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EXHIBIT 10.7
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made and entered into this 1st
day of October 1997 by and among SPECTRATEK TECHNOLOGIES, INC., a California
corporation ("Spectratek"), FOSTERCO INC., a California corporation
("FosterCo"), XXXXXXX XXXXXX, an individual ("Xxxxxx") and XXXXXXXX XXXXXX, an
individual ("Xxxxxx"). Xxxxxx and Xxxxxx are sometimes collectively referred to
herein as the "Shareholders."
RECITALS
X. Xxxxxx is the owner of five hundred (500) shares of Common Stock of
FosterCo, representing fifty percent (50%) of the issued and outstanding shares
of Common Stock of FosterCo.
X. Xxxxxx is the owner of five hundred (500) shares of Common Stock of
FosterCo, representing the remaining fifty percent (50%) of the issued and
outstanding shares of Common Stock of FosterCo.
C. The parties hereto desire to enter into this Agreement to provide
Spectratek with the option to purchase all of the Shareholders' interest in
FosterCo.
D. The parties acknowledge that Spectratek will be reincorporated in
the State of Delaware in the near future, and that such Delaware corporation
shall succeed to all of Spectratek's rights under this Agreement without the
consent of any party hereto.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Grant to Optionee.
The Shareholders hereby grant to Spectratek, subject to the terms and
conditions set forth herein, an option (the "Option") to purchase from the
Shareholders all, but not less than all, of the shares of capital stock of
FosterCo now or hereinafter directly or indirectly held by each of the
Shareholders and their transferees (the "Shares").
2. Exercise of the Option.
2.1 Exercise Price. The aggregate exercise price (the "Exercise Price")
for the Shares subject to this Option shall be equal to the greater of (i)
$5,000,000 or (ii) fifty percent (50%) of the Appraised Value of FosterCo as of
the day on which the Exercise Notice is delivered to the Shareholders in
accordance with Section 2.3 herein. The Exercise Price shall be allocated
between the Shareholders based on their pro rata share of the outstanding
capital stock of FosterCo as of the date of Exercise. If this Option is
exercised in accordance with Section 2.3, payment of the Exercise Price shall
become due and payable as follows: (i) $5,000,000 at the date of delivery of the
Exercise
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Notice to the Shareholders if payable in cash (or as soon thereafter as
reasonably practicable if payable in Spectratek Common Stock), and (ii) the
remainder, if any, within fifteen (15) business days following the determination
of the Appraised Value. Spectratek, at its sole option, may elect, to the extent
permitted by applicable statutes and regulations, to make payment of the
Exercise Price in one or more of the following forms:
(a) in cash or cash equivalent (including certified check); or
(b) provided Spectratek's Common Stock is publicly traded and
quoted regularly in the Wall Street Journal at the time the Exercise
Notice is delivered, in shares of Spectratek Common Stock registered
pursuant to an effective registration statement filed with the Securities
and Exchange Commission and valued at their deemed Fair Market Value on
the date such Exercise Notice is delivered. All costs and expenses of such
registration shall be paid by the Company.
For the purposes of this Agreement, the "Fair Market Value" per
share of Spectratek Common Stock shall be determined as follows:
(i) If the Common Stock of Spectratek is listed on any
established stock exchange or national market system, including
(without limitation) the Nasdaq National Market, the Fair Market
Value per share of such Common Stock shall be deemed equal to the
average of the closing selling prices per share for the twenty (20)
consecutive trading day period ending immediately prior to the date
the Exercise Notice is given to FosterCo, as such prices are
reported in the Wall Street Journal or such other source as the
Board of Directors of Spectratek deems reliable;
(ii) If the Common Stock of Spectratek is quoted on the
Nasdaq Stock Market (but not on the National Market thereof) or is
regularly quoted by a recognized securities dealer but sales prices
are not reported, the Fair Market Value per share of such Common
Stock shall be deemed equal to the average of the average daily
highestp bid and lowest asked prices for the Common Stock of
Spectratek for the twenty (20) consecutive trading day period ending
immediately prior to the date the Exercise Notice is given by
FosterCo, as such prices are reported by the National Association of
Securities Dealers or such other source as the Board of Directors of
Spectratek deems reliable.
2.2 Appraised Value. For the purposes of this Agreement, "Appraised
Value" means, as of any date, the value of the Shares as mutually agreed to by
the Shareholders and the Fairness Committee, or if there shall be no agreement,
the Appraised Value of the Common Stock of FosterCo shall be determined as
follows:
(a) If Spectratek exercises this Option in accordance with
Paragraph 2.3, Xxxxxx and Xxxxxx shall together appoint, and the Fairness
Committee shall also appoint, a Qualified Appraiser within fifteen (15)
business days following the receipt of such notice.
(b) If either party shall fail to appoint its Qualified Appraiser
within the time period specified above, the other Qualified Appraiser
shall unilaterally establish the
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Appraised Value of the Shares by a written opinion. If both parties shall
appoint a Qualified Appraiser within the time period specified above, the
Qualified Appraisers shall establish the Appraised Value of the Shares in
a single written opinion agreed to by both of them, which opinion shall be
addressed to the Shareholders and the Fairness Committee. If the two
Qualified Appraisers cannot agree on the price of the Shares within
fifteen (15) business days after the appointment of the latter of them,
the two appointed Qualified Appraisers shall together appoint a third
Qualified Appraiser whose sole written opinion shall establish the
Appraised Value of the Shares, which opinion shall be addressed to the
Shareholders and the Fairness Committee and shall be delivered within
thirty (30) calendar days following such appointment and shall be final,
binding and nonappealable and may be enforced by legal proceeding. The
Qualified Appraisers shall take into consideration (i) the fair market
value of all tangible and intangible assets of FosterCo, including but not
limited to, its licenses, patents, trade secrets, know-how, business
prospects, equipment and machinery, accounts receivable and contract
rights, (ii) past, current and projected profits of FosterCo, (iii) all
liabilities of FosterCo, (iv) FosterCo's net sales and goodwill, and (v)
FosterCo's experience with collections. The appraisal method should also
take into consideration what an independent third party would be willing
to pay for all or a part of FosterCo. Each party shall compensate the
Qualified Appraiser appointed by it, and the compensation of the third
Qualified Appraiser, if any, shall be borne equally by the Shareholders on
one hand and Spectratek on the other hand. For purposes of this Section
2.2(b), a "Qualified Appraiser" is a professional appraiser or certified
public accountant who is qualified by experience and ability to appraise
the Shares. The appointment of a Qualified Appraiser shall be made by a
written instrument delivered to Spectratek and the Shareholders.
2.3 Exercise Notice. In order to exercise this Option, Spectratek, its
successors, or any other person or persons entitled to exercise the Option,
shall give written notice of such exercise (the "Exercise Notice"), in
substantially the form set forth on Exhibit A attached hereto, to both Xxxxxx
and Xxxxxx or to such other person as either or both of them may have previously
designated in writing to Spectratek.
3. Exercise Period; Termination Date.
This Option may be exercisable only during the twelve (12)-month period
commencing on October 1, 2002 and ending on September 30, 2003 (the "Exercise
Period"), provided, however, that this Option shall become immediately
exercisable in the event Cyberwerks Interactive, L.L.C. files a registration
statement on Form S-1 with the Securities and Exchange Commission to register
shares of its Common Stock in which case the Option shall continue to be
exercisable until the Termination Date as defined below. The Option shall
terminate and expire at 6:00 p.m., Pacific time, on September 30, 2003 (the
"Termination Date"). In no event may this Option be exercised after such
Termination Date.
4. Option Transferability/Transferability of the Shares.
This Option is not transferable except to a successor of Spectratek in the
event Spectratek is merged into, consolidated with or acquired by another
corporation or entity, in which case no consent of the Shareholders or FosterCo
shall be required to assign this Option to Spectratek's successor. Neither of
the Shareholders shall transfer, sell, assign, pledge, encumber or otherwise
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convey ("Transfer") any direct or indirect interest in any of the Shares while
this Option remains outstanding, except for Transfers by gift, by will or by the
laws of descent and distribution, provided, however, that any transferee (i)
shall take such Shares subject to all of the terms and conditions of this
Agreement and shall agree in writing to be bound by this Agreement, and (ii)
shall make no further Transfers except as permitted herein. Any such transferee
shall be deemed to be a Shareholder for the purposes of this Agreement.
5. No Rights as a Shareholder.
The holder of this Option shall not have any of the rights of a
shareholder of FosterCo with respect to the Shares subject to the Option until
such holder shall have exercised the Option and paid the Exercise Price
therefor.
6. Adjustments for Stock Splits, Dividends, Etc.
The parties hereto intend that this Option shall cover all of the capital
stock of FosterCo now or hereinafter held by the Shareholders. If at any time
while this Option remains outstanding and unexpired, FosterCo shall pay a
dividend with respect to the Shares payable in capital stock, or make any other
distribution in capital stock with respect to the Shares, or shall split,
subdivide or combine its capital stock, then any such shares of capital stock
issued to the Shareholders shall be deemed to be Shares for the purposes of this
Agreement and shall automatically be subject to this Option. In addition, if the
Company shall, at any time, subdivide, combine, reorganize or reclassify any of
its Common Stock into the same or a different number of securities of any other
class or classes, this Option shall thereafter represent the right to acquire
all of such securities issuable as a result of such subdivision, combination,
reorganization, reclassification or other change. In no event shall the
aggregate Exercise Price of the Option be increased as a result of additional
shares or different securities being purchased hereunder.
7. Representations and Warranties.
Each of the Shareholders and FosterCo hereby represent and warrant to
Spectratek as follows:
7.1 Corporate Existence, Good Standing and Authority. FosterCo is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. FosterCo has full corporate power and authority to
carry on its business as is now being conducted and as proposed to be conducted
and owns, leases or otherwise is entitled to operate the property and assets now
owned, leased or operated by it. Each Shareholder and FosterCo have power and
authority to enter into this Agreement, to grant the Option and to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of the Shareholders and FosterCo and constitutes a legal,
valid and binding obligation against each Shareholder and FosterCo, enforceable
against each such party in accordance with its terms, except as enforcement may
be limited by equitable principles or bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally.
7.2 Capitalization. The authorized capital stock of FosterCo consists of
ten thousand (10,000) shares of Common Stock, no par value, of which one
thousand (1,000) shares of Common
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Stock are issued and outstanding as of the date hereof. All of the outstanding
shares of capital stock of FosterCo are owned beneficially and of record by the
Shareholders and are owned free and clear from any charge, lien, adverse claim
or encumbrance of any kind whatsoever. The Shareholders have the absolute and
unrestricted right, power and authority to sell, transfer, vote and deliver the
Shares to Spectratek upon exercise of the Option. Upon such exercise and payment
of the Exercise Price therefor, Spectratek will acquire the legal and beneficial
ownership of, good and valid title to, and all stockholder rights with respect
to, all of the outstanding capital stock of FosterCo. All of the Shares have
been duly authorized, validly issued and fully paid and are nonassessable. There
are no options, warrants, conversion rights, rights of exchange or any other
rights, plans, agreements or commitments of any nature whatsoever (including
without limitation conversion or preemptive rights) providing for the purchase,
issuance or sale of any shares of capital stock of FosterCo or any securities
convertible into or exchangeable for shares of capital stock of FosterCo.
7.3 Subsidiaries. Except for its 50% membership interest in Cyberwerks
Interactive, L.L.C., FosterCo does not presently own, directly or indirectly, an
interest in any other corporation, association, joint venture or other business
venture.
7.4 Indebtedness. FosterCo has no outstanding indebtedness for borrowed
money in excess of $50,000. FosterCo is not in default under any such agreement
or instrument.
7.5 Litigation. Except as set forth on Exhibit A, no litigation,
arbitration or other proceeding is pending or, to the best knowledge of FosterCo
or the Shareholders, has been threatened against FosterCo, its properties or
assets, or the Shares, before any court or governmental agency, other than the
dispute outlined in correspondence dated August 14, 1997 from Xxxxxx Xxxx, Esq.
on behalf of Xxxxxxx Xxxxx. Except as set forth on Exhibit A, to the knowledge
of FosterCo and the Shareholders, FosterCo is not the subject of any
investigation for violation of any laws, regulations or administrative orders
applicable to its business.
7.6 Title to Property. To the knowledge of FosterCo and the
Shareholders, FosterCo has good and valid title to all its properties and assets
and FosterCo owns, licenses or otherwise has legally enforceable rights to use
all patents, trademarks, copyrights, trade secrets and other tangible or
intangible proprietary information used or proposed to be used in its business.
7.7 Update. The foregoing representations and warranties shall be true
and correct (i) as of the date of this Agreement, and (ii) as of the closing
date of the purchase and sale of the Shares pursuant to the exercise of this
Option, and such closing shall be conditioned upon the delivery by the
Shareholders and FosterCo to Spectratek of a written acknowledgment that such
warranties and representations remain true and correct as of the closing date,
unless such condition is waived in writing by Spectratek.
8. Covenants of the Shareholders and FosterCo.
From the date hereof until the earlier of the Termination Date or the
consummation of the sale of the Shares to Spectratek upon exercise of this
Option, each of the Shareholders and FosterCo hereby covenant and agree not to
engage in, approve, authorize or take any of the following actions without the
prior written consent of the committee of the Board of Directors of Spectratek
designated to oversee this Agreement (the "Fairness Committee"), which committee
shall be comprised of two
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members of the Board of Directors who qualify as independent directors under the
rules promulgated by the National Association of Securities Dealers.
8.1 Sell, Issue or Transfer Any Securities. Except as set forth in
Section 4, offer, sell, contract to sell, issue, pledge, loan, or grant any
rights with respect to or otherwise dispose of any shares of capital stock of
FosterCo, any options or warrants to purchase any shares of capital stock of
FosterCo, or any securities convertible into or exercisable or exchangeable for
shares of capital stock of FosterCo.
8.2 Dividends. Pay any dividend or make any distribution upon any of
FosterCo's equity securities, except that FosterCo may declare and pay cash
dividends to the Shareholders in an aggregate amount not to exceed the product
of (i) the combined individual federal and state statutory income tax rates then
in effect and (ii) the net income of FosterCo.
8.3 Redemptions. Redeem, purchase or otherwise acquire any equity
securities of FosterCo.
8.4 Indebtedness. Create or incur (i) any indebtedness for borrowed
money or for the deferred purchase price of property or services, except in the
ordinary course of business, or (ii) any obligations under direct or indirect
guaranties.
8.5 Sale or Transfer of Assets. Sell, convey or otherwise dispose of or
encumber all or substantially all of FosterCo's property or business, in one or
a series of transactions, or merge FosterCo into or consolidate with any other
corporation or entity or effect any transaction or series of related
transactions disposing of any of the voting power of FosterCo. Notwithstanding
the foregoing, FosterCo may, without the consent of Spectratek, transfer certain
of its assets as contemplated by the Exclusive Manufacturing Agreement dated
June 28, 1995 among FosterCo, Cyberwerks Interactive, L.L.C. and The Upper Deck
Company, LLC.
8.6 Other Agreements. Enter into any agreement or instrument, which by
its terms would restrict Spectratek's right to purchase the Shares or which
would limit the Shareholders' or FosterCo's ability to perform any of its
obligations pursuant to the terms of this Agreement.
9. General Provisions.
9.1 Further Information. During the Exercise Period, FosterCo and the
Shareholders agree to provide to Spectratek any such further information
relating to FosterCo, its business and the Shares, which may be reasonably
requested by Spectratek; provided, however, that any such requests may not be
made more frequently than every three months.
9.2 Saturdays, Sundays, Holidays, Etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
hereunder shall be on a Saturday, Sunday or on a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding weekday that
is not a legal holiday.
9.3 Notice of Litigation/Adverse Developments. During the Exercise
Period, each of the Shareholders and FosterCo agree to provide written notice to
Spectratek in the event any of such
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parties receive notice of any lawsuit, action or proceeding involving FosterCo
or its business or assets.
9.4 Notices. All notices or other communications permitted or required
under this Agreement shall be in writing and shall be sufficiently given if and
when hand delviered to the persons set forth below, or if sent by documented
overnight delivery service or registered or certified mail, postage prepaid,
return receipt requested, or by telegram, telex or facsimile, receipt
acknowledged, addressed as set forth below or to such other person or persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the others. Any such notice or communication shall be deemed
to have been given as of the date received, in the case of personal delivery, on
the date mailed, or on the date shown of the receipt or confirmation therefor in
all other cases.
Spectratek: Spectratek Technologies, Inc.
0000 Xxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Chief Financial Officer
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
Xxxxxx: Xx. Xxxxxxxx Xxxxxx
000 Xxxxxx Xxxxxx, #X
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.:____________
Xxxxxx: Xx. Xxxxxxx Xxxxxx
0000 Xxxxx Xxxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.:____________
FosterCo: FosterCo Inc.
c/o Xx. Xxxxxxxx Xxxxxx
000 Xxxxxx Xxxxxx, #X
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Telephone No.: (000) 000-0000
Facsimile No.:____________
9.5 Governing Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-law rules.
9.6 Successors and Assigns. Except to the extent otherwise provided in
Section 4, the provisions of this Agreement shall inure to the benefit of, and
be binding upon FosterCo and
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Spectratek and their successors and assigns, and upon the Shareholders and their
legal representatives, heirs and legatees of such Shareholders' estates.
9.7 Loss, Theft, Destruction or Mutilation of Option. Upon receipt by
the Shareholders and FosterCo of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of this Option, and upon reimbursement to
the Shareholder and FosterCo of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Option if mutilated, the Shareholders
and FosterCo agree to execute and deliver a new Option of like tenor, dated as
of such cancellation, in lieu of this Option.
9.8 Amendments. This Agreement may be amended and the observance of any
term of this Agreement may be waived only with the written consent of each of
the Shareholders, FosterCo and the holder hereof.
9.9 Entire Agreement. This Agreement and Exhibits hereto constitute the
entire agreement among the parties, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein.
9.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.11 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.12 Survival of Warranties. The warranties, representations and
covenants of the Shareholders and FosterCo contained in this Agreement shall
survive the execution and delivery of this Agreement and shall be subject to
update pursuant to Paragraph 7.7 of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first set forth above.
"Spectratek" SPECTRATEK TECHNOLOGIES, INC.,
a California corporation
By:________________________
Title:_____________________
"Xxxxxx" ___________________________
XXXXXXXX XXXXXX
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"Xxxxxx" ___________________________
XXXXXXX XXXXXX
"FosterCo" FOSTERCO INC.,
a California corporation
By:________________________
Title:_____________________
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EXHIBIT A
Exercise Notice
Xx. Xxxxxxxx Xxxxxx
000 Xxxxxx Xxxxxx, #X
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Xx. Xxxxxxx Xxxxxx
0000 Xxxxx Xxxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Re: Exercise of Stock Option
Gentlemen:
Pursuant to Section 2 of that certain Option Agreement (the "Agreement")
among FosterCo Inc. ("FosterCo"), Spectratek Technologies, Inc., Xxxxxxxx Xxxxxx
and Xxxxxxx Xxxxxx, the undersigned hereby elects to exercise the Option granted
thereby to purchase all of the outstanding shares of Common Stock of FosterCo
held by each of you at an exercise price equal to the greater of $5,000,000 or
fifty percent (50%) of the Appraised Value of FosterCo to be determined in
accordance with the terms of the Agreement.
Dated:______________ ________________________________________
Signature
_______________________________________
Print Name
_______________________________________
Please print here the exact name
desired to be on the stock
certificate and the records of the
Company.
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SPOUSE'S CONSENT TO AGREEMENT
The undersigned, being the spouse of Xxxxxxx Xxxxxx who has signed the
foregoing Agreement, acknowledges that she has read the foregoing Option
Agreement (the "Agreement"), among FosterCo Inc., Spectratek Technologies, Inc.,
Xxxxxxxx Xxxxxx and Xxxxxxx Xxxxxx, knows its contents and understands the
meaning and legal consequences of the Agreement. She is aware that under the
provisions of this Agreement she and/or her spouse agree to sell the Shares on
the occurrence of certain events. The undersigned hereby agrees that those
Shares and any interest, community or otherwise, she has in them, are subject to
the provisions of the foregoing Agreement. The undersigned also agrees that her
spouse may join in any future amendments or modifications of said Agreement
without any further signature, acknowledgment, agreement or consent on her part.
Furthermore, the undersigned agrees to take no action at any time to hinder the
operation of the Agreement as to those Shares or her interest in them, and
agrees that in her Will she will not bequeath any interest that she now owns or
hereafter acquires in the Shares, other than outright and free of trust to her
spouse, or other than to a trust of which her spouse is the sole trustee.
Dated: October 1, 1997 Signature:______________________________
Print Name:_____________________________
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EXHIBIT A
Litigation
None.
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