<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999
File Number 333-66173
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
________________
U.S. LABORATORIES INC.
(Name of small business issuer as specified in its charter)
Delaware 8734 33-0586167
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
7895 Convoy Court, Suite 18
San Diego, California 92111
(619) 715-5800
(Address and telephone number of principal executive offices)
Dickerson Wright, Chief Executive Officer
U.S. Laboratories Inc.
7895 Convoy Court, Suite 18
San Diego, California 92111
(619) 715-5800
(Name, address, and telephone number of agent for service)
Copies to:
Evelyn Arkebauer, Esq. Thomas R. Blake, Esq.
Joseph Lesko, Esq. Camner, Lipsitz and Poller, P.A.
Foley & Lardner 550 Biltmore Way, Suite 700
402 W. Broadway, Suite 2300 Coral Gables, Florida 33134
San Diego, California 92101 (305) 442-4994
(619) 234-6655
<PAGE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering under
Rule 462(b) under the Securities Act of 1933, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made under Rule 434, please
check the following box. [ ]
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 29, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
U.S. LABORATORIES INC.
1,100,000 UNITS
1,100,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,100,000 SHARES
[LOGO]
OF COMMON STOCK
$6.00 PER UNIT
U.S. Laboratories Inc.
7895 Convoy Court, Suite 18
San Diego, California 92111
Telephone number (619) 715-5800
THE OFFERING
<TABLE>
<CAPTION>
PER UNIT TOTAL
----------- ------------
<S> <C> <C>
Public Price $ 6.00 $ 6,600,000
Underwriting discounts $ .60 $ 660,000
Proceeds to U.S. Labs $ 5.40 $ 5,940,000
</TABLE>
The underwriters have the option to purchase an additional 165,000 units,
subject to certain terms and conditions. See "Underwriting."
This is our initial public offering, and no public market currently exists for
our units, the underlying shares of common stock, or the warrants. The offering
price may not reflect the market price of our shares of common stock or warrants
after the offering.
Proposed Trading Symbols
Nasdaq SmallCap Market
Common Stock--USLB
Warrants--USLBW
------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE UNITS
ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. PROSPECTIVE UNIT
BUYERS SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
[CARDINAL CAPITAL MANAGEMENT, INC.]
JANDA & GARRINGTON LLC
[FAS WEALTH MANAGEMENT SERVICES, INC.]
February , 1999
<PAGE>
Inside Cover Page -- Blank
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU. TO UNDERSTAND THIS OFFERING FULLY, YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK FACTORS AND FINANCIAL
STATEMENTS.
THE COMPANY
U.S. Laboratories Inc. is a Delaware corporation that offers quality
construction control services from conception to completion of a building
project in order to verify that the project conforms to construction
specifications. We analyze the soil that will be built upon to determine
whether it can hold the structure. We also analyze the structural strength of
the concrete, masonry, and steel materials to be used during construction. We
use universally recognized test procedures and laboratory equipment to
perform the analyses, and all construction in the field is verified by our
licensed inspectors. Our projects involve every type of construction:
high-rises, low-rises, shopping centers, residential, schools, hospitals,
bridges, tunnels, highways, stadiums, airports, military facilities, and many
other types of public and private improvements. We work for government
agencies, real estate developers, general contractors, school districts, and
other types of landowners.
Since 1993, we have implemented a strategy designed to establish a national
infrastructure of offices and diversify our service offerings. We believe that
we are achieving these objectives by pursuing strategic acquisitions, targeting
premium national accounts, increasing infrastructure accounts, balancing public
sector and private sector services, and expanding our geographic markets.
A key component of our growth is based on our belief that the industry for
engineering services is fragmented and that there are opportunities to acquire
local engineering services companies. We estimate that there are 3,500 companies
whose businesses are complementary to ours and believe that the expertise we
have developed in identifying, completing, and integrating acquisitions provides
us with a competitive advantage in entering new geographical markets. We plan to
apply our expertise in assimilating acquired companies' personnel and branch
operations into our existing infrastructure and expanding acquired companies'
service and product offerings to existing clients. This will strengthen our
position as an industry consolidator through acquisitions that meet our
operating, financial, and geographic criteria. Although we frequently
investigate potential acquisitions in the industry, we are not currently engaged
in material negotiations nor do we have any agreements to acquire another
business.
U.S. Labs currently services the northeast, southwest, and southeast
regional engineering and building construction inspection markets through its
subsidiaries. In California, we operate San Diego Testing Engineers, Inc., and
Los Angeles Testing Engineers, Inc. In Florida, we operate Professional
Engineering & Inspection Company, Inc. and in New Jersey, we operate U.S.
Engineering Laboratories, Inc. We wholly own all our subsidiaries reflected in
the table below.
[CHART]
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Units Offered. . . . . . . . . . . . . . . . 1,100,000 units at $6.00 per
unit, each unit consisting of
one share of common stock and
one warrant to purchase one
share of common stock for
$7.80 per share
Common Stock Offered . . . . . . . . . . . . 1,100,000 shares
Common Stock to be outstanding
after the offering . . . . . . . . . . . . . 3,300,000 shares
Shares Excluded from Common Stock to
be Outstanding after the Offering. . . . . . The common stock to
be outstanding after the
offering is based on shares
outstanding as of December
31, 1998. This number
excludes:
- 1,100,000 shares of common
stock issuable upon the
exercise of the warrants
issued to the purchasers of
the units in the offering at
an exercise price of $7.80;
- 110,000 shares of common
stock underlying the warrants
comprising a portion of the
units and 110,000 shares of
common stock comprising a
portion of the units, which
units are issuable upon the
exercise of the underwriters'
warrants at an exercise price
equal to 120% of the initial
public offering price of the
units offered hereby;
- 150,000 warrants issued to
our various employees,
exercisable at $6.00 per
share; and
- 395,000 shares of common
stock subject to outstanding
options under our 1998 Stock
Option Plan, exercisable at
$6.00 or $6.60 per share. See
"Capitalization" and
"Description of Securities."
Warrants Offered . . . . . . . . . . . . . . 1,100,000
Exercise Terms . . . . . . . . . . . . . . . Exercisable, at any time,
each to purchase one share of
common stock at a price of
$7.80, subject to adjustment
in certain circumstances. See
"Description of Securities."
Expiration Date . . . . . . . . . . . . . . . February __, 2004 (five years
following the date of this prospectus)
Redemption . . . . . . . . . . . . . . . . . The warrants are redeemable
by us at any time, upon
notice of not less than 30
days, at a price of $.01 per
warrant, if the closing bid
quotation of the common stock
on all 20 trading days ending
on the third trading day
prior to the day on which we
give notice of redemption has
been at least 200% (currently
$12, subject to adjustment)
of the public offering price.
The warrants will be
exercisable until the close
of business on the date fixed
for redemption. See
"Description of Securities."
Use of Proceeds. . . . . . . . . . . . . . . Repay lines of credit,
current and long-term
portions of notes payable,
acquisitions, and working
capital. See "Use of
Proceeds."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Nasdaq SmallCap
Symbol . . . . . . . . . . . . . . . . . . . USLB for the common stock and
USLBW for the warrants
</TABLE>
RECENT DEVELOPMENTS
On January 1, 1998, we purchased all of the remaining issued and
outstanding stock of Professional Engineering, San Diego Testing, and U.S.
Engineering held by certain of our employees and managers of our subsidiaries in
exchange for shares of our common stock. As a result of these transactions,
439,664 of our shares of common stock were issued to these employees and
managers, and we increased our percentage ownership of Professional Engineering,
San Diego Testing, and U.S. Engineering to 100%.
On March 25, 1998, one of our subsidiaries, Wyman Testing, acquired
substantially all the assets and certain liabilities of Wyman Enterprises, Inc.,
an engineering inspection and testing business in southern California, for a
purchase price of $830,620. On May 30, 1998, Wyman Testing merged into San
Diego Testing, with each share of Wyman Testing stock being converted into 1/2
share of San Diego Testing stock.
On May 30, 1998, we split our common stock by converting the 100 shares of
common stock that were issued and outstanding prior to the purchase into
2,032,400 shares of common stock. In addition, on November 9, 1998, we effected
a one-for-0.8413 reverse stock split. The purpose of these stock splits was to
adjust the capitalization of U.S. Labs to have 2,200,000 shares outstanding in
order to facilitate the offering of 1,100,000 units. The outstanding options
and warrants were replaced by new options and warrants in connection with the
stock splits.
Finally, our directors and stockholders approved an amended and restated
Certificate of Incorporation, increasing the number of authorized shares of our
common stock from 3,000 shares to 50,000,000 shares and authorizing 5,000,000
shares of "blank-check" preferred stock. See "Description of Securities."
RISK FACTORS
The units involve a high degree of risk and you should carefully consider
the factors described under the heading "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
We have set forth in the table, for the periods and at the dates indicated,
certain of our summary financial information. This data is derived from, and you
should read it in conjunction with, our financial statements, including the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
STATEMENT OF OPERATIONS DATA
The pro forma statement of operations data in the table below presents
the accounts of U.S. Labs and Wyman Testing as if the acquisition of Wyman
Testing took place on January 1, 1997 and as if the purchase of the minority
interest of our subsidiaries took place on January 1, 1997.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Years Ended December 31, (unaudited)
---------------------------------------- -----------------------
Pro Forma
1996 1997 1997 1997 1998
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue $4,963,090 $7,766,414 $10,968,403 $5,507,806 $8,478,329
Cost of goods sold 2,635,263 4,476,952 6,158,775 3,158,483 4,432,509
---------- ---------- ----------- ---------- ----------
Gross profit 2,327,827 3,289,462 4,809,628 2,349,323 4,045,820
Selling, general & administrative
expenses 1,853,318 2,431,770 3,711,161 1,704,547 3,215,256
---------- ---------- ----------- ---------- ----------
Income from operations 474,509 857,692 1,098,467 644,776 830,564
---------- ---------- ----------- ---------- ----------
Interest expense (84,390) (130,605) (160,026) (90,520) (118,814)
Interest income 8,430 7,277 7,277 4,371 9,252
Forgiveness of note receivable (9,976) --- --- 1,738 ---
Other income --- 100,000 100,000 100,000 ---
Other expense --- (100,000) (100,000) (100,000) ---
Gain (loss) on sale of fixed asset (3,873) 4,912 16,912 --- ---
Rental income 4,598 25,160 25,160 20,918 13,048
Gain on sale of minority interest --- 25,229 25,229 25,229 ---
Income before provision for income taxes and
minority interest 389,298 789,665 1,013,019 606,512 734,050
Provision for income taxes 202,921 345,256 381,902 264,545 308,301
---------- ---------- ----------- ---------- ----------
Income before minority interest 186,377 444,409 631,117 341,967 425,749
Minority interest (33,664) (80,253) --- (62,851) ---
---------- ---------- ----------- ---------- ----------
Net income $ 152,713 $ 364,156 $ 631,117 $ 279,116 425,749
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Basic income per share $ 0.07 $ 0.17 $ 0.29 $ 0.13 $ 0.19
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Diluted income per share $ 0.07 $ 0.17 $ 0.29 $ 0.13 $ 0.19
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
Weighted average shares outstanding 2,200,000 2,200,000 2,200,000 2,200,000 2,200,000
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>
6
<PAGE>
CONSOLIDATED BALANCE SHEET DATA
The as adjusted column in the table below gives effect to the sale of
1,100,000 units offered hereby at the offering price of $6.00 per unit and
the application of the net proceeds therefrom, after deducting the
underwriting discount and estimated offering expenses payable by us. See "Use
of Proceeds."
<TABLE>
<CAPTION>
Actual As Adjusted
---------- -----------
<S> <C> <C>
Cash . . . . . . . . . . . . . . . $ 144,991 $3,495,338
Working capital. . . . . . . . . . 375,366 4,733,366
Total assets . . . . . . . . . . . 6,216,205 9,566,552
Total long-term debt . . . . . . . 1,493,790 473,790
Retained earnings. . . . . . . . . 695,161 695,161
Total stockholders' equity . . . . $1,687,413 $7,065,413
</TABLE>
7
<PAGE>
RISK FACTORS
YOUR PURCHASE OF THE UNITS INVOLVES A SIGNIFICANT AND SUBSTANTIAL NUMBER OF
SIGNIFICANT RISKS, WHICH YOU SHOULD CONSIDER PRIOR TO MAKING A DECISION TO
PURCHASE THE UNITS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS
WELL AS OTHER RISK FACTORS IN THIS PROSPECTUS.
LACK OF ACQUISITIONS
One of our primary strategies is to pursue the acquisition of other
companies or assets that either complement or expand our existing business.
We cannot predict the likelihood of a material acquisition being completed in
the future. If we cannot identify and complete acquisitions in the future,
this may have an adverse affect on our future operations and financial
results. See "Business - Business Strategy."
PROBLEMS INTEGRATING ACQUISITIONS
Although we have successfully completed several acquisitions, there can
be no assurance that we will profitably manage additional companies or
successfully integrate these additional companies into our operations.
Acquisitions may involve a number of special risks, including adverse effects
on our reported operating results, substantial burdens on our management
resources and financial controls, dependence on retention and hiring of key
personnel, risks associated with unanticipated problems or legal liabilities,
and amortization of acquired intangible assets, some or all of which could
have a material adverse effect on our operations and financial performance.
See "Business - Business Strategy."
SUBSTANTIAL PERCENTAGE OF NET PROCEEDS FOR ACQUISITIONS
U.S. Labs intends to use approximately 46% of the net proceeds from the
offering for acquisitions. This means that our management will have
discretion in the selection and structure of any acquisitions, and therefore
in the application of these proceeds. See "Use of Proceeds."
POTENTIAL LIABILITY FROM AND INSURANCE FOR OUR ENGINEERING SERVICES
Due to the nature of our engineering advisory services, we are exposed
to a risk of professional liability for structural failure, property damage,
personal injury, or economic loss that may substantially exceed the fees
derived from these services. We maintain various insurance policies that
cover these risks. Because customers may require that we maintain liability
insurance, the possible future unavailability of this insurance could
adversely affect our ability to compete effectively. See "Business -
Insurance."
FAILURE TO ESTIMATE RESOURCES REQUIRED FOR FIXED-PRICE CONTRACTS
If we fail to accurately estimate the resources required for a
fixed-price project or fail to complete our contractual obligations in a
manner consistent with the project plan upon which its fixed-price contract
was based then our results of operations, and business and financial
condition, could be adversely affected. For example, we may establish a price
before the design specifications are finalized, which could result in a fixed
price that turns out to be too low and therefore adversely affects our
business, financial condition, and results of operations. See "Business -
Contractual Arrangements."
COMMITMENT OF UNANTICIPATED ADDITIONAL RESOURCES TO PROJECTS
We may be required to commit unanticipated additional resources to
complete certain projects, which may negatively affect the profitability
generated on such projects. We may have to revise project plans during the
project or change project managers to ensure projects are completed on
schedule. Failure to anticipate these needs could have a material adverse
effect on our business, financial condition, and results of operations. See
"Business - Contractual Arrangements."
8
<PAGE>
DEPENDENCE ON LIMITED NUMBER OF KEY PERSONNEL
We depend on the efforts and abilities of our senior management,
particularly those of Dickerson Wright and the key officers at our
subsidiaries. The loss of any of these key officers could have a material
adverse affect on our business. See "Management" and "Business - Insurance."
LIMITED UNDERWRITING HISTORY OF OUR UNDERWRITERS
The managing underwriter in this offering, Cardinal Capital Management,
Inc., has not participated previously in any firm commitment underwritten
offerings. You should consider the underwriters' lack of experience in
considering an investment in our units. See "Underwriting."
SEASONAL CHANGES IN REVENUES AND PROFITS
Due primarily to more holidays and inclement weather conditions, our
operating results during January, February, and December are generally lower
in comparison to other months. This means that our revenues and profits in
the quarters ending December 31 and March 31 may be lower than in our other
quarters. See "Business - Seasonal Factors."
RISK THAT ADDITIONAL FINANCING MAY NOT BE AVAILABLE IF REQUIRED
We believe that there will be adequate funds available from the proceeds
of the offering and from our operating cash to fund our business operations
and obligations at least through the next twelve months. We cannot assure you
that additional funds will be available when we need them; and, if not
available, we may not be able to conduct our operations effectively. The
proceeds from the units' sale are expected to be sufficient for our purposes.
However, additional financing may be acquired by additional securities
offerings or from bank financing. If additional shares of our common stock
are issued to obtain financing, you will suffer a dilutive effect on your
percentage ownership of our common stock.
POTENTIAL LIQUIDITY PROBLEMS DUE TO LIMITED PUBLIC MARKET
Prior to the offering, there has been no public trading market for our
securities and we cannot assure you that a liquid market will develop or be
sustained after the closing of the offering. See "Description of Securities."
DETERMINATION OF OFFERING PRICE
We determined the units' purchase price by mutual agreement with our
underwriters after consideration of a number of objective and subjective
factors, and that price does not necessarily relate to our assets, book
value, results of operations, or other established criteria of our value.
Among the factors considered in determining the initial public offering price
were our future prospects and our business in general, sales, earnings, our
capital requirements, certain other of our financial and operating
information in recent periods, and the price-earnings ratios, price-sales
ratios, market prices of securities, and certain other financial and
operating information of companies engaged in activities similar to ours. We
did not prepare a valuation or appraisal for our business or our potential
business expansion. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
We may redeem the warrants, at any time, upon notice of not less than 30
days, at a price of $.01 per warrant, provided that the closing bid quotation of
the common stock on all 20 trading days ending on the third trading day prior to
the date the warrant has been called for redemption is at least 200% (currently
$12, subject to adjustment) of the public offering price. The warrants will be
exercisable until the close of business on the date fixed for redemption. Since
we presently intend to call the warrants at the earliest possible date, you
should assume that we would call the warrants for redemption if the criteria
were met. This right will, if exercised, force you to either exercise your
warrants at a possibly unfavorable time or to lose the benefits that may accrue
to them as a result of the increase, if any, in the market price of our common
stock. See "Description of Securities."
9
<PAGE>
NO FURTHER SHAREHOLDER APPROVAL REQUIRED FOR ISSUANCE OF PREFERRED STOCK AND
RISK OF LIMITATION ON CHANGE OF CONTROL
Our corporate documents authorize our board of directors to issue shares of
preferred stock and to establish the preferences and rights of any preferred
stock issued. The issuance of preferred stock could have the effect of delaying
or preventing a change in control of U.S. Labs, even if a change in control were
in your best interests. See "Description of Securities."
RISKS OF LOW-PRICED SHARES
If our shares or warrants are not listed on The Nasdaq SmallCap
Market(SM), they may become subject to Rule 15g-9 under the Securities
Exchange Act. That rule imposes additional sales practice requirements on
broker-dealers that sell low-priced securities to persons other than
established customers. For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the rule may affect the ability of broker-dealers to sell our
shares or warrants and may affect the ability of holders to sell them in the
secondary market. See "Description of Securities."
PENNY STOCK REGULATIONS
The SEC's regulations define a penny stock to be any equity security that
has a market price less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to certain exceptions. The penny stock
restrictions will not apply to our shares or warrants if they are listed on The
Nasdaq SmallCap Market(SM) and we provide certain price and volume information
on a current and continuing basis, or meet required minimum net tangible assets
or average revenue criteria. We cannot assure you that our shares or warrants
will qualify for exemption from these restrictions. If our shares or warrants
were subject to the penny stock rules, the market liquidity for them could be
adversely affected. See "Description of Securities."
LACK OF CURRENT PROSPECTUS MAY PREVENT EXERCISE OF WARRANTS
We have undertaken to maintain a current registration statement that will
permit the public sale of the common stock underlying the warrants upon exercise
of the warrants. The maintenance of a current registration statement could
result in substantial expense to us. We cannot assure you that we will maintain
a current prospectus covering the shares of common stock underlying the
warrants. You will have the right to exercise the warrants for the purchase of
shares of common stock only if a current prospectus relating to such shares is
then in effect and only if the shares are qualified for sale under the
securities laws of the applicable state or states.
LIMITED STATE REGISTRATION MAY PREVENT EXERCISE OF WARRANTS
Although we intend to qualify the shares of common stock underlying the
warrants for sale in those states where the securities are offered, except when
to do so would require us to qualify as a foreign corporation, there is no
assurance that we will obtain these qualifications. Moreover, even if such
qualifications are obtained, if you subsequently move to a state in which shares
of common stock underlying the warrants are not qualified, you may not have the
right to exercise the warrants. Consequently, you may be deprived of any value
if a current prospectus covering the shares underlying the warrants is not kept
effective or if such underlying shares are not or cannot be registered in the
applicable state.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS
SPECIFIED IN THE FORWARD-LOOKING STATEMENTS BECAUSE OF CERTAIN FACTORS,
INCLUDING THOSE SPECIFIED IN THE RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
YOU MUST BE PREPARED FOR THE POSSIBLE LOSS OF YOUR ENTIRE INVESTMENT IN OUR
COMPANY.
10
<PAGE>
USE OF PROCEEDS
After deducting the underwriting discounts, commissions, and all the
offering's expenses, we expect to receive approximately $5,378,000 from the
offering.
We have two lines of credit and a note payable from two separate lenders
with commitments in the aggregate of $2,200,000. We have a $500,000 demand loan
with North County Bank that is due in May 1999.
We also owe $1,180,000 on a note payable to North County Bank that is
due over five years beginning in January 1999. The proceeds from this loan
were used to repay two separate credit facilities in the amount of $1.55
million, and the balance was used for working capital. We also have a line of
credit with Bank of America of $500,000 that is due July 2000. All of the
borrowings accrue interest at each bank's prime rate. We will use the
offering's proceeds to repay outstanding balances on these borrowings. We
estimate that at the closing of the offering the outstanding balances owed on
these borrowings will be $1,905,000.
We will also use the proceeds to repay $245,000 of the debt that was
incurred in connection with the acquisition of substantially all of the
assets and certain liabilities of Wyman Enterprises, Inc. Of this amount, we
owe $37,500 to Donald Alford, who is presently an officer and director of
U.S. Labs. Approximately $150,000 of these notes mature the earlier of
October 1, 1999 or 30 days following the offering and the remaining $20,000
is payable on demand. The balance is due in four equal annual payments of
$75,000 beginning in March 1999. These notes are non-interest bearing.
Pending application of the proceeds, we intend to invest the net proceeds
in short-term, interest-bearing securities, including money market funds.
In general, the net proceeds will be used as described below.
<TABLE>
<CAPTION>
Use Dollar Amount Percentage
- --- ------------- ----------
<S> <C> <C>
Bank of America loan, maturity July 2000, accruing interest at
the prime rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 300,000 6%
North County Bank loan, maturity May 1999, accruing interest at
the prime rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,000 8%
North County Bank loan, maturity December 2003, accruing interest
at the prime rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,180,000 22%
Wyman Enterprises, Inc., notes due March 1999, accruing no interest. . . . . . . . . $ 75,000 1%
Wyman Enterprises, Inc., note due the earlier of the date 30 days
after IPO or October 1999, accruing no interest. . . . . . . . . . . . . . . . . . . $ 150,000 2%
Wyman Enterprises, Inc., demand note, accruing no interest . . . . . . . . . . . . . $ 20,000 1%
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,500,000 46%
Working Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 728,000 14%
----------- ---
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,378,000 100%
----------- ---
----------- ---
</TABLE>
We believe that our available cash and cash equivalents as well as cash
generated from operations and our available credit line will be sufficient to
meet our cash requirements for at least the next twelve months.
11
<PAGE>
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock. We do not
anticipate paying any cash dividends in the foreseeable future. Payments of
future dividends, if any, will be at the discretion of our Board of Directors
after taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs, and plans for expansion.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
CAPITALIZATION
The following table sets forth, at September 30, 1998:
- our actual capitalization and
- as adjusted to give effect to our sale of 1,100,000 units offered
hereby, at an offering price of $6.00 per unit and the application of
the estimated net proceeds therefrom after deducting the estimated
underwriting discounts and commissions and other estimated offering
expenses. See "Use of Proceeds."
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and related notes included elsewhere in this prospectus.
The following table is based on shares outstanding as of September 30,
1998. The following table excludes:
- 1,100,000 shares of common stock issuable upon the exercise of the
warrants issued to the purchasers of the units in the offering at an
exercise price of $7.80;
- 110,000 shares of common stock underlying the warrants comprising a
portion of the units and 110,000 shares of common stock comprising a
portion of the units, which units are issuable upon the exercise of
the underwriters' warrants at an exercise price equal to 120% of the
initial public offering price of the units offered hereby;
- 150,000 warrants issued to our various employees, exercisable at $6.00
per share; and
- 395,000 shares of common stock subject to outstanding options under
our 1998 Stock Option Plan, exercisable at $6.00 or $6.60 per share.
<TABLE>
<CAPTION>
September 30, 1998
--------------------------------
Actual As Adjusted
---------- -----------
<S> <C> <C>
Lines of credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 583,660 $ 0
Current portion of notes payable . . . . . . . . . . . . . . . . . . . . . . . 423,993 0
Notes payable, net of current portion. . . . . . . . . . . . . . . . . . . . . 1,245,000 225,000
---------- ----------
Stockholders' equity
Preferred Stock, $0.01 par value; 5,000,000
shares authorized, none issued and outstanding, actual or as adjusted. . . . . --- ---
common stock, $0.01 par value, 50,000,000 shares authorized;
2,200,000 actual shares issued and outstanding; 3,300,000 as
adjusted shares issued and outstanding(1). . . . . . . . . . . . . . . . . . . 22,000 33,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 970,252 6,337,252
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695,161 695,161
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 1,687,413 7,065,413
---------- ----------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,940,066 $7,290,413
---------- ----------
---------- ----------
</TABLE>
12
<PAGE>
DILUTION
Our net tangible book value as of September 30, 1998 was $132,526, or
$0.06 per share. Net tangible book value per share of common stock represents
the amount of our total tangible assets less our total liabilities divided by
the number of shares of the common stock outstanding.
After giving effect to the sale of the 1,100,000 shares of the common
stock underlying the units offered hereby at a public offering price of $6.00
per unit, and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our net tangible book value as of
September 30, 1998 was $5,510,526 or $1.67 per share of common stock. This
represents an immediate increase in net tangible book value per share of
common stock of $5,378,000 or $1.61 per share to existing stockholders and
immediate dilution in net tangible book value of $4.33 per share to you. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share......................................... $6.00
Net tangible book value per share of common stock at September 30, 1998.... $0.06
Increase per share attributable to new investors........................... $1.61
-----
Net tangible book value per share of common stock after the offering............ $1.67
-----
Dilution per share to new investors(1).......................................... $4.33
-----
-----
Percent of dilution............................................................. 72%
-----
-----
</TABLE>
___________________
(1) If the underwriters' over-allotment option is exercised in full, dilution
per share to new investors would be $4.16.
The following table summarizes, as of September 30, 1998, the number of
shares of common stock purchased from us, the total consideration paid and the
average price per share paid by the existing stockholders and by you
(before deduction of underwriting discounts and commissions and estimated
offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- --------------------- Average Price
Number Percent Amount Percent per Share
---------- ------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,200,000 67% $ 992,252 13% $0.45
New investors 1,100,000 33% $6,600,000 87% $6.00
--------- ---- ---------- ----
Total 3,300,000 100% $7,592,252 100%
--------- ---- ---------- ----
--------- ---- ---------- ----
</TABLE>
All of the above computations assume no exercise of 1,100,000 shares of
common stock issuable upon the exercise of the warrants issued to the purchasers
of the units in the offering at an exercise price of $7.80 and 110,000 shares of
common stock underlying the warrants comprising a portion of the units and
110,000 shares of common stock comprising a portion of the units, which units
are issuable upon the exercise of the underwriters' warrants at an exercise
price equal to 120% of the initial public offering price of the units offered
hereby. All of the above computations also assume no exercise of outstanding
options or warrants to purchase common stock. As of September 30, 1998, options
to purchase 395,000 shares of common stock were outstanding at a weighted
average exercise price of approximately $6.22 per share under our 1998 Stock
Option Plan and 150,000 employee warrants were outstanding at an exercise price
of $6.00 per share. If any options or warrants become vested and are exercised,
you will suffer further dilution.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
U.S. Labs intends to continue to grow through internal expansion and
acquisitions. We acquire businesses that have a history of positive performance
and have experienced key management personnel operating the business. This
allows us to obtain a foothold in the marketplace and add competent
professionals to our staff. After an acquisition, we immediately provide
executive administrative support in the area of sales, human resources, and
accounting functions. In some cases, the acquisition is integrated into another
of our operating units. Historically, our acquisitions have contributed
increased sales volume, and in many cases, the acquisitions have not increased
our fixed costs. This has resulted in substantial increases in our incremental
profit margin.
In addition to growing through acquisitions, we plan to continue to grow
internally by increasing our market share in different geographical areas of the
United States and by balancing the percentage of our services provided between
the government sector and private industry. With this diverse geographical
market and customer base, we attempt to insulate ourselves against economic
downturns.
On June 6, 1998, the President signed the Transportation Equity Act for the
21st Century (the "TEA-21"), which authorized approximately $204 billion for
transportation infrastructure projects over the next six years. Of this amount,
approximately $165 billion has been earmarked for highway improvements.
Management estimates that approximately 3% percent of this $165 billion, or $4.9
billion, will be spent on engineering services. We understand that there is some
risk that the Congress may not appropriate the funds designated in the TEA-21,
but the legislation contains provisions that are designed to prevent future
Congresses from not spending the funds authorized in the TEA-21. Additionally,
the amount appropriated may change due to fluctuations in revenue flow into the
Highway Trust Fund.
We believe that we will receive additional work from the approximately
$165 billion authorized under the TEA-21 for highway construction and related
services. We have a strong presence in California, which expects to receive
$2.5 billion in funds over the next six years, or $800 million more than
under the previous legislation. Additionally, our laboratories in California
and New Jersey are certified by the American Association of State Highway &
Transportation Officials. This certification is often required to bid on
larger projects. However, we have no guaranty that we will secure contracts
funded by the TEA-21. See "Business - Description of Engineering Services -
Infrastructure Engineering Services."
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from our consolidated statement of operations, expressed as a
percentage of revenue. We cannot assure you that the trends in revenue growth
or operating results shown below will continue in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------- --------------------
PRO FORMA
1996 1997 1997 1997 1998
------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold. . . . . . . . . . . . . . . . . . 53.1 57.6 56.2 57.3 52.3
----- ----- ----- ----- -----
Gross profit. . . . . . . . . . . . . . . . . . . . . 46.9 42.4 43.8 42.7 47.7
Selling, general & administrative expenses. . . . . . 37.3 31.4 33.8 31.0 37.9
----- ----- ----- ----- -----
Income from operations. . . . . . . . . . . . . . . . 9.6 11.0 10.0 11.7 9.8
Interest expense. . . . . . . . . . . . . . . . . . . 1.7 1.7 1.5 1.6 1.4
Interest income . . . . . . . . . . . . . . . . . . . .2 .1 .1 -- 0.1
Forgiveness of note receivable. . . . . . . . . . . . (.2) -- -- -- --
Other income. . . . . . . . . . . . . . . . . . . . . -- 1.3 0.9 1.8 --
Other expense . . . . . . . . . . . . . . . . . . . . -- (1.3) (0.9) (1.8) --
Gain (loss) on sale of fixed asset. . . . . . . . . . (.1) .1 .2 -- --
Rental income . . . . . . . . . . . . . . . . . . . . .1 .3 .2 0.4 0.1
Gain on sale of minority interest . . . . . . . . . . -- .3 .2 0.5 --
Income before provision for income taxes
and minority interest . . . . . . . . . . . . . . . . 7.9 10.1 9.2 11.0 8.6
Provision for income taxes. . . . . . . . . . . . . . 4.1 4.4 3.5 4.8 3.6
Income before minority interest . . . . . . . . . . . 3.8 5.7 5.7 6.2 5.0
Minority interest . . . . . . . . . . . . . . . . . . .7 1.0 -- 1.1 --
----- ----- ----- ----- -----
Net income. . . . . . . . . . . . . . . . . . . . . . 3.1% 4.7% 5.7% 5.1% 5.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
AMORTIZATION OF GOODWILL
On January 1, 1998, we issued 439,664 shares of our common stock to
minority interest holders in exchange for all of their shares in our
subsidiaries. In connection with this purchase, we recorded additional goodwill
of $194,924.
On March 25, 1998, we acquired all of the assets and certain liabilities
of Wyman Enterprises, Inc. for $830,620. We recorded $511,200 in excess of
cost over fair value of net assets acquired, which is being amortized on a
straight-line basis over fifteen years.
The net affect of these two transactions is to increase the amortization of
goodwill, which is a non-cash charge, and which will reduce future net income
after depreciation and amortization by $47,075 annually over the next fifteen
years.
15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUE. Revenue for the nine months ended September 30, 1998 was
$8,478,329, an increase of 54% over the same period last year. The increase
was primarily attributable to internal growth and marketing, and to a lesser
extent, to the acquisition of Wyman Enterprises, Inc. in late March 1998.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1998 was
$4,045,820, an increase of 72% over the same period last year, a portion of
which was attributable to the acquisition of Wyman Enterprises, Inc., and the
balance of which was due to increased volume through internal growth and
marketing. Our gross margins were up for the nine months ended September 30,
1998 as a result of the economies associated with the higher sales volume.
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST. Income
before provision for income taxes and minority interest for the nine months
ended September 30, 1998 was $734,050, up 21% from the same period last year.
The income before provision for income taxes and minority interest was 8.6% of
sales versus 11% for the same period in the prior year. This percentage became
more favorable during the summer and fall months before dropping off again in
the holiday season.
INTEREST EXPENSE. Interest expense was $118,814 for the nine months ended
September 30, 1998 or a 31% increase over the same period in the prior year.
This increase was due primarily to increased debt associated with business
acquisitions and the use of operating lines of credit.
NET INCOME. Net income for the nine months ended September 30, 1998 was
$425,749, a 53% increase over the same period ended September 30, 1997. The
increase was due primarily to the higher sales volume and the associated
efficiencies. A portion of the increase in sales volume was attributable to the
acquisition of Wyman Enterprises, Inc.
YEARS ENDED 1997 AND 1996
REVENUE. Revenue for the year ended 1997 was $7.77 million, an increase
of 56% over 1996. This increase of revenues was due primarily to the
recognition of a full year's revenues of San Diego Testing in 1997, which was
acquired in late 1996. Other factors contributing to the increase in revenues
were internal growth through marketing efforts and the favorable business
climate.
GROSS PROFIT. Gross profit for the year ended 1997 was $3.3 million, an
increase of 41% over 1996. This increase in gross profit was due primarily to
the recognition of revenues from San Diego Testing in 1997. The gross profit
margin was down approximately 4% as a percentage of sales due to more
aggressive marketing and pricing tactics employed in 1997 as well as costs
associated with the startup of new operations in Florida. Although the gross
margins were down as a result of these tactics, the operating income was up
as a percentage of sales due to the economies of scale associated with the
increased volume.
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST. Income
before provision for income taxes and minority interest in 1997 was $789,665,
an increase of 103% over 1996. The increase in profits was due primarily to
the economies associated with the higher sales volume as well as to the
recognition of revenues from San Diego Testing for the full year in 1997.
INTEREST EXPENSE. Interest expense was $130,605 in 1997, an increase of 55%
over 1996. This increase was due primarily to increased debt associated with
business acquisitions and the use of operating lines of credit.
NET INCOME. Net income for 1997 was $364,156, an increase of 138% over
1996. The increase was due primarily to the recognition of net income from
San Diego Testing for the full year in 1997 and to the greater sales volume
and the resulting economies of scale.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, our net cash provided
by operating activities was $392,901, an increase of 39% over the same period
in 1997. In 1997, our net cash provided by operating activities was $267,586,
an increase of 400% over 1996. The increase in cash provided by operations in
the nine months ended September 30, 1998, compared to the same period in 1997
was due primarily to our higher earnings and improved working capital. The
increase in fiscal 1997 compared to 1996 was due primarily to the same
factors. The improved working capital primarily reflected an improvement in
the days sales held in receivables, including collections of retentions on
certain federal projects nearing completion, and, to a lesser extent, higher
trade payables.
We entered into a $1.7 million line of credit with North County Bank in May
1998. In October 1998, the $1.7 million line of credit was refinanced into a
$1,200,000 note payable and a $500,000 line of credit. The $500,000 line of
credit expires in May 1999. The note payable is due over a sixty-month period,
beginning in January 1999, with principal reductions scheduled at the rate of
$20,000 per month. At December 31, 1997, we had borrowings under other lines of
credit that were paid in full with this new line of credit in May 1998. There
was approximately $180,000 available to us under the new line of credit as of
September 30, 1998.
This new credit agreement is personally guaranteed by Dickerson Wright and
his spouse, and secured by our assets, including our accounts receivable. The
maximum amount of the loan may not exceed 75% of our accounts receivable that
are less than 90 days old. Interest on the loan is payable on a monthly basis at
the prime rate. Further, the loan provides that we must meet certain covenants
relating to, among other things, financial performance and the maintenance of
certain financial ratios.
We also have a line of credit with Bank of America in the amount of
$500,000. Dickerson Wright and his spouse guarantee this line of credit. It is
an unsecured note that is all due in July 2000. The note bears interest at the
prime rate. There is $235,000 available on this line as of September 30, 1998.
As set forth in "Use of Proceeds," we plan to pay down our interest-bearing
lines of credit to zero. This will reduce our interest expense by approximately
$125,000 annually, which will positively impact income before provision for
income taxes.
We also have commercial debt that is collateralized by certain equipment in
the amount of $203,258 and $351,598 at December 31, 1997 and September 30, 1998,
respectively.
During the nine months ended September 30, 1998, we invested $830,620 in
cash and notes and in the purchase of capital assets, including acquisitions. We
did not purchase any capital assets or make any acquisitions in 1997. We
invested $62,500 in the purchase of capital assets, including acquisitions, in
1996.
During the nine months ended September 30, 1998, our net cash provided by
financing activities was $193,426, which primarily consisted of drawing down an
operating line of credit. For the same period in 1997, we used net cash of
$19,246 for financing activities, which primarily consisted of repaying an
operating line of credit. In 1997, we used net cash of $123,947 for
financing activities, which again primarily consisted of repaying an operating
line of credit. Our net cash provided by financing activities was $67,422 in
fiscal 1996, which primarily consisted of drawing down an operating line of
credit.
Accounts receivable as a percentage of sales increased from December 31,
1997 to September 30, 1998 due to the acquisition of Wyman Enterprises, Inc.
Generally accepted accounting principles required us to add the accounts
receivable for Wyman Enterprises, Inc., but did not allow us to add the sales of
Wyman Enterprises, Inc. The allowance for doubtful accounts decreased from
December 31, 1997 to September 30, 1998 due to the write-off of certain accounts
early in this fiscal year.
We currently intend to use approximately $2.5 million of the proceeds to
fund acquisitions. Additionally, we intend to make acquisitions through other
financing mechanisms such as notes and other instruments. Historically, we
17
<PAGE>
have been able to make acquisitions with approximately 20-50% of the purchase
price in cash and the balance in non-interest bearing purchase notes over
extended time frames.
We believe that our available cash and cash equivalents as well as cash
generated from operations and our available credit line will be sufficient to
meet our cash requirements for at least the next twelve months. During 1999, we
intend to actively continue our search for acquisitions to expand our
geographical representation and enhance our technical capabilities.
YEAR 2000 COMPLIANCE
We believe that the software packages we currently use and expect to
use, and those used by our vendors prior to the year 2000, are Year 2000
compliant. We do not expect the financial impact of required modifications to
this software will be material to our financial position, cash flows, or
results of operations. See "Business - Information Systems and the Year 2000."
INFLATION
Inflation does not currently affect our operations, and we do not expect
inflation to affect them in the foreseeable future.
18
<PAGE>
BUSINESS
OVERVIEW
U.S. Laboratories Inc. is a Delaware corporation that offers quality
construction control services from conception to completion of a building
project in order to verify that the project conforms to construction
specifications. We analyze the soil that will be built upon to determine
whether it can hold the proposed structure. We also analyze the structural
strength of the concrete, masonry, and steel materials to be used during
construction. We use universally recognized test procedures and laboratory
equipment to perform the analyses, and all construction in the field is
verified by our licensed inspectors. Our projects involve every type of
construction: high-rises, low-rises, shopping centers, residential, schools,
hospitals, bridges, tunnels, highways, stadiums, airports, military
facilities, and many other types of public and private improvements. We work
for government agencies, real estate developers, general contractors, school
districts, and other types of landowners.
U.S. Labs provides services on an integrated "start to finish" basis
designed to guide clients through each phase of a construction project. We
become an integral part of the client's project team, offer a comprehensive
quality control programs, and create value by delivering quality control and
problem solving in a cost-effective manner to meet clients' time and budget
requirements.
Generally, before construction, we evaluate construction sites, building
plans, and designs to assure compliance with the approved construction
documents for the proposed project. We also perform site assessments,
including soils engineering, materials engineering, and environmental
assessments to detect any potential problems with the proposed site that
could prevent or complicate the successful completion of the project. In
addition, the onsite building conditions are evaluated and recommendations
are made regarding optimum methods and materials for building foundations,
site preparation, and excavation. During construction, we inspect each phase
of the construction project, including excavation, foundations, structural
framing, mechanical heating and air conditioning systems, electrical systems,
underground utilities, and roofing. Where applicable, we may use additional
methods to test materials and work quality.
When a project is complete, an evaluation report of the project is
prepared and we certify the inspections for the client. We also perform final
inspections to determine the moisture resistance of windows, doors,
foundations, and roofing. After construction of buildings, periodic
inspection services are offered to assure that the building is being
maintained in accordance with applicable building codes to assure maximum
building life. We may also perform indoor air and water quality tests during
this period.
Since 1993, we have followed a strategy of controlled growth through
acquisitions to build the current infrastructure and to broaden our range of
technical services. We have created this infrastructure through the
completion of three acquisitions in the first half of 1998 and one
acquisition in 1996, with a total of five acquisitions since the fall of
1993. We have also expanded our service mix by adding building condition
surveys, construction administrative services, and environmental assessment
services.
INDUSTRY OVERVIEW
Numerous specialty services are provided to the construction and the
related engineering and architectural design industries. We provide services
in the areas of construction materials testing and engineering, geotechnical
engineering and consulting services, and infrastructure engineering services,
and to a lesser extent, environmental assessment services.
Construction of a significant structure or building improvement
represents a major permanent investment for any owner, whether commercial or
governmental. The primary driver for materials testing, inspection services,
and soil and earth analysis is an owner's concern to protect his or her
investment through quality construction materials and workmanship that meet
design specifications. Government agencies, architects, and engineering firms
require that the quality of construction materials and on-site soil
conditions be monitored in order to verify compliance with the project design
conditions.
19
<PAGE>
Government agencies, owners, contractors, architects, and engineers hire
materials testing and geotechnical consultants to test materials such as
concrete, structural and reinforcing steel, and soil and aggregate both prior to
commencing design and during the construction phase of a project. The quality of
materials and their ability to conform to design specifications are critical to
the future life and constructability of the facility. Three common types of
construction materials and geotechnical tests are:
- soil tests for moisture content and compaction density;
- concrete tests for compressive strength; and
- structural and reinforcing steel tests for tensile strength and
connection strength.
The construction materials testing and engineering industry is driven by
national and local economic conditions. Most of the construction materials
testing and engineering services that we provide are for projects generally
within 100 miles of the office. Geotechnical engineering and consulting
services are less sensitive to geographical constraints. Construction
activities can develop from commercial, industrial, institutional, and
governmental entities. Construction materials testing and engineering
services and geotechnical engineering and consulting services are considered
mature markets, and a project award is generally based on service,
reputation, price, client relationship, and local competition. Delivery of
services on a national basis through a network of offices is a factor
considered by national clients. Expansion of construction materials testing
and engineering services and geotechnical engineering and consulting services
to new markets can be achieved through the acquisition of local service
firms.
In general, independent third party materials testing and inspection
services and geotechnical engineering and consulting services for
construction projects are required by owners on all new commercial and public
construction projects over $1 million. Frequently, testing and inspection
requirements also apply to renovation and repair projects as well. Select
markets in the United States are experiencing strong growth in commercial,
residential, and government construction. In particular, southern California
and Florida are currently experiencing an annual growth in construction
spending in excess of 20%. Since 1992, total construction revenues have
increased by 9% annually. This growth is expected to continue with total
construction having been forecast for 1998 at $355.7 billion. Typically,
testing, inspection, and geotechnical services equate to approximately 2% of
total construction costs, or $7 billion.
The infrastructure market includes public projects in numerous areas,
including the construction or remediation of highways, public transportation
systems, railroads, bridges, dams, and airports. We currently offer
infrastructure engineering services to highway construction and remediation
projects. Local, state, and federal government spending heavily influence the
market for engineering services in the infrastructure sector.
On June 6, 1998, the President signed the Transportation Equity Act for
the 21st Century (the "TEA-21"), which authorized approximately $204 billion
for transportation infrastructure projects over the next six years. Of this
amount, approximately $165 billion has been earmarked for highway
improvements. We estimate that approximately 3% percent of this $165 billion,
or $4.9 billion, will be spent on engineering services. We understand that
there is some risk that the Congress may not appropriate the funds designated
in the TEA-21, but the legislation contains provisions that are designed to
prevent future Congresses from not spending the funds authorized in the
TEA-21. Additionally, the amount appropriated may change due to fluctuations
in revenue flow into the Highway Trust Fund.
Demand for environmental services is currently driven by economic and
liability management considerations. Asset preservation, liability, and
health related considerations have increasingly driven demand in the
environmental services industry, while regulation has decreased as a factor.
As a result of these market dynamics, environmental administration has become
an integral component of day-to-day property management activities. Today
many companies insist that environmental improvement expenditures not only
satisfy regulatory compliance, but also be justifiable on other grounds, such
as protecting assets, increasing workplace safety, reducing health risks,
improving public relations, minimizing waste, preventing pollution, and
reducing financial liabilities. We believe that we will benefit from certain
rapidly growing sectors of the approximately $16 billion environmental
services
20
<PAGE>
industry. In addition, this industry segment is highly fragmented and
management believes that the industry presents many favorable opportunities
for growth through acquisitions.
BUSINESS STRATEGY
Our strategic goal is to be a leading provider of construction materials
testing and engineering services, geotechnical engineering and consulting
services, and infrastructure engineering services through the consolidation
of independent companies and internal growth. We achieve our business
objectives through strategic acquisitions, emphasis on premium national
accounts, expansion of infrastructure engineering services, the balance of
public sector and private industry clients, expansion of international
services, and expansion of domestic geographic markets.
PURSUE STRATEGIC ACQUISITIONS. We believe that the industry for
engineering services is fragmented and that there are opportunities to
acquire local engineering services companies. We anticipate that one or more
acquisition opportunities may become available in the near future. If so, we
intend to pursue them actively. We estimate that there are 3,500 companies
whose businesses are complementary to ours. We further believe that our
existing infrastructure provides a platform for "tuck in" acquisitions of
regional and local companies. A "tuck in" acquisition is one in which we
integrate the acquisition with our existing regional management.
We believe our expertise in identifying, completing, and integrating
acquisitions provides us with a competitive advantage in entering new
geographical markets. We plan to apply our expertise in assimilating acquired
companies' personnel and branch operations into our existing infrastructure
and expanding acquired companies' service and product offerings to existing
clients. This will strengthen our position as an industry consolidator
through acquisitions that meet our operating, financial, and geographic
criteria.
For example, in 1998, we made a "tuck in" acquisition in Jupiter,
Florida. The net acquisition cost $35,000 in return for a client base that
management anticipates will generate in excess of $500,000 in annual sales.
Additionally, we secured the services of a key employee to run that satellite
operation. In New Jersey, we made an acquisition of two satellite offices
from a national competitor in May 1998. We estimate that the client base
acquired in this transaction should generate in excess of $750,000 in annual
sales and annual net profits of $75,000 to $110,000.
In analyzing new acquisitions, we normally pursue acquisitions that
either provide the critical mass to function as a profitable, stand-alone
operation, or are geographically situated so that they can be integrated into
our existing locations. If we acquire a stand-alone operation, it must
possess an experienced management team thoroughly committed to going forward
with us. We also must identify how the profitability of a new acquisition can
be improved as part our operations through the integration of the new
personnel into our management systems as well as the expansion of the service
and product offerings to existing clients. We believe we can improve the
operations of our acquisitions by providing superior marketing and sales
support, customer service, cash management, financial controls, and human
resources support.
Since 1993, we have implemented this strategy, the key elements of which
are designed to establish a national infrastructure of branch office
locations and diversify our service offerings. We currently operate
facilities serving San Diego, Riverside, San Bernardino, Orange, and Los
Angeles counties in southern California; the New York City metropolitan area
and northern New Jersey; Atlantic City and central New Jersey; Philadelphia
and southwest New Jersey; and Miami, Fort Lauderdale, Palm Beach, Jupiter,
and Orlando, Florida.
TARGET PREMIUM NATIONAL ACCOUNTS. As a result of our acquisition
strategy, we expanded our service offerings and client base. This has
resulted in our ability to attract premium national accounts such as Home
Depot, Marriott, Target, Wal-Mart, Disney, and Nordstroms. We expect these
opportunities to continue at an accelerated rate.
INCREASE INFRASTRUCTURE ACCOUNTS. The successful implementation of
strategies designed to increase service offerings has resulted in our ability
to capitalize on certain high-growth market opportunities. We believe that we
are well positioned to take advantage of the approximately $165 billion
authorized under the TEA-21 for highway construction and related services.
Our advantages include a strong presence in California, which expects to
receive
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$2.5 billion in funds over the next six years, or $800 million more than
under the previous legislation. However, we have no guaranty that we will
secure contracts funded by the TEA-21.
BALANCE PUBLIC SECTOR AND PRIVATE INDUSTRY SERVICES. We continue to
successfully maintain a balance between business from the public sector and
private industry clients. The private industry sector allows us to take
advantage of increases in private construction during times of economic
expansion. The public sector clients provide us a continued revenue source
during times of economic slowing because public sector projects are not as
sensitive to downturns in the economy as private industry projects.
EXPAND GEOGRAPHIC MARKETS. We are targeting ten geographical areas for
expansion. We believe that one key executive can efficiently manage an
operation with $10 million in annual sales. Additionally, as each operating
division grows, it will continue to reduce overhead as a percentage of sales.
Further, because we provide ancillary administrative support necessary to run
each division, our division level executives are encouraged to manage these
operations in a more decentralized fashion. Consequently, our division level
managers can react to regional business practices and traditions. We are
committed to future expansion and have targeted the West Coast and the
Mid-Atlantic regions for expansion.
DESCRIPTION OF ENGINEERING SERVICES
Our service to clients begins before an actual construction project
commences. We evaluate construction sites, building plans, and designs to
assure compliance with the approved construction documents for the proposed
facility. Our licensed engineers perform structural evaluations with a
licensed engineer. We assess the building site by testing the soil and the
materials. We also evaluate the impact on the environment. We do this to
detect any potential problems with the proposed site that could prevent or
complicate the successful completion of the project. In addition, we evaluate
the onsite building conditions and recommend optimum methods and materials
for building foundations, site preparation, and excavation.
When construction commences, we begin onsite consulting by monitoring
construction quality. We visually inspect each phase of the construction
project, including excavation, foundations, structural framing, mechanical
heating and air conditioning systems, electrical systems, underground
utilities, and roofing. Where applicable, we may use additional methods to
test materials and work quality. Testing of the metals, concrete, and other
materials used in construction continues through each phase of the project.
We are comprehensively involved during the construction phase to assure
compliance with the design specifications and to monitor the overall quality
of work.
During construction, we actively maintain contact with client project
managers. Problems detected or anticipated are identified, and we assist
clients in determining appropriate, cost effective solutions. We periodically
provide construction progress inspections and assessment reports. When a
project is complete, we prepare an evaluation report of the project and
certify the inspections for the client. We will also perform final
inspections to determine the moisture resistance of windows, doors,
foundations, and roofing. After construction, we offer periodic building
inspection services to assure that the building is being maintained in
accordance with applicable building codes to assure maximum building life. We
may also perform indoor air and water quality tests during this period.
CONSTRUCTION MATERIALS TESTING AND ENGINEERING SERVICES. We provide
testing and client representative services related to concrete and steel
materials used in the construction industry. From the preconstruction stage
of evaluating materials to the completion of the project, our range of
services supporting construction projects include quality assurance and
quality control, construction specifications, test evaluations, materials
performance documentation, and problem solving. We conduct these services in
our laboratories prior to and during construction, in the fabrication plant,
and at the construction site.
Our expertise in these areas provide valuable assistance to clients in
the construction of major buildings of all types and sizes including
industrial, office, retail, medical, school, military, and governmental, as
well as highways, railroads, dams, bridges, transmission towers, airports
runways, water supply facilities, wastewater treatment facilities, dock and
waterway facilities, solid waste landfills, power plants, and many other
structures. Potential clients include
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architects, engineers, contractors, commercial developers, local, state, and
federal government agencies, corporations, and other user-owners.
We provide testing of concrete and structural and reinforcing steel
through proven systematic methods and procedures of quality control
management. We customize project work to meet our clients' specific needs. We
deliver materials testing services on-site for the duration of a construction
project, giving us a competitive advantage over other providers. Concrete is
tested during and after placement to measure the consistency and strength of
concrete. Architects or engineers develop specifications for the design of
the structure or foundation, and we verify them during construction.
We also test steel structures for compliance. While many steel tests and
inspections are performed at the project site, tests and inspections are also
done at the steel fabrication plant, where the process can be monitored and
imperfections can be corrected before shipment to the project. Concrete and
steel samples collected in the field are transported back to our local
laboratory for analysis. Field representatives are deployed to the job site
from the nearest area office providing these services. Typically, a 100-mile
radius is the most economically feasible distance for providing these
services. Therefore, we only provide these services in areas with
construction activities to support the necessary operational resources.
Periodically, field offices are established to accommodate large projects.
All our field personnel work directly under the supervision of licensed
civil/geotechnical engineers. These engineers actively participate in
American Society of Civil Engineers, American Council of Independent
Laboratories, American Public Works Association, and other similar
professional groups in order to remain current with changes in the industry.
As members of the International Conference of Building Officials, our
personnel receive notification of all code changes. All field personnel must
maintain and renew licenses in their respective areas of inspection. All
laboratories are inspected biannually by the Cement and Concrete Reference
Laboratory of the National Institute of Standards and Measures. Additionally,
our laboratories participate in proficiency programs conducted by CCRL and
the American Association of State Highway & Transportation Officials.
INFRASTRUCTURE ENGINEERING SERVICES. We provide inspection and testing
services similar to those provided to our construction materials testing and
engineering services and geotechnical engineering services clients. These
services are provided to support the planning and construction of the
transportation network including highways, bridges, piers, tunnels, airports,
and other similar structures; dams, drainage basins, and storm water
facilities; waste treatment facilities; and utility transfer systems. One
advantage we have is that our laboratories in California and New Jersey have
been certified by the American Association of State Highway & Transportation
Officials. This AASHTO certification is often required in order to bid on
infrastructure projects, especially the larger projects. We believe that
demand for these services will increase in the future as the country repairs
its deteriorating infrastructure and as funding becomes available as a result
of Congress' recent TEA-21 funding package authorizing approximately $165
billion for highway and infrastructure improvements. As we have become
active in providing infrastructure engineering services, we believe we will
receive additional work from the substantially increased expenditures
projected for transportation construction.
GEOTECHNICAL ENGINEERING AND CONSULTING SERVICES. Our geotechnical
engineering and consulting services involve the analysis of soil data and
design of structures supported on or within the earth. Geotechnical services
begin with the project planning and design phase of a project, extend through
construction, and often continue through the service life of a structure.
Geotechnical engineers, geologists, and earth scientists conduct tests on the
soil, rock, and groundwater to determine whether sites are suitable for the
proposed new construction. Our professionals have expertise in soil and rock
mechanics, geophysics, and earthquake engineering. The design of a subsurface
program requires familiarity with local geology and a thorough knowledge of
economical construction methods. Our offices are staffed by professionals
with local expertise in a wide variety of soil conditions.
Soil tests are performed to determine soil compaction characteristics
both before foundation design and after excavation or soil placement have
taken place. The purpose of these tests is to determine the stability and
load-bearing characteristics of a soil before, during, and after
construction. We use the expertise of our geotechnical engineers, geologists,
and experienced field drilling personnel to design a field exploratory
program. The field data and samples are brought to our soil laboratories for
further testing and evaluation. The information obtained during the
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field exploration and laboratory testing is used to provide the client with
cost-effective designs for high-rise building foundations, site improvements,
tunnels, dams, manufacturing facilities, landfills, bridges, and many other
structures. We also provide specific recommendations to avoid delays and cost
overruns during construction, particularly in the weather-dependent site
preparation phase of a project. An engineering report is prepared under the
direction and review of a licensed professional engineer familiar with the
particular geologic conditions and engineering requirements for the project.
OTHER SERVICES AND PRODUCTS
In addition to the core services described above, we maintain
specialized services that can be integrated with the overall needs of our
clients. This is part of our overall business strategy to build and maintain
client relationships while adjusting to the market demand for professional
services. Most of these services have either developed within the last five
years or been obtained through recent acquisitions. The following is a
description of some of the non-core services we offer to complement our core
business.
BUILDING CONDITION SURVEYS. As part of our integrated service strategy
for commercial and industrial clients, we also offer building condition
surveys. As a general rule, building condition surveys involve an evaluation
of the facility's heating, ventilation, and lighting systems, water services,
roofing system, and structural or architectural construction or both. This
service is frequently associated with the purchase of real estate where the
purchaser requires an evaluation of operation and maintenance exposures of
property prior to closing. These services are also integrated with our other
commercial and industrial project services such as Phase I and Phase II
environmental assessments, asbestos assessments, and indoor air quality
consulting. We are in the process of promoting and developing building
condition surveys on a national level.
CONSTRUCTION ADMINISTRATIVE SERVICES. Our services also include
construction administrative services. These services range from acting as the
client's field representative during construction to overall responsibility
for the project's quality issues. The client representative assures that the
construction is done according to the plans and specifications developed by
either the architect or engineer. These services are typically billed on
either daily rates or hourly rates plus expense reimbursement.
An example of these services is a recent long-term contract to act as
the Orange County, Florida's school district field representative for all of
its new construction and building maintenance. In the case of this school
district, which encompasses the entire city of Orlando, we act like a
building department: reviewing plans, conducting inspections, and certifying
compliance with codes.
ENVIRONMENTAL ASSESSMENT SERVICES. The majority of our project
activities within this segment focus on identifying potential environmental
hazards and risk exposures. We provide environmental consulting services to
corporate and governmental clients. Many of these clients are large regional
and national corporations with multi-site consulting needs. Client
relationships and quality of service delivery primarily drive the market for
these services.
CONTRACTUAL ARRANGEMENTS
We often provide services for our major clients under arrangements
involving continuing service agreements. These arrangements are usually on a
time-and-materials, cost-plus-fixed-fee, or a fixed-price basis, and are
usually terminable on advance notice by either party. In 1998, approximately
60% of our projects were on a time-and-materials basis, under which we billed
our clients at fixed hourly rates plus subcontracted services and materials
used. In 1998, an additional 25% of our work was performed under
cost-plus-fixed-fee agreements where we and the client agreed to a budgeted
contract, but the client covered overruns and was credited for any savings
realized under budget.
Fixed-price arrangements, under which we perform a stated service for a
set price regardless of the time and materials cost involved, represented
approximately 15% of our business in 1998. This percentage may significantly
change from time to time in the future. Although this type of contract does
carry the risk that the cost to us for performing the agreed-upon services
may exceed the set price, a fixed-price also has the benefit of potentially
higher profit created by all savings under the contract amount. With military
projects, we have used fixed-price contracts very
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successfully where very detailed project plans and specifications are
available. When quoting a fixed-price contract, our marketing personnel
provide detailed breakdowns of all phases of the work specified including
man-hours, tests, and construction schedule assumptions. The fixed-price
contract is thus based upon a clearly defined scope of work and contract
duration. During the course of the project this scope of work and contract
duration is constantly monitored, and any expansion of the scope of work or
contract duration is billed as an extra to the contract.
We have, and may in the future, undertake projects in which we guarantee
performance based upon defined operating specifications or guaranteed
delivery dates or both. Unsatisfactory performance or unanticipated
difficulties in completing these projects may result in client
dissatisfaction and a reduction in payment to, or payment of damages by, us,
any of which could have a material adverse effect on our business, financial
condition, and results of operations. Certain contracts involving government
agencies are priced at cost or agreed upon labor rates plus overhead. Our
overhead rates are subject to audit and could result in price reductions
associated with disallowed overhead costs of methods used to derive overhead
rates.
MARKETING AND SALES
We provide our professional consulting, engineering, and testing
services in the construction industry to Fortune 500 companies, ENGINEERING
NEWS RECORD top 400 contractors and construction engineering firms, small
companies, real estate property owners and managers, and federal, state, and
local governments. Our contracts are obtained by our sales staff through
relationship building followed by proposals and bidding. The current sales
staff consists of one to two sales representatives in each of our locations,
and estimators as well as clerical staff back up these sales personnel.
Referrals from existing and former clients, architects, and engineers are a
significant source of contract leads. Clients are often interested in more
than one of our services. We have been able to sell construction materials
testing and engineering services, geotechnical services, and environmental
services, to the same clients.
We presently market our services through our subsidiaries. Direct
marketing is accomplished by technical sales representatives, technical
personnel, and management personnel who routinely call on prospective
clients. We also utilize government and industry publications to identify
potential services and requests for project proposals for submission of
competitive bids.
Recent trends in the engineering and consulting market require that a
service provider commit considerable resources toward maintaining and
developing client relationships. This shift from project-specific to
long-term client relationship partnering requires a service provider to
dedicate both technical and marketing resources toward tailoring services for
a client. It also requires the provider to maintain a broad range of
responsive, quality services. The rewards of this client relationship
partnering and quality, service-focused programs are continued revenues from
repeat customers and, in many instances, sole source solicitation and award
of work to the firm.
KEY CLIENTS AND PROJECTS
Our services and products are applicable to a full range of business,
manufacturing, institutional, and government sectors. However, based on
demand for our services, existing relationships, and revenue generation
potential, we target real estate management and development firms, large
general contracting firms, large construction management firms, national
corporate owners/users, state transportation agencies, municipalities, public
school systems, public housing authorities, and the U.S. Department of
Defense as key client sectors for development.
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Our client list is comprised of hundreds of different customers. We
serve the private commercial market, the public sector, and a variety of
public interest or non-profit organizations. In 1998, no single customer
accounted for more than 5% of our revenues. The following is a representative
list of our clients.
<TABLE>
<S> <C>
PRIVATE COMMERCIAL CLIENTS
Wal-Mart Nordstroms
Neiman Marcus Home Depot
Saks Fifth Avenue Circuit City
Lord & Taylor Marriott
Hilton Hotels Walt Disney
Claridge Casino Atlantic City Bally's Park Place
Sea World San Diego Universal Studios Orlando
Lockheed Martin Sports Authority
Rite-Aid Target Stores
PUBLIC INTEREST CLIENTS
Giants Meadowlands California State Universities
San Diego Qualcomm Stadium Princeton University
Florida Panthers Ice Hockey University of California
PUBLIC SECTOR CLIENTS
New Jersey Turnpike Authority Port Authority New York
New Jersey Transit Authority Port Authority New Jersey
New Jersey Sports & Expositions CalTrans
City of Los Angeles City of San Diego
San Diego County Los Angeles County
United States Navy Port Authority of San Diego
</TABLE>
One marketing and operational goal we have worked towards is an equal
balance between private industry and public sector work. We have maintained this
goal although the percentage breakdown in the three regional areas we serve has
varied. In Southern California, the split between private industry and public
sector work has been evenly split. In the New Jersey area, approximately 25% of
the work has been private industry and 75% public sector. In Florida, our market
has been approximately 75% private industry and 25% public sector.
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The following is a representative list of the projects for which we have
provided engineering services.
<TABLE>
<CAPTION>
NEW JERSEY FLORIDA SOUTHERN CALIFORNIA
<S> <C> <C>
OFFICE BUILDINGS/HIGH-RISES
Hoffman-LaRoche IBM Sony
Merck & Company Motorola Uniden
Liberty Plaza Kemper Insurance Johnson & Johnson
REGIONAL SHOPPING MALLS
Monmouth Mall Plantation Fashion Mall Fashion Valley Mall
Sheridan Plaza Hollywood Mall Horton Plaza
Garden State Plaza Sawgrass Mills Mall Seaport Village
Paramus Park Pembroke Lakes Mall University Towne Centre
Jersey Garden Mall North County Fair
HOTELS/AMUSEMENT PARKS
Bally's Park Place Universal Studios Sea World
Caesar's Hotel/Casino Disney World Marriott Towers
Six Flags Great Adventure Marriott Inns Hyatt Regency Aventine
Claridge Hotel & Casino Loew's Miami Beach Sheraton Torrey Pines
UNIVERSITIES
Princeton University Palm Beach College California State University
Farleigh Dickenson University Broward Community College University of California
Rutgers University Florida Atlantic University University of San Diego
GOVERNMENT/MUNICIPALITIES/SCHOOL DISTRICTS
FAA Homestead Air Force Base MCAS Miramar
Casino Development Authority Florida Department of Transportation NAS North Island
New Jersey Transit Orange County Schools MCS Camp Pendleton
New Jersey Veterans Administration Ft. Lauderdale Museum San Diego Unified Schools
New Jersey Water District Miami/Dade County Schools Coronado Schools
Plantation City Hall
Kravis Center Performing Arts
HOSPITALS
Englewood Hospital Kendall Reg. Center Children's Hospital
Hackensack University Hospital Holy Cross Cancer Kaiser Hospital
Passaic General Hospital Sunrise Medical Center Scripps Clinic
Palisades General Hospital Holy Redeemer Hospital UCSD Hospital
Morristown Memorial Hospital Balboa Naval Hospital
Scripps Memorial Hospital
PUBLIC FACILITIES
Princeton Stadium Florida Panther Arena San Diego Qualcomm Stadium
Giants Meadowlands Stadium San Diego Convention Center
</TABLE>
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EXAMPLE OF CLIENT ENGAGEMENT
One of our recent high profile projects was the expansion and
redevelopment of Fashion Valley Regional Shopping Mall, a $200 million,
two-year project in San Diego. The client was the owner of the shopping
center, a partnership between Lend Lease Development, an international real
estate conglomerate, and Equitable Life. We provided geotechnical services,
and construction materials inspections and testing for seven parking
structures and the construction of a second retail level over the existing
shopping mall. Geotechnical services involved compaction testing for
foundations and footings, trenches, and driveways. The parking structures
were poured in place concrete and precast concrete panel construction over
driven concrete piles. Not only were concrete quality control inspection and
compression testing required, but masonry and structural steel inspections
were also needed. The second story mall was of steel frame construction, and
therefore sophisticated welding and structural steel inspections were
required as well as concrete, masonry, fireproofing, roofing, and
waterproofing inspection and testing.
Because the existing business within the mall remained open for business
during construction, much of the concrete and structural steel work was
completed between 10:00 p.m. and when the stores opened the following
morning. In addition to providing services for the parking structures and the
mall expansion, we also contracted with Nordstroms to provide similar
services for the reconstruction of this anchor tenant. Our total fees on the
project approached one million dollars. All work was performed on a time and
materials basis at negotiated rate levels and estimated budgets. On peak
activity days as many as eight of our inspectors or technicians worked at
Fashion Valley supported by the engineering and laboratory staffs.
INFORMATION SYSTEMS AND THE YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two-digit entries in the date code field. Beginning in
the year 2000, these date code fields will need to accept four-digit entries
to distinguish 21st century dates from 20th century dates. As a result, in
less than two years, computer systems or software or both may need to be
upgraded to comply with "Year 2000" requirements. We have assessed our
management information systems and do not currently expect that any material
expenditure will be required in connection with the modifications that will
be required for these systems. Moreover, we have recently implemented or are
in the process of implementing new systems that are already Year 2000
compliant and we do not believe that the total cost of any potential
modification of such management information systems will be material. There
can be no assurance that we or our vendors will be able to successfully
modify on a timely basis our or their respective management information
systems to comply with Year 2000 requirements.
We are currently converting our accounting and management information
systems to a system consisting of new hardware and packaged software recently
purchased from a large recognized industry vendor, Sage Software, Inc., who
has represented that these systems are Year 2000 compliant. Our remaining
operations are generally dependent only on personal computers and
off-the-shelf commercial word processing, drafting, spreadsheet, and
engineering software. Year 2000 compliant versions of these systems are
currently available, and we will convert to these compliant systems over the
next year and a half as we upgrade our operational personal computer systems
in the ordinary course to the most recently issued software releases.
We have expanded substantially over the past several years, primarily as
a result of acquisitions. The process of integrating acquired businesses has
placed significant demands on our management information systems. To address
these demands, we are in the process of upgrading and replacing our
management information systems. This process of upgrading and replacing our
management information systems has required, and will continue to require,
substantial attention from members of senior management. We are within 90
days of completing systems upgrades to our management information systems,
and the upgrade is 60% complete, but no assurance can be given that such
system upgrade will be completed successfully. Our failure to successfully
upgrade our management information systems could have a material adverse
effect on our results of operations.
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OFFICE AND SUPPORT SERVICES
We operate through eight offices located in three states. The office is
our basic economic and functional unit through which all services are
provided. Personnel located in each office are experienced in developing and
implementing solutions, which meet the requirements of local regulations. We
monitor all offices through a subsidiary president. Each of our subsidiaries
is responsible for introducing new services to customers, managing projects
within budget, and meeting pre-established quality control standards. Each
subsidiary also has dedicated sales and marketing staff. We provide each
subsidiary with accounting, administration, and human resources support.
BACKLOG
Backlog includes anticipated revenue from services on major long-term
contracts or continuing service agreements that provide for authorization of
funding on a task or fiscal period basis. Excluded from backlog are
anticipated revenues from smaller projects done without long-term contracts
or service agreements. At September 30, 1998, we had approximately $7.2
million of gross revenue backlog compared to $4.2 million at September 30,
1997. The September 30, 1997 backlog figure includes the backlog of Wyman
Enterprises, Inc. before our acquisition of all of its assets and certain of
its liabilities.
We bill for our services monthly for work completed during the previous
month. All billing is done on the regional level, and all accounts receivable
responsibilities are also handled on the regional level with overall
supervision from our headquarters. Collection periods for our receivables
range between 70 and 75 days. An allowance for doubtful accounts is typically
established equivalent to one percent of gross revenues.
SEASONAL FACTORS
Due primarily to more holidays and inclement weather conditions, our
operating results during January, February, and December are generally lower
in comparison to other months. Because all field and most lab personnel are
paid on an hourly basis, we can reduce expenses for direct labor as the
workload decreases. Historically enough work exists during the slow months to
retain the hourly work force at reduced levels until volume increases after
the winter months.
COMPETITION
The services that we provide are subject to intense competition. In
addition to the thousands of small consulting and testing firms operating in
the United States, we compete with several national engineering and
consulting firms including Law Companies Group, Inc.; Harding Lawson
Associates Group, Inc.; Dames & Moore, Inc.; and Professional Service
Industries, Inc.
Certain of our present and future competitors may have greater financial,
technical, and personnel resources than us. We cannot predict the extent of
competition that we will encounter in the near future as construction materials
testing and engineering, infrastructure, geotechnical and environmental services
industries continue to mature and consolidate. Historically, competition has
been based primarily on the quality, timeliness, and costs of services. Our
ability to compete successfully will depend upon our marketing efforts, our
ability to accurately estimate costs, the quality of the work we perform, our
ability to hire and train qualified personnel, and the availability of
insurance.
ORGANIZATION
We were established in 1993 as a Delaware corporation to acquire
regional engineering services firms. Currently, we are comprised of four
operating units and the holding company.
Professional Engineering is a Florida corporation that was founded in 1984
and is located in south Florida. Professional Engineering's core business is to
provide geo-technical engineering, construction testing and inspection,
structural engineering and design services. Over the past ten years Professional
Engineering has successfully provided
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professional services on over 2,000 projects with construction budgets from
$500,000 to $200,000,000. U.S. Labs acquired Professional Engineering in 1994.
U.S. Engineering is a Delaware corporation that has three locations in New
Jersey and was founded 1993 to provide construction engineering, inspection, and
testing services to northeast clients. At present U.S. Engineering is one of the
largest operations of its type serving the Metropolitan New York, New Jersey,
and Philadelphia region.
San Diego Testing is a Delaware corporation that was founded in 1946 and
has provided engineering and consulting services to the Southern California
construction industry for over 50 years. San Diego Testing was acquired by us in
1996 and provides engineering, testing, and inspection services identical to
those provided by Professional Engineering and U.S. Engineering.
Wyman Enterprises, Inc. was founded in 1973, and currently serves the
southern California and Mexican border market and is licensed in Nevada.
Substantially all the assets and certain of the liabilities of Wyman
Enterprises, Inc. were acquired by Wyman Testing, a subsidiary of ours, in
1998, and Wyman Testing was subsequently merged into the operations of San
Diego Testing.
In August 1998, we formed another subsidiary, Los Angeles Testing
Engineers, Inc., for a new office in Irvine, California. This subsidiary has not
made a material contribution to our results of operations.
INSURANCE
We have a claims made professional liability insurance policy, which
includes contractor's pollution liability coverage. The professional
liability insurance policy has a two-year term, ending in November 1999,
which is subject to biennial renewal, with a two-year, per-claim, and
aggregate limit of $2 million, and a deductible of $20,000 per claim.
Increased limits have been obtained on a specific endorsement basis to meet
the needs of particular clients or contracts. A claims made policy only
insures against claims filed during the period in which the policy is in
effect. This policy covers both errors and omissions.
We currently have no professional liability claims pending and we are
unaware of any other claims that will have a material adverse effect of our
operations or financial condition. Although various claims have been made in
the past against our professional liability policy, to date no such claim has
ever resulted in an uninsured loss.
We also carry an occurrence basis general liability insurance policy in
the amount of $2 million, with a $5 million umbrella. This coverage includes
products/completed operations. The general liability insurance policy has a
one-year term, ending in January 2000 and is subject to annual renewal. Our
policies have been renewed in each of the years that they have been in
effect.
In addition, we have secured a claims made directors and officers'
liability insurance policy with an aggregate limit of $2 million, which will
increase to $6 million at the initial public offering. This policy has a
one-year term that expires in October 1999. We can make no assurance that
insurance coverage will continue to be renewed or available in the future or
offered at rates similar to those under the current policies.
In August 1998, we obtained key person life insurance policies on the
lives of Dickerson Wright, Martin Lowenthal, Mark Baron, Christopher
O'Malley, and Gary Elzweig. According to the provisions of those policies,
our company is the beneficiary in the amount of $2,650,000, $650,000,
$300,000, $300,000, and $1,000,000, on the lives of Messrs. Wright,
Lowenthal, Baron, O'Malley, and Elzweig, respectively.
GOVERNMENT REGULATION
Except for state licensure requirements for the engineering component,
there is limited regulation of the construction materials testing and
engineering or geotechnical consulting service industries. Industry standards
are set by agencies, including the American Society of Testing Material, the
American Association of State Highway & Transportation Officials, the
American Concrete Institute, and the American Welding Society. State and
local building codes, the stringency of which varies by location, however,
govern construction projects themselves.
30
<PAGE>
PERSONNEL
We employ approximately 200 regular, full-time employees, including 170
engineers, inspectors, and field lab technicians and 30 administrative
personnel. None of our employees are presently represented by a labor union.
We believe that relations with our employees are good.
FACILITIES
We own no real estate, and all of our locations are leased from
independent third parties as follows:
<TABLE>
<CAPTION>
LOCATION FOOTAGE LEASE EXPIRATION
- -------- ------- ----------------
<S> <C> <C>
South Coast Florida Office: 7,600 July 2000
4350 West Sunrise Boulevard
Plantation, Florida
Central Coast Florida Office: 1,600 June 2000
1001 Jupiter Park Drive
Jupiter, Florida
Central Florida Office: 3,000 Month-to-month
6220 South Orange Blossom Trail
Orlando, Florida
North New Jersey Office: 7,000 June 1999
903 E. Hazelwood Avenue
Rahway, New Jersey
New Jersey Coast Office: 2,000 March 1999
2511 Fire Road
Egg Harbor, New Jersey
South New Jersey Office: 3,700 May 2001
443 Commerce Lane
West Berlin, New Jersey
Southern California Offices: 11,000 May 2003
7895 Convoy Court
San Diego, California
17905 Skypark Circle 3,200 August 2001
Irvine, California
</TABLE>
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not a party to any material legal
proceedings. Notwithstanding this, from time to time, we may be involved in
material litigation.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages and positions held
with us are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ----------
<S> <C> <C>
Dickerson Wright(1). . . . . . . . 52 Chief Executive Officer, President,
and Chairman of the Board of
Directors
Gary H. Elzweig. . . . . . . . . . 43 Executive Vice President and
Director
Donald C. Alford . . . . . . . . . 54 Executive Vice President and
Director
Mark Baron . . . . . . . . . . . . 43 Executive Vice President and
Director
Martin B. Lowenthal. . . . . . . . 42 Executive Vice President and
Director
James D. Wait. . . . . . . . . . . 45 Chief Financial Officer, Secretary,
and Director
Thomas H. Chapman. . . . . . . . . 68 Director *
James L. McCumber(2) . . . . . . . 51 Director
Robert E. Petersen(1)(2) . . . . . 52 Director
Noel Schwartz(1) . . . . . . . . . 71 Director
Irvin Fuchs. . . . . . . . . . . . 72 Director
</TABLE>
____________________________
*Mr. Chapman is a vice president of San Diego Testing, one of our subsidiaries.
(1) Member of Compensation Committee
(2) Member of Audit Committee
Each of our directors is elected at the annual meeting of stockholders
and serves until the next annual meeting and until his successor is elected
and qualified, or until his earlier death, resignation, or removal. The
underwriters have the right to observe board meetings for a period of five
years following the offering. We intend to maintain at least two independent
directors on our board.
Dickerson Wright, P.E., is our founder and has served as our chairman of
the board of directors and president since our incorporation in October 1993.
Mr. Wright is a registered professional engineer with a history of building
and managing engineering service companies and over 25 years experience in
the independent testing and inspection industry. From September 1990 to
September 1993, he was the co-owner and executive vice president of American
Engineering Laboratories. Mr. Wright also served as president and chief
executive officer of Western State Testing, as national group vice president
of United States Testing Company, and as executive vice president of
Professional Service Industries during this period of time.
Gary H. Elzweig, P.E., is a co-founder of Professional Engineering and
has served as president of Professional Engineering since its incorporation in
March 1987. Mr. Elzweig has served as our executive vice president and
director since May 1998. He is a registered professional engineer with over
20 years of experience in engineering, design, and testing. Mr. Elzweig
earned his Bachelor's Degree from Columbia University, School of Engineers in
1977. Mr. Elzweig also serves as Chairman of Broward County's Board of Rules
and Appeals Foundations Subcommittee, and Building Envelope Subcommittee.
Donald C. Alford has served as our executive vice president and director
since May 1998. Mr. Alford was an owner of Wyman Enterprises, Inc. and served as
its vice president and chief financial officer from April 1996 until its
32
<PAGE>
acquisition by U.S. Labs. Mr. Alford continued to work for U.S. Labs as an
officer of Wyman Testing after the acquisition of Wyman Enterprises, Inc. Mr.
Alford was co-founder of Cornerstone Development, a real estate company that
developed approximately 20 major projects in the San Diego area from 1983 to
1991. From October 1991 to June 1994, Mr. Alford served as president of
Procom Supply Corporation, a wholesale distributor of telephone equipment.
Mr. Alford also served as managing partner of S.A. Assets, LLC, a real estate
development company, from July 1994 to September 1996.
Mark Baron has been president and director of San Diego Testing since
May 1998 and has served as our executive vice president and director since
May 1998. Mr. Baron also was employed in the position of manager of business
development with Professional Service Industries from November 1989 to
October 1996. He has over 20 years experience in the construction industry.
Mr. Baron is a certified OSHPD Class A Construction Inspector.
Martin B. Lowenthal is president and a director of U.S. Engineering and
has served as our executive vice president and director since May 30, 1998.
Mr. Lowenthal has served as president and director of U.S. Engineering since
November 1994 and as secretary of U.S. Engineering since its incorporation in
October 1993. Mr. Lowenthal has 16 years of management experience in the
engineering and testing industry. He has overseen engineering and testing
operations in six states, including New Jersey, New York, Delaware,
Pennsylvania, Maryland, and Virginia.
James D. Wait has served as our chief financial officer, vice
president - finance and treasurer and director since May 1998. Prior to
joining us, Mr. Wait served as president of Tayside Development, a real
estate consulting firm, from January 1993 to December 1996. Mr. Wait also
served as treasurer of Horizon Communities, Inc., a real estate development
company, from December 1996 to October 1997 and as treasurer of The Encinas
Group, a real estate development company, from November 1997 to April 1998.
Prior to 1993, Mr. Wait acted as the chief financial officer and treasurer
for 16 years for R.B. McComic, Inc. and The Gentry Company. Mr. Wait is a
certified public accountant, licensed in the state of California since 1981.
Thomas H. Chapman, R.C.E., has served as a director of San Diego Testing
since March 1997 and has served as one of our directors since May 1998. Mr.
Chapman previously served as president of San Diego Testing from March 1997
to May 1998 and has been employed by San Diego Testing since May 1997. Mr.
Chapman originally joined the predecessor to San Diego Testing in 1968 and
eventually left San Diego Testing in 1989 when he went to work for Law
Engineering. He served as the office manager for Law Engineering until he
rejoined San Diego Testing in 1997. Mr. Chapman has been involved in several
notable projects in San Diego, including the San Diego Convention Center, the
Hyatt Regency Hotel, the City Front Terrace, and One Harbor Drive. Mr.
Chapman earned his degree in Civil Engineering from San Diego State
University and is a California Registered Civil Engineer.
James L. McCumber is the chairman, chief executive officer, and founder
of McCumber Golf, an internationally recognized firm noted for the design and
construction of landmark golf courses. McCumber Golf was founded in 1971. Mr.
McCumber has been one of our directors since May 1998. Additionally, he
serves as a senior official with the Professional Golf Association.
Robert E. Petersen has served as one of our directors since May 1998.
Mr. Petersen has served as president of Asset Management Group, a retail and
industrial property management firm, since October 1983. Mr. Petersen has
also served as senior vice president and chief financial officer of Collins
Development Co. and vice president of La Jolla Development Co., both of which
of are real estate development companies, since October 1983.
Noel Schwartz is a registered professional engineer (retired). Mr.
Schwartz has been one of our directors since July 1998. Mr. Schwartz has
served in the engineering and research industry since 1952. Between 1952 and
his retirement in 1988, Mr. Schwartz held positions with United States
Testing Company such as consumer research division manager, director of
research, vice president of operations-laboratory group, senior vice
president-laboratory services division and finally, president-laboratory
services division. During his tenure at United States Testing Company, a
publicly traded corporation, he was a member of the board of directors.
Irvin Fuchs is a registered professional engineer (retired). Mr. Fuchs
has been one of our directors since July 1998. Mr. Fuchs has served in the
engineering and research industry since the early 1950's. Before his
retirement in
33
<PAGE>
1992, Mr. Fuchs held several positions with United States Testing Company,
including division manager-engineering services, division manager-commercial
engineering and testing, senior vice president-engineering services group,
and president-engineering services group. During his tenure at United States
Testing Company, a publicly traded corporation, he was a member of the board
of directors.
DIRECTOR COMPENSATION
We reimburse our directors for all reasonable and necessary travel and
other incidental expenses incurred in connection with their attendance at
meetings of the board. Beginning in December 1998, we began compensating
non-employee directors $500 for each board meeting attended. In 1998, under
the 1998 Stock Option Plan, each non-employee director received an option to
purchase 5,000 shares of common stock at an exercise price of $6.00 per
share. Directors who are members of our subsidiaries' boards received an
additional grant of an identical option to purchase 5,000 shares for each
board membership. In the future, a director who is first elected to the
board may receive an option to purchase shares of common stock for the first
year of the director's board term. The board has not yet determined the
number of option shares that each director will receive for each additional
year the director remains on the board. These options will have an exercise
price equal to 100% of the fair market value of the common stock on the grant
date.
COMMITTEES OF THE BOARD OF DIRECTORS
We have a standing compensation committee currently composed of Messrs.
Wright, Petersen, and Schwartz. The compensation committee reviews and acts
on matters relating to compensation levels and benefit plans for our
executive officers and key employees, including salary and stock options. The
committee is also responsible for granting stock awards, stock options, stock
appreciation rights, and other awards to be made under our existing incentive
compensation plans. We also have a standing audit committee composed of
Messrs. McCumber and Petersen. The audit committee assists in selecting our
independent auditors and in designating services to be performed by, and
maintaining effective communication with, those auditors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation provides that our
directors will not be personally liable to us or you for monetary damages for
breach of fiduciary duty as a director except for liability:
- for any breach of the director's duty of loyalty to us or you;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law, which
relates to unlawful payment of dividends or unlawful stock purchase
or redemption; or
- for any transaction from which the director derived any improper
personal benefit.
Our amended and restated certificate of incorporation also provides
that we will indemnify our directors, officers, employees, and agents to the
fullest extent permitted by Section 145 of the Delaware General Corporation
Law. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of U.S.
Labs pursuant to the foregoing provisions, or otherwise, U.S. Labs has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In addition, we have secured a claims made directors and officers'
liability insurance policy with an aggregate limit of $2 million, which will
increase to $6 million at the initial public offering. This policy has a
one-year term that expires in October 1999. We can make no assurance that
insurance coverage will continue to be renewed or available in the future or
offered at rates similar to those under the current policies.
34
<PAGE>
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with Messrs. Wright, Elzweig,
Alford, Baron, Lowenthal, and Wait. Each of these agreements has a term of
three years, and provides that we may terminate any of the agreements with or
without cause. These employment agreements also provide for 12 months of
severance pay at the rate of 50% of the applicable executive's compensation
in the event the executive is terminated other than for cause prior to the
end of the three-year term.
Mr. Wright's employment agreement provides salary in the amount of
$175,000 per annum and if U.S. Labs reports at least $1,200,000 in pre-tax
profit for the 1998 calendar year then Mr. Wright will be entitled to a bonus
of 7% of our pre-tax profit. If we earned $1,200,000 in pre-tax profit in
1998, Mr. Wright will be entitled to $84,000. Mr. Elzweig's employment
agreement provides salary in the amount of $125,000 per annum and if
Professional Engineers has at least pre-tax profits of $450,000 for the 1998
calendar year, then Mr. Elzweig will be entitled to a bonus of 3% of the
pre-tax profit for U.S. Labs. For example, if U.S. Labs earned $1,000,000 in
pre-tax profit in 1998, Mr. Elzweig will be entitled to $30,000.
Additionally, if Professional Engineers meets its business goals for 1998,
then Professional Engineers will be entitled to a bonus pool of up to 5% of
its pre-tax profit, which will be distributed at Mr. Elzweig's discretion.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid or accrued for the fiscal year ended December 31, 1998 by
us to or for the benefit of our chief executive officer and our only other
executive officer whose total annual compensation for 1998 exceeded $100,000
(the "Named Executive Officer").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ -------------------
SECURITIES
UNDERLYING OPTIONS
NAME AND PRINCIPAL POSITION SALARY AND WARRANTS
- --------------------------- ------------ -------------------
<S> <C> <C>
Dickerson Wright
Chief Executive Officer. . . . . . . . . $175,000 170,000
Gary H. Elzweig
Executive Vice President(2). . . . . . . $171,567 65,000
</TABLE>
__________________
(1) In accordance with Instruction to Item 402(b) of Regulation S-B promulgated
by the SEC, information with respect to fiscal years prior to 1998 has not
been included because we were not a reporting company under Section 13(a)
or 15(d) of the Securities Exchange Act and the information has not been
previously reported to the SEC in response to a filing requirement.
(2) Until July 1998, Mr. Elzweig was not our employee, but provided management
services to us as an independent contractor. Of the $171,567 reflected in
the above table, Mr. Elzweig received 5% of the net sales of Professional
Engineering, or $92,052, in exchange for these management services.
STOCK OPTION PLAN. On May 30, 1998, our board of directors adopted the
U.S. Laboratories Inc. 1998 Stock Option Plan, under which the board or the
compensation committee may issue incentive stock options and non-qualified
stock options to purchase an aggregate of 500,000 shares of common stock.
Currently, we have 395,000 stock options outstanding under the plan.
Additionally, we have indicated to certain employees that upon the successful
completion of our offering, we will grant 62,500 stock options to them.
Options may be issued under the plan to our employees, officers, directors,
advisors, or consultants. We will only grant stock options with an exercise
price at least equal to the fair market value of the common stock on the date
of grant. The compensation committee administers the 1998 Stock Option Plan.
35
<PAGE>
On November 9, 1998, the board of directors authorized the issuance,
under the terms of the 1998 Stock Option Plan, of:
- incentive stock options to purchase an aggregate of 145,000 shares of
common stock for an exercise price of $6.60 to Dickerson Wright and
Gary Elzweig;
- incentive stock options to purchase an aggregate of 205,000 shares of
common stock for an exercise price of $6.00 to certain of our officers
and employees; and
- non-qualified stock options to purchase an aggregate of 45,000
shares of common stock for an exercise price of $6.00 to certain of
our non-employee directors and certain other non-employees who have
provided services to us.
All of these stock options are subject to vesting schedules described in
stock option agreements between us and the recipients of the stock options.
These option grants replaced the previous grants made on May 30, 1998, which
were cancelled.
WARRANTS. On November 9, 1998, the board of directors authorized the
issuance to certain of our officers and employees warrants to purchase an
aggregate of 150,000 shares of common stock for an exercise price of $6.00 per
share. These grants replaced the previous grants made on May 30, 1998, which
were cancelled.
The repricing of the above options and warrants was undertaken to
facilitate the offering. All outstanding options and warrants were repriced in
the same manner.
The following table provides the specified information concerning grants of
options and warrants to purchase our common stock made during the year ended
December 31, 1998 to persons named in the Summary Compensation Table.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES PERCENT TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION
NAME GRANTED IN FISCAL YEAR PRICE ($/Sh) DATE
- ---- -------------------- -------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Dickerson Wright 170,000 31.2% $5.00 - $5.50 5/30/03(1)
170,000 31.2% $6.00 - $6.60 11/9/03
Gary H. Elzweig 65,000 11.9% $5.00 - $5.50 5/30/03(1)
65,000 11.9% $6.00 - $6.60 11/9/03
</TABLE>
__________________
(1) These options and warrants were cancelled in connection with the
recapitalization of U.S. Labs in preparation for the offering.
36
<PAGE>
The following table provides information concerning exercises of options
and warrants to purchase our common stock in the fiscal year ended December 31,
1998, and unexercised options and warrants held at fiscal year end by the
persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED VALUE OPTIONS AND WARRANTS AT MONEY OPTIONS AND WARRANTS
NAME ON EXERCISE REALIZED DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
- ---- ------------ --------- --------------------------- --------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dickerson Wright 0 $0 75,151 98,849 $0 $0
Gary H. Elzweig 0 $0 45,151 19,849 $0 $0
</TABLE>
__________________
(1) Calculated by determining the difference between the initial public
offering price of $6.00 per unit and the exercise price of the options and
warrants.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 31, 1998, and as adjusted to
reflect the sale of the units offered by us, by:
- each person who is known to own beneficially more than 5% of the
outstanding shares of our common stock;
- each of our directors;
- Named Executive Officer; and
- all our directors and executive officers as a group.
The persons listed below have sole voting and investment power with respect
to all shares of common stock shown as being beneficially owned by them, subject
to community property laws, where applicable. Of the shares held by all current
directors and officers as a group, 268,632 shares are issuable upon exercise of
options and warrants exercisable within 60 days of December 31, 1998. The
address of all stockholders is care of U.S. Laboratories Inc., 7895 Convoy
Court, Suite 18, San Diego, California 92111.
<TABLE>
<CAPTION>
Shares Issuable
Name and Address of Number of Prior to After Upon Exercise of
Beneficial Owner Shares Offering Offering Options or Warrants
- ---------------- ---------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
Dickerson Wright......... 1,772,389 71.8% 49.7% 75,151
Gary H. Elzweig ......... 360,638 14.6% 10.1% 45,151
Martin B. Lowenthal...... 82,192 3.3% 2.3% 26,666
Donald C. Alford......... 77,144 3.1% 2.2% 26,666
Mark Baron............... 60,318 2.4% 1.7% 26,666
Thomas H. Chapman........ 45,727 1.9% 1.3% 21,666
James D. Wait............ 26,666 1.1% * 26,666
James L. McCumber........ 5,000 * * 5,000
Robert E. Petersen....... 5,000 * * 5,000
Noel Schwartz............ 5,000 * * 5,000
Irvin Fuchs.............. 5,000 * * 5,000
All current directors
and officers as a
group (11 persons)....... 2,445,074 99.0% 68.5% 268,632
</TABLE>
_____________________
* Represents less than 1%
38
<PAGE>
RELATED TRANSACTIONS
All ongoing present and future transactions with our affiliates have been,
and will continue to be, on terms no less favorable to us than could have been
obtained from unaffiliated parties, and will be approved by a majority of no
less than two of our independent directors. These independent directors will not
have an interest in those transactions and will have access, at our expense, to
our counsel, or independent legal counsel.
At December 31, 1997 and September 30, 1998, we owed Dickerson Wright,
the Chief Executive Officer and majority stockholder, $584,281 and $97,499,
respectively. The amounts are non-interest bearing and are payable upon
demand. Mr. Wright loaned these amounts to us through the use of his personal
line of credit that was personally guaranteed by Mr. Wright and his spouse.
In May 1998, we repaid a portion of that line of credit by borrowing under a
new $1,700,000 line of credit that is also personally guaranteed by Mr.
Wright and his spouse.
In October 1998, the $1,700,00 line of credit was refinanced into a
$1,200,000 note payable and a $500,000 line of credit, both of which are
guaranteed by Mr. Wright and his spouse. In July 1998, we also entered into a
$500,000 line of credit that is personally guaranteed by Mr. Wright and his
spouse. We used this $500,000 line of credit to repay in full to the bank the
$480,000 loan made to us through the use of Mr. Wright's personal line of
credit.
As part of the consideration for the acquisition of Wyman Enterprises,
Inc.'s assets, we issued a non-interest-bearing note payable to Donald C.
Alford in the principal amount of $150,000. The note payments are due in four
equal annual installments of $37,500 beginning in March 1999.
During the years ended December 31, 1997 and 1996 and the nine months
ended September 30, 1998 and 1997, we paid $181,067, $169,594, $92,052, and
$137,063, respectively, in management fees to Gary Elzweig. The management
fees were based on 5% of net sales of a subsidiary.
On January 1, 1998, we issued (a) 315,488 shares of our common stock to
Gary H. Elzweig in exchange for 100 shares of the common stock of
Professional Engineering; (b) 55,526 shares of our common stock to Martin B.
Lowenthal in exchange for 18.5 shares of the common stock of U.S.
Engineering; (c) 33,652 shares of our common stock to Mark Baron in exchange
for 1.67 shares of the common stock of San Diego Testing; and (d) 24,061
shares of our common stock to Thomas H. Chapman in exchange for 5.67 shares
of the common stock of San Diego Testing.
On January 1, 1998, we issued 10,937 shares of our common stock to
Christopher O'Malley, Vice President of U.S. Engineering under the terms of a
restricted stock agreement containing restrictions on the disposition of the
common stock. The common stock was issued in exchange for a capital
contribution made by Mr. O'Malley to U.S. Engineering.
On April 1, 1998, we issued 50,478 shares of our common stock to Donald
C. Alford in exchange for 25 shares of the common stock of Wyman Enterprises,
Inc.
39
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, Cardinal Capital Management, Inc.; Janda & Garrington LLC; and FAS
Wealth Management Services, Inc., have agreed to purchase from us, and we
have agreed to sell to the underwriters, 1,100,000 units (the "Firm Units").
Each Unit consists of one share of common stock and one Warrant to purchase
one share of common stock at $7.80 per share. We granted the underwriters an
overallotment option to purchase an additional 165,000 units (the "Option
Units"), subject to certain terms and conditions, some of which are specified
below.
The underwriters are committed to take and pay for all of the Firm
Units, if any are taken. The underwriters have advised us that they propose
to offer the units to the public at the initial public offering price of
$6.00 per Unit. The underwriters will purchase the units at a discount of
10%. The underwriters initially propose to offer part of the units directly
to the public at the initial public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of 6.5% of the initial public offering
price. The underwriters may change the initial public offering price,
concession, and discount to dealers after the units are released for sale to
the public.
The underwriters have informed us that they do not intend to confirm
sales to any account over which they exercise discretionary authority.
We will also pay the underwriters a 3% non-accountable expense
allowance, of which $40,000 has been paid to date.
Upon completion of the offering, we will grant to the underwriters
warrants to purchase 110,000 units (10% of the Firm Units). These
underwriters' warrants will entitle the underwriters to purchase units at a
price equal to 120% of the offering price to the public for a period
commencing one year after the effective date of the registration statement
and ending five years after that date. The units offered to the underwriters
will contain warrants to purchase common stock on terms identical to the
warrants issued to the public, except for the warrants underlying the
underwriters' units are not subject to redemption. These warrants may not be
transferred except to the underwriters' officers and employees, who are also
stockholders of the underwriters or by will, under the laws of descent and
distribution, or by the operation of law. The exercise price of these
warrants may not be reduced after the effective date of the registration
statement except in accordance with the terms of a stock dividend; stock
split; or merger, consolidation, reclassification, reorganization,
recapitalization, or a sale of the Company's assets. We have agreed to pay
all costs and expenses incident to the registration and qualification of the
units with the SEC, the NASD, and such state securities regulatory agencies as
the underwriters may reasonably request.
We agreed to use Cardinal Capital Management, Inc. and Janda &
Garrington LLC as our non-exclusive financial advisers until November 2, 2000
for any future mergers, acquisitions, or strategic partnership transactions
that we enter into with entities introduced to the Company by them. We will
compensate them based on the Lehman formula. The Lehman formula provides
for payment based on a percentage of a transaction's value. We will pay 5% of
the first one million dollars of a transaction's value and one less
percentage point for each million dollars of value until the percentage is
reduced to 1%. At that point, we will pay 1% of the balance of a
transaction's value. We paid Janda & Garrington LLC $22,500 in fees for
services rendered in the acquisition of Wyman Enterprises, Inc. in July 1998.
We have filed an application with the NASD to obtain a Nasdaq SmallCap
Market (SM) listing for the common stock and the warrants.
The underwriting agreement provides that the obligations of the
Underwriter to pay for and accept delivery of the units are subject to the
approval of certain legal matters by counsel and to certain other conditions.
In connection with the offering, the underwriters may engage in certain
transactions that stabilize the price of the common stock or the warrants.
These transactions consist of bids or purchases for the purpose of pegging,
fixing, or maintaining the price of the common stock or the warrants.
40
<PAGE>
If the underwriters create a short position in the common stock or the
warrants in connection with the offering, the underwriters may reduce that
short position by purchasing common stock or the warrants in the open market.
The underwriters may also elect to reduce any short position by exercising
all or part of the overallotment option. In general, purchases of a security
for the purpose of stabilization or to reduce a short position could cause
the price of the security to be higher than it might be in the absence of
such purchases.
Neither the underwriters nor we make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the units. Also, neither we nor any of the
underwriters make any representation that the underwriters will engage in
these transactions or that these transactions, once commenced, will not be
discontinued without notice.
We granted the underwriters, for a period of 45 days following the
effective date of the registration statement, an overallotment option to
purchase any or all of the Option Units at the initial public offering price
set forth on the cover page hereof, less underwriting discounts and
commissions. The underwriters may exercise this option to purchase solely for
the purpose of covering over-allotments, if any, incurred in the sale of the
units.
We determined the units' purchase price by mutual agreement with the
underwriters. The offering price has no direct relationship to any
established criteria of value, such as book value or earnings per share or
any combination thereof. The units' price does not necessarily indicate
current market value for our assets. We did not prepare a valuation or
appraisal for our business or our potential business. We agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act.
The underwriters may impose a penalty bid on certain underwriters and
selling group members. This means that if the underwriters purchase units in
the open market to reduce the underwriters' short position or to stabilize
the price of the units, they may reclaim the amount of the selling
concessions from the underwriters and the selling group members who sold
those units in the offering.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OR THE WARRANTS, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES.
DESCRIPTION OF SECURITIES
UNITS
Each unit we offer consists of one share of common stock, $.01 par value
per share, and one redeemable warrant to purchase one share of common stock
at an exercise price of $7.80. The common stock and the warrant comprising
each unit will be separately transferable upon issuance.
COMMON STOCK
We are authorized to issue up to 50,000,000 shares of common stock, par
value $.01 per share. As of the date of this prospectus, there were 2,200,000
shares of common stock issued and outstanding, held of record by ten
stockholders. You are entitled to one vote for each share held of record on
each matter submitted to a vote at a meeting of stockholders. Except as
provided by resolutions of our board of directors providing for the issuance
of any class or series of preferred stock, the exclusive voting power for all
purposes is vested in the holders of common stock.
Except as otherwise indicated in this prospectus, all information
contained in this prospectus:
- assumes no exercise of the underwriters' over-allotment option and
41
<PAGE>
- gives effect to a 20,324-for-one split of our common stock, par value
$.01 per share, and a one-for-0.8413 reverse stock split of the common
stock
These stock splits were undertaken in order to facilitate the offering.
Subject to the preferential rights of holders of preferred stock as
provided by resolutions of our board of directors authorizing the issuance of
any class of preferred stock, you are entitled to receive your pro rata
share, based upon the number of shares held by you, of such dividends or
other distributions as may be declared by the board of directors. In the
event of our liquidation, dissolution, or winding up, you are entitled to
share ratably in all assets remaining after the payment or provision of our
debts and other liabilities and the liquidation preference of any outstanding
preferred stock. You have no preemptive rights and have no rights to convert
your common stock into any other securities. The outstanding shares of common
stock are, and the shares of common stock offered hereby will be, when
issued, validly issued, fully paid, and nonassessable.
After completion of the offering, 3,300,000 shares of common stock will
be issued and outstanding assuming no exercise of the underwriters'
overallotment option, the warrants, the underwriters' warrants and other
outstanding rights to acquire the common stock.
WARRANTS
GENERAL. The following is a brief summary of certain provisions of the
warrants included in the units offered hereby. This summary does not purport
to be complete and is qualified in all respects by reference to the actual
terms and provisions of the agreement between us and North American Transfer
Co. that appoints North American as our warrant agent. A copy of the
agreement is filed as an exhibit to the registration statement of which this
prospectus is a part. See "Additional Information."
EXERCISE PRICE AND TERMS. Each warrant entitles you to purchase at any
time over a five-year period commencing on the effective date of the
registration statement of which this prospectus is a part, one share of
common stock at a price of $7.80, subject to adjustment in accordance with
the anti-dilution and other provisions referred to below. The exercise price
of the warrants bears no relation to any objective criteria of value, and
should in no event be regarded as an indication of any future market price of
the securities offered hereby. You have the right to exercise your warrants
for the purchase of shares of common stock only if a current prospectus
relating to such shares is then in effect and only if such shares are
qualified for sale, or deemed to be exempt from qualification, under
applicable state securities laws. We will use our best efforts to maintain a
current prospectus relating to such shares of common stock at all times when
the market price of the common stock exceeds the exercise price of the
warrants until the expiration date of the warrants, although there can be no
assurance that we will be able to do so.
In order to exercise the warrants, you must surrender the warrant
certificate evidencing the warrants, complete, execute and deliver to North
American the exercise form on the reverse side of the warrant certificate,
together with payment to us of the exercise price with respect to the
warrants then being exercised and an amount equal to any applicable transfer
tax and, if requested by us, any other taxes or governmental charges which we
may be required by law to collect. Payment of the exercise price and other
amounts may be made in cash, or by certified or official bank check to the
order of U.S. Laboratories Inc. No adjustment will be made for any cash
dividends, whether paid or declared, on any securities issuable upon exercise
of a warrant. If you exercise fewer than all of the warrants evidenced by the
warrant certificate, North American will deliver to the registered holder a
new warrant certificate evidencing the number of warrants not exercised.
ANTI-DILUTION ADJUSTMENTS. If we issue a stock dividend, engage in a
stock split or reverse stock split, or reclassify the common stock, the
number of shares of common stock purchasable upon exercise of the warrant
will be adjusted so that you will be entitled to receive the same number of
securities that you would have been entitled to receive if the warrant had
been exercised before the stock dividend, stock split or reverse stock split,
or reclassification. No adjustment will be made, however, unless the
adjustment would result in a 1% change in the number of shares of common
stock issuable under the warrant. If an adjustment is made, the exercise
price of the warrant will be adjusted so that the total price for exercising
the warrant will be the same after the adjustment as it was before the
adjustment.
42
<PAGE>
For example, if the anti-dilution adjustment increases the number of
shares issuable under the warrant from one share to two shares, the exercise
price will decrease from $7.80 per share to $3.90 per share. Whenever the
number of shares of common stock issuable under the warrants is adjusted as
described above, we will file with North American a certificate of certain of
our officers setting forth the adjusted number of shares purchasable and
adjusted per share purchase price, certifying compliance with the terms of
the agreement and setting forth a brief description of the adjustments. After
filing such certificate, we or North American will deliver a brief summary of
the adjustments to you.
REDEMPTION PROVISIONS. We have the option to redeem the outstanding
warrants in whole at any time or in part from time to time, on not more than
60 days' nor less than 30 days' written notice to you at a price equal to
$0.01 per warrant so long as the closing price for the common stock on Nasdaq
exceeds 200% of the public offering price of units under the offering for 20
consecutive trading days ending on the third trading day prior to the day on
which we give notice of redemption. You will have the right to exercise the
warrants under the terms described above until the redemption date. On the
redemption date, if you are the registered holder of unexercised warrants,
you are entitled to payment of the redemption price upon surrender of the
redeemed warrants to us at the stock transfer office of North American. If we
redeem fewer than all of the outstanding warrants, we will designate those
warrants to be redeemed pro rata or by lot.
After the redemption date, all your rights except the right to receive
the redemption price terminates, but only if
- on or prior to the redemption date we have irrevocably deposited with
North American a sufficient amount to pay the redemption price for all
warrants called for redemption, and
- the notice of redemption has stated the name and address of the
North American and our intention to deposit this amount with North
American on or before the redemption date.
NO PRIOR TRADING MARKET AND PENNY STOCK REGULATION
Prior to the offering, there has been no public market for our shares or
warrants. The offering price for the shares and warrants was determined
through negotiations between us and the underwriters and may not be
indicative of the market price of the shares and warrants after the offering.
The Nasdaq SmallCap Market(SM) is considering our applications to list our
common stock and warrants with them and we believe that we will be able to
satisfy and maintain their current and proposed entry and maintenance
standards when we complete this offering. If we are unable to satisfy the
requirements for continued listing on Nasdaq, our shares and warrants will
not be traded in those markets.
If our shares or warrants are not listed as contemplated, trading, if
any, would be conducted in the over-the-counter market in the so-called "pink
sheets" or the OTC Bulletin Board, established for securities that do not
meet the Nasdaq SmallCap Market(SM) listing requirements. Consequently, the
liquidity of our securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the
timing of transactions, reduction in security analysts' and the news media's
coverage of U.S. Labs, and lower prices and larger differences in bid and ask
prices for our securities.
If our securities are not listed on the Nasdaq SmallCap Market(SM), they
may become subject to Rule 15g-9 under the Securities Exchange Act, which
imposes additional sales practice requirements on broker-dealers which sell
such securities to persons other than established customers. For transactions
covered by this rule, a broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. Consequently, the rule may affect
the ability of broker-dealers to sell our shares and may affect the ability
of holders to sell our shares in the secondary market.
The SEC's regulations define a penny stock to be any equity security
that has a market price less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. The penny
stock restrictions will not apply to our shares or warrants if they are
listed on The Nasdaq SmallCap Market(SM) and we
43
<PAGE>
provide certain price and volume information on a current and continuing
basis or meet required minimum net tangible assets or average revenue
criteria. We cannot assure you that our shares or warrants will qualify for
exemption from these restrictions. If our shares or warrants were subject to
the penny stock rules, the market liquidity for them could be severely
adversely affected.
PREFERRED STOCK
Our corporate documents authorize the board of directors to provide by
resolution for the issuance from time to time of up to 5,000,000 shares of
preferred stock in one or more class or series, with such special rights and
preferences, including but not limited to dividend or liquidation
preferences, voting rights and redemption rights, anti-dilution rights or
conversion rights, as the Board may specify. U.S. Labs will not issue
preferred stock to its promoters except of the same terms as it is offered to
all other of its existing stockholders or new stockholders, or unless the
issuance of preferred stock is approved by a majority of U.S. Labs'
independent directors who did not have an interest in the transaction and who
have access, at U.S. Labs' expense, to U.S. Labs' or independent legal
counsel.
As of the date of this prospectus, the board of directors has not
authorized the issuance of any class or series of preferred stock and no
shares of preferred stock are issued or outstanding.
TRANSFER AGENT
The transfer agent and registrar for the common stock and warrants is
North American Transfer Co.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming no exercise of options, warrants, underwriters' overallotment
option, or other convertible securities or issuances of common stock
subsequent to December 31, 1998, after the offering, we will have 3,300,000
shares of common stock outstanding. The 1,100,000 shares of common stock sold
in the offering will be freely tradable without restriction or further
registration under the Act, except that any shares purchased by our
affiliates, as that term is defined in Rule 144 under the Securities Act, may
generally be sold only in compliance with certain limitations of Rule 144
described below.
The remaining 2,200,000 shares of common stock are deemed restricted
shares under Rule 144. None of the restricted shares are eligible for sale in
the public market immediately after the offering under Rule 144(k) under the
Securities Act. Restricted shares in the amount of 1,697,238 may be eligible
for sale in the public market in accordance with Rule 144 under the
Securities Act beginning 90 days after the date of this prospectus.
The holders of these restricted shares have agreed not to sell or
otherwise dispose of any of these shares for a period of 18 months after the
date of this prospectus without the prior written consent of Cardinal Capital
Management, Inc. Cardinal may, in its sole discretion, and at any time
without notice, release all or any portion of the securities subject to
lock-up agreements.
Additionally, our six largest stockholders have agreed to sign an
agreement with several of the states not to sell or otherwise dispose of a
substantial amount of their shares for a period of 12 months after the date
of this prospectus, and they have agreed not to sell more than 2.5% of their
shares in each quarter for the period from 12 months to 24 months after the
date of this prospectus.
Upon expiration of the various lock-up agreements, 2,200,000 shares of
common stock will become available for sale in the public market subject to
volume limitations and certain other conditions imposed by Rule 144. This total
does not include 388,632 shares issued or issuable upon the exercise of vested
options and warrants outstanding as of December 31, 1998.
Under Rule 144, beginning approximately 90 days after the effective date of
the Registration Statement of which this prospectus is a part, a stockholder,
including an affiliate, who has beneficially owned his or her restricted
44
<PAGE>
securities for at least one year from the later of the date such securities
were acquired from us or an affiliate, is entitled to sell, within any
three-month period the greater of:
- 1% of the then outstanding shares of common stock, approximately
33,000 immediately after the offering, or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale was
filed under Rule 144.
These sales may occur only if certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied.
In addition, under Rule 144(k), if a period of at least two years has
elapsed between the later of the date restricted securities were acquired
from us or the date they were acquired from one of our affiliates, a
stockholder who is not one of our affiliates at the time of sale and has not
been one of our affiliates for at least three months prior to the sale is
entitled to sell the shares immediately without compliance with the foregoing
requirements under Rule 144.
Securities issued in reliance on Rule 701 are also restricted securities
and, beginning 90 days after the date of this prospectus, may be sold by
stockholders other than one of our affiliates subject only to the manner of
sale provisions of Rule 144 and by one of our affiliates under Rule 144
without compliance with its one-year holding period requirement. Rule 701
applies to securities issued in compensation plans.
Prior to the offering, there has been no public market for the common
stock or the warrants. We cannot predict the effect, if any, that market
sales of shares or the availability of shares for sale will have on the
market price of the common stock or the warrants prevailing from time to
time. We cannot estimate the number of shares that may be sold in the public
market under Rule 144, since this will depend on the market price of the
common stock, the personal circumstances of the sellers, and other factors.
Nevertheless, sales of significant amounts of our common stock in the public
market could adversely affect the market price of the common stock or the
warrants and could impair our ability to raise capital through an offering of
equity securities.
EXPERTS
Our consolidated financial statements at December 31, 1996 and 1997 and
for each of the two years in the period ended December 31, 1997 appearing in
this prospectus and the Registration Statement have been audited by Singer
Lewak Greenbaum Goldstein LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement
and are included in reliance upon this report given upon the authority of
this firm as experts in accounting and auditing.
The financial statements of Wyman Testing Laboratories, Inc. at December
31, 1997 and for the year then ended appearing in this prospectus and the
Registration Statement have been audited by Singer Lewak Greenbaum Goldstein
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement and are included in
reliance upon this report given upon the authority of this firm as experts in
accounting and auditing.
LEGAL MATTERS
On our behalf, Foley & Lardner, San Diego, California and Chicago,
Illinois will pass upon the validity of the issuance of the securities being
offered by this prospectus. Camner, Lipsitz and Poller, P.A., Coral Gables,
Florida will pass upon certain legal matters for the underwriters.
45
<PAGE>
ADDITIONAL INFORMATION
We have filed a Registration Statement on Form SB-2 under the Securities
Act with the SEC in Washington, D.C. with respect to the securities offered
hereby. This prospectus, which is part of the registration statement, does
not contain all of the information set forth in the registration statement
and the exhibits and schedules thereto. For further information about us and
the securities offered hereby, you should refer to the registration statement
and the exhibits and schedules filed as a part thereof. Statements contained
in this prospectus as to the contents of any agreement or any other document
referred to are not necessarily complete, and in each instance, if such
agreement or document is filed as an exhibit, you should refer to the copy of
the agreement or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by reference to the
exhibit.
The registration statement, including exhibits and schedules thereto,
may be inspected and copied at the principal office of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices at 7 World Trade Center, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of material may also be obtained at prescribed rates from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, we are required to file electronic versions of these
documents with the SEC through the SEC Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. Prior to this offering, U.S. Labs was not a reporting company under the
Securities Exchange Act.
46
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
U.S. LABORATORIES INC. AND SUBSIDIARIES
<S> <C>
Report of Singer Lewak Greenbaum Goldstein LLP, Independent Auditors.......................................F-2
Consolidated Balance Sheets at December 31, 1997 and
at September 30, 1998 (unaudited)..........................................................................F-3
Consolidated Statements of Operations for the years ended December 31, 1997
and 1996 and the nine months ended September 30, 1998 and 1997 (unaudited).................................F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996 and the nine months ended September 30, 1998 (unaudited)........................F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997
and 1996 and the nine months ended September 30, 1998 and 1997 (unaudited).................................F-7
Notes to Consolidated Financial Statements................................................................F-10
WYMAN TESTING LABORATORIES, INC.
Report of Singer Lewak Greenbaum Goldstein LLP, Independent Auditors......................................F-24
Balance Sheet at December 31, 1997........................................................................F-25
Statement of Operations for the year ended December 31, 1997..............................................F-27
Statement of Stockholders' Equity for the year ended December 31, 1997....................................F-28
Statement of Cash Flows for the year ended December 31, 1997..............................................F-29
Notes to Financial Statements.............................................................................F-31
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Balance Sheet...................................................................................F-39
Pro Forma Statement of Operations.........................................................................F-41
Note to Pro Forma Financial Statements....................................................................F-42
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
U.S. Laboratories Inc.
We have audited the accompanying consolidated balance sheet of U.S. Laboratories
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of U.S. Laboratories
Inc. and subsidiaries as of December 31, 1997, and the consolidated results of
their operations and their consolidated cash flows for each of the two years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 4, 1998 (except for
Note 7, as to which the date
is October 21, 1998)
The accompanying notes are an integral part of these consolidated
financial statements.
F-2
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Current assets
Cash ............................................................. $ 94,132 $ 144,991
Accounts receivable, net of allowances for doubtful
accounts of $40,927 and $57,755, respectively...................... 1,719,120 2,936,439
Work-in-process........................................................ 181,772 263,615
Prepaid expenses and other current assets.............................. 47,414 65,323
--------------- ----------------
Total current assets.......................................... 2,042,438 3,410,368
Furniture and equipment, net of accumulated depreciation
of $564,217 and $718,873, respectively................................. 395,711 762,846
Excess cost over fair value of net assets acquired, net
of accumulated amortization of $331,725 and $422,109,
respectively .......................................................... 939,147 1,554,887
Deferred offering costs..................................................... - 317,825
Other assets .......................................................... 154,411 170,279
--------------- ----------------
Total assets.............................................. $ 3,531,707 $ 6,216,205
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998 (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Current liabilities
Book overdraft......................................................... $ 9,390 $ 16,741
Lines of credit........................................................ 484,335 583,660
Current portion of long-term debt...................................... 84,526 109,617
Current portion of capitalized lease obligations....................... - 10,285
Current portion of notes payable....................................... - 423,993
Accounts payable....................................................... 273,620 422,019
Accrued payroll and payroll taxes...................................... 115,214 221,430
Other accrued expenses................................................. 14,612 -
Due to stockholder..................................................... 584,281 97,499
Deferred income tax.................................................... 678,749 678,749
Income tax payable..................................................... 162,708 471,009
--------------- ---------------
Total current liabilities.......................................... 2,407,435 3,035,002
Long-term debt, net of current portion...................................... 118,732 241,981
Capitalized lease obligations, net of current portion....................... - 6,809
Notes payable, net of current portion....................................... - 1,245,000
--------------- ---------------
Total liabilities............................................. 2,526,167 4,528,792
--------------- ---------------
Minority interest .......................................................... 338,128 -
--------------- ---------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value
5,000,000 shares authorized
none issued and outstanding........................................ - -
Common stock, $0.01 par value
50,000,000 shares authorized
1,709,858 and 2,200,000 shares issued and outstanding.............. 17,099 22,000
Additional paid-in capital............................................. 380,901 970,252
Retained earnings...................................................... 269,412 695,161
--------------- ---------------
Total stockholders' equity.................................... 667,412 1,687,413
--------------- ---------------
Total liabilities and stockholders' equity................ $ 3,531,707 $ 6,216,205
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months Ended
December 31, September 30,
--------------------------------- ---------------------------------
1997 1996 1998 1997
--------------- ---------------- --------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue ................................... $ 7,766,414 $ 4,963,090 $ 8,478,329 $ 5,507,806
Cost of goods sold.......................... 4,476,952 2,635,263 4,432,509 3,158,483
--------------- ---------------- --------------- ----------------
Gross profit................................ 3,289,462 2,327,827 4,045,820 2,349,323
Selling, general, and administrative
expenses................................. 2,431,770 1,853,318 3,215,256 1,704,547
--------------- ---------------- --------------- ----------------
Income from operations...................... 857,692 474,509 830,564 644,776
--------------- ---------------- --------------- ----------------
Other income (expense)
Interest expense......................... (130,605) (84,390) (118,814) (90,520)
Interest income.......................... 7,277 8,430 9,252 4,371
Forgiveness of note receivable........... - (9,976) - 1,738
Other Income............................. 100,000 -- -- 100,000
Other Expense............................ (100,000) -- -- (100,000)
Gain (loss) on sale of fixed asset....... 4,912 (3,873) - -
Rental income............................ 25,160 4,598 13,048 20,918
Gain on sale of minority interest........ 25,229 - - 25,229
--------------- ---------------- --------------- ----------------
Total other income (expense)........... (68,027) (85,211) (96,514) (38,264)
---------------- ---------------- -------------- ----------------
Income before provision for income
taxes and minority interest.............. 789,665 389,298 734,050 606,512
Provision for income taxes.................. 345,256 202,921 308,301 264,545
--------------- ---------------- --------------- ----------------
Income before minority interest............. 444,409 186,377 425,749 341,967
Minority interest........................... (80,253) (33,664) - (62,851)
--------------- ---------------- --------------- ----------------
Net income.................................. $ 364,156 $ 152,713 $ 425,749 $ 279,116
=============== ================ =============== ================
Basic income per share...................... $ 0.17 $ 0.07 $ 0.19 $ 0.13
=============== ================ =============== ================
Diluted income per share.................... $ 0.17 $ 0.07 $ 0.19 $ 0.13
=============== ================ =============== ================
Weighted Average shares outstanding......... 2,200,000 2,200,000 2,200,000 2,200,000
=============== ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
[CAPTION]
<TABLE>
Retained
Additional Earnings
Common Stock Paid-In (Accumulated
Shares Amount Capital Deficit) Total
--------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1995................ 1,709,858 $ 17,099 $ 380,901 $ (247,457) $ 150,543
Net income................. 152,713 152,713
--------------- --------------- ---------------- --------------- ----------------
Balance, December
31, 1996................ 1,709,858 17,099 380,901 (94,744) 303,256
Net income................. 364,156 364,156
--------------- --------------- ---------------- --------------- ----------------
Balance, December
31, 1997................ 1,709,858 17,099 380,901 269,412 667,412
Issuance of common
stock in exchange
for shares held by
minority interest
holders (unaudited)..... 490,142 4,901 589,351 594,252
Net income (unaudited)..... 425,749 425,749
--------------- --------------- ---------------- --------------- ----------------
Balance, September 30,
1998 (unaudited) ....... 2,200,000 $ 22,000 $ 970,252 $ 695,161 $ 1,687,413
=============== =============== ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months Ended
December 31, September 30,
--------------------------------- ---------------------------------
1997 1996 1998 1997
--------------- ---------------- --------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income............................... $ 364,156 $ 152,713 $ 425,749 $ 279,116
Adjustments to reconcile net income
to net cash provided by operating
activities
Amortization......................... 84,724 84,724 90,384 63,543
Depreciation......................... 181,552 145,980 182,240 142,756
Loss (gain) on sale of fixed asset... (4,912) 3,873 - -
Recovery of expenses................. (100,000) - - (100,000)
Minority interest.................... 80,253 33,664 - 62,851
Distributions to minority interests.. (20,000) (251,327) - -
Gain on sale of subsidiary stock..... 9,771 - - 9,771
Deferred income tax.................. 275,918 109,551 - -
(Increase) decrease in
Accounts receivable.................... (750,149) (325,311) (639,638) (577,868)
Work in process........................ 24,826 (21,344) (81,843) 99,704
Prepaid expenses....................... 21,008 7,571 12,076 27,500
Other assets........................... (63,486) (34,300) (15,868) (8,893)
Increase (decrease) in
Accounts payable....................... 49,476 (2,965) 93,679 (10,523)
Accrued payroll and payroll taxes...... 46,362 41,447 33,606 31,168
Other accrued expenses................. (1,251) 15,863 (15,785) (1,498)
Income tax payable..................... 69,338 93,370 308,301 264,545
--------------- ---------------- --------------- ----------------
Net cash provided by operating
activities.................................. 267,586 53,509 392,901 282,172
--------------- ---------------- --------------- ----------------
Cash flows from investing activities
Purchase of furniture and equipment...... (83,798) (93,142) (189,838) (60,293)
Proceeds from sale of fixed assets....... 34,291 4,801 - -
Investment in the San Diego division
of CH&A Corporation.................... - (62,500) - -
Investment in Wyman Enterprises,
Inc., net of cash acquired............. - - (296,730) -
Investment in Professional Services
Industries, Inc........................ - - (13,900) -
Investment in Jupiter, Division of Fraser
Engineering & Testing, Inc............. - - (35,000) -
--------------- ---------------- --------------- ----------------
Net cash used in investing activities....... (49,507) (150,841) (535,468) (60,293)
--------------- ---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the Years Ended For the Nine Months Ended
December 31, September 30,
--------------------------------- ---------------------------------
1997 1996 1998 1997
--------------- ---------------- --------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities
Increase (decrease) in book
overdraft.............................. $ (69,095) $ 46,792 $ 7,351 $ (78,485)
Line of credit, net...................... 322,229 162,106 (98,176) 293,582
Due to stockholders, net................. (130,421) 161,443 (486,782) (11,014)
Payments on long-term debt............... (97,660) (64,919) (95,130) (74,329)
Payments on capitalized lease
obligations............................ - - (10,005) -
Payments on notes payable................ (149,000) (238,000) - (149,000)
Deferred offering costs.................. - - (317,825) -
Increase in notes payable................ - - 1,218,993 -
Due from Wyman Testing
Laboratories, Inc...................... - - (25,000) -
--------------- ---------------- --------------- ----------------
Net cash provided by (used in)
financing activities ...................... (123,947) 67,422 193,426 (19,246)
--------------- ---------------- --------------- -----------------
Net increase (decrease) in cash............. 94,132 (29,910) (50,859) 202,633
Cash, beginning of period................... - 29,910 94,132 -
--------------- ---------------- --------------- ----------------
Cash, end of period......................... $ 94,132 $ - $ 144,991 $ 202,633
=============== ================ =============== ================
Supplemental disclosures of cash flow
information
Interest paid............................ $ 130,605 $ 84,390 $ 118,814 $ 90,520
=============== ================ =============== ================
Income taxes paid........................ $ 2,000 $ 1,380 $ 135 $ 1,000
=============== ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Supplemental schedule of non-cash investing and financing activities
During the years ended December 31, 1997 and 1996 and the nine months ended
September 30, 1998 and 1997, the Company acquired an automobile and trucks of
$124,469, $105,679, $213,685, and $124,449, respectively, under note payable
agreements.
During the year ended December 31, 1997 and the nine months ended September
30, 1997, the Company recovered expenses in the amount of $100,000 and
reduced the note payable to the sellers (Note 14).
On January 1, 1998, the Company issued 490,142 shares of the Company's Common
Stock to minority interest holders in exchange for all of their shares in the
subsidiaries. In connection with the purchase, the Company recorded additional
goodwill of $194,924.
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 1 - ORGANIZATION AND BUSINESS
U.S. Laboratories Inc. and subsidiaries (collectively the "Company") offers
engineering and design services, project management, construction quality
control, structural engineering and design, environmental engineering and
inspection and testing. The Company has facilities in California, New
Jersey, and Florida and grants credit to customers in those states.
Acquisitions
On October 18, 1996, the Company acquired substantially all the furniture
and equipment of the San Diego division of CH&A Corporation. The purchase
price of the assets was $67,500 which was paid on the closing date.
On January 1, 1998, the Company purchased all of the shares held by
minority stockholders in its subsidiaries for $533,052. The Company issued
an aggregate of 439,664 shares of Common Stock in exchange for the purchase
price. The shares were valued using a method similar to previous Company
acquisitions. The Company recorded $194,924 in excess of cost over fair
value of net assets acquired which is being amortized on a straight-line
basis over fifteen years.
On March 25, 1998, Wyman Testing Laboratories, Inc. ("Wyman"), a
majority-owned subsidiary of U.S. Laboratories Inc., acquired certain
assets and liabilities of Wyman Enterprises, Inc. The purchase price for
the assets was $830,620. The purchase price was paid as follows: (i)
$300,000 cash paid upon the closing, (ii) $468,993 notes payable issued to
the stockholders of Wyman Enterprises, Inc., and (iii) 50,478 shares of US
Labs Common Stock issued to a stockholder of Wyman Enterprises, Inc. valued
at $61,200, using a method similar to previous company acquisitions. Wyman
recorded $511,200 in excess of cost over fair value of net assets acquired
which is being amortized on a straight-line basis over fifteen years. For
financial statement purposes, the acquisition occurred on March 31, 1998.
The assets acquired were as follows:
<TABLE>
<S> <C>
Cash $ 22,690
Accounts receivable 577,681
Prepaids 29,985
Furniture and equipment 96,952
Goodwill 511,200
Liabilities (407,888)
----------------
TOTAL $ 830,620
================
</TABLE>
In May 1998, Wyman merged into San Diego Testing Engineers, Inc., a
majority-owned subsidiary of the Company, which is the surviving
corporation. Each share of Wyman was converted into one-half share of the
surviving corporation.
In May 1998, the Company acquired certain equipment of Professional
Services Industries, Inc. ("PSI") for a purchase price of $13,900 which has
been paid.
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 1 - ORGANIZATION AND BUSINESS (CONTINUED)
In May 1998, the Company acquired certain equipment of Jupiter, Division of
Fraser Engineering & Testing, Inc. ("Jupiter") for a purchase price of
$35,000 which has been paid.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of U.S.
Laboratories Inc. and its subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents/Book Overdraft
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents. Book overdraft represents the
bank balance at period end, plus deposits in transit, less outstanding
checks.
Furniture and Equipment
Furniture and equipment, including equipment under capital leases, are
recorded at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives as follows:
<TABLE>
<S> <C>
Automobile and trucks 3 to 5 years
Furniture and fixtures 5 to 7 years
Office hardware and software 5 years
Machinery and equipment 5 to 7 years
Leasehold improvements 5 years
</TABLE>
Maintenance, repairs, and minor renewals are expensed as incurred.
Expenditures for additions and major improvements are capitalized. Gains
and losses on disposals are included in the statements of operations.
Intangibles
Intangibles consist of goodwill which is being amortized over a
fifteen-year period. The Company continually evaluates whether events or
circumstances have occurred that indicate the remaining estimated value of
goodwill may not be recoverable. When factors indicate that the value of
goodwill may be impaired, the Company estimates the remaining value and
reduces the goodwill to that amount.
Deferred Offering Costs
Amounts paid for costs associated with an anticipated initial public
offering ("IPO") are capitalized and will be recorded as a reduction to
additional paid-in capital upon the completion of the IPO. In the event
that the IPO is not successful, the deferred offering costs will be charged
to expense.
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue from services performed, including fixed-price and unit-price
contracts, is recorded as earned over the lives of the contract. Revenue
from services is recognized when services have been performed and
accepted. At the time a loss or a contract becomes known, the entire
amount of the estimated ultimate loss is recognized in the financial
statements. The Company has not experienced any material losses on these
contracts.
Advertising
The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1997 and 1996 and the nine months ended
September 30, 1998 and 1997 were $15,699, $29,047, $36,140, and $12,305,
respectively.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for
the tax consequences in future years of differences between the tax bases
of assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Interim Unaudited Financial Information
The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management, are necessary to fairly state the Company's
financial position, the results of operations, and cash flows for the
periods presented. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results for the entire
fiscal year ending December 31, 1998.
Stock Split
Effective May 30, 1998, the Company effected a 20,324-for-one stock split
and on November 9, 1998, effected a one-for-0.8413 reverse stock split. The
options and warrants to acquire Common Stock were unaffected by the reverse
stock split. All share and per share data have been retroactively restated
to reflect the stock split.
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
For certain of the Company's financial instruments including cash, accounts
receivable, accounts payable, and other accrued expenses, the carrying
amounts approximate fair value due to their short maturities. The amounts
shown for long-term debt and capital lease obligations also approximate
fair value because current interest rates and terms offered to the Company
for similar long-term debt and capital lease obligations are substantially
the same.
Concentrations of Risk
The Company sells products and provides contract services to construction
companies and the military, primarily in California, New Jersey, and
Florida. It also extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral. Exposure to
losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
Net Income Per Share
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing net
income to common stockholders by the weighted-average number of common
shares outstanding.
Diluted earnings per share is computed similar to basic earnings per share
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were
dilutive.
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements SFAS No. 130, "Reporting
Comprehensive Income," is effective for financial statements with fiscal
years beginning after December 15, 1997. SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements with fiscal years
beginning after December 15, 1997. This statement establishes standards for
the way that public entities report selected information about operating
segments, products, and services, geographic areas, and major customers in
interim and annual financial reports. The Company does not expect adoption
of SFAS No. 131 to have a material effect, if any, on its financial
position or results of operations.
NOTE 3 - CASH
The Company maintains cash deposits at banks located in California,
Florida, and New Jersey. Deposits at each bank are insured by the Federal
Deposit Insurance Corporation up to $100,000. As of December 31, 1997 and
September 30, 1998, uninsured portions of balances held at banks aggregated
to $27,026 and $0, respectively. The Company has not experienced any losses
in such accounts and believes it is not exposed to any significant credit
risk on cash.
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------- ----------------
<S> <C> <C>
Automobile and trucks...................................... $ 465,614 $ 609,022
Furniture and fixtures..................................... 237,798 283,189
Office hardware and software............................... 35,666 80,645
Machinery and equipment.................................... 202,313 408,977
Leasehold improvements..................................... 18,537 99,886
--------------- ----------------
959,928 1,481,719
Less accumulated depreciation and amortization............. 564,217 718,873
--------------- ----------------
TOTAL.................................................. $ 395,711 $ 762,846
=============== ================
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1997
and 1996 and the nine months ended September 30, 1998 and 1997 was
$181,552, $145,980, $182,240, and $142,756, respectively.
NOTE 5 - LINES OF CREDIT
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
The Company has a $800,000 line of credit from
a bank with interest payable on a monthly basis at the
30-day Commercial Paper Rate (5.75% at December 31,
1997) plus 3.15%. The line of credit is secured by
substantially all of the Company's assets and
personally guaranteed by the majority stockholder.
Subsequent to year end, amounts were repaid .......... $ 484,335 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
<TABLE>
<CAPTION>
NOTE 5 - LINES OF CREDIT (CONTINUED)
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
In May 1998, the Company entered into a $1,700,000 line of
credit with a bank, maturing on May 1, 1999. Interest is
payable on a monthly basis at prime (8.5% at December 31,
1997). The maximum advance rate is 75% of accounts
receivable aged 90 days or less. The line is guaranteed by
a UCC-1 financing statement, covering a majority of the
Company's assets, dated May 27, 1998, and personally
guaranteed by the majority stockholder. Subsequent to
year-end, the Company refinanced the line of credit into a
$1,200,000 note payable (see Note 7) and remaining
$500,000 as a line of credit with the above
terms................................................ $ - $ 318,660
In July 1998, the Company entered into a $500,000 line of
credit with a bank, payable upon demand, but no later than
July 1, 2000. Interest is payable on a monthly basis at
the bank's reference rate. A portion of the line is
guaranteed by the majority stockholder and the majority of
the Company's
assets............................................... - 265,000
------------ -------------
TOTAL............................................. $ 484,335 $ 583,660
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 6 - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Notes payable to Toyota Motor Credit Corporation,
collateralized by applicable equipment. The notes are
currently due in aggregate monthly payments of $355
including interest at 9.19%
per annum.............................................. $ 5,788 $ 3,215
Notes payable to General Motors Credit Corporation,
collateralized by applicable equipment. The notes are
currently due in aggregate monthly payments of $2,167
including interest from 7.95% to 9.7% per
annum.................................................. 78,869 99,954
Notes payable to Barnett Bank, collateralized by applicable
equipment. The notes are currently due in aggregate
monthly payments of $4,644 including interest from 9.29%
to 14.5% per
annum.................................................. 68,099 85,380
Notes payable to Ford Motor Credit Corporation, collateralized
by applicable equipment. The notes are currently due in
aggregate monthly payments of $1,969 including interest
from
7.99% to 10.25% per annum.............................. 50,502 163,049
------------ -------------
203,258 351,598
Less current portion....................................... 84,526 109,617
------------ -------------
Long-term portion................................. $ 118,732 $ 241,981
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 6 - LONG-TERM DEBT (CONTINUED)
The following is a schedule by years of future maturities of long-term
debt:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<C> <C>
1998 $ 84,526
1999 66,577
2000 28,880
2001 20,250
2002 3,025
----------------
TOTAL $ 203,258
================
</TABLE>
Subsequent to year end, the Company entered into five note payable
agreements and assumed two note payable agreements upon the acquisition of Wyman
Enterprises, Inc. The notes are currently due in aggregate monthly payments of
$4,173 including interest from 8.75% to 13.5% per annum.
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following at September 30, 1998. (All
balances were zero at December 31, 1997.):
<TABLE>
<S> <C>
Note payable to stockholder of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be paid in
four annual installments of $37,500 beginning March 25, 1999............... $ 150,000
Note payable to stockholder of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is to be paid
in four annual installments of $37,500 beginning March 25,
1999 with one lump sum payment of $150,000 due at the
earlier of October 1, 1999 or the 30 days following the IPO................ 300,000
Note payable to stockholders of Wyman Enterprises, Inc. in
connection with the acquisition. The amount is payable upon
demand and non-interest bearing............................................ 18,993
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 7 - NOTES PAYABLE (CONTINUED)
<TABLE>
<S> <C>
Note payable to bank starting January 1999. The note is interest only
through December 31, 1998 at the prime rate (8.5% at December 31, 1997).
The amount is to be paid in monthly installments of $20,000 plus interest
at the prime. The note is secured by substantially all of the Company's
assets and personally guaranteed by the majority stockholder................... $ 1,200,000
----------------
1,668,993
Less current portion........................................................... 423,993
----------------
Long-term portion..................................................... $ 1,245,000
================
</TABLE>
NOTE 8 - RELATED PARTY TRANSACTIONS
Due to Stockholder
At December 31, 1997 and September 30, 1998, the Company had amounts due
to the majority stockholder of $584,281 and $97,499, respectively. The
amounts are non-interest bearing and are payable upon demand.
Stockholder Management Fees
During the year ended December 31, 1997 and 1996 and the nine months ended
September 30, 1998 and 1997, the Company expensed $181,067, $169,594,
$92,052, and $137,063, respectively, in management fees to a stockholder.
The management fees are based upon 5% of net sales of a subsidiary.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company has entered into non-cancelable operating leases for its
corporate offices and facilities in California, New Jersey, and Florida.
The Company has the option to extend certain leases.
Future minimum rental commitments under lease agreements with initial or
remaining terms of one year or more at December 31, 1997 are as follows:
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (continued)
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998 $ 195,622
1999 76,504
2000 38,946
2001 214,608
----------------
525,680
Less sublease 19,390
----------------
Total $ 506,290
================
</TABLE>
Rent expense was approximately $316,685, $153,250, $230,156, and $251,391
for the years ended December 31, 1997 and 1996 and the nine months ended
September 30, 1998 and 1997, respectively.
Capitalized Lease Obligations
Upon the acquisition of Wyman Enterprises, Inc., the Company assumed three
capitalized lease obligations. The agreements are payable in aggregate
monthly payments of principal and interest of $1,477, expiring through May
2002. The agreements are collateralized by applicable equipment.
Litigation
The Company is involved in certain legal proceedings and claims which arise
in the normal course of business. Management does not believe that the
outcome of these matters will have a material adverse effect on the
Company's consolidated financial position or results of operations.
Lease Commitments
In May 1998, the Company entered into a non-cancelable operating lease
agreement for its facilities in California that expires in April 2003. The
agreement initially requires monthly payments of $8,230 with annual
increases.
In May 1998, upon the acquisition of PSI, the Company assumed PSI's lease
obligation in New Jersey. PSI will pay the monthly lease through November
30, 1998, and the Company will be responsible for the monthly lease
payments of $1,700 from December 1, 1998 to May 30, 2001.
In May 1998, upon the acquisition of Jupiter, the Company assumed Jupiter's
lease obligation in Florida. The Company is responsible for the monthly
lease payments of $1,198 through June 2000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreements
In May 1998, the Company entered into three-year employment agreements
with certain key employees of the Company. The agreements require
aggregate monthly payments of approximately $59,000.
Incentive Programs
In July 1998, the Company entered into incentive program agreements with
certain members of Company management. The agreements call for bonuses of
3% and 7% of pre-tax profits based upon the Company's performance.
Additionally, up to 5% of individual subsidiary pre-tax profits may be
distributed to employees based on performance of those subsidiaries.
NOTE 10 - PROFIT SHARING PLAN
The Company has a voluntary profit sharing plan which covers substantially
all eligible full-time employees who meet the plan requirements. Annual
employer contributions are based on a years of service vesting schedule.
Employer contributions for the years ended December 31, 1997 and 1996 were
$26,900 and $11,700, respectively.
NOTE 11 - INCOME TAXES
A reconciliation of the expected income tax computed using the federal
statutory income tax rate to the Company's effective income tax rate for
the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
<S> <C> <C>
Income tax computed at federal statutory tax rate.............. 34.0% 34.0%
State taxes, net of federal benefit............................ 6.5 9.9
Non-deductible goodwill amortization and other................. 3.2 8.0
--------------- --------------
Total................................................... 43.7% 51.9%
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 11 - INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
for income taxes for the year ended December 31, 1997 consisted of the
following:
<TABLE>
<S> <C>
Deferred tax assets
Accrued payroll and other expenses.................... $ 90,275
Other................................................. 1,400
----------------
91,675
----------------
Deferred tax liabilities
Accounts receivable................................... 667,648
Work-in-progress...................................... 72,708
Other................................................. 30,068
----------------
770,424
----------------
Net deferred tax liability....................... $ (678,749)
================
</TABLE>
The components of the income tax provision for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
<S> <C> <C>
Current
Federal............................................... $ 24,938 $ 79,365
State................................................. 4,200 14,005
--------------- ----------------
29,138 93,370
--------------- ----------------
Deferred
Federal............................................... 214,302 93,118
State................................................. 61,616 16,433
--------------- ----------------
275,918 109,551
--------------- ----------------
Total attributable to income before
extraordinary item............................. $ 305,056 $ 202,921
--------------- ----------------
Current
Federal............................................... 34,000
State................................................. 6,200
--------------- --------------
Total attributable to extraordinary item........ 40,200
--------------- --------------
Total.................. $ 345,256 $ 202,921
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(The information with respect to the nine months ended September 30, 1998
and 1997 is unaudited.)
NOTE 12 - STOCK OPTION PLAN
In July 1998, the Board of Directors adopted and approved the 1998 Stock
Option Plan (the "Option Plan") under which a total of 500,000 shares of
Common Stock have been reserved for issuance. Options under this plan may
be granted to employees, officers, and directors and consultants of the
Company. The exercise price of the options is determined by the Board of
Directors, but the exercise price may not be less than 100% of the fair
market value on the date of grant. Options vest over periods not to exceed
5 years. In July 1998, the Company had 395,000 stock options outstanding
at an exercise price ranging from $5.00 to $5.50 per share, of which
238,632 stock options were exercisable. The Board of Directors also
approved the grant of an additional 62,500 options to various employees
under the plan.
NOTE 13 - WARRANTS
In July 1998, the Board of Directors approved the grant of 150,000 stock
warrants to certain employees of the Company. The warrants entitle the
holder to purchase Company Common Stock at a price of $5.00 per share. The
warrants are exercisable the earlier of (i) the date on which the closing
price of a share of the Company's Common Stock as reported on the NASDAQ
Small-Cap Market is greater than $12.00 or (ii) the date on which the
audited consolidated earnings for the fiscal year ending December 31, 1998,
or any fiscal year thereafter, are at least twice the base period earnings
of $841,041. The warrants expire upon termination or November 1, 2003.
NOTE 14 - OTHER INCOME (EXPENSES)
On January 31, 1994, U.S. Laboratories, Inc. purchased 80% of Professional
Engineering & Inspection Company, Inc. ("PEICO") for a purchase price of
$1,500,000. The purchase price was paid as follows: $750,000 cash paid upon
the closing, and the remaining $750,000 payable $250,000 per year starting
January 31, 1995. In 1997, certain liabilities arose after the sale of
PEICO, which were recoverable from the sellers by the Company. The
Company negotiated with the sellers a reduction of $100,000 in the final
payment due to the sellers.
NOTE 15 - SUBSEQUENT EVENTS (UNAUDITED)
Stock Option Plan and Warrants
In November 1998, the Company cancelled all of its outstanding options
and warrants.
In November 1998, the Board of Directors approved the grant of 395,000
stock options at an exercise price ranging from $6.00 to $6.60 per share,
of which 238,632 stock options are exercisable. The Board of Directors
also approved the grant of an additional 62,500 options to various
employees under the plan.
In November 1998, the Board of Directors approved the grant of 150,000
stock warrants to certain employees of the Company. The warrants entitle
the holder to purchase Company Common Stock at a price of $6.00 per share.
The warrants are exercisable the earlier of (i) the date on which the
closing price of a share of the Company's Common Stock as reported on the
NASDAQ Small-Cap Market is greater than $12.00 or (ii) the date on which
the audited consolidated earnings for the fiscal year ending December 31,
1998, or any fiscal year thereafter, are at least twice the base period
earnings of $841,041. The warrants expire upon termination or November 9,
2003.
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Wyman Testing Laboratories, Inc.
We have audited the accompanying balance sheet of Wyman Testing Laboratories,
Inc. as of December 31, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wyman Testing Laboratories,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
April 29, 1998
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
WYMAN TESTING LABORATORIES, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets
Cash..................................................................................... $ -
Accounts receivable....................................................................... 716,173
Prepaid assets............................................................................ 46,818
----------------
Total current assets.................................................................. 762,991
Furniture and equipment, net of accumulated depreciation
and amortization of $244,913.............................................................. 68,508
----------------
Total assets................................................................. $ 831,499
================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE>
WYMAN TESTING LABORATORIES, INC.
BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities
Book overdraft............................................................................ $ 37,778
Revolving lines of credit................................................................. 197,501
Accounts payable.......................................................................... 38,488
Accrued payroll and payroll taxes......................................................... 40,114
Accrued stockholder's salaries............................................................ 48,375
Other accrued expenses.................................................................... 21,786
Due to stockholder........................................................................ 70,000
Deferred taxes............................................................................ 86,078
Current portion of long-term debt......................................................... 5,552
Current portion of capitalized lease obligations.......................................... 4,243
----------------
Total current liabilities............................................................. 549,915
Long-term debt, less current portion........................................................... 24,740
Capitalized lease obligations, less current portion............................................ 1,572
----------------
Total liabilities................................................................ 576,227
----------------
Commitments
Stockholders' equity
Common stock, no par value
3,000 shares authorized
100 shares issued and outstanding..................................................... 108,000
Stock subscription receivable............................................................. (1,000)
Retained earnings......................................................................... 148,272
----------------
Total stockholders' equity............................................................ 255,272
----------------
Total liabilities and stockholders' equity................................... $ 831,499
================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net sales...................................................................................... $ 3,201,989
Cost of sales.................................................................................. 1,681,823
----------------
Gross profit................................................................................... 1,520,166
Selling, general, and administrative expenses.................................................. 1,232,316
----------------
Income from operations......................................................................... 287,850
----------------
Other income (expense)
Interest expense............................................................................ (29,421)
Gain on sale of fixed asset................................................................. 12,000
----------------
Total other income (expense).............................................................. (17,421)
----------------
Income before provision for income taxes....................................................... 270,429
Provision for income taxes..................................................................... 36,646
----------------
Net income..................................................................................... $ 233,783
================
Basic income per share......................................................................... $ 2,337.83
================
Diluted income per share....................................................................... $ 2,337.83
================
Weighted-average shares outstanding............................................................ 100
================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Retained
Common Stock Stock Earnings
--------------------------------- Subscription (Accumulated
Shares Amount Receivable Deficit) Total
--------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December
31, 1996................ 100 $ 8,000 $ (1,000) $ (85,511) $ (78,511)
Capital contribution....... 100,000 100,000
Net income................. 233,783 233,783
--------------- --------------- ---------------- --------------- ----------------
Balance, December
31, 1997................ 100 $ 108,000 $ (1,000) $ 148,272 $ 255,272
=============== =============== ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
`<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash flows from operating activities
Net income.................................................................................. $ 233,783
Adjustments to reconcile net income to net cash
used in operating activities..............................................................
Depreciation and amortization........................................................... 18,526
Gain on sale of fixed asset............................................................. (12,000)
Deferred taxes.......................................................................... 35,846
(Increase) decrease in
Accounts receivable....................................................................... (353,933)
Prepaid expenses.......................................................................... (8,741)
Increase (decrease) in
Accounts payable.......................................................................... (62,812)
Accrued payroll and payroll taxes......................................................... (26,796)
Accrued stockholder's salaries............................................................ (4,500)
Accrued management fee.................................................................... (64,286)
Other accrued expenses.................................................................... 5,821
----------------
Net cash used in operating activities.......................................................... (239,092)
----------------
Cash flows from investing activities
Purchase of property and equipment.......................................................... (12,069)
----------------
Net cash used in investing activities.......................................................... (12,069)
----------------
Cash flows from financing activities
Book overdraft.............................................................................. 37,778
Revolving lines of credit, net.............................................................. 130,000
Payments on long-term debt.................................................................. (37,312)
Payments on capitalized lease obligations................................................... (8,668)
Increase in capital contributions........................................................... 100,000
Due to stockholder, net..................................................................... 25,000
----------------
Net cash provided by financing activities...................................................... 246,798
----------------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-29
<PAGE>
WYMAN TESTING LABORATORIES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net increase (decrease) in cash............................. $ (4,363)
Cash, beginning of period................................... 4,363
----------------
Cash, end of period......................................... $ -
----------------
----------------
Supplemental disclosures of cash flow information
Interest paid ........................................... $ 29,421
----------------
----------------
Income taxes paid ....................................... $ 800
----------------
----------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1997, the Company acquired an automobile
of $38,000 under note payable agreements.
The accompanying notes are an integral part of
these consolidated financial statements.
F-30
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND BUSINESS
Wyman Testing Laboratories, Inc. (the "Company"), a Delaware corporation,
was incorporated in March 1998. The Company is engaged in testing for the
commercial construction industry.
Acquisition
On March 25, 1998, Wyman Testing Laboratories, Inc., a majority-owned
subsidiary of U.S. Laboratories Inc., acquired certain assets and
liabilities of Wyman Enterprises, Inc. The purchase price for the assets
was $830,620. Wyman Testing Laboratories, Inc. recorded $511,200 in excess
of cost over fair value of net assets acquired which is being amortized on
a straight-line basis over fifteen years. The assets acquired were as
follows:
<TABLE>
<S> <C>
Cash $ 22,690
Accounts receivable 577,681
Prepaids 29,985
Furniture and equipment 96,952
Excess of cost over fair value of net assets acquired 511,200
Liabilities (407,888)
-------------
Total $ 830,620
-------------
-------------
</TABLE>
In May 1998, Wyman merged into San Diego Testing Engineers, Inc., a
majority-owned subsidiary of the Company, which is the surviving
corporation. Each share of Wyman was converted into one-half share of the
surviving corporation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents/Book Overdraft
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents. Book overdraft represents the
bank balance at period end, plus deposits in transit, less outstanding
checks.
Furniture and Equipment
Furniture and equipment, including equipment under capital leases, are
recorded at cost, less accumulated depreciation and amortization.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives as follows:
<TABLE>
<S> <C>
Automobile and trucks 3 to 5 years
Furniture and fixtures 7 years
Office hardware and software 5 years
Machinery and equipment 5 to 7 years
</TABLE>
Maintenance, repairs, and minor renewals are expensed as incurred.
Expenditures for additions and major improvements are capitalized. Gains
and losses on disposals are included in the statement of operations.
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue from services performed is recorded as earned over the lives of the
contract. Revenue from services is recognized when services have been
performed and accepted.
Advertising/Marketing
The Company expenses advertising costs as incurred. Advertising costs for
the year ended December 31, 1997 were $14,421.
Income Taxes
The Company utilizes Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for
the tax consequences in future years of differences between the tax bases
of assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the Company's
financial instruments including cash, accounts receivable, accounts
payable, and accrued expenses, the carrying amounts approximate fair value
due to their short maturities. The amounts shown for long-term debt and
capital lease obligations also approximate fair value because current
interest rates and terms offered to the Company for similar debt and lease
agreements are substantially the same.
Concentrations of Risk
The Company sells products and provides contract services to construction
companies and the military, primarily in the San Diego area. It also
extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses on
receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses.
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income Per Share
For the year ended December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share." Basic earnings per share is computed by dividing net
income by the weighted-average number of common shares outstanding. Diluted
earnings per share is computed similar to basic earnings per share except
that the denominator is increased to include the number of additional
common shares that would have been outstanding if potential common shares
such as options had been issued and if the additional common shares were
dilutive. Since the Company has no stock options and warrants outstanding,
there are no dilutive common shares. Therefore, basic earnings per share
and diluted earnings per share are the same.
Recently Issued Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS No.
130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
The Company does not expect adoption of SFAS No. 130 to have a material
effect, if any, on its financial position or results of operations.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," is effective for financial statements with fiscal years
beginning after December 15, 1997. This statement establishes standards for
the way that public entities report selected information about operating
segments, products, and services, geographic areas, and major customers in
interim and annual financial reports. The Company does not expect adoption
of SFAS No. 131 to have a material effect, if any, on its financial
position or results of operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Automobile and trucks........................................................ $ 108,894
Furniture and fixtures....................................................... 22,597
Office hardware and software................................................. 16,891
Machinery and equipment...................................................... 151,148
Leased equipment............................................................. 13,891
----------------
313,421
Less accumulated depreciation and amortization............................... 244,913
----------------
Total.................................................................... $ 68,508
----------------
----------------
</TABLE>
Total depreciation and amortization expense for the year ended December
31, 1997 was $18,526.
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 4 - RELATED PARTY TRANSACTIONS
Due to Stockholder
At December 31, 1997, the Company had amounts due to a stockholder of
$70,000 for operating advances which are non-interest bearing and payable
upon demand. Amounts were repaid subsequent to December 31, 1997.
Accrued Stockholder Salaries
At December 31, 1997, the Company owed a stockholder $48,375 in salaries.
Amounts were repaid subsequent to December 31, 1997.
Stockholder Salaries and Management Fee
During the year ended December 31, 1997, the Company expensed $186,215 in
salaries and management consulting fees to two stockholders.
Capital Contribution
During the year ended December 31, 1997, one stockholder made an additional
capital contribution of $100,000.
NOTE 5 - REVOLVING LINES OF CREDIT
The Company has available two unsecured $100,000 revolving lines of credit
from a bank with interest payable on a monthly basis at the bank's index
rate (9.75% at December 31, 1997) plus 2.25%. The lines are guaranteed by a
first trust deed on vacant land owned by the majority stockholder and a
commercial security agreement dated September 3, 1996 which includes a
UCC-1 financing statement. The lines of credit matured on April 1, 1998. At
December 31, 1997, the amount drawn against the lines of credit were
$197,501. Subsequent to December 31, 1997, the amount was repaid.
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 6 - LONG-TERM DEBT
Notes payable at December 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Note payable - bank, collateralized by an
automobile, payable in monthly installments of
$93 including interest at 11.9% per annum.................................. $ 1,340
Note payable - financial institution, collateralized by an
automobile, payable in monthly installments of $434 including
interest at
13.5% per annum............................................................ 19,251
Note payable - financial institution, collateralized
by an automobile, payable in monthly installments
of $278 including interest at 11.99% per annum............................. 9,701
-----------
30,292
Less current portion.......................................................... 5,552
-----------
Long-term portion....................................................... $ 24,740
-----------
-----------
</TABLE>
The following is a schedule by years of future maturities of long-term
debt:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1998 $ 5,552
1999 4,734
2000 5,105
2001 5,900
2002 3,895
Thereafter 5,106
-----------
Total $ 30,292
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 7 - COMMITMENTS
Lease Commitments
The Company leases certain office equipment under non-cancelable capital
lease arrangements.
Future minimum payments under its non-cancelable capital leases with
initial or remaining terms of one year or more at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1998 $ 5,088
1999 1,672
2000 -
-------------
6,760
Less amount representing interest 945
5,815
Less current portion 4,243
-------------
Long-term portion $ 1,572
-------------
-------------
</TABLE>
Rent expense for the year ended December 31, 1997 was $49,368.
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 8 - INCOME TAXES
A reconciliation of the expected income tax computed using the federal
statutory income tax rate to the Company's effective income tax rate for
the year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Income tax computed at federal statutory tax rate....................... 34.0%
State taxes, net of federal benefit..................................... 5.8
Valuation allowance..................................................... (26.8)
-----------------
Total............................................................... 13.0%
=================
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
for income taxes for the year ended December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets
Net operating loss carryforward..................................... $ 144,827
Accounts payable and accrued expenses............................... 54,893
Other............................................................... 16,455
---------------
Total deferred tax assets................................... 216,175
---------------
Deferred tax liability
Accounts receivable................................................. 286,469
Prepaid expenses and other.......................................... 14,984
---------------
Total deferred tax liability................................ 301,453
---------------
Net deferred tax liability.............................. $ 85,278
===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
WYMAN TESTING LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
NOTE 8 - INCOME TAXES (CONTINUED)
The components of the income tax provision are as follows:
<TABLE>
<S> <C>
Current
Federal............................................................. $ -
State............................................................... 800
-------------
800
-------------
Deferred
Federal............................................................. 18,262
State............................................................... 17,584
-------------
35,846
-------------
Total....................................................... $ 36,646
=============
</TABLE>
The Company has net operating losses available to carry forward to future
periods for reduction of taxable income of approximately $393,000 for
federal income tax purposes and $127,000 for state income tax purposes.
These carryforwards begin to expire in 2020 and 2001 for federal and state
income taxes, respectively. Upon the acquisition, the Company will lose the
net operating loss carryforwards of Wyman Enterprises, Inc.
The valuation allowance has been decreased by approximately $72,000 during
the year ended December 31, 1997.
NOTE 9 - EMPLOYEE PROFIT SHARING PLAN
The Company established a 401(k) profit sharing plan covering substantially
all employees who meet the eligibility requirements of the plan. The
Company may match up to 10% of the employee contributions up to a total of
15% of the contributions which vest over six years. During the year ended
December 31, 1997, the Company made matching contributions of $1,958.
NOTE 10 - SUBSEQUENT EVENTS (UNAUDITED)
Capitalized Lease Obligation
The Company entered into a non-cancelable capital lease agreement. The
agreement is payable in monthly installments of $1,053, expiring in May
2000.
Employment Agreement
In March 1998, the Company entered into a two-year employment agreement
to pay an annual salary of $60,000 plus other benefits.
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES/
WYMAN TESTING LABORATORIES, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
U.S. Wyman
Laboratories Testing
Inc. and Enterprises,
Subsidiaries Inc. Adjustments Total
------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Current assets
Cash .................................. $ 94,132 $ - $ - $ 94,132
Accounts receivable...................... 1,719,120 716,173 - 2,435,293
Work-in-process.......................... 181,772 - - 181,772
Prepaid expenses and other current
assets................................. 47,414 46,818 - 94,232
------------- ------------- -------------- ------------
Total current assets................. 2,042,438 762,991 - 2,805,429
Furniture and equipment, net................ 395,711 68,508 - 464,219
Excess cost over fair value of net
assets acquired, net..................... a 511,200
939,147 - c 194,924 1,645,271
Other assets................................ 154,411 - - 154,411
------------- ------------- --------------- ------------
Total assets....................... $ 3,531,707 $ 831,499 $ 706,124 $ 5,069,330
============= ============= ============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-39
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES /
WYMAN TESTING LABORATORIES, INC.
PRO FORMA BALANCE SHEET (CONTINUED)
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
U.S. Wyman
Laboratories Testing
Inc. and Enterprises,
Subsidiaries Inc. Adjustments Total
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Current liabilities
Book overdraft........................... $ 9,390 $ 37,778 $ - $ 47,168
Lines of credit.......................... 484,335 197,501 - 681,836
Current portion of long-term debt........ 84,526 5,552 - 90,078
Current portion of capitalized lease
obligations............................ - 4,243 - 4,243
Current portion of notes payable......... - - a 480,272 480,272
Accounts payable......................... 273,620 38,488 - 312,108
Accrued payroll and payroll taxes........ 115,214 40,114 - 155,328
Accrued stockholders' salaries........... - 48,375 - 48,375
Other accrued expenses................... 14,612 21,786 - 36,398
Due to stockholder....................... 584,281 70,000 - 654,281
Deferred income tax...................... 678,749 86,078 - 764,827
Income tax payable....................... 162,708 - - 162,708
--------------- ---------------- --------------- ----------------
Total current liabilities............ 2,407,435 549,915 480,272 3,437,622
Long-term debt, net of current portion...... 118,732 24,740 - 143,472
Capitalized lease obligations, net of
current portion........................ - 1,572 - 1,572
Notes payable, net of current portion....... - - a 225,000 225,000
--------------- ---------------- --------------- ----------------
Total liabilities.................... 2,526,167 576,227 705,272 3,807,666
--------------- ---------------- --------------- ----------------
Minority interest........................... 338,128 - c (338,128) -
--------------- ---------------- --------------- ----------------
Stockholders' equity
Preferred stock.......................... - - -
Common stock............................. a (108,000)
a 504
17,099 108,000 c 4,397 22,000
Stock subscription receivable............ - (1,000) a 1,000 -
Additional paid-in capital............... a 60,696
380,901 - c 528,655 970,252
Retained earnings........................ 269,412 148,272 a (148,272) 269,412
--------------- ---------------- --------------- ----------------
Total stockholders' equity........... 667,412 255,272 338,980 1,261,664
--------------- ---------------- --------------- ----------------
Total liabilities and
stockholders' equity............. $ 3,531,707 $ 831,499 $ 706,124 $ 5,069,330
=============== ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-40
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES /
WYMAN TESTING LABORATORIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
U.S. Wyman
Laboratories Testing
Inc. and Enterprises,
Subsidiaries Inc. Adjustments Total
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenue ................................... $ 7,766,414 $ 3,201,989 $ - $ 10,968,403
Cost of goods sold.......................... 4,476,952 1,681,823 - 6,158,775
--------------- ---------------- --------------- ----------------
Gross profit................................ 3,289,462 1,520,166 - 4,809,628
Selling, general, and administrative
expenses................................. b 34,080
2,431,770 1,232,316 d 12,995 3,711,161
--------------- ---------------- -------------- ----------------
Income from operations...................... 857,692 287,850 (47,075) 1,098,467
--------------- ---------------- --------------- ----------------
Other income (expense)
Interest expense......................... (130,605) (29,421) - (160,026)
Interest income.......................... 7,277 - - 7,277
Other income............................. 100,000 -- -- 100,000
Other expense............................ (100,000) -- -- (100,000)
Gain on sale of fixed asset.............. 4,912 12,000 - 16,912
Rental income............................ 25,160 - - 25,160
Gain on sale of minority interest........ 25,229 - - 25,229
--------------- ---------------- --------------- ----------------
Total other income (expense)........... (68,027) (17,421) - (85,448)
---------------- ---------------- --------------- -----------------
Income before provision for income
taxes and minority interest.............. 789,665 270,429 (47,075) 1,013,019
Provision for income taxes.................. 345,056 36,646 - 381,902
--------------- ---------------- --------------- ----------------
Income before minority interest............. 444,409 233,783 (47,075) 631,117
Minority interest........................... (80,253) - e 80,253 -
--------------- ---------------- -------------- ----------------
Net income.................................. $ 364,156 $ 233,783 $ 33,178 $ 631,117
=============== ================ =============== ================
Basic income per share...................... $ 0.27 $ 0.29
=============== ================
Diluted income per share................... $ 0.27 $ 0.29
=============== ================
Weighted-average shares
outstanding.............................. 2,200,000 2,200,000
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-41
<PAGE>
U.S. LABORATORIES INC. AND SUBSIDIARIES /
WYMAN TESTING LABORATORIES, INC.
NOTE TO PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying pro forma balance sheet presents the accounts of U.S.
Laboratories Inc. and subsidiaries ("US Labs") and Wyman Testing
Laboratories, Inc. ("Wyman") as if the acquisition of the assets of Wyman
by US Labs occurred on December 31, 1997, and the pro forma statement of
operations presents the accounts of US Labs and Wyman as if the acquisition
took place on January 1, 1997.
If U.S. Labs actually acquired Wyman on December 31, 1997, the purchase
price would have been $766,472. The purchase price was paid as follows: (i)
$300,000 cash paid upon the closing, (ii) $405,272 notes payable issued to
the stockholders of Wyman Enterprises, Inc., and (iii) 50,478 shares of
U.S. Labs Common Stock issued to a stockholder of Wyman Enterprises, Inc.,
valued at $61,200, using a method similar to previous Company acquisitions.
The fair value of the assets acquired on December 31, 1997, which
approximates the book value were as follows:
<TABLE>
<S> <C>
Accounts receivable $716,173
Prepaids 46,818
Furniture and equipment 68,508
Goodwill 511,200
Liabilities (576,227)
----------
$766,472
</TABLE>
See NOTE 1 in U.S. Laboratories Inc. and subsidiaries consolidated
financial statements for actual purchase price and assets acquired on March
23, 1998.
a) To record purchase price allocation adjustment and corresponding note
payable in consideration of the assets acquired. In connection with
the purchase, the Company recorded $511,200 in excess of cost over
fair value of net assets acquired and issued 50,478 shares of US Labs
Common Stock.
b) To record amortization of excess of cost over fair value of net assets
acquired, which is being amortized on a straight-line basis over
fifteen years.
In addition, the accompanying pro forma balance sheet presents the purchase
of the minority interest by of US Labs as if the purchase of minority
interest occurred on December 31, 1997, and the pro forma statement of
operations as if the purchase of the minority interest took place on
January 1, 1997.
c) To record purchase of all of the shares held by minority stockholders
in the subsidiaries of US Labs for $533,052. In connection with the
purchase of the minority interest, the Company issued an aggregate
of 439,664 shares of Common Stock in exchange for the purchase
price and recorded $194,924 in excess of cost over fair value of
net assets acquired.
d) To record amortization of excess of cost over fair value of net assets
acquired, which is being amortized on a straight-line basis over
fifteen years.
e) To eliminate minority interest expense.
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE>
Inside back cover page -- Blank
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR AN
OFFER TO OR A SOLICITATION OF ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER
OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 12
Capitalization............................................................ 12
Dilution.................................................................. 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 14
Business.................................................................. 19
Management................................................................ 33
Principal Stockholders.................................................... 39
Related Transactions...................................................... 40
Underwriting.............................................................. 41
Description of Securities................................................. 42
Shares Eligible for Future Sale........................................... 45
Experts................................................................... 46
Legal Matters............................................................. 47
Additional Information.................................................... 47
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL FEBRUARY , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
1,100,000 UNITS
U.S. LABORATORIES INC.
------------------
[LOGO]
------------------
[CARDINAL CAPITAL MANAGEMENT, INC.]
JANDA & GARRINGTON LLC
[FAS WEALTH MANAGEMENT SERVICES, INC.]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware Act")
provides that subject to such standards and restrictions, if any, as are set
forth in its Certificate of Incorporation, a Delaware corporation has the power
to indemnify any person who is a party to a civil, criminal, administration or
investigative proceeding by reason of the fact that the person was a director,
officer, employee or agent of the corporation if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
The Company's Amended and Restated Certificate of Incorporation also
provides that the Company will indemnify the Company's directors, officers,
employees and agents to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law.
The Company's Amended and Restated Certificate of Incorporation also
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director except for liability:
- for any breach of the director's duty of loyalty to the Company or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividends or unlawful stock purchase or
redemption); or
- for any transaction from which the director derived any improper
personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee . . . . $ 4,684
NASD Filing Fee . . . . . . . . . . . . . . . . . . . 1,200
Blue sky fees and expenses. . . . . . . . . . . . . . 12,000
Printing and engraving expenses . . . . . . . . . . . 65,000
Accountants' fees and expenses. . . . . . . . . . . . 110,000
Nasdaq Listing Application Fee. . . . . . . . . . . . 45,000
Legal fees and expenses . . . . . . . . . . . . . . . 323,000
Transfer Agent Fees . . . . . . . . . . . . . . . . . 1,000
Miscellaneous fees and expenses . . . . . . . . . . . --
--------
Total . . . . . . . . . . . . . . . . . . . $561,884
--------
--------
</TABLE>
The Company will pay all of the fees, costs and expenses set forth above.
Other than the SEC filing fee, all fees and expenses are estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On January 1, 1998, in reliance on an exemption under Section 4(2) of the
Securities Act of 1993 (the "Act"), the Company issued a total of 439,664 shares
of the Company's common stock to four executive officers of the Company or its
subsidiaries in exchange solely for common stock of the Company's subsidiaries.
No cash compensation was paid for the shares and no commissions were paid to any
person in connection with the transaction. Specifically, the Company issued (a)
315,488 shares of common stock to Gary H. Elzweig, executive vice president of
the Company, in exchange for 100 shares of the common stock of Professional
Engineering; (b) 55,526 shares of common stock to Martin B. Lowenthal, executive
vice president of the Company in exchange for 18.5 shares of the common stock of
U.S. Engineering; (c) 33,652 shares of common stock to Mark Baron, executive
vice president of the Company, in exchange for 1.67 shares of the common stock
of San Diego Testing; and (d) 24,061 shares of common stock to Thomas H.
Chapman, vice president of San Diego Testing, in exchange for 5.67 shares of the
common stock of San Diego Testing.
Each of the above exchanges was completed under the terms of a Share
Exchange Agreement that, during the period beginning on the date of issuance and
ending on the effective date of the offering, prohibited the transfer of the
common stock without the Company's prior written consent and granted the Company
an option to purchase the restricted common stock for the fair market value of
such shares as determined by the Company's independent public accountants. Each
Share Exchange Agreement also contained representations from the executive
officer that the officer was not acquiring the common stock with a view toward
any distribution or resale of such shares to any person except in accordance
with the provisions of the Act and applicable state securities laws
(collectively. the "Securities Laws"). The shares of common stock issued to the
executive officers bear a legend setting forth that the shares have not been
registered under the Securities Laws and may not be sold, transferred or
otherwise disposed of except under registration, exemption from registration, or
operation of law.
On January 1, 1998, in reliance on an exemption under Section 4(2) of the
Act, the Company also issued 10,937 shares of common stock to Christopher
O'Malley, vice president of U.S. Engineering Laboratories, Inc., under the terms
of a Restricted Stock Agreement containing restrictions on the disposition of
the common stock and representations of Mr. O'Malley that are similar to those
described above in the Share Exchange Agreements. The issues issued to Mr.
O'Malley also bear a restrictive legend similar to that described above.
On April 1, 1998, in reliance on an exemption under Section 4(2) of the
Act, pursuant to a Share Exchange Agreement, the Company issued 50,478 shares of
common stock to Donald C. Alford, Executive Vice President of the Company, in
exchange for 25 shares of the common stock of Wyman.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Selected Dealers Agreement
***1.3 Form of Agreement Among Underwriters
2.1 Asset Purchase Agreement between the Company and Wyman
Enterprises, Inc.
*3.1 Amended and Restated Certificate of Incorporation of the Company
*3.2 Amended and Restated by-laws of the Company
4.1 Warrant Agreement, including Form of Warrant
*4.2 Form of Underwriters' Warrant
*4.3 Form of Warrant Agency Agreement
4.4 Specimen Certificate Representing Shares of Common Stock of the
Company
4.5 Revised Form of Underwriters' Warrant
4.6 Form of Promotional Shares Escrow Agreement
5.1 Opinion of Foley & Lardner regarding legality
10.1 Bank Loan Agreement between North County Bank and the Company in
Principal Amount of $500,000
10.2 Bank Loan Agreement between Bank of America and the Company
10.3 Lease for San Diego, California facility
**10.4 Bonus Employment Agreement of Dickerson Wright
**10.5 Bonus Employment Agreement of Gary Elzweig
**10.6 1998 Stock Option Plan
10.7 Form of Incentive Stock Option Agreement
10.8 Form of Non-Qualified Stock Option Agreement
**10.9 Share Exchange Agreement between the Company and Gary H. Elzweig
**10.10 Share Exchange Agreement between the Company and Martin B.
Lowenthal
**10.11 Share Exchange Agreement between the Company and Mark Baron
**10.12 Share Exchange Agreement between the Company and Thomas H.
Chapman
**10.13 Share Exchange Agreement between the Company and Donald C. Alford
10.14 Employment Agreement of James D. Wait
10.15 Employment Agreement of Mark Baron
10.16 Employment Agreement of Martin B. Lowenthal
10.17 Employment Agreement of Dickerson Wright
10.18 Employment Agreement of Gary Elzweig
10.19 Employment Agreement of Donald C. Alford
10.20 Form of Employee Warrant Agreement
10.21 Bank Loan Agreement between North County Bank and the Company in
Principal Amount of $1,200,000
10.22 Bonus Employment Agreement of Martin B. Lowenthal
10.23 Bonus Employment Agreement of Mark Baron
10.24 Bank Loan Agreement between North County Bank and the Company in
the Principal Amount of $1,700,000
10.25 Acknowledgement of Termination and Replacement of Option(s) and
Warrant
10.26 Loan Agreement between Merrill Lynch Business Financial Services
and the Company
*21 List of Subsidiaries
23.1 Consent of Foley & Lardner (included in Exhibit 5.1)
23.2 Consents of Singer Lewak Greenbaum & Goldstein, LLP.
*24.1 Power of Attorney relating to subsequent amendments
27 Financial Data Schedule
</TABLE>
* Filed with the registration statement on Form SB-2 filed with the
Securities and Exchange Commission on October 29, 1998.
** Filed with Amendment No. 1 to the registration statement on Form SB-2,
filed with the Securities and Exchange Commission on January 8, 1999.
*** To be filed by amendment.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned small business issuer hereby undertakes as follows:
(a) The small business issuer will:
(1) file, during any period in which offers or sales of securities are
being made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. (Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of a prospectus filed with the Commission under
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement.); and
(iii) Include any additional or changed material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act of 1933, treat each post-effective amendment as a new Registration Statement
of the securities offered, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(b) The small business issuer will provide to the Underwriter (at the
closing specified in the underwriting agreement) certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
(c) The Company's Amended and Restated Certificate of Incorporation
provides that the small business issuer will indemnify its directors, officers,
employees and agents to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the small business issuer under the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore,
II-4
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against pubic policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this pre-effective
Amendment No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on this 27th day of January, 1999.
U.S. LABORATORIES INC.
By: /S/ DICKERSON WRIGHT
----------------------
Dickerson Wright, Chief Executive
Officer, President, and Chairman of the
Board
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ DICKERSON WRIGHT Chief Executive Officer, President, and January 27, 1999
- ----------------------------------------- Chairman of the Board
Dickerson Wright
/S/ * Executive Vice President and Director January 27, 1999
- -----------------------------------------
Gary Elzweig
/S/ * Executive Vice President and Director January 27, 1999
- -----------------------------------------
Donald C. Alford
/S/ * Executive Vice President and Director January 27, 1999
- -----------------------------------------
Mark Baron
/S/ * Executive Vice President and Director January 27, 1999
- -----------------------------------------
Martin B. Lowenthal
/S/ * Chief Financial Officer, Secretary, and January 27, 1999
- ----------------------------------------- Director (Chief Financial and
James D. Wait Accounting Officer)
/S/ * Director January 27, 1999
- -----------------------------------------
Thomas H. Chapman
/S/ * Director January 27, 1999
- -----------------------------------------
James L. McCumber
/S/ * Director January 27, 1999
- -----------------------------------------
Robert E. Petersen
/S/ * Director January 27, 1999
- -----------------------------------------
Noel Schwartz
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/S/ * Director January 27, 1999
- -----------------------------------------
Irvin Fuchs
* By: /S/ DICKERSON WRIGHT
- -----------------------------------------
Dickerson Wright
Attorney-in-fact
</TABLE>
S-2
<PAGE>
Exhibit 1.1
Form of Underwriting Agreement
U. S. LABORATORIES INC.
(A DELAWARE CORPORATION)
1,100,000 UNITS
1,100,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,100,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
DATED: JANUARY , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Representations and Warranties . . . . . . . . . . . . . . . . . 2
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY . . . . 2
(i) Compliance with Registration Requirements. . . 3
(ii) Independent Accountants. . . . . . . . . . . 3
(iii) Financial Statements . . . . . . . . . . . . 3
(iv) No Material Adverse Change In Business . . . . 4
(v) Good Standing of the Company . . . . . . . . . 4
(vi) Good Standing of Subsidiaries. . . . . . . . . 4
(vii) Capitalization . . . . . . . . . . . . . . . . 4
(viii) Authorization and Description of Securities. 5
(ix) Absence of Defaults and Conflicts. . . . . . . 5
(x) Absence of Labor Dispute . . . . . . . . . . . 6
(xi) Absence of Proceedings . . . . . . . . . . . . 6
(xii) Absence of Contingent Liabilities. . . . . . . 6
(xiii) Absence of Transactions. . . . . . . . . . . . 6
(xiv) Accuracy of Exhibits . . . . . . . . . . . . . 6
(xv) Possession of Intellectual Property. . . . . . 7
(xvi) Absence of Further Requirements. . . . . . . . 7
(xvii) Possession of Licenses and Permits . . . . . . 7
(xviii) Authorization of Agreement . . . . . . . . . . 8
(xix) Compliance With Applicable Laws. . . . . . . . 8
(xx) Title to Property. . . . . . . . . . . . . . 8
(xxi) Registration Rights. . . . . . . . . . . . . . 9
(xxii) Warrants, Options and Other Rights . . . . . . 9
(xxiii) Investment Company Act . . . . . . . . . . . . 9
(xxiv) Environmental Laws . . . . . . . . . . . . . . 9
(xxv) Tax Matters. . . . . . . . . . . . . . . . . . 9
(xxvi) Insurance. . . . . . . . . . . . . . . . . . . 10
(xxvii) Accounting Controls. . . . . . . . . . . . . . 10
(xxviii) Fees . . . . . . . . . . . . . . . . . . . . . 10
(xxix) Lock-Up Agreements . . . . . . . . . . . . . . 10
(xxx) Use of Prospectus. . . . . . . . . . . . . . . 10
(xxxi) Compliance With Cuba Act . . . . . . . . . . . 11
(xxxii) Stock Split. . . . . . . . . . . . . . . . . . 11
(xxxiii) Affiliate Relationships. . . . . . . . . . . . 11
(xxxiv) Prior Securities Offerings . . . . . . . . . . 11
(xxxv) Corporate Records. . . . . . . . . . . . . . . 11
(xxxvi) NASD Affiliations. . . . . . . . . . . . . . . 11
(xxxvii) ERISA. . . . . . . . . . . . . . . . . . . . . 11
(b) OFFICER'S CERTIFICATES . . . . . . . . . . . . . . . . . 12
<PAGE>
SECTION 2. Sale and Delivery to Underwriters; Closing . . . . . . . . . . . 12
(a) INITIAL SECURITIES . . . . . . . . . . . . . . . . . . . 12
(b) OPTION SECURITIES. . . . . . . . . . . . . . . . . . . . 12
(c) PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) DENOMINATIONS; REGISTRATION. . . . . . . . . . . . . . . 13
(5) Underwriters Warrant . . . . . . . . . . . . . . . . . . 13
SECTION 3. Covenants of the Company . . . . . . . . . . . . . . . . . . . . 13
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND
COMMISSION REQUESTS. . . . . . . . . . . . . . . . . . . 13
(2) FILING OF AMENDMENTS . . . . . . . . . . . . . . . . . . 14
(c) DELIVERY OF REGISTRATION STATEMENTS. . . . . . . . . . . 14
(d) DELIVERY of PROSPECTUSES . . . . . . . . . . . . . . . . 14
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. . . . . . . . 14
(6) Blue Sky Qualifications. . . . . . . . . . . . . . . . . 15
(g) RULE 158 . . . . . . . . . . . . . . . . . . . . . . . . 15
(h) USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 15
(i) LISTING. . . . . . . . . . . . . . . . . . . . . . . . . 15
(j) RESTRICTION ON SALE OF SECURITIES. . . . . . . . . . . . 15
(k) REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . 16
(1) COMPLIANCE WITH RULE 463 . . . . . . . . . . . . . . . . 16
(m) REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . 16
(n) REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 16
(o) KEY MAN INSURANCE. . . . . . . . . . . . . . . . . . . . 16
(p) BOARD MEETINGS . . . . . . . . . . . . . . . . . . . . . 16
(q) MERGER & ACQUISITION ADVISORS. . . . . . . . . . . . . . 17
(18) Stabilization. . . . . . . . . . . . . . . . . . . . . . 17
(19) Securities Positions . . . . . . . . . . . . . . . . . . 17
(20) Form 8-A . . . . . . . . . . . . . . . . . . . . . . . . 17
(21) Employment Agreements. . . . . . . . . . . . . . . . . . 17
(22) Press Releases . . . . . . . . . . . . . . . . . . . . . 17
(w) ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . 17
(x) PUBLIC RELATIONS . . . . . . . . . . . . . . . . . . . . 17
SECTION 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . 18
(1) Expenses . . . . . . . . . . . . . . . . . . . . . . . . 18
(2) Termination of Agreement . . . . . . . . . . . . . . . . 18
SECTION 5. Conditions of Underwriters' Obligations. . . . . . . . . . . . . 18
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. . . . . . . . . 18
(b) OPINION OF COUNSEL FOR COMPANY . . . . . . . . . . . . . 19
(c) OFFICER'S CERTIFICATE. . . . . . . . . . . . . . . . . . 19
<PAGE>
(d) ACCOUNTANT'S COMFORT LETTER. . . . . . . . . . . . . . . 19
(e) BRING-DOWN COMFORT LETTER. . . . . . . . . . . . . . . . 19
(f) APPROVAL OF LISTING. . . . . . . . . . . . . . . . . . . 20
(g) NO OBJECTION . . . . . . . . . . . . . . . . . . . . . . 20
(h) LOCK-UP AGREEMENTS . . . . . . . . . . . . . . . . . . . 20
(i) ADDITIONAL DOCUMENTS . . . . . . . . . . . . . . . . . . 20
(j) CONDITIONS TO PURCHASE OF OPTION SECURITIES. . . . . . . 20
(i) Officer's Certificate. . . . . . . . . . . . . 20
(ii) Opinion of Counsel for Company . . . . . . . . 20
(iii) Bring-Down Comfort Letter. . . . . . . . . . . 20
(k) TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . 20
SECTION 6. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) INDEMNIFICATION OF UNDERWRITERS. . . . . . . . . . . . . 21
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS . . . 21
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. . . . . . . . . . 22
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE . . . 22
SECTION 7. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8. Representations, Warranties and Agreements to Survive Delivery . 24
SECTION 9. Termination of Agreement . . . . . . . . . . . . . . . . . . . . 24
(a) TERMINATION; GENERAL . . . . . . . . . . . . . . . . . . 24
(b) LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 10. Default by One or More of the Underwriters. . . . . . . . . . . 24
SECTION 11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 12. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 13. Governing Law and Time. . . . . . . . . . . . . . . . . . . . . 25
SECTION 14. Effect of Headings. . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 15. Waiver and Amendment. . . . . . . . . . . . . . . . . . . . . . 26
SECTION 16. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 17. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE>
1,100,000 Units
U. S. LABORATORIES INC.
(a Delaware corporation)
1,100,000 Shares of Common Stock and
Redeemable Warrants to Purchase 1,100,000 Shares of Common Stock
UNDERWRITING AGREEMENT
January , 1999
CARDINAL CAPITAL MANAGEMENT, INC.
JANDA & GARRINGTON LLC
FAS WEALTH MANAGEMENT SERVICES, INC.
as Representatives of the several Underwriters
c/o Cardinal Capital Management, Inc.
800 Douglas Road, Suite 340
Coral Gables, Florida 33134
Dear Sirs:
U. S. Laboratories Inc., a Delaware corporation (the "Company"), confirms
its agreement with Cardinal Capital Management, Inc. ("Cardinal"), Janda &
Garrington LLC ("Janda"), FAS Wealth Management Services, Inc. ("FAS") and each
of the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Cardinal, Janda and FAS are
acting as representatives (in such capacity, Cardinal, FAS and Janda shall
hereinafter be referred to as the "Representatives"), with respect to the sale
by the Company and the purchase by the Underwriters, acting severally and not
jointly, of the respective numbers of Units ("Units") consisting of one share of
Common Stock, par value $.01 per share, of the Company ("Common Stock") and one
redeemable warrant to purchase one share of Common Stock ("Warrants") set
<PAGE>
forth in said Schedule A, and with respect to the grant by the Company to the
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of 165,000 additional Units
to cover over-allotments, if any. The aforesaid 1,100,000 Units (the
"Initial Securities") to be purchased by the Underwriters and all or any part
of the 165,000 Units subject to the option described in Section 2(b) hereof
(the "Option Securities") are hereinafter called, collectively, the
"Securities."
The Company also proposes to issue and sell to the Underwriters a warrant
(the "Underwriters Warrant") pursuant to the Underwriters Warrant Agreement
between the Company and Cardinal (the "Underwriters Warrant Agreement") for the
purchase of 110,000 additional Units (the "Underwriters Units").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (No. 333-66173) covering
the registration of the Securities under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the
Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). The information included in
such prospectus or in such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule
430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to
as "Rule 434 Information." Each prospectus used before such registration
statement became effective, and any prospectus that omitted, as applicable,
the Rule 430A Information or the Rule 434 Information, that was used after
such effectiveness and prior to the execution and delivery of this Agreement,
is herein called a "preliminary prospectus." Such registration statement,
including the exhibits thereto and schedules thereto at the time it became
effective and including the Rule 430A Inforination and the Rule 434
Information, as applicable, is herein called the "Registration Statement."
Any registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the
form first furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." If Rule 434 is
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<PAGE>
relied on, the term "Prospectus" shall refer to the preliminary prospectus
dated ______________________, 1999 together with the Term Sheet and all
references in this Agreement to the date of the Prospectus shall mean the
date of the Term Sheet. For purposes of this Agreement, all references to
the Registration Statement, any preliminary prospectus, the Prospectus or any
Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to each Underwriter as of the date hereof, and as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has become
effective under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement or any Rule 462(b) Registration Statement has been
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, are contemplated
by the Commission, and any request on the part of the Commission for additional
information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (as hereinafter defined) (and, if any Option
Securities are purchased, at the Date of Delivery (as hereinafter defined)), the
Registration Statement, the Rule 462(b) Realstration Statement and any
amendments and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act Regulations and
did not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither the Prospectus nor any amendments or
supplements thereto, at the time the Prospectus or any such amendment or
supplement was issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement
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<PAGE>
of a material fact or omitted or will omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading._ If Rule 434 is used, the Company
will comply with the requirements of Rule 434 and the Prospectus shall not be
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus made
in reliance upon and in conformity with information furnished to the Company
in writing by any Underwriter through Cardinal expressly for use in the
Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and each preliminary prospectus
and the Prospectus delivered to the Underwriters for use in connection with this
offering was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act and the
1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included in
the Registration Statement and the Prospectus, together with the related
schedule and notes, present fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the statement of income,
stockholders' equity and cash flows of the Company and its consolidated
subsidiaries for the periods specified; except as otherwise stated in the
Registration Statement, said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. No other financial statements
or notes thereto are required to be included in the Registration Statement. The
supporting schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information included in
the Prospectus have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement.
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<PAGE>
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
eamings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, (B) there have been no transactions entered into by
the Company or any of its subsidiaries, other than those in the ordinary course
of business, which are material with respect to the Company and its subsidiaries
considered as one enterprise, and (C) there has been no dividend or distribution
of any kind declared, paid or made by the Company on any class of its capital
stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly
incorporated and is validly existing, as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its oblications under this Agreement
and the Underwriters Warrant Agreement.
(vi) GOOD STANDING OF SUBSIDIARIES. Each subsidiary of the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and is in good standing in
each jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where
the failure so to qualify or to be in good standing would not, individually or
in the aggregate, have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise; all of the issued and
outstanding capital stock of each such subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and is directly owned by the
Company, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital stock of
any subsidiary was issued in violation of the preemptive or similar rights of
any stockholder of such corporation arising by operation of law, under the
charter or by-laws of any subsidiaries or under any agreement to which the
Company or any subsidiary is a party. The only active subsidiaries of the
Company are Professional Engineering & Inspection Company, Inc., a Florida
corporation ("PEICO"), U. S. Engineering Laboratories, Inc., a Delaware
corporation ("USEL") San Diego Testing Engineers, Inc., a Delaware corporation
("TESD") and Los Angeles Testing Engineers, Inc., a
5
<PAGE>
Delaware corporation ("LATE"). Except for the shares of capital stock of
PEICO, USEL, TESD and LATE owned by the Company, neither the Company, PEICO,
USEL, TESD, nor LATE owns any shares of stock or any other equity securities
of any corporation or has any equity interest in any firm, partnership,
association or other entity, except as described in by the Prospectus.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or
pursuant to the exercise of convertible securities or options referred to in
the Prospectus). The shares of issued and outstanding capital stock of the
Company have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of
any securityholder of the Company.
(viii) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The
Securities, the Underwriters Warrants and the Underwriters Units to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against payment
of the consideration set forth herein, will be validly issued and fully paid and
non-assessable; the Securities, the Underwriters Warrant and the Underwriters
Units conform to all statements relating thereto contained in the Prospectus and
such descriptions conform to the rights set forth in the instruments defining
the same; no holder of the Securities, the Underwriters Warrant and the
Underwriters Units will be subject to personal liability reason of being such a
holder; and the issuance and sale of the Securities, the Underwriters Warrants
and the Underwriters Units by the Company is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(ix) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor
any of its subsidiaries is in violation of its charter or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which or any of them may be bound, or
to which any of the property or assets of the Company or any of its subsidiaries
is subject, and which violation or default, singly or in the aggregate, would
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as
6
<PAGE>
one enterprise; and the execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated herein and
compliance by the Company with its obligations hereunder (including the use
of the proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use of Proceeds"), as are applicable to the
Company have been duly authorized by all necessary corporate action and do
not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as def-ined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any subsidiaries of the Company pursuant to, any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject and
which breach or default singly or in the aggregate, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise nor will such action result in any violation of
the provisions of the charter or by-laws of the Company or any subsidiaries
of the Company or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties and which violation, singly
or in the aggregate, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise.
As used herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any subsidiaries of the Company.
(x) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the knowledge
of the Company, is imminent.
(xi) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of the
Company, threatened, against or affecting the Company or any of its subsidiaries
which is required to be disclosed in the Registration Statement, or which might
reasonably be expected to result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the
7
<PAGE>
Company and its subsidiaries considered as one enterprise, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of this Agreement or the performance by
the Company of its obligations hereunder; the aggregate of all pending legal
or governmental proceedings to which the Company or any of its subsidiaries
is party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not reasonably
be expected to result in a material adverse change in the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise.
(xii) ABSENCE OF CONTINGENT LIABILITIES. Except as set forth in
the Registration Statement, the Company does not have any material contingent
liabilities.
(xiii) ABSENCE OF TRANSACTIONS. Subsequent to the respective dates
as of which information is set forth in the Registration Statement and
Prospectus, and except as may otherwise be indicated or contemplated herein or
therein, the Company has not: (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, in any
material amount; (ii) entered into any transaction other than in the ordinary
course of business; (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock; (iv) made any changes in
capital stock, material changes in debt (long or short term) or liabilities
other than in the ordinary course of business; (v) made any material changes in
or affecting the general affairs, management, financial operations,
stockholders' equity or results of operations of the Company; or (vi) entered
into any agreement, or commenced any negotiations or discussions, relating to
any business acquisition or combination.
(xiv) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto by the 1933 Act or by the 1933 Act
Regulations which have not been so described and filed as required. All
executed agreements or copies of executed agreements (whether electronically
scanned or otherwise) filed as exhibits to the Registration Statement to which
the Company is a party or by which the Company may be bound or to which any of
its assets, properties or businesses may be subject have been duly and validly
authorized, executed and delivered by the Company, and constitute legally valid
and binding agreements of the Company, enforceable against it in accordance with
their respective terms, except to the extent that there is no material adverse
effect upon the Company.
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(xv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms, the patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
(collectively, "patent and proprietary rights") presently employed by them in
connection with the business now operated by them as described in the
Prospectus, except where lack thereof would not result in a material adverse
change in the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, and neither the Company nor any of its subsidiaries has received
any notice or is otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any patent or proprietary rights or of
any facts or circumstances which would render any patent and proprietary rights
invalid or inadequate to protect the interest of the Company therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would result
in any material adverse change in the condition, financial or otherwise, or in
the eamings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all the
patent and proprietary rights material to its operations.
(xvi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration, qualification or
decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder or
the consummation by it of the transactions contemplated by this Agreement,
except such as have been already obtained or as may be required under the 1933
Act or the 1933 Act Regulations or state securities laws.
(xvii) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such certificates, authorities, permits, licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and conditions of
all such Govemmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company
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and its subsidiaries considered as one enterprise; all of the Governmental
Licenses are valid and in full force and effect, except when the invalidity
of such Governmental Licenses or the failure of such Governmental Licenses to
be in full force and effect would not have a material adverse effect on the
condition, financial or otherwise, earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise;
and neither the Company nor any of its subsidiaries has received any notice
of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely
affect the condition, financial or otherwise, or the earnings, business
affairs or business prospects of the Company and its subsidiaries considered
as one enterprise.
(xviii) AUTHORIZATION OF AGREEMENTS. The Company has full legal
right, power and authority to enter into this Agreement and the Underwriters
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement and the Underwriters Warrant Agreement have each
been duly authorized, executed and delivered by the Company. Each of this
Agreement and the Underwriters Warrant Agreement constitutes a legally valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law).
Neither the Company's execution nor delivery of this Agreement or the
Underwriters Warrant Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein, nor the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any material lien, charge, claim, encumbrance,
pledge, security interest defect or other restriction or equity of any kind
whatsoever upon, any property or assets (tangible or intangible) of the Company
pursuant to the terms of: (i) the Certificate of Incorporation or Bylaws of the
Company; (ii) any license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of its properties or assets (tangible or
intangible) is or may be subject; or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including,
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without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
(xix) COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in the
Prospectus, the Company and its subsidiaries are in compliance in all material
respects with all applicable laws, statutes, ordinances, rules or regulations,
the violation of which, individually or in the aggregate, would be reasonably
expected to have a material adverse effect on the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise.
(xx) TITLE TO PROPERTY. The Company and its subsidiaries have
good and marketable title to all properties (real and personal) owned by the
Company and its subsidiaries, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectus or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or its
subsidiaries; and all properties held under lease by the Company or its
subsidiaries are held under valid, subsisting and enforceable leases.
(xxi) REGISTRATION RIGHTS. Except as set forth in the Prospectus,
there are no persons with registration or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxii) WARRANTS, OPTIONS AND OTHER RIGHTS. Except as disclosed in
the Prospectus, there are no outstanding options, warrants, or other rights
calling for the issuance of, and no commitments, plans or arrangements to issue,
any shares of capital stock of the Company or any of its subsidiaries or any
security convertible into or exchangeable for capital stock of the Company or
any of its subsidiaries.
(xxiii) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the application
of the net proceeds therefrom as described in the Prospectus under the caption
"Use of Proceeds" will not be, an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xxiv) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, individually or in the aggregate, result in a
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material adverse effect, (A) neither the Company nor any of its subsidiaries is
in violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to pollution or protection of human
health, the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution. use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable Environmental Laws
and are each in compliance with their requirements, (C) there are no pending or
threatened, administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigations or proceedings relating to any Environmental Law against the
Company or any of its subsidiaries and (D) there are no events or circumstances
that might reasonably be expected to form the basis of an order for cleanup or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxv) TAX MATTERS. The Company and its subsidiaries have filed
all federal, state, local and foreign tax returns that are required to be filed
or have duly requested extensions thereof and have paid all taxes required to be
paid by any of them and any related assessments, fines or penalties, except for
any such tax, assessment, fine or penalty that is being contested in good faith
and by appropriate proceedings; and adequate charges, accruals and reserves have
been provided for in the financial statements referred to in Section 1 (a)(iii)
above in respect of all federal, state, local and foreign taxes for all periods
as to which the tax liability of the Company or any of its subsidiaries has not
been finally determined or remains open to examination by applicable taxing
authorities.
(xxvi) INSURANCE. The Company and its subsidiaries carry or are
entitled to the benefits of insurance in such amounts and covering such risks as
is generally maintained by companies of established repute engaged in the same
or similar business, and all such insurance is in full force and effect.
(xxvii) ACCOUNTING CONTROLS. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's
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general and specific authorizations; (ii) transactions are recorded as
necessary to permit preparations of financial statements in conformity with
GAAP and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences. Neither the Company nor any of its
officers, employees, agents or any other person acting on behalf of the
Company has, directly or indirectly, given or agreed to give any money, gift
or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of
a customer or supplier, or official or employee of any governmental agency
(domestic or foreign) or instrumentality of any government (domestic or
foreign) or any political party or candidate for office (domestic or foreign)
or other person who was, is, or may be in a position to help or hinder the
business of the Company (or assist the Company in connection with any actual
or proposed transaction) which: (a) might subject the Company, or any other
such person to any damage or penalty in any civil, criminal or governmental
litigation or proceeding (domestic or foreign); (b) if not given in he past,
might have had a materially adverse effect on the assets, business or
operations or prospects of the Company, and (c) if not continued in the
future, might adversely affect the assets, business, operations or prospects
of the Company. The Company's internal accounting controls are sufficient to
ensure the Company's compliance with the Foreign Corrupt Practices Act of
1978, as amended.
(xxviii) FEES. Other than as contemplated by this Agreement, there
is no broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or any other fee, commission or payment as
a result of the transactions contemplated by this Agreement.
(xxix) LOCK-UP AGREEMENTS. The Company has obtained and delivered
to the Representatives the duly executed, legally binding and enforceable
agreements of the persons and entities named in Schedule B annexed hereto to the
effect that each such person will not, for a period of eighteen months from the
date hereof and except as otherwise provided therein, without the prior written
consent of the Representatives, directly or indirectly, offer to sell, grant any
option for the sale of, or otherwise dispose of, any shares of Common Stock or
any securities convertible into or exercisable for Common Stock owned by such
person or entity or with respect to which such person has the power of
disposition.
(xxx) USE OF PROSPECTUS. The Company has not distributed and,
prior to the later to occur of (i) the Closing Time and (ii) completion of the
distribution of the Securities, will not distribute any prospectus (as such term
is
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defined in the 1933 Act and the 1933 Act Regulations) in connection with the
offering and sale of the Securities other than the Registration Statement,
any preliminary prospectus, the Prospectus or other materials, if any,
permitted by the 1933 Act or by the 1933 Act Regulations and approved by the
Representatives. The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Units.
(xxxi) COMPLIANCE WITH CUBA ACT. The Company has complied with,
and is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida Statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xxxii) STOCK SPLIT. Each of the Company's 20,324 -for-one Common
Stock stock split and one-for-0.8413 Common Stock reverse stock split has been
duly and validly authorized by all necessary corporate and shareholder action.
(xxxiii) AFFILIATE RELATIONSHIPS. Except as set forth in the
Prospectus, no officer, director or stockholder of the Company, or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the 1933 Act Regulations) of any such person or entity or the Company, has
or has had, either directly or indirectly, (i) an interest in any person or
entity which (A) furnishes or sells services or products which are furnished or
sold or are proposed to be furnished or sold by the Company, or (B) purchases
from or sells or furnishes to the Company any goods or services, except with
respect to the beneficial ownership of not more than 1% of the outstanding
shares of capital stock of any publicly-held entity; or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions, "there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, or principal stockholder of the Company, or any affiliate or associate
of any such person or entity.
(xxxiv) PRIOR SECURITIES OFFERINGS. No securities of the Company
have been sold by the Company since its inception, except as disclosed in Part
II of the Registration Statement.
(xxxv) CORPORATE RECORDS. The minute books of the Company have
been made available to the Underwriters' counsel and contain a complete
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summary of all meetings and actions of the Board of Directors and
stockholders of the Company and its subsidiaries since inception.
(xxxvi) NASD AFFILIATIONS. Except as disclosed in writing to the
Underwriters, no officer, or director or, to the Company's knowledge,
stockholder of the Company has any affiliation or association with any members
of the NASD.
(xxxvii) ERISA. Except as disclosed in the Prospectus, the Company
does not presently maintain, sponsor or contribute to, and never has maintained,
sponsored or contributed to, any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multiemployer
plan," as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively,
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Except as disclosed in the Prospectus, the Company does not maintain or
contribute, now or at any time previously, to a defined benefit plan, as defined
in Section 3(35) of ERISA.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company and delivered to the Representatives or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company to each Underwriter
as to the matters covered thereby.
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SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at a purchase price of $5.40 per Unit, the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 165,000 Units at a purchase
price of $5.40 per Unit, less an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial Securities but
not payable on the Option Securities. The option hereby granted will expire 45
days after the date hereof and may be exercised in whole or in part from time to
time only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Securities upon
notice by the Representatives to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time (as
hereinafter defined). If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Option Securities
then being purchased which the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter bears to the total number of
Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Cardinal, 800 Douglas Road, Suite 340, Coral Gables, Florida 33134, or at such
other place as shall be agreed upon by the Representatives and the Company, at
9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than
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ten business days after such date as shall be agreed upon by the
Representatives and the Company (such time and date of payment and delivery
being herein called the "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices of Cardinal, or at such other place as shall be agreed upon by the
Representatives and the Company, on each Date of Delivery as specified in the
notice from the Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Cardinal, individually and not as representative of the Underwriters,
may (but shall not be obligated to) make payment of the purchase price for the
Initial Securities or the Option Securities, if any, to be purchased by any
Underwriter whose funds have not been received by the Closing Time or the
relevant Date of Delivery, as the case may be, but such payment shall not
relieve such Underwriter from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in Coral Gables, Florida not later than 10:00 A.M. (Eastern
time) on the business day prior to the Closing Time or the relevant Date of
Delivery, as the case may be.
(e) UNDERWRITERS WARRANTS. At the Closing Time, the Company shall issue
and sell to the Underwriters the Underwriters Warrants at a purchase price of
$1,100, which Underwriters Warrants shall entitle the holders thereof to
purchase 110,000 Underwriters Units. The Underwriters Warrants shall be
exercisable for a period of four (4) years commencing one (1) year from the
effective date of the Registration Statement at an initial exercise price equal
to one hundred twenty percent (120%) of the initial public offering price of the
Units. Underwriters Units underlying the Underwriters Warrants shall be
identical to the Securities, except
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that the warrants comprising a portion of such Underwriters Units shall not
be subject to redemption. The Underwriters Warrant Agreement and form of
Warrant Certificate shall be substantially in the form filed as an Exhibit to
the Registration Statement. Payment for the Underwriters Warrants shall be
made at the Closing Time. The Company has reserved and shall continue to
reserve a sufficient number of shares of Common Stock and Warrants for
issuance upon exercise of the Underwriters Warrants.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) FILING OF AMENDMENTS. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall object.
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(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies
of the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), such number of copies of the
Prospectus (as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto furnished to
the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendments or supplements as may be necessary to
correct such statement or
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omission or to make the Registration Statement or the Prospectus comply with
such requirements, and the Company will furnish to the Underwriters such
number of copies of such amendments or supplements as the Underwriters may
reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its security
holders as soon as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a) of the
1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds." No portion of the net proceeds will be used
directly or indirectly to acquire any securities issued by the Company.
(i) LISTING. For a period of five (5) years from the effective date of
the Registration Statement, the Company will use its best efforts at its cost
and expense to effect and maintain the quotation of the Securities and the
Underwriters Units on the Nasdaq SmallCap Market and will file with the Nasdaq
SmallCap Market all documents and notices required by the Nasdaq SmallCap Market
of companies that have securities that are traded in the over-the-counter market
and quotations for which are reported by the Nasdaq SmallCap Market.
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(j) RESTRICTION ON SALE OF SECURITIES. During a period of eighteen months
from the date of the Prospectus, the Company will not, without the prior written
consent of Cardinal, (i) directly or indirectly, offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities, the Underwriters Warrants and Underwriters Units to be sold
hereunder and (B) any shares of Common Stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof and referred to in the Prospectus.
(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(1) COMPLIANCE WITH RULE 463. The Company will report the use of proceeds
from the sale of the Securities as required pursuant to Rule 463 of the 1933 Act
Regulations.
(m) REGISTRATION RIGHTS. The Company shall provide the Underwriters with
the registration rights with respect to the Underwriters Units set forth in the
Underwriters Warrant Agreement, including, without limitation, at the Company's
sole cost and expense, accomplishing on demand one registration of the
securities underlying the Underwriters Warrant for resale, at such time during
the period between the first and fifth anniversaries of the effective date of
the Registration Statement as the Underwriters shall so request in writing. The
Company shall not enter into any agreement or take any steps which would
substantially impair the registration rights of holders of the Underwriters
Warrant or the underlying securities.
(n) REPORTS. For a period of five (5) years from the effective date of
the Registration Statement, the Company shall furnish the Underwriters the
following:
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(i) as soon as practicable after they have been sent to
stockholders of the Company or filed with the Commission, two copies of each
annual and interim financial and other report or communication sent by the
Company to its stockholders or filed with the Commission; the NASD or any
securities exchange;
(ii) as soon as practicable, two copies of every press release
which is released by the Company;
(iii) such additional publicly available documents and information
with respect to the Company and its affairs and the affairs of any of its
subsidiaries as the Underwriters may from time to time reasonably request; and
(iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4
received or filed by the Company from time to time.
(o) KEY MAN INSURANCE. For a period of five (5) years from the effective
date of the Registration Statement, the Company shall purchase and maintain in
effect key man life insurance on Dickerson Wright in an amount of at least
$3,650,000.
(p) BOARD MEETINGS. For a period of five years from the effective date of
the Registration Statement, the Company shall promptly notify Cardinal of all
meetings of the Board of Directors or shareholders of the Company and Cardinal
shall have the right to have an observer at any such meetings.
(q) MERGER AND ACQUISITION ADVISORS. For a period of two years from the
effective date of the Registration Statement, the Company has appointed Cardinal
and Janda as non-exclusive advisors to the Company for the purpose of
identifying and developing future merger and acquisition agreements on behalf of
the Company (compensation for such services to be based on the "Lehman Formula"
for the indicated value of the transaction) and has entered into a financial
consulting agreement to that effect (the "Financial Consulting Agreement").
(r) STABILIZATION. Neither the Company, nor its officers or directors,
nor affiliates of any of them (within the meaning of the 1933 Act Regulations)
will take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(s) SECURITIES POSITIONS. For a period of five (5) years from the
effective date of the Registration Statement upon the Underwriters request, the
Company
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<PAGE>
shall furnish to the Underwriters at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Securities; (ii) a list of
holders of Securities; (iii) a list of, if any, the securities positions of
participants in the Depository Trust Company.
(t) FORM 8-A. As soon as practicable, but in no event later than five (5)
business days after the effective date of the Registration Statement, the
Company shall file a Form 8-A with the Commission providing for the registration
under the 1934 Act of the Securities and the Underwriters Units.
(u) EMPLOYMENT AGREEMENTS. For a period of five (5) years from the
effective date of the Registration Statement the Company shall not amend or
alter any term of any written employment agreement between the Company and any
executive officer, during the term of such written employment agreement, in a
manner more favorable to such employee, without the express written consent of
the Underwriters.
(v) PRESS RELEASES. Until the completion of the distribution of the
Securities, the Company shall not without the prior written consent of the
Underwriters, which consent shall not be unreasonably withheld, issue, directly
or indirectly, any press release or other communication or hold any press
conference with respect to the company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course of
the Company's business consistent with past practices with respect to the
Company's operations.
(w) ACCOUNTANTS. For a period of five (5) years from the effective date
of the Registration Statement, the Company shall retain an independent public
accounting firm acceptable to Cardinal.
(x) PUBLIC RELATIONS. As soon as practicable, but in no event later than
60 business days after the date hereof, and for a period of five (5) years from
the effective date of the Registration Statement, the Company shall retain a
financial public relations firm acceptable to Cardinal.
23
<PAGE>
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the printing,
and filing of the Registration Statement as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriters of this Agreement, the Selected Dealer Agreements, Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters, including any capital duties, stamp duties and stock or other
transfer taxes payable upon the sale of the Securities to the Underwriters, (iv)
the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the fees and disbursements of counsel for the Underwriters in connection
therewith and in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriters of copies
of each preliminary prospectus and of the Prospectus and any amendments or
supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
advertising costs and expenses, including but not limited to costs and expenses
in connection with one information meeting held in New York, New York, and such
bound volumes and prospectus memorabilia as the Representatives may request;
(ix) the fees and expenses of any transfer agent or registrar for the Securities
and (x) the filing fees incident to, and the fees and disbursements of counsel
to the Underwriters in connection with, the review by the National Association
of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Securities and (xi) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq SmallCap Market.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
(c) The Company further agrees that, in addition to the expenses payable
pursuant to subsection (a) of this Section 4, it will pay to the Underwriters a
non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Securities, $50,000 of
which has been paid to date to the Underwriters. The Company will pay the
remaining portion of the non-accountable expense allowance at the Closing Time
by certified
24
<PAGE>
or bank cashier's check or, at the election of the Underwriters, by deduction
from the proceeds of the offering contemplated herein.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company herein contained, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
shall have become effective not later than 5:30 P.M. on the date hereof, or with
the consent of the Representatives, at a later time and date, not later,
however, than 5:30 P.M. on the first business day following the date hereof, or
at such later time and date as may be approved by a majority in interest of the
several Underwriters; and at the Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated, threatened or, to the knowledge of
the Company, contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. If the Company has
elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the
Securities and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing, in accordance with Rule 424(b) of the
1933 Act Regulations within the prescribed time period and prior to Closing Time
the Company shall have provided evidence satisfactory to the Representatives of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the 1933 Act Regulations.
(b) OPINION OF COUNSEL FOR COMPANY. At the Closing Time the
Representatives shall have received the opinion, dated as of the Closing Time,
of Foley & Lardner, counsel for the Company, in form and substance satisfactory
to counsel for the Underwriters, together with signed or reproduced copies of
such letter for each of the other Underwriters to the effect set forth in
Exhibit A hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(c) OFFICER'S CERTIFICATE. At the Closing Time there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs in the ordinary course of
business, and the Representatives shall have received a certificate of the
President or a Vice
25
<PAGE>
President of the Company and of the chief financial or chief accounting
officer of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations and
warranties in Section 1 hereof are true and correct with the same force and
effect as though expressly made at and as of Closing Time, (iii) the Company
has complied with all agreements and satisfied all conditions on its part to
be performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or threatened
by the Commission. As used in this Section 5(c) the term "Prospectus" means
the Prospectus in the form first used by the Underwriters to confirm sales of
the Securities.
(d) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this
Agreement, the Representatives shall have received from Singer Lewak Greenbaum &
Goldstein LLP a letter dated such date, in form and substance satisfactory to
the Representatives containing statements and information of the type ordinarily
included in accountants' "comfort letter" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the prospectus.
(e) BRING-DOWN COMFORT LETTER. At the Closing Time the Representatives
shall have received from Singer Lewak Greenbaum & Goldstein LLP a letter, dated
as of Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (d) of this Section, except that the
specified date referred to shall be a date not more than three days prior to
Closing Time.
(f) APPROVAL OF LISTING. At the Closing Time the Securities shall have
been approved for inclusion in the Nasdaq SmallCap Market, subject only to
official notice of issuance.
(g) NO OBJECTION. The NASD shall have confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(h) LOCK-UP AGREEMENTS. At the time of the execution of this Agreement,
the Representatives shall have received an agreement substantially in the form
of Exhibit B hereto signed by each of the persons named in Schedule B hereto.
(i) ADDITIONAL DOCUMENTS. At the Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
26
<PAGE>
pass upon the issuance and sale of the Securities as herein contemplated and
related proceedings, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfilledment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Representatives and counsel for the
Underwriters.
(j) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates furnished
by the Company hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have received:
(i) OFFICER'S CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the chief
financial or chief accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii) OPINION OF COUNSEL FOR COMPANY. The opinion of Foley &
Lardner, counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b) hereof.
(iii) BRING-DOWN COMFORT LETTER. A letter from Singer Lewak
Greenbaum & Goldstein LLP, in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially the same in form
and substance as the letter furnished to the Representatives pursuant to Section
5(e) hereof, except that the "specified date" in the letter furnished pursuant
to this paragraph shall be a date not more than four days prior to such Date of
Delivery.
(k) TERMINATION OF AGREEMENT. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 6, 7 and 8 shall survive any such termination and remain
in full force and effect.
SECTION 6. INDEMNIFICATION.
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<PAGE>
(a) INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if
applicable, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or prospectus, including
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including, subject to the third sentence of Section 6(c) hereof, the fees and
disbursements of counsel chosen by Cardinal), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives expressly for use in the Registration
28
<PAGE>
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto) or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through the
Representatives expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have otherwise than on
account of this Agreement. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from their own counsel for all indemnified parties
in connection with any one action or separate but similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
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<PAGE>
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into
more than 45 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
SECTION 7. CONTRIBUTION. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, bear to the aggregate initial
public offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
30
<PAGE>
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue of
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning, of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of
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<PAGE>
any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or elsewhere, any outbreak
of hostilities or escalation thereof or other calamity or crisis or any change
or development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in the Common Stock has been suspended or limited by the
Commission or Nasdaq, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in Nasdaq has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the NASD or any other governmental authority, or (iv)
if a banking moratorium has been declared by either Federal or Florida
authorities. As used in this Section 9(a), the term "Prospectus" means the
Prospectus in the form first used by the Underwriters to confirm sales of the
Securities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and
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<PAGE>
upon the terms herein set forth; if, however, the Representatives shall not
have completed such arrangements within such 24-hour period, then:
(1) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Representatives or the Company shall have the right
to postpone Closing Time or a Date of Delivery for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at c/o Cardinal Capital
Management, Inc. 800 Douglas Road, Suite 340 Coral Gables, Florida 33134,
attention of Hershel F. Smith, Jr., President and Chief Executive Officer;
notices to the Company shall be directed to it at 7895 Convoy Court, Suite 18,
San Diego, California, 92111, attention of Dickerson Wright, President and Chief
Executive Officer.
SECTION 12. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
33
<PAGE>
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE, WITHOUT GIVING EFFECT TO
CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES. SPECIFIED TIMES OF DAY REFER TO
CORAL GABLES, FLORIDA TIME.
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<PAGE>
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of
Contents are for convenience only and shall not affect the construction thereof.
SECTION 15. WAIVER AND AMENDMENT. No change, amendment or supplement
to, or waiver of, this Agreement or any term, provision or condition herein,
shall be valid or of any effect unless in writing and signed by the party
against whom such is asserted. The waiver by any party hereto of the breach of
any provision of this Agreement by another party hereto shall not operate or be
construed as a waiver of any subsequent breach.
SECTION 16. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
SECTION 17. ENTIRE AGREEMENT. This Agreement contains the entire
understanding by and among the parties hereto and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
U. S. LABORATORIES INC.
--------------------------------------------
By: Dickerson Wright
Title: President and Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
CARDINAL CAPITAL MANAGEMENT, INC.
JANDA & GARRINGTON LLC
FAS WEALTH MANAGEMENT SERVICES, INC.
By: CARDINAL CAPITAL MANAGEMENT, INC.
- --------------------------------------------
By: Hershel F, Smith, Jr.
Title: President and Chief Executive Officer
For themselves and as representatives of
the several Underwriters named in
Schedule A hereto.
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- -------------
<S> <C>
Cardinal Capital Management, Inc.. . . . . . . . . . . . . . _____________
FAS Wealth Management Services, Inc. . . . . . . . . . . . . _____________
Janda & Garrington LLC . . . . . . . . . . . . . . . . . . . _____________
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . _____________
</TABLE>
<PAGE>
SCHEDULE B
LIST OF PERSONS SUBJECT TO SECTION l(a)(xxvii) OF THE UNDERWRITING
AGREEMENT WHO ARE REQUIRED TO DELIVER A LETTER SUBSTANTIALLY IN
THE FORM OF EXHIBIT B TO THE UNDERWRITING AGREEMENT
<PAGE>
Exhibit A
FORM OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and to enter into and perform its obligations under the
Underwriting Agreement, the Underwriters Warrant Agreement and the Financial
Consulting Agreement.
3. The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise.
4. The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus in the column entitled "As Adjusted" under
the caption "Capitalization"; the shares of issued and outstanding Common
Stock have been duly authorized and validly issued and fully paid and
non-assessable; and none of the outstanding shares of Common Stock was issued
in violation of the preemptive or other similar rights of any security holder
of the Company arising by operation of law, under the charter or by-laws of
the Company or under any agreement to which the Company is a party.
5. The Securities, the Underwriters Warrants and the Underwriters
Units have been duly authorized for issuance and sale to the Underwriters
pursuant to the Underwriting Agreement and, when issued and delivered by the
Company pursuant to the Underwriting Agreement against payment of the
consideration set forth in the Underwriting Agreement, will be validly
issued, fully paid and non-assessable, with no personal liability attaching
to the ownership thereof. The Common Stock and the Warrants conform to all
statements relating thereto contained in the Prospectus and such descriptions
conform to the rights set forth in the instruments defining the same.
A-1
<PAGE>
6. The Underwriters Units and underlying securities to be issued upon
the exercise of the Underwriters Warrants have been duly reserved and, when
issued and paid for, will be validly issued, fully paid and non-assessable,
with no personal liability attaching to the ownership thereof. The
Underwriters Warrants have been duly authorized and constitute valid and
binding obligations of the Company to issue and sell, upon exercise thereof
and payment therefor, the number of shares of Common Stock and warrants to
purchase Common Stock called for thereby. The Underwriters Warrants and the
Underwriters Units conform to all statements relating thereto contained in
the Prospectus and such descriptions conform to the rights set forth in the
instruments defining the same.
7. The issuance of the Securities, the Underwriters Warrants and the
Underwriters Units is not subject to preemptive or other similar rights
arising by operation of law, under the charter or by-laws of the Company or,
to the best of their knowledge and information, otherwise.
8. Each of the Company's 20,324-for-one Common Stock stock split and
one-for 0.8413 Common Stock reverse stock split has been duly and validly
authorized by all necessary corporate and shareholder action.
9. Each of the Company's subsidiaries has been duly incorporated and
is validly existing in good standing under the jurisdiction of its
organization, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and each of the Company's subsidiaries is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where
the failure so to qualify or to be in good standing would not have a material
adverse effect on the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise; all of the respective issued and outstanding
capital stock of each of the Company's subsidiaries has been duly authorized
and validly issued, is fully paid and non-assessable and, to the best of
their knowledge, is owned by the Company, directly or through a subsidiary,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; and none of such shares was issued in violation of the
preemptive rights of any shareholder. To the best of their knowledge, the
Company does not have any subsidiaries other than PEICO, USEL, TESD and LATE.
To the best of their knowledge, except for the shares of capital stock of
PEICO, USEL, TESD and LATE owned by the Company, neither the Company, PEICO,
USEL, TESD nor LATE owns any shares of stock or any other equity securities
of any corporation or has any equity interest in any firm, partnership,
association or other entity except as described in the Prospectus.
A-2
<PAGE>
10. Except as disclosed in or specifically contemplated by the
Prospectus, to the best of such counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the issuance of, and no
commitments, obligations, plans or arrangements to issue, any shares of
capital stock of the Company or any security convertible into or exchangeable
for capital stock of the Company. The outstanding stock options and warrants
relating to the Company's Common Stock have been duly authorized and validly
issued and the descriptions thereof contained in the Prospectus is accurate
in all material respects.
11. The execution, delivery and performance of each of the Underwriting
Agreement, the Underwriters Warrant Agreement and the Financial Consulting
Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company, and will not result in any
violation by any of the terms or provisions of the Company's certificate of
incorporation or bylaws. Each of the Underwriting Agreement, the Underwriters
Warrant Agreement and the Financial Consulting Agreement has been duly
authorized, executed and delivered by the Company, and constitutes the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles
of equity (regardless of whether enforcement is sought in a proceeding at law
or in equity).
12. The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required
filing of the Prospectus pursuant to Rule 424(b) has been made in the manner
and within the time period required by Rule 424(b); and, to the best of their
knowledge, no Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are
pending or threatened by the Commission.
13. The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus, and each amendment or supplement to the
Registration Statement and Prospectus, as of their respective effective or
issued dates (other than the financial statements and supporting schedules
included therein or omitted therefrom, as to which such counsel need express
no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
A-3
<PAGE>
14. If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the Prospectus
included in the Registration Statement at the time it became effective.
15. The form of certificate used to evidence the Common Stock and
Warrants comply in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and by-laws of
the Company and the requirements of the Nasdaq SmallCap Market.
16. There is not pending or, to the best of such counsel's knowledge,
threatened any action, suit, proceeding, inquiry or investigation, to which
the Company or any of its subsidiaries is a party, or to which the property
of the Company or any of its subsidiaries is subject, before or brought by
any court or governmental agency or body, which might reasonably be expected
to result in any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of the Underwriting Agreement or the
performance by the Company of its obligations hereunder or any of the other
transactions contemplated by the Registration Statement; and all pending,
legal or governmental proceedings to which the Company or any of its
subsidiaries is a party or that affect any of their respective properties
that are not described in the Prospectus, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a material adverse change in the condition, financial or otherwise,
or in the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise.
17. The information in the Prospectus under the captions "Prospectus
Summary," "Risk Factors," "Business," "Description of Securities," and
"Shares Eligible for Future Sale," and in the Registration Statement under
items 14 and 15, to the extent that it constitutes matters of law, summaries
of legal matters, documents or proceedings, or legal conclusions, has been
reviewed by such counsel and complies in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations; to the best of
such counsel's knowledge, there are no statutes or regulations, and no legal
or governmental actions, suits or proceedings pending or threatened against
the Company or any of its subsidiaries that are required to be described in
the Prospectus that are not described as required.
A-4
<PAGE>
18. To be best of such counsel's knowledge, there is no matter which
would render any of the representations in Section 1 of the Underwriting
Agreement incorrect.
19. Such counsel is familiar with all contracts or other documents
referred to in the Registration Statement and the Prospectus. All
descriptions in the Registration Statement and the Prospectus of such
contracts and other documents to which the Company or any of its subsidiaries
is a party are accurate in all material respects; to the best of such
counsel's knowledge, there are no franchises, contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein or filed
as exhibits thereto and the descriptions thereof or references thereto comply
in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.
20. To the best of such counsel's knowledge, neither the Company nor
any subsidiary is in violation of its charter or by-laws and no default by
the Company or any subsidiary exists in the due performance or observance of
any material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other agreement
or instrument that is described or referred to in the Registration Statement
or the Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
21. No filing with, or authorization, approval, consent or order of any
court or governmental authority or agency (other than under the 1933 Act and
the 1933 Act Regulations or as may be required under the securities or blue
sky laws of the various states, as to which such counsel need express no
opinion) is required in connection with the due authorization, execution and
delivery by the Company of the Underwriting Agreement or for the offering,
issuance, sale or delivery of the Securities; and the execution, delivery and
performance of the Underwriting Agreement and the consummation of the
transactions contemplated herein and compliance by the Company with its
obligations hereunder (including the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of
Proceeds") will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or
Repayment Event under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which any of them
A-5
<PAGE>
may be bound, or to which any of the property or assets of the Company or any
of its subsidiaries is subject, which would, in any such case or in the
aggregate, be material to the Company and its subsidiaries considered as one
enterprise, nor will such action result in any violation of the provisions of
the charter or by-laws of the Company or any of its subsidiaries, or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or any of
their respective properties, assets or operations.
22. To the best of such counsel's knowledge, except as disclosed in the
Registration Statement there are no persons with registration or other
similar rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
23. The Company is not, and (assuming application by the Company of the
net proceeds of the sale of the Units in the manner described in the
Prospectus) will not become, as a result of the consummation of the
transactions contemplated by the Registration Statement, required to register
as an investment company under the Investment Company Act of 1940, as amended.
24. Nothing has come to such counsel's attention that would lead them
to believe that the Registration Statement or any amendment thereto,
including the Rule 430A Information and Rule 434 Information (if applicable)
(except for financial statements and schedules and other financial data
included therein or omitted therefrom, as to which such counsel need make no
statement), at the time such Registration Statement or any such amendment
became effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any amendment
or supplement thereto (except for financial statements and schedules and
other financial data included therein or omitted therefrom, as to which such
counsel need make no statement), at the time the Prospectus was issued, at
the time any such amended or supplemented prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials,
which certificates shall be attached to such opinion. Such opinion shall not
state that it is to be governed
A-6
<PAGE>
or qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-7
<PAGE>
Exhibit B
January __, 1999
CARDINAL CAPITAL MANAGEMENT, INC.
FAS WEALTH MANAGEMENT SERVICES, INC.
JANDA & GARRINGTON LLC
as Representatives of the several Underwriters
c/o Cardinal Capital Management, Inc.
800 Douglas Road, Suite 340
Coral Gables, Florida 33134
Re: PROPOSED PUBLIC OFFERING BY U.S. LABORATORIES INC.
Dear Sirs:
The undersigned, an officer and/or director of U.S. Laboratories Inc., a
Delaware corporation (the "Company"), understands that Cardinal Capital
Management, Inc., Janda & Garrington LLC, and FAS Wealth Management Services,
Inc., acting as representatives (the "Representatives") of the Underwriters,
propose to enter into a Underwriting Agreement (the "Underwriting Agreement")
with the Company providing for the public offering of Units consisting of one
share of the Company's common stock, par value $.01 per share (the "Common
Stock") and one warrant to purchase one share of Common Stock. In recognition
of the benefit that such an offering will confer upon the undersigned as an
officer and/or director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees with each underwriter to be named in the Underwriting
Agreement that, during a period of eighteen months from the date of the
Underwriting Agreement, the undersigned will not, without the prior written
consent of the Representatives, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock, whether now
owned or hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, or file or cause
to be filed any registration statement under the Securities Act of 1933, as
amended, with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
------------------------------
Print Name:
-----------------------------
<PAGE>
EXHIBIT 1.2
FORM OF
SELECTED DEALER AGREEMENT
January _____________, 1999
CARDINAL CAPITAL MANAGEMENT, INC.
800 Douglas Road
Suite 340
Coral Gables, Florida 33134
Dear Sirs:
In connection with public offerings of securities underwritten by you, or
by a group of Underwriters represented by you, we understand that we may be
offered the opportunity to purchase a portion of such securities, as principal,
at a discount from the offering price representing a selling concession or
reallowance granted as consideration for services rendered by us in the
distribution of such securities. You request that we agree to the following
terms and provisions, and make the following representations, which, together
with any additional terms and provisions set forth in any wire or letter sent to
us in connection with a particular offering, will govern all such purchases of
securities and the reoffering thereof by us.
OUR SUBSCRIPTION TO, OR PURCHASE OF, SUCH SECURITIES WILL CONSTITUTE OUR
REAFFIRMATION OF THIS AGREEMENT.
1. When you are acting as representative (the "Representative") of the
Underwriters in offering securities to us, it is understood that all offers are
made subject to prior sale of the subject securities, when, as and if such
securities are delivered to and accepted by the Underwriters and subject to the
approval of legal matters by their counsel. In such cases, any order from us
for securities will be strictly subject to confirmation and you reserve the
right in your uncontrolled discretion to reject any order in whole or in part.
Upon release by you, we may reoffer such securities at the public offering price
fixed by you. With your consent, we may allow a discount, not in excess of the
reallowance fixed by you, in selling such securities to other dealers, provided
that in doing so we comply with the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"). Upon your request, we will advise you of
the identity of any dealer to whom we allow such a discount and any Underwriter
or dealer from whom we receive such a discount. After the securities are
released for sale to the public, you may vary the offering price and other
selling terms.
<PAGE>
2. We represent that we are a dealer actually engaged in the investment
banking or securities business and that we are either (i) a member in good
standing of the NASD or (ii) a dealer with its principal place of business
located outside the United States, its territories or possessions and not
registered under the Securities Exchange Act of 1934 (a "non-member foreign
dealer") or (iii) a bank not eligible for membership in the NASD. If we are a
non-member foreign dealer, we agree to make no sales of securities within the
United States, its territories or its possessions or to persons who are
nationals thereof or residents therein. Non-member foreign dealers and banks
agree, in making any sales, to comply with the NASD's interpretation with
respect to free-riding and withholding. In accepting a selling concession where
you are acting as Representative of the Underwriters, in accepting a reallowance
from you whether or not you are acting as such Representative, and in allowing a
discount to any other person, we agree to comply with the provisions of NASD
Conduct Rules 2740 and IM-2740, and, in addition, if we are a non-member foreign
dealer or bank, we agree to comply, as though we were a member of the NASD, with
the provisions of NASD Conduct Rules 2730 and 2750 and to comply with NASD
Conduct Rule 2420 and IM-2420-1 as that Rule and Interpretive Material apply to
a non-member foreign dealer or bank. We represent that we are fully familiar
with the above provisions of the NASD Conduct Rules and Interpretive Material
relating thereto.
3. If the securities have been registered under the Securities Act of
1933, as amended (the "Securities Act"), in offering and selling such securities
we are not authorized to give any information or make any representation not
contained in the prospectus relating thereto. We confirm that we are familiar
with the rules and policies of the Securities and Exchange Commission relating
to the distribution of preliminary and final prospectuses, and we agree that we
will comply therewith in any offering covered by this Agreement. If you are
acting as Representative of the Underwriters, you will make available to us, to
the extent made available to you by the issuer of the securities, such number of
copies of the prospectus or offering documents, for securities not registered
under the Securities Act, as we may reasonably request.
4. If you are acting as Representative of the Underwriters of securities
of an issuer that is not required to file reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), we agree that we will not sell any
of the securities to any account over which we have discretionary authority.
5. Payment for securities purchased by us is to be made at your office,
800 Douglas Road, Suite 340, Coral Gables, Florida 33134 (or at such other place
as you may advise), at the offering price less the concession allowed to us, on
such date as you may advise, by certified or official bank check (or such other
funds as you may advise), payable to your order, against delivery of the
securities to be purchased by us. If we are a member of The Depository Trust
Company, you shall have authority to
2
<PAGE>
make appropriate arrangements for payment for and delivery of our securities
through its facilities.
6. In the event that, prior to the completion of the distribution of
securities covered by this Agreement, you purchase in the open market or
otherwise any securities delivered to us, if you are acting as Representative of
the Underwriters, we agree to repay you for the accounts of the Underwriters the
amount of the concession allowed to us plus brokerage commissions and any
transfer taxes paid in connection with such purchase.
7. At any time prior to the completion of the distribution of securities
covered by this Agreement we will, upon your request as Representative of the
Underwriters, report to you the amount of securities purchased by us which then
remains unsold and will, upon your request, sell to you for the account of one
or more of the Underwriters such amount of such unsold securities as you may
designate, at the public offering price less an amount to be determined by you
not in excess of the concession allowed to us.
8. If you are acting as Representative of the Underwriters, upon
application to you, you will inform us of the states and other jurisdictions of
the United States in which it is believed that the securities being offered are
qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but you assume no responsibility with respect to our
right to sell securities in any jurisdiction.
9. We agree that in connection with any offering of securities covered by
this Agreement we will comply with the applicable provisions of the Securities
Act and the Exchange Act and the applicable rules and regulations of the
Securities and Exchange Commission thereunder, the applicable rules and
regulations of the NASD, and the applicable rules of any securities exchange or
regulatory authority having jurisdiction over the offering.
10. You shall have full authority to take such action as you may deem
advisable in respect of all matters pertaining to any offering covered by this
Agreement. You shall be under no liability to us except for your lack of good
faith and for obligations assumed by you in this Agreement, except that we do
not waive any rights that we may have under the Securities Act or the Exchange
Act or the rules and regulations thereunder.
11. Any notice from you shall be deemed to have been duly given if mailed
or transmitted by any standard form of written telecommunication to us at the
below address or at such other address as we shall specify to you in writing.
12. With respect to any offering of securities covered by this Agreement,
the price restrictions contained in Paragraph 1 hereof and the provisions of
Paragraphs 6
3
<PAGE>
and 7 hereof shall terminate as to such offering at the close of business on
the 45th day after the securities are released for sale or, as to any or all
such provisions, at such earlier time as you may advise. All other
provisions of this Agreement shall remain operative and in full force and
effect with respect to such offering.
13. This agreement shall be governed by the laws of the State of Florida
applicable to agreements made and to be performed in said State.
4
<PAGE>
Please confirm this Agreement by signing the enclosed duplicate copy hereof
in the place provided below and returning such signed duplicate copy to us.
Upon receipt thereof, this instrument and such signed duplicate copy will
evidence the agreement between us.
Very truly yours,
Firm:
-----------------------------------
By:
-------------------------------------
Authorized Officer or Partner
Address:
---------------------------------
---------------------------------
---------------------------------
Confirmed as of the date
first above written.
CARDINAL CAPITAL MANAGEMENT, INC.
By:
----------------------------------
Hershel F. Smith, President
5
<PAGE>
EXHIBIT 2.1
- -------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
WYMAN ENTERPRISES, INC.,
(SELLER)
EARL WYMAN, DONALD ALFORD AND BONNIE WYMAN,
(SHAREHOLDERS)
WYMAN TESTING LABORATORIES, INC.,
(BUYER)
AND
U.S. LABORATORIES INC.
(AS GUARANTOR)
DATED MARCH 25, 1998
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. ASSETS SUBJECT TO THIS AGREEMENT.. . . . . . . . . . . . . . . . . . . . 1
1.1 Purchased Assets. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Excluded Assets.. . . . . . . . . . . . . . . . . . . . . . . . . 3
2. ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Liabilities Assumed.. . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Liabilities Not Assumed.. . . . . . . . . . . . . . . . . . . . . 4
3. PURCHASE PRICE, CLOSING AND PAYMENT TERMS. . . . . . . . . . . . . . . . 5
3.1 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Closing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Payment of Purchase Price.. . . . . . . . . . . . . . . . . . . . 5
3.4 Adjustment of Final Purchase Price. . . . . . . . . . . . . . . . 6
3.5 Determination of Net Asset Value. . . . . . . . . . . . . . . . . 7
3.6 Determination of Amount Received. . . . . . . . . . . . . . . . . 8
3.7 Allocation of Purchase Price. . . . . . . . . . . . . . . . . . . 8
4. REPRESENTATIONS, WARRANTIES AND COVENANTS BY SELLER. . . . . . . . . . . 8
4.1 Corporate Organization. . . . . . . . . . . . . . . . . . . . . . 8
4.2 Title to Purchased Assets.. . . . . . . . . . . . . . . . . . . . 8
4.3 Pending or Threatened Claims. . . . . . . . . . . . . . . . . . . 9
4.4 Due Authorization.. . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Authority of Seller.. . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Effect of this Agreement. . . . . . . . . . . . . . . . . . . . . 9
4.7 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . .10
4.9 Trade Rights. . . . . . . . . . . . . . . . . . . . . . . . . . .10
4.10 Personal Property.. . . . . . . . . . . . . . . . . . . . . . . .10
4.11 Licenses, Permits, Approvals and Regulatory Matters;
Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
4.12 Environmental Protection. . . . . . . . . . . . . . . . . . . . .10
4.13 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . .10
4.14 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.15 Books and Records.. . . . . . . . . . . . . . . . . . . . . . . .11
4.16 Agreements with Third Parties.. . . . . . . . . . . . . . . . . .11
4.17 Tax Returns.. . . . . . . . . . . . . . . . . . . . . . . . . . .11
4.18 Financial Statements. . . . . . . . . . . . . . . . . . . . . . .12
4.19 Ordinary Course of Business.. . . . . . . . . . . . . . . . . . .12
4.20 Accuracy of Representations and Warranties. . . . . . . . . . . .12
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR. . . . . . . . . .12
5.1 Corporate Organization. . . . . . . . . . . . . . . . . . . . . .12
i
<PAGE>
5.2 Authorization and Approval of Agreement.. . . . . . . . . . . . .12
5.3 Accuracy of Representations and Warranties. . . . . . . . . . . .13
6. EMPLOYEES - EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . . . . . . .13
6.1 Affected Employees. . . . . . . . . . . . . . . . . . . . . . . .13
6.2 Retained Responsibilities.. . . . . . . . . . . . . . . . . . . .13
6.3 Payroll Tax.. . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.4 Termination and Other Benefits. . . . . . . . . . . . . . . . . .13
7. OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
7.1 Use of Company's Name.. . . . . . . . . . . . . . . . . . . . . .14
7.2 Access to Certain Records of Buyer. . . . . . . . . . . . . . . .14
7.3 Availability of Affected Employees. . . . . . . . . . . . . . . .14
8. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . .14
8.1 Compliance with Agreement.. . . . . . . . . . . . . . . . . . . .14
8.2 Satisfactory Investigation. . . . . . . . . . . . . . . . . . . .15
8.3 Absence of Litigation.. . . . . . . . . . . . . . . . . . . . . .15
9. DOCUMENTS DELIVERED AT CLOSING.. . . . . . . . . . . . . . . . . . . . .15
9.1 Documents to be Delivered by Seller and Shareholders. . . . . . .15
9.2 Documents to be Delivered by Buyer. . . . . . . . . . . . . . . .16
9.3 Other Documents to be Delivered. The obligations of the parties
hereto also shall be subject to Buyer and Alford having executed
and delivered to each other an employment agreement in the form
attached as Exhibit F.. . . . . . . . . . . . . . . . . . . . . .16
10. POST-CLOSING COVENANTS.. . . . . . . . . . . . . . . . . . . . . . . . .16
11. INDEMNIFICATION; EXPENSES. . . . . . . . . . . . . . . . . . . . . . . .16
11.1 Obligations of Seller and Shareholders to Indemnify.. . . . . . .16
11.2 Obligations of Buyer to Indemnify.. . . . . . . . . . . . . . . .17
11.3 Each Party to Bear Own Expenses.. . . . . . . . . . . . . . . . .17
12. SPECIFIC PERFORMANCE.. . . . . . . . . . . . . . . . . . . . . . . . . .17
13. GUARANTY OF BUYER'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . . .18
14. MISCELLANEOUS PROVISIONS.. . . . . . . . . . . . . . . . . . . . . . . .18
14.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
14.2 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
14.3 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . .19
14.4 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . .19
14.5 Positions For Income Tax Purposes.. . . . . . . . . . . . . . . .19
14.6 Public Announcements. . . . . . . . . . . . . . . . . . . . . . .19
14.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .19
14.8 Modifications and Waivers.. . . . . . . . . . . . . . . . . . . .19
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of this 25th
day of March, 1998 by and among WYMAN ENTERPRISES, INC., a California
corporation ("SELLER"), WYMAN TESTING LABORATORIES, INC., a Delaware corporation
("BUYER"), EARL WYMAN, DONALD ALFORD AND BONNIE WYMAN (each, a "SHAREHOLDER" and
together, "SHAREHOLDERS") and, solely for the purposes of Section 5 and Section
13 hereof, U.S. LABORATORIES INC., a Delaware corporation ("U.S. LABORATORIES").
RECITALS
A. Seller owns and operates an engineering inspection and testing
business in southern California (the "BUSINESS"); and
B. Shareholders are shareholders of Seller; and
C. Buyer desires to purchase from Seller, and Seller desires to
sell to Buyer, substantially all of the assets and contractual rights of
Seller relating to the Business, upon the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the covenants, agreements,
warranties and representations contained 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. ASSETS SUBJECT TO THIS AGREEMENT.
1.1 PURCHASED ASSETS.
Other than those assets specifically excluded by Section 1.2 below,
Seller shall sell, transfer, convey, assign, and deliver to Buyer, and Buyer
shall purchase and accept, effective as of the close of business on the Closing
Date (as hereinafter defined), all of the business, rights, claims and assets
(of every kind, nature, character and description, whether real, personal or
mixed, tangible or intangible, accrued, contingent or otherwise, and wherever
situated) of Seller, used, held for use or acquired or developed for use in the
Business, or developed in the course of conducting the Business or by persons
employed in the Business (collectively, the "PURCHASED ASSETS"). The Purchased
Assets shall include, but not be limited to, all of the following assets or
rights of Seller, to the extent so used, held, acquired or developed for
purposes directly related to the Business:
(a) PERSONAL PROPERTY. All furniture, machinery, equipment,
fixtures, vehicles, laboratory testing equipment, supplies, forms, manuals,
spare parts and all other personal property (except to the extent subject
to personal property leases from third parties).
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(b) PERSONAL PROPERTY LEASES. All leases of equipment, furniture and
other personal property leased by Seller described on Schedule 1.1(b) (the
"PERSONAL PROPERTY LEASES").
(c) PHONE NUMBERS. All phone numbers used by Seller in the Business.
(d) CONTRACTS. All contracts (including, without limitation, all
testing or service contracts), subleases, purchase orders and sales orders,
including, without limitation, those described on Schedule 1.1(d) (the
"ASSUMED CONTRACTS"), and all contractual rights of Seller necessary to
operate the Business, including, without limitation, any security deposits
and retainers relating thereto. To the extent that any Assumed Contract
for which assignment to Buyer is provided herein is not assignable without
the consent of another party, this Agreement shall not constitute an
assignment or an attempted assignment thereof if such assignment or
attempted assignment would constitute a breach thereof. Seller and Buyer
agree to use their reasonable best efforts (without any requirement on the
part of Buyer to pay any money or agree to any change in the terms of any
such Assumed Contract) to obtain the consent of such other party to the
assignment of any such Assumed Contract to Buyer in all cases in which such
consent is or may be required for such assignment. If any such consent
shall not be obtained, Seller agrees to cooperate with Buyer in any
reasonable arrangement designed to provide for Buyer the benefits intended
to be assigned to Buyer under the relevant Assumed Contract, including
enforcement at the cost and for the account of Buyer of any and all rights
of Seller against the other party thereto arising out of the breach or
cancellation thereof by such other party or otherwise. If and to the
extent that such arrangement cannot be made, Buyer, upon notice to Seller,
shall have no obligation with respect to any such Assumed Contract and any
such Assumed Contract shall not be deemed to be a Purchased Asset
hereunder.
(e) NOTES AND ACCOUNTS RECEIVABLE. All notes, drafts and accounts
receivable relating to work completed and invoiced prior to the Closing
Date.
(f) COMPUTER SOFTWARE. All computer source codes, programs and other
software of Seller, including all machine readable code, printed listings
of code, documentation and related property and information of Seller.
(g) LITERATURE. All sales literature, promotional literature,
catalogs and similar materials of Seller.
(h) RECORDS AND FILES. All books, records, files, invoices, customer
and vendor lists, accounting records, business records, operating data and
other data of Seller.
(i) LICENSES; PERMITS. To the extent transferable, all licenses,
permits, approvals, certifications and listings.
(j) TRADE RIGHTS. All of Seller's interest in any Trade Rights used
in connection with the Purchased Assets or the Business. As used herein,
the term "Trade Rights" shall mean and include: (i) all trademarks rights,
business identities,
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trade dress, service marks, trade names and brand names, all
registrations thereof and applications therefor, including, without
limitation, the name "Wyman Testing Laboratories," and all goodwill
associated with the foregoing; (ii) all copyrights, copyright
registrations and copyright applications, and all other rights
associated with the foregoing and the underlying works of authorship;
(iii) all patents and patent applications and all international
proprietary rights associated therewith; (iv) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; (v) all inventions,
mask works and mask work registrations, know-how, discoveries,
improvements, designs, trade secrets, shop and royalty rights, employee
covenants and agreements respecting intellectual property and
non-competition and all other types of intellectual property; and (iv)
all claims for infringements or breach of any of the foregoing.
(k) CASH AND BANK ACCOUNTS. All cash and cash equivalents, including
petty cash balances and all Seller's interest in any of its bank accounts,
other than amounts contained therein consisting of security deposits and
retainers relating to the Assumed Contracts which shall constitute part of
the Purchased Assets.
(l) GENERAL INTANGIBLES. All prepaid items (including, without
limitation, customer deposits related to the Assumed Contracts and all
lease deposits), all causes of action arising out of occurrences before or
after the Closing Date relating to the other Purchased Assets and not the
Excluded Assets or relating to any litigation arising out of occurrences on
or prior to the Closing Date, and other intangible rights and assets.
1.2 EXCLUDED ASSETS.
Notwithstanding any other provision of this Agreement, Seller shall
not sell, transfer, assign, convey or deliver to buyer, and Buyer shall not
purchase or accept, the following assets of Seller (collectively, the "EXCLUDED
ASSETS"):
(a) CORPORATE FRANCHISE. Any corporate franchise, articles of
incorporation, corporate seal, stock books, minute books and other
corporate records having exclusively to do with the corporate organization
and capitalization of Seller or not otherwise respecting the Business;
provided, however, that Buyer or its designated agents shall have
reasonable access to such books and records and may make copies thereof
and/or excerpts therefrom.
(b) TAX-RELATED ASSETS. Federal, state and local income and
franchise tax credits and tax refund claims and associated returns and
records.
2. ASSUMPTION OF LIABILITIES.
As used in this Agreement, the term "LIABILITY" shall mean and include
any direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage,
deficiency, cost, expense, liability, obligation or responsibility, fixed or
contingent, known or unknown, asserted or unasserted, liquidated or
unliquidated, secured or unsecured.
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2.1 LIABILITIES ASSUMED.
Subject to the terms and conditions of this Agreement, effective as of
the close of business on the Closing Date, Buyer shall assume and agree to
perform and discharge the following Liabilities (collectively, the "ASSUMED
LIABILITIES"):
(a) FINAL CLOSING BALANCE SHEET LIABILITIES. The accounts payable
and accrued Liabilities of the category reflected or reserved against on
the Final Closing Balance Sheet (as defined in Section 3.5), without regard
to the amount reserved or accrued therefor except that Buyer shall assume
no more than Two Hundred Thousand Dollars ($200,000) of all Liabilities of
Seller (including principal, interest and past due amounts) to North County
Bank (the "NORTH COUNTY BANK DEBT").
(b) ASSUMED CONTRACTS. Liabilities arising after the Closing under
and pursuant to the Assumed Contracts, the Personal Property Leases,
license agreements relating to the Trade Rights and other contracts and
agreements related to the Business as set forth on Schedule 2.1(b).
2.2 LIABILITIES NOT ASSUMED.
Buyer is not assuming, and Seller shall not be deemed to have
transferred to Buyer, the following Liabilities of Seller (the "RETAINED
LIABILITIES"):
(a) NORTH COUNTY BANK. Any Liability of Seller to North County Bank
in excess of Two Hundred Thousand Dollars ($200,000).
(b) INCOME AND FRANCHISE TAXES. Any Liability of Seller for Federal
income taxes and any foreign, state, county or local income, profit or
franchise taxes (and any penalties or interest due on account thereof).
(c) SERVICE LIABILITY. Any Liability of Seller arising out of or
resulting from any services performed by Seller prior to the Closing Date
for claims made for injury to person, damage to property or other damage
(whether made in product or service liability, tort or otherwise).
(d) LITIGATION MATTERS. Any Liability with respect to these actions,
suits, proceedings, arbitrations, investigations, or inquiries (i) pending
at the Closing Date, whether civil or administrative, whether or not
described in Schedule 4.3, or (ii) instituted after the Closing arising out
of actions of the Seller or events occurring prior to the Closing.
(e) TRANSACTION EXPENSE. All Liabilities incurred by Seller in
connection with this Agreement and the transactions contemplated herein.
(f) RETIREE BENEFITS. Any Liabilities to current or retired
employees of Seller for retiree benefits under any employee plan of Seller,
unless accrued for on the Final Closing Balance Sheet.
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(g) ENVIRONMENTAL LIABILITIES. Liabilities resulting from conditions
existing prior to or on the Closing Date which were or are in violation of
applicable federal, state and local laws relating to the environment.
(h) OTHER LIABILITIES. All other Liabilities of Seller not expressly
assumed.
3. PURCHASE PRICE, CLOSING AND PAYMENT TERMS.
3.1 PURCHASE PRICE.
The purchase price for the Purchased Assets (the "PURCHASE PRICE")
shall be Four Hundred Fifty Thousand Dollars ($450,000) plus the assumption of
the Assumed Liabilities. The Purchase Price shall be subject to adjustment as
set forth in Section 3.4.
3.2 CLOSING.
The closing (the "CLOSING") for the transactions contemplated herein
shall be held on March 25, 1998 (the "CLOSING DATE") at the offices of San Diego
Testing Engineers, 17150 Via Del Campo, Suite 307, San Diego, California or at
such other place and time as the parties may agree.
3.3 PAYMENT OF PURCHASE PRICE.
The Purchase Price shall be paid by Buyer as follows:
(a) ASSUMPTION OF LIABILITIES. On the Closing Date, Buyer shall
assume the Assumed Liabilities. With respect to that portion of the
Assumed Liabilities consisting of the North County Bank Debt, Buyer shall
have satisfied its obligations under Section 2.1(a) and this Section 3.3(a)
upon payment to North County Bank of an amount equal to the lesser of (i)
the balance of the North County Bank Debt plus all accrued interest or (ii)
Two Hundred Thousand Dollars ($200,000).
(b) CASH TO SELLER. On the Closing Date, Buyer shall pay to Seller
One Hundred Fifty Thousand Dollars ($150,000) by delivery of a check
payable to the order of Seller.
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(c) PROMISSORY NOTE - SHORT TERM. On the Closing Date, Buyer shall
deliver to Seller Buyer's promissory note to Seller in the original
principal amount of One Hundred Fifty Thousand Dollars ($150,000) in the
form attached hereto as EXHIBIT A (the "SHORT TERM NOTE"), which Note shall
not bear interest and the principal of which shall be payable on April 1,
1998.
(d) PROMISSORY NOTE - LONG TERM. On the Closing Date, Buyer shall
deliver to Seller Buyer's promissory note to Seller in the original
principal amount of One Hundred Fifty Thousand Dollars ($150,000) in the
form attached hereto as EXHIBIT B (the "LONG TERM NOTE"), which Long Term
Note shall not bear interest and the principal of which shall be payable
upon the earlier to occur of (i) October 1, 1999, or (ii) the thirtieth day
following the closing of the initial public offering of the capital stock
of Buyer or any affiliate of Buyer.
3.4 ADJUSTMENT OF FINAL PURCHASE PRICE.
(a) NET ASSET VALUE ADJUSTMENT. On the fifth business day
following the final determination of the Final Closing Balance Sheet (as
defined in Section 3.5) (such date being hereinafter referred to as the
"SETTLEMENT DATE"), the Purchase Price shall be reduced by the amount, if
any, by which Seller's Net Asset Value (as calculated below), as reflected
on the Final Closing Balance Sheet, is less than Four Hundred Fifty
Thousand Dollars ($450,000).
(b) RECEIVABLES ADJUSTMENT. On the fifth business day following the
final determination of the Accounts Receivable Schedule (as defined in
Section 3.6), the Purchase Price shall be reduced by the amount, if any, by
which the Amount Received (as defined in Section 3.6) is less than Seven
Hundred Twelve Thousand Dollars ($712,000). Buyer shall collect the
accounts receivable set forth on the Accounts Receivable Schedule in
accordance with reasonable and ordinary business management principles.
(c) MANNER OF ADJUSTMENT. Any adjustment to the Purchase Price
required pursuant to this Section 3.4 shall be made by first reducing the
principal amount of the Long Term Note. Upon each such reduction, Buyer
shall execute a replacement promissory note, upon the same terms and
conditions as the Long Term Note, in a principal amount reflecting the
reduction and Seller shall surrender the Long Term Note and accept such
replacement note. If any adjustment pursuant to this Section 3.4 shall
exceed the principal amount of the Long Term Note (or a replacement note,
as the case may be), such Long Term Note (or replacement note) shall be
cancelled and any excess reduction of the Purchase Price shall reduce any
amounts owing by the Buyer to the Shareholders under the Non-Competition
Agreements provided for in Section 9.1(d).
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3.5 DETERMINATION OF NET ASSET VALUE.
(a) CALCULATION OF NET ASSET VALUE. "Net Asset Value" shall be
calculated as the difference between the net book value of the Purchased
Assets and the net book value of the Assumed Liabilities, as reported on
the Final Closing Balance Sheet.
(b) FINAL CLOSING BALANCE SHEET. The Final Closing Balance sheet
shall be prepared as follows:
(i) Within twenty (20) days after the Closing Date, Seller
shall deliver to Buyer a balance sheet of Seller as of the Closing
Date, prepared in accordance with the accounting principles of
Seller, applied on a consistent basis (the "FINAL CLOSING BALANCE
SHEET"). The balance sheet shall be accompanied by (A) detailed
schedules of the Purchased Assets and Assumed Liabilities, (B) a
report setting forth the amount of any adjustment, if any, to the
Purchase Price pursuant to Section 3.4(a) hereof, and (C) a
certificate of the Shareholders representing and warranting that
the Final Closing Balance Sheet is true and correct in all material
respects and was prepared in accordance with Seller's standard
accounting practices.
(ii) Within fifteen (15) days following the delivery of the
Final Closing Balance Sheet, Buyer or its independent accountants
may object to any of the information contained in said balance
sheet or accompanying schedules which could affect the necessity or
amount of any adjustment pursuant to Section 3.4(a). Any such
objection shall be made in writing and shall state Buyer's
determination of the amount of Seller's Net Asset Value in
sufficient detail for Seller to evaluate the basis for Buyer's
objections and the amounts subject to dispute. In the event that
Buyer fails to deliver to Seller written notice of objection within
fifteen (15) days following the delivery to Buyer of the Final
Closing Balance Sheet, such Final Closing Balance Sheet delivered
by Seller shall be deemed to be correct and to be the Final Closing
Balance Sheet for purposes of this Agreement.
(iii) In the event of a dispute or disagreement relating to
the Final Closing Balance Sheet or schedules which Buyer and Seller
are unable to resolve, either party may elect to have all such
disputes or disagreements resolved by Buyer's independent
accountants or, if the Buyer's independent accountant is unwilling
to serve, then by the San Diego, California firm of Constantine &
Constantine. Such accounting firm shall make a resolution of
disputed items on the balance sheet of Company as of the Closing
Date and the calculation of Net Asset Value, which shall be final
and binding for purposes of this Section 3. Such accounting firm
shall be instructed to use every reasonable effort to perform its
services within fifteen (15) days of submission of the balance
sheet to it and, in any case, as soon as practicable after such
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submission. The fees and expenses for the services of such
accounting firm shall be allocated equally between Buyer and Seller.
3.6 DETERMINATION OF AMOUNT RECEIVED.
(a) ACCOUNTS RECEIVABLE SCHEDULE. On or before December 15, 1998,
Buyer shall deliver to Seller a schedule detailing the amounts Buyer has
received as of November 31, 1998 on account of all accounts receivable
acquired from Buyer (the "ACCOUNTS RECEIVABLE SCHEDULE"). The Accounts
Receivable Schedule shall indicate the total amount Buyer has so received
(the "AMOUNT RECEIVED"). Within thirty (30) days following the delivery of
the Accounts Receivable Schedule, Seller or its independent accountants may
object to any of the information contained therein. Any such objection
shall be made in writing and shall set forth in sufficient detail the basis
for Seller's objection and the amounts subject to dispute. In the event
Seller fails to deliver to Buyer such written notice of objection within
thirty (30) days following delivery to Seller of the Accounts Receivable
Schedule, the Amount Received as set forth on such Accounts Receivable
Schedule delivered by Buyer shall be deemed to be correct and to be the
Amount Received. Disputes or disagreements as to the Amount Received shall
be resolved as set forth in Section 3.5(b)(iii)
3.7 ALLOCATION OF PURCHASE PRICE.
The Purchase Price (including the assumption by Buyer of the Assumed
Liabilities) shall be allocated among the Purchased Assets for tax purposes in a
manner to be mutually agreed upon by Seller and Buyer. Seller and Buyer shall
follow and use such allocation in all tax returns, filings and other related
reports made by them to any governmental agencies.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS BY SELLER.
Seller and Shareholders, jointly and severally, represent, warrant and
covenant, which representations, warranties and covenants shall be true and
correct as of the Closing Date, that:
4.1 CORPORATE ORGANIZATION.
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all necessary
corporate powers to own its properties and carry on the Business.
4.2 TITLE TO PURCHASED ASSETS.
Seller has good and marketable title to all of the Purchased Assets
free and clear of all liens, encumbrances and restrictions on transfer.
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4.3 PENDING OR THREATENED CLAIMS.
Except as set forth in Schedule 4.3, there are no claims, actions,
litigation, disputes, lawsuits, proceedings or governmental investigations
pending or threatened against Seller or the Shareholders or relating to or
affecting the Purchased Assets or the Business, and no order, writ, injunction
or decree affecting the Purchased Assets or the Business has been threatened or
is in effect.
4.4 DUE AUTHORIZATION.
The execution, delivery and performance by Seller of this Agreement
and the other documents and instruments to be executed and delivered pursuant
hereto, and the consummation of the transactions contemplated hereby or thereby,
have been duly and validly authorized and approved by all necessary corporate
action on the part of Seller. No other corporate act or proceeding on the part
of Seller is necessary to authorize this Agreement or the other documents and
instruments to be executed and delivered by Seller pursuant hereto or the
consummation of the transactions hereby or thereby.
4.5 AUTHORITY OF SELLER.
Seller and Shareholders have the legal power, capacity and authority
to execute, deliver and perform this Agreement. Neither the execution, nor
delivery nor performance by Seller of this Agreement or the other documents and
instruments to be executed and delivered pursuant hereto, or the consummation by
Seller of the transactions contemplated hereby and thereby, will cause Seller to
violate any provisions of Seller's certificate of incorporation or by-laws or
result in the breach of any provision of, or constitute a default under, any
indenture, agreement, contract or other instrument to which Seller is a party or
by which Seller or any of the Purchased Assets may be bound.
4.6 EFFECT OF THIS AGREEMENT.
The execution, delivery and consummation of this Agreement and the
other instruments and documents to be executed and delivered by Seller and the
Shareholders in connection with this Agreement, and the consummation of the
transactions contemplated hereby and thereby, will not, with or without the
passage of time or the giving of notice or both, result in or constitute any of
the following: (i) a violation of any statute, rule, judgment, regulation,
writ, decree or order of any court or governmental entity to which Seller, any
Shareholder or the Purchased Assets are or may be subject, or (ii) the creation
or imposition of any lien, encumbrance, charge, equity or restriction of any
nature whatsoever in favor of any third party upon the Purchased Assets.
4.7 CONSENTS.
No consent or approval is required of any person or entity pursuant to
the terms of any contract or otherwise in order to permit the execution,
delivery and performance by Seller and the Shareholders of this Agreement and
the consummation of the transactions contemplated hereby.
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4.8 ENFORCEABILITY.
This Agreement is a valid and binding obligation of Seller and
Shareholders, subject to performance by Buyer as provided herein, enforceable in
accordance with its terms, except as such may be limited by bankruptcy,
insolvency, reorganization or other laws affecting creditors' rights generally,
and by general equitable principles.
4.9 TRADE RIGHTS.
Schedule 4.9 lists all material Trade Rights of the type described in
Section 1.1(j), in which Seller now has any interest, specifying whether such
Trade Rights are owned, controlled, used or held (under license or otherwise) by
Seller, and also indicating which of such Trade Rights are registered. All
Trade Rights shown as registered on Schedule 4.9 have been properly registered,
all pending registrations and applications have been properly made and filed and
all annuity, maintenance, renewal and other fees relating to registration or
application are current. The Trade Rights included in the Purchased Assets
constitute all of the Trade Rights used by Seller in the conduct of the Business
as conducted by Seller. Seller is not infringing and has not infringed any
Trade Rights of another in the operation of the Business, nor is any other
person infringing the Trade Rights of Seller. Seller has not granted any
license or made any assignment of any Trade Right listed on Schedule 4.9.
Seller does not pay any royalties or other consideration for the right to use
any Trade Rights of others.
4.10 PERSONAL PROPERTY.
All items of Seller's personal property included in the Purchased
Assets are in good operating condition for the operations of the Business as
currently conducted, taking into consideration age and ordinary wear and tear,
and are adequate and sufficient for all operations conducted by the Business,
and constitute all personal property necessary or appropriate for the operations
of the Business as currently conducted.
4.11 LICENSES, PERMITS, APPROVALS AND REGULATORY MATTERS; COMPLIANCE.
All governmental and regulatory licenses, permits and approvals
necessary to the conduct of the Business as currently conducted ("LICENSES") are
set forth in Schedule 4.11 and are in full force and effect. Seller is not a
party to any pending dispute with respect to such Licenses and, within the past
five (5) years, there have been no material violations by Seller of any such
Licenses or any claims or proceedings, pending or threatened, challenging the
validity of or seeking to discontinue any License. Seller is in compliance in
all material respects with all applicable laws, regulations and administrative
orders of any country, state or municipality or of any subdivision thereof to
which the Business is subject.
4.12 ENVIRONMENTAL PROTECTION.
Seller is in compliance with all foreign, federal, state, local and
other laws, regulations and ordinances relating to the environment.
4.13 ABSENCE OF CHANGES.
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Since January 31, 1998, there has been no material adverse change in
the Purchased Assets, liabilities, financial condition, Business, operations or
prospects of Seller, financial or otherwise, and since such date, the Business
has been conducted in the usual, regular and ordinary manner in all respects.
4.14 DISCLOSURE.
All facts material to the Purchased Assets or the results of
operations, financial condition or prospects of the Business known to Seller
have been disclosed to Buyer in this Agreement.
4.15 BOOKS AND RECORDS.
The books of account and all other corporate records of Seller
relating to the Purchased Assets and the Business are complete and correct, have
been maintained in accordance with reasonable business practices and fully and
accurately reflect the results of operations of the Business as of the
respective periods indicated.
4.16 AGREEMENTS WITH THIRD PARTIES.
Seller has delivered to Buyer true and complete copies of all
agreements relating to the conduct and operation of the Business being acquired
by Buyer and all such agreements are Assumed Contracts. Seller has in all
material respects performed all obligations required to be performed by it under
all such agreements and is not in default under any of them. All agreements
constituting part of the Purchased Assets are valid, binding and in full force
and effect.
4.17 TAX RETURNS.
Buyer will not be liable for payment of any taxes or penalties due to
the conduct of the Business prior to the date hereof. Seller has made all
deposits required by law to be made with respect to employees' withholding
taxes. Seller has duly filed with all appropriate governmental agencies and
bodies, whether federal, state or local, all tax returns which were required to
be filed and has paid, or has established adequate reserves for payment of, all
taxes shown to be due on such returns.
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4.18 FINANCIAL STATEMENTS.
The financial information provided to Buyer for the period ended
January 31, 1998 is true and correct in all material respects and was prepared
in accordance with Seller's standard accounting practices.
4.19 ORDINARY COURSE OF BUSINESS.
Since March 31, 1997, Seller has conducted its business in the
ordinary and usual course including, without limitation, the ordinary and usual
invoicing of work in process to its customers, and has not incurred any
Liability other than in the ordinary and usual course of business, encumbered
any of its assets, disposed of any property, entered into any lease or agreement
respecting real property, or entered into any employment agreement or other
contract relating to the Purchased Assets or the Business with a term of more
than one (1) month or involving payments of more than $5,000 other than as set
forth on Schedule 4.19. In addition, Seller has not entered into any oral or
written agreement with any party, other than Buyer, purporting to transfer the
Purchased Assets.
4.20 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
No representation or warranty in this Agreement by Seller and no
statement, certificate, exhibit, document, instrument, report or other
information furnished or to be furnished by Seller in connection with the
negotiation of or pursuant to, this Agreement, or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
5. REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR.
Buyer and Guarantor represent and warrant, jointly and severally,
which representations and warranties shall be true and correct as of the Closing
Date, that:
5.1 CORPORATE ORGANIZATION.
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Guarantor is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware.
5.2 AUTHORIZATION AND APPROVAL OF AGREEMENT.
Each of Buyer and Guarantor has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
this Agreement constitutes the valid and binding obligation of such person
enforceable in accordance with its terms. The execution, delivery, consummation
and performance of this Agreement by Buyer and Guarantor have been duly
authorized by all necessary corporate action on the part of Buyer and of
Guarantor.
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5.3 ACCURACY OF REPRESENTATIONS AND WARRANTIES.
No representation or warranty made by Buyer in this Agreement and no
statement, certificate, exhibit, document, instrument, report or other
information furnished or to be furnished by Buyer in connection with the
negotiation of, or pursuant to, this Agreement, or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading.
6. EMPLOYEES - EMPLOYEE BENEFITS.
6.1 AFFECTED EMPLOYEES.
"AFFECTED EMPLOYEES" shall mean employees of the Seller who are
employed by Buyer immediately after the Closing Date. However, Buyer shall have
no obligation to hire any employees of Seller.
6.2 RETAINED RESPONSIBILITIES.
Seller agrees to satisfy, or cause its insurance carriers to satisfy,
all claims for benefits, whether insured or otherwise (including, but not
limited to, workers' compensation, life insurance, medical and disability
programs), under Seller's employee benefit programs brought by, or in respect
of, Affected Employees and other employees and former employees of Seller, which
claims arise out of events occurring on or prior to the Closing Date, in
accordance with the terms and conditions of such programs or applicable workers'
compensation statutes regardless of the employment by Buyer of any such
employees after the Closing Date.
6.3 PAYROLL TAX.
Seller agrees to make a clean cut-off of payroll and payroll tax
reporting with respect to the Affected Employees paying over to the federal,
state and city governments those amounts respectively withheld or required to be
withheld for periods ending on or prior to the Closing Date. Seller also agrees
to issue, by the date prescribed by IRS Regulations, Forms W-2 for wages paid
through the Closing Date. Except as set forth in this Agreement, Buyer shall be
responsible for all payroll and payroll tax obligations after the Closing Date
for Affected Employees.
6.4 TERMINATION AND OTHER BENEFITS.
Buyer shall be solely responsible for, and shall pay or cause to be
paid, severance payments and other termination benefits, back pay, damages,
costs or expenses, if any, to Affected Employees who may become entitled to such
benefits or amounts by reason of any events occurring after the Closing Date,
and Buyer shall indemnify and hold harmless Seller against such liability.
Seller shall be solely responsible for, and shall pay or cause to be paid,
severance payments and other termination benefits, if any, back pay, damages,
costs or expenses to all of its employees including, without limitation, any
amounts payable as a result
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of such employees' withdrawal from any pension and/or savings plans
maintained by Seller, which have accrued prior to and including the Closing
Date, and Seller shall indemnify and hold harmless Buyer against such
liability.
7. OTHER MATTERS.
7.1 USE OF COMPANY'S NAME.
Following the Closing Date, neither Seller nor any affiliate shall,
without the prior written consent of Buyer, make any use of the name "WYMAN
TESTING LABORATORIES" or any other name confusingly similar thereto, except as
may be necessary for Seller to pay its liabilities, prepare tax returns and
other reports, and to otherwise wind up and conclude its business.
7.2 ACCESS TO CERTAIN RECORDS OF BUYER.
Buyer will maintain the records received pursuant to this Agreement
for a period of five (5) years and will, during regular business hours and upon
reasonable prior notice, furnish reasonable access thereto to Seller for audit,
tax, accounting or legal purposes.
7.3 AVAILABILITY OF AFFECTED EMPLOYEES.
Buyer agrees that for a period of two (2) years after the Closing
Date, upon reasonable prior notice from Seller, Buyer shall use its reasonable
best efforts to make available to Seller any Affected Employees to serve as
witnesses in any litigation. Seller shall promptly reimburse Buyer at 130% of
the actual rate of hourly compensation for the Affected Employee and shall
reimburse such Affected Employees for their reasonable out-of-pocket costs and
expenses.
8. CONDITIONS TO CLOSING.
8.1 COMPLIANCE WITH AGREEMENT.
(a) CONDITIONS TO BUYER'S OBLIGATION. The following shall be
conditions precedent to Buyer's obligation to close:
(i) Seller shall have in all material respects performed and
complied with all of its agreements and obligations under this
Agreement which are to be performed or complied with by it prior to
or on the Closing Date, including the delivery of the closing
documents specified in Section 9.1.
(ii) Buyer and Donald Oliver shall have executed and delivered
to each other an employment agreement in the form attached as
EXHIBIT C.
(b) CONDITION TO SELLER'S OBLIGATION. It shall be a condition to the
obligation of Seller that Buyer shall have in all material respects
performed and complied with all of its agreements and obligations under
this Agreement which are to be performed or
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complied with by it prior to or on the Closing Date, including the
delivery of the closing documents specified in Section 9.2.
8.2 SATISFACTORY INVESTIGATION.
Buyer shall be satisfied, in its sole discretion (and without waiving
any liability of Seller for a breach of the representations and warranties made
by it in this Agreement), with the condition and nature of the Purchased Assets
and the Assumed Contracts.
8.3 ABSENCE OF LITIGATION.
No litigation shall have been commenced or threatened, and no
investigation by any government entity shall have been commenced, against Buyer,
Seller or any of the affiliates, officers or directors of either of them, with
respect to the transactions contemplated hereby.
9. DOCUMENTS DELIVERED AT CLOSING.
9.1 DOCUMENTS TO BE DELIVERED BY SELLER AND SHAREHOLDERS.
In addition to the documents specifically required by the foregoing
provisions hereof, the obligations of Buyer hereunder shall be subject to the
delivery by Seller and Shareholders to Buyer on or prior to the Closing Date, of
the following documents:
(a) An Assignment and Bill of Sale sufficient to vest in Buyer, its
successors and assigns, all of Seller's right, title and interest in and to
the Purchased Assets.
(b) An Assignment and Assumption Agreement relating to the Assumed
Liabilities.
(c) Non-competition agreements executed by Donald C. Alford
("ALFORD") and Earl Wyman and Bonnie Wyman in the forms attached as
EXHIBIT D and EXHIBIT E (the "NON-COMPETITION AGREEMENTS").
(d) Consent by Seller's landlord, Palomar Enterprises, Inc., as to
assumption by Buyer of that certain lease between Seller and such landlord
dated as of June 22, 1994 and relating to the property commonly known as
17150 Via Del Campo, Suite 307, San Diego, California 92127.
(e) Physical possession of all Purchased Assets.
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9.2 DOCUMENTS TO BE DELIVERED BY BUYER.
The obligations of Seller hereunder shall be subject to the delivery
by Buyer to Seller and the Shareholders on or prior to the Closing Date, of the
following documents:
(a) An Assignment and Assumption Agreement.
(b) The Short Term Note.
(c) The Long Term Note.
(d) The payment pursuant to Section 3.3(b).
(e) The Non-Competition Agreements.
9.3 OTHER DOCUMENTS TO BE DELIVERED. The obligations of the parties
hereto also shall be subject to Buyer and Alford having executed and delivered
to each other an employment agreement in the form attached as EXHIBIT F.
10. POST-CLOSING COVENANTS.
Seller covenants and agrees with Buyer that at any time and from time
to time after the Closing Date upon the request of Buyer, Seller and its
successors or assigns shall execute, acknowledge and deliver to Buyer such
further instruments of conveyance, assignment, transfer, consents and assurances
and shall take such other action as Buyer may reasonably request in order to
more effectively convey, assign, transfer and deliver any of the properties or
assets intended to be conveyed, assigned, transferred and delivered pursuant to
this Agreement, and assist in the collection or reduction to possession of any
and all such properties and assets. This covenant shall include, without
limitation, the obligation of Seller to assist Buyer in its receipt of all
consents, approvals and waivers from regulatory authorities and of all licenses,
permits and registrations necessary to operate the Business and the obligation
of Seller to promptly remit to Buyer any accounts receivable from the Assumed
Contracts which it receives in error.
11. INDEMNIFICATION; EXPENSES.
11.1 OBLIGATIONS OF SELLER AND SHAREHOLDERS TO INDEMNIFY.
Seller and each Shareholder agree to indemnify Buyer and hold it
harmless upon demand from and against any damages, deficiency, action, demands,
judgments, costs and expenses of or against Buyer (including attorneys' fees)
resulting from (a) any misrepresentation, breach of warranty or non-fulfillment
of any agreement, covenant or condition on the part of Seller and Shareholders
contained herein or in any exhibit, certificate, document or instrument
delivered hereunder or in connection herewith, or (b) any claim for any debt,
liability or obligation of Seller that may be asserted against Buyer not
specifically assumed by Buyer hereunder including, without limitation, any claim
arising in litigation or
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other proceeding relating to acts or omissions of Seller occurring on or
prior to the Closing Date.
11.2 OBLIGATIONS OF BUYER TO INDEMNIFY.
Buyer agrees to indemnify Seller and hold it harmless upon demand from
and against any damages, deficiency, action, demands, judgments, costs and
expenses of or against Seller (including attorneys' fees) resulting from (a) any
misrepresentation, breach of warranty or non-fulfillment of any agreement,
covenant or condition on the part of Buyer contained herein or in any exhibit,
certificate, document or instrument delivered hereunder or in connection
herewith, or (b) any claim for any debt, liability or obligation of Buyer that
may be asserted against Seller arising out of any liability specifically assumed
by Buyer hereunder, or arising in litigation or other proceeding relating to
acts or omissions of Buyer occurring after the Closing Date.
11.3 EACH PARTY TO BEAR OWN EXPENSES.
Regardless of whether or not the transactions contemplated hereby are
consummated:
(a) PROFESSIONAL FEES. Each party shall be solely responsible for
all fees and expenses of such party's legal, accounting, investment banking
and other professional counsel or advisors employed in connection with the
transactions contemplated hereby.
(b) TRANSFER TAXES. Buyer shall be solely responsible for any sales,
use, excise, transfer or other similar tax imposed on Seller with respect
to the transactions provided for in this Agreement, and any interest or
penalties related thereto and shall coordinate the payment of such taxes
with Seller.
(c) BROKER'S AND FINDER'S FEE. Each party shall be solely
responsible for all fees and expenses of such party for any broker or
finder retained, employed or used by such party in connection with the
transactions provided for herein or the negotiation thereof.
12. SPECIFIC PERFORMANCE.
The parties declare that it is impossible to measure in money the
damages which will accrue to a party hereto by reason of the failure of a party
to perform any of its obligations under this Agreement. Therefore, if any party
shall institute any action or proceeding to enforce the provisions of this
Agreement, the party against whom such action or proceeding is brought hereby
waives the claim or defense that such party has or may have an adequate remedy
at law and such party shall not urge in any such action or proceeding the claim
or defense that such remedy at law exists.
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13. GUARANTY OF BUYER'S OBLIGATIONS.
U.S. Laboratories hereby absolutely and unconditionally guarantees to
Seller and the Shareholders the prompt performance and compliance by Buyer of
each of its obligations arising under this Agreement and out of the transactions
contemplated by this Agreement.
14. MISCELLANEOUS PROVISIONS.
14.1 SURVIVAL.
All representations, warranties and covenants herein shall survive the
execution hereof notwithstanding any investigation heretofore or hereafter made
by the parties.
14.2 NOTICES.
All notices required under this Agreement shall be sufficient if in
writing and shall be deemed given upon actual receipt (i) when personally
delivered, (ii) when mailed, certified mail, return receipt requested postage
prepaid, (iii) when sent by confirmed facsimile transmission, or (iv) when
delivered by reputable overnight courier, to the address of the party receiving
such notice as set forth below, or such other address as such party may
designate by notice duly given:
(a) If to Seller: Wyman Enterprises, Inc.
646 Antonio Avenue
San Diego, California 92106
Facsimile: (619) 221-0272
Telephone: (619) 221-0212
Attention: Earl Wyman
With a copy, Dysart, Dubick & Bagley, LLP
which shall not 701 B Street, Suite 1525
constitute notice, to: San Diego, California 92101
Facsimile: (619) 696-6280
Telephone: (619) 696-0011
Attention: William Dysart
(b) If to Buyer: Wyman Testing Laboratories, Inc.
c/o U.S. Laboratories Inc.
4350 West Sunrise Boulevard, Suite 103-D
Plantation, Florida 33313
Facsimile: (954) 581-0433
Telephone: (954) 581-2008
Attn: Dickerson Wright
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With a copy, Foley & Lardner
which shall not One IBM Plaza, Suite 3300
constitute notice, to: Chicago, Illinois 60611
Facsimile: (312) 755-1925
Telephone: (312-755-1900
Attn: James R. Vogler
14.3 BINDING EFFECT.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors, assigns, heirs,
administrators, personal representatives and permitted assigns, and shall not be
assignable to any third party without the prior written consent of the other
parties hereto. This Agreement is solely for the benefit of the parties and no
third party shall have any right or claim to the benefits afforded any party
hereunder.
14.4 APPLICABLE LAW.
The rights and obligations of the parties to this Agreement shall be
governed by, construed and enforced in accordance with the laws of the State of
California applicable to agreements made and to be performed in the State of
California.
14.5 POSITIONS FOR INCOME TAX PURPOSES.
Neither Seller nor Buyer shall take a position for income tax purposes
which is inconsistent with this Agreement.
14.6 PUBLIC ANNOUNCEMENTS.
Any public announcements regarding the sale and purchase under this
Agreement shall be mutually agreed-upon by Buyer and Seller.
14.7 ENTIRE AGREEMENT.
This Agreement and the agreements attached as exhibits hereto
contain the entire agreement and understanding of the parties with respect to
the subject matter hereof, and no other representations, promises, agreements or
understandings regarding the subject matter hereof shall be of any force or
effect unless in writing, executed by the party to be bound and dated on or
subsequent to the date hereof.
14.8 MODIFICATIONS AND WAIVERS.
No change, modification or waiver of any provision of this Agreement
shall be valid or binding unless it is in writing dated on or subsequent to the
date hereof and signed by the parties intended to be bound. No waiver of any
breach, term or condition of this Agreement by either party shall constitute a
subsequent waiver of the same or any other breach, term or condition.
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[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
SELLER:
WYMAN ENTERPRISES, INC.
By:/S/ EARL WYMAN
---------------------
Its: President
BUYER:
WYMAN TESTING LABORATORIES, INC.
By: /S/ DICKERSON WRIGHT
---------------------
Its: President
SHAREHOLDERS:
/S/ EARL WYMAN
---------------------
Earl Wyman
/S/ DONALD ALFORD
---------------------
Donald Alford
/S/ BONNIE WYMAN
---------------------
Bonnie Wyman
U.S. LABORATORIES INC., SOLELY FOR PURPOSES OF
SECTION 5 AND SECTION 13 HEREOF
By:/S/ DICKERSON WRIGHT
-----------------------
Its: President
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EXHIBIT D
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made and entered into as of the 25th day
of March, 1998, by and between WYMAN TESTING LABORATORIES, INC., a Delaware
corporation ("Company"), and DONALD C. ALFORD, an adult resident of California
("Seller").
RECITALS:
WHEREAS, Company purchased, pursuant to the terms and conditions of an
Asset Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), substantially all of the business and assets of Wyman Enterprises,
Inc., which was principally engaged in the engineering inspection and testing
business in southern California;
WHEREAS, Seller was a stockholder of Wyman Enterprises, Inc.;
WHEREAS, Seller has extensive knowledge and expertise in the engineering
inspection and testing business, and has extensive contacts and relationships
with Company's customers; and
WHEREAS, it is necessary for the protection of Company's legitimate
business interests for Seller to refrain from competition with Company.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. TERM. The term of this Agreement shall commence upon the date hereof,
and shall continue thereafter until the fifth anniversary of the date hereof
(the "Term").
2. COVENANT NOT TO COMPETE. During the Term, Seller shall not, as
proprietor, director, officer, partner, shareholder, employee, member, manager,
consultant, agent, independent contractor or otherwise, for himself or on behalf
of any other person or entity (except Company, at Company's request), directly
or indirectly:
(a) engage in, or enter into, any aspect of the business of
engineering inspection and testing in San Diego County, California;
(b) solicit persons who shall have been customers or suppliers of the
Company during the period beginning three (3) years prior to the date of
this Agreement or who are, at the time of such solicitation, current or
prospective customers or suppliers of Company or take any other action the
effect of which is to interfere with the business relationship between
Company and such customers or suppliers; or
<PAGE>
(c) hire persons who shall have been employees of Company during the
period beginning on the date of this Agreement, or otherwise interfere with
the relationship between Company and any such persons.
3. REMEDIES. The covenants of Seller contained in this Agreement shall be
construed as separate agreements independent of any other agreement for purposes
of enforceability of any claim or cause of action, whether predicated on this
Agreement or otherwise. No other agreement, claim or cause of action asserted by
Seller shall constitute a defense to the enforcement of such covenants. Seller
acknowledges that damages for the violation of any such covenants will not give
full and sufficient relief to Company, and agrees that, in the event of any
violation of any such covenants, Company shall be entitled to injunctive relief
against the continued violation thereof, in addition to any other rights that
Company may have by reason of such violation.
4. NON-COMPETITION FEES. In consideration of Seller's agreement not to
compete as described in Section 2 hereof, Company shall pay Seller the total sum
of One Hundred Fifty Thousand Dollars ($150,000), to be paid in four equal
annual installments of Thirty-Seven Thousand Five Hundred Dollars ($37,500)
each, payable on each of the first four (4) anniversaries hereof, commencing on
the first such anniversary. The foregoing amounts are subject to offset as
provided in the Purchase Agreement. The foregoing amounts shall be paid whether
or not Seller survives the Term.
5. MISCELLANEOUS.
5.1 SEVERABILITY. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision. In the event that any court
of competent jurisdiction shall determine that any provision of this Agreement
or the application thereof is invalid or unenforceable in whole or in part
because of the duration or scope thereof, the parties hereto agree that such
court in making such determination shall have the power to reduce the duration
or scope of such provision to the extent permitted by law.
5.2 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed in accordance with, the internal laws of the State of California.
5.3 NOTICES. All notices, requests, demands and other communications
shall be deemed to be duly given when personally delivered or when mailed,
certified or registered mail, with postage prepaid, and
2
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(a) if to Company, to:
Wyman Testing Laboratories, Inc.
c/o U.S. Laboratories, Inc.
4350 West Sunrise Boulevard, Suite 103-D
Plantation, Florida 33313
Facsimile: (954) 581-0433
Telephone: (954) 581-2008
Attention: Dickerson Wright
with a copy to:
Foley & Lardner
330 North Wabash Avenue, Suite 3300
Chicago, Illinois 60611
Facsimile: (312) 755-1925
Telephone: (312) 755-1900
Attention: James R. Vogler
(b) if to Seller, to:
Donald C. Alford
646 San Antonio Avenue
San Diego, California 92106
Telephone: (610) 221-0212
Telecopier: (610) 221-0272
(or to such other address or with a copy to such other person or address as may
have been designated from time to time by notice in writing).
5.4 MODIFICATION; WAIVER. No modification or waiver of any provisions
of this Agreement or consent to any departure therefrom shall be effective
unless in writing and signed by the party against whom it is sought to be
enforced.
5.5 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
5.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement embodies the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes any and all prior agreements, discussions and negotiations. No
amendment or any provision of this Agreement shall be valid unless the same
shall be in writing and signed by Company and Seller.
3
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
or caused it to be duly executed, as of the date first set forth above.
COMPANY:
WYMAN TESTING LABORATORIES, INC.
By: /S/ DICKERSON WRIGHT
-----------------------------
President
SELLER:
/S/ DONALD C. ALFORD
----------------------------------
Donald C. Alford
4
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EXHIBIT E
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT is made and entered into as of the 25th day
of March, 1998, by and between WYMAN TESTING LABORATORIES, INC., a Delaware
corporation ("Company"), and EARL WYMAN AND BONNIE WYMAN, adult residents of
California ("collectively, Seller").
RECITALS:
WHEREAS, Company purchased, pursuant to the terms and conditions of an
Asset Purchase Agreement, dated as of the date hereof (the "Purchase
Agreement"), substantially all of the business and assets of Wyman Enterprises,
Inc., which was principally engaged in the engineering inspection and testing
business in southern California;
WHEREAS, Seller was a stockholder of Wyman Enterprises, Inc.;
WHEREAS, Seller has extensive knowledge and expertise in the engineering
inspection and testing business, and has extensive contacts and relationships
with Company's customers; and
WHEREAS, it is necessary for the protection of Company's legitimate
business interests for Seller to refrain from competition with Company.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. TERM. The term of this Agreement shall commence upon the date hereof,
and shall continue thereafter until the fifth anniversary of the date hereof
(the "Term").
2. COVENANT NOT TO COMPETE. During the Term, Seller shall not, as
proprietor, director, officer, partner, shareholder, employee, member, manager,
consultant, agent, independent contractor or otherwise, for himself or on behalf
of any other person or entity (except Company, at Company's request), directly
or indirectly:
(a) engage in, or enter into, any aspect of the business of
engineering inspection and testing in San Diego County, California;
(b) solicit persons who shall have been customers or suppliers of the
Company during the period beginning three (3) years prior to the date of
this Agreement or who are, at the time of such solicitation, current or
prospective customers or suppliers of Company or take any other action the
effect of which is to
<PAGE>
interfere with the business relationship between Company and such
customers or suppliers; or
(c) hire persons who shall have been employees of Company during the
period beginning on the date of this Agreement, or otherwise interfere with
the relationship between Company and any such persons.
3. REMEDIES. The covenants of Seller contained in this Agreement shall be
construed as separate agreements independent of any other agreement for purposes
of enforceability of any claim or cause of action, whether predicated on this
Agreement or otherwise. No other agreement, claim or cause of action asserted by
Seller shall constitute a defense to the enforcement of such covenants. Seller
acknowledges that damages for the violation of any such covenants will not give
full and sufficient relief to Company, and agrees that, in the event of any
violation of any such covenants, Company shall be entitled to injunctive relief
against the continued violation thereof, in addition to any other rights that
Company may have by reason of such violation.
4. NON-COMPETITION FEES. In consideration of Seller's agreement not to
compete as described in Section 2 hereof, Company shall pay Seller the total sum
of Three Hundred Thousand Dollars ($300,000), to be paid as follows: (i) four
equal annual installments of Thirty-Seven Thousand Five Hundred Dollars
($37,500) each, payable on each of the first four (4) anniversaries hereof,
commencing on the first such anniversary, and (ii) a lump sum payment of One
Hundred Fifty Thousand Dollars ($150,000), which payment shall be made upon the
first to occur of (a) October 1, 1999, (b) January 1, 1999, if the initial
public offering of the capital stock of the Company or any affiliate of the
Company ("IPO") shall have occurred prior to such date, or (c) the thirtieth day
following such IPO, if such IPO occurs after January 1, 1999. The foregoing
amounts are subject to offset as provided in the Purchase Agreement. The
foregoing amounts shall be paid whether or not Seller survives the Term.
5. MISCELLANEOUS.
5.1 SEVERABILITY. The provisions of this Agreement are severable, and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of any other provision. In the event that any court
of competent jurisdiction shall determine that any provision of this Agreement
or the application thereof is invalid or unenforceable in whole or in part
because of the duration or scope thereof, the parties hereto agree that such
court in making such determination shall have the power to reduce the duration
or scope of such provision to the extent permitted by law.
5.2 GOVERNING LAW. This Agreement shall be governed by, and shall be
construed in accordance with, the internal laws of the State of California.
5.3 NOTICES. All notices, requests, demands and other communications
shall be deemed to be duly given when personally delivered or when mailed,
certified or registered mail, with postage prepaid, and
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(a) if to Company, to:
Wyman Testing Laboratories, Inc.
c/o U.S. Laboratories, Inc.
4350 West Sunrise Boulevard, Suite 103-D
Plantation, Florida 33313
Facsimile: (954) 581-0433
Telephone: (954) 581-2008
Attention: Dickerson Wright
with a copy to:
Foley & Lardner
330 North Wabash Avenue, Suite 3300
Chicago, Illinois 60611
Facsimile: (312) 755-1925
Telephone: (312) 755-1900
Attention: James R. Vogler
(b) if to Seller, to:
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(or to such other address or with a copy to such other person or address as may
have been designated from time to time by notice in writing).
5.4 MODIFICATION; WAIVER. No modification or waiver of any provisions
of this Agreement or consent to any departure therefrom shall be effective
unless in writing and signed by the party against whom it is sought to be
enforced.
5.5 BINDING EFFECT. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors and assigns.
5.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement embodies the entire
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes any and all prior agreements, discussions and negotiations. No
amendment or any provision of this Agreement shall be valid unless the same
shall be in writing and signed by Company and Seller.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
or caused it to be duly executed, as of the date first set forth above.
COMPANY:
WYMAN TESTING LABORATORIES, INC.
By: /S/ DICKERSON WRIGHT
---------------------------------
President
SELLER:
/S/ EARL WYMAN
---------------------------------
Earl Wyman
/S/ BONNIE WYMAN
---------------------------------
Bonnie Wyman
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<PAGE>
EXHIBIT 4.1
FORM OF
WARRANT AGREEMENT
BETWEEN
U. S. LABORATORIES INC.
AND
NORTH AMERICAN TRANSFER CO.
Dated as of ____________, 1999
This Agreement, dated as of ___________, 1999, is between U.S.
Laboratories Inc., a Delaware corporation (the "Company") and North American
Transfer Co., a ___________ corporation, (the "Warrant Agent"), who agree as
follows:
The Company, at or about the time that it is entering into this
Agreement, proposes to issue and sell to public investors up to 1,265,000
Units ("Units"). Each Unit consists of one share of Common Stock of the
Company ("Common Stock") and one Warrant (collectively, the "Warrants"), each
Warrant exercisable to purchase one share of Common Stock for $7.80, upon the
terms and conditions and subject to adjustment in certain circumstances, all
as set forth in this Agreement.
The Company proposes to issue to the Representative of the
Underwriters in the public offering of Units referred to above warrants to
purchase up to 110,000 additional Units.
The Company wishes to retain the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing so to act, in connection with
the issuance, transfer, exchange and replacement of the certificates
evidencing the Warrants to be issued under this Agreement (the "Warrant
Certificates") and the exercise of the Warrants;
The Company and the Warrant Agent wish to enter into this Agreement
to set forth the terms and conditions of the Warrants and the rights of the
holders thereof ("Warrantholders") and to set forth the respective rights and
obligations of the Company and the Warrant Agent. Each Warrantholder is an
intended beneficiary of this Agreement with respect to the rights of
Warrantholders herein.
<PAGE>
1. Appointment of Warrant Agent. The Company appoints the Warrant
Agent to act as agent for the Company in accordance with the instructions in
this Agreement and the Warrant Agent accepts this appointment.
2. Date, Denomination and Execution of Warrant Certificates.
2.1. The Warrant Certificates (and the Form of Election to
Purchase and the Form of Assignment to be printed on the reverse thereof)
will be in registered form only and will be substantially of the tenor and
purport recited in EXHIBIT A, and may have such letters, numbers or other
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any law, or with any rule or
regulation made pursuant thereto, or with any rule or regulation of any stock
exchange on which the Common Stock or the Warrants may be listed or any
automated quotation system, or to conform to usage. Each Warrant Certificate
entitles the registered holder thereof, subject to the provisions of this
Agreement and of the Warrant Certificate, to purchase, on or before the close
of business on ________, 2004 (the "Expiration Date"), one fully paid and
non-assessable share of Common Stock for each Warrant evidenced by such
Warrant Certificate, subject to adjustments as provided in Sections 6 hereof,
for $7.80 (the "Exercise Price"). Each Warrant Certificate issued as a part
of a Unit offered to the public as described in the recitals, above, will be
________, 1999; each other Warrant Certificate will be dated the date on
which the Warrant Agent receives valid issuance instructions from the Company
or a transferring holder of a Warrant Certificate or, if such instructions
specify another date, such other date.
2.2. For purposes of this Agreement, the term "close of business"
on any given date will mean 5:00 p.m., San Diego time, on such date;
provided, however, that if such date is not a business day, it will mean 5:00
p.m., San Diego time, on the next succeeding business day. For purposes of
this Agreement, the term "business day" will mean any day other than a
Saturday, Sunday, or a day on which banking institutions in California are
authorized or obligated by law to be closed.
2.3. Each Warrant Certificate will be executed on behalf of the
Company by the Chairman of the Board or its President or a Vice President,
either manually or by facsimile signature printed thereon, and have affixed
thereto the Company's seal or a facsimile thereof which will be attested by
the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. Each Warrant Certificate will be manually countersigned
by the Warrant Agent and will not be valid for any purpose unless so
countersigned. In case any officer of the Company who will have signed any
Warrant Certificate will cease to be such officer of the Company before
countersignature by the Warrant Agent and issue and delivery thereof by the
Company, such Warrant Certificate, nevertheless, may be countersigned by the
Warrant Agent, issued and delivered with the same force and effect as though
the person who signed such Warrant Certificate had not ceased to be such
officer of the Company.
3. Subsequent Issue of Warrant Certificates. Subsequent to their
original issuance, no Warrant Certificates will be reissued except (i)
Warrant Certificates issued upon transfer
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thereof in accordance with Section 4 hereof, (ii) Warrant Certificates issued
upon any combination, split-up or exchange of Warrant Certificates pursuant
to Section 4 hereof, (iii) Warrant Certificates issued in replacement of
mutilated, destroyed, lost or stolen Warrant Certificates pursuant to Section
5 hereof, (iv) Warrant Certificates issued upon the partial exercise of
Warrant Certificates pursuant to Section 7 hereof, and (v) Warrant
Certificates issued to reflect any adjustment or change in the Exercise Price
or the number or kind of shares purchasable thereunder pursuant to Section 22
hereof. The Warrant Agent is hereby irrevocably authorized to countersign and
deliver, in accordance with the provisions of said Sections 4, 5, 7 and 22,
the new Warrant Certificates required for purposes thereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrant Certificates duly executed on behalf of the Company for such purposes.
4. Transfers and Exchanges of Warrant Certificates.
4.1. The Warrant Agent will keep or cause to be kept books for
registration of ownership and transfer of the Warrant Certificates issued
hereunder. Such registers will show the names and addresses of the respective
holders of the Warrant Certificates and the number of Warrants evidenced by
each such Warrant Certificate.
4.2. The Warrant Agent will, from time to time, register the
transfer of any outstanding Warrants upon the books to be maintained by the
Warrant Agent for that purpose, upon surrender of the Warrant Certificate
evidencing such Warrants, with the Form of Assignment duly filled in and
executed with such signature guaranteed by a banking institution or NASD
member and such supporting documentation as the Warrant Agent or the Company
may reasonably require, to the Warrant Agent at its stock transfer office in
_____________, ______________ at any time on or before the Expiration Date,
and upon payment to the Warrant Agent for the account of the Company of an
amount equal to any applicable transfer tax. Payment of the amount of such
tax may be made in cash, or by certified or official bank check, payable in
lawful money of the United States of America to the order of the Company.
4.3. Upon receipt of a Warrant Certificate, with the Form of
Assignment duly filled in and executed, accompanied by payment of an amount
equal to any applicable transfer tax, the Warrant Agent will promptly cancel
the surrendered Warrant Certificate and countersign and deliver to the
transferee a new Warrant Certificate for the number of full Warrants
transferred to such transferee; provided, however, that in case the
registered holder of any Warrant Certificate will elect to transfer fewer
than all of the Warrants evidenced by such Warrant Certificate, the Warrant
Agent in addition will promptly countersign and deliver to such registered
holder a new Warrant Certificate or Certificates for the number of full
Warrants not so transferred.
4.4. Any Warrant Certificate or Certificates may be exchanged at
the option of the holder thereof for another Warrant Certificate or
Certificates of different denominations, of like tenor and representing in
the aggregate the same number of Warrants, upon surrender of such Warrant
Certificate or Certificates, with the Form of Assignment duly filled in and
executed, to the Warrant Agent, at any time or from time to time after the
close of business on the date hereof and prior to the close of business on
the Expiration Date. The
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Warrant Agent will promptly cancel the surrendered Warrant Certificate and
deliver the new Warrant Certificate pursuant to the provisions of this
Section.
5. Mutilated, Destroyed, Lost or Stolen Warrant Certificates. Upon
receipt by the Company and the Warrant Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of any
Warrant Certificate, and in the case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to them, and reimbursement to
them of all reasonable expenses incidental thereto, and, in the case of
mutilation, upon surrender and cancellation of the Warrant Certificate, the
Warrant Agent will countersign and deliver a new Warrant Certificate of like
tenor for the same number of Warrants.
6. Adjustments of Number and Kind of Shares Purchasable and Exercise
Price. The number and kind of securities or other property purchasable upon
exercise of a Warrant will be subject to adjustment from time to time upon
the occurrence, after the date hereof, of any of the following events:
6.1. If the Company (1) pays a dividend in, or makes a distribution
of, shares of capital stock on its outstanding Common Stock, (2) subdivides
its outstanding shares of Common Stock into a greater number of such shares
or (3) combines its outstanding shares of Common Stock into a smaller number
of such shares, the total number of shares of Common Stock purchasable upon
the exercise of each Warrant outstanding immediately prior thereto will be
adjusted so that the holder of any Warrant Certificate thereafter surrendered
for exercise will be entitled to receive at the same aggregate Exercise Price
the number of shares of capital stock (of one or more classes) which such
holder would have owned or have been entitled to receive immediately
following the happening of any of the events described above had such Warrant
been exercised in full immediately prior to the record date with respect to
such event. The Company is not required to make any adjustment unless the
adjustment would result in a one percent change in the number of shares of
Common Stock under the Warrant. Any adjustment made pursuant to this
Subsection will, in the case of a stock dividend or distribution, become
effective as of the record date therefor and, in the case of a subdivision or
combination, be made as of the effective date thereof. If, as a result of an
adjustment made pursuant to this Subsection, the holder of any Warrant
Certificate thereafter surrendered for exercise will become entitled to
receive shares of two or more classes of capital stock of the Company, the
Board of Directors of the Company (whose determination will be conclusive and
will be evidenced by a Board resolution filed with the Warrant Agent) will
determine the allocation of the adjusted Exercise Price between or among
shares of such classes of capital stock.
6.2. In the event of a capital reorganization or a reclassification
of the Common Stock (except as provided in Subsection 6.1 above or Subsection
6.5 below), any Warrantholder, upon exercise of Warrants, will be entitled to
receive, in substitution for the Common Stock to which he would have become
entitled upon exercise immediately prior to such reorganization or
reclassification, the shares (of any class or classes) or other securities or
property of the Company (or cash) that he would have been entitled to receive
at the same aggregate Exercise Price upon such reorganization or
reclassification if such Warrants had been exercised immediately prior to the
record date with respect to such event; and in any
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<PAGE>
such case, appropriate provision (as determined by the Board of Directors of
the Company, whose determination will be conclusive and will be evidenced by
a certified Board resolution filed with the Warrant Agent) will be made for
the application of this Section 6 with respect to the rights and interests
thereafter of the Warrantholders (including but not limited to the allocation
of the Exercise Price between or among shares of classes of capital stock),
to the end that this Section 6 (including the adjustments of the number of
shares of Common Stock or other securities purchasable and the Exercise Price
thereof) will thereafter be reflected, as nearly as reasonably practicable,
in all subsequent exercises of the Warrants for any shares or securities or
other property (or cash) thereafter deliverable upon the exercise of the
Warrants.
6.3. Whenever the number of shares of Common Stock or other
securities purchasable upon exercise of a Warrant is adjusted as provided in
this Section 6, the Company will promptly file with the Warrant Agent a
certificate signed by a Chairman or co-Chairman of the Board or the President
or a Vice President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company setting
forth the number and kind of securities or other property purchasable upon
exercise of a Warrant, as so adjusted, stating that such adjustments in the
number or kind of shares or other securities or property conform to the
requirements of this Section 6, and setting forth a brief statement of the
facts accounting for such adjustments. Promptly after receipt of such
certificate, the Company, or the Warrant Agent at the Company's request, will
deliver, by first-class, postage prepaid mail, a brief summary thereof (to be
supplied by the Company) to the registered holders of the outstanding Warrant
Certificates; provided, however, that failure to file or to give any notice
required under this Subsection, or any defect therein, will not affect the
legality or validity of any such adjustments under this Section 6; and
provided, further, that, where appropriate, such notice may be given in
advance and included as part of the notice required to be given pursuant to
Section 12 hereof.
6.4. In case of any consolidation of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), or in case of any sale or conveyance to another corporation of
the property of the Company as an entirety or substantially as an entirety,
the corporation formed by such consolidation or merger or the corporation
which will have acquired such assets, as the case may be, will execute and
deliver to the Warrant Agent a supplemental warrant agreement providing that
the holder of each Warrant then outstanding will have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, solely the kind and amount of shares of stock and other securities
and property (or cash) receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the Company
for which such Warrant might have been exercised immediately prior to such
consolidation, merger, sale or transfer. Such supplemental warrant agreement
will provide for adjustments that will be as nearly equivalent as may be
practicable to the adjustments provided in this Section. The above provision
of this Subsection will similarly apply to successive consolidations,
mergers, sales or transfers.
6.5. The Warrant Agent will not be under any responsibility to
determine the correctness of any provision contained in any such supplemental
warrant agreement relating to
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<PAGE>
either the kind or amount of shares of stock or securities or property (or
cash) purchasable by holders of Warrant Certificates upon the exercise of
their Warrants after any such consolidation, merger, sale or transfer or of
any adjustment to be made with respect thereto, but subject to the provisions
of Section 20 hereof, may accept as conclusive evidence of the correctness of
any such provisions, and will be protected in relying upon, a certificate of
a firm of independent certified public accountants (who may be the
accountants regularly employed by the Company) with respect thereto.
6.6. Irrespective of any adjustments in the number or kind of
shares issuable upon exercise of Warrants, Warrant Certificates theretofore
or thereafter issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrant Certificates initially
issuable pursuant to this Warrant Agreement.
6.7. The Company may retain a firm of independent public
accountants of recognized standing, which may be the firm regularly retained
by the Company, selected by the Board of Directors of the Company or the
Executive Committee of said Board, and not disapproved by the Warrant Agent,
to make any computation required under this Section, and a certificate signed
by such firm will, in the absence of fraud or gross negligence, be conclusive
evidence of the correctness of any computation made under this Section.
6.8. For the purpose of this Section, the term "Common Stock" will
mean (i) the Common Stock or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that at any time as a result of an
adjustment made pursuant to this Section, the holder of any Warrant
thereafter surrendered for exercise will become entitled to receive any
shares of capital stock of the Company other than shares of Common Stock,
thereafter the number of such other shares so receivable upon exercise of any
Warrant will be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in this Section, and all other provisions of this
Agreement, with respect to the Common Stock, will apply on like terms to any
such other shares.
7. Exercise and Redemption of Warrants. Unless the Warrants have been
redeemed as provided in this Section 7, the registered holder of any Warrant
Certificate may exercise the Warrants evidenced thereby, in whole at any time
or in part from time to time at or prior to the close of business, on the
Expiration Date, subject to the provisions of Section 9, at which time the
Warrant Certificates will be and become wholly void and of no value. Warrants
may be exercised by their holders or redeemed by the Company as follows:
7.1. Exercise of Warrants will be accomplished upon surrender of
the Warrant Certificate evidencing such Warrants, with the Form of Election
to Purchase on the reverse side thereof duly filled in and executed, to the
Warrant Agent at its stock transfer office in _____________, ______________,
together with payment to the Company of the Exercise Price (as of the date of
such surrender) of the Warrants then being exercised and an amount equal to
any applicable transfer tax and, if requested by the Company, any other taxes
or governmental charges which the Company may be required by law to collect
in respect of
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<PAGE>
such exercise. Payment of the Exercise Price and other amounts may be made by
wire transfer of good funds, or by certified or bank cashier's check, payable
in lawful money of the United States of America to the order of the Company.
No adjustment will be made for any cash dividends, whether paid or declared,
on any securities issuable upon exercise of a Warrant.
7.2. Upon receipt of a Warrant Certificate, with the Form of
Election to Purchase duly filled in and executed, accompanied by payment of
the Exercise Price of the Warrants being exercised (and of an amount equal to
any applicable taxes or government charges as aforesaid), the Warrant Agent
will promptly request from the Transfer Agent with respect to the securities
to be issued and deliver to or upon the order of the registered holder of
such Warrant Certificate, in such name or names as such registered holder may
designate, a certificate or certificates for the number of full shares of the
securities to be purchased, together with cash made available by the Company
pursuant to Section 8 hereof in respect of any fraction of a share of such
securities otherwise issuable upon such exercise. If the Warrant is then
exercisable to purchase property other than securities, the Warrant Agent
will take appropriate steps to cause such property to be delivered to or upon
the order of the registered holder of such Warrant Certificate. In addition,
if it is required by law and upon instruction by the Company, the Warrant
Agent will deliver to each Warrantholder a prospectus which complies with the
provisions of Section 9 of the Securities Act of 1933 and the Company agrees
to supply Warrant Agent with sufficient number of prospectuses to effectuate
that purpose.
7.3. In case the registered holder of any Warrant Certificate will
exercise fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent will promptly countersign and deliver to the
registered holder of such Warrant Certificate, or to his duly authorized
assigns, a new Warrant Certificate or Certificates evidencing the number of
Warrants that were not so exercised.
7.4. Each person in whose name any certificate for securities is
issued upon the exercise of Warrants will for all purposes be deemed to have
become the holder of record of the securities represented thereby as of, and
such certificate will be dated, the date upon which the Warrant Certificate
was duly surrendered in proper form and payment of the Exercise Price (and of
any applicable taxes or other governmental charges) was made; provided,
however, that if the date of such surrender and payment is a date on which
the stock transfer books of the Company are closed, such person will be
deemed to have become the record holder of such shares as of, and the
certificate for such shares will be dated, the next succeeding business day
on which the stock transfer books of the Company are open (whether before, on
or after the Expiration Date) and the Warrant Agent will be under no duty to
deliver the certificate for such shares until such date. The Company
covenants and agrees that it will not cause its stock transfer books to be
closed for a period of more than 20 consecutive business days except upon
consolidation, merger, sale of all or substantially all of its assets,
dissolution or liquidation or as otherwise provided by law.
7.5. The Warrants outstanding at the time of a redemption may be
redeemed at the option of the Company, in whole or in part on a pro-rata
basis, at any time if, at the time notice of such redemption is given by the
Company as provided in Paragraph 7.6 below,
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the Daily Price has been at least 200% of the public offering price for the
twenty consecutive trading days ending on the third trading day prior to the
date of such notice, at a price equal to $.01 per Warrant (the "Redemption
Price"). For the purpose of the foregoing sentence, the term "Daily Price"
means, for any relevant day, the closing bid price on that day as reported by
the principal exchange or quotation system on which prices for the Common
Stock are reported. On the redemption date the holders of record of redeemed
Warrants will be entitled to payment of the Redemption Price upon surrender
of such redeemed Warrants to the Company at the principal office of the
Warrant Agent in _____________, ______________.
7.6. Notice of redemption of Warrants will be given not more than
60 days nor less than 30 days prior to the redemption date by mailing, by
registered or certified mail, return receipt requested, a copy of such notice
to the Warrant Agent and to all of the holders of record of Warrants at their
respective addresses appearing on the books or transfer records of the
Company or such other address designated in writing by the holder of record
to the Warrant Agent not less than 40 days prior to the redemption date.
7.7. From and after the redemption date, all rights of the
Warrantholders (except the right to receive the Redemption Price) will
terminate, but only if (a) no later than one day prior to the redemption date
the Company will have irrevocably deposited with the Warrant Agent as paying
agent a sufficient amount to pay on the redemption date the Redemption Price
for all Warrants called for redemption and (b) the notice of redemption will
have stated the name and address of the Warrant Agent and the intention of
the Company to deposit such amount with the Warrant Agent no later than one
day prior to the redemption date.
7.8. The Warrant Agent will pay to the holders of record of
redeemed Warrants all monies received by the Warrant Agent for the redemption
of Warrants to which the holders of record of such redeemed Warrants who will
have surrendered their Warrants are entitled.
7.9. Any amounts deposited with the Warrant Agent that are not
required for redemption of Warrants may be withdrawn by the Company. Any
amounts deposited with the Warrant Agent that will be unclaimed after six
months after the redemption date may be withdrawn by the Company, and
thereafter the holders of the Warrants called for redemption for which such
funds were deposited will look solely to the Company for payment. The Company
will be entitled to the interest, if any, on funds deposited with the Warrant
Agent and the holders of redeemed Warrants will have no right to any such
interest.
7.10. If the Company fails to make a sufficient deposit with
the Warrant Agent as provided above, the holder of any Warrants called for
redemption may at the option of the holder (a) by notice to the Company
declare the notice of redemption a nullity as to such holder, or (b) maintain
an action against the Company for the Redemption Price. If the holder brings
such an action, the Company will pay reasonable attorneys' fees of the
holder. If the holder fails to bring an action against the Company for the
Redemption Price within 60 days after the redemption date, the holder will be
deemed to have elected to declare the notice of redemption to be a nullity as
to the holder and the notice will be without any force or effect as
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to such holder. Except as otherwise specifically provided in this subsection
7.10, a notice of redemption, once mailed by the Company as provided in
Paragraph 7.6 will be irrevocable.
8. Fractional Interests. The Company will not be required to issue any
Warrant Certificate evidencing a fraction of a Warrant or to issue fractions
of shares of securities on the exercise of the Warrants. If any fraction
(calculated to the nearest one-hundredth) of a Warrant or a share of
securities would, except for the provisions of this Section, be issuable on
the exercise of any Warrant, the Company will, at its option, either purchase
such fraction for an amount in cash equal to the current value of such
fraction computed on the basis of the closing market price (as quoted on
NASDAQ) on the trading day immediately preceding the day upon which such
Warrant Certificate was surrendered for exercise in accordance with Section 7
hereof or issue the required fractional Warrant or share. By accepting a
Warrant Certificate, the holder thereof expressly waives any right to receive
a Warrant Certificate evidencing any fraction of a Warrant or to receive any
fractional share of securities upon exercise of a Warrant, except as
expressly provided in this Section 8.
9. Reservation of Equity Securities.
9.1. The Company covenants that it will at all times reserve and
keep available, free from any pre-emptive rights, out of its authorized and
unissued equity securities, solely for the purpose of issue upon exercise of
the Warrants, such number of shares of equity securities of the Company as
will then be issuable upon the exercise of all outstanding Warrants ("Equity
Securities"). The Company covenants that all Equity Securities which will be
so issuable will, upon such issue, be duly authorized, validly issued, fully
paid and non-assessable.
9.2. The Company covenants that if any equity securities, required
to be reserved for the purpose of issue upon exercise of the Warrants
hereunder, require registration with or approval of any governmental
authority under any federal or state law before such shares may be issued
upon exercise of Warrants, the Company will use all commercially reasonable
efforts to cause such securities to be duly registered, or approved, as the
case may be, and, to the extent practicable, take all such action in
anticipation of and prior to the exercise of the Warrants, including, without
limitation, filing any and all post-effective amendments to the Company's
Registration Statement on Form SB-2 (Registration No. 333-66173) necessary to
permit a public offering of the securities underlying the Warrants at any and
all times during the term of this Agreement, provided, however, that in no
event will such securities be issued, and the Company is authorized to refuse
to honor the exercise of any Warrant, if such exercise would result in the
opinion of the Company's Board of Directors, upon advice of counsel, in the
violation of any law; and provided further that, in the case of a Warrant
exercisable solely for securities listed on a securities exchange or for
which there are at least two independent market makers, in lieu of obtaining
such registration or approval, the Company may elect to redeem Warrants
submitted to the Warrant Agent for exercise for a price equal to the
difference between the aggregate low asked price, or closing price, as the
case may be, of the securities for which such Warrant is exercisable on the
date of such submission and the Exercise Price of such Warrants; in the event
of such redemption, the Company will pay to the holder of such Warrants the
above-described redemption price in
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cash within 10 business days after receipt of notice from the Warrant Agent
that such Warrants have been submitted for exercise.
10. Reduction of Conversion Price Below Par Value. Before taking any
action that would cause an adjustment pursuant to Section 6 reducing the
portion of the Exercise Price required to purchase one share of capital stock
below the then par value (if any) of a share of such capital stock, the
Company will use its best efforts to take any corporate action which, in the
opinion of its counsel, may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such
capital stock.
11. Payment of Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state documentary stamp and
other original issue taxes which may be payable in respect of the original
issuance of the Warrant Certificates, or any shares of Common Stock or other
securities upon the exercise of Warrants. The Company will not, however, be
required (i) to pay any tax which may be payable in respect of any transfer
involved in the transfer and delivery of Warrant Certificates or the issuance
or delivery of certificates for Common Stock or other securities in a name
other than that of the registered holder of the Warrant Certificate
surrendered for purchase or (ii) to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of any Warrant
Certificate until any such tax will have been paid, all such tax being
payable by the holder of such Warrant Certificate at the time of surrender.
12. Notice of Certain Corporate Action. In case the Company after the
date hereof will propose (i) to offer to the holders of Common Stock,
generally, rights to subscribe to or purchase any additional shares of any
class of its capital stock, any evidences of its indebtedness or assets, or
any other rights or options or (ii) to effect any reclassification of Common
Stock (other than a reclassification involving merely the subdivision or
combination of outstanding shares of Common Stock) or any capital
reorganization, or any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required,
or any sale, transfer or other disposition of its property and assets
substantially as an entirety, or the liquidation, voluntary or involuntary
dissolution or winding-up of the Company, then, in each such case, the
Company will file with the Warrant Agent and the Company, or the Warrant
Agent on its behalf, will mail (by first-class, postage prepaid mail) to all
registered holders of the Warrant Certificates notice of such proposed
action, which notice will specify the date on which the books of the Company
will close or a record be taken for such offer of rights or options, or the
date on which such reclassification, reorganization, consolidation, merger,
sale, transfer, other disposition, liquidation, voluntary or involuntary
dissolution or winding-up will take place or commence, as the case may be,
and which will also specify any record date for determination of holders of
Common Stock entitled to vote thereon or participate therein and will set
forth such facts with respect thereto as will be reasonably necessary to
indicate any adjustments in the Exercise Price and the number or kind of
shares or other securities purchasable upon exercise of Warrants which will
be required as a result of such action. Such notice will be filed and mailed
in the case of any action covered by clause (i) above, at least ten days
prior to the record date for determining holders of the Common Stock for
purposes of such action or, if a record is not to be taken, the date as of
which the holders of shares of Common Stock of record are to be entitled to
such
-10-
<PAGE>
offering; and, in the case of any action covered by clause (ii) above, at
least 20 days prior to the earlier of the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
other disposition, liquidation, voluntary or involuntary dissolution or
winding-up is expected to become effective and the date on which it is
expected that holders of shares of Common Stock of record on such date will
be entitled to exchange their shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation,
merger, sale, transfer, other disposition, liquidation, voluntary or
involuntary dissolution or winding-up. Failure to give any such notice or any
defect therein will not affect the legality or validity of any transaction
listed in this Section 12.
13. Disposition of Proceeds on Exercise of Warrant Certificates, Etc.
13.1. The Warrant Agent will account promptly to the Company
with respect to Warrants exercised and concurrently pay to the Company all
moneys received by the Warrant Agent for the purchase of securities or other
property through the exercise of such Warrants.
13.2. The Warrant Agent will keep copies of this Agreement
available for inspection by Warrantholders during normal business hours at
its stock transfer office. Copies of this Agreement may be obtained upon
written request addressed to the Warrant Agent at its stock transfer office
in _____________, ______________.
14. Warrantholder Not Deemed a Stockholder. No Warrantholder, as such,
will be entitled to vote, receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Warrants represented thereby for any purpose
whatever, nor will anything contained herein or in any Warrant Certificate be
construed to confer upon any Warrantholder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance
or otherwise), or to receive notice of meetings or other actions affecting
stockholders (except as provided in 12), or to receive dividend or
subscription rights, or otherwise, until such Warrant Certificate will have
been exercised in accordance with the provisions hereof and the receipt of
the Exercise Price and any other amounts payable upon such exercise by the
Warrant Agent.
15. Right Of Action. All rights of action in respect to this Agreement
are vested in the respective registered holders of the Warrant Certificates;
and any registered holder of any Warrant Certificate, without the consent of
the Warrant Agent or of any other holder of a Warrant Certificate, may, in
his own behalf for his own benefit, enforce, and may institute and maintain
any suit, action or proceeding against the Company suitable to enforce, or
otherwise in respect of, his right to exercise the Warrants evidenced by such
Warrant Certificate, for the purchase of shares of the Common Stock in the
manner provided in the Warrant Certificate and in this Agreement.
-11-
<PAGE>
16. Agreement of Holders of Warrant Certificates. Every holder of a
Warrant Certificate by accepting the same consents and agrees with the
Company, the Warrant Agent and with every other holder of a Warrant
Certificate that:
16.1. the Warrant Certificates are transferable on the registry
books of the Warrant Agent only upon the terms and conditions set forth in
this Agreement; and
16.2. the Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the absolute
owner of the Warrant (notwithstanding any notation of ownership or other
writing thereon made by anyone other than the Company or the Warrant Agent)
for all purposes whatever and neither the Company nor the Warrant Agent will
be affected by any notice to the contrary.
17. Cancellation of Warrant Certificates. If the Company purchases or
otherwise acquires any Warrant Certificate or Certificates after the issuance
thereof, the Warrant Certificate or Certificates will be delivered to the
Warrant Agent and be canceled by it and retired. The Warrant Agent will also
cancel any Warrant Certificate delivered to it for exercise, in whole or in
part, or delivered to it for transfer, split-up, combination, or exchange.
Warrant Certificates so canceled will be delivered by the Warrant Agent to
the Company from time to time, or disposed of in accordance with the
instructions of the Company.
18. Concerning the Warrant Agent. The Company agrees to pay to the
Warrant Agent from time to time, on demand of the Warrant Agent, reasonable
compensation for all services rendered by it hereunder and also its
reasonable expenses, including counsel fees, and other disbursements incurred
in the administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify the
Warrant Agent for, and to hold it harmless against, any loss, liability or
expense, incurred without gross negligence, bad faith or willful misconduct
on the part of the Warrant Agent, arising out of or in connection with the
acceptance and administration of this Agreement.
19. Merger or Consolidation or Change of Name of Warrant Agent.
19.1. Any corporation into which the Warrant Agent may be
merged or with which it may be consolidated, or any corporation resulting
from any merger or consolidation to which the Warrant Agent will be a party,
or any corporation succeeding to the corporate trust business of the Warrant
Agent, will be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor warrant agent under the provisions of Section 21.
If at the time such successor to the Warrant Agent succeeds to the agency
created by this Agreement, any of the Warrant Certificates that have been
countersigned but not delivered, any successor to the Warrant Agent may adopt
the countersignature of the original Warrant Agent and deliver the Warrant
Certificates so countersigned; and in case at that time any of the Warrant
Certificates will not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant
-12-
<PAGE>
Agent; and in all such cases such Warrant Certificates will have the full
force provided in the Warrant Certificates and in this Agreement.
19.2. If the name of the Warrant Agent is changed and at the
time any of the Warrant Certificates have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrant Certificates so countersigned; and in case at that
time any of the Warrant Certificates will not have been countersigned, the
Warrant Agent may countersign such Warrant Certificates either in its prior
name or in its changed name; and in all such cases such Warrant Certificates
will have the full force provided in the Warrant Certificates and in this
Agreement.
20. Duties of Warrant Agent. The Warrant Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Warrant
Certificates, by their acceptance thereof, will be bound:
20.1. The Warrant Agent may consult with counsel satisfactory
to it (who may be counsel for the Company or the Warrant Agent's in-house
counsel), and the opinion of such counsel will be full and complete
authorization and protection to the Warrant Agent as to any action taken,
suffered or omitted by it in good faith and in accordance with such opinion;
provided, however, that the Warrant Agent will have exercised reasonable care
in the selection of such counsel. The Company will pay fees and expenses of
such counsel, to the extent reasonable.
20.2. Whenever in the performance of its duties under this
Agreement, the Warrant Agent will deem it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by a Chairman or
co-Chairman of the Board or the President or a Vice President or the
Secretary of the Company and delivered to the Warrant Agent; and such
certificate will be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Agreement
in reliance upon such certificate.
20.3. The Warrant Agent will be liable hereunder only for its
own negligence, gross negligence, bad faith, or willful misconduct.
20.4. The Warrant Agent will not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in
the Warrant Certificates (except its countersignature on the Warrant
Certificates and such statements or recitals as describe the Warrant Agent or
action taken or to be taken by it) or be required to verify the same, but all
such statements and recitals are and will be deemed to have been made by the
Company only.
20.5. The Warrant Agent will not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Warrant Agent) or in respect
of the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor will it be responsible for any breach by
-13-
<PAGE>
the Company of any covenant or condition contained in this Agreement or in
any Warrant Certificate; nor will it be responsible for the making of any
change in the number of shares of Common Stock for which a Warrant is
exercisable required under the provisions of Section 6 or responsible for the
manner, method or amount of any such change or the ascertaining of the
existence of facts that would require any such adjustment or change (except
with respect to the exercise of Warrant Certificates after actual notice of
any adjustment of the Exercise Price); nor will it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued pursuant to this
Agreement or any Warrant Certificate or as to whether any shares of Common
Stock will, when issued, be validly issued, fully paid and non-assessable.
20.6. The Warrant Agent will be under no obligation to
institute any action, suit or legal proceeding or take any other action
likely to involve expense unless the Company or one or more registered
holders of Warrant Certificates will furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses which may be
incurred. All rights of action under this Agreement or under any of the
Warrants may be enforced by the Warrant Agent without the possession of any
of the Warrants or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by the
Warrant Agent will be brought in its name as Warrant Agent, and any recovery
of judgment will be for the ratable benefit of the registered holders of the
Warrant Certificates, as their respective rights or interests may appear.
20.7. The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants
or other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to or otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein will preclude the Warrant Agent
from acting in any other capacity for the Company or for any other legal
entity.
20.8. The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder
from a Chairman or co-Chairman of the Board or President or a Vice President
or the Secretary or the Controller of the Company, and to apply to such
officers for advice or instructions in connection with the Warrant Agent's
duties, and it will not be liable for any action taken or suffered or omitted
by it in good faith in accordance with instructions of any such officer.
20.9. The Warrant Agent will not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the Company.
20.10. The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys, agents or employees and the Warrant
Agent will not be answerable or accountable for any act, default, neglect or
misconduct of any such attorneys, agents or employees or for any loss to the
Company resulting from such neglect or misconduct; PROVIDED,
-14-
<PAGE>
HOWEVER, that reasonable care will have been exercised in the selection and
continued employment of such attorneys, agents and employees.
20.11. The Warrant Agent will not incur any liability or
responsibility to the Company or to any holder of any Warrant Certificate for
any action taken, or any failure to take action, in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument reasonably believed by the Warrant Agent to be genuine and to have
been signed, sent or presented by the proper party or parties.
20.12. The Warrant Agent will act hereunder solely as agent of the
Company in a ministerial capacity, and its duties will be determined solely
by the provisions hereof. The Warrant Agent will not be liable for anything
that it may do or refrain from doing in connection with this Agreement except
for its own negligence, bad faith or willful conduct.
21. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement upon 30 days' prior notice in
writing mailed, by registered or certified mail, to the Company. The Company
may remove the Warrant Agent or any successor warrant agent upon 30 days'
prior notice in writing, mailed to the Warrant Agent or successor warrant
agent, as the case may be, by registered or certified mail. If the Warrant
Agent will resign or be removed or will otherwise become incapable of acting,
the Company will appoint a successor to the Warrant Agent and will, within 15
days following such appointment, give notice thereof in writing to each
registered holder of the Warrant Certificates. If the Company will fail to
make such appointment within a period of 15 days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent, then the Company
agrees to perform the duties of the Warrant Agent hereunder until a successor
Warrant Agent is appointed. After appointment and execution of a copy of this
Agreement in effect at that time, the successor Warrant Agent will be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the former
Warrant Agent will deliver and transfer to the successor Warrant Agent,
within a reasonable time, any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to give any notice provided for in this Section,
however, or any defect therein will not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor warrant agent, as the case may be.
22. Issuance of New Warrant Certificates. Notwithstanding any of the
provisions of this Agreement or the several Warrant Certificates to the
contrary, the Company may, at its option, issue new Warrant Certificates in a
form approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price or the number or kind of shares purchasable under the
several Warrant Certificates made in accordance with the provisions of this
Agreement.
23. Notices. Notice or demand pursuant to this Agreement to be given or
made on the Company by the Warrant Agent or by the registered holder of any
Warrant Certificate will be sufficiently given or made if sent by first-class
or registered mail, postage prepaid,
-15-
<PAGE>
addressed (until another address is filed in writing by the Company with the
Warrant Agent) as follows:
Company: U.S. Laboratories Inc.
7895 Convoy Court
Suite 18
San Diego, California 92111
Attn: Secretary
Subject to the provisions of Section 21, any notice under this Agreement to
be given or made by the Company or by the holder of any Warrant Certificate
to or on the Warrant Agent will be sufficiently given or made if sent by
first-class or registered mail, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company) as follows:
Warrant Agent:
-----------------------
-----------------------
-----------------------
-----------------------
Any notice or demand authorized to be given or made to the registered holder
of any Warrant Certificate under this Agreement will be sufficiently given or
made if sent by first-class or registered mail, postage prepaid, to the last
address of such holder as it will appear on the registers maintained by the
Warrant Agent.
24. Modification of Agreement. The Warrant Agent may, without the
consent or concurrence of the Warrantholders, by supplemental agreement or
otherwise, concur with the Company in making any changes or corrections in
this Agreement that the Warrant Agent has been advised by counsel (who may be
counsel for the Company) are necessary or desirable to cure any ambiguity or
to correct any defective or inconsistent provision or clerical omission or
mistake or manifest error herein contained, or to make any other provisions
in regard to matters or questions arising hereunder and that is not
inconsistent with the provisions of the Warrant Certificates and that will
not adversely affect the interests of the Warrantholders. As of the date
hereof, this Agreement contains the entire and only agreement, understanding,
representation, condition, warranty or covenant between the parties with
respect to the matters herein, supersedes any and all other agreements
between the parties hereto relating to these matters, and may be modified or
amended only by a written agreement signed by both parties hereto pursuant to
the authority granted by the first sentence of this Section.
25. Successors. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent will bind and inure to
the benefit of their respective successors and assigns hereunder.
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<PAGE>
26. California Contract. This Agreement and each Warrant Certificate
issued hereunder is deemed a contract made under the laws of the State of
California and for all purposes will be construed in accordance with the laws
of that State.
27. Termination. This Agreement will terminate as of the close of
business on the Expiration Date, or such earlier date upon which all Warrants
will have been exercised or redeemed, except that the Warrant Agent will
account to the Company as to all Warrants outstanding and all cash held by it
as of the close of business on the Expiration Date.
28. Benefits of this Agreement. Nothing in this Agreement or in the
Warrant Certificates will be construed to give to any person or corporation
other than the Company, the Warrant Agent, and their respective successors
and assigns hereunder and the registered holders of the Warrant Certificates
any legal or equitable right, remedy or claim under this Agreement; but this
Agreement will be for the sole and exclusive benefit of the Company, the
Warrant Agent, their respective successors and assigns hereunder and the
registered holders of the Warrant Certificates.
29. Descriptive Headings. The descriptive headings of the several
Sections of this Agreement are inserted for convenience only and will not
control or affect the meaning or construction of any of the provisions hereof.
30. Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be an original, but the counterparts
together constitute one and the same instrument.
U.S. Laboratories Inc.
By:
---------------------
North American Transfer Co.
By:
---------------------
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<PAGE>
EXHIBIT A
VOID AFTER 5 P.M. PACIFIC TIME ON ____________, 2004
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
U.S. LABORATORIES INC.
CUSIP ___________
THIS CERTIFIES THAT ______________________ or registered assigns,
is the registered holder of the number of Warrants ("Warrants") set forth
above. Each Warrant entitles the holder thereof to purchase from U.S.
Laboratories Inc., a corporation incorporated under the laws of the State of
California ("Company"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter more fully described
(the "Warrant Agreement") referred to, at any time on or before the close of
business on ___________, 2004 or, if such Warrant is redeemed as provided in
the Warrant Agreement, at any time prior to the effective time of such
redemption (the "Expiration Date"), one fully paid and non-assessable share
of Common Stock of the Company ("Common Stock") upon presentation and
surrender of this Warrant Certificate, with the instructions for the
registration and delivery of Common Stock filled in, at the stock transfer
office in __________,____________, of ________________________, Warrant Agent
of the Company ("Warrant Agent") or of its successor warrant agent or, if
there be no successor warrant agent, at the corporate offices of the Company,
and upon payment of the Exercise Price (as defined in the Warrant Agreement)
and any applicable taxes paid either in cash, or by certified or official
bank check, payable in lawful money of the United States of America to the
order of the Company. Each Warrant initially entitles the holder to purchase
one share of Common Stock for $7.80. The number and kind of securities or
other property for which the Warrants are exercisable are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Company may redeem
any or all outstanding and unexercised Warrants at any time if the Daily
Price has exceeded $____ for twenty consecutive trading days ending on the
third trading day prior to the date of notice of such redemption, upon 30
days notice, at a price equal to $0.01 per Warrant. For the purpose of the
foregoing sentence, the term "Daily Price" will mean, for any relevant day,
the closing bid price on that day as reported by the principal exchange or
quotation system on which prices for the Common Stock are reported. All
Warrants not theretofore exercised or redeemed will expire on ________, 2004.
This Warrant Certificate is subject to all of the terms, provisions
and conditions of the Warrant Agreement, dated as of ____________, 1999
("Warrant Agreement"), between the Company and the Warrant Agent, to all of
which terms, provisions and conditions the registered holder of this Warrant
Certificate consents by acceptance hereof. The Warrant Agreement is
incorporated herein by reference and made a part hereof and reference is made
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to the Warrant Agreement for a full description of the rights, limitations of
rights, obligations, duties and immunities of the Warrant Agent, the Company
and the holders of the Warrant Certificates. Copies of the Warrant Agreement
are available for inspection at the stock transfer office of the Warrant
Agent or may be obtained upon written request addressed to the Company at
7895 Convoy Court, Suite 18, San Diego, California 92111, Attention:
Secretary.
The Company will not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but will make adjustment therefor in cash on the
basis of the current market value of any fractional interest as provided in
the Warrant Agreement.
In certain cases, the sale of securities by the Company upon
exercise of Warrants would violate the securities laws of the United States,
certain states thereof or other jurisdictions. The Company has agreed to use
its best efforts to cause a registration statement to continue to be
effective during the term of the Warrants with respect to such sales under
the Securities Act of 1933, and to take such action under the laws of various
states as may be required to cause the sale of securities upon exercise to be
lawful. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Board of Directors, upon advice of
counsel, the sale of securities upon such exercise would be unlawful. In
certain cases, the Company may, but is not required to, purchase Warrants
submitted for exercise for a cash price equal to the difference between the
market price of the securities obtainable upon such exercise and the exercise
price of such Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the
absence of any successor warrant agent, at the corporate offices of the
Company, may be exchanged for another Warrant Certificate or Certificates
evidencing in the aggregate the same number of Warrants as the Warrant
Certificate or Certificates so surrendered. If the Warrants evidenced by this
Warrant Certificate will be exercised in part, the holder hereof will be
entitled to receive upon surrender hereof another Warrant Certificate or
Certificates evidencing the number of Warrants not so exercised.
No holder of this Warrant Certificate, as such, will be entitled to
vote, receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor will anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof or give or withhold consent to any
corporate action (whether upon any matter submitted to stockholders at any
meeting thereof, or give or withhold consent to any merger, recapitalization,
issuance of stock, reclassification of stock, change of par value or change
of stock to no par value, consolidation, conveyance or otherwise) or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Warrant Agreement) or to receive dividends or subscription
rights or otherwise until the Warrants evidenced by this Warrant Certificate
will have been exercised and the Common Stock purchasable upon the exercise
thereof will have become deliverable as provided in the Warrant Agreement.
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<PAGE>
If this Warrant Certificate will be surrendered for exercise within
any period during which the transfer books for the Company's Common Stock or
other class of stock purchasable upon the exercise of the Warrants evidenced
by this Warrant Certificate are closed for any purpose, the Company will not
be required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same
consents and agrees with the Company, the Warrant Agent, and with every other
holder of a Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books
of the Warrant Agent only upon the terms and conditions set forth in the
Warrant Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person
in whose name this Warrant Certificate is registered as the absolute owner
hereof (notwithstanding any notation of ownership or other writing thereon
made by anyone other than the Company or the Warrant Agent) for all purposes
whatever and neither the Company nor the Warrant Agent will be affected by
any notice to the contrary.
The Company may not be required to issue or deliver any certificate
for shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement will have been paid, such tax being payable by the holder
of this Warrant Certificate at the time of surrender.
This Warrant Certificate will not be valid or obligatory for any
purpose until it will have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the proper officers of the
Company and its corporate seal.
Dated:
------------------------
U.S. LABORATORIES INC.
By:
---------------------------
Dickerson Wright
Chief Executive Officer
Attest:
-----------------------
James D. Wait
Secretary
Countersigned:
By:
---------------------------
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<PAGE>
EXERCISE FORM
To Be Executed by the Registered Holder in order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to
exercise ___________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities will be issued in name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- --------------------------
- --------------------------
- --------------------------
(please print or type name and address)
and be delivered to
- --------------------------
- --------------------------
- --------------------------
(please print or type name and address)
and if the number of exercised Warrants is not all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the balance of
the Warrants be registered in the name of, and delivered to, the Registered
Holder at the address stated below.
Important: Please Complete the Following:
1. If the exercise of this Warrant was solicited by Cardinal Capital
Management, Inc., Janda & Garrington LLC, or FAS Wealth Management Services,
Inc., please check the following box. / /
2. The exercise of this Warrant was solicited by ____________________________.
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<PAGE>
3. If the exercise of this Warrant was not solicited, please check the
following box. / /
Dated:
-------------------------- ------------------------------
Signature
- --------------------------------
- --------------------------------
Address
- --------------------------------
Social Security or Taxpayer
Identification Number
- --------------------------------
Signature Guaranteed
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ASSIGNMENT
To be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, __________________, hereby sells, assigns and transfers unto
Please insert Social Security
or other Identifying Number
- ------------------------------
- ------------------------------
- ------------------------------
(please print or type name and address)
______________________ of the Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
________________________________ as its/his/her attorney-in-fact to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
Dated:
----------------------- ------------------------------------
Signature Guaranteed
The signature to the assignment or the exercise form must
correspond to the name as written upon the face of this warrant certificate
in every particular, without alteration or enlargement or any change
whatsoever and must be guaranteed by a bank, broker, dealer, credit union,
savings association or other entity which is a member in good standing of the
securities transfer agents medallion program.
- -----------------------------
Authorized Officer
-23-
<PAGE>
EXHIBIT 4.4
U.S. LABORATORIES INC.
FORM OF STOCK CERTIFICATE
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE CERTAIN DEFINITIONS AND
RESTRICTIONS ON TRANSFER
CUSIP 90333T 10 5
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE,
OF U.S. LABORATORIES INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and
the facsimile signatures of its duly authorized officers.
Dated:
[SEAL]
[SIG] [SIG]
- ----------------------------- -------------------------------------
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
-1-
<PAGE>
EXHIBIT 4.5
REVISED FORM OF UNDERWRITER'S WARRANT
U.S. LABORATORIES INC.
AND
CARDINAL CAPITAL MANAGEMENT, INC.
-----------------
UNDERWRITERS WARRANT AGREEMENT
DATED AS OF JANUARY ____, 1999
<PAGE>
UNDERWRITERS WARRANT AGREEMENT dated as of January __, 1999 between U.S.
Laboratories Inc., a Delaware corporation (the "Company") and Cardinal
Capital Management, Inc., a Florida corporation (hereinafter referred to
variously as the "Holder" or the "Underwriter").
W I T N E S S E T H :
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between
the Underwriter and the Company, to act as representative of the Underwriters
in connection with the Company's proposed public offering of 1,100,000 units
("Units"), each Unit consisting of one share of the Company's common stock,
par value $.01 per share ("Common Stock") and one redeemable warrant to
purchase one share of Common Stock ("Warrants") at a public offering price of
$6.00 per Unit (the "Public Offering") as more particularly described in that
certain Registration Statement filed on Form SB-2 (Registration No.
333-66173) filed with the United States Securities and Exchange Commission on
October 27, 1998, as amended (the "Registration Statement"); and
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Underwriters Warrants") to purchase 110,000 Units ("Underwriters Units")
(representing 10% of the total number of Units sold by the Underwriter in the
Public Offering) at an initial exercise price of $7.20 per Underwriters Unit
(120% of the public offering price); and
<PAGE>
WHEREAS, the Underwriters Warrants to be issued pursuant to this
Agreement will be issued at the Closing Time (as such term is defined in the
Underwriting Agreement) by the Company to the Underwriter in consideration
for, and as part of the compensation in connection with, the Public Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and for the purpose of defining
the terms and provisions of the Underwriters Warrants and the respective
rights and obligations hereunder, the parties hereto agree as follows:
1. GRANT. The Holder is hereby granted the right to purchase, at any
time from ______ __, 2000 until 5:30 P.M., Florida time, on ______ __, 2004,
up to 110,000 Underwriters Units at an initial exercise price (subject to
adjustment as provided in Section 7 hereof) of $7.20 per Underwriters Unit
(the "Exercise Price"), subject to the terms and conditions of this
Agreement. Except as set forth herein, the Underwriters Units issuable upon
exercise of the Underwriters Warrants are in all respects identical to the
Units being purchased by the Underwriter for resale to the public in the
Public Offering pursuant to the terms and provisions of the Underwriting
Agreement, except that the warrant ("Warrant") to purchase one share of
Common Stock underlying each Underwriters Unit shall not be subject to
redemption.
2. UNDERWRITERS WARRANT CERTIFICATES. Certificates evidencing the
Underwriters Warrants (the "Underwriters Warrant Certificates") delivered and
to be delivered pursuant to this Agreement shall be in the form set forth in
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions,
<PAGE>
substitutions, and other variations as required or permitted by this
Agreement. The Underwriters Warrant Certificates shall be numbered and shall
be registered on the books of the Company when issued. The Underwriters
Warrant Certificates shall be divisible and transferable only on the books of
the Company at its principal office in San Diego, California, or at the
office of the Company's stock transfer agent, upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
or accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer the Company shall execute and
deliver a new Underwriters Warrant Certificate to the person entitled thereto.
3. EXERCISE OF UNDERWRITERS WARRANTS.
SECTION 3.1 EXERCISE. The Underwriters Warrants initially are
exercisable at the Exercise Price payable by certified or official bank check
in New York Clearing House funds. Upon surrender at the Company's principal
offices in California (currently located at 7895 Convoy Court, Suite 18, San
Diego, California 92111, of an Underwriters Warrant Certificate with the
annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price for the Underwriters Units purchased, the registered
holder of an Underwriters Warrant Certificate ("Holder" or "Holders") shall
be entitled to receive certificates for the Underwriters Units so purchased.
The purchase rights represented by each Underwriters Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not
as to fractional shares of Common Stock underlying the Underwriters
Warrants). In the case of the purchase of less than all the Underwriters
Units purchasable under any
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<PAGE>
Underwriters Warrant Certificate, the Company shall cancel the Underwriters
Warrant Certificate upon the surrender thereof and shall execute and deliver
a new Underwriters Warrant Certificate of like tenor for the balance of the
Underwriters Units purchasable thereunder.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Underwriters
Warrants, the issuance of certificates for the Common Stock, Warrants and
other securities, properties or rights underlying such Underwriters Warrants,
shall be made forthwith (and in any event within five (5) business days
thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance thereof,
and such certificates shall (subject to the provisions of Sections 5 and 6
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof. The Company shall pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Underwriters Warrant and the
Warrants and shares of Common Stock issuable upon the exercise thereof;
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable with respect to any secondary transfer of the
Underwriters Warrant or such securities.
The Underwriters Warrant Certificates and the certificates representing
the Common Stock and Warrants comprising the Underwriters Units issuable upon
exercise of the Underwriters Warrants shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the
manual or facsimile signature of the then
4
<PAGE>
present Secretary or Assistant Secretary of the Company. The Underwriters
Warrant Certificates shall be dated the date of the execution by the Company
upon initial issuance, division, exchange, substitution or transfer. The
certificates representing the Underwriters Units issuable upon exercise of
the Underwriters Warrant shall be identical in form to those representing the
Units issued in connection with the Public Offering, except that the warrants
underlying the Underwriters Units shall not be subject to redemption.
5. RESTRICTION ON TRANSFER OF UNDERWRITERS WARRANTS.
SECTION 5.1 RESTRICTIONS. The Holder of an Underwriters Warrant
Certificate, by its acceptance thereof, covenants and agrees that the
Underwriters Warrants are not being acquired with a view to the distribution
thereof; and that the Underwriters Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof, except to officers and directors
of the Underwriter or by will, pursuant to the laws of descent and
distribution, or by the operation of law.
SECTION 5.2 LEGEND. Notwithstanding the provisions of Section 5.1 of
this Agreement imposing limitations on the transfer of the Underwriters
Warrants, neither the Underwriters Warrants nor the Underwriters Units shall
be sold, transferred, pledged, issued in a name other than of the holder
thereof or otherwise disposed except in compliance with the Securities Act of
1933, as amended (the "Act"). Each certificate evidencing the Underwriters
Warrants and each certificate for securities initially issued upon exercise
of the Underwriters Warrants, unless at the time of exercise such
5
<PAGE>
securities are registered with the Securities and Exchange Commission (the
"Commission") under the Act, shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS CERTIFICATE OR
THE SECURITIES PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT
REQUIRED. TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS ALSO RESTRICTED
BY THAT CERTAIN UNDERWRITERS WARRANT AGREEMENT DATED _________________, 1999,
A COPY OF WHICH IS AVAILABLE FROM THE ISSUER.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public underwriting pursuant to a registration statement
under the Act of the securities represented thereby) shall also bear the
above legend unless, in the opinion of such counsel as shall be reasonably
approved by the Company, the securities represented thereby need no longer by
subject to such restrictions.
6. REGISTRATION RIGHTS.
SECTION 6.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Underwriters Warrants and the Underwriters Units issuable upon exercise of
the Underwriters Warrants, have been registered under the Act.
SECTION 6.2 PIGGYBACK REGISTRATION. If, at any time commencing after
______ __, 2000 (one (1) year from the effective date of the Registration
Statement), through
6
<PAGE>
and including ________ __, 2004 (five (5) years from the effective date of
the Registration Statement), the Company proposes to register any of its
securities under the Act (other than in connection with a business
combination or pursuant to Form S-8 or similar form) it will give written
notice by registered or certified mail, at least thirty (30) days prior to
the filing of each such registration statement, to the Underwriter and to all
other Holders of the Underwriters Warrants and Underwriters Units underlying
the Underwriters Warrants, of its intention to do so. If any of the
Underwriter or other Holders of the Underwriters Warrants and/or the
Underwriters Units underlying the Underwriters Warrants, notify the Company
within twenty (20) days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration
statement, the Company shall afford each of the Underwriter and such Holders
of the Underwriters Warrants and/or Underwriters Units underlying the
Underwriters Warrants, the opportunity to have any of such securities
registered under such registration statement; provided, however, that in the
event the Underwriters advise the Company that in their opinion the number of
securities requested to be included in such registration pursuant to this
Agreement and pursuant to any other rights granted by the Company to holders
of its securities exceeds the number of securities that can be sold in the
offering without adversely affecting the offering price of the Company's
securities, the Company may first include in such registration all securities
the Company proposes to sell (without
7
<PAGE>
including the holders of other rights granted by the Company), and each
Holder shall accept a pro rata reduction in the number of Underwriters Units
to be included in such registration statement.
Notwithstanding the provisions of this Section 6.2, the Company shall
have the right at any time after it shall have given written notice pursuant
to this Section 6.2 (irrespective of whether a written request for inclusion
of any such securities shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.
8
<PAGE>
SECTION 6.3 DEMAND REGISTRATION.
(a) At any time commencing after _______ __, 2000 (one (1) year
from the effective date of the Registration Statement) through and including
__________ __, 2004 (five (5) years from the effective date of the
Registration Statement), the Holders of the Underwriters Warrants and
Underwriters Units underlying the Underwriters Warrants, representing a
"Majority" (as hereinafter defined) of the Underwriters Units issuable upon
the exercise of the Underwriters Warrants (assuming the exercise of all of
the Underwriters Warrants) shall have the right (which right is in addition
to the registration rights under Section 6.2 hereof), exercisable by written
notice to the Company, to have the Company prepare and file with the
Securities and Exchange Commission (the "Commission"), at on one occasion, a
registration statement and such other documents, including a prospectus, as
may be necessary in the opinion of both counsel for the Company and counsel
for the Underwriter and Holders, in order to comply with the provisions of
the Act, so as to permit a public offering and sale of their respective
Underwriters Warrants and Underwriters Units for nine (9) consecutive months
by such Holders and any other Holders of the Underwriters Warrants and the
Underwriters Units who shall notify the Company within ten (10) days after
receiving notice from the Company of such request. Such registration and all
costs incident thereof shall be at the expense of the Company, as provided in
Section 6.4(b).
9
<PAGE>
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 6.3 by any Holder or Holders to all
other registered Holders of the Underwriters Warrants and Underwriters Units
within ten (10) days from the date of the receipt of any such registration
request.
(c) In addition to the registration rights under Section 6.2 and
subsection (a) of this Section 6.3, at any time within the time period
specified in Section 6.4(a) hereof, through and including _________ __, 2004
(five (5) years from the effective date of the Registration Statement), any
Holder of the Underwriters Warrants and/or Underwriters Units, representing a
Majority of the Underwriters Units issuable upon the exercise of the
Underwriters Warrants (assuming the exercise of all of the Underwriters
Warrants) shall have the right, exercisable by written request to the
Company, to have the Company prepare and file, on one occasion, with the
Commission a registration statement so as to permit a public offering and
sale for nine (9) consecutive months by any such Holder of its Underwriters
Units, provided, however, that the provisions of Section 6.4(b) hereof shall
not apply to any such registration request and registration and all costs
incident thereto shall be at the expense of the Holder or Holders making such
request.
(d) The Company and the Holders agree that the Holders of
Underwriters Warrants and Underwriters Units (the "Securities") will suffer
damages if the Company fails to fulfill its obligations under this Section
6.3 and
10
<PAGE>
that ascertaining the extent of such damages with precision would not be
feasible. Accordingly, the Company agrees to pay liquidated damages with
respect to the Securities held by each Holder ("Liquidated Damages"), if:
(i) any registration statement required to be filed pursuant
to this Section 6.3 is not filed with the Commission on or prior to the date
specified in Section 6.4(a) for such filing in this Agreement;
(ii) any such registration statement has not been declared
effective by the Commission on or prior to the earliest possible time but in
no event later than 90 days after such filing; or
(iii) any registration statement required to be filed pursuant
to this Section 6.3 is filed and declared effective but shall thereafter
cease to be effective or fail to be usable for its intended purpose without
being succeeded immediately by a post-effective amendment to such
registration statement that cures such failures and that is itself
immediately declared effective; (each such event in clauses (i) through (iii)
above being referred to herein as a "Registration Default"). The Liquidated
Damages shall be an amount equal to (A) with respect to the first 90-day
period immediately following the occurrence of a Registration Default, 10% of
the number of Securities held by such Holder (pro-rated weekly), PLUS (B) an
additional 10% of the number of Securities held by such Holder with respect
to each 30-day period after the first 90 day period, until all Registration
Defaults have been cured, up to 100% of the number of Securities held by such
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<PAGE>
Holder. The Company shall notify the Holders within one business day after
each and every date on which a Registration Default occurs. All accrued and
unpaid Liquidated Damages shall be paid immediately by the Company on the
expiration of each 90-day and 30-day period by mailing certificates for such
Securities to Holders of record of the Securities at such address as is set
forth on the stock and warrant record books of the Company. Each obligation
to pay Liquidated Damages shall be deemed to accrue beginning on the day of
the applicable Registration Default (other than as set forth above).
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease until the next Registration Default, if any.
SECTION 6.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 6.2 or 6.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within forty-five (45) days of receipt of any demand therefor in
accordance with Section 6.3(a), shall use its best efforts to have any
registration statement declared effective at the earliest possible time, and
shall furnish each Holder desiring to sell the Underwriters Units underlying
the Underwriters Warrants such number of prospectuses as shall reasonably be
requested. Notwithstanding the foregoing sentence, the Company shall be
entitled to
12
<PAGE>
postpone the filing of any registration statement otherwise required to be
prepared and filed by it pursuant to this Section 6.4(a) if the Company is
publicly committed to a self-tender or exchange offer and the filing of a
registration statement would cause a violation of Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In the
event of such postponement, the Company shall be required to file the
registration statement pursuant to this Section 6.4(a) upon the earlier of
(i) the consummation or termination, as applicable, of the event requiring
such postponement or (ii) 90 days after the receipt of the initial demand for
such registration. Additionally, notwithstanding anything to the contrary
contained herein, during any period that a registration statement filed
pursuant to Section 6.3 hereof is effective, the Company shall have the right
to prohibit the sale of any Underwriters Units thereunder upon notice to the
Holder(s) (A) if in the opinion of counsel for the Company, the Company would
thereby be required to disclose information not otherwise then required by
law to be publicly disclosed where it is significant to the operations or
well being of the Company that such information remain undisclosed, provided
that the Company shall use its best efforts to minimize the period of time in
which it shall prohibit the sale of any of such Underwriters Units pursuant
to this clause (A), (B) for periods of up to 30 days if the Company
reasonably believes that such sale might reasonably be expected to have an
adverse effect on any significant proposal or plan of the Company to engage
in an
13
<PAGE>
acquisition of assets or any merger, consolidation, tender offer, financing,
corporate reorganization or similar transaction; (C) during the period
starting with the date 10 days prior to the Company's estimate of the date of
filing of, and ending on a date 90 days after the effective date of, a
Company initiated registration in which the Holders are entitled to and may
in fact participate in accordance with Section 6.2 hereof, but in no event
longer than 180 days; or (D) upon the happening of any event, as a result of
which the prospectus under the registration statement includes an untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing (in which case, the Company shall
within a reasonable period provide the Holder with revised or supplemental
prospectuses and the Holders shall promptly take action to cease making any
offers of such Underwriters Units until receipt and distribution of such
revised or supplemental prospectuses.
(b) The Company shall pay all costs (excluding fees and expenses
of the Holder(s) counsel and any underwriting or selling commissions), fees
and expenses in connection with all registration statements filed pursuant to
Sections 6.2 and 6.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and blue sky fees and expenses.
The Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 6.3(c).
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<PAGE>
(c) The Company will take all necessary action which may be
required in qualifying or registering the Underwriters Warrants and
Underwriters Units underlying the Underwriters Warrants included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Holder(s), provided
that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Underwriters
Warrants and Underwriters Units to be sold pursuant to any registration
statement and each person, if any, who controls such Holders within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any
claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement, but only
to the same extent and with the same effect as the provisions pursuant to
which the Company has agreed to indemnify the Underwriter contained in
Section 6(a) of the Underwriting Agreement.
(e) The Holder(s) of the Underwriters Warrants and Underwriters
Units underlying the Underwriters Warrants to be sold pursuant to a
registration statement, and their successors and assigns, shall severally,
and not jointly,
15
<PAGE>
indemnify the Company, its officers and directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their successors or
assigns, for specific inclusion in such registration statement to the same
extent and with the same effect as the provisions contained in Section 6(b)
of the Underwriting Agreement pursuant to which the Underwriter has agreed to
indemnify the Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Underwriters Warrants prior to the
initial filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Underwriters Units underlying the Underwriters Warrants and
Underwriters Warrants to be included in any registration statement filed
pursuant to Section 6.3 hereof, or permit any other registration statement
(other than in connection with a business combination or on Form S-8) to
become effective within 120 days of a registration statement filed pursuant
to Section 6.3 hereof, without the prior written consent of the Holders of a
Majority of the Underwriters Units issuable upon the exercise of such
Underwriters Warrants.
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<PAGE>
(h) If the Underwriters Units underlying the Underwriters Warrants
are to be sold in an underwritten public offering, the Company shall use its
best efforts to furnish to each Holder participating in the offering and to
each such underwriter, a signed counterpart, addressed to such underwriter,
of (i) an opinion of counsel to the Company dated the date of the closing
under the underwriting agreement, and (ii) a "cold comfort" letter dated the
date of the closing under the underwriting agreement signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to Underwriters in underwritten
public offerings of securities.
(i) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within 15 months
thereafter, have made "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not
be audited) complying with Section 11(a) of the Act and covering a period of
at least 12 consecutive months beginning after the effective date of the
registration statement.
17
<PAGE>
(j) The Company shall deliver promptly to each Holder
participating in the offering and requesting the correspondence and memoranda
described below, and the managing Underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and underwriter
to do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it
deems reasonably necessary to comply with applicable securities laws or rules
of the National Association of Securities Dealers, Inc. ("NASD"). Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as any such Holder shall reasonably request.
(k) The Company shall enter into an underwriting agreement with
the managing underwriter(s) selected for such underwriting, if any, by
Holders holding a Majority of the Underwriters Warrants and Underwriters
Units underlying the Underwriters Warrants requested to be included in such
underwriting. Such underwriting agreement shall be satisfactory in form and
substance to the Company, each Holder and such managing Underwriters, and
shall contain such representations, warranties and covenants by the Company
18
<PAGE>
and such other terms as are customarily contained in agreements of that type
used by the managing underwriter(s).
The Holders shall be parties to any underwriting agreement relating to
an underwritten sale of their Underwriters Warrants and the Underwriters
Units underlying the Underwriters Warrants and may, at their option, require
that any or all the representations, warranties and covenants of the Company
to or for the benefit of such underwriter(s) shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriter(s) except as they may relate to such Holders, their intended
methods of distribution, and except for matters related to disclosures with
respect to such Holders, contained or required to be contained, in such
registration statement under the Act and the rules and regulations thereunder.
(1) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Underwriters Warrants and Underwriters Units,
shall mean in excess of fifty percent (50%) of the then outstanding shares of
Common Stock underlying the Underwriters Units, assuming the full exercise of
all Underwriters Warrants and Underwriters Units that (i) are not held by the
Company, an affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their families, persons acting as
nominees or in conjunction therewith or (ii) have not been resold to the
public pursuant to Rule
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144 under the Act or a registration statement filed with the Commission under
the Act.
(m) The Company agrees that until the Underwriters Units have been
sold under a registration statement or pursuant to Rule 144 under the Act, it
shall keep current in filing all materials required to be filed with the
Commission in order to permit holders of the Underwriters Units, if they
otherwise comply with the requirements of Rule 144, to sell Underwriters
Units under such Rule.
7. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
SECTION 7.1 SUBDIVISION AND COMBINATION. In case the Company shall (i)
pay a dividend in Common Stock, (ii) subdivide its outstanding Common Stock,
(iii) combine its outstanding Common Stock into a smaller number of shares of
Common Stock, or (iv) issue by reclassification of its Common Stock other
securities of the Company, the number and kind of securities purchasable upon
the exercise of the Underwriters Warrants immediately prior thereto shall be
adjusted so that the Holder shall be entitled to receive the number and kind
of securities of the Company which it would have owned or would have been
entitled to receive after the happening of any of the events described above
had the Underwriters Warrant and Underwriters Units been exercised
immediately prior to the happening of such event or any record date with
respect thereto. Any
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adjustment made pursuant to this Section 7.1 shall become effective on the
effective date of such event retroactive to the record date, if any, for such
event.
SECTION 7.2 ADJUSTMENT IN EXERCISE PRICE. Whenever the number of the
securities purchasable upon the exercise of the Underwriters Warrants is
adjusted as herein provided, the Exercise Price payable upon the exercise of
the Underwriters Warrants shall be adjusted by multiplying such Exercise
Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of the securities purchasable upon the exercise
of the Underwriters Warrants immediately prior to such adjustment, and of
which the denominator shall be the number of the securities so purchasable
immediate thereafter.
SECTION 7.3 DEFINITION OF COMMON STOCK. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company
as amended as of the date hereof, or (ii) any other class of stock resulting
from successive changes or reclassifications of such Common Stock, consisting
solely of changes in par value, or from par value to no par value, or from no
par value to par value. In the event that the Company shall after the date
hereof issue common securities with greater or superior voting rights than
the shares of Common Stock outstanding as of the date hereof, the Holder, at
its option, may receive upon exercise of any Underwriters Warrant and
Underwriters Units, either shares of Common Stock or a like number of such
securities with greater or superior voting rights.
21
<PAGE>
SECTION 7.4 MERGER OR CONSOLIDATION. In case of any reclassification,
capital reorganization or other change in the outstanding shares of Common
Stock of the Company (other than a change in par value, or from par value to
no par value, of from no par value to par value), or as a result of an
issuance of Common Stock by way of dividend or other distribution, or of a
subdivision or combination of the Common Stock for which an adjustment to the
Underwriters Warrant is made by reason of Section 7.1 hereof, or in case of
any consolidation or merger of the Company with or into another corporation
or entity (other than a merger with a subsidiary in which merger the Company
is the continuing corporation and which does not result in any
reclassification or capital reorganization of the Company) as a result of
which the holders of the Company's Common Stock become holders of other
shares or securities of the Company or of another corporation or entity, or
such holders receive cash or other assets, or in case of any sale or
conveyance to another corporation of the property, assets or business of the
Company as an entirely or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute with
the Holder an agreement that the Holder shall have the right thereafter upon
payment of the Exercise Price in effect immediately prior to such action to
purchase upon the exercise of the Underwriters Warrant the kind and number of
securities and property which it would have owned or have been entitled to
have received after the happening of such reclassification, capital
reorganization, change in the
22
<PAGE>
outstanding shares of Common Stock of the Company, consolidation, merger,
sale or conveyance had the Underwriters Warrant been exercised immediately
prior to such action.
The agreement referred to in this Section 7.4 shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. The provisions of this Section
7.4 shall similarly apply to successive reclassifications, capital
reorganizations, changes in the outstanding shares of Common stock of the
Company, consolidations, merger, sales or conveyances.
SECTION 7.5 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price of the Underwriters Warrants and
Underwriters Units shall be made if the amount of such adjustment shall be
less than two cents ($.02) per share of Common Stock, provided, however, that
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents ($.02) per share of Common Stock.
SECTION 7.6 NOTICES. Whenever the number of securities purchasable
upon the exercise of the Underwriters Warrants or the Exercise Price is
adjusted as herein provided, the Company shall cause to be promptly mailed to
the Holder by first class mail, postage prepaid, notice of such adjustment
and a certificate of a firm
23
<PAGE>
of independent certified public accountants selected by the board of
directors of the Company (who may be the regular accountants employed by the
Company) setting forth the number of the securities purchasable upon the
exercise of the Underwriters Warrants or the Exercise Price after such
adjustment, a brief statement of the facts requiring such adjustment and the
computation by which such adjustment was made.
8. EXCHANGE AND REPLACEMENT OF UNDERWRITERS WARRANT CERTIFICATES. Each
Underwriters Warrant Certificate is exchangeable without expense, upon the
surrender thereof by the registered Holder at the principal executive office
of the Company, for a new Underwriters Warrant Certificate of like tenor and
date representing in the aggregate the right to purchase the same number of
Underwriters Units as provided in the original Underwriters Warrants in such
denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Underwriters Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Underwriters Warrants, if mutilated, the Company will
make and deliver a new Underwriters Warrant Certificate of like tenor, in
lieu thereof. Applicants for such replacement
24
<PAGE>
certificates agree to comply with such other reasonable requirements of the
Company and to pay such other reasonable charges as the Company may prescribe.
9. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Underwriters Warrants, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated
by rounding any fraction up to the nearest whole number of shares of Common
Stock or other securities, properties or rights.
10. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the
Underwriters Warrants and Underwriters Units, such number of shares of Common
Stock or other securities, properties or rights as shall be issuable upon the
exercise thereof. Every transfer agent for the Common Stock issuable upon
the exercise of the Underwriters Warrants and Underwriters Units shall be
irrevocably authorized and directed at all times to reserve such number of
authorized shares of Common Stock as shall be requisite for such purpose.
The Company shall keep a copy of this Agreement on file with its transfer
agent and shall supply such transfer agent with duly executed stock and other
certificates, for the purpose of issuance upon the
25
<PAGE>
exercise of the Underwriters Warrants and Underwriters Units. The Company
covenants and agrees that, upon exercise of the Underwriters Warrants and
payment of the Exercise Price therefor, all Underwriters Units and shares of
Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Underwriters Warrants
shall be outstanding, the Company shall use its best efforts to cause all
securities issuable upon the exercise of the Underwriters Warrants and
Underwriters Units to be listed (subject to official notice of issuance) on
all securities exchanges on which the securities underlying the Units issued
to the pubic in connection herewith may then be listed and/or quoted on
NASDAQ.
11. NOTICES TO UNDERWRITERS WARRANTS HOLDERS. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other matter,
or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Underwriters Warrants and
their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution
26
<PAGE>
payable otherwise than out of current or retained earnings, as indicated by
the accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company,
or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property assets and business as an entirety shall be
proposed; then, in any one or more of such events the Company shall give
written notice to the Holders of Underwriters Warrants and Underwriters Units
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend, or the issuance of any convertible or
exchangeable
27
<PAGE>
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
12. NOTICES.
All notices requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made when delivered, or
mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Underwriters Warrants and
Underwriters Units, to the address of such Holder as shown on the books of
the Company; or
(b) If to the Company, to the address set forth in Section 3
hereof or to such other address as the Company may designate by notice to the
Holders.
13. SUPPLEMENT AND AMENDMENT. The Company and the Underwriter may from
time to time supplement or amend this Agreement without the approval of any
holders of Underwriters Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein or
to make any other provisions in regard to matters or questions arising
hereunder which the Company and the Underwriter may deem necessary or
desirable and which the Company and the Underwriter deem shall not adversely
affect the interests of the Holders of Underwriters Warrant Certificates.
28
<PAGE>
14. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders
and their respective successors and assigns hereunder.
15. TERMINATION. This Agreement shall terminate at the close of
business on ______ __, 2004. Notwithstanding the foregoing, the
indemnification provisions of Section 6 hereof shall survive such termination
until the close of business on ______ __, 2014.
16. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Underwriters Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Florida and for all purposes
shall be construed in accordance with the laws of such State without giving
effect to the rules of said State governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of competent
jurisdiction located in Miami-Dade County, Florida, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company,
the Underwriter and the Holders hereby irrevocably waive any objection to
such exclusive jurisdiction or inconvenient forum. Any such process or
summons to be served upon any of the Company, the Underwriter and the Holders
(at the option of the party bringing such action, proceeding or claim) may be
served by transmitting a
29
<PAGE>
copy thereof, by registered or certified mail, return receipt requested,
postage prepaid, addressed to it at the address set forth in Section 12
hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim. The
Company, the Underwriter and the Holders agree that the prevailing party(ies)
in any such action or proceeding shall be entitled to recover from the other
party(ies) all of its/their reasonable legal costs and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
17. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to
the subject matter hereof and, except as provided in Section 13 hereof, may
not be modified or amended except by a writing duly signed by the party
against whom enforcement of the modification or amendment is sought.
18. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
19. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they
be construed as, a part of this Agreement and shall be given no substantive
effect.
30
<PAGE>
20. BENEFITS OR THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Underwriters Warrant
Certificates or Underwriters Units underlying the Underwriters Warrants any
legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Underwriter and any other Holder(s) of the Underwriters Warrant Certificates
and Underwriters Units underlying the Underwriters Warrants.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one
and the same instrument.
22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements
contained in any schedule, exhibit, certificate or other instrument delivered
by or on behalf of the parties hereto in connection with the transactions
contemplated by this Agreement, shall be deemed to be representations and
warranties hereunder. Notwithstanding any investigations made by or on behalf
of the parties to this Agreement, all representations, warranties and
agreements made by the parties to this Agreement or pursuant hereto shall
survive.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
[SEAL] U.S. LABORATORIES INC.
By:
- ----------- -----------------------------------------
Dickerson Wright
President and Chief Executive Officer
Attest:
- ----------------------------------
James D. Wait
Secretary
CARDINAL CAPITAL MANAGEMENT, INC.
By:
- ----------- -----------------------------------------
Hershel F. Smith, Jr.
President and Chief Executive Officer
32
<PAGE>
EXHIBIT A
[FORM OF UNDERWRITERS WARRANT CERTIFICATE]
THE UNDERWRITERS WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED FOR SALE, SOLD,
OR OTHERWISE TRANSFERRED, NOR MAY THE SECURITIES BE TRANSFERRED ON THE BOOKS
OF THE COMPANY, EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND ALL APPLICABLE STATE SECURITIES LAWS,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE UNDERWRITERS WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE UNDERWRITERS WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., FLORIDA TIME,___________________, 2004
No. W-1 _______________________________________ Underwriters Warrants
Underwriters Warrant Certificate
This Underwriters Warrant Certificate certifies that Cardinal Capital
Management, Inc. or registered assigns, is the registered holder of 110,000
Underwriters Warrants to purchase initially, at any time from _________________,
2000 [one year from the consummation of the offering] until 5:30 p.m. Florida
time on _____________________, 2004 [five years from the consummation of the
offering] ("Expiration Date"), up to 110,000 units ("Underwriters Units")
consisting of one fully-paid and non-assessable share of common stock, par
value $.01 per share (the "Common Stock") of U.S. Laboratories Inc., a
Delaware corporation (the "Company") and one warrant to purchase one share of
Common Stock ("Warrants"), at an initial exercise price, subject to
adjustment in certain events
A-1
<PAGE>
(the "Exercise Price"), of $7.20 per Underwriters Unit upon surrender of this
Underwriters Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of ______________________, 1999
between the Company and Cardinal Capital Management, Inc. (the "Underwriters
Warrant Agreement"). Payment of the Exercise Price shall be made by
certified or official bank check in New York Clearing House funds payable to
the order of the Company.
No Underwriters Warrant may be exercised after 5:30 p.m., Florida time,
on the Expiration Date, at which time all Underwriters Warrants evidenced
hereby, unless exercised prior thereto, shall thereafter be void.
The Underwriters Warrants evidenced by this Underwriters Warrant
Certificate are part of a duly authorized issue of warrants pursuant to the
Underwriters Warrant Agreement, which Underwriters Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Underwriters Warrants.
The Underwriters Warrant Agreement provides that upon the occurrence of
certain events the exercise price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new
Underwriters Warrant Certificate evidencing the adjustment in the exercise
price and the number and/or type of securities issuable upon the exercise of
the Underwriters Warrants; provided, however, that the failure of the Company
to issue such new Underwriters Warrant Certificates shall not in any way
change, alter or otherwise impair, the rights of the holder as set forth in
the Underwriters Warrant Agreement.
Upon due presentment for registration of transfer of this Underwriters
Warrant Certificate at an office or agency of the Company, a new Underwriters
Warrant Certificate or Underwriters Warrant Certificates of like tenor and
evidencing in the aggregate a like number of Underwriters Warrants shall be
issued to the transferee(s) in exchange for this Underwriters Warrant
Certificate, subject to the limitations provided herein and in the
Underwriters Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Underwriters Warrants
evidenced by this Certificate, the Company shall forthwith issue to the
holder hereof a new
A-2
<PAGE>
Underwriters Warrant Certificate representing such number of unexercised
Underwriters Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Underwriters Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected by
any notice to the contrary.
All terms used in this Underwriters Warrant Certificate which are
defined in the Underwriters Warrant Agreement shall have the meanings
assigned to them in the Underwriters Warrant Agreement.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Underwriters Warrant
Certificate to be duly executed under its corporate seal.
Dated as of , 1999
-----------------------
[SEAL] U.S. LABORATORIES INC.
By:
-----------------------------------------
Dickerson Wright
President and Chief Executive Officer
Attest:
James D. Wait
Secretary
A-4
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Underwriters Warrant Certificate, to purchase ___________
Underwriters Units and herewith tenders in payment for such securities a
certified or official bank check payable in New York Clearing House Funds to
the order of U.S. Laboratories Inc. in the amount of $______________________,
all in accordance with the terms hereof. The undersigned requests that
certificates for such securities be registered in the name of ________________
________________________ whose address is ____________________________________
_______________ and that such certificates be delivered to ___________________
________________________ whose address is __________________________________ .
Dated:
Signature
--------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the
Underwriters Warrant Certificate.)
------------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
EXHIBIT 4.6
FORM OF PROMOTIONAL SHARES ESCROW AGREEMENT
CLASS A ISSUER
This Promotional Shares Escrow Agreement ("Agreement"), which was entered
into on the ____ day of January, 1999, by and between U. S. Laboratories Inc.
("Issuer"), whose principal place of business is located in San Diego,
California, and Dickerson Wright, Gary H. Elzweig, Martin B. Lowenthal,
Donald C. Alford, Mark Baron and Thomas H. Chapman (the "Depositors"), and
________________ (the "Escrow Agent"), whose principal place of business is
located in ____________________________________, and which is domiciled in
___________________________; (all of whom are herein collectively referred to
as "Signatories"), witnesses that:
A. The Issuer has filed an application with the securities
administrators of the states of Alabama, Arkansas, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Iowa,
Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, New
Jersey, Nevada, Oregon, Pennsylvania, South Carolina, Texas, Utah,
Virginia, Washington, Wisconsin and Wyoming ("Administrators") to
register certain of its Equity Securities for sale to public
investors who are residents of such states;
B. The Depositors are the owners of the shares of common stock or
similar securities and/or possess convertible securities, warrants,
options or rights which may be converted into, or exercised to
purchase shares of common stock or similar securities ("Equity
Securities") listed opposite their names on Exhibit A;
C. As a condition to registering the Issuer's Equity Securities, the
Depositors, who are security holders of the Issuer and who, for the
purposes of this Agreement, are deemed to be Promoters of the
Issuer, have agreed to deposit the Equity Securities listed
opposite their names on Exhibit A ("Promotional Shares"), which is
attached hereto and made a part hereof, with the Escrow Agent; and
D. The Signatories have agreed to be bound by the terms of this
Agreement.
THEREFORE, the Signatories agree as follows:
1. DEPOSIT OF PROMOTIONAL SHARES. The Depositors' Promotional Shares
have been deposited into an Escrow Account ("Escrow") with the
Escrow Agent, and the Escrow Agent hereby acknowledges the receipt
thereof.
2. EXERCISE OR CONVERSION OF PROMOTIONAL SHARES. If the Promotional
Shares have exercise rights or conversion rights, the Escrow Agent
shall, upon receipt of the Issuer's written request, provide the
documents that evidence and/or which are necessary to execute the
exercise rights or
<PAGE>
conversion rights. The exercised or converted Promotional Shares
shall remain in escrow subject to the terms of this Agreement.
3. TERM. The Term of this Agreement and the escrow shall begin on the
date that the public securities offering relating thereto ("public
offering") is declared effective by the Administrators. The
Promotional Shares shall be held by the Escrow Agent until they are
released in accordance with paragraph 4, below.
4. RELEASE OF PROMOTIONAL SHARES.
a. Subject to the documentation requirements in paragraph 5, below,
the Escrow Agent shall release the Promotional Shares in the
following manner.
(1) Beginning one year from the completion date of the public
offering, two and one-half percent (21/2%) of
Promotional Shares held in escrow may be released each
quarter pro rata among the Depositors. All remaining
Promotional Shares shall be released from escrow on the
anniversary of the second year from the completion date
of the public offering.
(2) One hundred percent (100%) of the Promotional Shares
shall be released from escrow if:
(a) The public offering has been terminated, and no
securities were sold pursuant thereto; or
(b) The public offering has been terminated, and all of
the gross proceeds that were derived therefrom have
been returned to the public investors.
b. In the event of a dissolution, liquidation, merger,
consolidation, reorganization, sale or exchange of the
Issuer's assets or securities (including by way of tender
offer), or any transaction or proceeding with a person who is
not a Promoter, which results in the distribution of the
Issuer's assets or securities ("Distribution"), while this
Agreement remains in effect, the Depositors agree that:
(1) All holders of the Issuer's Equity Securities will
initially share on a pro rata, per share basis in the
Distribution, in proportion to the amount of cash or
other consideration that they paid per share for their
Equity Securities (provided that the Administrators have
accepted the value of the other consideration), until the
shareholders who purchase the Issuer's Equity Securities
pursuant to the public offering ("Public Shareholders")
have received, or have had irrevocably set aside for
them, an amount that is equal to one hundred percent
(100%) of the public
-2-
<PAGE>
offering's price per share times the number of shares of
Equity Securities that they purchased pursuant to the
public offering and which they still hold at the time of
the Distribution, adjusted for stock splits, stock
dividends, recapitalizations and the like; and
(2) All holders of the Issuer's Equity Securities shall
thereafter participate on an equal, per share basis times
the number of shares of Equity Securities they hold at
the time of the Distribution, adjusted for stock splits,
stock dividends, recapitalizations and the like.
c. The Distribution may proceed on lesser terms and conditions
than the terms and conditions stated in paragraph 4.b, above,
if a majority of the Equity Securities that are not held by
Depositors, officers, directors, or Promoters of the Issuer,
or their associates or affiliates vote, or consent by consent
procedure, to approve the lesser terms and conditions.
d. In the event of a dissolution, liquidation, merger,
consolidation, reorganization, sale or exchange of the
Issuer's assets or securities (including by way of tender
offer), or any other transaction or proceeding with a person
who is a Promoter, which results in a Distribution while this
Agreement remains in effect, the Depositors' Promotional
Shares shall remain in escrow subject to the terms of this
Agreement.
e. In the event securities in the escrow become "Covered
Securities," as defined by the National Securities Markets
Improvement Act of 1996, all securities held in escrow shall
be released.
5. DOCUMENTATION REGARDING THE RELEASE OF PROMOTIONAL SHARES.
a. A written request for release of the Promotional Shares
("request for release"), based upon paragraph 4, above, shall
be forwarded to the Escrow Agent.
(1) A request for release based upon paragraph 4.a(2)(a) or
(b), above, shall be accompanied by a certification from
the underwriter (if applicable) and the Issuer's Chief
Executive Officer or Chief Financial Officer which states
that the public offering has been terminated and that the
conditions of paragraph 4.a(2)(a) or (b), above, have
been met.
6. RESTRICTION ON THE TRANSFER, SALE OR DISPOSAL OF PROMOTIONAL
SHARES. While this Agreement is in effect, no Promotional Shares,
any interest therein or any right or title thereto, may be sold,
transferred, hypothecated or otherwise disposed of ("transfer" or
-3-
<PAGE>
"transferred"), except as noted below, and the Escrow Agent shall
not recognize any transfer that violates the terms of this
Agreement. The Promotional Shares may not be transferred until the
Escrow Agent has received a written statement, signed by the
proposed transferee ("transferee"), which states that the
transferee has full knowledge of the terms of this Agreement, the
transferee accepts the Promotional Shares subject to the terms of
this Agreement, and the transferee realizes that the Promotional
Shares shall remain subject to the terms of the Agreement until
they are released pursuant to paragraph 4, above.
a. Promotional Shares may be transferred by will, the laws of
descent and distribution, the operation of law, or by order of
any court of competent jurisdiction and proper venue.
b. Promotional Shares of a deceased Depositor may be hypothecated
to pay the expenses of the deceased Depositor's estate. The
hypothecated promotional Shares shall remain subject to the
terms of this Agreement. Promotional Shares may not be
pledged to secure any other debt.
7. VOTING POWER. With the exception of paragraphs 4.b and c above,
the Promotional Shares shall have the same voting rights as
similar, non-escrowed Equity Securities. If the Promotional Shares
are registered in the Escrow Agent's name, the Escrow Agent shall
vote those Promotional Shares in accordance with the Depositors'
written instructions.
8. DIVIDENDS, STOCK SPLITS AND RECAPITALIZATIONS. All certificates
representing stock dividends and shares resulting from stock splits
of escrowed shares, recapitalizations and the like, that are
granted to or received by Depositors while their Promotional Shares
are held in Escrow shall be deposited with and held by the Escrow
Agent subject to the terms of this Agreement. Any cash dividends
that are granted to or received by the Depositors while their
Promotional Shares are held in escrow, shall be promptly deposited
with and held by the Escrow Agent subject to the terms of this
Agreement unless such cash dividends are approved by a majority of
the independent directors of the Issuer. The Escrow Agent shall
invest cash dividends as directed by the Depositors.
9. ADDITIONAL SHARES. With respect to Equity Securities received by
the Depositors as the result of the conversion of the Depositors'
convertible securities and/or the exercise of Depositors' options,
warrants or rights listed on Exhibit A, while their Promotional
Shares are held in escrow, shall be promptly deposited with the
Escrow Agent as Promotional Shares subject to the terms of this
Agreement. These Promotional Shares shall be distributed to the
Depositors when their Promotional Shares are released from escrow
pursuant to paragraph 4, above.
-4-
<PAGE>
10. RELIANCE BY ESCROW AGENT. The Escrow Agent shall be protected if it
acts in good faith upon any statement, certificate, notice,
request, consent, order or other document which it believes to be
genuine, conforms with the provisions of the Agreement and is
signed by the proper party. The Escrow Agent's sole responsibility
shall be to act in accordance with the terms expressly set forth in
this Agreement. The Escrow Agent shall be under no obligation to
institute or defend any action, suit or proceeding in connection
with this Agreement unless it receives reasonable indemnification
and advancement of fees and costs. The Escrow Agent may consult
counsel with respect to any question arising under this Agreement.
The Escrow Agent shall not be liable for any action taken or
omitted, in good faith, upon the advice of counsel. In performing
its duties hereunder, the Escrow Agent shall not be liable to
anyone for any damage, loss, expense or liability other than for
that which arises from the Escrow Agent's failure to abide by the
terms of this Agreement.
11. ESCROW AGENT'S COMPENSATION. The Escrow Agent shall be entitled to
receive reasonable compensation from the Issuer for its services as
set forth in Exhibit B, which is attached hereto and made a part
hereof. If the Escrow Agent is required to render additional
services that are not expressly set forth therein, or if it is made
a party to or intervenes in any action, suit or proceedings
pertaining to this Agreement ("Additional Services"), it shall be
entitled to receive reasonable compensation from the Issuer and the
Depositors. If Additional Services are provided, the Escrow Agent,
after giving written notice to the Depositors and the Issuer, may
deduct reasonable compensation from the cash dividends, interest
and proceeds being held for distribution pursuant to paragraphs
4.b, c and d, or 8, above.
12. ESCROW AGENT'S INDEMNIFICATION. The Issuer and the Depositors agree
to hold the Escrow Agent harmless from, and indemnify the Escrow
Agent for, any cost or liability regarding any administrative
proceeding, investigation, litigation, interpretation,
implementation or interpleading relating to this Agreement,
including the release of Promotional Shares, the Distribution, and
the disbursement of dividends, interest or proceeds, unless the
cost or liability arises from the Escrow Agent's failure to abide
by the terms of this Agreement.
13. INDEPENDENCE OF THE ESCROW AGENT. The Issuer hereby represents that
all of its officers, directors and Promoters are listed on Exhibit
C, which is attached hereto and made a part hereof. The Escrow
Agent hereby represents that it is not affiliated with the Issuer,
the Depositors, or the Issuer's officers, directors or Promoters
who are named in Exhibit A or Exhibit C.
14. SCOPE. This Agreement shall inure to the benefit of and be binding
upon the Depositors, their heirs and assignees, and upon the
Issuer, Escrow Agent, and their successors.
-5-
<PAGE>
15. SUBSTITUTE ESCROW AGENT. The Escrow Agent may, upon not less than
sixty (60) days prior written notice to the Issuer, the Depositors,
and the Administrator, resign as the Escrow Agent. The Issuer and
the Depositors shall, before the effective date of the Escrow
Agent's resignation, enter into a new identical Escrow Agreement
with a substitute Escrow Agent. The successor Escrow Agent must be
satisfactory to the Administrator. If the Issuer and the
Depositors fail to enter into a new Escrow Agreement and appoint a
successor Escrow Agent within sixty (60) days after the Escrow
Agent has given notice of its resignation, the Escrow Agent then
serving under this Agreement shall retain the Promotional Shares in
escrow until a new, identical Escrow Agreement has been executed
and a successor Escrow Agent has been appointed. The Escrow Agent
shall not be liable for retaining the Promotional Shares in escrow
for a reasonable time to determine the proper disposition of those
shares.
16. TERMINATION. Except for the compensation and indemnification
provisions of paragraphs 11 and 12 above, which shall survive until
they are satisfied, this Agreement shall terminate in its entirety
when all of the Promotional Shares have been released, or the
Issuer's Equity Securities and/or assets have been distributed
pursuant to paragraph 4, above.
17. Pursuant to the requirements of this Agreement, the Signatories
have entered into this Agreement, which may be written in multiple
counterparts and each of which shall be considered an original.
The Signatories have signed the Agreement in the capacities, and on
the dates, indicated.
IN WITNESS WHEREOF, the Signatories have executed this Agreement.
Dickerson Wright Date
------------------------------
- -----------------------------------
(Signature)
Gary H. Elzweig Date
------------------------------
- -----------------------------------
(Signature)
Martin B. Alford Date
------------------------------
- -----------------------------------
(Signature)
-6-
<PAGE>
Donald C. Alford Date
------------------------------
- -----------------------------------
(Signature)
Mark Baron Date
------------------------------
- -----------------------------------
(Signature)
Thomas H. Chapman Date
------------------------------
- -----------------------------------
(Signature)
Issuer
By
---------------------------------
President
By
---------------------------------
Secretary
Escrow Agent
- -----------------------------------
By
---------------------------------
Title
------------------------------
-7-
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Name of Depositor Equity Securities To Be Deposited
- ----------------- ---------------------------------
<S> <C>
Dickerson Wright 1,503,895
Gary H. Elzweig 233,213
Martin B. Lowenthal 40,973
Donald C. Alford 37,314
Mark Baron 24,913
Thomas H. Chapman 17,786
</TABLE>
-8-
<PAGE>
EXHIBIT B - ESCROW AGENT COMPENSATION
-9-
<PAGE>
EXHIBIT C
List of Issuer's Officers, Directors, Other Promoters
-----------------------------------------------------
Dickerson Wright
Gary H. Elzweig
Donald C. Alford
Mark Baron
Martin B. Lowenthal
James D. Wait
Thomas H. Chapman
James L. McCumber
Robert E. Petersen
Noel Schwartz
Irving Fuchs
-10-
<PAGE>
EXHIBIT 5.1
OPINION OF FOLEY & LARDNER
[LETTERHEAD]
January 28, 1999
U.S. Laboratories Inc.
7895 Convoy Court, Suite 18
San Diego, CA 92111
Re: Registration Statement on Form SB-2
Dear Gentlemen:
This opinion is being furnished in connection with the Registration
Statement on Form SB-2 (the "Registration Statement") of U.S. Laboratories Inc.
(the "Company"), under the Securities Act of 1933, as amended, for the
registration of 1,265,000 shares of common stock, $.01 par value, and redeemable
warrants to purchase 1,265,000 shares of common stock (the "Units").
We have examined and are familiar with the following:
(a) Articles of Incorporation of the Company as filed in the Office
of the Secretary of State of the State of Delaware and all amendments thereto;
(b) Bylaws of the Company and all amendments thereto;
(c) The proceedings of the Board of Directors of the Company in
connection with or with respect to the issuance and sale of the Units to be sold
by the Company; and
(d) Any other documents, Company records, and matters of law as we
deemed pertinent.
<PAGE>
FOLEY & LARDNER
U.S. Laboratories Inc.
January 28, 1999
Page 2
Based upon our examination of these documents and our familiarity with
such proceedings, it is our opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Delaware.
2. The Units covered by the Registration Statement to be sold by the
Company are duly authorized and when issued and delivered to investors against
payment of the appropriate consideration, will be duly and validly issued, fully
paid and nonassessable.
We hereby consent to the inclusion of this opinion as Exhibit 5.1 in
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules or
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
FOLEY & LARDNER
<PAGE>
EXHIBIT 10.1
NORTH COUNTY BANK
BUSINESS LOAN AGREEMENT
Principal: $500,000.00
Loan Date:
Maturity: 05-01-1999
Loan No: 110882-2975
Call: 530
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046--2990
THIS BUSINESS LOAN AGREEMENT between U.S. LABORATORIES, INC. ("Borrower")
and NORTH COUNTY BANK ("Lender") is made and executed on the following
terms and conditions. Borrower has received prior commercial loans from
Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, Including those which may be described on any
exhibit or schedule attached to this Agreement. All such loans and
financial accommodations, together with all future loans and financial
accommodations from Lender to Borrower, are referred to in this Agreement
individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any
Loan, Lender is relying upon Borrower's representations, warranties, and
agreements, as set forth in this Agreement; (b) the granting, renewing, or
extending of any Loan by Lender at all times shall be subject to Lender's
sole judgment and discretion; and (c) all such Loans shall be and shall
remain subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of October 26, 1998, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise detained in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. All references to dollar amounts shall mean amounts in lawful money
of the United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement,
as this Business Loan Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to
this Business Loan Agreement from time to time.
Borrower. The word "Borrower" means U.S. LABORATORIES, INC.. The
word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, deed
of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt,
lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in
the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a Security
Interest in any Collateral for the Indebtedness, including without
limitation all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of them,
as well as all claims by Lender against Borrower, or any one or
more of them; whether now or hereafter existing, voluntary or
involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute
of limitations; and whether such Indebtedness may be or hereafter
may become otherwise unenforceable.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors
and assigns.
Loan. The word "Loan" or "Loans" means and includes without
limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation those
loans and financial accommodations described herein or described on
any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations in favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
-1-
<PAGE>
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created
by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally
-2-
<PAGE>
enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as deemed in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 7895 CONVOY COURT, SUITE 18, SAN DIEGO, CA
92111. Unless Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records concerning the
Collateral.
Year 2000. Borrower warrants and represents that all software utilized in the
conduct of Borrower's business will have appropriate capabilities and
compatibility for operation to handle calendar dates falling on or after January
1, 2000, and all information pertaining to such calendar dates, in the same
manner and with the same functionality as the software does respecting calendar
dates falling on or before December 31, 1999. Further, Borrower warrants and
represents that the data--related user interface functions, data--fields, and
data--related program instructions and functions of the software include the
indication of the century.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
<TABLE>
<CAPTION>
Guarantor Amount
--------- ------
<S> <C>
DICKERSON WRIGHT Unlimited
</TABLE>
Subordination. Prior to disbursement of any Loan proceeds, deliver to
Lender a subordination agreement on Lender's forms, executed by Borrower's
creditor named below, subordinating all of Borrower's indebtedness to such
creditor, or such lesser amount as may be agreed to by Lender in writing,
and any security interests in collateral securing that indebtedness to the
Loans and security interests of Lender.
<TABLE>
<CAPTION>
Name of Creditor Amount
---------------- ------
<S> <C>
DICKERSON WRIGHT $98,000.00
</TABLE>
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately In writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
-3-
<PAGE>
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws. statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets,
or (c) sell with recourse any of Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan: or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
ADDITIONAL PROVISIONS.
1. COMPLIANCE CERTIFICATE REQUIREMENT IS WAIVED.
2. PRIMARY SAN DIEGO RELATED DEPOSIT RELATIONSHIP OF U.S. LABORATORIES, INC.
IS TO BE MAINTAINED AT NORTH COUNTY BANK.
3. PERSONAL DEPOSIT RELATIONSHIP OF DICKERSON WRIGHT IS TO BE MAINTAINED AT
NORTH COUNTY BANK.
4. MAXIMUM ADVANCE RATE 75% OF ACCOUNTS RECEIVABLE AGED 30 DAYS OR LESS.
FINANCIAL COVENANTS.
CPA AUDITED FINANCIALS DUE ANNUALLY.
CPA COMPILED (CONSOLIDATED) FINANCIALS DUE QUARTERLY.
PERSONAL FINANCIALS ON GUARANTOR DUE ANNUALLY.
PERSONAL TAX RETURNS ON GUARANTOR DUE ANNUALLY.
COMPANY PREPARED (CONSOLIDATED) FINANCIALS DUE MONTHLY.
AGINGS CONSOLIDATION DUE MONTHLY.
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BORROWING CERTIFICATE DUE MONTHLY.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable. all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of SAN
DIEGO County, the State of California. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any rights
to privacy it may have with respect to such matters. Borrower
additionally waives any
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and all notices of sale of participation interests, as well as all
notices of any repurchase of such participation interests. Borrower also
agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and
will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans.
Borrower further agrees that the purchaser of any such participation
interests may enforce its interests irrespective of any personal claims
or defenses that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
Stales mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance, such
finding shall not render that provision invalid or unenforceable as to any other
persons or circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or validity;
however, if the offending provision cannot be so modified, it shall be stricken
and all other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
OCTOBER 26, 1998.
BORROWER:
U.S. LABORATORIES INC
By: /S/ Dickerson Wright
-----------------------------------------
DICKERSON WRIGHT, President/Secretary
LENDER:
NORTH COUNTY BANK
By: /S/ Keven Levezu
----------------------------------------
Authorized Officer
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NORTH COUNTY BANK
CHANGE IN TERMS AGREEMENT
Principal: $500,000.00
Loan Date
Maturity: 05-01-1999
Loan No: 110882-2975
Call: 530
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046--2990
Principal Amount: $500,000.00 Date of Agreement: October 26, 1998
DESCRIPTION OF EXISTING INDEBTEDNESS. REVOLVING LINE OF CREDIT DATED MAY 8,
1998 IN THE AMOUNT OF $1,700,000.00 WITH A SUBSEQUENT CHANGE IN TERMS DATED
JUNE 1, 1998.
DESCRIPTION OF COLLATERAL. UCC-1 FINANCING STATEMENT FILED ON MAY 27, 1998
AS FILE #9814861071.
DESCRIPTION OF CHANGE IN TERMS. DECREASE REVOLVING LINE OF CREDIT FROM
$1,700,000.00 TO $500,000.00. ALL OTHER TERMS AND CONDITIONS TO REMAIN
UNCHANGED.
PROMISE TO PAY. U.S. LABORATORIES, INC. ("Borrower") promises to pay to
NORTH COUNTY BANK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Five Hundred Thousand & 00/100
Dollars ($500,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance.
Interest shall be calculated from the date of each advance until repayment
of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in
one payment of all outstanding principal plus all accrued unpaid interest
on May 1, 1999. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning December 1, 1998, and all subsequent
interest payments are due on the same day of each month after that. The
annual interest rate for this Agreement is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower
will pay Lender at Lender's address shown above or at such other place as
Lender may designate in writing. Unless otherwise agreed or required by
applicable law, payments will be applied first to accrued unpaid interest,
then to principal, and any remaining amount to any unpaid collection costs
and late charges.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to
change from time to time based on changes in an independent index which is
the WALL STREET JOURNAL PRIME RATE (the "Index"). The Index is not
necessarily the lowest rate charged by Lender on its loans. If the index
becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that
Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each DAY. The Index currently is
8.000%. The interest rate to be applied to the unpaid principal balance of
this Agreement will be at a rate equal to the Index, resulting in an
Initial rate of 8.000%. NOTICE: Under no circumstances will the interest
rate on this Agreement be more than the maximum rate allowed by applicable
law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full
prepayment of this Agreement, Borrower understands that Lender is entitled
to a minimum interest charge of $100.00. Other than Borrower's obligation
to pay any minimum interest charge, Borrower may pay without penalty all or
a portion of the amount owed earlier than it is due. Early payments will
not, unless agreed to by Lender in writing, relieve Borrower of Borrower's
obligation to continue to make payments of accrued unpaid interest. Rather,
they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Agreement or any agreement related to this Agreement, or
in any other agreement or loan Borrower has with Lender. (c) Borrower
defaults under any loan, extension of credit, security agreement, purchase
or sales agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations
under this Note or any of the Related Documents. (d) Any representation or
statement made or furnished to Lender by Borrower or on Borrower's behalf
is false or misleading in any material respect either now or at the time
made or furnished. (e) Borrower becomes insolvent, a receiver is appointed
for any part of Borrower's property, Borrower makes an assignment for the
benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien
or security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of
this Agreement. (h) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this
Agreement within the preceding twelve (12) months, it may be cured (and no
event of default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default: (a) cures the default
within fifteen (15) days; or (b) if the cure requires more than fifteen
(15) days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues
and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
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<PAGE>
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Agreement and all accrued unpaid interest
immediately due, without notice, and then Borrower will pay that amount.
Upon Borrower's failure to pay all amounts declared due pursuant to this
section, including failure to pay upon final maturity, Lender, at its
option, may also, if permitted under applicable law, increase the variable
interest rate on this Agreement to 5.000 percentage points over the Index.
Lender may hire or pay someone else to help collect this Agreement if
Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower
also will pay any court costs, in addition to all other sums provided by
law. This Agreement has been delivered to Lender and accepted by Lender In
the State of California. If there Is a lawsuit, Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of SAN DIEGO
County, the State of California. This Agreement shall be governed by and
construed In accordance with the laws of the State of California,
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on
this Agreement against any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit.
Advances under this Agreement, as well as directions for payment from
Borrower's accounts, may be requested orally or in writing by Borrower or
by an authorized person. Lender may, but need not, require that all oral
requests be confirmed in writing. The following party or parties are
authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: DICKERSON WRIGHT, President/Secretary.
Borrower agrees to be liable for all sums either: (a) advanced in
accordance with the instructions of an authorized person or (b) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing
on this Agreement at any time may be evidenced by endorsements on this
Agreement or by Lender's internal records, including daily computer
print-outs. Lender will have no obligation to advance funds under this
Agreement if: (a) Borrower or any guarantor is in default under the terms
of this Agreement or any agreement that Borrower or any guarantor has with
Lender, including any agreement made in connection with the signing of this
Agreement; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Agreement or any other
loan with Lender; or (d) Borrower has applied funds provided pursuant to
this Agreement for purposes other than those authorized by Lender.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the
terms of the original obligation or obligations, including all agreements
evidenced or securing the obligation(s), remain unchanged and in full force
and effect. Consent by Lender to this Agreement does not waive Lender's
right to strict performance of the obligation(s) as changed, nor obligate
Lender to make any future change in terms. Nothing in this Agreement will
constitute a satisfaction of the obligation(s). It is the intention of
Lender to retain as liable parties all makers and endorsers of the original
obligation(s), including accommodation parties, unless a party is expressly
released by Lender in writing. Any maker or endorser, including
accommodation makers, will not be released by virtue of this Agreement. If
any person who signed the original obligation does not sign this Agreement
below, then all persons signing below acknowledge that this Agreement is
given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement
or otherwise will not be released by it. This waiver applies not only to
any initial extension, modification or release, but also to all such
subsequent actions.
CALIFORNIA VEHICLE CODE WAIVER. The provisions of Section 1808.21 of the
California Vehicle Code are hereby waived. I/we understand that this waiver
will give the Bank authority to receive my/our current residence address at
any time from the Department of Motor Vehicles.
ADDITIONAL PROVISIONS. THIS NOTE IS SECURED BY A COMMERCIAL SECURITY
AGREEMENT DATED OCTOBER 26, 1998.
MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The
inclusion of specific default provisions or rights of Lender shall not
preclude Lender's right to declare payment of this Agreement on its demand.
Lender may delay or forgo enforcing any of its rights or remedies under
this Agreement without losing them. Borrower and any other person who
signs, guarantees or endorses this Agreement, to the extent allowed by law,
waive any applicable statute of limitations, presentment, demand for
payment, protest and notice of dishonor. Upon any change in the terms of
this Agreement, and unless otherwise expressly stated in writing, no party
who signs this Agreement, whether as maker, guarantor, accommodation maker
or endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this
loan, or release any party or guarantor or collateral; or impair, fail to
realize upon or perfect Lender's security interest in the collateral; and
take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this
loan without the consent of or notice to anyone other than the party with
whom the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE
PROVISIONS. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES
RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
U.S. LABORATORIES C.
By: /S/ Dickerson Wright
---------------------------------------
DICKERSON WRIGHT, President/Secretary
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<PAGE>
COMMERCIAL GUARANTY
Principal:
Loan Date:
Maturity:
Loan No.:
Call: 530
Collateral: 03-427
Account: 169728
Officer: 179
Initials:
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
Guarantor: DICKERSON WRIGHT
14366 TWISTED BRANCH ROAD
POWAY, CA 92064
AMOUNT OF GUARANTY. The amount of this Guaranty is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration,
DICKERSON WRIGHT ("Guarantor") absolutely and unconditionally guarantees
and promises to pay to NORTH COUNTY BANK ("Lender") or Its order, on
demand, in legal tender of the United States of America, the Indebtedness
(as that term is defined below) of U.S. LABORATORIES, INC. ("Borrower") to
Lender on the terms and conditions set forth in this Guaranty. Under this
Guaranty, the liability of Guarantor is unlimited and the obligations of
Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when
used in this Guaranty:
Borrower. The word "Borrower" means U.S. LABORATORIES, INC.
Guarantor. The word "Guarantor" means DICKERSON WRIGHT.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated October 26, 1998.
Indebtedness. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of
Borrower's liabilities, obligations, debts, and indebtedness to
Lender, now existing or hereinafter incurred or created, including,
without limitation, all loans, advances, interest, costs, debts,
overdraft indebtedness, credit card indebtedness, lease
obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or
any of them; and whether any such indebtedness is voluntarily or
involuntarily incurred, due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined; whether
Borrower may be liable individually or jointly with others, or
primarily or secondarily, or as guarantor or surety; whether
recovery on the indebtedness may be or may become barred or
unenforceable against Borrower for any reason whatsoever; and
whether the Indebtedness arises from transactions which may be
voidable on account of infancy, insanity, ultra virus, or otherwise.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors
and assigns.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness. Accordingly, no payments made upon the Indebtedness
will discharge or diminish the continuing liability of Guarantor in
connection with any remaining portions of the Indebtedness or any of the
Indebtedness which subsequently arises or is thereafter incurred or
contracted. Any married person who signs this Guaranty hereby expressly
agrees that recourse may be had against both his or her separate property
and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by
Lender without the necessity of any acceptance by Lender, or any notice to
Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Lender of any notice
of revocation shall have been fully and finally paid and satisfied and all
other obligations of Guarantor under this Guaranty shall have been
performed in full. If Guarantor elects to revoke this Guaranty, Guarantor
may only do so in writing. Guarantor's written notice of revocation must be
mailed to Lender, by certified mail, at the address of Lender listed above
or such other place as Lender may designate in writing. Written revocation
of this Guaranty will apply only to advances or new indebtedness created
after actual receipt by Lender of Guarantor's written revocation. For this
purpose and without limitation, the term "new Indebtedness" does not
include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to
bind Guarantor for all Indebtedness incurred by Borrower or committed by
Lender prior to receipt of Guarantor's written notice of revocation,
including any extensions, renewals, substitutions or modifications of the
Indebtedness. All renewals, extensions, substitutions, and modifications of
the Indebtedness granted after Guarantor's revocation, are contemplated
under this Guaranty and, specifically will not be considered to be new
Indebtedness. This Guaranty shall bind the estate of Guarantor as to
Indebtedness created both before and after the death or incapacity of
Guarantor, regardless of Lender's actual notice of Guarantor's death.
Subject to the foregoing, Guarantor's executor or administrator or other
legal representative may terminate this Guaranty in the same manner in
which Guarantor might have terminated it and with the same effect. Release
of any other guarantor or termination of any other guaranty of the
indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this
Guaranty. The obligations of Guarantor under this Guaranty shall be in
addition to any obligations of Guarantor, or any of them, under any other
guaranties of the Indebtedness of Borrower or any other person heretofore
or hereafter given to Lender unless such other guaranties are modified or
revoked in writing; and this Guaranty shall not, unless herein provided,
affect, invalidate, or supersede any such other guaranty. It is anticipated
that fluctuations may occur in the aggregate amount of indebtedness covered
by this Guaranty, and it is specifically acknowledged and agreed by
Guarantor that reductions in the amount of Indebtedness, even to zero
dollars ($0.00), prior to written revocation of this Guaranty by Guarantor
shall not constitute a termination of this Guaranty. This Guaranty is
binding upon Guarantor and Guarantor's heirs, successors and assigns so
long as any of the guaranteed Indebtedness remains unpaid and even though
the Indebtedness guaranteed may from time to time be zero dollars ($0.00).
-9-
<PAGE>
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and
without lessening Guarantor's liability under this Guaranty, from time
to time: (a) prior to revocation as set forth above, to make one or more
additional secured or unsecured loans to Borrower, to lease equipment or
other goods to Borrower, or otherwise to extend additional credit to
Borrower; (b) to alter, compromise, renew, extend, accelerate, or
otherwise change one or more times the time for payment or other terms
of the Indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of interest on the Indebtedness; extensions
may be repeated and may be for longer than the original loan term; (c)
to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or. decide
not to perfect, and release any such security, with or without the
substitution of new collateral; (d) to release, substitute, agree not to
sue, or deal with any one or more of Borrower's sureties, endorsers, or
other guarantors on any terms or in any manner Lender may choose; (e) to
determine how, when and what application of payments and credits shall
be made on the indebtedness; (f) to apply such security and direct the
order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security
agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations In all or any
part of the Indebtedness; and (h) to assign or transfer this Guaranty in
whole or In part,
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and
warrants to Lender that (a) no representations or agreements of any kind
have been made to Guarantor which would limit or qualify in any way the
terms of this Guaranty; (b) this Guaranty is executed at Borrower's
request and not at the request of Lender; (c) Guarantor has full power,
right and authority to enter into this Guaranty; (d) the provisions of
this Guaranty do not conflict with or result in a default under any
agreement or other instrument binding upon Guarantor and do not result
in a violation of any law, regulation, court decree or order applicable
to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate,
transfer, or otherwise dispose of all or substantially all of
Guarantor's assets, or any interest therein; (f) upon Lender's request,
Guarantor will provide to Lender financial and credit information in
form acceptable to Lender, and all such financial information which
currently has been, and all future financial information which will be
provided to Lender is and will be true and correct in all material
respects and fairly present the financial condition of Guarantor as of
the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of
the most recent financial statements provided to Lender and no event has
occurred which may materially adversely affect Guarantor's financial
condition; (h) no litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Guarantor is pending or threatened; (i) Lender has made no
representation to Guarantor as to the creditworthiness of Borrower; and
(j) Guarantor has established adequate means of obtaining from Borrower
on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means
of any facts, events, or circumstances which might in any way affect
Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Lender shall have no obligation
to disclose to Guarantor any information or documents acquired by Lender
in the course of its relationship with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor
waives any right to require Lender to (a) make any presentment, protest,
demand, or notice of any kind, including notice of change of any terms
of repayment of the Indebtedness, default by Borrower or any other
guarantor or surety, any action or nonaction taken by Borrower, Lender,
or any other guarantor or surety of Borrower, or the creation of new or
additional Indebtedness; (b) proceed against any person, including
Borrower, before proceeding against Guarantor; (c) proceed against any
collateral for the Indebtedness, including Borrower's collateral, before
proceeding against Guarantor; (d) apply any payments or proceeds
received against the Indebtedness in any order; (e) give notice of the
terms, time, and place of any sale of the collateral pursuant to the
Uniform Commercial Code or any other law governing such sale; (f)
disclose any information about the Indebtedness, the Borrower, the
collateral, or any other guarantor or surety, or about any action or
nonaction of Lender; or (g) pursue any remedy or course of action in
Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason
of (h) any disability or other defense of Borrower, any other guarantor
or surety or any other person; (i) the cessation from any cause
whatsoever, other than payment in full, of the Indebtedness; (j) the
application of proceeds of the Indebtedness by Borrower for purposes
other than the purposes understood and intended by Guarantor and Lender;
(k) any act of omission or commission by Lender which directly or
indirectly results in or contributes to the discharge of Borrower or any
other guarantor or surety, or the Indebtedness, or the loss or release
of any collateral by operation of law or otherwise; (I) any statute of
limitations in any action under this Guaranty or on the Indebtedness; or
(m) any modification or change in terms of the indebtedness, whatsoever,
including without limitation, the renewal, extension, acceleration, or
other change in the time payment of the Indebtedness is due and any
change in the interest rate, and including any such modification or
change in terms after revocation of this Guaranty on Indebtedness
incurred prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election
of remedies by Lender even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and
reimbursement against Borrower by operation of Section 580d of the
California Code of Civil Procedure or otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among
other things: (1) Lender may collect from Guarantor without first
foreclosing on any real or personal property collateral pledged by
Borrower. (2) If Lender forecloses on any real property collateral
pledged by Borrower: (A) The amount of Borrower's obligation may be
reduced only by the price for which the collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale
price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right
Guarantor may have to collect from Borrower. This is an unconditional
waiver of any rights and defenses Guarantor may have because Borrower's
obligation is secured by real property. These rights and defenses
include, but are not limited to, any rights and defenses based upon
Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers
of substantive rights and defenses to which Guarantor might otherwise be
entitled under state and federal law. The rights and defenses waived
include, without limitation, those provided by California laws of
suretyship and guaranty, anti-deficiency laws, and the Uniform
Commercial Code. Guarantor acknowledges that Guarantor has provided
these waivers of rights and defenses with the intention that they be
fully relied upon by Lender. Until all Indebtedness is paid in full,
Guarantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further,
Guarantor waives any right to participate in any collateral for the
Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b)
the Indebtedness shall not at all times until paid be fully secured by
collateral pledged by Borrower, Guarantor hereby forever waives and
relinquishes in favor of Lender and Borrower, and their respective
successors, any claim or right to payment Guarantor may now have or
hereafter have or acquire against Borrower, by subrogation or otherwise,
so that at no time shall Guarantor be or become a "creditor" of Borrower
within the meaning of 11 U.S.C. section 547(b), or any successor
provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants
and agrees that each of the waivers set forth above is made with
Guarantor's full knowledge of its significance and consequences and
that, under the circumstances, the waivers are reasonable and not
contrary to public policy or law. If any such waiver is determined to be
contrary to any applicable law or public policy, such waiver shall be
effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of
setoff against the moneys, securities or other property of Guarantor
given to Lender by law, Lender shall have, with respect to Guarantor's
obligations to Lender under this Guaranty and to the extent permitted
by law, a contractual security interest in and a right of setoff
against, and Guarantor hereby assigns, conveys, delivers, pledges, and
transfers to Lender all of Guarantor's right, title and interest in and
to, all deposits, moneys, securities and other property of Guarantor now
or hereafter in the possession of or on deposit with Lender, whether
held in a general or special account or deposit, whether held jointly
with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such
security interest and right of setoff may be exercised without demand
upon or notice
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<PAGE>
to Guarantor. No security interest or right of setoff shall be deemed to
have been waived by any act or conduct on the part of Lender or by any
neglect to exercise such right of setoff or to enforce such security
interest or by any delay in so doing. Every right of setoff and security
interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an
instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter
created, shall be prior to any claim that Guarantor may now have or
hereafter acquire against Borrower, whether or not Borrower becomes
insolvent. Guarantor hereby expressly subordinates any claim Guarantor may
have against Borrower, upon any account whatsoever, to any claim that
Lender may now or hereafter have against Borrower. In the event of
insolvency and consequent liquidation of the assets of Borrower, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Borrower applicable to the payment
of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or
acquire against Borrower or against any assignee or trustee in bankruptcy
of Borrower; provided however, that such assignment shall be effective only
for the purpose of assuring to Lender full payment in legal tender of the
Indebtedness. If Lender so requests, any notes or credit agreements now or
hereafter evidencing any debts or obligations of Borrower to Guarantor
shall be marked with a legend that the same are subject to this Guaranty
and shall be delivered to Lender. Guarantor agrees, and Lender hereby is
authorized, in the name of Guarantor, from time to time to execute and file
financing statements and continuation statements and to execute such other
documents and to take such other actions as Lender deems necessary or
appropriate to perfect, preserve and enforce its rights under this
Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
Integration, Amendment. Guarantor warrants, represents and agrees
that this Guaranty, together with any exhibits or schedules
incorporated herein, fully incorporates the agreements and
understandings of Guarantor with Lender with respect to the subject
matter hereof and all prior negotiations, drafts, and other
extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that
Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by
Guarantor's attorney with respect to this Guaranty; the Guaranty
fully reflects Guarantor's intentions and parole evidence is not
required to interpret the terms of this Guaranty. Guarantor hereby
indemnities and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or
incurred by Lender as a result of any breach by Guarantor of the
warranties, representations and agreements of this paragraph. No
alteration or amendment to this Guaranty shall be effective unless
given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and
accepted by Lender in the State of California. If there is a
lawsuit, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of SAN DIEGO County, State of
California. This Guaranty shall be governed by and construed in
accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all
of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Guaranty. Lender may pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Notices. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimile (unless otherwise required by law), and, except for
revocation notices by Guarantor, shall be effective when actually
delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above or to such other addresses as
either party may designate to the other in writing. All revocation
notices by Guarantor shall be in writing and shall be effective
only upon delivery to Lender as provided above in the section
titled "DURATION OF GUARANTY." If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors.
For notice purposes, Guarantor agrees to keep Lender informed at
all times of Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower
or Guarantor, then all words used in this Guaranty in the singular
shall be deemed to have been used in the plural where the context
and construction so require; and where there is more than one
Borrower named in this Guaranty or when this Guaranty is executed
by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more of them. The words
"Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are
not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision
of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid
or unenforceable as to any other persons or circumstances, and all
provisions of this Guaranty in all other respects shall remain
valid and enforceable. If any one or more of Borrower or Guarantor
are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to
act on their behalf, and any Indebtedness made or created In
reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Guaranty shall not
prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with that provision or any other provision
of this Guaranty. No prior waiver by Lender, nor any course of
dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to
any future transactions. Whenever the consent of Lender is required
under this Guaranty, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE
UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS
GUARANTY EFFECTIVE. THIS GUARANTY IS DATED OCTOBER 26, 1998.
GUARANTOR
X /S/ Dickerson Wright
----------------------------------
DICKERSON WRIGHT
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<PAGE>
NORTH COUNTY BANK
COMMERCIAL SECURITY AGREEMENT
Principal: $500,000.00
Loan Date:
Maturity: 05-01-1999
Loan No.: 110882-2975
Call: 530
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
THIS COMMERCIAL SECURITY AGREEMENT is entered into between U.S.
LABORATORIES, INC. (referred to below as "Grantor"); and NORTH COUNTY BANK
(referred to below as "Lender"). For valuable consideration, Grantor grants
to Lender a security interest in the Collateral to secure the Indebtedness
and agrees that Lender shall have the rights stated in this Agreement with
respect to the Collateral, in addition to all other rights which Lender may
have by law.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and
schedules attached to this Commercial Security Agreement from time
to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located:
All inventory, chattel paper, accounts, equipment, general
intangibles and fixtures, together with the following
specifically described property: THIS COMMERCIAL SECURITY
AGREEMENT COVERS A UCC-1 FINANCING STATEMENT FILED ON
MAY 27, 1998 AS FILE #9814861071.
In addition, the word "Collateral" includes all the following,
whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sale, destruction, loss, or other disposition of any of the
property described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in
the section titled "Events of Default."
Grantor. The word "Grantor" means U.S. LABORATORIES, INC., its
successors and assigns
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest,
together with all other indebtedness and costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents. In addition, the word "Indebtedness"
includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to
Lender, as well as all claims by Lender against Grantor, or any one
or more of them, whether existing now or later; whether they are
voluntary or involuntary, due or not due, direct or indirect,
absolute or contingent, liquidated or unliquidated; whether Grantor
may be liable individually or jointly with others; whether Grantor
may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such indebtedness may be or
hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors
and assigns.
Note. The word "Note" means the Change in Terms Agreement between
Borrower and Lender dated October 26, 1998, which modifies the
following described existing indebtedness: REVOLVING LINE OF CREDIT
DATED MAY 8, 1998 IN THE AMOUNT OF $1,700,000.00 WITH A SUBSEQUENT
CHANGE IN TERMS DATED JUNE 1, 1998.
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Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security
interest in and hereby assigns, conveys, delivers, pledges, and transfers
all of Grantor's right, title and interest in and to Grantor's accounts
with Lender (whether checking, savings, or some other account), including
all accounts held jointly with someone else and all accounts Grantor may
open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security Interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all Indebtedness against any and all
such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be Indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles. the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business. Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of California, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs,, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
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before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health
and Safety Code, Section 25100, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties contained
herein are based on Grantor's due diligence in investigating the Collateral
for hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. in connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or alter an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
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Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of
any other creditor or person that may materially affect any of
Borrower's property or Borrower's or any Grantor's ability to repay
the Loans or perform their respective obligations under this
Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days, or such lesser time as required by state law, before
the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, until interest at the Note rate from date of expenditure until
repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
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MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of the
State of California. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all
of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Agreement. Lender may pay someone else to help
enforce this Agreement, and Grantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Notices. All notices required to be given under this Agreement
shall be given in writing, may be sent by telefacsimile (unless
otherwise required by law), and shall be effective when actually
delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above. Any party may change its address
for notices under this Agreement by giving formal written notice to
the other parties, specifying that the purpose of the notice is to
change the party's address. To the extent permitted by applicable
law, if there is more than one Grantor, notice to any Grantor will
constitute notice to all Grantors. For notice purposes, Grantor
will keep Lender informed at all times of Grantor's current
address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of
substitution to do the following: (a) to demand, collect, receive,
receipt for, sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute, sign and endorse any and all claims,
instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the
claim; and (d) to file any claim or claims or to take any action or
institute or take part in any proceedings, either in its own name
or in the name of Grantor, or otherwise, which in the discretion of
Lender may seem to be necessary or advisable. This power is given
as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full
force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower
as provided above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon
and inure to the benefit of the parties, their successors and
assigns.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Agreement shall
not prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of
dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required
under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated
for the Indebtedness, Borrower irrevocably waives, disclaims and
relinquishes all claims against such other person which Borrower
has or would otherwise have by virtue of payment of the
indebtedness or any part thereof, specifically including but not
limited to all rights of indemnity, contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED OCTOBER 26, 1998,
GRANTOR:
U.S. LABORATORIES INC.
By: /S/ Dickerson Wright
-------------------------------------
DICKERSON WRIGHT, President
-16-
<PAGE>
SUBORDINATION AGREEMENT
Principal: $500,000.00
Loan Date:
Maturity: 05-01-1999
Loan No.: 110882-2975
Call: 530
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to an particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
Creditor: DICKERSON WRIGHT
14366 TWISTED BRANCH ROAD
POWAY, CA 92064
THIS SUBORDINATION AGREEMENT is entered into among U.S. LABORATORIES, INC.
("Borrower"), whose address is 7895 CONVOY COURT, SUITE 18, SAN DIEGO, CA
92111; NORTH COUNTY BANK ("Lender"), whose address Is 444 S. ESCONDIDO
BOULEVARD, P.O. BOX 462990, ESCONDIDO, CA 92046-2990; and DICKERSON WRIGHT
("Creditor"), whose address is 14366 TWISTED BRANCH ROAD, POWAY, CA 92064.
As of this date, October 26, 1998, Borrower is indebted to Creditor in the
aggregate amount of Ninety Eight Thousand & 00/100 Dollars ($98,000.00).
This amount is the total indebtedness of every kind from Borrower to
Creditor. Borrower and Creditor each want Lender to provide financial
accommodations to Borrower in the form of (a) new credit or loan advances,
(b) an extension of time to pay or other compromises regarding all or part
of Borrower's present indebtedness to Lender, or (c) other benefits to
Borrower. Borrower and Creditor each represent and acknowledge to Lender
that Creditor will benefit as a result of these financial accommodations
from Lender to Borrower, and Creditor acknowledges receipt of valuable
consideration for entering into this Agreement. Based on the
representations and acknowledgments contained in this Agreement, Creditor
and Borrower agree with Lender as follows:
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
Agreement. The word "Agreement" means this Subordination Agreement,
as this Subordination Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to
this Subordination Agreement from time to time.
Borrower. The word "Borrower" means U.S. LABORATORIES, INC.
Creditor. The word "Creditor" means DICKERSON WRIGHT.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors and
assigns.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
Subordinated Indebtedness, The words "Subordinated Indebtedness"
mean and include without limitation all present and future
indebtedness, obligations, liabilities, claims, rights, and demands
of any kind which may be now or hereafter owing from Borrower to
Creditor. The term "Subordinated Indebtedness" is used in its
broadest sense and includes without limitation all principal, all
interest, all costs and attorneys' fees, all sums paid for the
purpose of protecting the rights of a holder of security (such as a
secured party paying for insurance on collateral if the owner fails
to do so), all contingent obligations of Borrower (such as a
guaranty), and all other obligations, secured or unsecured, of any
nature whatsoever.
Superior Indebtedness. The words "Superior Indebtedness" mean and
include without limitation all present and future indebtedness,
obligations, liabilities, claims, rights, and demands of any kind
which may be now or hereafter owing from Borrower to Lender. The
term "Superior Indebtedness" is used in its broadest sense and
includes without limitation all principal, all interest, all costs
and attorneys' fees, all sums paid for the purpose of protecting
Lender's rights in security (such as paying for insurance on
collateral if the owner fails to do so), all contingent obligations
of Borrower (such as a guaranty), all obligations arising by reason
of Borrower's accounts with Lender (such as an overdraft on a
checking account), and all other obligations of Borrower to Lender,
secured or unsecured, of any nature whatsoever.
SUBORDINATION. All Subordinated Indebtedness of Borrower to Creditor is and
shall be subordinated in all respects to all Superior Indebtedness of
Borrower to Lender. If Creditor holds one or more Security Interests,
whether now existing or hereafter acquired, in any of Borrower's real
property or personal property, Creditor also subordinates all its Security
Interests to all Security Interests held by Lender, whether the Lender's
Security Interest or Interests exist now or are acquired later.
PAYMENTS TO CREDITOR. Except as provided below, Borrower will not make and
Creditor will not accept, at any time while any Superior Indebtedness is
owing to Lender, (a) any payment upon any Subordinated Indebtedness, (b)
any advance, transfer, or assignment of assets to Creditor in any form
whatsoever that would reduce at any time or in any way the amount of
Subordinated Indebtedness, or (c) any transfer of any assets as security
for the Subordinated Indebtedness. Notwithstanding the foregoing, Borrower
may make regularly scheduled payments of interest only to Creditor so long
as Borrower is not in default under any agreement between Lender and
Borrower. Creditor may not accelerate any amounts owed to Creditor without
Lender's prior written consent.
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<PAGE>
In the event of any distribution, division, or application, whether partial
or complete, voluntary or involuntary, by operation of law or otherwise, of
all or any part of Borrower's assets, or the proceeds of Borrower's assets,
in whatever form, to creditors of Borrower or upon any indebtedness of
Borrower, whether by reason of the liquidation, dissolution or other
winding-up of Borrower, or by reason of any execution sale, receivership,
insolvency, or bankruptcy proceeding, assignment for the benefit of
creditors, proceedings for reorganization, or readjustment of Borrower or
Borrower's properties, then and in such event, (a) the Superior
Indebtedness shall be paid in full before any payment is made upon the
Subordinated Indebtedness, and (b) all payments and distributions, of any
kind or character and whether in cash, property, or securities, which shall
be payable or deliverable upon or in respect of the Subordinated
Indebtedness shall be paid or delivered directly to Lender for application
in payment of the amounts then due on the Superior Indebtedness until the
Superior Indebtedness shall have been paid in full.
In order that Lender may establish its right to prove claims and recover for its
own account dividends based on the Subordinated Indebtedness, Creditor does
hereby assign all its right, title, and interest in such claims to Lender.
Creditor further agrees to supply such information and evidence, provide access
to and copies of such of Creditor's records as may pertain to the Subordinated
Indebtedness, and execute such instruments as may be required by Lender to
enable Lender to enforce all such claims and collect all dividends, payments, or
other disbursements which may be made on account of the Subordinated
Indebtedness. For such purposes, Creditor hereby irrevocably authorizes Lender
in its discretion to make and present for or on behalf of Creditor such proofs
of claims on account of the Subordinated Indebtedness as Lender may deem
expedient and proper and to vote such claims in any such proceeding and to
receive and collect any and all dividends, payments, or other disbursements made
thereon in whatever form the same may be paid or issued and to apply the same on
account of the Superior Indebtedness.
Should any payment, distribution, security, or proceeds thereof be received by
Creditor at any time on the Subordinated Indebtedness contrary to the terms of
this Agreement, Creditor immediately will deliver the same to Lender in
precisely the form received (except for the endorsement or assignment of
Creditor where necessary), for application on or to secure the Superior
Indebtedness, whether it is due or not due, and until so delivered the same
shall be held in trust by Creditor as property of Lender. In the event Creditor
fails to make any such endorsement or assignment, Lender, or any of its officers
on behalf of Lender, is hereby irrevocably authorized by Creditor to make the
same.
CREDITOR'S NOTES. Creditor agrees to deliver to Lender, at Lender's request, all
notes of Borrower to Creditor, or other evidence of the Subordinated
Indebtedness, now held or hereafter acquired by Creditor, while this Agreement
remains in effect. At Lender's request, Borrower also will execute and deliver
to Creditor a promissory note evidencing any book account or claim now or
hereafter owed by Borrower to Creditor, which note also shall be delivered by
Creditor to Lender. Creditor agrees not to sell, assign, pledge or otherwise
transfer any of such notes except subject to all the terms and conditions of
this Agreement.
CREDITOR'S REPRESENTATIONS AND WARRANTIES. Creditor represents and warrants to
Lender that: (a) no representations or agreements of any kind have been made to
Creditor which would limit or qualify in any way the terms of this Agreement;
(b) this Agreement is executed at Borrower's request and not at the request of
Lender; (c) Lender has made no representation to Creditor as to the
creditworthiness of Borrower; and (d) Creditor has established adequate means of
obtaining from Borrower on a continuing basis information regarding Borrower's
financial condition. Creditor agrees to keep adequately informed from such means
of any facts, events, or circumstances which might in any way affect Creditor's
risks under this Agreement, and Creditor further agrees that Lender shall have
no obligation to disclose to Creditor information or material acquired by Lender
in the course of its relationship with Borrower.
CREDITOR'S WAIVERS. Creditor waives any right to require Lender: (a) to make,
extend, renew, or modify any loan to Borrower or to grant any other financial
accommodations to Borrower whatsoever; (b) to make any presentment, protest,
demand, or notice of any kind, including notice of any nonpayment of the
Superior Indebtedness or of any nonpayment related to any Security Interests, or
notice of any action or nonaction on the part of Borrower, Lender, any surety,
endorser, or other guarantor in connection with the Superior Indebtedness, or in
connection with the creation of new or additional Superior Indebtedness; (c) to
resort for payment or to proceed directly or at once against any person,
including Borrower; (d) to proceed directly against or exhaust any Security
Interests held by Lender from Borrower, any other guarantor, or any other
person; (e) to pursue any other remedy within Lender's power; or (f) to commit
any act or omission of any kind, at any time, with respect to any matter
whatsoever.
LENDER'S RIGHTS. Lender may take or omit any and all actions with respect to the
Superior Indebtedness or any Security Interests for the Superior Indebtedness
without affecting whatsoever any of Lender's rights under this Agreement. In
particular, without limitation, Lender may, without notice of any kind to
Creditor, (a) make one or more additional secured or unsecured loans to
Borrower; (b) repeatedly alter, compromise, renew, extend, accelerate, or
otherwise change the time for payment or other terms of the Superior
Indebtedness or any part thereof, including increases and decreases of the rate
of interest on the Superior Indebtedness; extensions may be repeated and may be
for longer than the original loan term; (c) take and hold Security Interests for
the payment of the Superior Indebtedness, and exchange, enforce, waive, and
release any such Security Interests, with or without the substitution of new
collateral; (d) release, substitute, agree not to sue, or deal with any one or
more of Borrower's sureties, endorsers, or guarantors on any terms or manner
Lender chooses; (e) determine how, when and what application of payments and
credits, shall be made on the Superior Indebtedness; (f) apply such security and
direct the order or manner of sale thereof, as Lender in its discretion may
determine; and (g) assign this Agreement in whole or in part.
DEFAULT BY BORROWER. If Borrower becomes insolvent or bankrupt, this Agreement
shall remain in full force and effect. In the event of a corporate
reorganization or corporate arrangement of Borrower under the provisions of the
Bankruptcy Code, as amended, this Agreement shall remain in full force and
effect and the court having jurisdiction over the reorganization or arrangement
is hereby authorized to preserve such priority and subordination in approving
any such plan of reorganization or arrangement.
DURATION AND TERMINATION, This Agreement will take effect when received by
Lender, without the necessity of any acceptance by Lender, in writing or
otherwise, and will remain in full force and effect until Creditor shall notify
Lender in writing at the address shown above to the contrary. Any such notice
shall not affect the Superior Indebtedness owed Lender by Borrower at the time
of such notice, nor shall such notice affect Superior Indebtedness thereafter
granted in compliance with a commitment made by Lender to Borrower prior to
receipt of such notice, nor shall such notice affect any renewals of or
substitutions for any of the foregoing. Such notice shall affect only
indebtedness of Borrower to Lender arising after receipt of such notice and not
arising from financial assistance granted by Lender to Borrower in compliance
with Lender's obligations under a commitment. Any notes lodged with Lender
pursuant to the section titled "Creditor's Notes" above need not be returned
until this Agreement has no further force or effect.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Creditor and
Borrower agree upon Lender's request to submit to the jurisdiction of the
courts of SAN DIEGO County, State of California. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California. No provision contained in this Agreement shall be construed (a)
as requiring Lender to grant to Borrower or to Creditor any financial
assistance or other accommodations, or (b) as limiting or precluding Lender
from the exercise of Lender's own judgment and discretion about amounts and
times of payment in making loans or extending accommodations to Borrower.
Amendments. This Agreement constitutes the entire understanding and
agreement of the parties as to the matters set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective unless made
in writing and signed by Lender, Borrower, and Creditor.
Attorneys' Fees; Expenses. Creditor and Borrower agree to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this
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<PAGE>
Agreement, and Creditor and Borrower shall pay the costs and expenses of
such enforcement. Costs and expenses include Lender's attorneys' fees
and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Creditor
and Borrower also shall pay all court costs and such additional fees as
may be directed by the court.
Successors. This Agreement shall extend to and bind the respective heirs,
personal representatives, successors and assigns of the parties to this
Agreement, and the covenants of Borrower and Creditor respecting
subordination of the Subordinated Indebtedness in favor of Lender shall
extend to, include, and be enforceable by any transferee or endorsee to
whom Lender may transfer any or all of the Superior Indebtedness.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Creditor, shall constitute a waiver of any of Lender's rights or of
any of Creditor's obligations as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of such consent
by Lender in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may be
granted or withheld in the sole discretion of Lender.
BORROWER AND CREDITOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
SUBORDINATION AGREEMENT, AND BORROWER AND CREDITOR AGREE TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF OCTOBER 26,1998.
BORROWER:
U.S. LABORATORIES, INC.
By: /S/ Dickerson Wright
----------------------------------
DICKERSON WRIGHT, President
CREDITOR:
DICKERSON WRIGHT
By: /S/ Dickerson Wright
------------------------------------
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<PAGE>
NOTICE OF FINAL AGREEMENT
Principal: $500,000.00
Loan Date:
Maturity: 05-01-1999
Loan No.: 110882-2975
Call: 530
Collateral: 03-427
Account: 169728
Officer: 179
Initials:
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THE WRITTEN
LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THE WRITTEN LOAN
AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
As used in this Notice, the following terms have the following meanings:
Loan. The term "Loan" means the following described loan: a
Variable Rate (at WALL STREET JOURNAL PRIME RATE, making an initial
rate of 8.000%), Nondisclosable Revolving Line of Credit Loan tea
Corporation for $500,000.00 due on May 1,1999.
Parties. The term "Parties" means NORTH COUNTY BANK and any and all
entities or individuals who are obligated to repay the loan or have
pledged property as security for the Loan, including without
limitation the following:
Borrower: U.S. LABORATORIES, INC.
Guarantor: DICKERSON WRIGHT
Loan Agreement. The term "Loan Agreement" means one or more
promises, promissory notes, agreements, undertakings, security
agreements, deeds of trust or other documents, or commitments, or
any combination of those actions or documents, relating to the
Loan, including without limitation the following:
NECESSARY FORMS
Corporate Resolution to Borrow Loan Agreement / Negative Pledge
Promissory Note / Change In Terms Agr. Commercial Guaranty
Security Agreement Subordination Agreement
UCC -- 1 Agreement to Provide Insurance
Disbursement Request and Authorization Notice of Final Agreement
OPTIONAL FORMS
Authorization for Payoff
Each Party who signs below, other than NORTH COUNTY BANK, acknowledges,
represents, and warrants to NORTH COUNTY BANK that it has received, read and
understood this Notice of Final Agreement. This Notice is dated October 26,
1998.
BORROWER:
U.S. LABORATORIES INC.
By: /S/ Dickerson Wright
------------------------------
DICKERSON WRIGHT, President
GUARANTOR:
X /S/ Dickerson Wright
------------------------------------
DICKERSON WRIGHT
LENDER:
NORTH COUNTY BANK
By: /S/ Kevin Levezu
------------------------------------
Authorized Officer
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<PAGE>
EXHIBIT 10.2
BANK OF AMERICA
MASTER NOTE: REFERENCE RATE RELATED
Loan Number ________________________
_____ Individual
_____ Partnership
__X__ Corporation
_____ Association
_____ Other
$500,000
_____________________
San Diego, California
1. FOR VALUE RECEIVED the undersigned ("Borrower") promises to
pay to the order of Bank of America National Trust and Savings Association
("Bank") on demand, or if no demand is made, then on July 1, 1998 at Bank's
The Private Bank - San Diego in San Diego, California, the total unpaid
principal amount advanced by Bank from time to time to or for the benefit of
or at the request of Borrower from and after the date of this Note through
July 1, 1998 together with interest thereon at the times and at the rates
specified in this Note. No advance shall be made under this Note if, as a
result of such advance, the total principal amount advanced under this Note
would exceed Five Hundred Thousand DOLLARS ($500,000).
2. Unless the Borrower elects an optional interest rate as
described in the Addendum to this Note, each advance under this Note shall
bear interest from the date of such advance until payment in full at a rate
per year equal to one hundred percent (100%) of the sum of the rate of
interest publicly announced from time to time by Bank in San Francisco,
California, as its reference rate, plus zero (0) percentage points 1100%
(Reference rate plus 0 percentage points)]. (The reference rate is set by
Bank based on various factors, including Bank's costs and desired return,
general economic conditions and other factors, and is used as a reference
point for pricing some loans. Loans may be priced at, above or below the
reference rate.) Interest shall be computed on the basis of:
[_] a three hundred sixty-five (365) day year and actual days elapsed.
[X] a three hundred sixty (360) day year and actual days elapsed, which results
in more interest than if a three hundred sixty-five (365) day year were
used.
Any change in the interest rate of this Note shall take effect at the opening of
business on the day specified in the public announcement of a change in said
reference rate. Interest shall be payable on April 1, 1998, on the first day of
each successive month thereafter, and upon payment in full of principal of this
Note.
3. Each advance under this Note shall be made in such manner as
Bank and Borrower may agree in writing.
4. This Note is issued under and pursuant to the terms of a loan
agreement between Bank and Dickerson Wright and Katherine Wright, Trustees of
the Wright Family Trust u/d/t dated December 12, 1990 dated January 6, 1995.
Notwithstanding any provision of this Note to the contrary, the outstanding
principal balance under this Note may not at any time exceed the amount
permitted under such loan agreement, which may be less than the amount of
this note set forth above.
5. The occurrence of any of the following events shall terminate
any obligation of Bank to make advances under this Note and, at the option of
the holder of this Note, shall make all sums of interest and principal of
this Note immediately due and payable without notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor, or other
notices or demands of any kind or character:
(a) Default in the payment when due of any installment of interest;
(b) Nonpayment by Borrower of any debt when due;
(c) Dickerson Wright and Katherine Wright, Trustees of the Wright
Family Trust u/d/t dated December 12, 1990 failure to comply
with any term of the loan agreement described in paragraph 4;
(d) Death, insolvency, termination of business, general assignment
for the benefit of creditors, filing of any petition in
bankruptcy or for relief under the provisions of the Bankruptcy
Code, or any other
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<PAGE>
law or laws for the relief of or relating to debtors, of, by, or
against any Borrower, surety or guarantor of the indebtedness
evidenced by this Note, or any endorser of this Note;
(e) Appointment of a receiver or trustee to take possession of any
property of any Borrower, surety or guarantor of the
indebtedness evidenced by this Note, or any endorser of this
Note: and
(f) Attachment of an involuntary lien or liens, of any kind or
character, to the assets or property of any Borrower,. surety or
guarantor of the indebtedness evidenced by this Note, or any
endorser of this Note.
6. If suit is commenced to enforce payment of this Note, Borrower
agrees to pay such additional sums as attorney's fees as the court may
adjudge reasonable.
7. The obligations of the undersigned under this Note, if there
is more than one signing this Note as Borrower, are joint and several.
8. The Addendum to this Note includes additional terms which are
part of this Note.
IN WITNESS WHEREOF, the undersigned has caused this note to be executed by
its officers thereunto duly authorized and directed by a resolution of its Board
of Directors duly passed and adopted by a majority of said Board at a meeting
thereof duly called, noticed and held.
U.S. Laboratories Inc.
Address for notice:
- ---------------------------
- ---------------------------
- ---------------------------
Telephone #:
--------------
Fax #:
--------------------
X /s/ Dickerson Wright
------------------------------
By: Dickerson Wright, President
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<PAGE>
BANK OF AMERICA
ADDENDUM TO REFERENCE RATE RELATED NOTE
This addendum forms a part of the reference rate related note executed by
U.S. Laboratories, Inc. (the "Borrower") dated 3/23 ,1998 in the original
principal amount of Five Hundred Thousand Dollars ($500,000) (the "Note") and
is dated 3/23 1998.
In this addendum, the "Note" means the reference rate related note indicated
above and the "Bank" means Bank of America National Trust and Savings
Association.
The Borrower agrees, until the Bank is repaid in full:
2.A Optional Interest Rates. Instead of the interest rate based on
the Bank's Reference Rate, the Borrower may elect to have all or
portions of the Note (during the availability period) bear interest
at the rate(s) described below during an interest period agreed to
by the Bank and the Borrower. Each interest rate is a rate per
year. Interest will be paid on the last day of each interest
period, and on the first day each month during the interest period.
At the end of any interest period, the interest rate will revert to
the rate based on the Reference Rate, unless the Borrower has
designated another optional interest rate for the portion.
2.B Fixed Rate. The Borrower may elect to have all or portions of
the principal balance of the Note bear interest at the Fixed Rate,
subject to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the
Borrower' agree will apply to the portion during the applicable
interest period.
(b) The interest period during which the Fixed Rate will be in effect
will be no shorter than 30 days and no longer than one year.
(c) Each Fixed Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(d) The Borrower may not elect a Fixed Rate with respect to any
portion of the principal balance of the Note which is scheduled
to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the Note already bearing
interest at the Fixed Rate will not be converted to a different
rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by the
amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of
the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the certificate
of deposit market for a period starting on the date on
which it was prepaid and ending on the last day of the
interest period for such portion.
2.C Offshore Rate. The Borrower may elect to have all or portions
of the principal balance of the Note bear interest at the Offshore
Rate plus 2.00 percentage points.
Designation of an Offshore Rate portion is subject to the following
requirements:
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<PAGE>
(a) The interest period during which the Offshore Rate will be in
effect will be no shorter than 30 days and no longer than one
year. The last day of the interest period will be determined by
the Bank using the practices of the offshore dollar inter-bank
market.
(b) Each Offshore Rate portion will be for an amount not less than
One Hundred Thousand Dollars ($100,000).
(c) The "Offshore Rate" means the interest rate determined by the
following formula, rounded upward to the nearest 1/100 of one
percent. (All amounts in the calculation will be determined by
the Bank as of the first day of the interest period.)
Offshore Rate = Grand Cayman Rate
---------------------------
(1.00 - Reserve Percentage)
Where,
(i) "Grand Cayman Rate" means the interest rate (rounded
upward to the nearest 1/16th of one percent) at which the
Bank's Grand Cayman Branch, Grand Cayman, British West
Indies, would offer U.S. dollar deposits for the applicable
interest period to other major banks in the offshore dollar
inter-bank markets.
(ii) "Reserve Percentage" means the total of the maximum
reserve percentages for determining the reserves to be
maintained by member banks of the Federal Reserve System
for Eurocurrency Liabilities, as defined in the Federal
Reserve Board Regulation D, rounded upward to the nearest
1/1 00 of one percent. The percentage will be expressed
as a decimal, and will include, but not be limited to,
marginal, emergency, supplemental, special, and other
reserve percentages.
(d) The Borrower may not elect an Offshore Rate with respect to any
portion of the principal balance of the Note which is scheduled
to be repaid before the last day of the applicable interest
period.
(e) Any portion of the principal balance of the Note already bearing
interest at the Offshore Rate will not be converted to a
different rate during its interest period.
(f) Each prepayment of an Offshore Rate portion, whether voluntary,
by reason of acceleration or otherwise, will be accompanied by
the amount of accrued interest on the amount prepaid, and a
prepayment fee equal to the amount (if any) by which
(i) the additional interest which would have been payable on
the amount prepaid had it not been paid until the last day
of the interest period, exceeds
(ii) the interest which would have been recoverable by the Bank
by placing the amount prepaid on deposit in the offshore
dollar market for a period starting on the date on which it
was prepaid and ending on the last day of the interest
period for such portion.
(9) The Bank will have no obligation to accept an election for an
Offshore Rate portion if any of the following described events has occurred
and is continuing:
(i) Dollar deposits in the principal amount, and for periods
equal to the interest period, of an Offshore Rate portion
are not available in the offshore dollar inter-bank
markets; or
(ii) the Offshore Rate does not accurately reflect the cost of
an Offshore Rate portion".
-4-
<PAGE>
If (a) the Borrower fails to comply with any term of this addendum; or (b) a
material adverse change occurs in the Borrower's financial condition, properties
or prospects, or ability to repay the Note, the Bank may, at its option,
exercise any remedy available to the Bank set forth in the Note.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION U.S. LABORATORIES, INC.
X /s/ Teofla Rich X /s/ Dickerson Wright
------------------------------ ------------------------
By: Teofla Rich By: Dickerson Wright
Title: Vice President Title: President
-5-
<PAGE>
BANK OF AMERICA
REVISION AGREEMENT
THE PRIVATE BANK - SAN DIEGO #01289
450 B STREET, SUITE 1700
SAN DIEGO, CA 92112
OBLIGOR NO.: 9959004359
OBLIGATION NO.: 0000000059
This refers to certain credit accommodations extended to U.S. Laboratories, Inc.
("Borrower") and evidenced by:
/X / A promissory note executed by Borrower on March 23, 1 998, and upon
which the principal balance as of June 6,1998, was $85,000.00 ("Note").
/ / A loan or credit agreement executed by Borrower on ("Agreement").
Request is made that the Note be revised as follows:
In Paragraph 1 of the Note, the date "July 1, 2000" is substituted for the date
"July 1, 1998.
In Paragraph 4 of the Note, the first sentence is amended to read in full as
follows:
This Note is issued under and pursuant to the terms of a loan agreement between
Bank and Dickerson Wright and
Katherine Wright, Trustees of the Wright Family Trust, dated JULY 1 ,
1998. -------------
This agreement is a revision only, and not a notation. Except as amended hereby,
all terms, covenants and conditions of the Note, security agreement, or other
document of lien or encumbrance, together with any prior amendments thereto,
shall remain in full force and effect.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION U.S. LABORATORIES, INC.
Accepted: July 1, 1998 X /s/ Dickerson Wright
---------------------- ------------------------------
By: Dickerson Wright, President
X /s/ Teofla Rich Date: July 1, 1998
------------------------------ ---------------------------
By: Teofla Rich, Vice President
-6-
<PAGE>
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
CONTINUING GUARANTY
BORROWERS: U.S. LABORATORIES INC.
GUARANTORS: DICKERSON WRIGHT
(1) For valuable consideration, the undersigned ("Guarantors")
jointly and severally unconditionally guarantee and promise to pay to Bank of
America National Trust and Savings Association ("Bank"), or order, on demand,
in lawful money of the United States, any and all indebtedness of U. S.
Laboratories Inc. ("Borrowers") to Bank. The word "indebtedness" is used
herein in its most comprehensive sense and includes any and all advances,
debts, obligations, and liabilities of Borrowers or any one or more of them
to Bank, heretofore, now, or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired by
Bank by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and
whether Borrowers may be liable individually or jointly with others, or
whether recovery upon such indebtedness may be or hereafter become barred by
any statute of limitations, or whether such indebtedness may be or hereafter
become otherwise unenforceable.
(2) The liability of Guarantors under this Guaranty (exclusive of
liability under any other guaranties executed by Guarantors) shall not exceed
at any one time the total of (a) Five Hundred Thousand Dollars ($500,000),
for the principal amount of the indebtedness and (b) all interest, fees, and
other costs and expenses relating to or arising out of the indebtedness or
such part of the indebtedness as shall not exceed the foregoing limitation.
Bank may permit the indebtedness to exceed Guarantors' liability, and may
apply any amounts received from any source, other than from Guarantors, to
the unguaranteed portion of the indebtedness. This is a continuing guaranty
relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness or from time to
time renew it after it has been satisfied. Any payment by Guarantors shall
not reduce their maximum obligation hereunder, unless written notice to that
effect be actually received by Bank at or prior to the time of such payment.
(3) If any Borrower is a partnership and any Guarantor is a
general partner of that partnership, then such Guarantor shall not be liable
under this Guaranty for any indebtedness of such Borrower which is secured by
real property; provided, however, that such Guarantor shall remain liable
under partnership law for all the indebtedness of such Borrower.
(4) The obligations hereunder are joint and several, and
independent of the obligations of Borrowers, and a separate action or actions
may be brought and prosecuted against Guarantors whether action is brought
against Borrowers or whether Borrowers be joined in any such action or
actions; and Guarantors waive the benefit of any statute of limitations
affecting their liability hereunder.
(5) Guarantors authorize Bank, without notice or demand and
without affecting their liability hereunder, from time to time, either before
or after revocation hereof, to (a) renew, compromise, extend, accelerate, or
otherwise change the time for payment of, or otherwise change the terms of
the indebtedness or any part thereof, including increase or decrease of the
rate of interest thereon; (b) receive and hold security for the payment of
this Guaranty or any of the indebtedness, and exchange, enforce, waive,
release, fail to perfect, sell, or otherwise dispose of any such security;
(c) apply such security and direct the order or manner of sale thereof as
Bank in its discretion may determine; and (d) release or substitute any one
or more of the endorsers or guarantors.
(6) Guarantors waive any right to require Bank to (a) proceed
against Borrowers; (b) proceed against or exhaust any security held from
Borrowers; or (c) pursue any other remedy in Bank's power whatsoever.
Guarantors waive any defense arising by reason of any disability or other
defense of Borrowers, or the cessation from any cause whatsoever of the
liability of Borrowers, or any claim that Guarantors' obligations exceed or
are more burdensome than those of Borrowers. Until the indebtedness shall
have been paid in full, even though the indebtedness is in excess of
Guarantors' liability hereunder, Guarantors waive any right of subrogation,
reimbursement, indemnification, and contribution (contractual, statutory, or
otherwise) including, without limitation, any claim or right of subrogation
under the Bankruptcy Code (Title 11, United States Code) or any successor
-7-
<PAGE>
statute, arising from the existence or performance of this Guaranty and
Guarantors waive any right to enforce any remedy which Bank now has or may
hereafter have against Borrowers and waive any benefit of, and any right to
participate in, any security now or hereafter held by Bank. Guarantors waive
all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance
of this Guaranty and of the existence, creation, or incurring of new or
additional indebtedness.
(7)(a) Guarantors understand and acknowledge that if Bank forecloses,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the indebtedness, that foreclosure could impair or destroy any
ability that Guarantors may have to seek reimbursement, contribution, or
indemnification from Borrowers or others based on any right Guarantors may have
of subrogation, reimbursement, contribution, or indemnification for any amounts
paid by Guarantors under this Guaranty. Guarantors further understand and
acknowledge that in the absence of this paragraph, such potential impairment or
destruction of Guarantors' rights, if any, may entitle Guarantors to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure as interpreted in UNION BANK V. GRADSKV, 265 Cal. App. 2d. 40 (1968).
By executing this Guaranty, Guarantors freely, irrevocably, and unconditionally:
(i) waive and relinquish that defense and agree that Guarantors will be fully
liable under this Guaranty even though Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing the
indebtedness; (ii) agree that Guarantors will not assert that defense in any
action or proceeding which Bank may commence to enforce this Guaranty; (iii)
acknowledge and agree that the rights and defenses waived by Guarantors in this
Guaranty include any right or defense that Guarantors may have or be entitled to
assert based upon or arising out of any one or more of Sections 580a, 580b,
580d, or 726 of the California Code of Civil Procedure or Section 2848 of the
California Civil Code; and (iv) acknowledge and agree that Bank is relying on
this waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which Bank is receiving for creating the indebtedness.
(b) Guarantors waive any rights and defenses that are or may become
available to Guarantors by reason of Sections 2787 to 2855, inclusive, of the
California Civil Code.
(c) Guarantors waive all rights and defenses that Guarantors may
have because any of the indebtedness is secured by real property. This means,
among other things: (I) Bank may collect from Guarantors without first
foreclosing on any real or personal property collateral pledged by Borrowers;
and (ii) if Bank forecloses on any real property collateral pledged by
Borrowers: (1) the amount of the indebtedness may be reduced only by the
price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price, and (2) Bank may collect from
Guarantors even if Bank, by foreclosing on the real property collateral, has
destroyed any right Guarantors may have to collect from Borrowers. This is an
unconditional and irrevocable waiver of any rights and defenses Guarantors
may have because any of the indebtedness is secured by real property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure.
(d) Guarantors waive any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
(e) No provision or waiver in this Guaranty shall be construed as
limiting the generality of any other waiver contained in this Guaranty.
(8) Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from Borrowers such information concerning
Borrowers' financial conditions or business operations as Guarantors may
require, and that Bank has no duty at any time to disclose to Guarantors any
information relating to the business operations or financial conditions of
Borrowers.
(9) To secure all of Guarantors' obligations hereunder, Guarantors
assign and grant to Bank a security interest in all moneys, securities, and
other property of Guarantors now or hereafter in the possession of Bank, all
deposit accounts of Guarantors maintained with Bank, and all proceeds thereof.
Upon default or breach of any of Guarantors' obligations to Bank, Bank may apply
any deposit account to reduce the indebtedness and may foreclose any collateral
as provided in the Uniform Commercial Code and in any security agreements
between Bank and Guarantors.
(10) Any obligations of Borrowers to Guarantors, now or hereafter
existing, including but not limited to any obligations to Guarantors as
subrogates of Bank or resulting from Guarantors' performance under this
-8-
<PAGE>
Guaranty, are hereby subordinated to the indebtedness. Such obligations of
Borrowers to Guarantors if Bank so requests shall be enforced and performance
received by Guarantors as trustees for Bank, and the proceeds thereof shall
be paid over to Bank on account of the indebtedness, but without reducing or
affecting in any manner the liability of Guarantors under the provisions of
this Guaranty.
(11) This Guaranty may be revoked at any time by Guarantors in
respect to future transactions, unless there is a continuing consideration as
to such transactions which Guarantors do not renounce. Such revocation shall
be effective upon actual receipt by Bank, at the address shown below or at
such other address as may have been provided to Guarantors by Bank, of
written notice of revocation. Revocation shall not affect any of Guarantors'
obligations or Bank's rights with respect to transactions which precede
Bank's receipt of such notice, regardless of whether or not the indebtedness
related to such transactions, before or after revocation, has been renewed,
compromised, extended, accelerated, or otherwise changed as to any of its
terms, including time for payment or increase or decrease of the rate of
interest thereon, and regardless of any other act or omission of Bank
authorized hereunder. Revocation by any one or more of Guarantors shall not
affect any obligations of any nonrevoking Guarantors. If this Guaranty is
revoked, returned, or canceled, and subsequently any payment or transfer of
any interest in property by Borrowers to Bank is rescinded or must be
returned by Bank to Borrowers, this Guaranty shall be reinstated with respect
to any such payment or transfer, regardless of any such prior revocation,
return, or cancellation.
(12) Where any one or more of Borrowers are corporations,
partnerships, or limited liability companies, it is not necessary for Bank to
inquire into the powers of Borrowers or of the officers, directors, partners,
members, managers, or agents acting or purporting to act on their behalf, and
any indebtedness made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
(13) Guarantors authorize Bank to verify or check any information
given by Guarantors to Bank, check Guarantors' credit references, verify
employment, and obtain credit reports (including any individual general
partner of any Guarantor and including any Guarantor's spouse and any such
general partner's spouse if such Guarantor or such general partner is married
and lives in a community property state).
(14) Bank may, without notice to Guarantors and without affecting
Guarantors' obligations hereunder, assign the indebtedness and this Guaranty,
in whole or in part. Guarantors agree that Bank may disclose to any assignee
or purchaser, or any prospective assignee or purchaser, of all or part of the
indebtedness any and all information in Bank's possession concerning
Guarantors, this Guaranty, and any security for this Guaranty.
(15) Guarantors agree to pay all reasonable attorneys' fees,
including allocated costs of Bank's in-house counsel, and all other costs and
expenses which may be incurred by Bank (a) in the enforcement of this
Guaranty or (b) in the preservation, protection, or enforcement of any rights
of Bank in any case commenced by or against Guarantors under the Bankruptcy
Code (Title 11, United States Code) or any similar or successor statute.
(16) Where there is but a single Borrower, or where a single
Guarantor executes this Guaranty, then all words used herein in the plural
shall be deemed to have been used in the singular where the context and
construction so require; and when there is more than one Borrower named
herein, or when this Guaranty is executed by more than one Guarantor, the
words "Borrowers" and "Guarantors" respectively shall mean all and any one or
more of them.
(17) This Guaranty shall be governed by and construed according to
the laws of the State of California, to the jurisdiction of which the parties
hereto submit.
(18)(a) Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this
Guaranty or any agreements or instruments relating hereto or delivered in
connection herewith and any claim based on or arising from an alleged tort,
shall at the request of any party be determined by arbitration. The
arbitration shall be conducted in accordance with the United States
Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Guaranty, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrators shall give effect to
statutes of limitation in determining any claim, except as expressly waived
hereunder by Guarantors. Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrators. Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional
-9-
<PAGE>
or ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to Bank which is secured by
real property collateral located in California. If all parties do not consent
to submission of such a controversy or claim to arbitration, the controversy
or claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subparagraphs (a) and (b) shall, at the request of
any party, be determined by a reference in accordance with California Code of
Civil Procedure Section 638 ET SEA. If such an election is made, the parties
shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
AAA-sponsored proceedings. The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered
in the court in which such proceeding was commenced in accordance with
California Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not waive the
right of either party to resort to arbitration or reference. At Bank's
option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.
Executed this 3/18/98
-----------------
Witnessed
X X /S/ Dickerson Wright
- ------------------------------ ----------------------------------
Witness Dickerson Wright, Guarantor
- ------------------------------ 14366 Twisted Branch Road
Address Power, CA 92064-1461
X
- -----------------------------
Witness
- -----------------------------
Address
BANK OF AMERICA NT & S. A.
The Private Bank - San Diego #01289
450 B Street, Suite 1700
P.O. Box 1631
San Diego, CA 92112
-10-
<PAGE>
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
CONTINUING GUARANTY
BORROWERS: U.S. LABORATORIES INC.
GUARANTORS: DICKERSON WRIGHT AND KATHERINE WRIGHT,
TRUSTEES OF THE WRIGHT FAMILY TRUST u/d/t
DATED DECEMBER 12, 1990
(1) For valuable consideration, the undersigned ("Guarantors")
jointly and severally unconditionally guarantee and promise to pay to
Bank of America National Trust and Savings Association ("Bank"), or
order, on demand, in lawful money of the United States, any and all
indebtedness of U. S. Laboratories Inc. ("Borrowers") to Bank. The word
"indebtedness" is used herein in its most comprehensive sense and
includes any and all advances, debts, obligations, and liabilities of
Borrowers or any one or more of them to Bank, heretofore, now, or
hereafter made, incurred or created, whether voluntary or involuntary
and however arising, whether direct or acquired by Bank by assignment
or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether
Borrowers may be liable individually or jointly with others, or whether
recovery upon such indebtedness may be or hereafter become barred by
any statute of limitations, or whether such indebtedness may be or
hereafter become otherwise unenforceable.
(2) The liability of Guarantors under this Guaranty (exclusive
of liability under any other guaranties executed by Guarantors) shall not
exceed at any one time the total of (a) Five Hundred Thousand Dollars
($500,000), for the principal amount of the indebtedness and (b) all
interest, fees, and other costs and expenses relating to or arising out
of the indebtedness or such part of the indebtedness as shall not
exceed the foregoing limitation. Bank may permit the indebtedness to
exceed Guarantors' liability, and may apply any amounts received from
any source,' other than from Guarantors, to the unguaranteed portion of
the indebtedness. This is a continuing guaranty relating to any
indebtedness, including that arising under successive transactions
which shall either continue the indebtedness or from time to time renew
it after it has been satisfied. Any payment by Guarantors shall not
reduce their maximum obligation hereunder, unless written notice to
that effect be actually received by Bank at or prior to the time of
such payment.
(3) If any Borrower is a partnership and any Guarantor is a
general partner of that partnership, then such Guarantor shall not be
liable under this Guaranty for any indebtedness of such Borrower which is
secured by real property; provided, however, that such Guarantor shall
remain liable under partnership law for all the indebtedness of such
Borrower.
(4) The obligations hereunder are joint and several, and
independent of the obligations of Borrowers, and a separate action or
actions may be brought and prosecuted against Guarantors whether action
is brought against Borrowers or whether Borrowers be joined in any such
action or actions; and Guarantors waive the benefit of any statute of
limitations affecting their liability hereunder.
(5) Guarantors authorize Bank, without notice or demand and
without affecting their liability hereunder, from time to time, either
before or after revocation hereof, to (a) renew, compromise, extend,
accelerate, or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including
increase or decrease of the rate of interest thereon; (b) receive and
hold security for the payment of this Guaranty or any of the
indebtedness, and exchange, enforce, waive, release, fail to perfect,
sell, or otherwise dispose of any such security; (c) apply such
security and direct the order or manner of sale thereof as Bank in its
discretion may determine; and (d) release or substitute any one or more
of the endorsers or guarantors.
(6) Guarantors waive any right to require Bank to (a) proceed
against Borrowers; (b) proceed against or exhaust any security held
from Borrowers; or (c) pursue any other remedy in Bank's power
whatsoever. Guarantors waive any defense arising by reason of any
disability or other defense of Borrowers, or the cessation from any
cause whatsoever of the liability of Borrowers, or any claim that
Guarantors'
-11-
<PAGE>
obligations exceed or are more burdensome than those of Borrowers.
Until the indebtedness shall have been paid in full, even though the
indebtedness is in excess of Guarantors' liability hereunder,.
Guarantors waive any right of subrogation, reimbursement,
indemnification, and contribution (contractual, statutory, or
otherwise) including, without limitation, any claim or right of
subrogation under the Bankruptcy Code (Title 11, United States Code) or
any successor statute, arising from the existence or performance of
this Guaranty and Guarantors waive any right to enforce any remedy
which Bank now has or may hereafter have against Borrowers and waive
any benefit of, and any right to participate in, any security now or
hereafter held by Bank. Guarantors waive all presentments, demands for
performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional indebtedness.
(7)(a) Guarantors understand and acknowledge that if Bank
forecloses, either by judicial foreclosure or by exercise of power of
sale, any deed of trust securing the indebtedness, that foreclosure
could impair or destroy any ability that Guarantors may have to seek
reimbursement, contribution, or indemnification from Borrowers or
others based on any right Guarantors may have of subrogation,
reimbursement, contribution, or indemnification for any amounts paid by
Guarantors under this Guaranty. Guarantors further understand and
acknowledge that in the absence of this paragraph, such potential
impairment or destruction of Guarantors' rights, if any, may entitle
Guarantors to assert a defense to this Guaranty based on Section 580d
of the California Code of Civil Procedure as interpreted in UNION BANK
V. GRADSKY, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty,
Guarantors freely, irrevocably, and unconditionally: (i) waive and
relinquish that defense and agree that Guarantors will be fully liable
under this Guaranty even though Bank may foreclose, either by judicial
foreclosure or by exercise of power of sale, any deed of trust securing
the indebtedness; (ii) agree that Guarantors will not assert that
defense in any action or proceeding which Bank may commence to enforce
this Guaranty; (iii) acknowledge and agree that the rights and defenses
waived by Guarantors in this Guaranty include any right or defense that
Guarantors may have or be entitled to assert based upon or arising out
of any one or more of Sections 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure or Section 2848 of the California
Civil Code; and (iv) acknowledge and agree that Bank is relying on this
waiver in creating the indebtedness, and that this waiver is a material
part of the consideration which Bank is receiving for creating the
indebtedness.
(b) Guarantors waive any rights and defenses that are or may become
available to Guarantors by reason of Sections 2787 to 2855, inclusive, of the
California Civil Code.
(c) Guarantors waive all rights and defenses that Guarantors may
have because any of the indebtedness is secured by real property. This means,
among other things: (I) Bank may collect from Guarantors without first
foreclosing on any real or personal property collateral pledged by Borrowers;
and (ii) if Bank forecloses on any real property collateral pledged by
Borrowers: (1) the amount of the indebtedness may be reduced only by the
price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price, and (2) Bank may collect from
Guarantors even if Bank, by foreclosing on the real property collateral, has
destroyed any right Guarantors may have to collect from Borrowers. This is an
unconditional and irrevocable waiver of any rights and defenses Guarantors
may have because any of the indebtedness is secured by real property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure.
(d) Guarantors waive any right or defense they may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure.
(e) No provision or waiver in this Guaranty shall be construed as
limiting the generality of any other waiver contained in this Guaranty.
(8) Guarantors acknowledge and agree that they shall have the sole
responsibility for obtaining from Borrowers such information concerning
Borrowers' financial conditions or business operations as Guarantors may
require, and that Bank has no duty at any time to disclose to Guarantors any
information relating to the business operations or financial conditions of
Borrowers.
(9) To secure all of Guarantors' obligations hereunder, Guarantors assign
and grant to Bank a security interest in all moneys, securities, and other
property of Guarantors now or hereafter in the possession of Bank, all deposit
accounts of Guarantors maintained with Bank, and all proceeds thereof. Upon
default or breach of any of
-12-
<PAGE>
Guarantors' obligations to Bank, Bank may apply any deposit account to reduce
the indebtedness and may foreclose any collateral as provided in the Uniform
Commercial Code and in any security agreements between Bank and Guarantors.
(10) Any obligations of Borrowers to Guarantors, now or hereafter
existing, including but not limited to any obligations to Guarantors as
subrogates of Bank or resulting from Guarantors' performance under this
Guaranty, are hereby subordinated to the indebtedness. Such obligations of
Borrowers to Guarantors if Bank so requests shall be enforced and performance
received by Guarantors as trustees for Bank, and the proceeds thereof shall
be paid over to Bank on account of the indebtedness, but without reducing or
affecting in any manner the liability of Guarantors under the provisions of
this Guaranty.
(11) This Guaranty may be revoked at any time by Guarantors in respect
to future transactions, unless there is a continuing consideration as to such
transactions which Guarantors do not renounce. Such revocation shall be
effective upon actual receipt by Bank, at the address shown below or at such
other address as may have been provided to Guarantors by Bank, of written
notice of revocation. Revocation shall not affect any of Guarantors'
obligations or Bank's rights with respect to transactions which precede
Bank's receipt of such notice, regardless of whether or not the indebtedness
related to such transactions, before or after revocation, has been renewed,
compromised, extended, accelerated, or otherwise changed as to any of its
terms, including time for payment or increase or decrease of the rate of
interest thereon, and regardless of any other act or omission of Bank
authorized hereunder. Revocation by any one or more of Guarantors shall not
affect any obligations of any nonrevoking Guarantors. If this Guaranty is
revoked, returned, or canceled, and subsequently any payment or transfer of
any interest in property by Borrowers to Bank is rescinded or must be
returned by Bank to Borrowers, this Guaranty shall be reinstated with respect
to any such payment or transfer, regardless of any such prior revocation,
return, or cancellation.
(12) Where any one or more of Borrowers are corporations,
partnerships, or limited liability companies, it is not necessary for Bank to
inquire into the powers of Borrowers or of the officers, directors, partners,
members, managers, or agents acting or purporting to act on their behalf, and
any indebtedness made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
(13) Guarantors authorize Bank to verify or check any information
given by Guarantors to Bank, check Guarantors' credit references, verify
employment, and obtain credit reports (including any individual general
partner of any Guarantor and including any Guarantor's spouse and any such
general partner's spouse if such Guarantor or such general partner is married
and lives in a community property state).
(14) Bank may, without notice to Guarantors and without affecting
Guarantors' obligations hereunder, assign the indebtedness and this Guaranty, in
whole or in part. Guarantors agree that Bank may disclose to any assignee or
purchaser, or any prospective assignee or purchaser, of all or part of the
indebtedness any and all information in Bank's possession concerning Guarantors,
this Guaranty, and any security for this Guaranty.
(15) Guarantors agree to pay all reasonable attorneys' fees, including
allocated costs of Bank's in-house counsel, and all other costs and expenses
which may be incurred by Bank (a) in the enforcement of this Guaranty or (b) in
the preservation, protection, or enforcement of any rights of Bank in any case
commenced by or against Guarantors under the Bankruptcy Code (Title 11, United
States Code) or any similar or successor statute.
(16) Where there is but a single Borrower, or where a single Guarantor
executes this Guaranty, then all words used herein in the plural shall be deemed
to have been used in the singular where the context and construction so require;
and when there is more than one Borrower named herein, or when this Guaranty is
executed by more than one Guarantor, the words "Borrowers" and "Guarantors"
respectively shall mean all and any one or more of them.
(17) This Guaranty shall be governed by and construed according to
the laws of the State of California, to the jurisdiction of which the parties
hereto submit.
(18)(a) Any controversy or claim between or among the parties, including
but not limited to those arising out of or relating to this Guaranty or any
agreements or instruments relating hereto or delivered in connection herewith
and any claim based on or arising from an alleged tort, shall at the request of
any party be determined by arbitration. The arbitration shall be conducted in
accordance with the United States Arbitration Act
-13-
<PAGE>
(Title 9, U.S. Code), notwithstanding any choice of law provision in this
Guaranty, and under the Commercial Rules of the American Arbitration
Association ("AAA"). The arbitrators shall give effect to statutes of
limitation in determining any claim, except as expressly waived hereunder by
Guarantors. Any controversy concerning whether an issue is arbitrable shall
be determined by the arbitrators. Judgment upon the arbitration award may be
entered in any court having jurisdiction. The institution and maintenance of
an action for judicial relief or pursuit of a provisional or ancillary remedy
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other
party contests such action for judicial relief.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to Bank which is secured by
real property collateral located in California. If all parties do not consent
to submission of such a controversy or claim to arbitration, the controversy
or claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to arbitration as
provided and limited in subparagraphs (a) and (b) shall, at the request of any
party, be determined by a reference in accordance with California Code of Civil
Procedure Section 638 ET SEQ. If such an election is made, the parties shall
designate to the court a referee or referees selected under the auspices of the
AAA in the same manner as arbitrators are selected in MA-sponsored proceedings.
The presiding referee of the panel, or the referee if there is a single referee,
shall be an active attorney or retired judge. Judgment upon the award rendered
by such referee or referees shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil Procedure
Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of any
party to this Guaranty to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or
security, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, after, or during the pendency of any
arbitration or other proceeding. The exercise of a remedy does not waive the
right of either party to resort to arbitration or reference. At Bank's
option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.
Executed this 3/23/98
----------------
Witnessed
X X /S/ Dickerson Wright
- ------------------------------- ---------------------------------------
Witness Dickerson Wright, Trustee of the
Wright Family Trust
X
- ------------------------------- ---------------------------------------
Address Katherine Wright, Trustee of the
Wright Family Trust
14366 Twisted Branch Road
Power, CA 92064-1461
X
- -------------------------------
Witness
- -------------------------------
Address
Address for notices to Bank:
BANK OF AMERICA N.T. & S. A.
The Private Bank - San Diego #01289
450 B Street, Suite 1700
P.O. Box 1631
San Diego, CA 92112
-14-
<PAGE>
Executed this 3/23/98
-----------------------
Witnessed
X X /S/ Dickerson Wright
- ---------------------------- -------------------------------------
Witness Dickerson Wright, Trustee of the
Wright Family Trust
X /S/ Katherine Wright
- ---------------------------- -------------------------------------
Address Katherine Wright, Trustee of the
Wright Family Trust
14366 Twisted Branch Road
Power, CA 92064-1461
X
- ----------------------------
Witness
- ----------------------------
Address
Address for notices to Bank:
BANK OF AMERICA N.T. & S. A.
The Private Bank - San Diego #01289
450 B Street, Suite 1700
P.O. Box 1631
San Diego, CA 92112
-15-
<PAGE>
EXHIBIT 10.3
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
FEBRUARY 25, 1998, is made by and between SOHRAB ARJMAND ET AL ("LESSOR")
and U.S. LABORATORIES, INC. DBA TESTING ENGINEERS - SAN DIEGO, INC.
("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 (a) PREMISES: That certain portion OF the Building, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, commonly known by the street address of 7895 CONVOY CT. SUITES 16-18,
located in the City of SAN DIEGO, County of SAN DIEGO, State of CALIFORNIA,
with zip code 92111, as outlined on Exhibit B attached hereto ("PREMISES").
The "BUILDING" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): APPROXIMATELY
10,160 RENTABLE SQUARE FEET. (PART OF AN APPROXIMATELY 66,000 RENTABLE
SQUARE FEET INDUSTRIAL PARK KNOWN AS MESA VERDA BUSINESS PARK). In addition
to Lessee's rights to use and occupy the Premises as hereinafter specified,
Lessee shall have non-exclusive rights to the Common Areas (as defined in
Paragraph 2.7 below) as hereinafter specified, but shall not have any rights
to the roof, exterior walls or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the
Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as
the "Industrial Center." (Also see Paragraph 2.)
1.2(b) PARKING: TWENTY-ONE (21) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and FOUR (4) reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing MAY 1,
1998 ("COMMENCEMENT DATE") and ending APRIL 30, 2003 ("EXPIRATION DATE").
(Also see Paragraph 3.)
1.4 EARLY POSSESSION: SEE ADDENDUM ("EARLY POSSESSION DATE"). (Also
see Paragraph 3.2.)
1.5 BASE RENT: $8,230.00 PER month ("BASE RENT"), payable on the FIRST
day of each month commencing MAY 1, 1998 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum EXH. C, attached hereto.
1.6 (a) BASE RENT PAID UPON EXECUTION: $8,230.00 as Base Rent for the
period MAY 1, 1998 - MAY 31, 1998.
1.6(b) LESSEE'S Share OF COMMON AREA OPERATING EXPENSES: FIFTEEN
DECIMAL THREE percent (15.3%) ("LESSEE'S SHARE") as determined by
[X] prorata square footage of the Premises as compared to the total square
footage of the Building or [ ] other criteria as described in
Addendum __.
1.7 SECURITY DEPOSIT: $8,230.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: A COMMERCIAL TESTING LABORATORY AND OFFICE USE
("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. LESSOR is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10 (a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] BRE COMMERCIAL NAT represents Lessor exclusively ("LESSOR'S BROKER");
[X] SANDE COMPANY represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] __________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate
shares as they may mutually designate in writing, a fee as set forth in a
separate written agreement between Lessor and said Broker(s) (or in the event
there is no separate written agreement between Lessor and said Broker(s), the
sum of $ PER AGREEMENT) for brokerage services rendered by said Broker(s)
in connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs I through VIII, and Exhibits A through D, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon
is not subject to revision whether or not the actual square footage is more
or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition
on the Commencement Date. If a non-compliance with said warranty exists as
of the Commencement Date, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee or
at Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the
INITIALS: ________
________
-1-
<PAGE>
Commencement Date. Lessor further warrants to Lessee that Lessor has no
knowledge of any claim having been made by any governmental agency that a
violation or violations of applicable building codes, regulations or
ordinances exist with regard to the Premises as of the Commencement Date.
Said warranties shall not apply to any Alterations or Utility Installations
(defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises
do not comply with said warranties, Lessor shall, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
given within six (6) months following the Commencement Date and setting forth
with specificity the nature and extent of such non-compliance, take such
action, at Lessor's expense, as may be reasonable or appropriate to rectify
the non-compliance. Lessor makes no warranty that the Permitted Use in
Paragraph 1.8 is permitted for the Premises under Applicable Laws (as defined
in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, seismic and
earthquake requirements, and compliance with the Americans with Disabilities
Act and applicable zoning, municipal, county, state and federal laws,
ordinances and regulations and any covenants or restrictions of record
(collectively, "APPLICABLE LAWS") and the present and future suitability of
the Premises for Lessee's intended use; (b) that Lessee has made such
investigation as it deems necessary with reference to such matters, is
satisfied with reference thereto, and assumes all responsibility therefor as
the same relate to Lessee's occupancy of the Premises and/or the terms of
this Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made
any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. (See Addendum, Paragraph IV.) Lessee shall be
entitled to use the number of Unreserved Parking Spaces and Reserved Parking
Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas
designated from time to time by Lessor for parking. Lessee shall not use
more parking spaces than said number. Said parking spaces shall be used for
parking by vehicles no larger than full-size passenger automobiles or pick-up
trucks, herein called "PERMITTED SIZE VEHICLES." Vehicles other than
Permitted Size Vehicles shall be parked and loaded or unloaded as directed by
Lessor in the Rules and Regulations (as defined in Paragraph 40) issued by
Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, with
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS--DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within
the Premises that are provided and designated by the Lessor from time to time
for the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive
right to use, in common with others entitled to such use, the Common Areas as
they exist from time to time, subject to any rights, powers, and privileges
reserved by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center.
Under no circumstances shall the right herein granted to use the Common Areas
be deemed to include the right to store any property, temporarily or
permanently, in the Common Areas. Any such storage shall be permitted only
by the prior written consent of Lessor or Lessor's designated agent, which
consent may be revoked at any time. In the event that any unauthorized
storage shall occur then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove the
property and charge the cost to Lessee, which cost shall be immediately
payable upon demand by Lessor.
2.9 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 40. Lessee agrees to abide by
and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance
with said Rules and Regulations by other lessees of the Industrial Center.
2.10 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor
may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the
Expiration Date of the Original Term.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of
the United States, without offset or deduction, on or before the day on which
it is due under the terms of this Lease. Base Rent and all other rent and
charges for any period during the term hereof which is for less than one full
month shall be prorated based upon the actual number of days of the month
involved. Payment of Base Rent and other charges shall be made to Lessor at
its address stated herein or to such other persons or at such other addresses
as Lessor may from time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. (See Addendum, Paragraph VII.)
Lessee shall pay to Lessor during the term hereof, in addition to the Base
Rent, Lessee's Share (as specified in Paragraph 1.6(b)) of all Common Area
Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
INITIALS: ________
________
-2-
<PAGE>
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lessor with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building
in the Industrial Center or to the operation, repair and maintenance thereof,
shall be allocated entirely to the Building or to such other building.
However, any Common Area Operating Expenses and Real Property Taxes that are
not specifically attributable to the Building or to any other building or to
the operation, repair and maintenance thereof, shall be equitably allocated
by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to
provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time of Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period
of the Lease term, on the same day as the Base Rent is due hereunder. Lessor
shall deliver to Lessee within sixty (60) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed Lessee's Share as indicated on said statement, Lessee shall be
credited the amount of such overpayment against Lessee's Share of Common Area
Operating Expenses next becoming due. If Lessee's payments under this
Paragraph 4.2(d) during said preceding year were less than Lessee's Share as
indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as security
for Lessee's faithful performance of Lessee's obligations under this Lease.
If Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.
Lessor shall not be required to keep all or any part of the Security Deposit
separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust to bear interest or other increment for its use, or to be prepayment
for any monies to be paid by Lessee under this Lease. Any deposit held with
Lessor and due Lessee at the termination of the Lease shall be returned
within 20 days.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not
use or permit the use of the Premises in a manner that is unlawful, creates
waste or a nuisance, or that disturbs owners and/or occupants of, or causes
damage to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same
will not impair the structural integrity of the improvements on the Premises
or in the Building or the mechanical or electrical systems therein, does not
conflict with uses by other lessees, is not significantly more burdensome to
the Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES. (See Addendum, Paragraph VI.)
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment or the Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use, transportation
or disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is required
to be filed with, any governmental authority, and (iii) the presence in, on
or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or
occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary
and customary materials reasonably required to be used by Lessee in the
normal course of the Permitted Use, so long as such use is not a Reportable
Use and does not expose the Premises or neighboring properties to any
meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may (but without any obligation to do so)
condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as lessor, in
its reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
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(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding
given to, or received from, any governmental authority or private party
concerning the presence, spill, release, discharge of or exposure to such
Hazardous Substance including but not limited to all such documents as may be
involved in any Reportable Use involving the Premises. Lessee shall not cause
or permit any Hazardous Substance to be spilled or released in, on, under or
about the Premises (including, without limitation, through the plumbing or
sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under
Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the
cost of investigation (including consultants' and attorneys' fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene,
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill or release of any Hazardous Substance), now in effect or which may
hereafter come into effect. Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all documents and
information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Lessee or the Premises to comply
with any Applicable requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Requirements (as defined in Paragraph 6.3), and
Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring, maintenance
or removal of any Hazardous Substance on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee or a violation of
Applicable Requirements or a contamination, caused or materially contributed
to by Lessee, is found to exist or to be imminent, or unless the inspection
is requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall
upon request reimburse Lessor or Lessor's Lender, as the case may be, for the
costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessee shall,
at Lessee's sole cost and expense and at all times, keep the Premises and
every part thereof in good order, condition and repair (whether or not such
portion of the Premises requiring repair, or the means of repairing the same,
are reasonably or readily accessible to Lessee, and whether or not the need
for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire hose connections if within the Premises,
fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors, windows, doors, plate glass, and skylights, but excluding any items
which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation
system for the Premises. However, Lessor reserves the right, upon notice to
Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case
no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to
reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and all parts thereof, as
well as providing the services for which there is a Common Area Operating
Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint
the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to
keep the Building, Industrial Center or Common Areas in good order, condition
and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term
"TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the Premises
which are provided by Lessor under the terms of this Lease, other than
Utility Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR
UTILITY INSTALLATIONS" are defined as Alterations and/or Utility
Installations made by Lessee that are not yet owned by Lessor pursuant to
Paragraph 7.4(a). Lessee shall not make nor cause to be made any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
Lessor's consent but upon notice to Lessor so long as they are not visible
from the outside of the Premises, do not involve puncturing, relocating or
removing the roof or any existing walls, or changing or interfering with the
fire sprinkler or fire detection systems and the cumulative cost thereof
during the term of this Lease as extended does not exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing
of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of
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the work thereon; and (iii) the compliance by Lessee with all conditions of
said permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $25,000.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such judgment that may be rendered thereon
before the enforcement thereof against the Lessor or the Premises. If Lessor
shall require, Lessee shall furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to one and one-half times the amount of such
contested lien claim or demand, indemnifying Lessor against liability for the
same, as required by law for the holding of the Premises free from the effect
of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's attorneys' fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in
this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee, except for the concrete curing and constant
humidity temperature rooms.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any
Alterations or Utility Installations made without the required consent of
Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under
this Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee subject to its obligation to repair and restore
the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "Insurance Cost Increase" is defined
as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by lessor pursuant to Paragraphs 8.2(b)
and 8.3(a) ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost
Increase" shall include, but not be limited to, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises, and/or a general premium rate increase. The term "Insurance Cost
Increase" shall not, however, include any premium increases resulting from
the nature of the occupancy of any other lessee of the Building. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be
considered the "BASE PREMIUM." If a dollar amount has not been inserted in
Paragraph 1.9 and if the Building has been previously occupied during the
twelve (12) month period immediately preceding the Commencement Date, the
"Base Premium" shall be the annual premium applicable to such twelve (12)
month period. If the Building was not fully occupied during such twelve (12)
month period, the "Base Premium" shall be the lowest annual premium
reasonably obtainable for the Required Insurance as of the Commencement Date,
assuming the most nominal use possible of the Building. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay Lessee's share of any Insurance Cost Increase
to Lessor pursuant to Paragraph 4.2. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "INSURED CONTRACT" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance
required by this Lease or as carried by Lessee shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance to be carried by Lessee shall be primary to and not contributory
with any similar insurance carried by Lessor, whose insurance shall be
considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full replacement
cost, as the same shall exist from time to time, or the amount required by
any Lender(s), but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full
replacement cost. Lessee-Owned Alterations and Utility Installations, Trade
Fixtures and Lessee's personal property shall be insured by Lessee pursuant
to Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless required
by a Lender or included in the Base Premium), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in
the annual property insurance coverage amount by a factor of not less than
the adjusted U.S. Department of Labor Consumer Price Index for All Urban
Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and any Lender(s), insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases). Said insurance
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may provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide
for one full year's loss of rental revenues from the date of any such loss.
Said insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12-month
period. Common Area Operating Expenses shall include any deductible amount
in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures and
Lessee-Owned Alterations and Utility Installations in, on or about the
Premises similar in coverage to that carried by Lessor as the Insuring Party
under Paragraph 8.3(a). Such insurance shall be full replacement cost
coverage with a deductible not to exceed $1,000 per occurrence. The proceeds
from any such insurance shall be used by Lessee for the replacement of
personal property and the restoration of Trade Fixtures and Lessee-Owned
Alterations and Utility Installations. Upon request from Lessor, Lessee
shall provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or
certificates evidencing the existence and amounts of, the insurance required
under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days' prior written notice
to Lessor. Lessee shall at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with evidence of renewals or "insurance
binders" evidencing renewal thereof, or Lessor may order such insurance and
charge the cost thereof to Lessee, which amount shall be payable by Lessee to
Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be insured against under Paragraph 8. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto. Lessor and Lessee agree to have their
respective insurance companies issuing property damage insurance waive any
right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or
in connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment. In case any action or
proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except as caused by the
negligence, intentional wrongdoing or breach of this Lease by Lessor or its
agents, Lessor shall not be liable for injury or damage to the person or
goods, wares, merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee of Lessor nor from the failure by Lessor to
enforce the provisions of any other lease in the Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent
(50%) of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the
Premises (excluding Lessee-Owned Alterations and Utility Installations and
Trade Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building) of the
Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE--INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned
Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect. In the event, however,
that there is a shortage of insurance proceeds and such shortage is due to
the fact that, by reason of the unique nature of the improvements in the
Premises, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, Lessor shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within such ten (10) day period, and if
Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any
right to
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reimbursement from Lessor for any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right
within ten (10) days after the receipt of such notice to give written notice
to Lessor of Lessee's commitment to pay for the repair of such damage totally
at Lessee's expense and without reimbursement from Lessor. Lessee shall
provide Lessor with the required funds or satisfactory assurance thereof
within thirty (30) days following such commitment from Lessee. In such event
this Lease shall continue in full force and effect, and Lessor shall proceed
to make such repairs as soon as reasonably possible after the required funds
are available. If Lessee does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate the date of such
Premises Total Destruction, whether or not the damage or destruction is an
Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as
released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten (10) days after Lessee's receipt of Lessor's written
notice purporting to terminate this Lease, or (ii) the day prior to the date
upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense,
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
and provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph
9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base
Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion
to the degree to which Lessee's use of the Premises is impaired, but not in
excess of proceeds from insurance required to be carried under Paragraph
8.3(b). Except for abatement of Base Rent, Common Area Operating Expenses
and other charges, if any, as aforesaid, all other obligations of Lessee
hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice
to Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after the receipt of such notice, this Lease shall continue in full force and
effect. "COMMENCE" as used in this Paragraph 9.6 shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect,
or (ii) if the estimated cost to investigate and remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever
is greater, give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition of Lessor's desire to terminate this Lease as of the date sixty
(60) days following the date of such notice. In the event Lessor elects to
give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the excess costs
of (a) investigation and remediation of such Hazardous Substance Condition to
the extent required by Applicable Requirements, over (b) an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater. Lessee shall provide Lessor with the funds required of Lessee or
satisfactory assurance thereof within thirty (30) days following said
commitment by Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required
funds or assurance thereof within the time period specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby
waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 10.3, any increases in such amounts over
the Base Real Property Taxes shall be included in the calculation of Common
Area Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income or estate
taxes) imposed upon the Industrial Center by any authority having the direct
or indirect power to tax, including any city, state or federal government, or
any school, agricultural, sanitary, fire, street, drainage, or other
improvement district thereof, levied against any legal or equitable interest
of Lessor in the Industrial Center or any portion thereof, Lessor's right to
rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee,
levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term
of this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this
Lease, or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar
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year, the Real Property Taxes for any real estate tax year shall be included
in the calculation of Real Property Taxes for such calendar year based upon
the number of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by lessor for the exclusive enjoyment of such
other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however,
pay to Lessor at the time Common Area Operating Expenses are payable under
Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable
proportion of the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets
or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee contained in the Premises or stored within the
Industrial Center. When possible, Lessee shall cause its Lessee-Owned
Alterations and Utility Installations, Trade Fixtures, furnishings, equipment
and all other personal property to be assessed and billed separately from the
real property of Lessor, if any of Lessee's said property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable
to Lessee's property within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity,
telephone, security, gas and cleaning of the Premises, together with any
taxes thereon. If any such utilities or services are not separately metered
to the Premises or separately billed to the Premises, Lessee shall pay to
Lessor a reasonable proportion to be determined by Lessor of all such charges
jointly metered or billed with other premises in the Building, in the manner
and within the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign")
or sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at
the time of full execution and delivery of this Lease or at the time of the
most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater,
shall be considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of this
Lease shall be the net worth of Lessee (excluding any Guarantors) established
under generally accepted accounting principles consistently applied.
(c) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option be
a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("LESSOR'S NOTICE"), increase the monthly
Base Rent for the Premises to the greater of the then fair market rental
value of the Premises, as reasonably determined by Lessor, or one hundred ten
percent (110%) of the Base Rent then in effect. Pending determination of the
new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with an overpayment credited against the
next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and rental adjustment, (i) the purchase price of any option to
purchase the Premises held by Lessee shall be subject to similar adjustment
to the then fair market value as reasonably determined by Lessor (without the
Lease being considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition) or one hundred ten percent (110%) of the price previously in
effect, (ii) any index-oriented rental or price adjustment formulas contained
in this Lease shall be adjusted to require that the base index be determined
with reference to the index applicable to the time of such adjustment, and
(iii) any fixed rental adjustments scheduled during the remainder of the
Lease term shall be increased in the same ratio as the new rental bears to
the Base Rent in effect immediately prior to the adjustment specified in
Lessor's Notice.
(d) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee
or to any subsequent or successive assignment or subletting by the assignee
or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors
or anyone else responsible for the performance of the Lessee's obligations
under the Lessee's obligations under this Lease, including any sublessee,
without first exhausting Lessor's remedies against any other person or entity
responsible therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination
as to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any. Lessee agrees to
provide Lessor with such other or additional information and/or documentation
as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's
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obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any
other assignment of such sublease to Lessor, nor by reason of the collection
of the rents from a sublessee, be deemed liable to the sublessee for any
failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and
request from Lessor and shall pay such rents and other charges to Lessor
without any obligation or right to inquire as to whether such Breach exists
and notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against such sublessee, or, until the
Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $200.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "DEFAULT" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A "BREACH" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor
with reasonable evidence of insurance or surety bond required under this
Lease, or the failure of Lessee to fulfill any obligation under this Lease
which endangers or threatens life or property, where such failure continues
for a period of three (3) days following written notice thereof by or on
behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and
37, (vii) the execution of any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor
may reasonably require of Lessee under the terms of this lease, where any
such failure continues for a period of ten (10) days following written notice
by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than
those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
Subparagraph 13.1(e) is contrary to any applicable law, such provision shall
be of no force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check
given to Lessor by Lessee shall not be honored by the bank upon which it is
drawn, Lessor, at its own option, may require all future payments to be made
under this Lease by Lessee to be made only by cashier's check. In the event
of a Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or
without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach, Lessor
may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor.
In such event Lessor shall be entitled to recover form Lessee: (i) the worth
at the time of the award of the unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor
for all the detriment proximately caused by the Lessee's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at
the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount
at the discount rate of the Federal
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Reserve Bank of San Francisco or the Federal Reserve Bank District in which
the Premises are located at the time of award plus one percent (1%). Efforts
by Lessor to mitigate damages caused by Lessee's Default or Breach of this
Lease shall not waive Lessor's right to recover damages under this Paragraph
13.2. If termination of this Lease obtained through the provisional remedy
of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor
may reserve the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by Subparagraph 13.1(b), (c) or (d). In such case, the applicable
grace period under the unlawful detainer statute shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right
to sublet or assign, subject only to reasonable limitations. Lessor and
Lessee agree that the limitations on assignment and subletting in this Lease
are reasonable. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver to protect the Lessor's interest
under this Lease, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent
due under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph 13.3 shall not be deemed a waiver
by Lessor of the provisions of this Paragraph 13.3 unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited
to, processing and accounting charges, and late charges which may be imposed
upon Lessor by the terms of any ground lease, mortgage or deed of trust
covering the Premises. Accordingly, if any installment of rent or other sum
due from Lessee shall not be received by Lessor or Lessor's designee within
ten (10) days after such amount shall be due, then, without any requirement
for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six
percent (6%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent Lessor from exercising any
of the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or
any other provision of this Lease to the contrary, Base Rent shall, at
Lessor's option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by any Lender(s) whose name and address shall have been
furnished to Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice are reasonably required for its performance, then
lessor shall not be in breach of this Lease if performance is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
14. CONDEMNATION. If the Premises or any portion hereof are taken under the
power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as the rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for
the taking of all or any part of the Premises under the power of eminent
domain or any payment made under threat of the exercise of such power shall
be the property of Lessor, whether such award shall be made as compensation
for diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall
be responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option
subsequently granted, or (b) if Lessee acquires any rights to the Premises or
other premises in which Lessor has an interest, or (c) if Lessee remains in
possession of the Premises with the consent of Lessor after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if
said Broker(s) are the procuring cause of any other lease or sale entered
into between the Parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, or (e) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then as to
any of said transactions, Lessor shall pay said Broker(s) a fee in accordance
with the schedule of said Broker(s) in effect at the time of the execution of
this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of
the provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such
unnamed broker, finder or other similar party by reason of any dealings or
actions of the indemnifying Party, including any costs, expenses and/or
attorneys' fees reasonably incurred with respect thereto.
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16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the
"REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party
a statement in writing in a form similar to the then most current "TENANCY
STATEMENT" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality and character of the
Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party. Each Broker shall
be an intended third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or other service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or
by facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may
by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time tot time hereafter
designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given o the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon.
If sent by regular mail, the notice shall be deemed given forty-eight (48)
hours after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantees next day delivery shall be deemed given twenty-four (24)
hours after delivery of the same to the United States Postal Service or
courier. If any notice is transmitted by facsimile transmission or similar
means, the same shall be deemed served or delivered upon telephone or
facsimile confirmation of receipt of the transmission thereof, provided a
copy is also delivered via delivery or mail. If notice is received on a
Saturday or a Sunday or a legal holiday, it shall be deemed received on the
next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing
by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this
Paragraph 26 then the Base Rent payable from and after the time of the
expiration or earlier termination of this Lease shall be increased to one
hundred twenty-five percent (125%) of the Base Rent applicable during the
month immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding
over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises
are a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have
no duty, liability or obligation to perform any of the obligations of Lessor
under this Lease, but that in the event of Lessor's default with respect to
any such obligation, Lessee will give any Lender whose name and address have
been furnished Lessee in writing for such purpose notice of Lessor's default
pursuant to Paragraph 13.5. If any Lender shall elect to have this Lease
and/or any Option granted hereby superior to the lien of its Security Device
and shall give written notice thereof to Lessee, this Lease and such Options
shall be deemed prior to such Security Device, notwithstanding the relative
dates of the documentation or recordation thereof.
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30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "Non-disturbance Agreement")
from the Lender that Lessee's possession and this Lease, including any
options to extend the term hereof, will not be disturbed so long as Lessee is
not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document
any such subordination or non-subordination, attornment and/or
non-disturbance agreement as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action or appeal thereon,
shall be entitled to reasonable attorneys' fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by
compromise, settlement, judgment or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fee award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in preparation and
service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach. Broker(s) shall be intended third party
beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs.
All such activities of Lessor shall be without abatement of rent or liability
to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required
to advertise Lessee's own business so long as such signs are in location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation
of any sign on the Premises by or for Lessee shall be subject to the
provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade
Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor
reserves all rights to the use of the roof of the Building, and the right to
install advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one
or all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to
an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses
(including but not limited to architects', attorneys', engineers' and other
consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent pertaining to this Lease or the
Premises, including but not limited to consents to an assignment, a
subletting or the presence or use of a Hazardous Substance, shall be paid by
Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or
subletting of the Premises by Lessee shall not constitute an acknowledgment
that no Default or Breach by Lessee of this Lease exists, nor shall such
consent be deemed a waiver of any then existing Default or Breach, except as
may be otherwise specifically stated in writing by Lessor at the time of such
consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this Lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or
refuses, upon reasonable request by Lessor to give: (a) evidence of the due
execution of the guaranty called for by this Lease, including the authority
of the Guarantor (and of the party signing on Guarantor's behalf) to obligate
such Guarantor on said guaranty, and resolution of its board of directors
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signatures of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to
time be requested by Lessor, (c) a Tenancy Statement or (d) written
conformation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall
have quiet possession of the Premises for the entire term hereof subject to
all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee
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is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving at any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately
preceding the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation
of Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the
Defaults are cured or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations")
which Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees
to sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after request by
Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not
be deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such multiple parties shall be the joint and several
responsibility of all person or entities named herein as such Lessor or
Lessee.
INITIALS: ________
________
-13-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT
THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE
POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR
HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE
OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at: San Diego, California
-------------------------- ---------------------------
On: 3/24/98 On: 3/18/98
---------------------------------- -----------------------------------
By LESSOR: Sohrab Arjmand ET AL By LESSOR: U.S. Laboratories, Inc. dba
Testing Engineers - San Diego, Inc.
- -------------------------------------- ---------------------------------------
- -------------------------------------- ---------------------------------------
By: /S/ Sohrab Arjmand---------------- By: /S/ Dickerson C. Wright------------
---------------------------------- -----------------------------------
Name Printed: Sohrab Arjmand Name Printed: Dickerson C. Wright
------------------------ -------------------------
Title: Managing Partner Title: Chairman/CEO
------------------------------- --------------------------------
By: By:
---------------------------------- -----------------------------------
Name Printed: Name Printed:
------------------------- -------------------------
Title: Title:
-------------------------------- ---------------------------------
Address: 1241 Prospect St. Address:
------------------------------ ------------------------------
La Jolla, CA 92037
------------------------------ ------------------------------
Telephone: (619) 459-6219 Telephone: (619) 225-9641
---------------------------- ----------------------------
Facsimile: ( ) Facsimile: (619) 224-89
---------------------------- ----------------------------
BROKER: BROKER:
Executed at: Executed at:
-------------------------- ---------------------------
on: on:
---------------------------------- -----------------------------------
By: By:
---------------------------------- -----------------------------------
Name Printed: Name Printed:
------------------------- -------------------------
Title: Title:
-------------------------------- --------------------------------
Address: Address:
------------------------------ -------------------------------
Telephone: ( ) Telephone: ( )
---------------------------- -----------------------------
Facsimile: ( ) Facsimile: ( )
---------------------------- -----------------------------
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW
AND NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE
UTILIZING THE MOST CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 SO. FIGUEROA ST., M-1, LOS ANGELES, CA 90071.
(213) 687-8777.
INITIALS: ________
________
INITIALS: ________
________
-14-
<PAGE>
ADDENDUM TO LEASE DATED FEBRUARY 25, 1998, FOR
7895 CONVOY COURT, SUITE 18, SAN DIEGO, CA. 92111
By and between Sohrab Arjmand et al., herein referred to as "Lessor," and
U.S. Laboratories, Inc., herein referred to as "Lessee."
I. EARLY POSSESSION: Lessor grants Lessee early possession upon
completion of Lessor's tenant improvements estimated to be April 15, 1998.
II. LESSEE'S INSURANCE: Pursuant to paragraph 8.2, Lessee shall provide a
certificate of insurance prior to possession of the premises.
III. PREPAID RENT: Lessee shall prepay month one (1) and a security deposit
equal to month one (1) for a total of ($16,460.00) upon execution of the
lease.
IV. PARKING: Lessor at Lessor's expense shall mark Lessee's reserved
parking spaces per paragraph 1.2(b). Said spaces shall be the 3rd, 4th, 5th
and 6th spaces beginning at the west end going east, of the north facing
parking area adjacent to the premises. Lessor shall not change location of
reserved parking spaces without Lessee's consent. The 1st and 2nd spaces
shall be unreserved and available as an unreserved parking space. The Lessor
reserves the right to reserve the 1st and 2nd spaces in the future at his
discretion. No charge shall be made for Lessee's use of parking spaces. Any
trash bins which are contracted by Lessee must remain in an existing trash
bin enclosure. Lessee may at its sole expense construct its own enclosure if
necessary although any parking spaces used shall be attributed toward
Lessee's parking allocation.
V. TENANT IMPROVEMENTS: Lessor at Lessor's sole expense shall perform the
following turn-key improvements listed below (SEE PLAN, EXHIBIT B):
A. New paint throughout the entire premises.
B. New industrial grade carpet with base cove throughout all HVAC areas
except office (conference room) in the northwest corner of the premises.
C. Construct four (4) new finished offices (see Exhibit B) in open area,
with doors, lighting, HVAC vents and electrical outlets and switches as
needed.
D. Renovate all existing restrooms to be ADA compliant. Install a urinal in
the warehouse restroom.
E. Install one (1) floor drain per Lessee's specification.
F. Clean all VCT flooring in warehouse replacing damaged VCT as needed.
G. Repair or replace all damaged ceiling tiles, lighting fixtures and HVAC
vents as needed.
LESSEE AT LESSEE'S SOLE EXPENSE SHALL BE LIABLE FOR ANY TENANT IMPROVEMENTS
OUTSIDE THE SCOPE OF THE AFOREMENTIONED TENANT IMPROVEMENTS PER PLAN, AS
SHOWN ON EXHIBIT B-1. LESSEE SHALL PROVIDE LESSOR WITH WORK
LETTER/CONSTRUCTION CONTACT DETAILING LESSEE'S TENANT IMPROVEMENTS.
VI. Pursuant to paragraph 6.2 of the Lease, Lessor represents that as of
the delivery date of the premises to the Lessee, Lessor has no knowledge of
the existence of any Hazardous Substance on the Industrial Center and that
the Industrial Center is in compliance with all Applicable Requirements.
INITIALS: ________
________
<PAGE>
VII. COMMON AREA MAINTENANCE: The following is made a part of paragraph 4.2
of the Lease:
If total Common Area Operation Expenses for any calendar year after 1998
exceed the total for such Expenses in 1998, Lessee shall pay Lessee's share
of such excess. For purposes of this paragraph and in the event the
Industrial Center is less than ninety-five percent (95%) occupied for any
part of 1998, Common Area Operating Expenses for 1998 shall be adjusted to
reflect what the Expenses would have been in 1998 had the Industrial Center
been ninety-five percent (95%) occupied for all of 1998. Common Area
Operating Expenses shall not include charges for trash and any capital
improvements or replacements of capital items as determined by generally
accepted principles. Notwithstanding any other provision in this Lease,
Lessee's share of any amount due under paragraphs 4.2 and 8.1 of this Lease
shall not increase by more than eight percent (8%) over its share for the
preceding calendar year.
Pursuant to paragraph 7.1(b), Lessor shall assume liability for major repair
of the HVAC system due to failure of operation provided Lessee has maintained
a service contract for routine and periodic maintenance.
VIII. SIGNAGE: Lessor grants Lessee signage rights pursuant to any city
codes or ordinances and conforming to project standards.
SHOULD THERE BE ANY CONFLICTS BETWEEN THESE PROVISIONS AND THE LEASE, THESE
PROVISIONS SHALL CONTROL.
INITIALS: ________
________
<PAGE>
EXHIBIT "B"
7895 CONVOY COURT, SUITE 18
[DIAGRAM]
INITIALS: ________
________
<PAGE>
EXHIBIT "B-1"
7895 CONVOY COURT, SUITE 18
[DIAGRAM]
INITIALS: ________
________
<PAGE>
EXHIBIT C
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED FEBRUARY 25, 1998
-----------------------------------------------
BY AND BETWEEN (LESSOR) SOHRAB ARJMAND ET AL
-----------------------------
(LESSEE) U.S. LABORATORIES, INC.
-----------------------------
ADDRESS OF PREMISES: 7895 CONVOY COURT, SUITE 18
--------------------------------
Paragraph _____
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified
below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/ / I. COST OF LIVING Adjustment(s) (COLA)
a. On (Fill in COLA Dates): ______________________________________
______________________________________________________________________________
the Base Rent shall be adjusted by the change, if any, from the Base Month
specified below, in the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for (select one): / / CPI W (Urban
Wage Earners and Clerical Workers) or / / CPI U (All Urban Consumers), for
(Fill in Urban Area):
_________________________________________________________________, All items
(1982-1984 = 100), herein referred to as "CPI."
b. The monthly rent payable in accordance with paragraph A.I.a.
of this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the CPI of the calendar month two months prior to
the month(s) specified in paragraph A.I.a. above during which the adjustment
is to take effect, and the denominator of which shall be the CPI of the
calendar month which is two months prior to (select one): / / the first month
of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or / /
(Fill in Other "Base Month"): _____________________________. The sum so
calculated shall constitute the new monthly rent hereunder, but in no event,
shall any such new monthly rent be less than the rent payable for the month
immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI
shall be transferred to any other governmental department or bureau or agency
or shall be discontinued, then the index most nearly the same as the CPI
shall be used to make such calculation. In the event that the Parties cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said Association and the decision of the arbitrators shall be
binding upon the parties. The cost of said Arbitration shall be paid equally
by the Parties.
/ / II. MARKET RENTAL VALUE ADJUSTMENT(s) (MRV)
a. On (Fill in MRV Adjustment Date(s): ___________________________
______________________________________________________________________________
/the Base Rent shall be adjusted as to the "Market Rental Value" of the property
as follows:
1) Four months prior to each Market Rental Value Adjustment
Date described above, the Parties shall attempt to agree upon what the new
MRV will be on the adjustment date. If agreement cannot be reached within
thirty days, then:
(a) Lessor and Lessee shall immediately appoint a
mutually acceptable appraiser or broker to establish the new MRV within the
next thirty days. Any associated costs will be split equally between the
Parties, or
(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in
writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and
Lessee shall each select an / / appraiser or / / broker ("CONSULTANT" - check
one) of their choice to act as an arbitrator. The two arbitrators so
appointed shall immediately select a third mutually acceptable Consultant to
act as a third arbitrator.
(ii) The three arbitrators shall within thirty
days of the appointment of the third arbitrator reach a decision as to what
the actual MRV for the Premises is, and whether Lessor's or Lessee's
submitted MRV is the closest thereto. The decision of a majority of the
arbitrators shall be binding on the Parties. The submitted MRV which is
determined to be the closest to the actual MRV shall thereafter be used by
the Parties.
(iii) If either of the Parties fails to appoint an
arbitrator within the specified fifteen days, the arbitrator timely appointed
by one of them shall reach a decision on his or her own, and said decision
shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be
paid by the party whose submitted MRV is not selected, i.e., the one that is
NOT the closest to the actual MRV.
INITIALS: ________ INITIALS: ________
________ ________
RENT ADJUSTMENT(S)
PAGE 1 OF 2
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017.
<PAGE>
2) Notwithstanding the foregoing, the new MRV shall not be
less than the rent payable for the month immediately preceding the rent
adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the
purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall
become the new "Base Month" for the purpose of calculating any further
Adjustments.
/X/ III. FIXED RENTAL ADJUSTMENT(s) (FRA)
The Base Rent shall be increased to the following amounts on the dates set
forth below:
<TABLE>
<CAPTION>
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
<S> <C>
MAY 1, 1999 $ 8,559.20
- -------------------------------------- -----------------------------------
MAY 1, 2000 $ 8,901.56
- -------------------------------------- -----------------------------------
MAY 1, 2001 $ 9,257.63
- -------------------------------------- -----------------------------------
MAY 1, 2002 $ 9,627.93
- -------------------------------------- -----------------------------------
</TABLE>
B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, or
other than Fixed Rental Adjustments, shall be made as specified in paragraph
23 of the Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee
for each adjustment specified above in accordance with paragraph 15 of the
Lease.
INITIALS: ________ INITIALS: ________
________ ________
RENT ADJUSTMENT(S)
PAGE 2 OF 2
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017.
<PAGE>
EXHIBIT D
OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
DATED FEBRUARY 25, 1998
-----------------------------------------------
BY AND BETWEEN (LESSOR) SOHRAB ARJMAND ET AL
-----------------------------
(LESSEE) U.S. LABORATORIES, INC.
-----------------------------
ADDRESS OF PREMISES: 7895 CONVOY COURT, SUITE 18
--------------------------------
Paragraph _____
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease
for ONE (1) additional SIXTY (60) month period(s) commencing when the prior
term expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give
written notice of such election to Lessor and Lessor must receive the same at
least 4 but not more than 8 months prior to the date that the option period
would commence, time being of the essence. If proper notification of the
exercise of an option is not given and/or received, such option shall
automatically expire. Options (if there are more than one) may only be
exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to
Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of
this Option.
(iii) Except for the provisions of this Lease granting an option or
options to extend the term, all of the terms and conditions of this Lease
except where specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be
assigned or exercised by anyone other than said original Lessee and only
while the original Lessee is in full possession of the Premises and without
the intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
/ / I. COST OF LIVING ADJUSTMENT(s) (COLA)
a. On (Fill in COLA Dates):____________________________________________
__________________________________________________________________________ the
Base Rent shall be adjusted by the change, if any, from the Base Month
specified below, in the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for (select one): / / CPI W
(Urban Wage Earners and Clerical Workers) or / / CPI U (All Urban Consumers),
for (Fill in Urban Area): __________________________________________________.
All Items (1982-1984 = 100), herein referred to as "CPI."
b. The monthly rent payable in accordance with paragraph A.I.a. of
this Addendum shall be calculated as follows: the Base Rent set forth in
paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the
numerator of which shall be the CPI of the calendar month two months prior to
the month(s) specified in paragraph A.I.a. above during which the adjustment
is to take effect, and the denominator of which shall be the CPI of the
calendar month which is two months prior to (select one): / / the first month
of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or / /
(Fill in Other "Base Month"): ___________________. The sum so calculated
shall constitute the new monthly rent hereunder, but in no event, shall any
such new monthly rent be less than the rent payable for the month immediately
preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the CPI shall be used
to make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
/X/ II. MARKET RENTAL VALUE ADJUSTMENT(s) (MRV)
a. On (Fill in MRV Adjustment Date(s)) MAY 1, 2003
--------------------------------
- ------------------------------------------------------------------------------
the Base Rent shall be adjusted to the "Market Rental Value" of the property
as follows:
1) Four months prior to each Market Rental Value Adjustment Date
described above, the Parties shall attempt to agree upon what the new MRV
will be on the adjustment date. If agreement cannot be reached, within
thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next
thirty days. Any associated costs will be split equally between the Parties,
or
INITIALS: ________ INITIALS: ________
________ ________
OPTION(S) TO EXTEND
PAGE 1 OF 2
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017.
<PAGE>
(b) Both Lessor and Lessee shall each immediately make a
reasonable determination of the MRV and submit such determination, in
writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee
shall each select an / / appraiser or broker ("CONSULTANT" - check one) of
their choice to act as an arbitrator. The two arbitrators so appointed shall
immediately select a third mutually acceptable Consultant to act as a third
arbitrator.
(ii) The three arbitrators shall within thirty days of
the appointment of the third arbitrator reach a decision as to what the
actual MRV for the Premises is, and whether Lessor's or Lessee's submitted
MRV is the closest thereto. The decision of a majority of the arbitrators
shall be binding on the Parties. The submitted MRV which is determined to be
the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an
arbitrator within the specified fifteen days, the arbitrator timely appointed
by one of them shall reach a decision on his or her own, and said decision
shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid
by the party whose submitted MRV is not selected, i.e., the one that is NOT
the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less
than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of
calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become
the new "Base Month" for the purpose of calculating any further Adjustments.
/ / III. FIXED RENTAL ADJUSTMENT(s) (FRA) SEE PARAGRAPH A.II. ABOVE.
The Base Rent shall be increased to the following amounts on the dates set
forth below:
<TABLE>
<CAPTION>
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
<S> <C>
$
- -------------------------------------- -----------------------------------
$
- -------------------------------------- -----------------------------------
$
- -------------------------------------- -----------------------------------
$
- -------------------------------------- -----------------------------------
</TABLE>
B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments,
other than Fixed Rental Adjustments, shall be made as specified in paragraph
23 of the Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee
for each adjustment specified above in accordance with paragraph 15 of the
Lease.
INITIALS: ________ INITIALS: ________
________ ________
OPTION(S) TO EXTEND
PAGE 2 OF 2
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION,
700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017.
<PAGE>
Exhibit 10.7
U.S. LABORATORIES, INC.
FORM OF INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT made and entered into as of the ____day of______,
______ (the "Grant Date"), by and between U.S. LABORATORIES INC., a Delaware
corporation (the "Company"), and ________________________________, an
employee of the Company ("Participant").
R E C I T A L S
---------------
WHEREAS, the Company has in effect the U.S. Laboratories Inc. 1998
Stock Option Plan (the "Plan"), which permits options to purchase shares of
the Company's common stock, $.01 par value ("Stock"), to be granted to
certain employees of the Company.
WHEREAS, the Company believes it to be in the best interests of the
Company and its shareholders for employees to obtain or increase their stock
ownership interest in the Company in order that they will have a greater
incentive to work for and manage the Company's affairs.
WHEREAS, the Participant is an employee of the Company and has been
selected by the Board of Directors and the Compensation Committee of the
Board of Directors of the Company (the "Committee") to receive an option
under the Plan.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the covenants and agreements
herein set forth, the parties hereby mutually covenant and agree as follows:
1. GRANT. Subject to the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof, and this Agreement,
the Company hereby grants to Participant an option to purchase from the
Company all or any part of an aggregate number of ____________ shares of
Stock (hereinafter such shares of Stock are referred to as the "Optioned
Shares", and the option to purchase the Optioned Shares is referred to as the
"Option"). The Option is intended to qualify as an "Incentive Stock Option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. VESTING. The Option shall vest and become exercisable by the
Participant during the period of his or her continuous employment by the
Company or its subsidiaries with respect to _________________ Optioned Shares
on ______________, as to an additional _________________ Optioned Shares on
______________, as to an additional ______________ Optioned Shares on
_____________, as to an additional ________________ Optioned
<PAGE>
Shares on June 1, 2001, as to an additional ___________ Optioned Shares on
_____________, and as to the remaining _____________ Optioned Shares on
___________. If the Participant's employment with the Company or its
subsidiaries changes from full-time to part-time status or is interrupted by
a leave of absence, the Board of Directors or the Committee, in its
discretion, may delay the vesting of the Option pursuant to this paragraph 2
for such period as it reasonably deems appropriate.
3. PRICE. The price to be paid for the Optioned Shares shall be
_____ dollars ($_____) per share, which represents not less than
[one hundred percent (100%)][one hundred ten percent (110%)] of the Fair
Market Value of the Optioned Shares on the Grant Date. The term Fair Market
Value shall have the meaning assigned to such term in the Plan.
4. TERM; EXERCISE. Subject to the terms and conditions of the
Plan and this Agreement, the Option may be exercised by the Participant while
in the employ of the Company or its subsidiaries, in whole or in part, from
time to time with respect to any shares for which the right to exercise shall
have accrued pursuant to paragraph 2 hereof, but only during the period
beginning on the date of this Agreement and ending on _____________ (the
"Expiration Date").
5. LIMIT ON INCENTIVE STOCK OPTIONS. To the extent that the
aggregate fair market value, as determined by the Committee, of the Stock
with respect to which Incentive Stock Options are first exercisable by the
Participant during any calendar year (under the Plan and all other plans of
the Company and its Subsidiaries) exceeds One Hundred Thousand Dollars
($100,000), such Option as to the excess shall be treated as a Non-Qualified
Stock Option.
6. METHOD OF EXERCISE.
(a) The Option may be exercised only by written notice, delivered or
mailed by postpaid registered or certified mail, addressed to the treasurer
of the Company at the Company's principal executive offices specifying the
number of Optioned Shares being purchased. Such notice shall be
accompanied by payment of the entire Option price of the Optioned Shares
being purchased: (i) in cash or its equivalent; (ii) with the consent of
the Committee, by tendering previously acquired shares of Stock valued at
their Fair Market Value at the time of exercise; or (iii) with the consent
of the Committee, by any combination of (i) and (ii). On and after the
effective date of an IPO (as defined below) of the Stock, the Option may be
exercised in the manner previously described or by delivery to the Company
or its designated agent of an executed irrevocable exercise form together
with instructions to a broker-dealer to sell or margin a sufficient portion
of the shares being exercised and deliver the sale or margin proceeds
directly to the Company to pay for the Option price. As used herein, "IPO"
means the event that occurs when shares of Stock are sold to the public
pursuant to an effective registration statement, other than a registration
statement on Form S-4 or Form S-8 or any other forms primarily used to
register securities to be issued pursuant to Company benefit plans, filed
by the Company under the Securities Act of 1933 (the "Securities Act").
For purposes of this paragraph, Fair Market Value shall
-2-
<PAGE>
be determined in the same manner as the Fair Market Value of the Stock on
the Grant Date was determined pursuant to paragraph 2 hereof.
(b) Shares of Stock tendered shall be duly endorsed in blank or
accompanied by stock powers duly endorsed in blank. Upon receipt of the
payment of the entire purchase price of the Optioned Shares so purchased,
certificates for such Optioned Shares shall be issued to the Participant.
The Optioned Shares so purchased shall be fully paid and nonassessable.
(c) The requirements for incentive stock options under Section 422 of
the Code include minimum holding period requirements that require the Stock
acquired upon exercise of the Option to be held for at least two years from
the date of grant and one year from the date of exercise.
7. TERMINATION OF EMPLOYMENT.
(a) Except as otherwise provided by the Committee, if the Participant
ceases to be an employee of the Company or its subsidiaries for any reason
other than death, disability or cause (as defined below), then the
Participant may exercise the Option for a period of thirty (30) days after
such termination of employment, but in no event beyond the Expiration Date.
(b) If the Participant ceases to be an employee of the Company or its
subsidiaries by reason of death or disability (as defined in Section
22(e)(3) of the Code), then the Participant (or the Participant's
beneficiary or estate in the event of the Participant's death) may exercise
the Option for a period of ninety (90) days following the date of death or
disability, but in no event beyond the Expiration Date.
(c) If the Participant's employment with the Company or its
subsidiaries is terminated for cause (as defined below), the Option shall
be immediately forfeited and automatically cancelled. As used herein,
"cause" shall mean (i) conviction of a felony, (ii) commission by the
Participant of an act of fraud, misappropriation or embezzlement or (iii)
any other act or omission to act by the Participant if, in the judgment of
the Committee (A) the Participant knew or should have known that such an
act or omission would cause material injury to the financial condition or
reputation of the Company or its subsidiaries, and (B) such material injury
has occurred or is likely to occur, all as determined by the Committee.
8. NO RIGHTS AS A SHAREHOLDER. The Participant shall not be
deemed for any purposes to be a shareholder of the Company with respect to
any shares which may be acquired hereunder except to the extent that the
Option shall have been exercised with respect thereto and a stock certificate
issued therefor.
9. NONTRANSFERABILITY; COLLATERAL. The Option shall not be
transferable by the Participant otherwise than by will or the laws of descent
and distribution, and may be exercised during the life of the Participant
only by the Participant. The Option may not be assigned, mortgaged or
pledged as any type of security or collateral.
-3-
<PAGE>
10. RESTRICTIONS ON TRANSFERS OF STOCK. It shall be a condition
of the obligation of the Company to issue or transfer shares of Stock upon
exercise of the Option, that the Participant (or his representatives or
legatees) (a) execute and deliver to the Company such investment
representations and warranties, and to take such other actions, as counsel
for the Company determines may be necessary or appropriate for compliance
with the Securities Act and any applicable securities laws; and (b) execute a
restrictive stock transfer agreement in the form provided by the Company if
so demanded by the Committee and agree that the shares received upon exercise
of the Option will be subject to certain restrictions on sale or transfer as
necessary to comply with applicable state and federal securities laws, as
determined by the Committee. The Participant agrees that any certificate
representing shares acquired upon exercise of the Option may bear a legend to
such effect. If the Participant (or his representatives or legatees) fails
to comply with this paragraph 9, the Company may refuse to issue or transfer
shares of Stock upon exercise of the Option.
11. ADJUSTMENTS. If the Company shall at any time change the
number of shares of its Stock without new consideration to the Company (such
as by stock dividend, stock split or similar transaction), the total number
of shares then remaining subject to purchase hereunder shall be changed in
proportion to the change in issued shares, and the Option price per share
shall be adjusted so that the total consideration payable to the Company upon
the purchase of all shares not theretofore purchased shall not be changed.
In the event there shall be any change, other than as specified above, in the
number or kind of outstanding shares of Stock or of any stock or other
securities into which such Stock shall have been changed or for which it
shall have been exchanged, then if the Committee shall in its sole discretion
determine that such change equitably requires an adjustment in the number or
kind of shares subject to the Option, such adjustment shall be made by the
Committee. The Option price for each share of Stock or other securities
substituted or adjusted as provided in this paragraph shall be determined by
dividing the Option price for each share prior to such substitution or
adjustment by the number of shares or the fraction of a share substituted for
such share or to which such share shall have been adjusted. No adjustment or
substitution provided for in this paragraph shall require the Company to sell
a fractional share.
12. POWERS OF COMPANY NOT AFFECTED. The existence of the Option
herein granted shall not affect in any way the right or power of the Company
or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issuance of bonds, debentures, preferred, or prior preference stock ahead
of or affecting the Stock or the rights thereof, or dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
13. INTERPRETATION. As a condition of the granting of the Option,
the Participant agrees for himself and his legal representatives, that any
dispute or disagreement which may arise under or as a result of or pursuant
to this Agreement shall be determined by the Committee in its sole
discretion, and any interpretation by the Committee of the terms of this
Agreement shall be final, binding and conclusive.
-4-
<PAGE>
14. AMENDMENT OR MODIFICATION. No term or provision of this
Agreement may be amended, modified or supplemented orally, but only by an
instrument in writing signed by the party against whom or which the
enforcement of the amendment, modification or supplement is sought.
15. GOVERNING LAW. This Agreement shall be governed by the
internal laws of the State of Delaware as to all matters, including, but not
limited to, matters of validity, construction, effect, performance and
remedies.
16. TERMS OF PLAN GOVERN. All parties acknowledge that this
Option is granted under and pursuant to the Plan, which shall govern all
rights, interests, obligations and undertakings of both the Company and the
Participant. All capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Plan.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and the Participant has executed this
Agreement as of the day and year first above written.
U.S. LABORATORIES INC.
(the "Company")
By:
------------------------------
PARTICIPANT:
---------------------------------
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<PAGE>
EXHIBIT 10.8
U.S. LABORATORIES INC.
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT made and entered into as of the _____ day of _______
"Grant Date"), by and between U.S. LABORATORIES INC., a Delaware corporation
(the "Company"), and ________________________________, an employee of the
Company ("Participant").
R E C I T A L S
---------------
WHEREAS, the Company has in effect the U.S. Laboratories Inc. 1998
Stock Option Plan (the "Plan"), which permits options to purchase shares of
the Company's common stock, $.01 par value ("Stock"), to be granted to
certain employees of the Company.
WHEREAS, the Company believes it to be in the best interests of the
Company and its shareholders for employees of the Company and its
subsidiaries to obtain or increase their stock ownership interest in the
Company in order that they will have a greater incentive to work for and
manage the Company's affairs.
WHEREAS, the Participant is an employee of the Company or its
subsidiaries and has been selected by the Board of Directors [and the
________________ Committee of the Board of Directors of the Company (the
"Committee")] to receive an option under the Plan.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the covenants and agreements
herein set forth, the parties hereby mutually covenant and agree as follows:
1. GRANT. Subject to the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof, and this Agreement,
the Company hereby grants to Participant an option to purchase from the
Company all or any part of an aggregate number of ____________ shares of
Stock (hereinafter such shares of Stock are referred to as the "Optioned
Shares", and the option to purchase the Optioned Shares is referred to as the
"Option"). The Option is not intended to qualify as an "Incentive Stock
Option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. PRICE. The price to be paid for the Optioned Shares shall be
_________ ($_____) per share, which represents not less than one hundred
percent (100%) of the Fair Market Value of the Optioned Shares on the Grant
Date. The term Fair Market Value shall have the meaning assigned to such
term in the Plan.
3. TERM; EXERCISE. Subject to the terms and conditions of the
Plan and this Agreement, the Option may be exercised by the Participant while
in the employ of the
<PAGE>
Company or its subsidiaries, in whole or in part, from time to time, during
the period beginning on the date of this Agreement and ending on ___________
[Five Years] (the "Expiration Date").
4. METHOD OF EXERCISE.
(a) The Option may be exercised only by written notice, delivered or
mailed by postpaid registered or certified mail, addressed to the treasurer
of the Company at the Company's principal executive offices specifying the
number of Optioned Shares being purchased. Such notice shall be
accompanied by payment of the entire Option price of the Optioned Shares
being purchased: (i) in cash or its equivalent; (ii) with the consent of
the Committee, by tendering previously acquired shares of Stock valued at
their Fair Market Value at the time of exercise; or (iii) with the consent
of the Committee, by any combination of (i) and (ii). On and after the
effective date of an IPO (as defined below) of the Stock, the Option may be
exercised in the manner previously described or by delivery to the Company
or its designated agent of an executed irrevocable exercise form together
with instructions to a broker-dealer to sell or margin a sufficient portion
of the shares being exercised and deliver the sale or margin proceeds
directly to the Company to pay for the Option price. As used herein, "IPO"
means the event that occurs when shares of Stock are sold to the public
pursuant to an effective registration statement, other than a registration
statement on Form S-4 or Form S-8 or any other forms primarily used to
register securities to be issued pursuant to Company benefit plans, filed
by the Company under the Securities Act of 1933 (the "Securities Act").
For purposes of this paragraph, Fair Market Value shall be determined in
the same manner as the Fair Market Value of the Stock on the Grant Date was
determined pursuant to paragraph 2 hereof.
(b) Shares of Stock tendered shall be duly endorsed in blank or
accompanied by stock powers duly endorsed in blank. Upon receipt of the
payment of the entire purchase price of the Optioned Shares so purchased,
certificates for such Optioned Shares shall be issued to the Participant.
The Optioned Shares so purchased shall be fully paid and nonassessable.
5. TERMINATION OF EMPLOYMENT.
(a) Except as otherwise provided by the Committee, if the Participant
ceases to be an employee of the Company or its subsidiaries for any reason
other than death, disability or cause (as defined below), then the
Participant may exercise the Option for a period of thirty (30) days after
such termination of employment, but in no event beyond the Expiration Date.
(b) If the Participant ceases to be an employee of the Company or its
subsidiaries by reason of death or disability (as defined in Section
22(e)(3) of the Code), then the Participant (or the Participant's
beneficiary or estate in the event of the Participant's death) may exercise
the Option for a period of ninety (90) days following the date of death or
disability, but in no event beyond the Expiration Date.
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<PAGE>
(c) If the Participant's employment with the Company or its
subsidiaries is terminated for cause (as defined below), the Option shall
be immediately forfeited and automatically cancelled. As used herein,
"cause" shall mean (i) conviction of a felony, (ii) commission by the
Participant of an act of fraud, misappropriation or embezzlement or (iii)
any other act or omission to act by the Participant if, in the judgment of
the Committee (A) the Participant knew or should have known that such an
act or omission would cause material injury to the financial condition or
reputation of the Company or its subsidiaries, and (B) such material injury
has occurred or is likely to occur, all as determined by the Committee.
6. NO RIGHTS AS A SHAREHOLDER. The Participant shall not be
deemed for any purposes to be a shareholder of the Company with respect to
any shares which may be acquired hereunder except to the extent that the
Option shall have been exercised with respect thereto and a stock certificate
issued therefor.
7. NONTRANSFERABILITY; COLLATERAL. Unless permitted by the
Committee, the Option shall not be transferable by the Participant otherwise
than by will or the laws of descent and distribution, and may be exercised
during the life of the Participant only by the Participant. The Option may
not be assigned, mortgaged or pledged as any type of security or collateral.
8. RESTRICTIONS ON TRANSFERS OF STOCK. It shall be a condition
of the obligation of the Company to issue or transfer shares of Stock upon
exercise of the Option, that the Participant (or his representatives or
legatees) (a) execute and deliver to the Company such investment
representations and warranties, and to take such other actions, as counsel
for the Company determines may be necessary or appropriate for compliance
with the Securities Act and any applicable securities laws; and (b) execute a
restrictive stock transfer agreement in the form provided by the Company if
so demanded by the Committee and agree that the shares received upon exercise
of the Option will be subject to certain restrictions on sale or transfer as
necessary to comply with applicable state and federal securities laws, as
determined by the Committee. The Participant agrees that any certificate
representing shares acquired upon exercise of the Option may bear a legend to
such effect. If the Participant (or his representatives or legatees) fails
to comply with this paragraph 8, the Company may refuse to issue or transfer
shares of Stock upon exercise of the Option.
9. ADJUSTMENTS. If the Company shall at any time change the number
of shares of its Stock without new consideration to the Company (such as by
stock dividend, stock split or similar transaction), the total number of shares
then remaining subject to purchase hereunder shall be changed in proportion to
the change in issued shares, and the Option price per share shall be adjusted so
that the total consideration payable to the Company upon the purchase of all
shares not theretofore purchased shall not be changed. In the event there shall
be any change, other than as specified above, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which such
Stock shall have been changed or for which it shall have been exchanged, then if
the Committee shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of shares subject to the Option,
such adjustment shall be made by the Committee. The Option
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<PAGE>
price for each share of Stock or other securities substituted or adjusted as
provided in this paragraph shall be determined by dividing the Option price
for each share prior to such substitution or adjustment by the number of
shares or the fraction of a share substituted for such share or to which such
share shall have been adjusted. No adjustment or substitution provided for
in this paragraph shall require the Company to sell a fractional share.
10. TAX WITHHOLDING. It shall be a condition of the obligation of
the Company to issue or transfer shares of Stock upon exercise of the Option,
that the Participant shall pay to the Company upon its demand, or agree that
the Company may withhold from compensation due the Participant, such amount
as may be requested by the Company for the purpose of satisfying its
liability to withhold federal, state or local income or other taxes incurred
by reason of the exercise of the Option. If the Participant fails to comply
with this paragraph 10, the Company may refuse to issue or transfer shares of
Stock upon exercise of the Option.
11. POWERS OF COMPANY NOT AFFECTED. The existence of the Option
herein granted shall not affect in any way the right or power of the Company
or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or
any issuance of bonds, debentures, preferred, or prior preference stock ahead
of or affecting the Stock or the rights thereof, or dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
12. INTERPRETATION. As a condition of the granting of the Option,
the Participant agrees for himself and his legal representatives, that any
dispute or disagreement which may arise under or as a result of or pursuant
to this Agreement shall be determined by the Committee in its sole
discretion, and any interpretation by the Committee of the terms of this
Agreement shall be final, binding and conclusive.
13. AMENDMENT OR MODIFICATION. No term or provision of this
Agreement may be amended, modified or supplemented orally, but only by an
instrument in writing signed by the party against whom or which the
enforcement of the amendment, modification or supplement is sought.
14. GOVERNING LAW. This Agreement shall be governed by the
internal laws of the State of Delaware as to all matters, including, but not
limited to, matters of validity, construction, effect, performance and
remedies.
15. TERMS OF PLAN GOVERN. All parties acknowledge that this
Option is granted under and pursuant to the Plan, which shall govern all
rights, interests, obligations and undertakings of both the Company and the
Participant. All capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Plan.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and the Participant has executed this
Agreement as of the day and year first above written.
U.S. LABORATORIES INC.
(the "Company")
By:
---------------------------------
PARTICIPANT:
------------------------------------
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<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 30, 1998, by and
between U.S. Laboratories Inc., a Delaware corporation ("Company"), and James
Wait, an adult resident of California ("Executive").
RECITALS:
A. Executive is presently an employee of Company.
B. Company and Executive desire to memorialize the terms of
Executive's employment pursuant to a written agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions hereof,
Company hereby employs Executive for the term of this Employment Agreement, and
Executive hereby accepts such employment. Executive agrees to devote his entire
working time, energy and skills to such employment during the Employment Term
(as defined in Section 2), and shall not, during the Employment Term, render any
services of a business, commercial or professional nature to any person or
organization other than Company or be engaged in any other business activity,
without the prior written consent of the Board of Directors.
2. TERM. Executive's employment hereunder shall commence on the date
hereof and shall continue through the third anniversary of this Employment
Agreement unless earlier terminated as provided in Section 8 (the "Employment
Term"). The Company may not terminate Executive's employment prior to the third
anniversary of this Agreement except as set forth in Section 8.
3. DUTIES; OFFICES. Executive shall serve as Chief Financial Officer and
Vice President - Finance of the Company and will, under the direction of the
President, faithfully and to the best of his ability perform the duties of Chief
Financial Officer and Vice President - Finance. In such capacity, he shall have
primary responsibility for overseeing the business affairs of the Company, and
shall perform such executive duties as generally are associated with the
positions of Chief Financial Officer and Vice President - Finance, together with
such further and additional duties of an executive nature as from time to time
reasonably may be assigned to him by the President. Such duties shall be
rendered at such place or places as the President shall in good faith require.
The Executive agrees to serve without additional compensation, if elected or
appointed thereto, in one or more offices or as a director of the Company.
<PAGE>
4. SALARY. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay Executive a salary during the Employment Term
at an annual rate of Eighty Thousand Dollars ($80,000) (the "Base Salary"). The
Base Salary shall be paid to Executive in installments in accordance with the
payroll procedures of the Company as established from time to time.
5. INSURANCE. During the Employment Term, Executive shall be entitled to
participate, to the extent he meets all eligibility requirements of general
application, in all employee benefit plans maintained by Company and made
available to all other regular salaried employees of Company including, but not
limited to, group hospitalization, medical and disability plans.
6. EXECUTIVE EXPENSES. During the Employment Term, Executive shall be
entitled to be reimbursed for reasonable and necessary expenses incurred by him
in the performance of his duties hereunder and approved by Company including,
but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars and telephone expenses, subject to the
submission by Executive of the documentation necessary to support the
deductibility of such expenses by Company on its federal and state income tax
returns, in such form as Company may require.
7. VACATION. During the Employment Term, Executive shall be entitled to
paid vacations in accordance with Company's standard vacation policies in effect
from time to time relating to managerial and executive employees and, in
addition, shall be entitled to such holidays as are made available generally to
executive employees of Company.
8. TERMINATION. The employment of Executive hereunder shall be
terminated prior to the third anniversary of this Agreement upon the happening
of any of the following:
a. the death of Executive.
b. the disability of Executive, where disability means any illness,
disability or incapacity of such a character as to render Executive unable
to perform his duties hereunder (which determination shall be made by the
Board of Directors) for a total period of ninety (90) days, whether or not
such days are consecutive, during any consecutive twelve (12) month period
or the certification by a California licensed physician that Executive is
unlikely to be able to resume performance of substantially all of his
duties hereunder for a period of ninety (90) days.
c. the termination of this Agreement by Company for cause, where
cause means (i) the inability of Executive to perform his duties due to a
legal impediment such as, without limitation, the entry against Executive
of an injunction, restraining order or other type of judicial judgment,
decree or order which would prevent or hinder Executive from performing his
duties; (ii) a breach of any of the restrictions or covenants set forth in
this Agreement; (iii) excessive absenteeism, material or serious neglect of
his duties hereunder, serious misconduct, conviction of a felony or fraud,
or the entry by Executive of a nolo contendere plea in such proceeding, or
(iv) aiding a competitor of the Company to the detriment of the Company.
-2-
<PAGE>
d. the termination of this Agreement by Company at the Company's
election (subject to the provisions of Section 9) for reasons other than
death, permanent disability or cause.
9. PAYMENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement, the Company shall pay to Executive that portion of the Base Salary
which he earned for services performed up to the effective date of termination
for which he has not previously been compensated. In addition, upon any
termination pursuant to Section 8(d), the Company also shall pay to Executive an
amount (the "Severance Amount") equal to fifty percent (50%) of Base Salary.
The Severance Amount shall be paid to Executive in twelve (12) equal monthly
installments, beginning on the first day of the month following the effective
date of Executive's termination.
10. CONFIDENTIALITY.
a. Executive recognizes and acknowledges that the business of the
Company is highly competitive and that during the course of his employment
he will have access to significant proprietary and confidential information
belonging to the Company. Executive therefore covenants and agrees, for
the duration of this Agreement and at all times following its termination,
that he will not use (other than in furtherance of the Company's business
interests during the Employment Term) or disclose any confidential
proprietary information of the Company, including, but not limited to
patents, patent rights, inventions and intellectual property rights,
techniques, know-how, trade secrets, software, technical designs,
trademarks, trademark rights, tradenames, tradename rights, copyrights,
customer and supplier lists, manufacturing processes, business plans,
strategic plans, marketing information and other business and financial
information of or related to the Company.
b. The obligations of Executive under this Section 10 shall not
apply to any information which (i) was part of the public domain prior to
the date of this Agreement other than as a result of unauthorized
disclosure by Executive, (ii) becomes part of the public domain by reason
of disclosure by some third person who did not acquire the information from
Executive, or (iii) becomes part of the public domain by reason of
disclosure by Executive where such disclosure is made during the Employment
Term in furtherance of the Company's business interests.
c. Executive agrees that any violation of the provisions of this
Section would be likely to be highly injurious to the Company. By reason
of the foregoing, Executive consents and agrees that, if he violates any of
the provisions of this Section, the Company shall be entitled, in addition
to any other rights and remedies that it may have, including money damages,
to an injunction prohibiting Executive from engaging in any such act or
specifically enforcing this Agreement, as the case may be.
11. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement. Executive may not assign his rights and obligations under this
Agreement;
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<PAGE>
provided, however, that Executive shall be entitled to assign his right to
any accrued payments under this Agreement to his heirs or personal
representatives in the event of his death.
12. COVENANT NOT TO COMPETE.
a. Executive agrees that during the Employment Term and for a period
of two (2) years thereafter, Executive shall not, as proprietor, director,
officer, partner, shareholder, employee, member, manager, consultant,
agent, independent contractor or otherwise, for himself or on behalf of any
other person or entity (except the Company or an affiliate of the Company,
in either case at the Company's request), directly or indirectly:
i. engage in, or enter into, any aspect of the business of
engineering inspection and testing in the United States;
ii. solicit persons who shall have been customers or suppliers
of the Company during the period beginning two (2) years prior to
the date of this Agreement or who are, at the time of such
solicitation, current or prospective customers or suppliers of the
Company or take any other action the effect of which is to
interfere with the business relationship between the Company and
such customers or suppliers; or
iii. hire persons who shall have been employees of the Company
during the period beginning on the date of this Agreement, or
otherwise interfere with the relationship between the Company and
any such persons.
b. The covenants of Executive contained in this Section 12 shall be
construed as separate agreements independent of any other agreement for
purposes of enforceability of any claim or cause of action, whether
predicated on this Agreement or otherwise. No other agreement, claim or
cause of action asserted by Executive shall constitute a defense to the
enforcement of such covenants. Executive acknowledges that damages for the
violation of any such covenants will not give full and sufficient relief to
the Company, and agrees that, in the event of any violation of any such
covenants, the Company shall be entitled to injunctive relief against the
continued violation thereof, in addition to any other rights that the
Company may have by reason of such violation.
13. NOTICES. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
to the respective parties, or five (5) days after dispatch by certified mail,
postage prepaid, addressed to the parties at the addresses set forth below or at
such other addresses as such parties may designate by notice to the other
parties:
-4-
<PAGE>
If to Company: U.S. Laboratories Inc.
7895 Conboy Court, Suite 18
San Diego, California
Facsimile: (619) 715-5810
Telephone: (619) 715-5800
Attention: Dickerson Wright
If to Executive: James Wait
14226 Morning Air Road
Poway, California 92064
Telecopier: (______) ________ - __________
Telephone: (______) ________ - __________
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of California without giving effect to
conflict of laws principles thereof.
15. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
16. ENTIRE AGREEMENT. This Agreement represents the entire understanding
of the parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings regarding the subject
matter hereof shall be of any force or effect unless in writing, executed by the
party to be bound, and dated subsequent to the date hereof. This entire
Agreement supercedes any existing Employment Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
U.S. Laboratories Inc.
By: /S/ Dickerson Wright
------------------------------
Dickerson Wright, Chairman
EXECUTIVE:
/S/ James Wait
----------------------------------
James Wait
-5-
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 30, 1998, by and
between San Diego Testing Engineers, Inc., a Delaware corporation ("Company"),
and Mark Baron, an adult resident of California ("Executive").
RECITALS:
A. Executive is presently an employee of Company.
B. Company and Executive desire to memorialize the terms of
Executive's employment pursuant to a written agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions hereof,
Company hereby employs Executive for the term of this Employment Agreement, and
Executive hereby accepts such employment. Executive agrees to devote his entire
working time, energy and skills to such employment during the Employment Term
(as defined in Section 2), and shall not, during the Employment Term, render any
services of a business, commercial or professional nature to any person or
organization other than Company or be engaged in any other business activity,
without the prior written consent of the Board of Directors.
2. TERM. Executive's employment hereunder shall commence on the date
hereof and shall continue through the third anniversary of this Employment
Agreement unless earlier terminated as provided in Section 8 (the "Employment
Term"). The Company may not terminate Executive's employment prior to the third
anniversary of this Agreement except as set forth in Section 8.
3. DUTIES; OFFICES. Executive shall serve as President of the Company
and will, under the direction of the Board of Directors, faithfully and to the
best of his ability perform the duties of President. In such capacity, he shall
have primary responsibility for overseeing the business affairs of the Company,
and shall perform such executive duties as generally are associated with the
position of President, together with such further and additional duties of an
executive nature as from time to time reasonably may be assigned to him by the
Board of Directors. Such duties shall be rendered at such place or places as
the Board of Directors shall in good faith require. The Executive agrees to
serve without additional compensation, if elected or appointed thereto, in one
or more offices or as a director of the Company.
4. SALARY. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay Executive a salary during the Employment Term
at an annual rate of
1
<PAGE>
Eighty Thousand Dollars ($80,000) (the "Base Salary"). The Base Salary shall
be paid to Executive in installments in accordance with the payroll
procedures of the Company as established from time to time.
5. INSURANCE. During the Employment Term, Executive shall be entitled to
participate, to the extent he meets all eligibility requirements of general
application, in all employee benefit plans maintained by Company and made
available to all other regular salaried employees of Company including, but not
limited to, group hospitalization, medical and disability plans.
6. EXECUTIVE EXPENSES. During the Employment Term, Executive shall be
entitled to be reimbursed for reasonable and necessary expenses incurred by him
in the performance of his duties hereunder and approved by Company including,
but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars and telephone expenses, subject to the
submission by Executive of the documentation necessary to support the
deductibility of such expenses by Company on its federal and state income tax
returns, in such form as Company may require.
7. VACATION. During the Employment Term, Executive shall be entitled to
paid vacations in accordance with Company's standard vacation policies in effect
from time to time relating to managerial and executive employees and, in
addition, shall be entitled to such holidays as are made available generally to
executive employees of Company.
8. TERMINATION. The employment of Executive hereunder shall be
terminated prior to the third anniversary of this Agreement upon the happening
of any of the following:
a. the death of Executive.
b. the disability of Executive, where disability means any illness,
disability or incapacity of such a character as to render Executive unable
to perform his duties hereunder (which determination shall be made by the
Board of Directors) for a total period of ninety (90) days, whether or not
such days are consecutive, during any consecutive twelve (12) month period
or the certification by a California licensed physician that Executive is
unlikely to be able to resume performance of substantially all of his
duties hereunder for a period of ninety (90) days.
c. the termination of this Agreement by Company for cause, where
cause means (i) the inability of Executive to perform his duties due to a
legal impediment such as, without limitation, the entry against Executive
of an injunction, restraining order or other type of judicial judgment,
decree or order which would prevent or hinder Executive from performing his
duties; (ii) a breach of any of the restrictions or covenants set forth in
this Agreement; (iii) excessive absenteeism, material or serious neglect of
his duties hereunder, serious misconduct, conviction of a felony or fraud,
or the entry by Executive of a nolo contendere plea in such proceeding, or
(iv) aiding a competitor of the Company to the detriment of the Company.
-2-
<PAGE>
d. the termination of this Agreement by Company at the Company's
election (subject to the provisions of Section 9) for reasons other than
death, permanent disability or cause.
9. PAYMENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement, the Company shall pay to Executive that portion of the Base Salary
which he earned for services performed up to the effective date of termination
for which he has not previously been compensated. In addition, upon any
termination pursuant to Section 8(d), the Company also shall pay to Executive an
amount (the "Severance Amount") equal to fifty percent (50%) of Base Salary.
The Severance Amount shall be paid to Executive in twelve (12) equal monthly
installments, beginning on the first day of the month following the effective
date of Executive's termination.
10. CONFIDENTIALITY.
a. Executive recognizes and acknowledges that the business of the
Company is highly competitive and that during the course of his employment
he will have access to significant proprietary and confidential information
belonging to the Company. Executive therefore covenants and agrees, for
the duration of this Agreement and at all times following its termination,
that he will not use (other than in furtherance of the Company's business
interests during the Employment Term) or disclose any confidential
proprietary information of the Company, including, but not limited to
patents, patent rights, inventions and intellectual property rights,
techniques, know-how, trade secrets, software, technical designs,
trademarks, trademark rights, tradenames, tradename rights, copyrights,
customer and supplier lists, manufacturing processes, business plans,
strategic plans, marketing information and other business and financial
information of or related to the Company.
b. The obligations of Executive under this Section 10 shall not
apply to any information which (i) was part of the public domain prior to
the date of this Agreement other than as a result of unauthorized
disclosure by Executive, (ii) becomes part of the public domain by reason
of disclosure by some third person who did not acquire the information from
Executive, or (iii) becomes part of the public domain by reason of
disclosure by Executive where such disclosure is made during the Employment
Term in furtherance of the Company's business interests.
c. Executive agrees that any violation of the provisions of this
Section would be likely to be highly injurious to the Company. By reason
of the foregoing, Executive consents and agrees that, if he violates any of
the provisions of this Section, the Company shall be entitled, in addition
to any other rights and remedies that it may have, including money damages,
to an injunction prohibiting Executive from engaging in any such act or
specifically enforcing this Agreement, as the case may be.
11. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement. Executive may not assign his rights and obligations under this
Agreement;
-3-
<PAGE>
provided, however, that Executive shall be entitled to assign his right to
any accrued payments under this Agreement to his heirs or personal
representatives in the event of his death.
12. COVENANT NOT TO COMPETE.
a. Executive agrees that during the Employment Term and for a period
of two (2) years thereafter, Executive shall not, as proprietor, director,
officer, partner, shareholder, employee, member, manager, consultant,
agent, independent contractor or otherwise, for himself or on behalf of any
other person or entity (except the Company or an affiliate of the Company,
in either case at the Company's request), directly or indirectly:
i. engage in, or enter into, any aspect of the business of
engineering inspection and testing in California, Nevada, or
Arizona;
ii. solicit persons who shall have been customers or suppliers
of the Company during the period beginning two (2) years prior to
the date of this Agreement or who are, at the time of such
solicitation, current or prospective customers or suppliers of the
Company or take any other action the effect of which is to
interfere with the business relationship between the Company and
such customers or suppliers; or
iii. hire persons who shall have been employees of the Company
during the period beginning on the date of this Agreement, or
otherwise interfere with the relationship between the Company and
any such persons.
b. The covenants of Executive contained in this Section 12 shall be
construed as separate agreements independent of any other agreement for
purposes of enforceability of any claim or cause of action, whether
predicated on this Agreement or otherwise. No other agreement, claim or
cause of action asserted by Executive shall constitute a defense to the
enforcement of such covenants. Executive acknowledges that damages for the
violation of any such covenants will not give full and sufficient relief to
the Company, and agrees that, in the event of any violation of any such
covenants, the Company shall be entitled to injunctive relief against the
continued violation thereof, in addition to any other rights that the
Company may have by reason of such violation.
13. NOTICES. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
to the respective parties, or five (5) days after dispatch by certified mail,
postage prepaid, addressed to the parties at the addresses set forth below or at
such other addresses as such parties may designate by notice to the other
parties:
-4-
<PAGE>
If to Company: San Diego Testing Engineers, Inc.
c/o U.S. Laboratories Inc.
7895 Conboy Court, Suite 18
San Diego, California
Facsimile: (619) 715-5810
Telephone: (619) 715-5800
Attention: Dickerson Wright
If to Executive: Mark Baron
2327 Fair Oak Court
Escondio, California 92026
Telecopier: (______) ________ - __________
Telephone: (______) ________ - __________
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of California without giving effect to
conflict of laws principles thereof.
15. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
16. ENTIRE AGREEMENT. This Agreement represents the entire understanding
of the parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings regarding the subject
matter hereof shall be of any force or effect unless in writing, executed by the
party to be bound, and dated subsequent to the date hereof. This entire
Agreement supercedes any existing Employment Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
San Diego Testing Engineers, Inc.
By: /S/ Dickerson Wright
----------------------------------
Dickerson Wright, Chairman
EXECUTIVE:
/S/ Mark Baron
-------------------------------------
Mark Baron
-5-
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 30, 1998, by and
between U.S. Engineering Labs, Inc., a Delaware corporation ("Company"), and
Martin B. Lowenthal, an adult resident of New Jersey ("Executive").
RECITALS:
A. Executive is presently an employee of Company.
B. Company and Executive desire to memorialize the terms of
Executive's employment pursuant to a written agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions hereof,
Company hereby employs Executive for the term of this Employment Agreement, and
Executive hereby accepts such employment. Executive agrees to devote his entire
working time, energy and skills to such employment during the Employment Term
(as defined in Section 2), and shall not, during the Employment Term, render any
services of a business, commercial or professional nature to any person or
organization other than Company or be engaged in any other business activity,
without the prior written consent of the Board of Directors.
2. TERM. Executive's employment hereunder shall commence on the date
hereof and shall continue through the third anniversary of this Employment
Agreement unless earlier terminated as provided in Section 8 (the "Employment
Term"). The Company may not terminate Executive's employment prior to the third
anniversary of this Agreement except as set forth in Section 8.
3. DUTIES; OFFICES. Executive shall serve as President of the Company
and will, under the direction of the Board of Directors, faithfully and to the
best of his ability perform the duties of President. In such capacity, he shall
have primary responsibility for overseeing the business affairs of the Company,
and shall perform such executive duties as generally are associated with the
position of President, together with such further and additional duties of an
executive nature as from time to time reasonably may be assigned to him by the
Board of Directors. Such duties shall be rendered at such place or places as
the Board of Directors shall in good faith require. The Executive agrees to
serve without additional compensation, if elected or appointed thereto, in one
or more offices or as a director of the Company.
4. SALARY. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay Executive a salary during the Employment Term
at an annual rate of
1
<PAGE>
Seventy Thousand Dollars ($70,000) (the "Base Salary"). The Base Salary shall
be paid to Executive in installments in accordance with the payroll
procedures of the Company as established from time to time.
5. INSURANCE. During the Employment Term, Executive shall be entitled to
participate, to the extent he meets all eligibility requirements of general
application, in all employee benefit plans maintained by Company and made
available to all other regular salaried employees of Company including, but not
limited to, group hospitalization, medical and disability plans.
6. EXECUTIVE EXPENSES. During the Employment Term, Executive shall be
entitled to be reimbursed for reasonable and necessary expenses incurred by him
in the performance of his duties hereunder and approved by Company including,
but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars and telephone expenses, subject to the
submission by Executive of the documentation necessary to support the
deductibility of such expenses by Company on its federal and state income tax
returns, in such form as Company may require.
7. VACATION. During the Employment Term, Executive shall be entitled to
paid vacations in accordance with Company's standard vacation policies in effect
from time to time relating to managerial and executive employees and, in
addition, shall be entitled to such holidays as are made available generally to
executive employees of Company.
8. TERMINATION. The employment of Executive hereunder shall be
terminated prior to the third anniversary of this Agreement upon the happening
of any of the following:
a. the death of Executive.
b. the disability of Executive, where disability means any illness,
disability or incapacity of such a character as to render Executive unable
to perform his duties hereunder (which determination shall be made by the
Board of Directors) for a total period of ninety (90) days, whether or not
such days are consecutive, during any consecutive twelve (12) month period
or the certification by a New Jersey licensed physician that Executive is
unlikely to be able to resume performance of substantially all of his
duties hereunder for a period of ninety (90) days.
c. the termination of this Agreement by Company for cause, where
cause means (i) the inability of Executive to perform his duties due to a
legal impediment such as, without limitation, the entry against Executive
of an injunction, restraining order or other type of judicial judgment,
decree or order which would prevent or hinder Executive from performing his
duties; (ii) a breach of any of the restrictions or covenants set forth in
this Agreement; (iii) excessive absenteeism, material or serious neglect of
his duties hereunder, serious misconduct, conviction of a felony or fraud,
or the entry by Executive of a nolo contendere plea in such proceeding, or
(iv) aiding a competitor of the Company to the detriment of the Company.
-2-
<PAGE>
d. the termination of this Agreement by Company at the Company's
election (subject to the provisions of Section 9) for reasons other than
death, permanent disability or cause.
9. PAYMENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement, the Company shall pay to Executive that portion of the Base Salary
which he earned for services performed up to the effective date of termination
for which he has not previously been compensated. In addition, upon any
termination pursuant to Section 8(d), the Company also shall pay to Executive an
amount (the "Severance Amount") equal to fifty percent (50%) of Base Salary.
The Severance Amount shall be paid to Executive in twelve (12) equal monthly
installments, beginning on the first day of the month following the effective
date of Executive's termination.
10. CONFIDENTIALITY.
a. Executive recognizes and acknowledges that the business of the
Company is highly competitive and that during the course of his employment
he will have access to significant proprietary and confidential information
belonging to the Company. Executive therefore covenants and agrees, for
the duration of this Agreement and at all times following its termination,
that he will not use (other than in furtherance of the Company's business
interests during the Employment Term) or disclose any confidential
proprietary information of the Company, including, but not limited to
patents, patent rights, inventions and intellectual property rights,
techniques, know-how, trade secrets, software, technical designs,
trademarks, trademark rights, tradenames, tradename rights, copyrights,
customer and supplier lists, manufacturing processes, business plans,
strategic plans, marketing information and other business and financial
information of or related to the Company.
b. The obligations of Executive under this Section 10 shall not
apply to any information which (i) was part of the public domain prior to
the date of this Agreement other than as a result of unauthorized
disclosure by Executive, (ii) becomes part of the public domain by reason
of disclosure by some third person who did not acquire the information from
Executive, or (iii) becomes part of the public domain by reason of
disclosure by Executive where such disclosure is made during the Employment
Term in furtherance of the Company's business interests.
c. Executive agrees that any violation of the provisions of this
Section would be likely to be highly injurious to the Company. By reason
of the foregoing, Executive consents and agrees that, if he violates any of
the provisions of this Section, the Company shall be entitled, in addition
to any other rights and remedies that it may have, including money damages,
to an injunction prohibiting Executive from engaging in any such act or
specifically enforcing this Agreement, as the case may be.
11. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement. Executive may not assign his rights and obligations under this
Agreement;
-3-
<PAGE>
provided, however, that Executive shall be entitled to assign his right to
any accrued payments under this Agreement to his heirs or personal
representatives in the event of his death.
12. COVENANT NOT TO COMPETE.
a. Executive agrees that during the Employment Term and for a period
of two (2) years thereafter, Executive shall not, as proprietor, director,
officer, partner, shareholder, employee, member, manager, consultant,
agent, independent contractor or otherwise, for himself or on behalf of any
other person or entity (except the Company or an affiliate of the Company,
in either case at the Company's request), directly or indirectly:
i. engage in, or enter into, any aspect of the business of
engineering inspection and testing in New Jersey, Pennsylvania, New
York, or Connecticut;
ii. solicit persons who shall have been customers or suppliers
of the Company during the period beginning two (2) years prior to
the date of this Agreement or who are, at the time of such
solicitation, current or prospective customers or suppliers of the
Company or take any other action the effect of which is to
interfere with the business relationship between the Company and
such customers or suppliers; or
iii. hire persons who shall have been employees of the Company
during the period beginning on the date of this Agreement, or
otherwise interfere with the relationship between the Company and
any such persons.
b. The covenants of Executive contained in this Section 12 shall be
construed as separate agreements independent of any other agreement for
purposes of enforceability of any claim or cause of action, whether
predicated on this Agreement or otherwise. No other agreement, claim or
cause of action asserted by Executive shall constitute a defense to the
enforcement of such covenants. Executive acknowledges that damages for the
violation of any such covenants will not give full and sufficient relief to
the Company, and agrees that, in the event of any violation of any such
covenants, the Company shall be entitled to injunctive relief against the
continued violation thereof, in addition to any other rights that the
Company may have by reason of such violation.
13. NOTICES. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
to the respective parties, or five (5) days after dispatch by certified mail,
postage prepaid, addressed to the parties at the addresses set forth below or at
such other addresses as such parties may designate by notice to the other
parties:
-4-
<PAGE>
If to Company: U.S. Engineering Laboratories, Inc.
c/o U.S. Laboratories Inc.
7895 Conboy Court, Suite 18
San Diego, California
Facsimile: (619) 715-5810
Telephone: (619) 715-5800
Attention: Dickerson Wright
If to Executive: Martin B. Lowenthal
137 Spruce Circle North
Barnegat, New Jersey 08005
Telecopier: (______) ________ - __________
Telephone: (______) ________ - __________
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of New Jersey without giving effect to
conflict of laws principles thereof.
15. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
16. ENTIRE AGREEMENT. This Agreement represents the entire understanding
of the parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings regarding the subject
matter hereof shall be of any force or effect unless in writing, executed by the
party to be bound, and dated subsequent to the date hereof. This entire
Agreement supercedes any existing Employment Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
U.S. Engineering Laboratories, Inc.
By: /S/ Dickerson Wright
---------------------------------
Dickerson Wright, Chairman
EXECUTIVE:
/S/ Martin B. Lowenthal
-----------------------------------
Martin B. Lowenthal
-5-
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 30, 1998, by and
between U.S. Laboratories Inc., a Delaware corporation ("Company"), and
Dickerson Wright, an adult resident of California ("Executive").
RECITALS:
A. Executive is presently an employee of Company.
B. Company and Executive desire to memorialize the terms of
Executive's employment pursuant to a written agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions hereof,
Company hereby employs Executive for the term of this Employment Agreement, and
Executive hereby accepts such employment. Executive agrees to devote his entire
working time, energy and skills to such employment during the Employment Term
(as defined in Section 2), and shall not, during the Employment Term, render any
services of a business, commercial or professional nature to any person or
organization other than Company or be engaged in any other business activity,
without the prior written consent of the Board of Directors.
2. TERM. Executive's employment hereunder shall commence on the date
hereof and shall continue through the third anniversary of this Employment
Agreement unless earlier terminated as provided in Section 8 (the "Employment
Term"). The Company may not terminate Executive's employment prior to the third
anniversary of this Agreement except as set forth in Section 8.
3. DUTIES; OFFICES. Executive shall serve as Chief Executive Officer and
President of the Company and will, under the direction of the Board of
Directors, faithfully and to the best of his ability perform the duties of Chief
Executive Officer and President. In such capacity, he shall have primary
responsibility for overseeing the business affairs of the Company, and shall
perform such executive duties as generally are associated with the positions of
Chief Executive Officer and President, together with such further and additional
duties of an executive nature as from time to time reasonably may be assigned to
him by the Board of Directors. Such duties shall be rendered at such place or
places as the Board of Directors shall in good faith require. The Executive
agrees to serve without additional compensation, if elected or appointed
thereto, in one or more offices or as a director of the Company.
1
<PAGE>
4. SALARY. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay Executive a salary during the Employment Term
at an annual rate of One Hundred Seventy Five Thousand Dollars ($175,000) (the
"Base Salary"). The Base Salary shall be paid to Executive in installments in
accordance with the payroll procedures of the Company as established from time
to time.
5. INSURANCE. During the Employment Term, Executive shall be entitled to
participate, to the extent he meets all eligibility requirements of general
application, in all employee benefit plans maintained by Company and made
available to all other regular salaried employees of Company including, but not
limited to, group hospitalization, medical and disability plans.
6. EXECUTIVE EXPENSES. During the Employment Term, Executive shall be
entitled to be reimbursed for reasonable and necessary expenses incurred by him
in the performance of his duties hereunder and approved by Company including,
but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars and telephone expenses, subject to the
submission by Executive of the documentation necessary to support the
deductibility of such expenses by Company on its federal and state income tax
returns, in such form as Company may require.
7. VACATION. During the Employment Term, Executive shall be entitled to
paid vacations in accordance with Company's standard vacation policies in effect
from time to time relating to managerial and executive employees and, in
addition, shall be entitled to such holidays as are made available generally to
executive employees of Company.
8. TERMINATION. The employment of Executive hereunder shall be
terminated prior to the third anniversary of this Agreement upon the happening
of any of the following:
a. the death of Executive.
b. the disability of Executive, where disability means any illness,
disability or incapacity of such a character as to render Executive unable
to perform his duties hereunder (which determination shall be made by the
Board of Directors) for a total period of ninety (90) days, whether or not
such days are consecutive, during any consecutive twelve (12) month period
or the certification by a California licensed physician that Executive is
unlikely to be able to resume performance of substantially all of his
duties hereunder for a period of ninety (90) days.
c. the termination of this Agreement by Company for cause, where
cause means (i) the inability of Executive to perform his duties due to a
legal impediment such as, without limitation, the entry against Executive
of an injunction, restraining order or other type of judicial judgment,
decree or order which would prevent or hinder Executive from performing his
duties; (ii) a breach of any of the restrictions or covenants set forth in
this Agreement; (iii) excessive absenteeism, material or serious neglect of
his duties hereunder, serious misconduct, conviction of a felony or fraud,
or the entry by Executive of a nolo contendere plea in such proceeding, or
(iv) aiding a competitor of the Company to the detriment of the Company.
-2-
<PAGE>
d. the termination of this Agreement by Company at the Company's
election (subject to the provisions of Section 9) for reasons other than
death, permanent disability or cause.
9. PAYMENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement, the Company shall pay to Executive that portion of the Base Salary
which he earned for services performed up to the effective date of termination
for which he has not previously been compensated. In addition, upon any
termination pursuant to Section 8(d), the Company also shall pay to Executive an
amount (the "Severance Amount") equal to fifty percent (50%) of Base Salary.
The Severance Amount shall be paid to Executive in twelve (12) equal monthly
installments, beginning on the first day of the month following the effective
date of Executive's termination.
10. CONFIDENTIALITY.
a. Executive recognizes and acknowledges that the business of the
Company is highly competitive and that during the course of his employment
he will have access to significant proprietary and confidential information
belonging to the Company. Executive therefore covenants and agrees, for
the duration of this Agreement and at all times following its termination,
that he will not use (other than in furtherance of the Company's business
interests during the Employment Term) or disclose any confidential
proprietary information of the Company, including, but not limited to
patents, patent rights, inventions and intellectual property rights,
techniques, know-how, trade secrets, software, technical designs,
trademarks, trademark rights, tradenames, tradename rights, copyrights,
customer and supplier lists, manufacturing processes, business plans,
strategic plans, marketing information and other business and financial
information of or related to the Company.
b. The obligations of Executive under this Section 10 shall not
apply to any information which (i) was part of the public domain prior to
the date of this Agreement other than as a result of unauthorized
disclosure by Executive, (ii) becomes part of the public domain by reason
of disclosure by some third person who did not acquire the information from
Executive, or (iii) becomes part of the public domain by reason of
disclosure by Executive where such disclosure is made during the Employment
Term in furtherance of the Company's business interests.
c. Executive agrees that any violation of the provisions of this
Section would be likely to be highly injurious to the Company. By reason
of the foregoing, Executive consents and agrees that, if he violates any of
the provisions of this Section, the Company shall be entitled, in addition
to any other rights and remedies that it may have, including money damages,
to an injunction prohibiting Executive from engaging in any such act or
specifically enforcing this Agreement, as the case may be.
11. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement. Executive may not assign his rights and obligations under this
Agreement;
-3-
<PAGE>
provided, however, that Executive shall be entitled to assign his right to
any accrued payments under this Agreement to his heirs or personal
representatives in the event of his death.
12. COVENANT NOT TO COMPETE.
a. Executive agrees that during the Employment Term and for a period
of two (2) years thereafter, Executive shall not, as proprietor, director,
officer, partner, shareholder, employee, member, manager, consultant,
agent, independent contractor or otherwise, for himself or on behalf of any
other person or entity (except the Company or an affiliate of the Company,
in either case at the Company's request), directly or indirectly:
i. engage in, or enter into, any aspect of the business of
engineering inspection and testing in the United States;
ii. solicit persons who shall have been customers or suppliers
of the Company during the period beginning two (2) years prior to
the date of this Agreement or who are, at the time of such
solicitation, current or prospective customers or suppliers of the
Company or take any other action the effect of which is to
interfere with the business relationship between the Company and
such customers or suppliers; or
iii. hire persons who shall have been employees of the Company
during the period beginning on the date of this Agreement, or
otherwise interfere with the relationship between the Company and
any such persons.
b. The covenants of Executive contained in this Section 12 shall be
construed as separate agreements independent of any other agreement for
purposes of enforceability of any claim or cause of action, whether
predicated on this Agreement or otherwise. No other agreement, claim or
cause of action asserted by Executive shall constitute a defense to the
enforcement of such covenants. Executive acknowledges that damages for the
violation of any such covenants will not give full and sufficient relief to
the Company, and agrees that, in the event of any violation of any such
covenants, the Company shall be entitled to injunctive relief against the
continued violation thereof, in addition to any other rights that the
Company may have by reason of such violation.
13. NOTICES. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
to the respective parties, or five (5) days after dispatch by certified mail,
postage prepaid, addressed to the parties at the addresses set forth below or at
such other addresses as such parties may designate by notice to the other
parties:
-4-
<PAGE>
If to Company: U.S. Laboratories Inc.
7895 Conboy Court, Suite 18
San Diego, California
Facsimile (619) 715-5810
Telephone: (619) 715-5800
Attention: Dickerson Wright
If to Executive: Dickerson Wright
14366 Twisted Branch Road
Poway, California 92064
Telecopier: (______) ________ - __________
Telephone: (______) ________ - __________
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of California without giving effect to
conflict of laws principles thereof.
15. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
16. ENTIRE AGREEMENT. This Agreement represents the entire understanding
of the parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings regarding the subject
matter hereof shall be of any force or effect unless in writing, executed by the
party to be bound, and dated subsequent to the date hereof. This entire
Agreement supercedes any existing Employment Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
U.S. Laboratories Inc.
By: /S/ Dickerson Wright
-------------------------------------
Dickerson Wright, Chairman
EXECUTIVE:
/S/ Dickerson Wright
---------------------------------------
Dickerson Wright
-5-
<PAGE>
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 30, 1998, by and
between Professional Engineering and Inspection Co., Inc., a Florida corporation
("Company"), and Gary H. Elzweig, an adult resident of Florida ("Executive").
RECITALS:
A. Executive is presently an employee of Company.
B. Company and Executive desire to memorialize the terms of
Executive's employment pursuant to a written agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions hereof,
Company hereby employs Executive for the term of this Employment Agreement, and
Executive hereby accepts such employment. Executive agrees to devote his entire
working time, energy and skills to such employment during the Employment Term
(as defined in Section 2), and shall not, during the Employment Term, render any
services of a business, commercial or professional nature to any person or
organization other than Company or be engaged in any other business activity,
without the prior written consent of the Board of Directors.
2. TERM. Executive's employment hereunder shall commence on the date
hereof and shall continue through the third anniversary of this Employment
Agreement unless earlier terminated as provided in Section 8 (the "Employment
Term"). The Company may not terminate Executive's employment prior to the third
anniversary of this Agreement except as set forth in Section 8.
3. DUTIES; OFFICES. Executive shall serve as President of the Company
and will, under the direction of the Board of Directors, faithfully and to the
best of his ability perform the duties of President. In such capacity, he shall
have primary responsibility for overseeing the business affairs of the Company,
and shall perform such executive duties as generally are associated with the
positions of President, together with such further and additional duties of an
executive nature as from time to time reasonably may be assigned to him by the
Board of Directors. Such duties shall be rendered at such place or places as
the Board of Directors shall in good faith require. The Executive agrees to
serve without additional compensation, if elected or appointed thereto, in one
or more offices or as a director of the Company.
4. SALARY. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay Executive a salary during the Employment Term
at an annual rate of
1
<PAGE>
One Hundred Twenty Five Thousand Dollars ($125,000) (the "Base Salary"). The
Base Salary shall be paid to Executive in installments in accordance with the
payroll procedures of the Company as established from time to time.
5. INSURANCE. During the Employment Term, Executive shall be entitled to
participate, to the extent he meets all eligibility requirements of general
application, in all employee benefit plans maintained by Company and made
available to all other regular salaried employees of Company including, but not
limited to, group hospitalization, medical and disability plans.
6. EXECUTIVE EXPENSES. During the Employment Term, Executive shall be
entitled to be reimbursed for reasonable and necessary expenses incurred by him
in the performance of his duties hereunder and approved by Company including,
but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars and telephone expenses, subject to the
submission by Executive of the documentation necessary to support the
deductibility of such expenses by Company on its federal and state income tax
returns, in such form as Company may require.
7. VACATION. During the Employment Term, Executive shall be entitled to
paid vacations in accordance with Company's standard vacation policies in effect
from time to time relating to managerial and executive employees and, in
addition, shall be entitled to such holidays as are made available generally to
executive employees of Company.
8. TERMINATION. The employment of Executive hereunder shall be
terminated prior to the third anniversary of this Agreement upon the happening
of any of the following:
a. the death of Executive.
b. the disability of Executive, where disability means any illness,
disability or incapacity of such a character as to render Executive unable
to perform his duties hereunder (which determination shall be made by the
Board of Directors) for a total period of ninety (90) days, whether or not
such days are consecutive, during any consecutive twelve (12) month period
or the certification by a Florida licensed physician that Executive is
unlikely to be able to resume performance of substantially all of his
duties hereunder for a period of ninety (90) days.
c. the termination of this Agreement by Company for cause, where
cause means (i) the inability of Executive to perform his duties due to a
legal impediment such as, without limitation, the entry against Executive
of an injunction, restraining order or other type of judicial judgment,
decree or order which would prevent or hinder Executive from performing his
duties; (ii) a breach of any of the restrictions or covenants set forth in
this Agreement; (iii) excessive absenteeism, material or serious neglect of
his duties hereunder, serious misconduct, conviction of a felony or fraud,
or the entry by Executive of a nolo contendere plea in such proceeding, or
(iv) aiding a competitor of the Company to the detriment of the Company.
-2-
<PAGE>
d. the termination of this Agreement by Company at the Company's
election (subject to the provisions of Section 9) for reasons other than
death, permanent disability or cause.
9. PAYMENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement, the Company shall pay to Executive that portion of the Base Salary
which he earned for services performed up to the effective date of termination
for which he has not previously been compensated. In addition, upon any
termination pursuant to Section 8(d), the Company also shall pay to Executive an
amount (the "Severance Amount") equal to fifty percent (50%) of Base Salary.
The Severance Amount shall be paid to Executive in twelve (12) equal monthly
installments, beginning on the first day of the month following the effective
date of Executive's termination.
10. CONFIDENTIALITY.
a. Executive recognizes and acknowledges that the business of the
Company is highly competitive and that during the course of his employment
he will have access to significant proprietary and confidential information
belonging to the Company. Executive therefore covenants and agrees, for
the duration of this Agreement and at all times following its termination,
that he will not use (other than in furtherance of the Company's business
interests during the Employment Term) or disclose any confidential
proprietary information of the Company, including, but not limited to
patents, patent rights, inventions and intellectual property rights,
techniques, know-how, trade secrets, software, technical designs,
trademarks, trademark rights, tradenames, tradename rights, copyrights,
customer and supplier lists, manufacturing processes, business plans,
strategic plans, marketing information and other business and financial
information of or related to the Company.
b. The obligations of Executive under this Section 10 shall not
apply to any information which (i) was part of the public domain prior to
the date of this Agreement other than as a result of unauthorized
disclosure by Executive, (ii) becomes part of the public domain by reason
of disclosure by some third person who did not acquire the information from
Executive, or (iii) becomes part of the public domain by reason of
disclosure by Executive where such disclosure is made during the Employment
Term in furtherance of the Company's business interests.
c. Executive agrees that any violation of the provisions of this
Section would be likely to be highly injurious to the Company. By reason
of the foregoing, Executive consents and agrees that, if he violates any of
the provisions of this Section, the Company shall be entitled, in addition
to any other rights and remedies that it may have, including money damages,
to an injunction prohibiting Executive from engaging in any such act or
specifically enforcing this Agreement, as the case may be.
11. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement. Executive may not assign his rights and obligations under this
Agreement;
-3-
<PAGE>
provided, however, that Executive shall be entitled to assign his
right to any accrued payments under this Agreement to his heirs or personal
representatives in the event of his death.
12. COVENANT NOT TO COMPETE.
a. Executive agrees that during the Employment Term and for a period
of two (2) years thereafter, Executive shall not, as proprietor, director,
officer, partner, shareholder, employee, member, manager, consultant,
agent, independent contractor or otherwise, for himself or on behalf of any
other person or entity (except the Company or an affiliate of the Company,
in either case at the Company's request), directly or indirectly:
i. engage in, or enter into, any aspect of the business of
engineering inspection and testing in Florida;
ii. solicit persons who shall have been customers or suppliers
of the Company during the period beginning two (2) years prior to
the date of this Agreement or who are, at the time of such
solicitation, current or prospective customers or suppliers of the
Company or take any other action the effect of which is to
interfere with the business relationship between the Company and
such customers or suppliers; or
iii. hire persons who shall have been employees of the Company
during the period beginning on the date of this Agreement, or
otherwise interfere with the relationship between the Company and
any such persons.
b. The covenants of Executive contained in this Section 12 shall be
construed as separate agreements independent of any other agreement for
purposes of enforceability of any claim or cause of action, whether
predicated on this Agreement or otherwise. No other agreement, claim or
cause of action asserted by Executive shall constitute a defense to the
enforcement of such covenants. Executive acknowledges that damages for the
violation of any such covenants will not give full and sufficient relief to
the Company, and agrees that, in the event of any violation of any such
covenants, the Company shall be entitled to injunctive relief against the
continued violation thereof, in addition to any other rights that the
Company may have by reason of such violation.
13. NOTICES. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
to the respective parties, or five (5) days after dispatch by certified mail,
postage prepaid, addressed to the parties at the addresses set forth below or at
such other addresses as such parties may designate by notice to the other
parties:
-4-
<PAGE>
If to Company: Professional Engineering and Inspection Co., Inc.
c/o U.S. Laboratories Inc.
7895 Conboy Court, Suite 18
San Diego, California
Facsimile: (619) 715-5810
Telephone: (619) 715-5800
Attention: Dickerson Wright
If to Executive: Gary H. Elzweig
P.O. Box 15991
Plantation, Florida 33318
Telecopier: (______) ________ - __________
Telephone: (______) ________ - __________
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of Florida without giving effect to conflict
of laws principles thereof.
15. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
16. ENTIRE AGREEMENT. This Agreement represents the entire understanding
of the parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings regarding the subject
matter hereof shall be of any force or effect unless in writing, executed by the
party to be bound, and dated subsequent to the date hereof. This entire
Agreement supercedes any existing Employment Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
Professional Engineering and Inspection Co.
By: /S/ Dickerson Wright
--------------------------------------
Dickerson Wright, Chairman
EXECUTIVE:
/S/ Gary H. Elzweig
------------------------------------------
Gary H. Elzweig
-5-
<PAGE>
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 30, 1998, by and
between U.S. Laboratories Inc., a Delaware corporation ("Company"), and Donald
C. Alford, an adult resident of California ("Executive").
RECITALS:
A. Executive is presently an employee of Company.
B. Company and Executive desire to memorialize the terms of
Executive's employment pursuant to a written agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions hereof,
Company hereby employs Executive for the term of this Employment Agreement, and
Executive hereby accepts such employment. Executive agrees to devote his entire
working time, energy and skills to such employment during the Employment Term
(as defined in Section 2), and shall not, during the Employment Term, render any
services of a business, commercial or professional nature to any person or
organization other than Company or be engaged in any other business activity,
without the prior written consent of the Board of Directors.
2. TERM. Executive's employment hereunder shall commence on the date
hereof and shall continue through the third anniversary of this Employment
Agreement unless earlier terminated as provided in Section 8 (the "Employment
Term"). The Company may not terminate Executive's employment prior to the third
anniversary of this Agreement except as set forth in Section 8.
3. DUTIES; OFFICES. Executive shall serve as Executive Vice President of
the Company and will, under the direction of the President, faithfully and to
the best of his ability perform the duties of Executive Vice President. In such
capacity, he shall have primary responsibility for overseeing the business
affairs of the Company, and shall perform such executive duties as generally are
associated with the position of Executive Vice President, together with such
further and additional duties of an executive nature as from time to time
reasonably may be assigned to him by the President. Such duties shall be
rendered at such place or places as the President shall in good faith require.
The Executive agrees to serve without additional compensation, if elected or
appointed thereto, in one or more offices or as a director of the Company.
1
<PAGE>
4. SALARY. In consideration of the services to be rendered by Executive
hereunder, the Company shall pay Executive a salary during the Employment Term
at an annual rate of Eighty Thousand Dollars ($80,000) (the "Base Salary"). The
Base Salary shall be paid to Executive in installments in accordance with the
payroll procedures of the Company as established from time to time.
5. INSURANCE. During the Employment Term, Executive shall be entitled to
participate, to the extent he meets all eligibility requirements of general
application, in all employee benefit plans maintained by Company and made
available to all other regular salaried employees of Company including, but not
limited to, group hospitalization, medical and disability plans.
6. EXECUTIVE EXPENSES. During the Employment Term, Executive shall be
entitled to be reimbursed for reasonable and necessary expenses incurred by him
in the performance of his duties hereunder and approved by Company including,
but not limited to, expenses for entertainment, travel, meals, hotel
accommodations, professional seminars and telephone expenses, subject to the
submission by Executive of the documentation necessary to support the
deductibility of such expenses by Company on its federal and state income tax
returns, in such form as Company may require.
7. VACATION. During the Employment Term, Executive shall be entitled to
paid vacations in accordance with Company's standard vacation policies in effect
from time to time relating to managerial and executive employees and, in
addition, shall be entitled to such holidays as are made available generally to
executive employees of Company.
8. TERMINATION. The employment of Executive hereunder shall be
terminated prior to the third anniversary of this Agreement upon the happening
of any of the following:
a. the death of Executive.
b. the disability of Executive, where disability means any illness,
disability or incapacity of such a character as to render Executive unable
to perform his duties hereunder (which determination shall be made by the
Board of Directors) for a total period of ninety (90) days, whether or not
such days are consecutive, during any consecutive twelve (12) month period
or the certification by a California licensed physician that Executive is
unlikely to be able to resume performance of substantially all of his
duties hereunder for a period of ninety (90) days.
c. the termination of this Agreement by Company for cause, where
cause means (i) the inability of Executive to perform his duties due to a
legal impediment such as, without limitation, the entry against Executive
of an injunction, restraining order or other type of judicial judgment,
decree or order which would prevent or hinder Executive from performing his
duties; (ii) a breach of any of the restrictions or covenants set forth in
this Agreement; (iii) excessive absenteeism, material or serious neglect of
his duties hereunder, serious misconduct, conviction of a felony or fraud,
or the entry by Executive of a nolo contendere plea in such proceeding, or
(iv) aiding a competitor of the Company to the detriment of the Company.
-2-
<PAGE>
d. the termination of this Agreement by Company at the Company's
election (subject to the provisions of Section 9) for reasons other than
death, permanent disability or cause.
9. PAYMENTS FOLLOWING TERMINATION. Upon any termination of this
Agreement, the Company shall pay to Executive that portion of the Base Salary
which he earned for services performed up to the effective date of termination
for which he has not previously been compensated. In addition, upon any
termination pursuant to Section 8(d), the Company also shall pay to Executive an
amount (the "Severance Amount") equal to fifty percent (50%) of Base Salary.
The Severance Amount shall be paid to Executive in twelve (12) equal monthly
installments, beginning on the first day of the month following the effective
date of Executive's termination.
10. CONFIDENTIALITY.
a. Executive recognizes and acknowledges that the business of the
Company is highly competitive and that during the course of his employment
he will have access to significant proprietary and confidential information
belonging to the Company. Executive therefore covenants and agrees, for
the duration of this Agreement and at all times following its termination,
that he will not use (other than in furtherance of the Company's business
interests during the Employment Term) or disclose any confidential
proprietary information of the Company, including, but not limited to
patents, patent rights, inventions and intellectual property rights,
techniques, know-how, trade secrets, software, technical designs,
trademarks, trademark rights, tradenames, tradename rights, copyrights,
customer and supplier lists, manufacturing processes, business plans,
strategic plans, marketing information and other business and financial
information of or related to the Company.
b. The obligations of Executive under this Section 10 shall not
apply to any information which (i) was part of the public domain prior to
the date of this Agreement other than as a result of unauthorized
disclosure by Executive, (ii) becomes part of the public domain by reason
of disclosure by some third person who did not acquire the information from
Executive, or (iii) becomes part of the public domain by reason of
disclosure by Executive where such disclosure is made during the Employment
Term in furtherance of the Company's business interests.
c. Executive agrees that any violation of the provisions of this
Section would be likely to be highly injurious to the Company. By reason
of the foregoing, Executive consents and agrees that, if he violates any of
the provisions of this Section, the Company shall be entitled, in addition
to any other rights and remedies that it may have, including money damages,
to an injunction prohibiting Executive from engaging in any such act or
specifically enforcing this Agreement, as the case may be.
11. ASSIGNMENT. The Company may assign its rights and obligations under
this Agreement. Executive may not assign his rights and obligations under this
Agreement;
-3-
<PAGE>
provided, however, that Executive shall be entitled to assign his right to
any accrued payments under this Agreement to his heirs or personal
representatives in the event of his death.
12. COVENANT NOT TO COMPETE.
a. Executive agrees that during the Employment Term and for a period
of two (2) years thereafter, Executive shall not, as proprietor, director,
officer, partner, shareholder, employee, member, manager, consultant,
agent, independent contractor or otherwise, for himself or on behalf of any
other person or entity (except the Company or an affiliate of the Company,
in either case at the Company's request), directly or indirectly:
i. engage in, or enter into, any aspect of the business of
engineering inspection and testing in the United States;
ii. solicit persons who shall have been customers or suppliers
of the Company during the period beginning two (2) years prior to
the date of this Agreement or who are, at the time of such
solicitation, current or prospective customers or suppliers of the
Company or take any other action the effect of which is to
interfere with the business relationship between the Company and
such customers or suppliers; or
iii. hire persons who shall have been employees of the Company
during the period beginning on the date of this Agreement, or
otherwise interfere with the relationship between the Company and
any such persons.
b. The covenants of Executive contained in this Section 12 shall be
construed as separate agreements independent of any other agreement for
purposes of enforceability of any claim or cause of action, whether
predicated on this Agreement or otherwise. No other agreement, claim or
cause of action asserted by Executive shall constitute a defense to the
enforcement of such covenants. Executive acknowledges that damages for the
violation of any such covenants will not give full and sufficient relief to
the Company, and agrees that, in the event of any violation of any such
covenants, the Company shall be entitled to injunctive relief against the
continued violation thereof, in addition to any other rights that the
Company may have by reason of such violation.
13. NOTICES. All notices, demands or other communications required or
provided hereunder shall be in writing and shall be deemed to have been given
and received when delivered in person or transmitted by facsimile transmission
to the respective parties, or five (5) days after dispatch by certified mail,
postage prepaid, addressed to the parties at the addresses set forth below or at
such other addresses as such parties may designate by notice to the other
parties:
-4-
<PAGE>
If to Company: U.S. Laboratories Inc.
7895 Conboy Court, Suite 18
San Diego, California
Facsimile: (619) 715-5810
Telephone: (619) 581-715-5800
Attention: Dickerson Wright
If to Executive: Donald C. Alford
646 San Antonio Avenue
San Diego, California 92106
Telecopier: (______) ________ - __________
Telephone: (______) ________ - __________
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of California without giving effect to
conflict of laws principles thereof.
15. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder shall nevertheless remain in full force
and effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
16. ENTIRE AGREEMENT. This Agreement represents the entire understanding
of the parties with respect to the subject matter hereof, and no other
representations, promises, agreements or understandings regarding the subject
matter hereof shall be of any force or effect unless in writing, executed by the
party to be bound, and dated subsequent to the date hereof. This entire
Agreement supercedes any existing Employment Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY:
U.S. Laboratories Inc.
By: /S/ Dickerson Wright
---------------------------------
Dickerson Wright, Chairman
EXECUTIVE:
/S/ Donald C. Alford
-------------------------------------
Donald C. Alford
-5-
<PAGE>
May 30, 1998
Wyman Testing Laboratories, Inc.
U.S. Laboratories, Inc.
4350 West Sunrise Boulevard, Suite 103-D
Plantation, Florida 33313
RE: Non-Competition Agreement
Gentlemen:
On March 25, 1998, I entered into a Non-Competition Agreement (the
"Non-Compete") with Wyman Testing Laboratories, Inc. ("WTL"). The Non-Compete
was entered into in connection with a sale of a business in which I was a
stockholder, as recited more particularly in the Agreement. Contemporaneously
with the execution of the Non-Compete and the sale of the business referenced
therein, I entered into an Employment Agreement with U.S. Laboratories, Inc.
("U.S. Labs").
Effective with the date of this letter, I have entered into a new
Employment Agreement with U.S. Labs. That agreement provides, among other
things, non-competition provisions relative to my employment by U.S. Labs. I
UNDERSTAND THAT THE NEW EMPLOYMENT AGREEMENT DOES NOT IN ANY WAY AMEND, LIMIT OR
TERMINATE THE NON-COMPETE, which is a separate agreement that remains
outstanding and enforceable by WTL and its successors and assigns, until the
expiration of the term set forth therein.
Very truly yours,
Donald C. Alford
<PAGE>
Exhibit 10.20
U.S. LABORATORIES INC.
FORM OF STOCK WARRANT AGREEMENT
THIS AGREEMENT made and entered into as of the ___ day of _______.
_____ (the "Grant Date"), by and between U.S. LABORATORIES INC., a Delaware
corporation (the "Company"), and ________________________________ (the
"Holder").
R E C I T A L S
WHEREAS, the Board of Directors of the Company (the "Board") approved
the grant of a warrant to purchase shares of the Company's common stock, par
value $.01 per share ("Stock"), to the Holder; and
WHEREAS, this Agreement is intended to memorialize the terms and
conditions of such grant.
A G R E E M E N T
NOW, THEREFORE, in consideration of the covenants and agreements
herein set forth, the parties hereby mutually covenant and agree as follows:
1. GRANT. The Company hereby grants to Holder a warrant to purchase
from the Company all or any part of an aggregate number of ____________ shares
of Stock (hereinafter such shares of Stock are referred to as the "Warrant
Shares" and the warrant to purchase the Warrant Shares is referred to as the
"Warrant").
2. PRICE. The price to be paid for the Warrant Shares shall be
___________ ($______) per share.
3. TERM; EXERCISE.
(a) This Warrant may be exercised by the Holder hereof in whole or in
part, from time to time, beginning on the earlier to occur of:
i. the date on which the closing price of a share of Stock as
reported on the Nasdaq Small-Cap Market is greater than $_______, or
ii. the date on which the audited financial statements of the
Company for its fiscal year ending December 31, 1998 (including on a
consolidated basis the earnings on Wyman Testing Laboratories, Inc.
("Wyman")), or any fiscal year thereafter during the term of the
Warrant, reflect that the Company's earnings per share of Stock for
the fiscal year are at least twice the award of the "base period
earnings." The "base period earnings" shall mean $__________, which
represents the combined earnings of
<PAGE>
the Company and Wyman as reported in the audited financial statements
of the Company for the fiscal year ending December 31, 1997.
(b) This Warrant will expire and will not be exercisable after the
earlier to occur of:
i. thirty (30) days after the Holder's termination of
employment for any reason other than death, disability or cause (as
defined below);
ii. ninety (90) days after the Holder's termination of
employment as a result of death or disability (as defined in Section
22(e)(3) of the Code);
iii. the Holder's termination of employment for cause (as defined
below); or
iv. November 9, 2003;
PROVIDED, HOWEVER, that if the Warrant is not exercisable pursuant to paragraph
3(a) hereof as of the date of the Participant's termination of employment with
the Company or its subsidiaries for any reason, the Warrant shall be immediately
terminated and automatically cancelled as of such date of termination.
As used herein, "cause" shall mean (i) conviction of a felony, (ii) commission
by the Participant of an act of fraud, misappropriation or embezzlement or (iii)
any other act or omission to act by the Participant if, in the judgment of the
Committee (A) the Participant knew or should have known that such an act or
omission would cause material injury to the financial condition or reputation of
the Company or its subsidiaries, and (B) such material injury has occurred or is
likely to occur, all as determined by the Committee.
4. METHOD OF EXERCISE. The Warrant may be exercised only by
written notice, delivered or mailed by postpaid registered or certified mail,
addressed to the treasurer of the Company at the Company's principal
executive offices specifying the number of Warranted Shares being purchased.
Such notice shall be accompanied by payment of the entire price of the
Warrant Shares being purchased (i) in cash or its equivalent, (ii) with the
consent of the Board, by tendering previously acquired shares of Stock having
a fair market value (as determined by the Board) equal to the price of the
Warrant Shares being purchased, or (iii) with the consent of the Board, by a
combination of (i) and (ii). On and after the effective date of an IPO (as
defined below) of the Stock, the Warrant may be exercised in the manner
previously described or by delivery to the Company or its designated agent of
an executed irrevocable exercise form together with instructions to a
broker-dealer to sell or margin a sufficient portion of the shares being
exercised and deliver the sale or margin proceeds directly to the Company to
pay for price for the Warrant Shares. As used herein, "IPO" means the event
that occurs when shares of Stock are sold to the public pursuant to an
effective registration statement, other than a registration statement on Form
S-4 or Form S-8 or any other forms primarily used to register securities to
be issued pursuant to Company benefit plans, filed by the Company under the
Securities Act of 1933 (the "Securities Act"). Upon receipt of the payment
of the entire price of the Warrant
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<PAGE>
Shares so purchased, certificates for such Warrant Shares shall be issued to
the Holder. The Warrant Shares so purchased shall be fully paid and
nonassessable.
5. NO RIGHTS AS A SHAREHOLDER. The Holder shall not be deemed for
any purposes to be a shareholder of the Company with respect to any shares which
may be acquired hereunder except to the extent that the Warrant shall have been
exercised with respect thereto and a stock certificate issued therefor.
6. NONTRANSFERABILITY; COLLATERAL. Unless permitted by the Board,
the Warrant shall not be transferable by the Holder otherwise than by will or
the laws of descent and distribution, and may be exercised during the life of
the Holder only by the Holder. The Warrant may not be assigned, mortgaged or
pledged as any type of security or collateral.
7. RESTRICTIONS ON TRANSFERS OF STOCK. The shares to be acquired
upon exercise of the Warrant may not be sold or offered for sale except (i)
pursuant to an effective registration statement under the Securities Act of 1933
(the "Act") or any applicable state securities laws, (ii) in a transaction
satisfying the requirements of Rule 144 promulgated under the Act, or (iii) in a
transaction which, in the opinion of counsel for the Company, is exempt from the
registration provisions of the Act or applicable state securities laws. The
Holder agrees that any certificate representing shares acquired upon exercise of
the Warrant may bear the following legend:
The shares of Common Stock represented by this certificate
are restricted securities as that term is defined under Rule
144 promulgated under the Securities Act of 1933, as amended
(the "Act"). These shares may not be sold, transferred or
disposed of unless they are registered under the Act, sold
in a transaction satisfying the requirements of Rule 144 or
unless the request to transfer is accompanied by an opinion
of counsel acceptable to the issuer, that the transfer will
not result in a violation of the Act or any applicable state
securities laws.
8. SPECIFIC RESTRICTIONS UPON WARRANT SHARES. The Holder hereby
agrees with the Company that the Holder shall acquire the Warrant Shares for
investment purposes only and not with a view to resale or other distribution
thereof to the public in violation of the Act, and shall not dispose of the
Warrant Shares in any transaction which, in the opinion of counsel to the
Company, would violate the Act, or the rules and regulations thereunder, or any
applicable state securities or blue sky laws.
9. ADJUSTMENTS. If the Company shall at any time change the number
of shares of its Stock without new consideration to the Company (such as by
stock dividend, stock split or similar transaction), the total number of shares
then remaining subject to purchase hereunder shall be changed in proportion to
the change in issued shares, and the Warrant price per share shall be adjusted
so that the total consideration payable to the Company upon the purchase of all
shares not theretofore purchased shall not be changed. In the event there shall
be any change, other than as specified above, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which such
Stock shall have been changed or for which it
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<PAGE>
shall have been exchanged, then if the Board shall in its sole discretion
determine that such change equitably requires an adjustment in the number or
kind of shares subject to the Warrant, such adjustment shall be made by the
Board. The Warrant price for each share of Stock or other securities
substituted or adjusted as provided in this paragraph shall be determined by
dividing the Warrant price for each share prior to such substitution or
adjustment by the number of shares or the fraction of a share substituted for
such share or to which such share shall have been adjusted. No adjustment or
substitution provided for in this paragraph shall require the Company to sell
a fractional share.
10. TAX WITHHOLDING. It shall be a condition of the obligation of
the Company to issue or transfer shares of Stock upon exercise of the Warrant,
that the Holder shall pay to the Company upon its demand, or agree that the
Company may withhold from compensation due the Holder, such amount as may be
requested by the Company for the purpose of satisfying its liability to withhold
federal, state or local income or other taxes incurred by reason of the exercise
of the Warrant. If the Holder fails to comply with this Paragraph 10, the
Company may refuse to issue or transfer shares of Stock upon exercise of the
Warrant.
11. POWERS OF COMPANY NOT AFFECTED. The existence of the Warrant
herein granted shall not affect in any way the right or power of the Company or
its shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issuance of
bonds, debentures, preferred, or prior preference stock ahead of or affecting
the Stock or the rights thereof, or dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
12. INTERPRETATION. As a condition of the granting of the Warrant,
the Holder agrees for himself and his legal representatives, that any dispute or
disagreement which may arise under or as a result of or pursuant to this
Agreement shall be determined by the Board in its sole discretion, and any
interpretation by the Board of the terms of this Agreement shall be final,
binding and conclusive.
13. AMENDMENT OR MODIFICATION. No term or provision of this
Agreement may be amended, modified or supplemented orally, but only by an
instrument in writing signed by the party against whom or which the enforcement
of the amendment, modification or supplement is sought.
14. GOVERNING LAW. This Agreement shall be governed by the internal
laws of the State of Delaware as to all matters, including, but not limited to,
matters of validity, construction, effect, performance and remedies.
15. ENTIRE AGREEMENT. This Agreement entered into between the Holder
and the Company sets forth the entire agreement of the parties hereto in respect
of the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and canceled.
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<PAGE>
16. DELEGATION BY BOARD. Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange or market, the Board
may delegate all or any portion of its responsibilities and powers to any one or
more of its members. Any such delegation may be revoked by the Board at any
time.
17. HEIRS AND SUCCESSORS. This Agreement shall be binding upon, and
inure to the benefit of, the Company and its successors and assigns, and upon
any person acquiring all or substantially all of the Company's assets and
business. In the event of the Holder's death prior to exercise of the warrant,
the Warrant may be exercised by the estate of the Holder to the extent such
exercise is otherwise permitted by this Agreement.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by its duly authorized officer and the Holder has executed this
Agreement as of the day and year first above written.
U.S. LABORATORIES INC.
(the "Company")
By:
----------------------------------
HOLDER:
--------------------------------------
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<PAGE>
EXHIBIT 10.21
NORTH COUNTY BANK
BUSINESS LOAN AGREEMENT
Principal: $1,200,000.00
Loan Date: 10-26-1998
Maturity: 01-01-2004
Loan No: 110882-3133
Call: 520
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
THIS BUSINESS LOAN AGREEMENT between U.S. LABORATORIES, INC. ("Borrower") and
NORTH COUNTY BANK ("Lender") Is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement Individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth In this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of October 26, 1998, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means U.S. LABORATORIES, INC. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, Including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors and
assigns.
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<PAGE>
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below and any subordinations described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
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Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and
Safety Code, Section 25100, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's ownership
of the properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of any
of the properties, or (ii) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance with
all applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances
described above. Borrower authorizes Lender and its agents to enter upon
the properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties,
and expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal, release
or threatened release of a hazardous waste or substance on the properties.
The provisions of this section of the Agreement, including the obligation
to indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 7895 CONVOY COURT, SUITE 18, SAN DIEGO, CA
92111. Unless Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records concerning the
Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is In effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,
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inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect
to Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in any way by any act, omission or
default of Borrower or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest
for the Loans, Borrower will provide Lender with such loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property value on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
<TABLE>
<CAPTION>
Guarantor Amount
--------- ---------
<S> <C>
DICKERSON WRIGHT Unlimited
</TABLE>
Subordination. Prior to disbursement of any Loan proceeds, deliver to
Lender a subordination agreement on Lender's forms, executed by
Borrower's creditor named below, subordinating all of Borrower's
indebtedness to such creditor, or such lesser amount as may be agreed to by
Lender in writing, and any security interests in collateral securing that
indebtedness to the Loans and security interests of Lender.
<TABLE>
<CAPTION>
Name of Creditor Amount
---------------- ----------
<S> <C>
DICKERSON WRIGHT $98,000.00
</TABLE>
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the
-4-
<PAGE>
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay Income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
FINANCIAL COVENANTS.
CPA AUDITED FINANCIALS DUE ANNUALLY.
CPA COMPILED (CONSOLIDATED) FINANCIALS DUE QUARTERLY.
PERSONAL FINANCIALS ON GUARANTOR DUE ANNUALLY.
PERSONAL TAX RETURNS ON GUARANTOR DUE ANNUALLY.
COMPANY PREPARED (CONSOLIDATED) FINANCIALS DUE MONTHLY.
AGINGS CONSOLIDATION DUE MONTHLY.
BORROWING CERTIFICATE DUE MONTHLY.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on the Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
-5-
<PAGE>
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
Year 2000 Compliance Failure. Failure to meet the deadlines required In
the Year 2000 Compliance Agreement to be Year 2000 Compliant or a
reasonable likelihood that Borrower cannot be Year 2000 Compliant on or
before December 31, 1999.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of SAN
DIEGO County, the State of California. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
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<PAGE>
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all other
provisions of this Agreement in all other respects shall remain valid
and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
OCTOBER 26, 1998.
BORROWER:
U.S. LABORATORIES INC.
By: /S/ Dickerson Wright
-----------------------------------------
DICKERSON WRIGHT, President
LENDER:
NORTH COUNTY BANK
By: /S/ Kevin Levezu
-----------------------------------------
Authorized Officer
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<PAGE>
NORTH COUNTY BANK
BUSINESS LOAN AGREEMENT
Principal: $1,200,000.00
Loan Date: 10-26-1998
Maturity: 01-01-2004
Loan No: 110882-3133
Call: 520
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
PROMISE TO PAY. U.S. LABORATORIES, INC. ("Borrower") promises to pay to
NORTH COUNTY BANK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of One Million Two Hundred Thousand
& 00/100 Dollars ($1,200,000.00), together with Interest on the unpaid
principal balance from October 26, 1998, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the
Index, Borrower will pay this loan on demand, or if no demand is made,
in accordance with the following payment schedule:
2 consecutive monthly Interest payments, beginning December 1,
1998, with interest calculated on the unpaid principal balances at
an interest rate of 0.00 percentage points over the Index described
below; 59 consecutive monthly principal payments of $20,000.00
each, beginning February 1,1999, with interest calculated on the
unpaid principal balances at an interest rate of 0.00 percentage
points over the Index described below; 59 consecutive monthly
interest payments, beginning February 1,1999, with interest
calculated on the unpaid principal balances at an Interest rate of
0.00 percentage points over the Index described below; and 1
principal and interest payment in the Initial amount of $20,137.78
on January 1, 2004, with interest calculated on the unpaid
principal balances at an interest rate of 0.00 percentage points
over the Index described below. This estimated final payment is
based on the assumption that all payments will be made exactly as
scheduled and that the Index does not change; the actual final
payment will be for all principal and accrued interest not yet
paid, together with any other unpaid amounts under this Note,
The annual interest rate for this Note is computed on a 365/360 basis; that
is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing. Unless otherwise agreed or required by applicable
law, payments will be applied first to accrued unpaid interest, then to
principal, and any remaining amount to any unpaid collection costs and late
charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the
WALL STREET JOURNAL PRIME RATE (the "index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the current Index
rate upon Borrower's request. Borrower understands that Lender may make
loans based on other rates as well. The interest rate change will not occur
more often than each DAY. The Index currently Is 8.000%. The interest rate
or rates to be applied to the unpaid principal balance of this Note will be
the rate or rates set forth above in the "Payment" section. NOTICE: Under
no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law. Whenever increases occur in the
interest rate, Lender, at its option, may do one or more of the following:
(a) increase Borrower's payments to ensure Borrower's loan will pay off by
its original final maturity date, (b) increase Borrower's payments to cover
accruing interest, (c) increase the number of Borrower's payments, and (d)
continue Borrower's payments at the same amount and increase Borrower's
final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan
and will not be subject to refund upon early payment (whether voluntary or
as a result of default), except as otherwise required by law. In any event,
even upon full prepayment of this Note, Borrower understands that Lender is
entitled to a minimum interest charge of $100.00. Other than Borrower's
obligation to pay any minimum interest charge, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments under the payment
schedule. Rather, they will reduce the principal balance due and may result
in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender. (c) Borrower defaults
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's ability
to repay this Note or perform Borrower's obligations under this Note or any
of the Related Documents. (d) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to
take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of
this Note. (h) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired. (i) Failure to meet the deadlines required in the
Year 2000 Compliance Agreement to be Year 2000 Compliant or a reasonable
likelihood that Borrower cannot be Year 2000 Compliant on or before
December 31, 1999.
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<PAGE>
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice
from Lender demanding cure of such default: (a) cures the default within
fifteen (15) days; or (b) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender's sole discretion
to be sufficient to cure the default and thereafter continues and completes
all reasonable and necessary steps sufficient to produce compliance as soon
as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note by 5.000
percentage points. Lender may hire or pay someone else to help collect this
Note if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums
provided by law. This Note has been delivered to Lender and accepted by
Lender in the State of California. If there Is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of SAN
DIEGO County, the State of California. This Note shall be governed by and
construed In accordance with the laws of the State of California.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender
all Borrower's right, title and Interest in and to, Borrower's accounts with
Lender (whether checking, savings, or some other account), including without
limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
CALIFORNIA VEHICLE CODE WAIVER. The provisions of Section 1808.21 of the
California Vehicle Code are hereby waived. I/we understand that this waiver
will give the Bank authority to receive my/our current residence address at
any time from the Department of Motor Vehicles.
ADDITIONAL PROVISIONS. THIS NOTE IS SECURED BY A COMMERCIAL SECURITY
AGREEMENT DATED OCTOBER 26, 1998.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive any applicable statute of limitations,
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY
OF THE NOTE.
BORROWER:
U.S. LABORATORIES INC.
By: /s/ Dickerson Wright
-------------------------------
DICKERSON WRIGHT, President
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<PAGE>
COMMERCIAL GUARANTY
Principal:
Loan Date:
Maturity:
Loan No:
Call: 520
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
Guarantor: DICKERSON WRIGHT
14366 TWISTED BRANCH ROAD
POWAY, CA 92064
AMOUNT OF GUARANTY. The amount of this Guaranty Is Unlimited.
CONTINUING UNLIMITED GUARANTY. For good and valuable consideration, DICKERSON
WRIGHT ("Guarantor") absolutely and unconditionally guarantees and promises to
pay to NORTH COUNTY BANK ("Lender") or Its order, on demand, in legal tender of
the United States of America, the Indebtedness (as that term is defined below)
of U.S. LABORATORIES, INC. ("Borrower") to Lender on the terms and conditions
set forth in this Guaranty. Under this Guaranty, the liability of Guarantor is
unlimited and the obligations of Guarantor are continuing.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
Borrower. The word "Borrower" means U.S. LABORATORIES, INC..
Guarantor. The word "Guarantor" means DICKERSON WRIGHT.
Guaranty. The word "Guaranty" means this Guaranty made by Guarantor for the
benefit of Lender dated October 26, 1998.
Indebtedness. The word "Indebtedness" is used in its most comprehensive
sense and means and includes any and all of Borrower's liabilities,
obligations, debts, and indebtedness to Lender, now existing or hereinafter
incurred or created, including, without limitation, all loans, advances,
interest, costs, debts, overdraft indebtedness, credit card indebtedness,
lease obligations, other obligations, and liabilities of Borrower, or any
of them, and any present or future judgments against Borrower, or any of
them; and whether any such Indebtedness is voluntarily or involuntarily
incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
Individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason whatsoever;
and whether the Indebtedness arises from transactions which may be voidable
on account of infancy, insanity, ultra virus, or otherwise.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors and
assigns.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the indebtedness.
NATURE OF GUARANTY. Guarantor's liability under this Guaranty shall be open
and continuous for so long as this Guaranty remains in force. Guarantor
intends to guarantee at all times the performance and prompt payment when
due, whether at maturity or earlier by reason of acceleration or otherwise,
of all Indebtedness. Accordingly, no payments made upon the Indebtedness will
discharge or diminish the continuing liability of Guarantor in connection
with any remaining portions of the Indebtedness or any of the Indebtedness
which subsequently arises or is thereafter incurred or contracted. Any
married person who signs this Guaranty hereby expressly agrees that recourse
may be had against both his or her separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor
or to Borrower, and will continue in full force until all Indebtedness
incurred or contracted before receipt by Lender of any notice of revocation
shall have been fully and finally paid and satisfied and all other
obligations of Guarantor under this Guaranty shall have been performed in
full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so
in writing. Guarantor's written notice of revocation must be mailed to
Lender, by certified mail, at the address of Lender listed above or such
other place as Lender may designate in writing. Written revocation of this
Guaranty will apply only to advances or new Indebtedness created after actual
receipt by Lender of Guarantor's written revocation. For this purpose and
without limitation, the term "new Indebtedness" does not include Indebtedness
which at the time of notice of revocation is contingent, unliquidated,
undetermined or not due and which later becomes absolute, liquidated,
determined or due. This Guaranty will continue to bind Guarantor for all
Indebtedness incurred by Borrower or committed by Lender prior to receipt of
Guarantor's written notice of revocation, including any extensions, renewals,
substitutions or modifications of the Indebtedness. All renewals, extensions,
substitutions, and modifications of the Indebtedness granted after
Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. This Guaranty
shall bind the estate of Guarantor as to Indebtedness created both before and
after the death or incapacity of Guarantor, regardless of Lender's actual
notice of Guarantor's death. Subject to the foregoing, Guarantor's executor
or administrator or other legal representative may terminate this Guaranty in
the same manner in which Guarantor might have terminated it and with the same
effect. Release of any other guarantor or termination of any other guaranty
of the Indebtedness shall not affect the liability of Guarantor under this
Guaranty. A revocation received by Lender from any one or more Guarantors
shall not affect the liability of any remaining Guarantors under this
Guaranty. The obligations of Guarantor under this Guaranty shall be in
addition to any obligations of Guarantor, or any of them, under any other
guaranties of the indebtedness of Borrower or any other person heretofore or
hereafter given to Lender unless such other guaranties are modified or
revoked in writing; and this Guaranty shall not, unless herein provided,
affect, invalidate, or supersede any such other guaranty. It is anticipated
that fluctuations may occur in the
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<PAGE>
aggregate amount of Indebtedness covered by this Guaranty, and it is
specifically acknowledged and agreed by Guarantor that reductions in the
amount of Indebtedness, even to zero dollars ($0.00), prior to written
revocation of this Guaranty by Guarantor shall not constitute a
termination of this Guaranty. This Guaranty is binding upon Guarantor
and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either
before or after any revocation hereof, without notice or demand and
without lessening Guarantor's liability under this Guaranty, from time
to time: (a) prior to revocation as set forth above, to make one or more
additional secured or unsecured loans to Borrower, to lease equipment or
other goods to Borrower, or otherwise to extend additional credit to
Borrower; (b) to alter, compromise, renew, extend, accelerate, or
otherwise change one or more times the time for payment or other terms
of the indebtedness or any part of the Indebtedness, including increases
and decreases of the rate of Interest on the Indebtedness; extensions
may be repeated and may be for longer than the original loan term; (c)
to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or decide
not to perfect, and release any such security, with or without the
substitution of new collateral; (d) to release, substitute, agree not to
sue, or deal with any one or more of Borrower's sureties, endorsers, or
other guarantors on any terms or in any manner Lender may choose; (e) to
determine how, when and what application of payments and credits shall
be made on the Indebtedness; (f) to apply such security and direct the
order or manner of sale thereof, including without limitation, any
nonjudicial sale permitted by the terms of the controlling security
agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any
part of the Indebtedness; and (h) to assign or transfer this Guaranty in
whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to
Lender that (a) no representations or agreements of any kind have been made to
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the Indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the Indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
Indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the Indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (I) any statute
of limitations in any action under this Guaranty or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the Indebtedness is due and any change in the interest rate, and
including any such modification or change in terms after revocation of this
Guaranty on Indebtedness incurred prior to such revocation.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even it Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any rights
and defenses Guarantor may have because Borrower's obligation is secured by real
property. These rights and defenses include, but are not limited to, any rights
and defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil
Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be
entitled under state and federal law. The rights and defenses waived include,
without limitation, those provided by California laws of suretyship and
guaranty, anti-deficiency laws, and the Uniform Commercial Code. Guarantor
acknowledges that Guarantor has provided these waivers of rights and defenses
with the intention that they be fully relied upon by Lender. Until all
indebtedness is paid in full, Guarantor waives any right to enforce any
remedy Lender may have against Borrower or any other guarantor, surety, or
other person, and further, Guarantor waives any right to participate in any
collateral for the Indebtedness now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
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<PAGE>
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees
that each of the waivers set forth above is made with Guarantor's full knowledge
of its significance and consequences and that, under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
LENDER'S RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
against the moneys, securities or other property of Guarantor given to Lender by
law, Lender shall have, with respect to Guarantor's obligations to Lender under
this Guaranty and to the extent permitted by law, a contractual security
interest in and a right of setoff against, and Guarantor hereby assigns,
conveys, delivers, pledges, and transfers to Lender all of Guarantor's right,
title and interest in and to, all deposits, moneys, securities and other
property of Guarantor now or hereafter in the possession of or on deposit with
Lender, whether held in a general or special account or deposit, whether held
jointly with someone else, or whether held for safekeeping or otherwise,
excluding however all IRA, Keogh, and trust accounts. Every such security
interest and right of setoff may be exercised without demand upon or notice to
Guarantor. No security interest or right of setoff shall be deemed to have been
waived by any act or conduct on the part of Lender or by any neglect to exercise
such right of setoff or to enforce such security interest or by any delay in so
doing. Every right of setoff and security interest shall continue in full force
and effect until such right of setoff or security interest is specifically
waived or released by an instrument in writing executed by Lender.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Guaranty:
Integration, Amendment. Guarantor warrants, represents and agrees
that this Guaranty, together with any exhibits or schedules
incorporated herein, fully incorporates the agreements and
understandings of Guarantor with Lender with respect to the subject
matter hereof and all prior negotiations, drafts, and other
extrinsic communications between Guarantor and Lender shall have no
evidentiary effect whatsoever. Guarantor further agrees that
Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by
Guarantor's attorney with respect to this Guaranty; the Guaranty
fully reflects Guarantor's intentions and parole evidence is not
required to interpret the terms of this Guaranty. Guarantor hereby
indemnifies and holds Lender harmless from all losses, claims,
damages, and costs (including Lender's attorneys' fees) suffered or
incurred by Lender as a result of any breach by Guarantor of the
warranties, representations and agreements of this paragraph. No
alteration or amendment to this Guaranty shall be effective unless
given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Guaranty has been delivered to Lender and
accepted by Lender in the State of California. If there is a
lawsuit, Guarantor agrees upon Lender's request to submit to the
jurisdiction of the courts of SAN DIEGO County, State of
California. This Guaranty shall be governed by and construed in
accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all
of Lender's costs and expenses, including attorneys' fees and
Lender's legal expenses, incurred in connection with the
enforcement of this Guaranty. Lender may pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and
expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate
any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Guarantor also shall pay all
court costs and such additional fees as may be directed by the
court.
Notices. All notices required to be given by either party to the
other under this Guaranty shall be in writing, may be sent by
telefacsimile (unless otherwise required by law), and, except for
revocation notices by Guarantor, shall be effective when actually
delivered or when deposited with a nationally recognized overnight
courier, or when deposited in the United States mail, first class
postage prepaid, addressed to the party to whom the notice is to be
given at the address shown above or to such other addresses as
either party may designate to the other in writing. All revocation
notices by Guarantor shall be in writing and shall be effective
only upon delivery to Lender as provided above in the section
titled "DURATION OF GUARANTY." If there is more than one Guarantor,
notice to any Guarantor will constitute notice to all Guarantors.
For notice purposes, Guarantor agrees to keep Lender informed at
all times of Guarantor's current address.
Interpretation. In all cases where there is more than one Borrower
or Guarantor, then all words used in this Guaranty in the singular
shall be deemed to have been used in the plural where the context
and construction so require; and where there is more than one
Borrower named in this Guaranty or when this Guaranty is executed
by more than one Guarantor, the words "Borrower" and "Guarantor"
respectively shall mean all and any one or more of them. The words
"Guarantor," "Borrower," and "Lender" include the heirs,
successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are
not to be used to interpret or define the provisions of this
Guaranty. If a court of competent jurisdiction finds any provision
of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid
or unenforceable as to any other persons or circumstances, and all
provisions of this Guaranty in all other respects shall remain
valid and enforceable. If any one or more of Borrower or Guarantor
are corporations or partnerships, it is not necessary for Lender to
inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to
act on their behalf, and any indebtedness made or created in
reliance upon the professed exercise of such powers shall be
guaranteed under this Guaranty.
Waiver. Lender shall not be deemed to have waived any rights under
this Guaranty unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Guaranty shall not
prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with that provision or any other provision
of this Guaranty. No prior waiver by Lender, nor any course of
dealing between Lender and Guarantor, shall constitute a waiver of
any of Lender's rights or of any of Guarantor's obligations as to
any future transactions. Whenever the consent of Lender is required
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<PAGE>
under this Guaranty, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Lender.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR
UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND
DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL
TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF
GUARANTY." NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY
EFFECTIVE. THIS GUARANTY IS DATED OCTOBER 26, 1998.
GUARANTOR:
X /s/ Dickerson Wright
--------------------------
DICKERSON WRIGHT
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NORTH COUNTY BANK
COMMERCIAL SECURITY AGREEMENT
Principal: $1,200,000.00
Loan Date: 10-26-1998
Maturity: 01-01-2004
Loan No: 110882-3133
Call: 520
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
THIS COMMERCIAL SECURITY AGREEMENT is entered into between U.S.
LABORATORIES, INC. (referred to below as "Grantor"); and NORTH COUNTY BANK
(referred to below as "Lender"). For valuable consideration, Grantor grants
to Lender a security interest in the Collateral to secure the Indebtedness
and agrees that Lender shall have the rights stated In this Agreement with
respect to the Collateral, in addition to all other rights which Lender may
have by law.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Uniform Commercial Code.
All references to dollar amounts shall mean amounts in lawful money of the
United States of America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and
schedules attached to this Commercial Security Agreement from time
to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired,
whether now existing or hereafter arising, and wherever located:
All Inventory, chattel paper, accounts, equipment, general
intangibles and fixtures, together with the following
specifically described property: THIS COMMERCIAL SECURITY
AGREEMENT COVERS A UCC-1 FINANCING STATE FILED ON MAY 27, 1998
AS FILE #9814861071.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of
and substitutions for any property described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, general intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale,
lease, or other disposition of any of the property described
in this Collateral section.
(d) All proceeds (including insurance proceeds) from the
sate, destruction, loss, or other disposition of any of the
property described in this Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
Event of Default. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in
the section titled "Events of Default."
Grantor. The word "Grantor" means U.S. LABORATORIES, INC., its
successors and assigns
Guarantor. The word "Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with the Indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness
evidenced by the Note, including all principal and interest,
together with all other indebtedness and costs and expenses for
which Grantor is responsible under this Agreement or under any of
the Related Documents. In addition, the word "Indebtedness"
includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to
Lender, as well as all claims by Lender against Grantor, or any one
or more of them, whether existing now or later; whether they are
voluntary or involuntary, due or not due, direct or indirect,
absolute or contingent, liquidated or unliquidated; whether Grantor
may be liable individually or jointly with others; whether Grantor
may be obligated as guarantor, surety, accommodation party or
otherwise; whether recovery upon such indebtedness may be or
hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors
and assigns.
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Note. The word "Note" means the note or credit agreement dated
October 26, 1998, in the principal amount of $1,200,000.00 from
U.S. LABORATORIES, INC. to Lender, together with all renewals of,
extensions of, modifications of, refinancings of, consolidations of
and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security
interest in and hereby assigns, conveys, delivers, pledges, and transfers
all of Grantor's right, title and interest in and to Grantor's accounts
with Lender (whether checking, savings, or some other account), including
all accounts held jointly with someone else and all accounts Grantor may
open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all Indebtedness against any and all
such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Perfection of Security Interest. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor,
file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This Is a continuing Security Agreement and will continue in
effect even though all or any part of the indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
Location of the Collateral. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of California, without the prior written consent of
Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale in
the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall not
pledge, mortgage, encumber or otherwise permit the Collateral to be subject
to any lien, security interest, encumbrance, or charge, other than the
security interest provided for in this Agreement, without the prior written
consent of Lender. This includes security interests even if junior in right
to the security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
Collateral Schedules and Locations. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and equipment,
Grantor shall deliver to Lender, as often as Lender shall require, such
lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its
subsidiaries or related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not
commit or permit damage to or destruction of the Collateral or any part
of the Collateral. Lender and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and
audit the Collateral wherever located. Grantor shall immediately notify
Lender of all cases
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involving the return, rejection, repossession, loss or damage of or to
any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the
amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized In
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health
and Safety Code, Section 25100, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. The terms "hazardous waste" and "hazardous substance" shall also
include, without limitation, petroleum and petroleum by-products or any
fraction thereof and asbestos. The representations and warranties contained
herein are based on Grantor's due diligence in investigating the Collateral
for hazardous wastes and substances. Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the event
Grantor becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims
and losses resulting from a breach of this provision of this Agreement.
This obligation to indemnify shall survive the payment of the Indebtedness
and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
In no event shall the insurance be in an amount less than the amount agreed
upon in the Agreement to Provide Insurance. If Grantor at any time fails to
obtain or maintain any insurance as required under this Agreement, Lender
may (but shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(f) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to, secure the
Indebtedness.
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EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due on
the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b), if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days, or such lesser time as required by state law, before
the time of the sale or disposition. All expenses relating to the
disposition of the Collateral, including without limitation the expenses of
retaking, holding, insuring, preparing for sale and selling the Collateral,
shall become a part of the Indebtedness secured by this Agreement and shall
be payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without
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bond, and (c) all fees of the receiver and his or her attorney shall
become part of the Indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of
expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, chooses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of
a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of the
State of California. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Notices. All notices required to be given under this Agreement shall
be given in writing, may be sent by telefacsimile (unless otherwise
required by law), and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if
there is more than one Grantor, notice to any Grantor will
constitute notice to all Grantors. For notice purposes, Grantor
will keep Lender informed at all times of Grantor's current
address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of
substitution to do the following: (a) to demand, collect, receive,
receipt for, sue and recover all sums of money or other property
which may now or hereafter become due, owing or payable from the
Collateral; (b) to execute, sign and endorse any and all claims,
instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the
claim; and (d) to file any claim or claims or to take any action or
institute or take part in any proceedings, either in its own name
or in the name of Grantor, or otherwise, which in the discretion of
Lender may seem to be necessary or advisable. This power is given
as security for the Indebtedness, and the authority hereby
conferred is and shall be irrevocable and shall remain in full
force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower
as provided above in the "EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon
and inure to the benefit of the parties, their successors and
assigns.
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by Lender of a provision of this Agreement shall
not prejudice or constitute a waiver of Lender's right otherwise to
demand strict compliance with
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<PAGE>
that provision or any other provision of this Agreement. No prior
waiver by Lender, nor any course of dealing between Lender and
Grantor, shall constitute a waiver of any of Lender's rights or of
any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement,
the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such
consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated
for the Indebtedness, Borrower irrevocably waives, disclaims and
relinquishes all claims against such other person which Borrower
has or would otherwise have by virtue of payment of the
Indebtedness or any part thereof, specifically including but not
limited to all rights of indemnity, contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL
SECURITY AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS
DATED OCTOBER 26, 1998.
GRANTOR:
U.S. LABORATORIES INC.
By: /S/ Dickerson Wright
----------------------------
DICKERSON WRIGHT, President
-19-
<PAGE>
NORTH COUNTY BANK
SUBORDINATION AGREEMENT
Principal: $1,200,000.00
Loan Date: 10-26-1998
Maturity: 01-01-2004
Loan No: 110882-3133
Call: 520
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046--2990
Creditor: DICKERSON WRIGHT
7895 CONVOY COURT, SUITE 18
SAN DIEGO, CA 92111
THIS SUBORDINATION AGREEMENT is entered into among U.S. LABORATORIES,
INC. ("Borrower"), whose address is 7895 CONVOY COURT, SUITE 18, SAN
DIEGO, CA 92111; NORTH COUNTY BANK ("Lender"), whose address is 444 S.
ESCONDIDO BOULEVARD, P.O. BOX 462990, ESCONDIDO, CA 92046-2990; and
DICKERSON WRIGHT ("Creditor"), whose address Is 7895 CONVOY COURT, SUITE
18, SAN DIEGO, CA 92111. As of this date, October 26, 1998, Borrower is
indebted to Creditor in the aggregate amount of Ninety Eight Thousand &
00/100 Dollars ($98,000.00). This amount is the total indebtedness of
every kind from Borrower to Creditor. Borrower and Creditor each want
Lender to provide financial accommodations to Borrower in the form of
(a) new credit or loan advances, (b) an extension of time to pay or
other compromises regarding all or part of Borrower's present
indebtedness to Lender, or (c) other benefits to Borrower. Borrower and
Creditor each represent and acknowledge to Lender that Creditor will
benefit as a result of these financial accommodations from Lender to
Borrower, and Creditor acknowledges receipt of valuable consideration
for entering into this Agreement. Based on the representations and
acknowledgments contained in this Agreement, Creditor and Borrower agree
with Lender as follows:
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform
Commercial Code. All references to dollar amounts shall mean amounts in
lawful money of the United States of America.
Agreement. The word "Agreement" means this Subordination Agreement,
as this Subordination Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to
this Subordination Agreement from time to time.
Borrower. The word "Borrower" means U.S. LABORATORIES, INC.
Creditor. The word "Creditor" means DICKERSON WRIGHT.
Lender. The word "Lender" means NORTH COUNTY BANK, its successors
and assigns,
Security Interest. The words "Security interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or
any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
Subordinated Indebtedness. The words "Subordinated Indebtedness"
mean and include without limitation all present and future
indebtedness, obligations, liabilities, claims, rights, and demands
of any kind which may be now or hereafter owing from Borrower to
Creditor. The term "Subordinated Indebtedness" is used in its
broadest sense and includes without limitation all principal, all
interest, all costs and attorneys' fees, all sums paid for the
purpose of protecting the rights of a holder of security (such as a
secured party paying for insurance on collateral if the owner fails
to do so), all contingent, obligations of Borrower (such as a
guaranty), and all other obligations, secured or unsecured, of any
nature whatsoever.
Superior Indebtedness. The words "Superior Indebtedness" mean and
include without limitation all present and future indebtedness,
obligations, liabilities, claims, rights, and demands of any kind
which may be now or hereafter owing from Borrower to Lender. The
term "Superior Indebtedness" is used in its broadest sense and
includes without limitation all principal, all interest, all costs
and attorneys' fees, all sums paid for the purpose of protecting
Lender's rights in security (such as paying for insurance on
collateral if the owner fails to do so), all contingent obligations
of Borrower (such as a guaranty), all obligations arising by reason
of Borrower's accounts with Lender (such as an overdraft on a
checking account), and all other obligations of Borrower to Lender,
secured or unsecured, of any nature whatsoever.
SUBORDINATION. All Subordinated indebtedness of Borrower to Creditor is
and shall be subordinated in all respects to all Superior Indebtedness
of Borrower to Lender. If Creditor holds one or more Security Interests,
whether now existing or hereafter acquired, in any of Borrower's real
property or personal property, Creditor also subordinates all its
Security Interests to all Security Interests held by Lender, whether the
Lender's Security Interest or Interests exist now or are acquired later.
PAYMENTS TO CREDITOR. Except as provided below, Borrower will not make
and Creditor will not accept, at any time while any Superior
Indebtedness is owing to Lender, (a) any payment upon any Subordinated
Indebtedness, (b) any advance, transfer, or assignment of assets to
Creditor in any form whatsoever that would reduce at any time or in any
way the amount of Subordinated Indebtedness, or (c) any transfer of any
assets as security for the Subordinated Indebtedness. Notwithstanding
the foregoing, Borrower may make regularly scheduled payments of
interest
-20-
<PAGE>
only to Creditor so long as Borrower is not in default under any
agreement between Lender and Borrower. Creditor may not accelerate any
amounts owed to Creditor without Lender's prior written consent.
In the event of any distribution, division, or application, whether partial
or complete, voluntary or involuntary, by operation of law or otherwise, of
all or any part of Borrower's assets, or the proceeds of Borrower's assets,
in whatever form, to creditors of Borrower or upon any indebtedness of
Borrower, whether by reason of the liquidation, dissolution or other
winding-up of Borrower, or by reason of any execution sale, receivership,
insolvency, or bankruptcy proceeding, assignment for the benefit of
creditors, proceedings for reorganization, or readjustment of Borrower or
Borrower's properties, then and in such event, (a) the Superior
Indebtedness shall be paid in full before any payment is made upon the
Subordinated Indebtedness, and (b) all payments and distributions, of any
kind or character and whether in cash, property, or securities, which shall
be payable or deliverable upon or in respect of the Subordinated
Indebtedness shall be paid or delivered directly to Lender for application
in payment of the amounts then due on the Superior Indebtedness until the
Superior Indebtedness shall have been paid in full.
In order that Lender may establish its right to prove claims and recover
for its own account dividends based on the Subordinated Indebtedness,
Creditor does hereby assign all its right, title, and interest in such
claims to Lender. Creditor further agrees to supply such information and
evidence, provide access to and copies of such of Creditor's records as
may pertain to the Subordinated Indebtedness, and execute such
instruments as may be required by Lender to enable Lender to enforce all
such claims and collect all dividends, payments, or other disbursements
which may be made on account of the Subordinated Indebtedness. For such
purposes, Creditor hereby irrevocably authorizes Lender in its
discretion to make and present for or on behalf of Creditor such proofs
of claims on account of the Subordinated Indebtedness as Lender may deem
expedient and proper and to vote such claims in any such proceeding and
to receive and collect any and all dividends, payments, or other
disbursements made thereon in whatever form the same may be paid or
issued and to apply the same on account of the Superior Indebtedness.
Should any payment, distribution, security, or proceeds thereof be received by
Creditor at any time on the Subordinated Indebtedness contrary to the terms of
this Agreement, Creditor immediately will deliver the same to Lender in
precisely the form received (except for the endorsement or assignment of
Creditor where necessary), for application on or to secure the Superior
Indebtedness, whether it is due or not due, and until so delivered the same
shall be held in trust by Creditor as property of Lender. In the event Creditor
fails to make any such endorsement or assignment, Lender, or any of its officers
on behalf of Lender, is hereby irrevocably authorized by Creditor to make the
same.
CREDITOR'S NOTES. Creditor agrees to deliver to Lender, at Lender's request, all
notes of Borrower to Creditor, or other evidence of the Subordinated
Indebtedness, now held or hereafter acquired by Creditor, while this Agreement
remains in effect. At Lender's request, Borrower also will execute and deliver
to Creditor a promissory note evidencing any book account or claim now or
hereafter owed by Borrower to Creditor, which note also shall be delivered by
Creditor to Lender. Creditor agrees not to sell, assign, pledge or otherwise
transfer any of such notes except subject to all the terms and conditions of
this Agreement.
CREDITOR'S REPRESENTATIONS AND WARRANTIES. Creditor represents and warrants to
Lender that: (a) no representations or agreements of any kind have been made to
Creditor which would limit or qualify in any way the terms of this Agreement;
(b) this Agreement is executed at Borrower's request and not at the request of
Lender; (c) Lender has made no representation to Creditor as to the
creditworthiness of Borrower; and (d) Creditor has established adequate means of
obtaining from Borrower on a continuing basis information regarding Borrower's
financial condition. Creditor agrees to keep adequately informed from such means
of any facts, events, or circumstances which might in any way affect Creditor's
risks under this Agreement, and Creditor further agrees that Lender shall have
no obligation to disclose to Creditor information or material acquired by Lender
in the course of its relationship with Borrower.
CREDITOR'S WAIVERS. Creditor waives any right to require Lender: (a) to make,
extend, renew, or modify any loan to Borrower or to grant any other financial
accommodations to Borrower whatsoever; (b) to make any presentment, protest,
demand, or notice of any kind, including notice of any nonpayment of the
Superior Indebtedness or of any nonpayment related to any Security Interests, or
notice of any action or nonaction on the part of Borrower, Lender, any surety,
endorser, or other guarantor in connection with the Superior Indebtedness, or in
connection with the creation of new or additional Superior Indebtedness; (c) to
resort for payment or to proceed directly or at once against any person,
including Borrower; (d) to proceed directly against or exhaust any Security
Interests held by Lender from Borrower, any other guarantor, or any other
person; (e) to pursue any other remedy within Lender's power; or (f) to commit
any act or omission of any kind, at any time, with respect to any matter
whatsoever.
LENDER'S RIGHTS. Lender may take or omit any and all actions with respect to the
Superior Indebtedness or any Security Interests for the Superior Indebtedness
without affecting whatsoever any of Lender's rights under this Agreement. In
particular, without limitation, Lender may, without notice of any kind to
Creditor, (a) make one or more additional secured or unsecured loans to
Borrower; (b) repeatedly alter, compromise, renew, extend, accelerate, or
otherwise change the time for payment or other terms of the Superior
Indebtedness or any part thereof, including increases and decreases of the rate
of interest on the Superior Indebtedness; extensions may be repeated and may be
for longer than the original loan term; (c) take and hold Security Interests for
the payment of the Superior Indebtedness, and exchange, enforce, waive, and
release any such Security Interests, with or without the substitution of new
collateral; (d) release, substitute, agree not to sue, or deal with any one or
more of Borrower's sureties, endorsers, or guarantors on any terms or manner
Lender chooses; (e) determine how, when and what application of payments and
credits, shall be made on the Superior Indebtedness; (f) apply such security and
direct the order or manner of sale thereof, as Lender in its discretion may
determine; and (g) assign this Agreement in whole or in part.
DEFAULT BY BORROWER. If Borrower becomes insolvent or bankrupt, this Agreement
shall remain in full force and effect. In the event of a corporate
reorganization or corporate arrangement of Borrower under the provisions of the
Bankruptcy Code, as amended, this Agreement shall remain in full force and
effect and the court having jurisdiction over the reorganization or arrangement
is hereby authorized to preserve such priority and subordination in approving
any such plan of reorganization or arrangement.
DURATION AND TERMINATION. This Agreement will take effect when received by
Lender, without the necessity of any acceptance by Lender, in writing or
otherwise, and will remain in full force and effect until Creditor shall notify
Lender in writing at the address shown above to the contrary. Any such notice
shall not affect the Superior Indebtedness owed Lender by Borrower at the time
of such notice, nor shall such notice affect Superior Indebtedness thereafter
granted in compliance with a commitment made by Lender to Borrower prior to
receipt of such notice, nor shall such notice affect any renewals of or
substitutions for any of the foregoing. Such notice shall affect only
indebtedness of Borrower to Lender arising after receipt of such notice and not
arising from financial assistance granted by Lender to Borrower in compliance
with Lender's obligations under a commitment. Any notes lodged with Lender
pursuant to the section titled "Creditor's Notes" above need not be returned
until this Agreement has no further force or effect.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Applicable Law, This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Creditor and
Borrower agree upon Lender's request to submit to the jurisdiction of the
courts of SAN DIEGO County, State of California. This Agreement shall
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<PAGE>
be governed by and construed in accordance with the laws of the State of
California. No provision contained in this Agreement shall be construed (a)
as requiring Lender to grant to Borrower or to Creditor any financial
assistance or other accommodations, or (b) as limiting or precluding Lender
from the exercise of Lender's own judgment and discretion about amounts and
times of payment in making loans or extending accommodations to Borrower.
Amendments. This Agreement constitutes the entire understanding and
agreement of the parties as to the matters set forth in this Agreement. No
alteration of or amendment to this Agreement shall be effective unless made
in writing and signed by Lender, Borrower, and Creditor.
Attorneys' Fees; Expenses. Creditor and Borrower agree to pay upon demand
all of Lender's costs and expenses, including attorneys' fees and Lender's
legal expenses, incurred in connection with the enforcement of this
Agreement. Lender may pay someone else to help enforce this Agreement, and
Creditor and Borrower shall pay the costs and expenses of such enforcement.
Costs and expenses include Lender's attorneys' fees and legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (and including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Creditor and Borrower also shall pay all
court costs and such additional fees as may be directed by the court.
Successors. This Agreement shall extend to and bind the respective heirs,
personal representatives, successors and assigns of the parties to this
Agreement, and the covenants of Borrower and Creditor respecting
subordination of the Subordinated Indebtedness in favor of Lender shall
extend to, include, and be enforceable by any transferee or endorsee to
whom Lender may transfer any or all of the Superior Indebtedness.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Creditor, shall constitute a waiver of
any of Lender's rights or of any of Creditor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER AND CREDITOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
SUBORDINATION AGREEMENT, AND BORROWER AND CREDITOR AGREE TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF OCTOBER 26, 1998.
BORROWER:
U.S. LABORATORIES INC.
By: /S/ Dickerson Wright
--------------------------
DICKERSON WRIGHT, President
CREDITOR:
DICKERSON WRIGHT
By: /S/ Dickerson Wright
--------------------------
-22-
<PAGE>
NOTICE OF FINAL AGREEMENT
Principal: $1,200,000.00
Loan Date: 10-26-1998
Maturity: 01-01-2004
Loan No: 110882-3133
Call: 520
Collateral: 03-427
Account: 169728
Officer: 179
Initials
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Borrower: U.S. LABORATORIES, INC. Lender: NORTH COUNTY BANK
7895 CONVOY COURT, SUITE 18 BUSINESS BANKING ESCONDIDO
SAN DIEGO, CA 92111 444 S. ESCONDIDO BOULEVARD
P.O. BOX 462990
ESCONDIDO, CA 92046-2990
BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THE WRITTEN
LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (C) THE WRITTEN LOAN
AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
As used in this notice, the following terms have the following meanings:
Loan. The term "Loan" means the following described loan: a Variable Rate
(based on WALL STREET JOURNAL PRIME RATE), Nondisclosable Irregular Payment
Loan to a Corporation for $1,200,000.00 due on January 1, 2004.
Parties. The term "Parties" means NORTH COUNTY BANK and any and all
entities or individuals who are obligated to repay the loan or have pledged
property as security for the Loan, including without limitation the
following:
Borrower: U.S. LABORATORIES, INC.
Guarantor: DICKERSON WRIGHT
Loan Agreement. The term "Loan Agreement" means one or more promises,
promissory notes, agreements, undertakings, security agreements, deeds of
trust or other documents, or commitments, or any combination of those
actions or documents, relating to the Loan, including without limitation
the following:
NECESSARY FORMS
Corporate Resolution to Borrow Loan Agreement / Negative Pledge
Promissory Note / Change in Terms Agr. Commercial Guaranty
Security Agreement Subordination Agreement
UCC-1 Agreement to Provide Insurance
Disbursement Request and Authorization Notice of Final Agreement
OPTIONAL FORMS
Year 2000 Compliance Agreement
Each party who signs below, other than NORTH COUNTY BANK, acknowledges,
represents, and warrants to NORTH COUNTY BANK that it has received, read and
understood this Notice of Final Agreement. This Notice is dated October 26,
1998.
BORROWER:
U.S. LABORATORIES, INC.
By: /S/ Dickerson Wright
------------------------------------
DICKERSON WRIGHT, President
GUARANTOR:
X /S/ Dickerson Wright
------------------------------------
DICKERSON WRIGHT
LENDER:
NORTH COUNTY BANK
By /S/ Kevein Levezu
------------------------------------
Authorized Officer
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<PAGE>
EXHIBIT 10.22
[U.S. LABORATORIES' LETTERHEAD]
July 14, 1998
Mr. Martin B. Lowenthal
President
U.S. ENGINEERING LABORATORIES, INC.
903 E. Hazelwood Avenue
Rahway, New Jersey 07065
RE: COMPENSATION/INCENTIVE PROGRAM
Dear Marty,
I am writing to set forth the terms of your compensation and incentive agreement
with U.S. Engineering Laboratories, Inc. (USEL). If we are in agreement
regarding the terms as stated below, please state so by signing in the signature
space provided.
Effective July 1, 1998, your compensation will be paid on the last day of each
month and will be paid at the rate of $5,833 per month ($70,000 per annum). In
addition, if USEL achieves or exceeds its profit as set forth in the 1998
business plan (a copy of which is attached) then USEL will be entitled to a
bonus of up to 5% of its pre-tax profit to be distributed to its employees as
you see fit.
Please call with any questions or comments regarding this document. If you are
in agreement, this letter is intended to be your written confirmation of your
compensation package.
Sincerely, Agreed and acknowledged:
/S/ JIM WAIT /S/ MARTIN B. LOWENTHAL
CFO President, USEL
<PAGE>
EXHIBIT 10.23
[U.S. LABORATORIES' LETTERHEAD]
July 14, 1998
Mr. Mark Baron
President
SAN DIEGO TESTING ENGINEERS, INC.
7895 Convoy Court, Suite 18
San Diego, California 92111
RE: COMPENSATION/INCENTIVE PROGRAM
Dear Marty,
I am writing to set forth the terms of your compensation and incentive agreement
with San Diego Testing Engineers, Inc. (TESD). If we are in agreement regarding
the terms as stated below, please state so by signing in the signature space
provided.
Effective July 1, 1998, your compensation will be paid on the last day of each
month and will be paid at the rate of $6,667 per month ($80,000 per annum). In
addition, if USEL achieves or exceeds its profit as set forth in the 1998
business plan (a copy of which is attached) then USEL will be entitled to a
bonus of up to 5% of its pre-tax profit to be distributed to its employees as
you see fit.
Please call with any questions or comments regarding this document. If you are
in agreement, this letter is intended to be your written confirmation of your
compensation package.
Sincerely, Agreed and acknowledged:
/S/ JIM WAIT /S/ MARK BARON
CFO President, TESD
<PAGE>
EXHIBIT 10.24
NORTH COUNTY BANK
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,700,000.00 05-08-1998 05-01-1999 110882-2975 530 03-427l 169728 179
- ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area for Lender's use only and do no limit the
applicability of this document to any particular loan or item
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: U.S. Laboratories, Inc. Lender: North County Bank
3467 Kurtz Street Business Banking Escondido
San Diego, CA 92110 444 S. Escondido Boulevard
P.O. Box 462990
Escondido, CA 92046-2990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT between U.S. LABORATORIES, INC. ("Borrower") and
NORTH COUNTY BANK ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loan and accommodations from Lender to
Borrower, are referred to in this Agreement individually as the "Loan" and
collectively as the "Loans." Borrower understands and agrees that (a) in
granting and renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement;
(b) the granting, renewing or extending of any Loan by Lender at all times shall
be subject to Lender's sole judgment and discretion; and (c) all such Loans
shall be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of [INSERT DATE], and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall means amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
<PAGE>
BORROWER: The word "Borrower" means U.S. LABORATORIES, INC. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" means and include without
limitations any of the Events of Default set forth below in the section
titled EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation, all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a grantor, surety, or otherwise, whether recovery upon such
indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
LENDER. The word "Lender" means NORTH COUNTY BANK, its successors and
assigns.
LOAN. The word "Loan" or "Loans") means and includes without limitations
any and all commercial and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation, those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
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NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interest securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics; warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interest which ,as the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing in connection with the indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing or creating a Security
Interests.
SECURITY INTEREST. The words Security interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral,
(c) Financing Statements perfecting Lender's Security Interests';
(d) evidence of insurance as required below and (e) any
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other documents required under this Agreement ore by Lender or its counsel,
including without limitation any guaranties, described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as lender or its counsel, in their sole discretion, may
require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges and other expenses which are then due and payable as specified in
this Agreement or any Related Documents.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certified delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing with all states in which
borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
AUTHORIZATION. The execution, delivery and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do no conflict
with, result in a violation of, or constitute a default under (a) any
provision of its articles of incorporation or organization, or bylaws, or
any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition
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subsequent to the date of the most recent financial statement supplied to
Lender. Borrower has no material contingent obligations except as
disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and borrower has not used, or filed a financing statement under, any
other name for al east the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et. Seq.,
the Resource Conservative and Recovery Act, 42 U.S.C. Section 6901, et.
seq., Chapters 6.5 through 7;.7 of Division 20 of the California Health and
Safety Code, Section 25100, et. seq. Or other applicable state or Federal
laws, rules or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance by any person on, under, about or from any
of the properties, (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous, waste
or substance on, under, about or from the properties by any prior owners or
occupants of any of the properties or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such mattes.
(c) Neither Borrower nor any tenant, contractor, agent or other authorized
user of any of the properties shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on, under,
about or from any of the properties; and any such activity shall be
concluded in compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes lender and
its agents to enter upon the properties to make such inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. Lender's purposes only
and shall
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not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the Agreement
or as a consequences of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's
ownership of interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the payment
of the Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition or any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, if any,
that have been disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provide.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment or any Security Interest on or affecting
any of the Collateral directly or indirectly securing repayment of
Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successor, representatives, and assigns, and are legally enforceable in
accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
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EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such Plan, (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 3467 KURTZ STREET, SAN DIEGO, CA 92110. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be true and accurate in every material respect on the date as of which such
information is dated or certified; and more of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables inventory schedules, budgets,
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forecasts, tax returns, and other reports with respect to Borrower's
financial condition and business operations as Lender may request
from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies or
certificate of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonable request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
the request of Lender (however not more than often than annually), Borrower
will have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement costs of any Collateral.
The cost of such appraisal shall be paid by Borrower.
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions
spelled out in those guaranties.
<TABLE>
<CAPTION>
Guarantor Amount
--------- ------
<S> <C>
---------------- -------------------
</TABLE>
OTHER AGREEMENTS.. Comply with all terms and conditions of all other
agreements whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including, without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would be attached, and all
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lawful claims that, if unpaid, might become a lien or charge upon any of
Borrower's properties, income or profits. Provided, however, Borrower will
not be required to pay and discharge any such assessment, tax, charge,
levy, lien or claim so long as (a) the legality of the same shall be
contested assessment, tax, charge, levy, lien, or claim in accordance with
generally accepted accounting principles. Borrower, upon demand of Lender,
will furnish to Lender evidence of payment of the assessments, taxes,
charges, levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written statement
of any assessments, taxes, charges, levies, liens and claims against
Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms and conditions, and
provisions set forth in this Agreement and in the Related Documents in a
timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provided written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipals laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans with Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts and records.
If Borrower now or at any time hereinafter maintains any records (including
without limitation computer generated records and computer software
programs for the generation of such records) in the possession of a third
party, Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and provide
Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provided
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial officer,
or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and
correct as of the date of the certificate and further certifying that, as
of the date of the certificate, no Event of Default exists under this
Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, or as a
result of an intentional or unintentional
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action or omission on its part or on the part of any third party, on
property owned and/or occupied by Borrower, any environmental activity
where damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a permit
issued by the appropriate federal, state or local governmental authorities;
shall furnish to Lender promptly and in any event within thirty (30) days
after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or
omission of Borrower's part in connection with any environmental activity
whether or not there is damage to the environment and/or other natural
resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, debts of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for traded debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however, that notwithstanding the foregoing, but only so
long s no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S
Corporation"(as defined in the Internal Revenue Code of 1986, as amended),
Borrower may pay cash dividends on its stock to its shareholders from time
to time in amounts necessary to enable the shareholders to pay income taxes
and make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of stock
of Borrower, or (d) purchase or retire any of Borrower's outstanding shares
or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise or
entity, or (c) incur any obligation as surety or guarantor other than in the
ordinary course of business.
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CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
ADDITIONAL PROVISIONS.
1. COMPLIANCE CERTIFICATE REQUIREMENT IS WAIVED.
2. PRIMARY SAN DIEGO RELATED DEPOSIT RELATIONSHIP OF U.S. LABORATORIES,
INC. IS TO BE MAINTAINED AT NORTH COUNTY BANK.
3. PRIMARY PERSONAL DEPOSIT RELATIONSHIP OF DICKERSON WRIGHT IS TO BE
MAINTAINED AT NORTH COUNTY BANK.
FINANCIAL PROVISIONS.
1. ANNUAL CPA COMPLIED FISCAL YEAR END FINANCIAL STATEMENTS OF U.S.
LABORATORIES, INC.
2. QUARTERLY COMPANY PREPARED FINANCIAL STATEMENTS, MONTHLY ACCOUNTS
RECEIVABLE AGING ON U.S. LABORATORIES, INC., AND MONTHLY BORROWING
BASE CERTIFICATE.
3. ANNUAL TAX RETURN (INCLUDING SCHEDULES) AND/OR EXTENSIONS WITHIN 30
DAYS OF FILING.
4. ANNUAL PERSONAL FINANCIAL STATEMENT ON DICKERSON WRIGHT.
5. ANNUAL TAX RETURN (INCLUDING SCHEDULES AND K-1S) AND/OR EXTENSIONS ON
DICKERSON WRIGHT WITHIN 30 DAYS OF FILING.
RIGHT OF SETOFF. Borrower grants o Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA
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and Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.
DEFAULT ON INDEBTEDNESS. Each of the following shall constitute an Event
of Default under this Agreement.
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Guarantor
default under any loan, extension of credit, security agreement, purchase
or sales agreement, or any other agreement, in favor of any other creditor
or person that may materially affect an of Borrower's property or
Borrower's or any Grantor's ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full effect (including failure of any Security
Agreement to create a valid and perfected Security Interest)O at any time
and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITORS OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on
or of any of Borrower's deposit accounts with Lender. However, this Event
of Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceedings, and if
Borrower or Grantor gives Lender written notice of the creditor, or
forfeiture proceeding and
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furnishes reserves or a surety bond for the creditor or forfeiture
proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness. Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
to any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
-13-
<PAGE>
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts of
SAN DIEGO County, the State of California. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consent to Lender's
sale or transfer, whether now or later, of one or more purchasers, whether
related or unrelated to Lender. Lender may provide, without any limitation
whatsoever to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will
have all the rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation interest
and unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure of
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be
-14-
<PAGE>
effective when actually delivered or when deposited with a nationally
recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender , nor
any course of dealing between Lender and Borrower, or between Lender and
any Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such
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<PAGE>
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF MAY
8, 1998.
BORROWER:
U.S. LABORATORIES, INC.
By: /S/ Dickerson Wright
---------------------------------------
DICKERSON WRIGHT, President/Secretary
LENDER:
NORTH COUNTY BANK
By: /S/ Kevin Levezu
--------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-16-
<PAGE>
NOTICE OF FINAL AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,700,000.00 05-08-1998 05-01-1999 110882-2975 530 03-427l 169728 179
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area for Lender's use only and do no limit the
applicability of this document to any particular loan or item
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: U.S. Laboratories, Inc. Lender: North County Bank
3467 Kurtz Street Business Banking Escondido
San Diego, CA 92110 444 S. Escondido Boulevard
P.O. Box 462990
Escondido, CA 92046-2990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each party who signs below other than NORTH COUNTY BANK, acknowledges,
represents and warrants to NORTH COUNTY BANK that it has received, read and
signed this Notice of Final Agreement. This Notice is dated June 1, 1998.
BORROWER:
U.S. LABORATORIES, INC.
By: /S/ Dickerson Wright
-------------------------------------
DICKERSON WRIGHT, President/Secretary
GUARANTOR:
/S/ Dickerson Wright
- ----------------------------------------
DICKERSON WRIGHT
LENDER:
NORTH COUNTY BANK
By: /S/ Kevin Levezu
-------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
NORTH COUNTY BANK
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,700,000.00 05-08-1998 05-01-1999 110882-2975 530 03-427l 169728 179
- -------------------------------------------------------------------------------------------------------------------------------
References in the shaded area for Lender's use only and do no limit the
applicability of this document to any particular loan or item
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Borrower: U.S. Laboratories, Inc. Lender: North County Bank
3467 Kurtz Street Business Banking Escondido
San Diego, CA 92110 444 S. Escondido Boulevard
P.O. Box 462990
Escondido, CA 92046-2990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT is entered into between U.S. LABORATORIES,
INC. (referred to below as "Grantor"); and NORTH COUNTY BANK (referred to below
as "Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the Indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terns not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
All inventory, chattel paper, accounts, equipment, general intangibles and
fixtures.
In addition, the word "Collateral includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising and
wherever located:
(a) All attachment, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
to any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
-1-
<PAGE>
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in the Collateral section.
(e) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means U.S. LABORATORIES, INC., its successor
and assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodations parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or any of the Related Documents. In addition, the word
"Indebtedness includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
enforceable.
LENDER. The word "Lender" means NORTH COUNTY BANK, its successors and
assigns.
NOTE. The word "Note: means the note or credit agreement dated May 8,
1998,m in the principal amount of $1,700,000.00 from U.S. LABORATORIES,
INC. to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of and substitutions for
the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental
-2-
<PAGE>
agreements; guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantors may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTORS. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. This is a continuing Security Agreement and will continue in
effect even though all or any part of the Indebtedness is paid in full and
even though for a period of time Grantor may not be indebted to Lender.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to
-3-
<PAGE>
delivery instructions or theretofore shipped or delivered pursuant to a
contract of sale, or for services theretofore performed by Grantor with
or for the account debtor; there shall be no setoffs or counterclaims
against any such account; and no agreement under which any deductions or
discounts may be claimed shall have been made with the account debtor
except those disclosed to Lender in writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender will deliver
to Lender in form satisfactory to Lender a schedule or real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor;
(c) all storage facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be located. Except
in the ordinary course of its business, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
ore other titled property, Grantor shall not take or permit any action
which would require application for certificates of title for the vehicles
outside the State of California without the prior written consent of
Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of business and only to buyers
who qualify as a buyer in the ordinary course or business. A sale in the
ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject to any lien, security interest, encumbrance, or change, other than
the security interest provided for in this Agreement. Unless waived by
Lender all proceeds from any disposition of the Collateral (for whatever
reason) shall be held in trust for Lender and shall not be commingled with
any other funds; provided, however, this requirement shall not constitute
consent by Lender to any sale or other disposition. Upon receipt, Grantor
shall immediately delivery any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
-4-
<PAGE>
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles.
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory notes evidencing the Indebtedness, or upon
any of the other Related Documents. Grantor may withhold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so long as
Lender's interest in the Collateral is not jeopardized in Lender's sole
opinion. If the Collateral is subjected to a lien which is not discharged
within fifteen (15) days, Grantor shall deposit with Lender cash, a
sufficient corporate surety bond or other security satisfactory to Lender
in an amount adequate to provide for the discharge of the line plus any
interest, costs, attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grant shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are
-5-
<PAGE>
defined in the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et. seq.
("CERCLA") the Superfund Amendments and the Reauthorization Act of 1986,
Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et. seq., the Resources Conservative and
Recovery Act , 42 U.S.C. Section 6901, et. seq., Chapters 6.5 through
7.7 of Division 20 of the California Health and Safety Code, Section
25100, et. seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms
"hazardous waste" and "hazardous substance" shall also include, without
limitation, petroleum and petroleum by-products or any fraction thereof
and asbestos. The representations and warranties contained herein are
based on Guarantor's due diligence in investigating the Collateral for
hazardous wastes and substances, Grantor hereby (a) releases and waives
any future claims against Lender for indemnity or contribution in the
event Grantor becomes liable for cleanup or other costs under any such
laws, and (b) agrees to indemnify and hold harmless Lender against any
and all claims and losses resulting from a breach of this provision of
this Agreement. This obligation to indemnify shall survive the payment
of the indebtedness and the satisfaction of this Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation, fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates in form satisfactory
to Lender, including stipulations that coverages will not be cancelled or
diminished without at least ten (10) days' prior written notice to Lender
and not including any disclaimer of the insurer's liability for failure to
give such a notice. Each insurance policy shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any way
by any act, omission or default of Grantor or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest, Grantor will provide Lender with such loss
payable or other endorsements as Lender may require. In no event shall the
insurance be in an amount less than the amount agreed upon by in the
Agreement to Provide Insurance. If Grantor at any time fails to obtain or
maintain any insurance as required under this Agreement, Lender may (but
shall not be obligated to) obtain such insurance as Lender deems
appropriate, including if it so chooses "single interest insurance," which
will cover only Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a
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<PAGE>
sufficient amount of the proceeds to pay all of the Indebtedness, and shall
pay the balance to Grantor. Any proceeds which have not been disbursed
within six (6) months after their receipt and which Grantor has not
committed to the repair or restoration of the Collateral shall be used to
prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not held the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify accounts debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
not to protect, preserve or maintain any security interest given to secure the
Indebtedness.
-7-
<PAGE>
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement.
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property of Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or
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<PAGE>
the commencement of any proceeding under any bankruptcy or insolvency laws
by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Grantor as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Grantor gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bound for the dispute.
EVENT AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
become incompetent. Lender, at its option, may, but shall not be required
to, permit the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and, in
doing so, cure the Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, in
curable and if Grantor has not been given a prior notice of a breach of the
same provision of this Agreement, it may be cured (and no Event of Default
will have occurred) if Grantor, after Lender sends written notice demanding
cure of such default, (a) cures the default within fifteen (15) days; or
(b) if the cure requires more than fifteen (15) days, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to
cure the default and thereafter continues and completes all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
RIGHTS AND REMEDIES ON DEFAULT. In an Event of Default occurs under this
Agreement, at nay time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATED INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
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<PAGE>
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sales. Unless the Collateral threatens to decline
speedily in value or is of a type of customarily sold on a recognized
market, Lender will give Grantor reasonable notice of the time after which
may private sale or any other intended disposition of the Collateral is to
be made. The requirements of reasonable notice shall be met if such notice
is given at least ten (10) days, or such lesser time as required by state
law, before the time of the sale or disposition. All expenses relating to
the disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, prepared for sale and selling the
Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bound,
and (c) all fees of the received and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, chooses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclosure, or realize on the Collateral as Lender may determine, whether
or not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
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<PAGE>
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not execute
pursuit of any other remedy, and an election to make expenditures or take
action to perform an obligation of Grantor under this Agreement, after
Grantor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts of
the State of California. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the Court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not be used to interpret or define the provisions of
this Agreement.
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<PAGE>
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent to telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or thereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
PREFERENCE PAYMENTS. All monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. Subject to the limitations set forth above on transfer of
the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender or any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of
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Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquish all
claims against such other person which Borrower has or would otherwise have
by virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MAY 8,
1998.
Grantor:
U.S. LABORATORIES, INC.
By: /S/ Dickerson Wright
-------------------------------------
DICKERSON WRIGHT, President/Secretary
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<PAGE>
NORTH COUNTY BANK
PROMISSORY NOTE
<TABLE>
<CAPTION>
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Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,700,000.00 05-08-1998 05-01-1999 110882-2975 530 03-427l 169728 179
- ---------------------------------------------------------------------------------------------------------------------------------
References in the shaded area for Lender's use only and do no limit the
applicability of this document to any particular loan or item Borrower:
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</TABLE>
U.S. Laboratories, Inc. Lender: North County Bank
3467 Kurtz Street Business Banking Escondido
San Diego, CA 92110 444 S. Escondido Boulevard
P.O. Box 462990
Escondido, CA 92046-2990
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Promissory Amount: $1,700,000.00 Initial Rate: 8.500%
Date of Notice: May 8, 1998
PROMISE TO PAY. U.S. LABORATORIES, INC. ("Borrower") promises to pay to NORTH
COUNTY BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of One Million Seven Hundred Thousand and 00/100
Dollars ($1,700,000.00) or so such as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on May 1,
1999. In addition, Borrower will pay regular monthly payments of accrued unpaid
interest beginning June 1, 1998, and all subsequent interest payments are due on
the same day of each month after that. The annual interest rate for this Note
is computed on a 365/360 basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the WALL
STREET JOURNAL PRIME RATE (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the terms of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. THE INDEX CURRENTLY IS 8.500%. THE INTEREST RATE TO BE APPLIED TO
THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE EQUAL TO THE INDEX,
RESULTING IN AN INITIAL RATE OF 8.500%. NOTICE: Under no circumstances will
the interest rate on this Note be more than the maximum rate allowed by
applicable law.
<PAGE>
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan, and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to a MINIMUM INTEREST CHARGE OF $100.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments of accrued unpaid interest. Rather, they will
reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment of $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens:
(a) Borrower fails to make payment when due, (b) Borrower breaks any
promise Borrower has made to Lender, or Borrower fails to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Note or any agreement related to this Note, or in any
other agreement or loan Borrower has with Lender. (c) Borrower defaults
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's ability
to repay this Note or perform Borrower's obligations under this Note or any
of the Related Documents. (d) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or
misleading in any material respect either now or at the time made or
furnished. (e) Borrower becomes insolvent, a receiver is appointed for any
part of Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower or against
Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's
accounts with Lender. (g) Any guarantor dies or any of the other events
described in this default section occurs with respect to any guarantor of
this Note. (h) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired. (i) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower
has not been given a notice of a breach of the same provision of this Note
within the preceding twelve (12) months, it may be cured (and no event of
default within fifteen (15) days; or (b) if the cure requires more than
fifteen (15) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, without notice,
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<PAGE>
and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted
under applicable law, increase the variable interest rate on this Note
5.000 percentage points over the Index. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amounts. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower will also pay
any court costs, in addition to all other sums provided by law. THIS
NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S
REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF SAN DIEGO COUNTY,
THE STATE OF CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts
,and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. The Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: DICKERSON WRIGHT,
PRESIDENT/SECRETARY. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if:
(a) Borrower or any guarantor is in default under the terms of this Note or any
agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note; (b) Borrower or any
guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims, or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or any
other agreement between Lender and Borrower.
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<PAGE>
CALIFORNIA VEHICLE CODE WAIVER. The provisions of Section 1808.21 of the
California Vehicle Code are hereby waived. I/we understand that this waiver
will give the Bank authority to receive my/our current residence address at any
time from the Department of Motor Vehicle.
ADDITIONAL PROVISIONS. THIS NOTE IS SECURED BY A COMMERCIAL SECURITY AGREEMENT
DATED MAY 8, 1998.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
U.S. LABORATORIES, INC.
By: /S/ Dickerson Wright
-----------------------------------
DICKERSON WRIGHT, President/Secretary
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<PAGE>
EXHIBIT 10.25
ACKNOWLEDGEMENT
OF TERMINATION AND REPLACEMENT OF OPTION(S)
The undersigned, _______________________________, hereby acknowledges and
agrees to the following:
1) Pursuant to the U.S. Laboratories Inc. 1998 Stock Option Plan (the "Plan"),
the undersigned previously received from U.S. Laboratories Inc. (the
"Company") the following option(s) (collectively, the "Original Option") to
purchase shares of the Company's common stock:
An incentive stock option dated _____________, 1998 to purchase
_____________ shares at $__________ per share; and/or
A nonqualified stock option dated __________________, 1998 to purchase
______________ shares at $______________ per share.
2) On November 9, 1998 the Company effected a reverse stock split (the
"Reverse Split") that by the terms of the Original Option would have
reduced the number of shares available for purchase thereunder.
3) Notwithstanding the foregoing, the Company has agreed to maintain the
number of shares available for purchase under the Original Option by
issuing a replacement incentive stock option and/or nonqualified stock
option under the Plan (collectively, the "New Option"), on the condition
that (a) the undersigned agrees to certain changes in the exercise price of
the Original Option, (b) in the case of an incentive stock option, the
undersigned agrees that the New Option will have a revised vesting schedule
determined by the Board of Directors of the Company, and (c) the
undersigned surrenders the Original Option for termination by the Company.
NOW THEREFORE, in consideration of the New Option, the undersigned hereby
surrenders the Original Option and acknowledges that all rights thereunder are
hereby terminated. The undersigned represents to the Company that he/she is the
sole holder of the Original Option and that he/she holds the Original Option
free of any liens, claims or encumbrances.
IN WITNESS WHEREOF the undersigned has executed and delivered this
Acknowledgement to be effective as of the 10th day of November, 1998.
__________________________________________
<PAGE>
ACKNOWLEDGEMENT
OF TERMINATION AND REPLACEMENT OF WARRANT
The undersigned, _______________________________, hereby acknowledges and
agrees to the following:
1) The undersigned previously received from U.S. Laboratories Inc. (the
"Company") a warrant (the "Original Warrant") dated _____________, 1998 to
purchase _____________ shares at $__________ per share.
2) On November 9, 1998 the Company effected a reverse stock split (the
"Reverse Split") that by the terms of the Original Warrant would have
reduced the number of shares available for purchase thereunder.
3) Notwithstanding the foregoing, the Company has agreed to maintain the
number of shares available for purchase under the Original Warrant by
issuing a replacement warrant (the "New Warrant"), on the condition
that (a) the undersigned agrees to certain changes in the exercise
price of the Original Warrant, and (b) the undersigned surrenders the
Original Warrant for termination by the Company.
NOW THEREFORE, in consideration of the New Warrant, the undersigned hereby
surrenders the Original Warrant and acknowledges that all rights thereunder are
hereby terminated. The undersigned represents to the Company that he/she is the
sole holder of the Original Warrant and that he/she holds the Original Warrant
free of any liens, claims or encumbrances.
IN WITNESS WHEREOF the undersigned has executed and delivered this
Acknowledgement to be effective as of the 10th day of November, 1998.
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EXHIBIT 10.26
MERRILL LYNCH No. 825-00756
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WCMA-Registered Trademark- NOTE, LOAN AND SECURITY AGREEMENT
WCMA NOTE, LOAN AND SECURITY AGREEMENT ("Loan Agreement") dated as of June 17.
1997. between U.S. LABORATORIES INC., a corporation organized and exiting under
the laws of the State of Delaware having its principal office at 3467 Kurt
Street, San Diego, CA 92110 ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC., a corporation organized and existing under the laws of the State
of Delaware having its principal office at 33 West Monroe Street, Chicago, IL
60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT-Registered Trademark-
ACCOUNT AGREEMENT NO. 825-00756 ("WCMA Agreement") between Customer and MLBFS'
affiliate, MERRILL LYNCH, PIERCE, FENCER & SMITH INCORPORATED ("MLPF&S"),
Customer has subscribed to the WCMA Program described in the WCMA Agreement. The
WCMA Agreement is by this reference incorporated as a part hereof. In
conjunction therewith and as part of the WCMA Program, Customer has requested
that MLBFS provide, and subject to the terms and conditions herein set forth
MLBFS has agreed to provide, a commercial line of credit for Customer (the "WCMA
Line of Credit").
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper,
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement, whether with or from Customer or
any other party, which are contemplated hereby or otherwise reasonably required
by MLBFS in connection herewith, or which evidence the creation, guaranty or
collateralization of any of the Obligations or the granting or perfection of
liens or security interests upon the Collateral or any other collateral for the
Obligations.
(iv) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Customer or any
Guarantor; or (B) any such proceeding shall be filed against Customer or any
Guarantor and shall not be dismissed or withdrawn within sixty (60) days after
filing; or (C) Customer or any Guarantor shall make a general assignment for the
benefit of creditors; or (D) Customer or any Guarantor shall become insolvent or
generally fail to pay or admit in writing its inability to pay its debts as they
become due; or (E) Customer or any Guarantor shall be adjudicated a bankrupt or
insolvent.
(v) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
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(vi) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or adding, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 9 (b) hereof.
(vii) "Commitment Expiration Date" shall mean July 17, 1997.
(viii) "General Funding Conditions" shall mean each of the following conditions
to any WCMA Loan by MLBFS hereunder: (A) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of any WCMA Loan hereunder by MLBFS; (6) there shall not have occurred
and be continuing any material adverse change in the business or financial
condition of Customer or any Guarantor; (C) all representations and warranties
of Customer or any Guarantor herein or in any Additional Agreements shall then
be true and correct in all material respects; (D) MLBFS shall have received this
Loan Agreement and all of the Additional Agreements, duly executed and filed or
recorded where applicable, all of which shall be in form and substance
reasonably satisfactory to MLBFS; (E) MLBFS shall have received evidence
reasonably satisfactory to it as to the ownership of the Collateral and the
perfection and priority of MLBFS' liens and security interests thereon, as well
as the ownership of and the perfection and priority of MLBFS' liens and security
interests on any other collateral for the Obligations furnished pursuant to any
of the Additional Agreements; (F) MLBFS shall have received evidence reasonably
satisfactory to it of the insurance required hereby or by any of the Additional
Agreements; and (G) any additional conditions specified in the "WCMA Line of
Credit Approval" letter executed by MLBFS with respect to the transactions
contemplated hereby shall have been met to the reasonable satisfaction of MLBFS.
(ix) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(x) "Interest Rate" shall mean a variable per annum rate of interest equal to
the sum of 3.15% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, of the date of any determination, the interest rate from
time to time published in the "Money Rates" section of THE WALL STREET JOURNAL
for 30-day high grade unsecured notes sold through dealers by major
corporations. The Interest Rate will change as of the date of publication in
THE WALL STREET JOURNAL of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that THE WALL STREET
JOURNAL shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use s
the basis for the Interest Rate.
(ix) "Line Fee" shall mean a fee of $4,000.00 payable to MLBFS in connection
with the WCMA Line of Credit for the period from the Activation Date to the
Maturity Date.
(xii) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xiii) "Maturity Date" shall mean June 30, 1998 or such later date as may be
consented to in writing by MLBFS.
(xiv) "Maximum WCMA Line of Credit" shall mean $800,000.00.
(xv) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement.
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(xvi) "Permitted Liens" shall mean shall mean with respect to the Collateral:
(A) liens for current taxes not delinquent, other non-consensual liens arising
in the ordinary course of business for sums not due, and, if MLBFS' rights to
and interest in the Collateral are not materially and adversely affected
thereby, any such liens for taxes or other non-consensual liens arising in the
ordinary course of business being contested in good faith by appropriate
proceedings; (B) liens in favor of MLBFS; (C) liens which will be discharged
with the proceeds of the initial WCMA Loan; and (D) any other liens expressly
permitted in writing by MLBFS.
(xvii) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 825-00756.
(xviii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(b) OTHER TERMS. Except as otherwise defined herein:-(i) all terms used in
this Loan Agreement which are defined in the Uniform Commercial Code of
Illinois ("UCC") shall have the meanings set forth in the UCC, and (ii)
capitalized terms used herein which are defined in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, the aggregate unpaid principal amount of
all WCMA Loans (the "WCMA Loan Balance"), (b) interest at the Interest Rate on
the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full:
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the Line Fee and any late charges. Except as
otherwise expressly set forth herein, Customer hereby waives presentment, demand
for payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.
3. WCMA LOANS
(a) ACTIVATION DATE. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof. Customer hereby authorizes MLBFS to pay out of and charge to
Customer's WCMA Account on the Activation Date any and all amounts necessary to
fully pay off any bank or other financial institution having a lien upon any of
the Collateral other than a Permitted Lien.
(b) WCMA LOANS. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as Customer may from time to time request
in accordance with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request a
re-borrowing of amounts repaid on a revolving basis. Customer may request WCMA
Loans by use of WCMA Checks, FTS, Visa charges, wire transfers, or such other
means of access to the WCMA Line of Credit as may be permitted by MLBFS from
time to time; it being understood that so long as the WCMA Line of Credit shall
be in effect, any charge or debit to the WCMA Account which but for the WCMA
Line of Credit would under the terms of the WCMA Agreement result in an
overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) CONDITIONS OF WCMA LOANS. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of receipt by MLBFS of Customer's request:
(i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to
be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of
Credit shall have otherwise been terminated in accordance with the terms hereof;
or (iii) Customer's subscription to the WCMA Program shall have been terminated;
or (iv) an event shall have occurred and is continuing WHICH SHALL have caused
any of the General Funding Conditions to not then be met or satisfied to the
reasonable satisfaction of
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MLBFS. The making by MLBFS of any WCMA Loan at a time when any one or more of
said conditions shall not have been met shall not in any event be construed
as a waiver of said condition or conditions or of any Event of Default, and
shall not prevent MLBFS at any time thereafter while any condition shall not
have been met from refusing to honor any request by Customer for a WCMA Loan.
(d) FORCE MAJEURE. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) INTEREST. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any provision to the contrary in
this Agreement or any of the Additional Agreements, no provision of this
Agreement or any of the Additional Agreements shall require the payment or
permit the collection of any amount in excess of the maximum amount of interest
permitted to be charged by law ('Excess Interest'). If any Excess Interest is
provided for, or is adjudicated as being provided for, in this Agreement or any
of the Additional Agreements, then: (a) Customer shall not be obligated to pay
any Excess Interest; and (b) any Excess Interest that MLBFS may have received
hereunder or under any of the Additional Agreements shall, at the option of
MLBFS, be: (i) applied as a credit against the then unpaid balance of the WCMA
Line of Credit, (ii) refunded to the payer thereof, or (iii) any combination of
the foregoing. Except as otherwise provided herein, accrued and unpaid interest
on the WCMA Loan Balance shall be payable monthly on the last Business Day of
each calendar month, commencing with the last Business Day of the calendar month
in WHICH THE Activation Date shall occur. Customer hereby irrevocably authorizes
and directs MLPF&S to pay MLBFS such accrued interest from any available free
credit balances in the WCMA Account, and if such available free credit balances
are insufficient to satisfy any interest payment due, to liquidate any
investments in the Money Accounts (other than any investments constituting any
Minimum Money Accounts Balance under the WCMA Directed Reserve program) in an
amount up to the balance of such accrued interest, and pay to MLBFS the
available proceeds on account thereof. If available free credit balances in the
WCMA Account and available proceeds of the Money Accounts are insufficient to
pay the entire balance of accrued interest, and Customer otherwise fails to make
such payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an
amount equal to the balance of such accrued interest and pay the proceeds of
such WCMA Loan to itself on account of such interest. The amount of any such
WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to extend a
WCMA Loan to Customer under these circumstances, Customer hereby authorizes and
directs MLPF&S to make all such interest payments to MLBFS from any Minimum
Money Accounts Balance. If there is no Minimum Money Accounts Balance, or it is
insufficient to pay all such interest, MLBFS will invoice Customer for payment
of the balance of the accrued interest, and Customer shall pay such interest as
directed by MLBFS within 5 Business Days of receipt of such invoice.
(f) PAYMENTS. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customers WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or on behalf of MLBFS of a check or other payment for a lesser
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
WCMA Line of Credit are subject to final collection.
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(g) EXCEEDING THE MAXIMUM WCMA LINE OF CREDIT. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(h) LINE FEE; EXTENSIONS.
(i) In consideration of the extension of the WCMA Line of Credit by MLBFS to
Customer during the period from the Activation Date to the Maturity Date,
Customer has paid or shall pay the Line Fee to MLBFS. If such fee has not
heretofore been paid by Customer, Customer hereby authorizes MLBFS, at its
option, to either cause said fee to be paid with a WCMA Loan which is added to
the WCMA Loan Balance, or invoice Customer for said fee (in which event Customer
shall pay said fee within 5 Business Days after receipt of such invoice). No
delay in the Activation Date, howsoever caused, shall entitle Customer to any
rebate or reduction in the Line Fee or extension of the Maturity Date.
(ii) In the event MLBFS and Customer, in their respective sole discretion, agree
to renew the WCMA Line of Credit beyond the current Maturity Date, Customer
agrees to pay a renewal Line Fee or Line Fees (if the Maturity Date is extended
for more than one 12-month period), in the amount per 12-month period or other
applicable period then set forth in the writing signed by MLBFS which extends
the Maturity Date; it being understood that any request by Customer for a WCMA
Loan or failure of Customer to pay any WCMA Loan Balance outstanding on the
immediately prior Maturity Date, after the receipt by Customer of a writing
signed by MLBFS extending the Maturity Date, shall be deemed a consent by
Customer to both the renewal Line Fees and the new Maturity Date. If no renewal
Line Fees are set forth in the writing signed by MLBFS extending the Maturity
Date, the renewal Line Fee for each 12-month period shall be deemed to be the
same as the immediately preceding periodic Line Fee. Each such renewal Line Fee
may, at the option of MLBFS, either be paid with a WCMA Loan which is added to
the WCMA Loan Balance or invoiced to Customer, as aforesaid, on or at any time
after the first Business Day of the first month of the 12-month period for which
such fee is due.
(i) STATEMENTS. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(j) USE OF LOAN PROCEEDS; SECURITIES TRANSACTIONS. On the Activation Date, a
WCMA Loan will be made to pay any indebtedness of Customer to a third party
secured by all or any part of the Collateral. The proceeds of each subsequent
WCMA Loan shall be used by Customer solely for working capital in the ordinary
course of its business, or, with the prior written consent of MLBFS, for other
lawful business purposes of Customer not prohibited hereby. Customer agrees that
under no circumstances will funds borrowed from MLBFS through the WCMA Line of
Credit be used: (i) for personal, family or household purposes of any person
whatsoever, or (ii) to purchase, carry or trade in securities, or repay debt
incurred to purchase, carry or trade in securities, whether in or in connection
with the WCMA Account, another account of Customer with MLPF&S or an account of
Customer at any other broker or dealer in securities.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) ORGANIZATION AND EXISTENCE. Customer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware and is
qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary; and, where applicable, each Business Guarantor is duly organized,
validly existing and in good standing under the laws of the state of its
formation and is qualified to do business and in good standing in each other
state where the nature of its business or the property owned by it make such
qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i)
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have been duly authorized by all requisite action, (ii) do not and will not
violate or conflict with any law or other governmental requirement, or any of
the agreements, instruments or documents which formed or govern Customer or
any such Guarantor, and (iii) do not and will not breach or violate any of
the provisions of, and will not result in a default by Customer or any such
Guarantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c) NOTICES AND APPROVALS. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or
other third party whatsoever (including, without limitation, any other
creditor) is required in connection with the execution, delivery or
performance by Customer or any Guarantor of such of this Loan Agreement and
the Additional Agreements to which it is a party.
(d) ENFORCEABILITY. This Loan Agreement and such of the Additional Agreements
to which Customer or any Guarantor is a party are the respective legal, valid
and binding obligations of Customer and such Guarantor, enforceable against
it or them, as the case may be, in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of
equity.
(e) COLLATERAL. Except for any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with
respect to the Collateral in the appropriate jurisdiction(s) and/or the
completion of any other action required by applicable law to perfect its
liens and security interests, MLBFS will have valid and perfected first liens
and security interests upon all of the Collateral.
(f) FINANCIAL STATEMENTS. Except as expressly set forth in Customers or any
Business Guarantor's financial statements, all financial statements of
Customer and each Business Guarantor furnished to MLBFS have been prepared in
conformity with generally accepted accounting principles, consistently
applied, are true and correct, and fairly present the financial condition of
it as at such dates and the results of its operations for the periods then
ended; and since the most recent date covered by such financial statements,
there has been no material adverse change in any such financial condition or
operation. All financial statements furnished to MLBFS of any Guarantor other
than a Business Guarantor are true and correct and fairly represent such
Guarantors financial condition as of the date of such financial statements,
and since the most recent date of such financial statements, there has been
no material adverse change in such financial condition.
(g) LITIGATION. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer or any Guarantor, which would, if adversely determined, materially
and adversely affect the liens and security interests of MLBFS hereunder or
under any of the Additional Agreements, the financial condition of Customer
or any such Guarantor or the continued operations of Customer or any Business
Guarantor.
(h) TAX RETURNS. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been
filed with the appropriate governmental agencies and all taxes due and
payable by Customer and each Guarantor have been timely paid (except to the
extent that any such failure to file or pay will not materially and adversely
affect either the liens and security interests of MLBFS hereunder or under
any of the Additional Agreements, the financial condition of Customer or any
Guarantor, or the continued operations of Customer or any Business Guarantor).
(i) COLLATERAL LOCATION. All of the tangible Collateral is located at a
Location of Tangible Collateral.
Each of the foregoing representations and warranties: (i) has been and will
be relied upon as an inducement to MLBFS to provide the WCMA Line of Credit,
and (ii) is continuing and shall be deemed remade by Customer concurrently
with each request for a WCMA Loan.
5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of
this Loan Agreement all of the following:
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(a) ANNUAL FINANCIAL STATEMENTS. Within 120 days after the close of each
fiscal year of Customer and each Business Guarantor, Customer shall furnish
or cause to be furnished to MLBFS a copy of the annual financial statements
of Customer and each Business Guarantor, consisting of at least a balance
sheet as at the close of such fiscal year and related statements of income,
retained earnings and cash flows, certified by its current independent
accountants or other independent accountants reasonably acceptable to MLBFS
and certified by its chief financial officer.
(b) INTERIM FINANCIAL STATEMENTS. Within 45 days after the close of each
fiscal quarter of Customer and each Business Guarantor, Customer shall
furnish or cause to be furnished to MLBFS: (i) a statement of profit and loss
for the fiscal quarter then ended, and (ii) a balance sheet as at the close
of such fiscal quarter; all in reasonable detail and certified by its chief
financial officer.
(c) OTHER INFORMATION. Customer shall furnish or cause to be furnished to
MLBFS such other information as MLBFS may from time to time reasonably
request relating to Customer, any Guarantor or the Collateral.
6. OTHER COVENANTS
Customer further agrees during the term of this Loan Agreement that:
(a) FINANCIAL RECORDS; INSPECTION. Customer and each Business Guarantor will:
(i) maintain at its principal place of business complete and accurate books
and records, and maintain all of its financial records in a manner consistent
with the financial statements heretofore furnished to MLBFS, or prepared on
such other basis as may be approved in writing by MLBFS; and (ii) permit
MLBFS or its duly authorized representatives, upon reasonable notice and at
reasonable times, to inspect its properties (both real and personal),
operations, books and records.
(b) TAXES. Customer and each Guarantor will pay when due all taxes,
assessments and other governmental charges, howsoever designated, and all
other liabilities and obligations, except to the extent that any such failure
to pay will not materially and adversely affect either the liens and security
interests of MLBFS hereunder or under any of the Additional Agreements, the
financial condition of Customer or any Guarantor or the continued operations
of Customer or any Business Guarantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Neither Customer nor any Guarantor
will violate any law, regulation or other governmental requirement, any
judgment or order of any court or governmental agency or authority, or any
agreement, instrument or document to which it is a party or by which it is
bound, if any such violation will materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or any Guarantor,
or the continued operations of Customer or any Business Guarantor.
(d) NOTIFICATION BY CUSTOMER. Customer shall provide MLBFS with prompt
written notification of: (i) any Event of Default, or event which with the
giving of notice, passage of time, or both, would constitute an Event of
Default; (ii) any materially adverse change in the business, financial
condition or operations of Customer or any Business Guarantor; and (iii) any
information which indicates that any financial statements of Customer or any
Guarantor fail in any material respect to present fairly the financial
condition and results of operations purported to be presented in such
statements. Each notification by Customer pursuant hereto shall specify the
event or information causing such notification, and, to the extent
applicable, shall specify the steps being taken to rectify or remedy such
event or information.
(e) NOTICE OF CHANGE. Customer shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business or residence of Customer or any Guarantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor shall be a party to any merger or consolidation with, or purchase
or otherwise acquire all or substantially all of the assets of, or any
material stock, partnership, joint venture or other equity interest in, any
person or entity, or sell, transfer or lease all or any substantial part of
its assets, if any such action would result in either: (A) a material change
in the principal business, ownership or control of Customer or such Business
Guarantor, or (B) a material adverse change in the financial condition or
operations of Customer or such Business Guarantor; (ii) Customer and each
Business Guarantor shall preserve their
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respective existence and good standing in the jurisdictions of establishment
and operation, and shall not operate in any material business substantially
different from their respective business in effect as of the date of
application by Customer for credit from MLBFS; and (iii) neither Customer nor
any Business Guarantor shall cause or permit any material change in its
controlling ownership.
7. COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to
MLBFS, and grants to MLBFS first liens and security interests in and upon all
of the Collateral subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Customer shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood
that nothing herein, and no action or inaction by MLBFS, under this Loan
Agreement or otherwise, shall be deemed an assumption by MLBFS of any of
Customers said obligations.
(d) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing,, Customer may in the ordinary course of its business:
(i) sell any Inventory normally held by Customer for sale, (ii) use or
consume any materials and supplies normally held by Customer for use or
consumption, and (iii) collect all of its Accounts. Customer shall take such
action with respect to protection of its Inventory and the other Collateral
and the collection of its Accounts as MLBFS may from time to time reasonably
request.
(e) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any
reasonable time or times hereafter, Customer shall deliver to MLBFS, in
addition to the other information required hereunder, a schedule identifying,
for each Account and all Chattel Paper subject to MLBFS' security interests
hereunder, each Account Debtor by name and address and amount, invoice or
contract number and date of each invoice or contract. Customer shall furnish
to MLBFS such additional information with respect to the Collateral, and
amounts received by Customer as proceeds of any of the Collateral, as MLBFS
may from time to time reasonably request.
(f) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Customer shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value
or utility. Customer shall at all times keep the tangible Collateral in good
condition and repair and shall pay or cause to be paid all obligations
arising from the repair and maintenance of such Collateral, as well as all
obligations with respect to each Location of Tangible Collateral, except for
any such obligations being contested by Customer in good faith by appropriate
proceedings.
(g) LOCATION. Except for movements required in the ordinary course of
Customers business, Customer shall give MLBFS 30 days' prior written notice
of the placing at or movement of any tangible Collateral to any location
other than a Location of Tangible Collateral. In no event shall Customer
cause or permit any material tangible Collateral to be removed from the
United States without the express prior written consent of MLBFS.
(h) INSURANCE. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lenders Loss
Payable Endorsement and containing such other provisions as may be reasonably
required by MLBFS. Customer shall further provide and maintain a policy or
policies of comprehensive public liability insurance naming MLBFS as an
additional party insured. Customer and each Business Guarantor shall maintain
such other insurance as may be required by law or is customarily maintained
by companies in a similar business or otherwise reasonably required by MLBFS.
All such insurance shall provide that MLBFS will receive not less than 10 days
prior written notice of any cancellation, and shall otherwise be in form and
amount and with an insurer or insurers reasonably acceptable to MLBFS.
Customer shall furnish MLBFS with a copy or certificate of each such policy
or policies and, prior to any expiration or cancellation, each renewal or
replacement thereof.
(i) EVENT OF LOSS. Customer shall at its expense promptly repair all
repairable damage to any tangible Collateral.
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In the event that any tangible Collateral is damaged beyond repair, lost,
totally destroyed or confiscated (an "Event of Loss") and such Collateral had
a value prior to such Event of Loss of $25,000.00 or more, then, on or before
the first to occur of (i) 90 days after the occurrence of such Event of Loss,
or (ii) 10 Business Days after the date on which either Customer or MLBFS
shall receive any proceeds of insurance on account of such Event of Loss, or
any underwriter of insurance on such Collateral shall advise either Customer
or MLBFS that it disclaims liability in respect of such Event of Loss,
Customer shall, at Customers option, either replace the Collateral subject to
such Event of Loss with comparable Collateral free of all liens other than
Permitted Liens (in which event Customer shall be entitled to utilize the
proceeds of insurance on account of such Event of Loss for such purpose, and
may retain any excess proceeds of such insurance), or consent to a reduction
in the Maximum WCMA Line of Credit in an amount equal to the actual cash
value of such Collateral as determined by either the applicable insurance
company's payment (plus any applicable deductible) or, in absence of
insurance company payment, as reasonably determined by MLBFS. Notwithstanding
the foregoing, if at the time of occurrence of such Event of Loss or any time
thereafter prior to replacement or line reduction, as aforesaid, an Event of
Default shall occur hereunder, then MLBFS may at its sole option, exercisable
at any time while such Event of Default shall be continuing, require Customer
to either replace such Collateral or, on its own volition and without the
consent of Customer, reduce the Maximum WCMA Line of Credit, as aforesaid.
(j) NOTICE OF CERTAIN EVENTS. Customer shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.
(k) INDEMNIFICATION. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of
any nature whatsoever which may be asserted against or incurred by MLBFS
arising out of or in any manner occasioned by (i) the ownership, collection,
possession, use or operation of any Collateral, or (ii) any failure by
Customer to perform any of its obligations hereunder; excluding, however,
from said indemnity any such claims, liabilities, etc. arising directly out
of the willful wrongful act or active gross negligence of MLBFS. This
indemnity shall survive the expiration or termination of this Loan Agreement
as to all matters arising or accruing prior to such expiration or termination.
8. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) FAILURE TO PAY. Customer shall fail to pay to MLBFS or deposit into the
WCMA Account when due any amount owing or required to be paid or deposited by
Customer under this Loan Agreement, or shall fail to pay when due any other
Obligations, and any such failure shall continue for more than five
(5) Business Days after written notice thereof shall have been given by MLBFS
to Customer.
(b) FAILURE TO PERFORM. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of
this Section), and such default shall continue unremedied for ten (10) Business
Days after written notice thereof shall have been given by MLBFS to Customer.
(c) BREACH OF WARRANTY. Any representation or warranty made by Customer or
any Guarantor contained in this Loan Agreement or any of the Additional
Agreements shall at any time prove to have been incorrect in any material
respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Customer
or any Guarantor shall occur under the terms of any other agreement,
instrument or document with or intended for the benefit of MLBFS, MLPF&S or
any of their affiliates, and any required notice shall have been given and
required passage of time shall have elapsed.
(e) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(f) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of full payment or
performance by Customer or any Guarantor of any of their respective
liabilities or
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obligations under this Loan Agreement or any of the Additional Agreements to
which Customer or such Guarantor is a party has been materially impaired.
(g) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of
$100,000.00 or more of Customer or any Guarantor to another creditor under
any indenture, agreement, undertaking, or otherwise.
(h) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within ten
(10) Business Days.
9. REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all
of the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) TERMINATION. MLBFS may without notice terminate the WCMA Line of Credit
and all obligations to provide the WCMA Line of Credit or otherwise extend
any credit to or for the benefit of Customer (it being understood, however,
that upon the occurrence of any Bankruptcy Event the WCMA Line of Credit and
all such obligations shall automatically terminate without any action on the
part of MLBFS); and upon any such termination MLBFS shall be relieved of all
such obligations.
(ii) ACCELERATION. MLBFS may declare the principal of and interest on the
WCMA Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other
notice or formality of any kind, all of which are hereby expressly waived;
provided, however, that upon the occurrence of any Bankruptcy Event all such
principal, interest and other Obligations shall automatically become due and
payable without any action on the part of MLBFS.
(iii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited
to, the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) POSSESSION. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated
by MLBFS which is reasonably convenient to Customer, or may take possession
of the Collateral and the records pertaining to the Collateral without the
use of any judicial process and without any prior notice to Customer.
(v) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper.
MLBFS may purchase any Collateral at any such public sale. The net proceeds
of any such public or private sale and all other amounts actually collected
or received by MLBFS pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Customer or
whoever else may be entitled thereto, and with Customer and each Guarantor
remaining jointly and severally liable for any amount remaining unpaid after
such application.
(vi) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Customer to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such items which may
be so received by Customer with any other of its funds or property but
instead hold them separate and apart and in trust for MLBFS until delivery is
made to MLBFS.
(vii) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor
that its Account or Chattel Paper has been assigned to MLBFS and direct such
Account Debtor to make payment directly to MLBFS of all amounts
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due with respect to such Account or Chattel Paper; and MLBFS may enforce
payment and collect, by legal proceedings or otherwise, such Account or
Chattel Paper.
(viii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included
in the Collateral and endorse Customers name on any item of payment on or
proceeds of the Collateral.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and
apply toward payment of any of the Obligations, in such order of application
as MLBFS may from time to time and at any time elect, any cash, credit,
deposits, accounts, securities and any other property of Customer which is in
transit to or in the possession, custody or control of MLBFS, MLPF&S or any
agent, bailee, or affiliate of MLBFS or MLPF&S, including, without
limitation, the WCMA Account and any Money Accounts, and all cash, securities
and other financial assets therein or controlled thereby, and all proceeds
thereof. Customer hereby collaterally assigns and grants to MLBFS a
continuing security interest in all such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the
continuance of an Event of Default, Customer hereby irrevocably appoints
MLBFS as its attorney-in-fact, with full power of substitution, in its place
and stead and in its name or in the name of MLBFS, to from time to time in
MLBFS' sole discretion take any action and to execute any instrument which
MLBFS may deem necessary or advisable to accomplish the purposes of this Loan
Agreement, including, but not limited to, to receive, endorse and collect all
checks, drafts and other instruments for the payment of money made payable to
Customer included in the Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(e) NOTICES. To the fullest extent permitted by applicable law, Customer
hereby irrevocably waives and releases MLBFS of and from any and all
liabilities and penalties for failure of MLBFS to comply with any statutory
or other requirement imposed upon MLBFS relating to notices of sale, holding
of sale or reporting of any sale, and Customer waives all rights of
redemption or reinstatement from any such sale. Any notices required under
applicable law shall be reasonably and properly given to Customer if given by
any of the methods provided herein at least 5 Business Days prior to taking
action. MLBFS shall have the right to postpone or adjourn any sale or other
disposition of Collateral at any time without giving notice of any such
postponed or adjourned date. In the event MLBFS seeks to take possession of
any or all of the Collateral by court process, Customer further irrevocably
waives to the fullest extent permitted by law any bonds and any surety or
security relating thereto required by any statute, court rule or otherwise as
an incident to such possession, and any demand for possession prior to the
commencement of any suit or action.
10. MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the
Additional Agreements shall operate as a waiver thereof, and no single or
partial exercise of any such right, power or remedy shall preclude any other
or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement or any of
the Additional Agreements, nor any consent to any departure by Customer
therefrom, shall be effective unless the same shall be in writing and signed
by MLBFS. Any waiver of any provision of this Loan Agreement or any of the
Additional Agreements and any consent to any departure by Customer from the
terms of this Loan Agreement or any of the Additional Agreements shall be
effective only in the specific instance and for the specific purpose for
which given. Except as otherwise expressly provided herein, no notice to or
demand on Customer shall in any case entitle Customer to any other or further
notice or demand in similar or other circumstances.
(b) DISCLOSURE. Customer hereby irrevocably authorizes MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or
not an Event of Default shall have occurred) obtain from and disclose to each
other any and all financial and other information about Customer. In
connection with said authorization, the parties recognize that in order to
provide a WCMA Line of Credit certain information about Customer is required
to be made available on a computer network accessible by certain affiliates
of MLBFS, including MLPF&S.
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(c) COMMUNICATIONS. All notices and other communications required or
permitted hereunder shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission
or actual delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other
communications in writing shall be given to the parties hereto at their
respective addresses set forth at the beginning of this Loan Agreement, or,
in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) COSTS, EXPENSES AND TAXES. Customer shall upon demand pay or reimburse
MLBFS for: (i) all Uniform Commercial Code filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery and/or recording of this Loan Agreement or any of the
Additional Agreements; and (iii) all reasonable fees and out-of-pocket
expenses (including, but not limited to, reasonable fees and expenses of
outside counsel) incurred by MLBFS in connection with the collection of any
sum payable hereunder or under any of the Additional Agreements not paid when
due, the enforcement of this Loan Agreement or any of the Additional
Agreements and the protection of MLBFS' rights hereunder or thereunder,
excluding, however, salaries and normal overhead attributable to MLBFS'
employees. The obligations of Customer under this paragraph shall survive the
expiration or termination of this Loan Agreement and the discharge of the
other Obligations.
(e) RIGHT TO PERFORM OBLIGATIONS. If Customer shall fail to do any act or
thing which it has covenanted to do under this Loan Agreement or any
representation or warranty on the part of Customer contained in this Loan
Agreement shall be breached, MLBFS may, in its sole discretion, after 5 days
written notice is sent to Customer (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to
be done or remedy any such breach, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by MLBFS shall be repayable to
MLBFS by Customer upon demand, with interest at the Interest Rate during the
period from and including the date funds are so expended by MLBFS to the date
of repayment, and all such amounts shall be additional Obligations. The
payment or performance by MLBFS of any of Customers obligations hereunder
shall not relieve Customer of said obligations or of the consequences of
having failed to pay or perform the same, and shall not waive or be deemed a
cure of any Event of Default.
(f) LATE CHARGE. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within ten (10) days of the applicable due date shall
be subject to a late charge in an amount equal to the lesser of: (i) 5% of
the overdue amount, or (ii) the maximum amount permitted by applicable law.
Such late charge shall be payable on demand, or, without demand, may in the
sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan
Balance in the same manner as provided herein for accrued interest.
(g) FURTHER ASSURANCES. Customer agrees to do such further acts and things
and to execute and deliver to MLBFS such additional agreements, instruments
and documents as MLBFS may reasonably require or deem advisable to effectuate
the purposes of this Loan Agreement or any of the Additional Agreements, or
to establish, perfect and maintain MLBFS' security interests and liens upon
the Collateral, including, but not limited to: (i) executing financing
statements or amendments thereto when and as reasonably requested by MLBFS;
and (ii) if in the reasonable judgment of MLBFS it is required by local law,
causing the owners and/or mortgagees of the real property on which any
Collateral may be located to execute and deliver to MLBFS waivers or
subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(h) BINDING EFFECT. This Loan Agreement and the Additional Agreements shall
be binding upon, and shall inure to the benefit of MLBFS, Customer and their
respective successors and assigns. Customer shall not assign any of its
rights or delegate any of its obligations under this Loan Agreement or any of
the Additional Agreements without the prior written consent of MLBFS. Unless
otherwise expressly agreed to in a writing signed by MLBFS, no such consent
shall in any event relieve Customer of any of its obligations under this Loan
Agreement or the Additional Agreements.
(i) HEADINGS. Captions and section and paragraph headings in this Loan Agreement
are inserted only as a matter
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of convenience, and shall not affect the interpretation hereof.
(j) GOVERNING LAW. This Loan Agreement, and, unless otherwise expressly
provided therein, each of the Additional Agreements, shall be governed in all
respects by the laws of the State of Illinois.
(k) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Loan Agreement and the Additional Agreements shall be interpreted in such
manner as to be effective and valid under applicable law. Any provision of
this Loan Agreement or any of the Additional Agreements which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Loan Agreement and the
Additional Agreements or affecting the validity or enforceability of such
provision in any other jurisdiction.
(l) TERM. This Loan Agreement shall become effective on the date accepted by
MLBFS at its office in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall
be in effect or there shall be any Obligations outstanding.
(m) COUNTERPARTS. This Loan Agreement may be executed in one or more
counterparts which, when taken together, constitute one and the same
agreement.
(n) JURISDICTION; WAIVER. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION,
IN ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER
CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR
FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES
ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER
WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION
EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY
EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER
PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL
AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF
THIS LOAN AGREEMENT.
(o) INTEGRATION. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL
AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND
FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER
HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS
OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. WITHOUT LIMITING THE
FOREGOING, CUSTOMER ACKNOWLEDGES THAT: (1) NO PROMISE OR COMMITMENT HAS BEEN
MADE TO IT BY MLBFS, MLPF&S OR ANY OF THEIR RESPECTIVE EMPLOYEES, AGENTS OR
REPRESENTATIVES TO EXTEND THE AVAILABILITY OF THE WCMA LINE OF CREDIT OR THE
DUE DATE OF THE WCMA LOAN BALANCE BEYOND THE CURRENT MATURITY DATE, OR TO
INCREASE THE MAXIMUM WCMA LINE OF CREDIT, OR OTHERWISE EXTEND ANY OTHER
CREDIT TO CUSTOMER OR ANY OTHER PARTY; (11) NO PURPORTED EXTENSION OF THE
MATURITY DATE, INCREASE IN THE MAXIMUM WCMA LINE OF CREDIT OR OTHER EXTENSION
OR AGREEMENT TO EXTEND CREDIT SHALL BE VALID OR BINDING UNLESS EXPRESSLY SET
FORTH IN A WRITTEN INSTRUMENT SIGNED BY MLBFS; AND (111) EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES AND REPLACES ANY
AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT LETTERS FROM
MLBFS TO CUSTOMER, NONE OF WHICH SHALL BE CONSIDERED AN ADDITIONAL AGREEMENT.
NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT OR ANY OF THE ADDITIONAL
AGREEMENTS TO WHICH CUSTOMER IS A PARTY SHALL BE EFFECTIVE UNLESS IN A
WRITING SIGNED BY BOTH MLBFS AND CUSTOMER.
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IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and
year first above written.
U.S. LABORATORIES INC.
By: /s/ Dickerson Wright
--------------------------------------------------
SIGNATURE (1) SIGNATURE (2)
Dickerson Wright
- -----------------------------------------------------
PRINTED NAME PRINTED NAME
Chairman/CEO President
- ------------------------------------------------------
TITLE TITLE
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/ Authorized Officer
---------------------------------------------------
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MERRILL LYNCH Ref. No. 825-00756
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC. ("MLBFS") to advance moneys or extend or continue to extend
credit to or for the benefit of U.S. LABORATORIES, INC., a corporation
organized and existing under the laws of the State of Delaware (with any
successor-in-interest, including, without limitation, any successor by merger
or by operation of law , herein collectively referred to as "Customer") under
(a) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 825-00756 between
MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements,"
as that term is defined in the Loan Agreement, and (c) all present and future
amendments, restatements, supplements and other evidences of any extensions,
increases, renewals, modifications and other changes of or to the Loan
Agreement or Additional Agreements (collectively, the "Guaranteed
Documents"), the undersigned, PROFESSIONAL ENGINEERING & INSPECTION COMPANY,
INC., a corporation duly organized and validly existing, under the laws of
the State of Florida ("Guarantor"), hereby unconditionally guarantees to
MLBFS: (i) the prompt and full payment when due, by acceleration or
otherwise, of all sums now or at any time hereafter due from Customer to
MLBFS under the Guaranteed Documents, (ii) the prompt, full and faithful
performance and discharge by Customer of each and every other covenant and
warranty of Customer set forth in the Guaranteed Documents, and (iii) the
prompt and full payment and performance of all other indebtedness,
liabilities and obligations of Customer to MLBFS, howsoever created or
evidenced, and whether now existing or hereafter arising (collectively, the
"Obligations"). Guarantor further agrees to pay all reasonable costs and
expenses (including, but not limited to, court costs and reasonable
attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or
enforce performance of any of the Obligations, or in enforcing this Guaranty.
Guarantor acknowledges that MLBFS is relying on the execution and delivery of
this Guaranty in advancing moneys to or extending or continuing to extend
credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the
continuance of any default or Event of Default under the Guaranteed
Documents, any of all of the indebtedness hereby guaranteed then existing
shall, at the option of MLBFS, become immediately due and payable from
Guarantor (it being understood, however, that upon the occurrence of any
"Bankruptcy Event", as defined in the Guaranteed Documents, all such
indebtedness shall automatically become due and payable without action on the
part of MLBFS). Notwithstanding the occurrence of any such event, this
Guaranty shall continue and remain in full force and effect. To the extent
MLBFS receives payment with respect to the Obligations, and all or any part
of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other
person or entity, whether under any Bankruptcy law or otherwise (a "Returned
Payment"), this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
MLBFS, and the indebtedness or part thereof intended to be satisfied by such
Returned Payment shall be revived and continued in full force and effect as
if said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any extensions, forbearances, compromises or releases of any of
the Obligations or any of MLBFS' rights under any of the Guaranteed Documents;
(b) any acceptance by MLBFS of any collateral or security for, or other
guarantees of, any of the Obligations; (c) any failure, neglect or omission on
the part of MLBFS to realize upon or protect any of the Obligations, or any
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any
-1-
<PAGE>
other guarantor, possessed by or under the control of MLBFS or any of its
affiliates, toward the liquidation or reduction of the Obligations; (d) any
invalidity, irregularity or unenforceability of all or any part of the
Obligations, of any collateral security for the Obligations, or the
Guaranteed Documents; (e) any application of payments or credits by MLBFS,
(f) the granting of credit from time to time by MLBFS to Customer in excess
of the amount set forth in the Guaranteed Documents; or (g) any other act of
commission or omission of any kind or at any time upon the part of MLBFS or
any of its affiliates or any of their respective employees or agents with
respect to any matter whatsoever. MLBFS shall not be required at any time, as
a condition of Guarantors obligations hereunder, to resort to payment from
Customer or other persons or entities whatsoever, or any of their properties
or estates, or resort to any collateral or pursue or exhaust any other rights
or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under
the Guaranteed Documents and all other notices and formalities to which
Customer or Guarantor might be entitled, by statute or otherwise, and, so
long as there are any Obligations or MLBFS is committed to extend credit to
Customer, waives any right to revoke or terminate this Guaranty without the
express written consent of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of the
Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold, set
off and apply toward the payment of any amount due hereunder, in such order of
application as MLBFS may elect, all cash, credits, deposits, accounts,
securities and any other property of Guarantor which is in transit to or in the
possession, custody or control of MLBFS or Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), or any of their respective agents, bailees or
affiliates, including, without limitation, all securities accounts with MLPF&S
and all cash, securities and other financial assets therein or controlled
thereby, and all proceeds thereof. Guarantor hereby collaterally assigns and
grants to MLBFS a continuing security interest in all such property as
additional security for the Obligations. Upon the occurrence and during the
continuance of an Event of Default, MLBFS shall have all rights in such property
available to collateral assignees and secured parties under all applicable laws,
including, without limitation, the UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and other
information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under
the Guaranteed Documents, this Guaranty or any other agreement shall operate
as a waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Guaranty. This Guaranty shall be binding upon Guarantor and its successors
and assigns, and shall inure to the benefit of MLBFS and its successors and
assigns. If there is more than one guarantor of the Obligations, all of the
obligations and agreements of Guarantor are joint and several with such other
guarantors.
-2-
<PAGE>
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN
WHICH ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE
OBLIGATIONS. Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty. No modification or
waiver of any of the provisions of this Guaranty shall be effective unless in
writing and signed by both Guarantor and an officer of MLBFS.
Each signatory on behalf of Guarantor warrants that he has authority to sign
on behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of June 17, 1997.
PROFESSIONAL ENGINEERING & INSPECTION COMPANY, INC.
By:
--------------------------------------------------
SIGNATURE (1) SIGNATURE (2)
- -----------------------------------------------------
PRINTED NAME PRINTED NAME
- -----------------------------------------------------
TITLE TITLE
ADDRESS OF GUARANTOR:
3450 West Sunrise Boulevard
Plantation, FL 33313
-3-
<PAGE>
MERRILL LYNCH
================================================================================
CERTIFICATE OF SECRETARY
(GUARANTY)
THE UNDERSIGNED HEREBY CERTIFIES that the undersigned is the duly appointed
and acting Secretary (or Assistant Secretary) of PROFESSIONAL ENGINEERING &
INSPECTION COMPANY, INC., a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida; that the following
is a true, accurate and compared transcript of resolutions duly, validly and
lawfully adopted on the ____ day of __________, 1997 by the Board of
Directors of said Corporation acting in accordance with the laws of the state
of incorporation and the charter and by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit
of this Corporation to guaranty the obligations of U.S. LABORATORIES INC.
("Customer') to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"), and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer,
Secretary or other officer of this Corporation, or any one or more of them,
be and each of them hereby is authorized and empowered for and on behalf of
this Corporation to: (a) execute and deliver to MLBFS: (i) an Unconditional
Guaranty of the obligations of Customer, (ii) any other agreements, instruments
and documents required by MLBFS, including, without limitation, any
agreements, instruments and documents evidencing liens or security interests
on any of the property of this Corporation as collateral for said Unconditional
Guaranty and/or the obligations of Customer to MLBFS, and (iii) any present
or future amendments to any of the foregoing; all in such form as such
officer shall approve, as evidenced by his signature thereon; and (b) to do
and perform all such acts and things deemed by any such officer to be
necessary or advisable to carry out and perform the undertakings and
agreements of this Corporation set forth therein; and all prior acts of said
officers in these premises are hereby ratified and confirmed, and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from
an authorized officer of this Corporation, which change or revocation shall
not in any event affect the obligations of this Corporation with respect to
any transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have
not been rescinded, modified or repealed in any manner, are not in conflict
with any agreement of said Corporation and are in full force and effect as of
the date of this Certificate, and (b) the following individuals are now the
duly elected and acting officers of said Corporation and the signatures set
forth below are the true signatures of said officers:
President: __________________________________________________________
Vice President: _____________________________________________________
Treasurer: __________________________________________________________
Secretary: __________________________________________________________
_________________: __________________________________________________
Additional Title
IN WITNESS WHEREOF, the undersigned ha executed is Certificate and has
affixed the seal of saidCorporation hereto, pursuant to due authorization,
all a of this ____ day of __________, 1997.
(Corporate Seal) _____________________________
Secretary
Printed Name: _____________________________
-1-
<PAGE>
MERRILL LYNCH Ref. No. 825-00756
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC. ("MLBFS") to advance moneys or extend or continue to extend
credit to or for the benefit of U.S. LABORATORIES INC., a corporation
organized and existing under the laws of the State of Delaware (with any
successor-in-interest, including, without limitation, any successor by merger
or by operation of law (herein collectively referred to as "Customer") under:
(a) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 825-00756
between MLBFS and Customer (the "Loan Agreement") (b) any "Additional
Agreements," as that term is defined in the Loan Agreement, and (c) all
present and future amendments, restatements, supplements and other evidences
of any extensions, increases, renewals, modifications and other changes of or
to the Loan Agreement or Additional Agreements (collectively, the "Guaranteed
Documents"), the undersigned, U.S. ENGINEERING LABORATORIES, INC., a
corporation duly organized and validly existing under the laws of the State
of Delaware ("Guarantor"), hereby unconditionally guarantees to MLBFS: (i) the
prompt and full payment when due, by acceleration or otherwise, of all sums,
now or at any time hereafter due from Customer to MLBFS under the Guaranteed
Documents, (ii) the prompt, full and faithful performance and discharge by
Customer of each and every other covenant and warranty of Customer set forth
in the Guaranteed Documents, and (iii) the prompt and full payment and
performance of all other indebtedness, liabilities and obligations of
Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantor further
agrees to pay all reasonable costs and expenses (including, but not limited
to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in
endeavoring to collect or enforce performance of any of the Obligations, or
in enforcing this Guaranty. Guarantor acknowledges that MLBFS is relying on
the execution and delivery of this Guaranty in advancing moneys to or
extending or continuing to extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the
continuance of any default or Event of Default under the Guaranteed
Documents, any of all of the indebtedness hereby guaranteed then existing
shall, at the option of MLBFS, become immediately due and payable from
Guarantor (it being understood, however, that upon the occurrence of any
"Bankruptcy Event", as defined in the Guaranteed Documents, all such
indebtedness shall automatically become due and payable without action on the
part of MLBFS). Notwithstanding the occurrence of any such event, this
Guaranty shall continue and remain in full force and effect. To the extent
MLBFS receives payment with respect to the Obligations, and all or any part
of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other
person or entity, whether under any Bankruptcy law or otherwise (a "Returned
Payment"), this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
MLBFS, and the indebtedness or part thereof intended to be satisfied by such
Returned Payment shall be revived and continued in full force and effect as
if said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or
impaired by any of the following, any of which may be done or omitted by
MLBFS from time to time, without notice to or the consent of Guarantor: (a) any
renewals, amendments, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or
releases of any of the Obligations or any of MLBFS' rights under any of the
Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or
security for, or other guarantees of, any of the Obligations; (c) any
failure, neglect or omission on the part of MLBFS to realize upon or protect
any of the Obligations, or any collateral or security therefor, or to
exercise any lien upon or right of appropriation of any moneys, credits or
property of Customer or any
-1-
<PAGE>
other guarantor, possessed by or under the control of MLBFS or any of its
affiliates, toward the liquidation or reduction of the Obligations; (d) any
invalidity, irregularity or unenforceability of all or any part of the
Obligations, of any collateral security for the Obligations, or the
Guaranteed Documents; (e) any application of payments or credits by MLBFS;
(0 the granting of credit from time to time by MLBFS to Customer in excess of
the amount set forth in the Guaranteed Documents; or (g) any other act of
commission or omission of any kind or at any time upon the part of MLBFS or
any of its affiliates or any of their respective employees or agents with
respect to any matter whatsoever. MLBFS shall not be required at any time, as
a condition of Guarantor's obligations hereunder, to resort to payment from
Customer or other persons or entities whatsoever, or any of their properties
or estates, or resort to any collateral or pursue or exhaust any other rights
or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under
the Guaranteed Documents and all other notices and formalities to which
Customer or Guarantor might be entitled, by statute or otherwise, and, so
long as there are any Obligations or MLBFS is committed to extend credit to
Customer, waives any right to revoke or terminate this Guaranty without the
express written consent of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract,
by statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of
the Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold,
set off and apply toward the payment of any amount due hereunder, in such
order of application as MLBFS may elect, all cash, credits, deposits,
accounts, securities and any other property of Guarantor which is in transit
to or in the possession, custody or control of MLBFS or Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective
agents, bailees or affiliates, including, without limitation, all securities
accounts with MLPF&S and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Guarantor hereby
collaterally assigns and grants to MLBFS a continuing security interest in
all such property as additional security for the Obligations. Upon the
occurrence and during the continuance of an Event of Default, MLBFS shall
have all rights in such property available to collateral assignees and
secured parties under all applicable laws, including, without limitation, the
UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS
may otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial
and other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under
the Guaranteed Documents, this Guaranty or any other agreement shall operate
as a waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Guaranty. This Guaranty shall be binding upon Guarantor and its successors
and assigns, and shall inure to the benefit of MLBFS and its successors and
assigns. If there are more than one guarantor of the Obligations, all of the
obligations and agreements of Guarantor are joint and several with such other
guarantors.
-2-
<PAGE>
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN
WHICH ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE
OBLIGATIONS. Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty. No modification or
waiver of any of the provisions of this Guaranty shall be effective unless in
writing and signed by both Guarantor and an officer of MLBFS.
Each signatory on behalf of Guarantor warrants that he has authority to sign
on behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of June 17, 1997.
U.S. ENGINEERING LABORATORIES, INC.
By: ______________________________________________________________
Signature (1) Signature (2)
__________________________________________________________________
Printed Name Printed Name
__________________________________________________________________
Title Title
ADDRESS OF GUARANTOR:
903 East Hazelwood Avenue
Rahway, NJ 07065
-3-
<PAGE>
MERRILL LYNCH
================================================================================
CERTIFICATE OF SECRETARY
(GUARANTY)
THE UNDERSIGNED HEREBY CERTIFIES that the undersigned is the duly appointed
and acting Secretary (or Assistant Secretary) of U.S. ENGINEERING
LABORATORIES, INC., a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware; that the following is
a true, accurate and compared transcript of resolutions duly, validly and
lawfully adopted on the _________ day of ______________, 1997 by the Board of
Directors of said Corporation acting in accordance with the laws of the state
of incorporation and the charter and by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit
of this Corporation to guaranty the obligations of U.S. LABORATORIES INC.
("Customer") to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS"); and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer,
Secretary or other officer of this Corporation, or any one or more of them,
be and each of them hereby is authorized and empowered for and on behalf of
this Corporation to: (a) execute and deliver to MLBFS (i) an Unconditional
Guaranty of the obligations of Customer, (ii) any other agreements,
instruments and documents required by MLBFS, including, without limitation,
any agreements, instruments and documents evidencing liens or security
interests on any of the property of this Corporation as collateral for said
Unconditional Guaranty and/or the obligations of Customer to MLBFS, and (iii)
any present or future amendments to any of the foregoing; all in such form as
such officer shall approve, as evidenced by his signature thereon; and (b) to
do and perform all such acts and things deemed by any such officer to be
necessary or advisable to carry out and perform the undertakings and
agreements of this Corporation set forth therein; and all prior acts of said
officers in these premises are hereby ratified and confirmed, and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from
an authorized officer of this Corporation, which change or revocation shall
not in any event affect the obligations of this Corporation with respect to
any transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have
not been rescinded, modified or repealed in any manner, are not in conflict
with any agreement of said Corporation and are in full force and effect as of
the date of this Certificate, and (b) the following individuals are now the
duly elected and acting officers of said Corporation and the signatures set
forth below are the true signatures of said officers:
President:_______________________________________________________
Vice President:__________________________________________________
Treasurer:_______________________________________________________
Secretary:_______________________________________________________
___________________:_____________________________________________
Additional Title
IN WITNESS WHEREOF, the undersigned ha executed is Certificate and has affixed
the seal of said Corporation hereto, pursuant to due authorization, all a of
this _________ day of ______________, 1997.
(Corporate Seal) ____________________________
Secretary
Printed Name: ____________________________
-1-
<PAGE>
MERRILL LYNCH Ref. No. 825-00756
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC. ("MLBFS") to advance moneys or extend or continue to extend
credit or lease property to or for the benefit of, or modify its credit
relationship with, or enter into any other financial accommodations with U.S.
LABORATORIES, INC. (with any successor-in-interest, including, without
limitation, any successor by merger or by operation of law, herein
collectively referred to as "Customer"), under (a) that certain WCMA NOTE,
LOAN AND SECURITY AGREEMENT NO. 825-00756 between MLBFS and Customer (the
"Loan Agreement"), (b) any "Additional Agreements," as that term is defined
in the Loan Agreement, and (c) all present and future amendments,
restatements, supplements and other evidences of any extensions, increases,
renewals, modifications and other changes of or to the Loan Agreement or any
Additional Agreements (collectively, the "Guaranteed Documents"), and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the undersigned, SAN DIEGO TESTING ENGINEERS, INC., a
corporation organized and existing, under the laws of the State of Delaware
("Guarantor"), hereby unconditionally guarantees to MLBFS: (i) the prompt
and full payment when due, by acceleration or otherwise, of all sums now or
at any time hereafter due from Customer to MLBFS under the Guaranteed
Documents, (ii) the prompt, full and faithful performance and discharge by
Customer of each and every other covenant and warranty of Customer set forth
in the Guaranteed Documents, and (iii) the prompt and full payment and
performance of all other indebtedness, liabilities and obligations of
Customer to MLBFS, howsoever created or evidenced, and whether now existing
or hereafter arising (collectively, the "Obligations"). Guarantor further
agrees to pay all reasonable costs and expenses (including, but not limited
to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in
endeavoring to collect or enforce performance of any of the Obligations, or
in enforcing this Guaranty. Guarantor acknowledges that MLBFS is relying on
the execution and delivery of this Guaranty in advancing moneys to or
extending or continuing to extend credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the
continuance of any default or Event of Default under the Guaranteed
Documents, any or all of the indebtedness hereby guaranteed then existing
shall, at the option of MLBFS, become immediately due and payable from
Guarantor (it being understood, however, that upon the occurrence of any
"Bankruptcy Event", as defined in the Guaranteed Documents, all such
indebtedness shall automatically become due and payable without action on the
part of MLBFS). Notwithstanding the occurrence of any such event, this
Guaranty shall continue and remain in full force and effect. To the extent
MLBFS receives payment with respect to the Obligations, and all or any part
of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside, required to be repaid by MLBFS or is repaid by MLBFS
pursuant to a settlement agreement, to a trustee, receiver or any other
person or entity, whether under any Bankruptcy law or otherwise (a "Returned
Payment"), this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of such payment or repayment by
MLBFS, and the indebtedness or part thereof intended to be satisfied by such
Returned Payment shall be revived and continued in full force and effect as
if said Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or
impaired by any of the following, any of which may be done or omitted by
MLBFS from time to time, without notice to or the consent of Guarantor: (a)
any renewals, amendments, restatements, modifications or supplements of or to
any of the Guaranteed Documents, or any extensions, forbearances, compromises
or releases of any of the Obligations or any of MLBFS' rights under any of
the Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or
security for, or other guarantees of, any of the Obligations; (c) any
failure, neglect or omission on the part of MLBFS to realize upon or protect
any of the Obligations, or any
-1-
<PAGE>
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its
affiliates, toward the liquidation or reduction of the Obligations; (d) any
invalidity, irregularity or unenforceability of all or any part of the
Obligations, of any collateral security for the Obligations, or the
Guaranteed Documents; (e) any application of payments or credits by MLBFS;
(f) the granting of credit from time to time by MLBFS to Customer in excess
of the amount set forth in the Guaranteed Documents; or (g) any other act of
commission or omission of any kind or at any time upon the part of MLBFS or
any of its affiliates or any of their respective employees or agents with
respect to any matter whatsoever. MLBFS shall not be required at any time, as
a condition of Guarantor's obligations hereunder, to resort to payment from
Customer or other persons or entities whatsoever, or any of their properties
or estates, or resort to any collateral or pursue or exhaust any other rights
or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been indefeasibly fully paid and discharged. Guarantor
expressly waives presentment, protest, demand, notice of dishonor or default,
notice of acceptance of this Guaranty, notice of advancement of funds under
the Guaranteed Documents and all other notices and formalities to which
Customer or Guarantor might be entitled, by statute or otherwise, and, so
long as there are any Obligations or MLBFS is committed to extend credit to
Customer, waives any right to revoke or terminate this Guaranty without the
express written consent of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract,
by statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of
the Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold,
set off and apply toward the payment of any amount due hereunder, in such
order of application as MLBFS may elect, all cash, credits, deposits,
accounts, securities and any other property of Guarantor which is in transit
to or in the possession, custody or control of MLBFS or Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective
agents, bailees or affiliates, including, without limitation, all securities
accounts with MLPF&S and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Guarantor hereby
collaterally assigns and grants to MLBFS a continuing security interest in
all such property as additional security for the Obligations. Upon the
occurrence and during the continuance of an Event of Default, MLBFS shall
have all rights in such property available to collateral assignees and
secured parties under all applicable laws, including, without limitation, the
UCC.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS
may otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial
and other information about Guarantor.
No delay on the part of MLBFS in the exercise of any right or remedy under
the Guaranteed Documents, this Guaranty or any other agreement shall operate
as a waiver thereof, and, without limiting the foregoing, no delay in the
enforcement of any security interest, and no single or partial exercise by
MLBFS of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. This Guaranty may be
executed in any number of counterparts, each of which counterparts, once they
are executed and delivered, shall be deemed to be an original and all of
which counterparts, taken together, shall constitute but one and the same
Guaranty. This Guaranty shall be binding upon Guarantor and its successors
and assigns, and shall inure to the benefit of MLBFS and its successors and
assigns. If
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there are more than one guarantor of the Obligations, all of the obligations
and agreements of Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN
WHICH ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE
OBLIGATIONS. Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty. No modification or
waiver of any of the provisions of this Guaranty shall be effective unless in
writing and signed by both Guarantor and an officer of MLBFS. Each signatory
on behalf of Guarantor warrants that he or she has authority to sign on
behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of June 17, 1997.
SAN DIEGO TESTING ENGINEERS, INC.
By: ________________________________________________________________
Signature (1) Signature (2)
____________________________________________________________________
Printed Name Printed Name
____________________________________________________________________
Title Title
ADDRESS OF GUARANTOR:
3467 Kurtz Street
San Diego, CA 92110
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MERRILL LYNCH
================================================================================
CERTIFICATE OF SECRETARY
(GUARANTY)
The undersigned hereby certifies to MERRILL LYNCH BUSINESS FINANCIAL SERVICES
INC. that the undersigned is the duly appointed and acting Secretary (or
Assistant Secretary) of SAN DIEGO TESTING ENGINEERS, INC., a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware; and that the following is a true, curate and compared transcript
of resolutions duly, validly and lawfully adopted on the _________ day of
______________, 1997 by the Board of Directors of said Corporation acting in
accordance with the laws of the state of incorporation and the charter and
by-laws of said Corporation:
"RESOLVED, that it is advisable and in the best interests and to the benefit
of this Corporation to guaranty the obligations of U.S. LABORATORIES INC.
("Customer) to MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS");and
"FURTHER RESOLVED, that the President, any Vice President, Treasurer,
Secretary or other officer of this Corporation, or any one or more of them,
be and each of them hereby is authorized and empowered for and on behalf of
this Corporation to: (a) execute and deliver to MLBFS: (i) an Unconditional
Guaranty of the obligations of Customer, (ii) any other agreements,
instruments and documents required by MLBFS in connection therewith,
including, without limitation, any agreements, instruments and documents
evidencing liens or security interests on any of the property of this
Corporation as collateral for said Unconditional Guaranty and/or the
obligations of Customer to MLBFS, and (iii) any present or future amendments
to any of the foregoing; all in such form as such officer shall approve, as
evidenced by his signature thereon; and (b) to do and perform all such acts
and things deemed by any such officer to be necessary or advisable to carry
out and perform the undertakings and agreements of this Corporation set forth
therein-, and all prior acts of each of said officers in these premises are
hereby ratified and confirmed; and
"FURTHER RESOLVED, that MLBFS is authorized to rely upon the foregoing
resolutions until it receives written notice of any change or revocation from
an authorized officer of this Corporation, which change or revocation shall
not in any event affect the obligations of this Corporation with respect to
any transaction conditionally agreed or committed to by MLBFS or having its
inception prior to the receipt of such notice by MLBFS."
THE UNDERSIGNED FURTHER CERTIFIES that: (a) the foregoing resolutions have
not been rescinded, modified or repealed in any manner, are not in conflict
with any agreement of said Corporation and are in full force and effect as of
the date of this Certificate, and (b) the following individuals are now the
duly infected and acting officers of said Corporation and the signatures set
forth below are the true signatures of said officers:
President:_______________________________________________________
Vice President:__________________________________________________
Treasurer:_______________________________________________________
Secretary:_______________________________________________________
___________________:_____________________________________________
Additional Title
IN WITNESS WHEREOF, the undersigned ha executed is Certificate and has affixed
the seal of said Corporation hereto, pursuant to due authorization, all a of
this _________ day of ______________, 1997.
(Corporate Seal) ____________________________
Secretary
Printed Name: ____________________________
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MERRILL LYNCH Ref. No. 825-00756
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend
credit to or for the benefit of U.S. LABORATORIES INC., a corporation
organized and existing under the laws of the State of Delaware (with any
successor-in interest, including, without limitation, any successor by merger
or by operation of law, herein collectively referred to as "Customer") under:
(a) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 825-00756 between
MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements",
as that term is defined in the Loan Agreement, and (c) all present and future
amendments, restatements, supplements and other evidences of any extensions,
increases, renewals, modifications and other changes of or to the Loan
Agreement or Additional Agreements (collectively, the "Guaranteed
Documents"), the undersigned ("Guarantor") hereby unconditionally guarantees
to MLBFS: (i) the prompt and full payment when due, by acceleration or
otherwise, of all sums now or any time hereafter due from Customer to MLBFS
under the Guaranteed Documents, (ii) the prompt, full and faithful
performance and discharge by Customer of each and every other covenant and
warranty of Customer set forth in the Guaranteed Documents, and (iii) the
prompt and full payment and performance of all other indebtedness,
liabilities and obligations of Customer to MLBFS, howsoever created or
evidenced, and whether now existing or hereafter arising (collectively, the
"Obligations"). Guarantor further agrees to pay all reasonable costs and
expenses (including, but not limited to, court costs and reasonable
attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or
enforce performance of any of the Obligations, or in enforcing this Guaranty.
Guarantor acknowledge that MLBFS is relying on the execution and delivery of
this Guaranty in advancing moneys to or extending or continuing to extend
credit to or for the benefit of Customer.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully and indefeasibly
paid, performed and discharged. Upon the occurrence and during the
continuance of any Event of Default under the Guaranteed Documents, any or
all of the indebtedness hereby guaranteed then existing shall, at the option
of MLBFS, become immediately due and payable from Guarantor (it being
understood, however, that upon the occurrence of any "Bankruptcy Event", as
defined in the Guaranteed Documents, all such indebtedness shall
automatically become due and payable without action on the part of MLBFS).
Notwithstanding the occurrence of any such event, this Guaranty shall
continue and remain in full force and effect. To the extent MLBFS receives
payment with respect to the Obligations, and all or any part of such payment
is subsequently invalidated, declared to be fraudulent or preferential, set
aside, required to be repaid by MLBFS or is repaid by MLBFS pursuant to a
settlement agreement, to a trustee, receiver or any other person or entity,
whether under any Bankruptcy law or otherwise (a "Returned Payment"), this
Guaranty shall continue to be effective or shall be reinstated, as the case
may be, to the extent of such payment or repayment by MLBFS, and the
indebtedness or part thereof intended to be satisfied by such Returned
Payment shall be revived and continued in full force and effect as if said
Returned Payment had not been made.
The liability of Guarantor hereunder shall in no event be affected or
impaired by any of the following, any of which may be done or omitted by
MLBFS from time to time, without notice to or the consent of Guarantor: (a)
any renewals, amendments, modifications or supplements of or to any of the
Guaranteed Documents, or any extensions, forbearances, compromises or
releases of any of the Obligations or any of MLBFS' rights under any of the
Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or
security for, or other guarantees of, any of the Obligations; (c) any
failure, neglect or omission on the part of MLBFS to realize upon or protect
any of the Obligations, or any collateral or security therefor, or to
exercise any lien upon or right of appropriation of any moneys, credits or
property of Customer or any other guarantor, possessed by or under the
control of MLBFS or any of its affiliates, toward the liquidation or
reduction of the Obligations; (d) any invalidity, irregularity or
unenforceability of all or any part of the
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Obligations, of any collateral security for the Obligations, or the
Guaranteed Documents; (e) any application of payments or credits by MLBFS;
(1) the granting of credit from time to time by MLBFS to Customer in excess
of the amount set forth in the Guaranteed Documents; or (g) any other act of
commission or omission of any kind or at any time upon the part of MLBFS or
any of its affiliates or any of their respective employees or agents with
respect to any matter whatsoever. MLBFS shall not be required at any time, as
a condition of Guarantor's obligations hereunder, to resort to payment from
Customer or other persons or entities whatsoever, or any of their properties
or estates, or resort to any collateral or pursue or exhaust any other rights
or remedies whatsoever.
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor or any other guarantor,
unless and until all of the Obligations shall have been indefeasibly fully
paid and discharged. Guarantor expressly waives presentment, protest, demand,
notice of dishonor or default, notice of acceptance of this Guaranty, notice
of advancement of funds under the Guaranteed Documents and all other notices
and formalities to which Customer or Guarantor might be entitled, by statute
or otherwise, and, so long as there are any Obligations or MLBFS is committed
to extend credit to Customer, Guarantor waives any right to revoke or
terminate this Guaranty without the express written consent of MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract,
by statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or any other of
the Guaranteed Documents or in respect of any of the Obligations, in its sole
discretion and without demand or notice of any kind, to appropriate, hold,
set off and apply toward the payment of any amount due hereunder, in such
order of application as MLBFS may elect, all cash, credits, deposits,
accounts, securities and any other property of Guarantor which is in transit
to or in the possession, custody or control of MLBFS or Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective
agents, bailees or affiliates, including, without limitation, all securities
accounts with MLPF&S and all cash, securities and other financial assets
therein or controlled thereby, and all proceeds thereof. Guarantor hereby
collaterally assigns and grants to MLBFS a continuing security interest in
all such property as additional security for the Obligations. Upon the
occurrence and during the continuance of an Event of Default, MLBFS shall
have all rights in such property available to collateral assignees and
secured parties under all applicable laws, including, without limitation, the
Uniform Commercial Code.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS
may otherwise from time to time reasonably request. Guarantor further hereby
irrevocably authorizes MLBFS and each of its affiliates, including without
limitation MLPF&S, to at any time (whether or not an Event of Default shall
have occurred) obtain from and disclose to each other any and all financial
and other information about Guarantor.
Guarantor warrants and agrees that: (a) unless clearly stated or noted, no
material assets shown on any financial statements of Guarantor heretofore or
hereafter furnished to MLBFS are or will be held in an irrevocable trust,
pension trust, retirement trust, IRA or other trust or form of ownership
exempt from execution by creditors of Guarantor; and, (b) except upon the
prior written consent of MLBFS, which consent will not be unreasonably
withheld, Guarantor will not hereafter transfer any material assets of
Guarantor to any trust or third party if the effect thereof will be to cause
such assets to be exempt from execution by creditors of Guarantor (excluding,
however, normal and reasonable contributions to pension plans, retirement
plans, etc., and IRA rollovers).
No delay on the part of MLBFS in the exercise of any right or remedy under
the Guaranteed Documents, this Guaranty or any other agreement shall operate
as a waiver thereof, and, without limiting the foregoing,
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no delay in the enforcement of any security interest, and no single or
partial exercise by MLBFS of any right or remedy shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. This
Guaranty may be executed in any number of counterparts, each of which
counterparts, once they are executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same Guaranty. This Guaranty shall be binding upon Guarantor and
Guarantor's heirs and personal representatives, and shall inure to the
benefit of MLBFS and its successors and assigns.
This Guaranty shall be governed by the laws of the State of Illinois. WITHOUT
LIMITING THE RIGHT OF MLBFS TO ENFORCE THIS GUARANTY IN ANY JURISDICTION AND
VENUE PERMITTED BY APPLICABLE LAW, GUARANTOR AGREES THAT THIS GUARANTY MAY AT
THE OPTION OF MLBFS BE ENFORCED BY MLBFS IN ANY JURISDICTION AND VENUE IN
WHICH ANY OF THE GUARANTEED DOCUMENTS MAY BE ENFORCED. GUARANTOR AND MLBFS
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY IN ANY WAY RELATED TO OR ARISING OUT OF THIS GUARANTY OR THE
OBLIGATIONS. Wherever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Guaranty shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty. No modification or
waiver of any of the provisions of this Guaranty shall be effective unless in
writing and signed by Guarantor and an officer of MLBFS.
Dated as of June 17, 1997.
GUARANTOR: ADDRESS:
14366 Twisted Branch Road
Poway, CA 92064
___________________________________
DICKERSON WRIGHT
WITNESS:___________________________
PRINTED NAME:______________________
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MERRILL LYNCH No. 825-00756
================================================================================
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of June 17, 1997, between
PROFESSIONAL ENGINEERING & INSPECTION COMPANY, INC., a corporation organized
and existing under the laws of the State of Florida, having its principal
office at 4350 West Sunrise Boulevard, Plantation, FL 33313 ("Grantor"), and
MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC., a corporation organized and
existing under the laws of the State of Delaware, having its principal office
at 33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to
U.S. LABORATORIES INC. ("Customer'), under the Loan Agreement (as defined
below) or otherwise, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Grantor hereby
agrees with MLBFS as follows:
DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt or receivership law or statute shall be filed or consented to by
Grantor or Customer; or (B) any such proceeding shall be filed against
Grantor or Customer and shall not be dismissed or withdrawn within sixty
(60) days after filing; or (C) Grantor or Customer shall make a general
assignment for the benefit of creditors; or (D) Grantor or Customer shall
become insolvent or generally fail to pay or admit in writing its inability
to pay its debts as they become due; or (E) Grantor or Customer shall be
adjudicated a bankrupt or insolvent.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday,
federal holiday or other day on which the New York Stock Exchange is
regularly closed.
(iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents and Instruments of Grantor, howsoever arising, whether now owned or
existing or hereafter acquired or arising, and wherever located; together
with all parts thereof (including spare parts), all accessories and accessions
thereto, all books and records (including computer records) directly related
thereto, all proceeds thereof (including, without limitation, proceeds in the
form of Accounts and insurance proceeds), and the additional collateral
described in Section 7 (b) hereof.
(v) "Loan Agreement" shall mean that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 825-00756 between Customer and MLBFS, as the same may from time
to time be or have been amended, restated, extended or supplemented.
(vi) "Location of Tangible Collateral" shall mean the address of Grantor set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
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(vii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or to become due, primary or secondary
or joint or several, and, without limiting the foregoing, shall include
interest accruing after the filing of any petition in bankruptcy, and all
present and future liabilities, indebtedness and obligations of Customer
under the Loan Agreement and the agreements, instruments and documents
executed pursuant thereto, and of Grantor under this Agreement.
(viii) "Permitted Liens" shall mean with respect to the Collateral: (A) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the
ordinary course of business being contested in good faith by appropriate
proceedings; (B) liens in favor of MLBFS; and (C) any other liens expressly
permitted in writing by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC.
COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Grantor hereby pledges, assigns, transfers, and sets over to MLBFS, and
grants to MLBFS, a first lien and security interest in and upon all of the
Collateral subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood
that nothing herein, and no action or inaction by MLBFS, under this Agreement
or otherwise, shall be deemed an assumption by MLBFS of any of Grantors said
obligations.
(d) NOTICE OF CERTAIN EVENTS. Grantor shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.
(e) INDEMNIFICATION. Grantor shall indemnify, defend and save MLBFS harmless
from and against any and all claims, losses, costs, expenses (including,
without limitation, reasonable attorneys' fees and expenses), demands,
liabilities, penalties, fines and forfeitures of any nature whatsoever which
may be asserted against or incurred by MLBFS arising out of or in any
manner occasioned by (i) the ownership, use, operation, condition or
maintenance of any Collateral, or (ii) any failure by Grantor to perform any
of its obligations hereunder; excluding, however, from said indemnity any
such claims, losses, etc. arising out of the willful wrongful act or active
gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Agreement as to all matters arising or accruing prior to
such expiration or termination.
(f) INSURANCE. Grantor shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or
policies of physical damage insurance reasonably acceptable to MLBFS
providing that (i) losses will be payable to MLBFS as its interests may
appear pursuant to a Lenders Loss Payable endorsement, and (ii) MLBFS will
receive not less than 10 days prior written notice of any cancellation; and
containing such other provisions as may be reasonably required by MLBFS.
Grantor shall maintain such other insurance as may be required by law or
otherwise reasonably required by MLBFS. Grantor shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any
expiration or cancellation, each renewal or replacement thereof.
(g) EVENT OF LOSS. Grantor shall at its expense promptly repair all
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or
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confiscated (an "Event of Loss") and such Collateral had a value prior to
such Event of Loss of $25,000.00 or more, then, on or before the first to
occur of (i) 90 days after the occurrence of such Event of Loss, or
(ii) 10 Business Days after the date on which either Grantor or MLBFS shall
receive any proceeds of insurance on account of such Event of Loss, or any
underwriter of insurance on such tangible Collateral shall advise either
Grantor or MLBFS that it disclaims liability in respect of such Event of
Loss, Grantor shall, at Grantor's option, either replace the Collateral
subject to such Event of Loss with comparable Collateral free of all liens
other than Permitted Liens (in which event Grantor shall be entitled to
utilize the proceeds of insurance on account of such Event of Loss for such
purpose, and may retain any excess proceeds of such insurance), or pay to
MLBFS on account of the Obligations an amount equal to the actual cash value
of such Collateral as determined by either the applicable insurance company's
payment (plus any applicable deductible) or, in absence of insurance company
payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if
at the time of occurrence of such Event of Loss or any time thereafter prior
to replacement or payment, as aforesaid, an Event of Default shall occur
hereunder, then MLBFS may at its sole option, exercisable at any time while
such Event of Default shall be continuing, require Grantor to either replace
such Collateral or make a payment on account of the Obligations, as aforesaid.
(h) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Grantor may in the ordinary course of its business: (i) sell
any Inventory normally held by Grantor for sale, (ii) use or consume any
materials and supplies normally held by Grantor for use or consumption, and
(iii) collect all of its Accounts. Grantor shall take such action with
respect to protection of its Inventory and the other Collateral and the
collection of its Accounts as MLBFS may from time to time reasonably request.
(i) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any time or
times hereafter, Grantor shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and
all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice number and date of
each invoice. Grantor shall furnish to MLBFS such additional information with
respect to the Collateral, and amounts received by Grantor as proceeds of any
of the Collateral, as MLBFS may from time to time reasonably request.
(j) LOCATION. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Grantor cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Grantor shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value
or utility. Grantor shall at all times keep the tangible Collateral in good
condition and repair and shall pay or cause to be paid all obligations
arising from the repair and maintenance of such Collateral, as well as all
obligations with respect to each Location of Tangible Collateral, except for
any such obligations being contested by Grantor in good faith by appropriate
proceedings.
REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) GRANTOR. Grantor is a corporation, duly organized and validly existing in
good standing under the laws of the State of Florida and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by Grantor of this Agreement have been duly authorized by all
requisite action, do not and will not violate or conflict with any law or
other governmental requirement, or any of the agreements, instruments or
documents which formed or governed Grantor, and do not and will not breach or
violate any of the provisions of, and will not
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result in a default by Grantor under, any other agreement, instrument or
document to which it is a party or by which it or its properties are bound.
(c) NOTICE OR CONSENT. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Grantor
of this Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and binding
obligation of Grantor, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of
equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Grantors financial
statements, all financial statements of Grantor furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(f) LITIGATION, ETC. No litigation, arbitration, administrative or
governmental proceedings are pending or threatened against Grantor, which
would, if adversely determined, materially and adversely affect the financial
condition or continued operations of Grantor, or the liens and security
interests of MLBFS hereunder.
(g) TAXES. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been
timely paid (except to the extent that any such failure to file or pay will
not materially and adversely affect either the liens and security interests
of MLBFS hereunder or the financial condition or continued operations of
Grantor).
(h) COLLATERAL. Grantor has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all
Uniform Commercial Code financing statements executed by Grantor with respect
to the Collateral or a copy of this Agreement in the appropriate
jurisdiction(s) and/or the completion of any other action required by
applicable law to perfect is lien and security interests, MLBFS will have
valid and perfected first liens and security interests upon all of the
Collateral.
Each of the foregoing representations and warranties has been and will be
relied upon as an inducement to MLBFS to advance funds or extend or continue
to extend credit to Customer, and is continuing and shall be deemed remade by
Grantor concurrently with each such advance or extension of credit by MLBFS
to Customer.
FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be
furnished to MLBFS during the term of this Agreement such financial and other
information as may be required by the Loan Agreement or any other document
evidencing the Obligations or as MLBFS may from time to time reasonably
request relating to Grantor or the Collateral.
OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
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(a) FINANCIAL RECORDS; INSPECTION. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain
all of its financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such other basis as
may be approved in writing by MLBFS; and (ii) permit MLBFS or its duly
authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) TAXES. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of
MLBFS hereunder, or the financial condition or continued operations of
Grantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any
court or governmental agency or authority, or any agreement, instrument or
document to which it is a party or by which it is bound, if any such
violation will materially and adversely affect either the liens and security
interests of MLBFS hereunder, or the financial condition or continued
operations of Grantor.
(d) NOTIFICATION BY GRANTOR. Grantor shall provide MLBFS with prompt written
notification of: (i) any Event of Default, or event which with the giving of
notice, passage of time, or both, would constitute an Event of Default;
(ii) any materially adverse change in the business, financial condition or
operations of Grantor; and (iii) any information which indicates that any
financial statements of Grantor fail in any material respect to present
fairly the financial condition and results of operations purported to be
presented in such statements. Each notification by Grantor pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy
such event or information.
(e) NOTICE OF CHANGE. Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer
or lease all or any substantial part of its assets, if any such action would
result in either: (A) a material change in the principal business, ownership
or control of Grantor, or (B) a material adverse change in the financial
condition or operations of Grantor; (ii) Grantor shall preserve its existence
and good standing in the jurisdictions of establishment and operation, and
shall not operate in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS; and (iii) Grantor shall not cause or permit any material change in its
controlling ownership.
EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) DEFAULT UNDER LOAN AGREEMENT. An Event of Default shall occur under the
terms of the Loan Agreement.
(b) FAILURE TO PERFORM. Grantor shall default in the performance or
observance of any covenant or agreement on its part to be performed or
observed under this Agreement (not constituting an Event of Default under any
other clause of this Section), and such default shall continue unremedied for
10 Business Days after written notice thereof shall have been given by MLBFS
to Grantor.
(c) BREACH OF WARRANTY. Any representation or warranty made by Grantor
contained in this Agreement shall at any time prove to have been incorrect in
any material respect when made.
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(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document
with or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S") or any of their affiliates, and any required
notice shall have been given and required passage of time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of
$100,000.00 or more of Grantor to another creditor under any indenture,
agreement, undertaking, or otherwise.
REMEDIES
(a) REMEDIES UPON DEFAULT Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all
of the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) ACCELERATION. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest,
notice of dishonor, notice of acceleration, notice of intent to accelerate or
other notice or formality of any kind, all of which are hereby expressly
waived; provided, however, that upon the occurrence of any Bankruptcy Event
all Obligations shall automatically become due and payable without any action
on the part of MLBFS.
(ii) EXERCISE RIGHTS OF SECURED PARTY. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited
to, the UCC, and any or all of its other rights and remedies under this
Agreement.
(iii) POSSESSION. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated
by MLBFS which is reasonably convenient to Grantor, or may take possession of
the Collateral and the records pertaining to the Collateral without the use
of any judicial process and without any prior notice to Grantor.
(iv) SALE. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper, and
MLBFS may purchase any Collateral at any such public sale; and the net
proceeds of any such public or private sale and all other amounts actually
collected or received by MLBFS pursuant hereto, after deducting all costs and
expenses incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Grantor or
whoever else may be entitled thereto, and with Customer and each guarantor of
Customers obligations remaining jointly and severally liable for any amount
remaining unpaid after such application.
(v) DELIVERY OF CASH, CHECKS, ETC. MLBFS may require Grantor to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Grantor at any time in full or partial payment of any
Collateral, and require that Grantor not commingle any such items which may
be so received by Grantor with any other of its funds or property but instead
hold them separate and apart and in trust for MLBFS until delivery is made to
MLBFS.
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(vi) NOTIFICATION OF ACCOUNT DEBTORS. MLBFS may notify any Account Debtor
that its Account or Chattel Paper has been assigned to MLBFS and direct such
Account Debtor to make payment directly to MLBFS of all amounts due or
becoming due with respect to such Account or Chattel Paper; and MLBFS may
enforce payment and collect, by legal proceedings or otherwise, such Account
or Chattel Paper.
(vii) CONTROL OF COLLATERAL. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included
in the Collateral and endorse Grantor name on any item of payment on or
proceeds of the Collateral, and, in connection therewith, MLBFS may notify
the postal authorities to change the address for delivery of mail addressed
to Grantor to such address as MLBFS may designate.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and
apply toward payment of any of the Obligations, in such order of application
as MLBFS may from time to time and at any time elect, any cash, credits,
deposits, accounts, securities and any other property of Grantor which is in
transit to or in the possession, custody or control of MLBFS, MLPF&S or any
agent, bailee, or affiliate of MLBFS or MLPF&S, including, without limitation,
all securities accounts with MLPF&S and all cash and securities and other
financial assets therein or controlled thereby, and all proceeds thereof.
Grantor hereby collaterally assigns and grants to MLBFS a security interest
in all such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the continuance
of an Event of Default, Grantor hereby irrevocably appoints MLBFS as its
attorney-in-fact, with full power of substitution, in its place and stead and
in its name or in the name of MLBFS, to from time to time in MLBFS' sole
discretion take any action and to execute any instrument which MLBFS may deem
necessary or advisable to accomplish the Purposes of this Agreement, including,
but not limited to, to receive, endorse and collect all checks, drafts and
other instruments for the payment of money made payable to Grantor included
in the Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights
and remedies may be exercised simultaneously or successively. Any notice
required under this Agreement or under applicable law shall be deemed
reasonably and properly given to Grantor if given at the address and by any
of the methods of giving notice set forth in this Agreement at least 5 Business
Days before taking any action specified in such notice.
(e) NOTICES. To the fullest extent permitted by applicable law, Grantor
hereby irrevocably waives and releases MLBFS of and from any and all
liabilities and penalties for failure of MLBFS to comply with any statutory
or other requirement imposed upon MLBFS relating to notices of sale, holding
of sale or reporting of any sale, and Grantor waives all rights of redemption
or reinstatement from any such sale. MLBFS shall have the right to postpone
or adjourn any sale or other disposition of Collateral at any time without
giving notice of any such postponed or adjourned date. In the event MLBFS
seeks to take possession of any or all of the Collateral by court process,
Grantor further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Grantor therefrom, shall be
effective unless the same shall be in writing and signed by
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MLBFS. Any waiver of any provision of this Agreement and any consent to any
departure by Grantor from the terms of this Agreement shall be effective only
in the specific instance and for the specific purpose for which given. Except
as otherwise expressly provided herein, no notice to or demand on Grantor
shall in any case entitle Grantor to any other or further notice or demand in
similar or other circumstances.
(b) COMMUNICATIONS. All notices and other communications required or
permitted hereunder shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission
or actual delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other
communications in writing shall be given to the parties hereto at their
respective addresses set forth at the beginning of this Agreement, and, in
the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(c) COSTS, EXPENSES AND TAXES. Grantor shall pay or reimburse MLBFS upon
demand for: (i) all Uniform Commercial Code filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and
all stamp, transfer and other taxes and fees payable or determined to be
payable in connection with the execution, delivery and/or recording of this
Agreement; and (iii) all reasonable fees and out-of-pocket expenses
(including, but not limited to, reasonable fees and expenses of outside
counsel) incurred by MLBFS in connection with the enforcement of this
Agreement or the protection of MLBFS' rights hereunder, excluding, however,
salaries and expenses of MLBFS' employees. The obligations of Grantor under
this paragraph shall survive the expiration or termination of this Agreement
and the discharge of the other Obligations.
(d) RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do any act or
thing which it has covenanted to do under this Agreement or any
representation or warranty on the part of Grantor contained in this Agreement
shall be breached, MLBFS may, in its sole discretion, after 5 Business Days
written notice is sent to Grantor (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to
be done or remedy any such breach, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by MLBFS shall be repayable to
MLBFS by Grantor upon demand, with interest at the "Interest Rate" (as that
term is defined in the Loan Agreement or any document incorporated into the
Loan Agreement) during the period from and including the date funds are so
expended by MLBFS to the date of repayment, and any such amounts due and
owing MLBFS shall be additional Obligations. The payment or performance by
MLBFS of any of Grantors obligations hereunder shall not relieve Grantor of
said obligations or of the consequences of having failed to pay or perform
the same, and shall not waive or be deemed a cure of any Event of Default.
(e) FURTHER ASSURANCES. Grantor agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement , or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited
to: (i) executing financing statements or amendments thereto when and as
reasonably requested by MLBFS; and (ii) if in the reasonable judgment of
MLBFS it is required by local law, causing the owners and/or mortgagees of
the real property on which any Collateral may be located to execute and
deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS
with respect to any rights in such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) HEADINGS. Captions and section and paragraph headings in this Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Illinois.
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(i) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance by MLBFS,
and, subject to the terms hereof, shall continue in effect so long thereafter
as either MLBFS shall be committed to advance funds or extend credit to
Customer or there shall be any Obligations outstanding.
(k) COUNTERPARTS. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) JURISDICTION; WAIVER. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR
IN ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS
MAY BE LOCATED. GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND
VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES,
AND GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES
AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY
OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR
THIS AGREEMENT.
(m) INTEGRATION. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING
AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE
UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND GRANTOR.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
PROFESSIONAL ENGINEERING & INSPECTION COMPANY, INC.
By: ______________________________________________________________
Signature (1) Signature (2)
__________________________________________________________________
Printed Name Printed Name
__________________________________________________________________
Title Title
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Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.
By: ____________________________
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MERRILL LYNCH No. 825-00756
================================================================================
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of June 17, 1997, between U.S.
ENGINEERING LABORATORIES, INC., a corporation organized and existing under the
laws of the State of Delaware, having its principal office at 903 East Hazelwood
Avenue, Rahway, NJ 07065 ("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC., a corporation organized and existing under the laws of the State
of Delaware, having its principal office at 33 West Monroe Street, Chicago, IL
60603 ("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to U.S.
LABORATORIES INC. ("Customer'), under the Loan Agreement (as defined below) or
otherwise, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Grantor hereby agrees with MLBFS as
follows:
1. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor' shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or
receivership law or statute shall be filed or consented to by Grantor or
Customer; or (B) any such proceeding shall be filed against Grantor or Customer
and shall not be dismissed or withdrawn within sixty (60) days after filing; or
(C) Grantor or Customer shall make a general assignment for the benefit of
creditors; or (D) Grantor or Customer shall become insolvent or generally fail
to pay or admit in writing its inability to pay its debts as they become due; or
(E) Grantor or Customer shall be adjudicated a bankrupt or insolvent.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Grantor, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all parts
thereof (including spare parts), all accessories and accessions thereto, all
books and records (including computer records) directly related thereto, all
proceeds thereof (including, without limitation, proceeds in the form of
Accounts and insurance proceeds), and the additional collateral described in
Section 7 (b) hereof.
(v) "Loan Agreement" shall mean that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 825-00756 between Customer and MLBFS, as the same may from time to
time be or have been amended, restated, extended or supplemented.
(vi) "Location of Tangible Collateral" shall mean the address of Grantor set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
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(vii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or to become due, primary or secondary or
joint or several, and, without limiting the foregoing, shall include interest
accruing after the filing of any petition in bankruptcy, and all present and
future liabilities, indebtedness and obligations of Customer under the Loan
Agreement and the agreements, instruments and documents executed pursuant
thereto, and of Grantor under this Agreement.
(viii) "Permitted Liens" shall mean with respect to the Collateral: (A) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings; (B)
liens in favor of MLBFS; and (C) any other liens expressly permitted in writing
by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC")
shall have the meanings set forth in the UCC.
COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the Obligations,
Grantor hereby pledges, assigns, transfers and sets over to MLBFS, and grants to
MLBFS a first lien and security interest in and upon all of the Collateral,
subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Grantor's said
obligations.
(d) NOTICE OF CERTAIN EVENTS. Grantor shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$25,000.00 or more of the Collateral.
(e) INDEMNIFICATION. Grantor shall indemnify, defend and save MLBFS harmless
from and against any and all claims, losses, costs, expenses (including, without
limitation, reasonable attorneys' fees and expenses), demands, liabilities,
penalties, fines and forfeitures of any nature whatsoever which may be asserted
against or incurred by MLBFS arising out of or in any manner occasioned by (i)
the ownership, use, operation, condition or maintenance of any Collateral, or
(ii) any failure by Grantor to perform any of its obligations hereunder;
excluding, however, from said indemnity any such claims, losses, etc. arising
out of the willful wrongful act or active gross negligence of MLBFS. This
indemnity shall survive the expiration or termination of this Agreement as to
all matters arising or accruing prior to such expiration or termination.
(f) INSURANCE. Grantor shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or policies
of physical damage insurance reasonably acceptable to MLBFS providing that (i)
losses will be payable to MLBFS as its interests may appear pursuant to a
Lender's Loss Payable endorsement, and (ii) MLBFS will receive not less than 10
days prior written notice of any cancellation; and containing such other
provisions as may be reasonably required by MLBFS. Grantor shall maintain such
other insurance as may be required by law or otherwise reasonably required by
MLBFS. Grantor shall furnish MLBFS with a copy or certificate of each such
policy or policies and, prior to any expiration or cancellation, each renewal or
replacement thereof.
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(g) EVENT OF LOSS. Grantor shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss') and such Collateral had a value prior to such Event of Loss of $25,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Grantor or MLBFS shall receive any proceeds of insurance on account
of such Event of Loss, or any underwriter of insurance on such tangible
Collateral shall advise either Grantor or MLBFS that it disclaims liability in
respect of such Event of Loss, Grantor shall, at Grantor's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Grantor shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or pay
to MLBFS on account of the Obligations an amount equal to the actual cash value
of such Collateral as determined by either the applicable insurance company's
payment (plus any applicable deductible) or, in absence of insurance company
payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at
the time of occurrence of such Event of Loss or any time thereafter prior to
replacement or payment, as aforesaid, an Event of Default shall occur hereunder,
then MLBFS may at its sole option, exercisable at any time while such Event of
Default shall be continuing, require Grantor to either replace such Collateral
or make a payment on account of the Obligations, as aforesaid.
(h) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Grantor may in the ordinary course of its business: (i) sell
any Inventory normally held by Grantor for sale, (ii) use or consume any
materials and supplies normally held by Grantor for use or consumption, and
(iii) collect all of its Accounts. Grantor shall take such action with respect
to protection of its Inventory and the other Collateral and the collection of
its Accounts as MLBFS may from time to time reasonably request.
(i) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any time or
times hereafter, Grantor shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and all
Chattel Paper subject to MLBFS' security interests hereunder, each Account
Debtor by name and address and amount, invoice number and date of each invoice.
Grantor shall furnish to MLBFS such additional information with respect to the
Collateral, and amounts received by Grantor as proceeds of any of the
Collateral, as MLBFS may from time to time reasonably request.
(j) LOCATION. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Grantor cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of MLBFS,
Grantor shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Grantor shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
each Location of Tangible Collateral, except for any such obligations being
contested by Grantor in good faith by appropriate proceedings.
REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) GRANTOR. Grantor is a corporation, duly organized and validly existing in
good standing under the laws of the State of Delaware and is qualified to do
business and in good standing in each other state where the nature of its
business or the property owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and performance
by Grantor of this Agreement have been duly authorized by all requisite action,
do not and will not violate or conflict with any
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law or other governmental requirement, or any of the agreements, instruments
or documents which formed or governed Grantor, and do not and will not breach
or violate any of the provisions of, and will not result in a default by
Grantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c) NOTICE OR CONSENT. Except as may have been given or obtained, no notice to
or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Grantor of this
Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and binding obligation
of Grantor, enforceable against it in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principles of equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Grantors financial
statements, all financial statements of Grantor furnished to MLBFS have been
prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(f) LITIGATION, ETC. No litigation, arbitration, administrative or governmental
proceedings are pending or threatened against Grantor, which would, if adversely
determined, materially and adversely affect the financial condition or continued
operations of Grantor, or the liens and security interests of MLBFS hereunder.
(g) TAXES. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or the financial condition or continued operations of Grantor).
(h) COLLATERAL. Grantor has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all Uniform
Commercial Code financing statements executed by Grantor with respect to the
Collateral or a copy of this Agreement in the appropriate jurisdiction(s) and/or
the completion of any other action required by applicable law to perfect is lien
and security interests, MLBFS will have valid and perfected first liens and
security interests upon all of the Collateral.
Each of the foregoing representations and warranties has been and will be relied
upon as an inducement to MLBFS to advance funds or extend or continue to extend
credit to Customer, and is continuing and shall be deemed remade by Grantor
concurrently with each such advance or extension of credit by MLBFS to Customer.
FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be furnished
to MLBFS during the term of this Agreement such financial and other information
as may be required by the Loan Agreement or any other document evidencing the
Obligations or as MLBFS may from time to time reasonably request relating to
Grantor or the Collateral.
OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
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(a) FINANCIAL RECORDS; INSPECTION. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain all
of its financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real and personal), operations, books and records.
(b) TAXES. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder, or the financial condition or continued operations of Grantor.
(d) NOTIFICATION BY GRANTOR. Grantor shall provide MLBFS with prompt written
notification of: (i) any Event of Default, or event which with the giving of
notice, passage of time, or both, would constitute an Event of Default; (ii) any
materially adverse change in the business, financial condition or operations of
Grantor; and (iii) any information which indicates that any financial statements
of Grantor fail in any material respect to present fairly the financial
condition and results of operations purported to be presented in such
statements. Each notification by Grantor pursuant hereto shall specify the event
or information causing such notification, and, to the extent applicable, shall
specify the steps being taken to rectify or remedy such event or information.
(e) NOTICE OF CHANGE. Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer or
lease all or any substantial part of its assets, if any such action would result
in either: (A) a material change in the principal business, ownership or control
of Grantor, or (B) a material adverse change in the financial condition or
operations of Grantor; (ii) Grantor shall preserve its existence and good
standing in the jurisdictions of establishment and operation, and shall not
operate in any material business substantially different from its business in
effect as of the date of application by Customer for credit from MLBFS; and
(iii) Grantor shall not cause or permit any material change in its controlling
ownership.
EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) DEFAULT UNDER LOAN AGREEMENT. An Event of Default shall occur under the
terms of the Loan Agreement.
(b) FAILURE TO PERFORM. Grantor shall default in the performance or observance
of any covenant or agreement on its part to be performed or observed under this
Agreement (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Grantor.
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(c) BREACH OF WARRANTY. Any representation or warranty made by Grantor
contained in this Agreement shall at any time prove to have been incorrect in
any material respect when made.
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document
with or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S') or any of their affiliates, and any required
notice shall have been given and required passage of time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of
$100,000.00 or more of Grantor to another creditor under any indenture,
agreement, undertaking, or otherwise.
REMEDIES
(a) REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all
of the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) Acceleration. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest,
notice of dishonor, notice of acceleration, notice of intent to accelerate or
other notice or formality of any kind, all of which are hereby expressly
waived; provided, however, that upon the occurrence of any Bankruptcy Event
all Obligations shall automatically become due and payable without any action
on the part of MLBFS.
(ii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited
to, the UCC, and any or all of its other rights and remedies under this
Agreement.
(iii) Possession. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated
by MLBFS which is reasonably convenient to Grantor, or may take possession of
the Collateral and the records pertaining to the Collateral without the use
of any judicial process and without any prior notice to Grantor.
(iv) Sale. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper, and
MLBFS may purchase any Collateral at any such public sale; and the net
proceeds of any such public or private sale and all other amounts actually
collected or received by MLBFS pursuant hereto, after deducting all costs and
expenses incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Grantor or
whoever else may be entitled thereto, and with Customer and each guarantor of
Customer's obligations remaining jointly and severally liable for any amount
remaining unpaid after such application.
(v) Delivery of Cash, Checks, Etc. MLBFS may require Grantor to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be
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received by Grantor at any time in full or partial payment of any Collateral,
and require that Grantor not commingle any such items which may be so
received by Grantor with any other of its funds or property but instead hold
them separate and apart and in trust for MLBFS until delivery is made to
MLBFS.
(vi) Notification of Account Debtors. MLBFS may notify any Account Debtor
that its Account or Chattel Paper has been assigned to MLBFS and direct such
Account Debtor to make payment directly to MLBFS of all amounts due or
becoming due with respect to such Account or Chattel Paper; and MLBFS may
enforce payment and collect, by legal proceedings or otherwise, such Account
or Chattel Paper.
(vii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any Gash or non-cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included
in the Collateral and endorse Grantor name on any item of payment on or
proceeds of the Collateral, and, in connection therewith, MLBFS may notify
the postal authorities to change the address for delivery of mail addressed
to Grantor to such address as MLBFS may designate.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and
apply toward payment of any of the Obligations, in such order of application
as MLBFS may from time to time and at any time elect, any cash, credits,
deposits, accounts, securities and any other property of Grantor which is in
transit to or in the possession, custody or control of MLBFS, MLPF&S or any
agent, bailee, or affiliate of MLBFS or MLPF&S, including, without
limitation, all securities accounts with MLPF&S and all cash and securities
and other financial assets therein or controlled thereby, and all proceeds
thereof. Grantor hereby collaterally assigns and grants to MLBFS a security
interest in all such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the
continuance of an Event of Default, Grantor hereby irrevocably appoints MLBFS
as its attorney-in-fact, with full power of substitution, in its place and
stead and in its name or in the name of MLBFS, to from time to time in MLBFS'
sole discretion take any action and to execute any instrument which MLBFS may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, but not limited to, to receive, endorse and collect all checks,
drafts and other instruments for the payment of money made payable to Grantor
included in the Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights
and remedies may be exercised simultaneously or successively. Any notice
required under this Agreement or under applicable law shall be deemed
reasonably and properly given to Grantor if given at the address and by any
of the methods of giving notice set forth in this Agreement at least 5
Business Days before taking any action specified in such notice.
(e) NOTICES. To the fullest extent permitted by applicable law, Grantor
hereby irrevocably waives and releases MLBFS of and from any and all
liabilities and penalties for failure of MLBFS to comply with any statutory
or other requirement imposed upon MLBFS relating to notices of sale, holding
of sale or reporting of any sale, and Grantor waives all rights of redemption
or reinstatement from any such sale. MLBFS shall have the right to postpone
or adjourn any sale or other disposition of Collateral at any time without
giving notice of any such postponed or adjourned date. In the event MLBFS
seeks to take possession of any or all of the Collateral by court process,
Grantor further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such
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right, power or remedy shall preclude any other or further exercise thereof,
or the exercise of any other right, power or remedy. Neither any waiver of
any provision of this Agreement, nor any consent to any departure by Grantor
therefrom, shall be effective unless the same shall be in writing and signed
by MLBFS. Any waiver of any provision of this Agreement and any consent to
any departure by Grantor from the terms of this Agreement shall be effective
only in the specific instance and for the specific purpose for which given.
Except as otherwise expressly provided herein, no notice to or demand on
Grantor shall in any case entitle Grantor to any other or further notice or
demand in similar or other circumstances.
(b) COMMUNICATIONS. All notices and other communications required or
permitted hereunder shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission
or actual delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other
communications in writing shall be given to the parties hereto at their
respective addresses set forth at the beginning of this Agreement, and, in
the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(c) COSTS, EXPENSES AND TAXES. Grantor shall pay or reimburse MLBFS upon
demand for: (i) all Uniform Commercial Code filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and
all stamp, transfer and other taxes and fees payable or determined to be
payable in connection with the execution, delivery and/or recording of this
Agreement; and (iii) all reasonable fees and out-of-pocket expenses
(including, but not limited to, reasonable fees and expenses of outside
counsel) incurred by MLBFS in connection with the enforcement of this
Agreement or the protection of MLBFS' rights hereunder, excluding, however,
salaries and expenses of MLBFS' employees. The obligations of Grantor under
this paragraph shall survive the expiration or termination of this Agreement
and the discharge of the other Obligations.
(d) RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do any act or
thing which it has covenanted to do under this Agreement or any
representation or warranty on the part of Grantor contained in this Agreement
shall be breached, MLBFS may, in its sole discretion, after 5 Business Days
written notice is sent to Grantor (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to
be done or remedy any such breach, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by MLBFS shall be repayable to
MLBFS by Grantor upon demand, with interest at the "Interest Rate" (as that
term is defined in the Loan Agreement or any document incorporated into the
Loan Agreement) during the period from and including the date funds are so
expended by MLBFS to the date of repayment, and any such amounts due and
owing MLBFS shall be additional Obligations. The payment or performance by
MLBFS of any of Grantor's obligations hereunder shall not relieve Grantor of
said obligations or of the consequences of having failed to pay or perform
the same, and shall not waive or be deemed a cure of any Event of Default.
(e) FURTHER ASSURANCES. Grantor agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement , or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited
to: (i) executing financing statements or amendments thereto when and as
reasonably requested by MLBFS; and (ii) if in the reasonable judgment of
MLBFS it is required by local law, causing the owners and/or mortgagees of
the real property on which any Collateral may be located to execute and
deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS
with respect to any rights in such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
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(g) HEADINGS. Captions and section and paragraph headings in this Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Illinois.
(i) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance by MLBFS,
and, subject to the terms hereof, shall continue in effect so long thereafter
as either MLBFS shall be committed to advance funds or extend credit to
Customer or there shall be any Obligations outstanding.
(k) COUNTERPARTS. This Agreement may be executed in one or more counterparts
which, when taken together, constitute one and the same agreement.
(l) JURISDICTION; WAIVER. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR
IN ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS
MAY BE LOCATED. GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND
VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES,
AND GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES
AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY
OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR
THIS AGREEMENT.
(m) INTEGRATION. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING
AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE
UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND GRANTOR.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
U.S. ENGINEERING LABORATORIES, INC.
By:
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Signature (1) Signature (2)
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Printed Name Printed Name
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Title Title
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Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.
By:
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MERRILL LYNCH No. 825-00756
================================================================================
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of June 17, 1997, between U.S.
LABORATORIES, INC., a corporation organized and existing under the laws of
the State of ________, having its principal office at _____________________
("Grantor"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC., a
corporation organized and existing under the laws of the State of Delaware,
having its principal office at 33 West Monroe Street, Chicago, IL 60603
("MLBFS").
In order to induce MLBFS to extend or continue to extend credit to U.S.
LABORATORIES INC. ("Customer"), under the Loan Agreement (as defined below)
or otherwise, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Grantor hereby agrees with MLBFS
as follows:
2. DEFINITIONS
(a) SPECIFIC TERMS. In addition to terms defined elsewhere in this Agreement,
when used herein the following terms shall have the following meanings:
(i) "Account Debtor' shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Bankruptcy Event" shall mean any of the following: (A) a proceeding
under any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt or receivership law or statute shall be filed or consented to by
Grantor or Customer; or (B) any such proceeding shall be filed against
Grantor or Customer and shall not be dismissed or withdrawn within sixty (60)
days after filing; or (C) Grantor or Customer shall make a general assignment
for the benefit of creditors; or (D) Grantor or Customer shall become
insolvent or generally fail to pay or admit in writing its inability to pay
its debts as they become due; or (E) Grantor or Customer shall be adjudicated
a bankrupt or insolvent.
(iii) "Business Day" shall mean any day other than a Saturday, Sunday,
federal holiday or other day on which the New York Stock Exchange is
regularly closed.
(iv) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts,
Documents and Instruments of Grantor, howsoever arising, whether now owned or
existing or hereafter acquired or arising, and wherever located; together
with all parts thereof (including spare parts), all accessories and
accessions thereto, all books and records (including computer records)
directly related thereto, all proceeds thereof (including, without
limitation, proceeds in the form of Accounts and insurance proceeds), and the
additional collateral described in Section 7 (b) hereof.
(v) "Loan Agreement" shall mean that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 825-00756 between Customer and MLBFS, as the same may from time
to time be or have been amended, restated, extended or supplemented.
(vi) "Location of Tangible Collateral" shall mean the address of Grantor set
forth at the beginning of this Agreement, together with any other address or
addresses set forth on any exhibit hereto as being a Location of Tangible
Collateral.
(vii) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer or Grantor to MLBFS, howsoever created, arising or
evidenced, whether now existing or hereafter arising, whether
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direct or indirect, absolute or contingent, due or to become due, primary or
secondary or joint or several, and, without limiting the foregoing, shall
include interest accruing after the filing of any petition in bankruptcy, and
all present and future liabilities, indebtedness and obligations of Customer
under the Loan Agreement and the agreements, instruments and documents
executed pursuant thereto, and of Grantor under this Agreement.
(viii) "Permitted Liens" shall mean with respect to the Collateral: (A) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the
ordinary course of business being contested in good faith by appropriate
proceedings; (B) liens in favor of MLBFS; and (C) any other liens expressly
permitted in writing by MLBFS.
(b) OTHER TERMS. Except as otherwise defined herein, all terms used in this
Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC.
COLLATERAL
(a) PLEDGE OF COLLATERAL. To secure payment and performance of the
Obligations, Grantor hereby pledges, assigns, transfers and sets over to
MLBFS, and grants to MLBFS a first lien and security interest in and upon all
of the Collateral, subject only to Permitted Liens.
(b) LIENS. Except upon the prior written consent of MLBFS, Grantor shall not
create or permit to exist any lien, encumbrance or security interest upon or
with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) PERFORMANCE OF OBLIGATIONS. Grantor shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood
that nothing herein, and no action or inaction by MLBFS, under this Agreement
or otherwise, shall be deemed an assumption by MLBFS of any of Grantors said
obligations.
(d) NOTICE OF CERTAIN EVENTS. Grantor shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.
(e) INDEMNIFICATION. Grantor shall indemnify, defend and save MLBFS harmless
from and against any and all claims, losses. costs. expenses (including,
without limitation, reasonable attorneys' fees and expenses), demands,
liabilities, penalties, fines and forfeitures of any nature whatsoever which
may be asserted against or incurred by MLBFS arising out of or in any manner
occasioned by (i) the ownership, use, operation, condition or maintenance of
any Collateral, or (ii) any failure by Grantor to perform any of its
obligations hereunder, excluding, however, from said indemnity any such
claims, losses, etc. arising out of the willful wrongful act or active gross
negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Agreement as to all matters arising or accruing prior to
such expiration or termination.
(1) INSURANCE. Grantor shall insure all of the tangible Collateral with an
insurer or insurers reasonably acceptable to MLBFS, under a policy or
policies of physical damage insurance reasonably acceptable to MLBFS
providing that (i) losses will be payable to MLBFS as its interests may
appear pursuant to a Lender's Loss Payable endorsement, and (ii) MLBFS will
receive not less than 10 days prior written notice of any cancellation; and
containing such other provisions as may be reasonably required by MLBFS.
Grantor shall maintain such other insurance as may be required by law or
otherwise reasonably required by MLBFS. Grantor shall furnish MLBFS with a
copy or certificate of each such policy or policies and, prior to any
expiration or cancellation, each renewal or replacement thereof.
2
<PAGE>
(g) EVENT OF LOSS. Grantor shall at its expense promptly repair all
repairable damage to any tangible Collateral. In the event that any tangible
Collateral is damaged beyond repair, lost, totally destroyed or confiscated
(an "Event of Loss" and such Collateral had a value prior to such Event of
Loss of $25,000.00 or more, then, on or before the first to occur of (i) 90
days after the occurrence of such Event of Loss, or (ii) 10 Business Days
after the date on which either Grantor or MLBFS shall receive any proceeds of
insurance on account of such Event of Loss, or any underwriter of insurance
on such tangible Collateral shall advise either Grantor or MLBFS that it
disclaims liability in respect of such Event of Loss, Grantor shall, at
Grantor's option, either replace the Collateral subject to such Event of Loss
with comparable Collateral free of all liens other than Permitted Liens (in
which event Grantor shall be entitled to utilize the proceeds of insurance on
account of such Event of Loss for such purpose, and may retain any excess
proceeds of such insurance), or pay to MLBFS on account of the Obligations an
amount equal to the actual cash value of such Collateral as determined by
either the applicable insurance company's payment (plus any applicable
deductible) or, in absence of insurance company payment, as reasonably
determined by MLBFS. Notwithstanding the foregoing, if at the time of
occurrence of such Event of Loss or any time thereafter prior to replacement
or payment, as aforesaid, an Event of Default shall occur hereunder, then
MLBFS may at its sole option, exercisable at any time while such Event of
Default shall be continuing, require Grantor to either replace such
Collateral or make a payment on account of the Obligations, as aforesaid.
(h) SALES AND COLLECTIONS. So long as no Event of Default shall have occurred
and is continuing, Grantor may in the ordinary course of its business: (i)
sell any Inventory normally held by Grantor for sale, (ii) use or consume any
materials and supplies normally held by Grantor for use or consumption, and
(iii) collect all of its Accounts. Grantor shall take such action with
respect to protection of its Inventory and the other Collateral and the
collection of its Accounts as MLBFS may from time to time reasonably request.
(i) ACCOUNT SCHEDULES. Upon the request of MLBFS, made now or at any time or
times hereafter, Grantor shall deliver to MLBFS, in addition to the other
information required hereunder, a schedule identifying, for each Account and
all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice number and date of
each invoice. Grantor shall furnish to MLBFS such additional information with
respect to the Collateral, and amounts received by Grantor as proceeds of any
of the Collateral, as MLBFS may from time to time reasonably request.
(j) LOCATION. Except for movements in the ordinary course of its business,
Grantor shall give MLBFS 30 days' prior written notice of the placing at or
movement of any tangible Collateral to any location other than a Location of
Tangible Collateral. In no event shall Grantor cause or permit any tangible
Collateral to be removed from the United States without the express prior
written consent of MLBFS.
(k) ALTERATIONS AND MAINTENANCE. Except upon the prior written consent of
MLBFS, Grantor shall not make or permit any material alterations to any
tangible Collateral which might materially reduce or impair its market value
or utility. Grantor shall at all times keep the tangible Collateral in good
condition and repair and shall pay or cause to be paid all obligations
arising from the repair and maintenance of such Collateral, as well as all
obligations with respect to each Location of Tangible Collateral, except for
any such obligations being contested by Grantor in good faith by appropriate
proceedings.
REPRESENTATIONS AND WARRANTIES
Grantor represents and warrants to MLBFS that:
(a) GRANTOR. Grantor is a corporation, duly organized and validly existing in
good standing under the laws of the State of Delaware and is qualified to do
business and in good standing in each other state where the nature of As
business or the property owned by it make such qualification necessary.
(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution, delivery and
performance by Grantor of this Agreement have been duly authorized by all
requisite action, do not and will not violate or conflict with any
3
<PAGE>
law or other governmental requirement, or any of the agreements, instruments
or documents which formed or governed Grantor, and do not and will not breach
or violate any of the provisions of, and will not result in a default by
Grantor under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c) NOTICE OR CONSENT. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Grantor
of this Agreement.
(d) VALID AND BINDING. This Agreement is the legal, valid and binding
obligation of Grantor, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar laws
affecting the rights of creditors generally or by general principles of
equity.
(e) FINANCIAL STATEMENTS. Except as expressly set forth in Grantor's
financial statements, all financial statements of Grantor furnished to MLBFS
have been prepared in conformity with generally accepted accounting
principles, consistently applied, are true and correct, and fairly present
the financial condition of it as at such dates and the results of its
operations for the periods then ended; and since the most recent date covered
by such financial statements, there has been no material adverse change in
any such financial condition or operation.
(f) LITIGATION, ETC. No litigation, arbitration, administrative or
governmental proceedings are pending or threatened against Grantor, which
would, if adversely determined, materially and adversely affect the financial
condition or continued operations of Grantor, or the liens and security
interests of MLBFS hereunder.
(g) TAXES. All federal, state and local tax returns, reports and statements
required to be filed by Grantor have been filed with the appropriate
governmental agencies and all taxes due and payable by Grantor have been
timely paid (except to the extent that any such failure to file or pay will
not materially and adversely affect either the liens and security interests
of MLBFS hereunder or the financial condition or continued operations of
Grantor).
(h) COLLATERAL. Grantor has good and marketable title to the Collateral, and,
except for any Permitted Liens: (i) none of the Collateral is subject to any
lien, encumbrance or security interest, and (ii) upon the filing of all
Uniform Commercial Code financing statements executed by Grantor with respect
to the Collateral or a copy of this Agreement in the appropriate
jurisdiction(s) and/or the completion of any other action required by
applicable law to perfect is lien and security interests, MLBFS will have
valid and perfected first liens and security interests upon all of the
Collateral.
Each of the foregoing representations and warranties has been and will be
relied upon as an inducement to MLBFS to advance funds or extend or continue
to extend credit to Customer, and is continuing and shall be deemed remade by
Grantor concurrently with each such advance or extension of credit by MLBFS
to Customer.
FINANCIAL AND OTHER INFORMATION
Grantor covenants and agrees that Grantor will furnish or cause to be
furnished to MLBFS during the term of this Agreement such financial and other
information as may be required by the Loan Agreement or any other document
evidencing the Obligations or as MLBFS may from time to time reasonably
request relating to Grantor or the Collateral.
OTHER COVENANTS
Grantor further agrees during the term of this Agreement that:
4
<PAGE>
(a) FINANCIAL RECORDS; INSPECTION. Grantor will: (i) maintain complete and
accurate books and records at its principal place of business, and maintain
all of its financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such other basis as
may be approved in writing by MLBFS; and (ii) permit MLBFS or its duly
authorized representatives, upon reasonable notice and at reasonable times,
to inspect its properties (both real and personal), operations, books and
records.
(b) TAXES. Grantor will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of
MLBFS hereunder, or the financial condition or continued operations of
Grantor.
(c) COMPLIANCE WITH LAWS AND AGREEMENTS. Grantor will not violate any law,
regulation or other governmental requirement, any judgment or order of any
court or governmental agency or authority, or any agreement, instrument or
document to which it is a party or by which it is bound, if any such
violation will materially and adversely affect either the liens and security
interests of MLBFS hereunder, or the financial condition or continued
operations of Grantor.
(d) NOTIFICATION BY GRANTOR. Grantor shall provide MLBFS with prompt written
notification of: (i) any Event of Default, or event which with the giving of
notice, passage of time, or both, would constitute an Event of Default; (ii)
any materially adverse change in the business, financial condition or
operations of Grantor; and (iii) any information which indicates that any
financial statements of Grantor fail in any material respect to present
fairly the financial condition and results of operations purported to be
presented in such statements. Each notification by Grantor pursuant hereto
shall specify the event or information causing such notification, and, to the
extent applicable, shall specify the steps being taken to rectify or remedy
such event or information.
(e) NOTICE OF CHANGE. Grantor shall give MLBFS not less than 30 days prior
written notice of any change in the name (including any fictitious name) or
principal place of business of Grantor.
(f) CONTINUITY. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) Grantor shall not be a party to any
merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any person or entity, or sell, transfer
or lease all or any substantial part of its assets, if any such action would
result in either: (A) a material change in the principal business, ownership
or control of Grantor, or (B) a material adverse change in the financial
condition or operations of Grantor; (ii) Grantor shall preserve its existence
and good standing in the jurisdictions of establishment and operation, and
shall not operate in any material business substantially different from its
business in effect as of the date of application by Customer for credit from
MLBFS; and (iii) Grantor shall not cause or permit any material change in its
controlling ownership.
EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an "Event of
Default" under this Agreement:
(a) DEFAULT UNDER LOAN AGREEMENT. An Event of Default shall occur under the
terms of the Loan Agreement.
(b) FAILURE TO PERFORM. Grantor shall default in the performance or
observance of any covenant or agreement on its part to be performed or
observed under this Agreement (not constituting an Event of Default under any
other clause of this Section), and such default shall continue unremedied for
10 Business Days after written notice thereof shall have been given by MLBFS
to Grantor.
(c) BREACH OF WARRANTY. Any representation or warranty made by Grantor
contained in this Agreement shall at any time prove to have been incorrect in
any material respect when made.
5
<PAGE>
(d) DEFAULT UNDER OTHER AGREEMENT. A default or Event of Default by Grantor
shall occur under the terms of any other agreement, instrument or document
with or intended for the benefit of MLBFS, Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S') or any of their affiliates, and any required
notice shall have been given and required passage of time shall have elapsed.
(e) SEIZURE OR ABUSE OF COLLATERAL. The Collateral, or any material part
thereof, shall be or become subject to any levy, attachment, seizure or
confiscation which is not released within 10 Business Days.
(f) BANKRUPTCY EVENT. Any Bankruptcy Event shall occur.
(g) MATERIAL IMPAIRMENT. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Grantor has been materially impaired.
(h) ACCELERATION OF DEBT TO OTHER CREDITORS. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of
$100,000.00 or more of Grantor to another creditor under any indenture,
agreement, undertaking, or otherwise.
REMEDIES
(a) REMEDIES UPON DEFAULT Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all
of the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) Acceleration. MLBFS may declare all Obligations to be forthwith due and
payable, whereupon all such amounts shall be immediately due and payable,
without presentment, demand for payment, protest and notice of protest,
notice of dishonor, notice of acceleration, notice of intent to accelerate or
other notice or formality of any kind, all of which are hereby expressly
waived; provided, however, that upon the occurrence of any Bankruptcy Event
all Obligations shall automatically become due and payable without any action
on the part of MLBFS.
(ii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited
to, the UCC, and any or all of its other rights and remedies under this
Agreement.
(iii) Possession. MLBFS may require Grantor to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated
by MLBFS which is reasonably convenient to Grantor, or may take possession of
the Collateral and the records pertaining to the Collateral without the use
of any judicial process and without any prior notice to Grantor.
(iv) Sale. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper, and
MLBFS may purchase any Collateral at any such public sale; and the net
proceeds of any such public or private sale and all other amounts actually
collected or received by MLBFS pursuant hereto, after deducting all costs and
expenses incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Grantor or
whoever else may be entitled thereto, and with Customer and each guarantor of
Customers obligations remaining jointly and severally liable for any amount
remaining unpaid after such application.
(v) Delivery of Cash, Checks, Etc. MLBFS may require Grantor to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Grantor at any time in full or partial payment of any
Collateral, and require that Grantor not commingle any such items which may
be so received by Grantor with any other of its funds or property but instead
hold them separate and apart and in trust for MLBFS until delivery is made to
MLBFS.
6
<PAGE>
(vi) Notification of Account Debtors. MLBFS may notify any Account Debtor
that its Account or Chattel Paper has been assigned to MLBFS and direct such
Account Debtor to make payment directly to MLBFS of all amounts due or
becoming due with respect to such Account or Chattel Paper; and MLBFS may
enforce payment and collect, by legal proceedings or otherwise, such Account
or Chattel Paper.
(vii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and
of any rejected, returned, stopped in transit or repossessed goods included
in the Collateral and endorse Grantor name on any item of payment on or
proceeds of the Collateral, and, in connection therewith, MLBFS may notify
the postal authorities to change the address for delivery of mail addressed
to Grantor to such address as MLBFS may designate.
(b) SET-OFF. MLBFS shall have the further right upon the occurrence and
during the continuance of an Event of Default to set-off, appropriate and
apply toward payment of any of the Obligations, in such order of application
as MLBFS may from time to time and at any time elect, any cash, credits,
deposits, accounts, securities and any other property of Grantor which is in
transit to or in the possession, custody or control of MLBFS, MLPF&S or any
agent, bailee, or affiliate of MLBFS or MLPF&S, including, without
limitation, all securities accounts with MLPF&S and all Gash and securities
and other financial assets therein or controlled thereby, and all proceeds
thereof. Grantor hereby collaterally assigns and grants to MLBFS a security
interest in all such property as additional Collateral.
(c) POWER OF ATTORNEY. Effective upon the occurrence and during the
continuance of an Event of Default, Grantor hereby irrevocably appoints MLBFS
as its attorney- in-fact, with full power of substitution, in its place and
stead and in its name or in the name of MLBFS, to from time to time in MLBFS'
sole discretion take any action and to execute any instrument which MLBFS may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, but not limited to, to receive, endorse and collect all checks,
drafts and other instruments for the payment of money made payable to Grantor
included in the Collateral.
(d) REMEDIES ARE SEVERABLE AND CUMULATIVE. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available at law or in equity, and any one or more of such rights
and remedies may be exercised simultaneously or successively. Any notice
required under this Agreement or under applicable law shall be deemed
reasonably and property given to Grantor if given at the address and by any
of the methods of giving notice set forth in this Agreement at least 5 Business
Days before taking any action specified in such notice.
(e) NOTICES. To the fullest extent permitted by applicable law, Grantor
hereby irrevocably waives and releases MLBFS of and from any and all
liabilities and penalties for failure of MLBFS to comply with any statutory
or other requirement imposed upon MLBFS relating to notices of sale, holding
of sale or reporting of any sale, and Grantor waives all rights of redemption
or reinstatement from any such sale. MLBFS shall have the right to postpone
or adjourn any sale or other disposition of Collateral at any time without
giving notice of any such postponed or adjourned date. In the event MLBFS
seeks to take possession of any or all of the Collateral by court process,
Grantor further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.
MISCELLANEOUS
(a) NON-WAIVER. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Agreement shall operate as a waiver
thereof, and no single or partial exercise of any such right, power or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right, power or remedy. Neither any waiver of any provision of this
Agreement, nor any consent to any departure by Grantor therefrom, shall be
effective unless the same shall be in writing and signed by MLBFS, Any waiver
of any provision of this Agreement and any consent to any departure by
Grantor from
7
<PAGE>
the terms of this Agreement shall be effective only in the specific instance
and for the specific purpose for which given. Except as otherwise expressly
provided herein, no notice to or demand on Grantor shall in any case entitle
Grantor to any other or further notice or demand in similar or other
circumstances.
(b) COMMUNICATIONS. All notices and other communications required or
permitted hereunder shall be in writing, and shall be either delivered
personally, mailed by postage prepaid certified mail or sent by express
overnight courier or by facsimile. Such notices and communications shall be
deemed to be given on the date of personal delivery, facsimile transmission
or actual delivery of certified mail, or one Business Day after delivery to
an express overnight courier. Unless otherwise specified in a notice sent or
delivered in accordance with the terms hereof, notices and other communications
in writing shall be given to the parties hereto at their respective addresses
set forth at the beginning of this Agreement, and, in the case of facsimile
transmission, to the parties at their respective regular facsimile telephone
number.
(c) COSTS, EXPENSES AND TAXES. Grantor shall pay or reimburse MLBFS upon
demand for: (i) all Uniform Commercial Code filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral; (ii) any and
all stamp, transfer and other taxes and fees payable or determined to be
payable in connection with the execution, delivery and/or recording of this
Agreement: and (iii) all reasonable fees and out-of-pocket expenses
(including, but not limited to, reasonable fees and expenses of outside
counsel) incurred by MLBFS in connection with the enforcement of this
Agreement or the protection of MLBFS' rights hereunder, excluding, however,
salaries and expenses of MLBFS' employees. The obligations of Grantor under
this paragraph shall survive the expiration or termination of this Agreement
and the discharge of the other Obligations.
(d) RIGHT TO PERFORM OBLIGATIONS. If Grantor shall fail to do any act or
thing which it has covenanted to do under this Agreement or any
representation or warranty on the part of Grantor contained in this Agreement
shall be breached, MLBFS may, in its sole discretion, after 5 Business Days
written notice is sent to Grantor (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to
be done or remedy any such breach, and may expend its funds for such purpose.
Any and all reasonable amounts so expended by MLBFS shall be repayable to
MLBFS by Grantor upon demand, with interest at the "Interest Rate" (as that
term is defined in the Loan Agreement or any document incorporated into the
Loan Agreement) during the period from and including the date funds are so
expended by MLBFS to the date of repayment, and any such amounts due and
owing MLBFS shall be additional Obligations. The payment or performance by
MLBFS of any of Grantors obligations hereunder shall not relieve Grantor of
said obligations or of the consequences of having failed to pay or perform
the same, and shall not waive or be deemed a cure of any Event of Default.
(e) FURTHER ASSURANCES. Grantor agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Agreement, or to establish, perfect and maintain MLBFS'
security interests and liens upon the Collateral, including, but not limited
to: (i) executing financing statements or amendments thereto when and as
reasonably requested by MLBFS; and (ii) if in the reasonable judgment of
MLBFS it is required by local law, causing the owners and/or mortgagees of
the real property on which any Collateral may be located to execute and
deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS
with respect to any rights in such Collateral.
(f) BINDING EFFECT. This Agreement shall be binding upon Grantor and its
successors and assigns, and shall inure to the benefit of MLBFS and its
successors and assigns.
(g) HEADINGS. Captions and section and paragraph headings in this Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(h) GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Illinois.
8
<PAGE>
(i) SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
(j) TERM. This Agreement shall become effective upon acceptance by MLBFS,
and, subject to the terms hereof, shall continue in effect so long thereafter
as either MLBFS shall be committed to advance funds or extend credit to
Customer or there shall be any Obligations outstanding.
(k) COUNTERPARTS. This Agreement may be executed in one or more Counterparts
which, when taken together, constitute one and the same agreement.
(l) JURISDICTION; WAIVER. GRANTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING
ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS
SOLE DISCRETION, TO ENFORCE THIS AGREEMENT IN EITHER THE STATE OF ILLINOIS OR
IN ANY OTHER JURISDICTION WHERE GRANTOR OR ANY COLLATERAL FOR THE OBLIGATIONS
MAY BE LOCATED. GRANTOR CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND
VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES,
AND GRANTOR WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE.
GRANTOR FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
GRANTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES
AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THE LOAN AGREEMENT, THIS AGREEMENT AND/OR ANY
OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THE LOAN AGREEMENT OR
THIS AGREEMENT.
(m) INTEGRATION. THIS WRITTEN AGREEMENT CONSTITUTES THE ENTIRE UNDERSTANDING
AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES. NO AMENDMENT OR MODIFICATION OF THIS AGREEMENT SHALL BE EFFECTIVE
UNLESS IN A WRITING SIGNED BY BOTH MLBFS AND GRANTOR.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
SAN DIEGO TESTING ENGINEERS, INC.
By: ______________________________________________________________
Signature (1) Signature (2)
__________________________________________________________________
Printed Name Printed Name
__________________________________________________________________
Title Title
9
<PAGE>
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.
By: ____________________________
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
By: /s/ [ILLEGIBLE]
____________________________
10
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 4, 1998 (except for Note 7, as to which
the date is October 21, 1998), accompanying the financial statements of U.S.
Laboratories Inc. and subsidiaries contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
January 29, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 29, 1998, accompanying the financial
statements of Wyman Testing Laboratories, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts."
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
January 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 1997
AND PERIOD ENDING SEPTEMBER 30, 1998.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 SEP-30-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 94,132 144,991
<SECURITIES> 0 0
<RECEIVABLES> 1,760,047 2,994,194
<ALLOWANCES> 40,927 57,755
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,042,438 3,410,368
<PP&E> 959,928 1,481,719
<DEPRECIATION> 564,217 718,873
<TOTAL-ASSETS> 3,531,707 6,216,205
<CURRENT-LIABILITIES> 2,407,435 3,035,002
<BONDS> 0 0
0 0
0 0
<COMMON> 17,099 22,000
<OTHER-SE> 650,313 1,665,413
<TOTAL-LIABILITY-AND-EQUITY> 3,531,707 6,216,205
<SALES> 7,766,414 8,478,329
<TOTAL-REVENUES> 7,766,414 8,478,329
<CGS> 4,476,952 4,432,509
<TOTAL-COSTS> 2,431,770 3,215,256
<OTHER-EXPENSES> 62,578 22,300
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 130,605 118,814
<INCOME-PRETAX> 789,665 734,050
<INCOME-TAX> 345,256 308,301
<INCOME-CONTINUING> 364,156 425,749
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 364,156 425,749
<EPS-PRIMARY> 0.17 0.19
<EPS-DILUTED> 0.17 0.19
</TABLE>
