 8(a) above shall entitle Payee to the same consideration as a holder of the number of shares of Conversion Stock subject to such conversion rights would have been entitled if such conversion rights had been exercised in their entirety immediately prior to any such merger or consolidation or change in control. 9. Notices. Any notice or other communication given hereunder to any party ------- by another shall be in writing and delivered personally or by overnight, registered or certified mail, postage prepaid, as follows: To Maker: James M. Phillips, Jr. 2603 Main Street East Tower, Suite 1300 Irvine, CA 92614 To the Company: GST Industries, Inc. 3601 West Central Avenue Santa Ana, CA 92704 Attn: Mr. Robert S. Levine To Payee: Summa Industries 21250 Hawthorne Blvd., Suite 500 Torrance, CA 90503 Attn: James R. Swartwout or to such other address as a party shall hereafter designate in writing and give notice thereof to the others in accordance with the foregoing. Any such notice or other communication shall be deemed delivered upon receipt if personally delivered, or forty-eight (48) hours after sent by overnight, registered or certified mail. 10. Successors and Assigns. Except as may be provided herein to the ---------------------- contrary, the provisions hereof shall inure to the benefit of and be binding upon the heirs, administrators, executors, assigns and successors in interest of each of the parties hereto. Maker and the Company may not assign or transfer any of their rights or obligations hereunder without the prior written consent of Payee, to be given or withheld in Payee's sole discretion. Any notice or other action hereunder by any successor shall be effective only if accompanied by proper evidence of authority to act. 11. Governing Law. This Agreement shall be governed by and construed in ------------- all respects in accordance with the laws of the State of California, excluding choice of law provisions thereof. 12. Counterparts; Originals; Headers. This Agreement may be executed in -------------------------------- any number of counterparts, each of which shall be deemed an original for all purposes, including the judicial proof of any of the terms hereof, but all of which taken together shall constitute one and the same agreement. Headers used herein are for convenience of reference only and shall not affect the interpretation of this Agreement. 13. Cooperation. Each party hereto agrees to execute and deliver such ----------- other documents and instruments and to cooperate in the filing, recordation or other acts similarly necessary, and to take such other actions as may be necessary or appropriate in order to carry out the intent and purposes of this Agreement. 14. Consent to Jurisdiction: Forum Selection. The parties agree that all ---------------------------------------- actions or proceedings arising in connection with this Agreement shall be tried and litigated exclusively in the Federal or state courts located in the County of Los Angeles or County of Orange, State of California. The aforementioned choice of venue is intended by the parties to be mandatory and not permissive in nature, thereby precluding the possibility of litigation between the parties with respect to or arising out of this Agreement in any jurisdiction other than those specified in this section. Each party hereby waives any right it may have to assert the doctrine of forum non conveniens or similar doctrine or to object to venue with respect to any proceeding brought in accordance with this section, and stipulates that the Federal and state courts located in the County of Los Angeles and County of Orange, State of California shall have in personam jurisdiction and venue over each of them for the purpose of litigating any dispute, controversy or proceeding arising out of or related to this Agreement. Each party hereby authorizes and accepts service of process sufficient for personal jurisdiction in any action against it as contemplated by this paragraph by registered or certified mail, return receipt requested, postage prepaid, to its address for the giving of notices as set forth in this Agreement, or in the manner set forth in Section 8 of this Agreement for the giving of notice. Any --------- final judgment rendered against a party in any action or proceeding shall be conclusive as to the subject of such final judgment and may be enforced in other jurisdictions in any manner provided by law. 15. Attorneys' Fees. Should any litigation be commenced concerning this --------------- Agreement or the rights and duties of any party with respect to it, the party prevailing shall be entitled, in addition to such other relief as may be granted, to such party's attorneys' fees, costs and expenses, determined by the court in such litigation or in a separate action brought for that purpose. 16. Entire Agreement. This Agreement, together with the Stock Purchase ---------------- Agreement, contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior oral and written agreements and understandings relating to the subject matter hereof. 17. Severability. If any provision of this Agreement or the application ------------ of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof or the portion, if any, of such provision that may be enforceable. 18. Waivers. Any particular Event of Default as described in Section 3 ------- --------- may be waived only upon the written consent of Payee or the subsequent holder(s) of this Agreement. Payee shall not be deemed by any act, omission or commission to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Payee and then only to the extent specifically set forth in such writing. A waiver of one event shall not be construed as continuing or a bar to or waiver of any right or remedy with respect to a subsequent event. IN WITNESS WHEREOF, each of the parties hereto, intending to be legally bound, has caused this Agreement to be executed and delivered by a duly authorized agent effective as of the date first above written. PAYEE: SUMMA INDUSTRIES, a Delaware corporation By: /s/ James R. Swartwout --------------------------------------------- James R. Swartwout, President MAKER: P&L GROWTH INDUSTRIES, INC., a California corporation By: /s/ Robert S. Levine --------------------------------------------- Robert S. Levine, Chief Executive Officer THE COMPANY: GST INDUSTRIES, INC., a California corporation By: /s/ Robert S. Levine --------------------------------------------- Robert S. Levine, Chief Executive Officer EX-27 5 FINANCIAL DATA SCHEDULE
5 3-MOS 9-MOS AUG-31-1998 AUG-31-1998 MAR-01-1998 SEP-01-1997 MAY-31-1998 MAY-31-1998 19,000 0 0 0 14,030,000 0 0 0 9,578,000 0 26,110,000 0 26,594,000 0 6,030,000 0 68,956,000 0 12,914,000 0 0 0 0 0 0 0 18,434,000 0 8,118,000 0 68,956,000 0 23,854,000 60,698,000 23,854,000 60,698,000 16,377,000 42,121,000 16,377,000 42,121,000 4,649,000 12,131,000 0 0 506,000 1,159,000 2,322,000 5,287,000 988,000 2,207,000 1,334,000 3,080,000 66,000 299,000 0 0 0 0 1,400,000 3,379,000 .33 .81 .30 .74
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