SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1995 [ ]
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934
[No Fee Required] for the transition period from to
Commission file number 0-9253
--------------------------
REORGANIZED CONSUMAT SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)
VIRGINIA 54-0720128
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
POST OFFICE BOX 9379, RICHMOND, VIRGINIA 23227
(Address of principal executive office) (Zip Code)
Issuer's Telephone Number: (804) 746-4120
Securities registered pursuant to Section 12(g) of the Securities Exchange Act:
Common Stock $1.00 Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the last 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [X]
The issuer had revenues in the amount of $4,399,309 for fiscal year
ended December 31, 1995.
The aggregate market value of the voting stock of the registrant held
by stockholders who were not affiliates (as defined by regulations of the
Securities and Exchange Commission) of the registrant was approximately $487,146
as of March 29, 1996 (based on the average closing bid and asked prices). At
March 29, 1996, the registrant had issued and outstanding an aggregate of
1,010,000 shares of its common stock.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act after the
distribution of securities under a plan confirmed by a court.
YES X NO
DOCUMENTS INCORPORATED BY REFERENCE
This document contains ___ pages. The Exhibit Index is found at
sequential page __.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
Corporate Offices Mailing Address
8407 Erle Road Post Office Box 9379
Mechanicsville, Virginia 23111 Richmond, Virginia 23227
(804) 746-4120
TABLE OF CONTENTS
Item Page
1. DESCRIPTION OF BUSINESS.................................................3
2. DESCRIPTION OF PROPERTY.................................................8
3. LEGAL PROCEEDINGS.......................................................9
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................9
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................9
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................10
7. FINANCIAL STATEMENTS...................................................12
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................12
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS...........13
10. EXECUTIVE COMPENSATION................................................13
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........13
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................13
13. EXHIBITS AND REPORTS ON FORM 8-K.....................................13
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Reorganized Consumat Systems, Inc. (the "Company"), was incorporated in
Virginia in 1960. The original name of the Company was Electrol Corporation. The
Company name was changed to Waste Combustion Corporation in 1965 and to Consumat
Systems, Inc. in 1973. As of March 12, 1996, the name of the Company changed to
Reorganized Consumat Systems, Inc.
On July 13, 1994, the Company completed the sale of the stock of its
wholly-owned subsidiary Consumat Sanco, Inc. ("Sanco"), to New England Waste
Services, Inc. The sale generated proceeds of $3,050,000, consisting of cash and
notes receivable. The entire proceeds of the sale were used to satisfy existing
debts of the Company and the Company has no interest in such proceeds.
On October 6, 1995, the Company filed for Chapter 11 bankruptcy relief
in the United States Bankruptcy Court for the Eastern District of Virginia,
Richmond Division (the "Bankruptcy Court"). The Company filed with the
Bankruptcy Court on January 4, 1996, a Second Amended Plan of Reorganization. On
February 28, 1996, the Bankruptcy Court confirmed the Second Amended Plan of
Reorganization, as amended by a Modification to Second Amended Plan of
Reorganization dated February 27, 1996 (jointly, the "Plan").
Under the Plan, the Company is required to be recapitalized with
5,000,000 shares of new common stock and 1,000,000 shares of preferred stock,
with a total of up to 1,010,000 shares of new common stock of the Company issued
and outstanding after consummation of the Plan. All shares of the Company's old
common stock and all other equity interests, including all options, warrants or
other agreements requiring the issuance of equity in the Company, are canceled
under the Plan. In addition, the Company is discharged under the Plan of all of
its debts that existed as of the date of the commencement of its Chapter 11
bankruptcy proceeding.
The Plan classifies claims and equity interests separately and provides
different treatment for different classes of claims and equity interests in
accordance with the Bankruptcy Code, 11 U.S.C. (s)(s) 101 et seq.
Under the Plan, Claimants with allowed administrative expense claims
and allowed priority claims are required to be paid in full.
The Company is required to execute and deliver to Lighthouse
Investments, L.L.C., a promissory note in the principal amount equal to
Lighthouse's allowed secured claim against the Company. The promissory note is
required under the Plan to be payable by the Company with interest at a rate per
annum of ten percent (10%) in twelve (12) equal quarter-annual payments of
principal and interest beginning on March 31, 1996, and continuing on the last
day of each successive calendar quarter through December 31, 1998. The
promissory note is required to be secured by the same collateral that secured
Lighthouse's allowed secured claim.
Creditors with allowed unsecured claims arising from supplies or
services provided to the Company before the commencement of the Company's
Chapter 11 bankruptcy proceeding are required under the Plan to receive cash in
an amount equal to fifty percent (50%) of their allowed unsecured claims. Other
creditors with allowed unsecured claims are required under the Plan to receive
(a) the lesser of (i) cash in an amount equal to twenty-five percent (25%) of
their allowed unsecured claims or (ii) $60,000, plus (b) their pro rata share of
150,000 shares of the new common stock of the Company.
Equity interests consisting of options, warrants and other agreements
requiring the issuance of equity interests of the Company are disallowed and
canceled under the Plan. Under the Plan, the shares of the old common stock of
the Company are canceled and all holders of such shares are required to receive
a pro rata distribution of 500,000 shares of the new common stock of the
Company.
<PAGE>
Also under the Plan, Sirrom Capital Corporation ("Sirrom"), its
affiliates, and/or their assigns are required to purchase 260,000 shares of the
new common stock of the Company for a price of $39,000 ($0.15 per share). In
addition, certain managers and consultants of the Company consisting of Robert
L. Massey, Robert S. Lee, Mark E. Hills, James K. Fishback, and William O. Wiley
each are required under the Plan to receive 20,000 shares of the new common
stock of the Company. The Plan also provides that the Company may issue options,
warrants or other agreements for the issuance of up to 300,000 shares of the new
common stock of the Company.
On March 12, 1996 (the "Effective Date"), the Company commenced making
the distributions required under the Plan, including distributions of cash and
of the new common stock of the Company.
As of the Effective Date and in accordance with the Plan, the
management, control and operation of the Company became the general
responsibility of its Board of Directors consisting of Robert L. Massey,
Alexander Y. Hoff, and Peter T. Socha. Messrs. Massey and Hoff were directors of
the Company at the time the Company commenced its Chapter 11 bankruptcy
proceedings and at all times since. Mr. Socha is an officer of Sirrom. Under the
Plan, directors of the Company are to serve until the first annual meeting of
stockholders of the Company or their earlier resignation or removal in
accordance with the articles of incorporation or bylaws of the Company. At a
meeting of the Board of Directors on March 27, 1996, Mr. Massey was elected as
Chairman. The first annual meeting of the stockholders of the Company will be
held on June 14, 1996, at 10:00 a.m., at the Company's headquarters in
Mechanicsville, Virginia.
In accordance with the Plan, the articles of incorporation and bylaws
of the Company were amended and restated effective on the Effective Date, to (a)
prohibit the issuance of nonvoting equity securities in accordance with (s)
1123(a)(6) of the Bankruptcy Code, (b) change the name of the Company to
Reorganized Consumat Systems, Inc., and (c) effectuate the provisions of the
Plan.
Each of the officers of the Company immediately prior to the Effective
Date continued in his or her positions as the officers of the Company on and
after the Effective Date. Set forth below is the name, age, and position with
the Company of each such officer:
Name Age Position(s)
Robert L. Massey 61 President and Chief Executive Officer
Patricia B. Bradley 53 Corporate Secretary
Mark E. Hills 36 Chief Financial Officer
Mr. Massey was elected Vice President of the Company in 1968 and was
elected President in March 1985, Executive Vice President and Chief Operating
Officer in 1991, and President and Chief Executive Officer in June 1992. Mr.
Massey also was elected as Chairman of the Board of Directors at the first
meeting of the new Board of Directors on March 27, 1996. He is a graduate of
Greenville College, Greenville, Illinois, and has more than 35 years experience
in finance and sales.
Ms. Bradley joined the Company in 1971 and has held various
administrative positions, including Human Resources Manager. She was elected
Corporate Secretary in 1992. Ms. Bradley has over 20 years of experience in
office administration and management.
Mr. Hills joined the Company as the Controller in early 1993 and was
elected Treasurer in October 1993, and was elected Chief Financial Officer in
June 1995. Mr. Hills has over 15 years of experience in public accounting and
manufacturing management.
In order to operate in its Chapter 11 bankruptcy proceeding and to
consummate the Plan, the Company borrowed $1,500,000 from Sirrom pursuant to the
terms of Loan Agreements dated October 11, 1995, January 16, 1996, and March 12,
1996, and with the approval of the Bankruptcy Court.
<PAGE>
The following is a summary of the principal terms and conditions of the
Loan Agreements:
(BULLET) Interest Rate. The loans bear interest at a rate of fourteen
percent (14%) per annum
(BULLET) Stock Warrants. Sirrom received a warrant to purchase up to
32% of the fully diluted shares of the capital stock of the
Company at $0.01 per share
(BULLET) Collateral. The credit facility is secured by liens on all
real and personal property of the Company, including but not
limited to accounts receivable, inventory, equipment, and
general intangibles
On March 28, 1996, the Bankruptcy Court entered a Final Decree closing the
Company's Chapter 11 bankruptcy proceeding.
BUSINESS OF ISSUER
GENERAL
The business of the Company is the design and manufacture of
incineration and pollution control equipment.
Historically, a majority of the Company's revenues have been derived
from the manufacture and sale of specialized incineration systems to dispose of
solid wastes. The Company's line of products consists of solid waste disposal
equipment which can recover the energy released by incineration, and other units
without the energy recovery feature. During 1989, the Company began
manufacturing and selling its own line of small flue gas cleaning equipment both
as a part of new orders and as retrofits of existing systems. Sales of
manufactured and related equipment are made principally through dealers
throughout the United States and in foreign countries, primarily to hospitals,
industry and local governments.
The Company formerly operated in two industry segments: the manufacture
and management of waste incinerator plants, and landfill and recycling
operations. The Company's continuing operations consist solely of manufacturing
and related services at the present time.
WASTE INCINERATION SYSTEMS
The Company's regular product line includes continuous and intermittent
feed processing systems. The Consumat(R) system employs a modular design. The
fabrication and installation of standard modules permits rapid repair or
replacement without lengthy periods of facility down time. Modules are
fabricated at the Company's factory and assembled, wired, plumbed, and
pre-checked in the factory's controlled environment before shipment for
reassembly at the customer's site.
Installation of Company systems at the customer's location is generally
the responsibility of the other party under its contract with the Company. The
Company provides technical support during installation.
The Company believes the modular approach, which permits the Company to
match multiple standard modules to the variable needs of its customers, is the
most cost effective method to convert solid waste to energy. This approach
allows economically sized units to be located in close proximity to both the
energy user and the source of solid waste; thus, solid waste can be processed
and energy produced and used without the requirement for long distance
transportation of waste or long distance transmission of the energy produced.
Systems equipped with energy conversion features permit utilization of heat
generated by waste incineration to produce usable energy in the form of steam,
hot air, hot water, or electricity. Large systems are typically composed of
multiple units which can each
<PAGE>
produce 2,700 to 32,000 pounds of steam per hour for typical hospital or
industrial waste and 1,940 to 23,400 pounds per hour for typical municipal
waste.
The Company's systems are designed to accept unprepared hospital,
industrial or municipal wastes. Continuous systems incorporate automatic loading
and ash removal and are designed for continuous 24 hour-a-day operation at
burning rates of 720 to 10,420 pounds per hour. The Company also manufactures
and sells non-continuous models which are sold without automatic ash removal
equipment and, accordingly, are not designed for continuous 24 hour-a-day
operation. These units are typically used by smaller hospitals, veterinarians or
other low volume applications.
The three significant domestic markets for the Company's products are
local governments, hospital groups, and private industry. Hospitals have become
more conscious of the public reaction to infectious waste disposal and the need
to incinerate such wastes. Landfill disposal has become unacceptable for
infectious waste and expensive for all users as the amount of available land has
diminished, regulation has increased, land prices have increased and
transportation costs to outlying landfills have risen.
While the increase in the cost of landfill disposal remains a driving
force in interesting local government and private industry in the incineration
of waste, a significant factor affecting the economic feasibility of the
Company's waste to energy systems is the value of the energy produced and the
cost of alternative sources of energy. The Company's facilities with steam
conversion capability can be used by a local government that has an industry
within its jurisdiction that is willing to contract for the energy. Similarly,
an industrial purchaser acquiring a system with the energy conversion feature
typically needs the energy in its operation for the system to be economically
feasible. While the Company continues to pursue this market, the cost of
alternative sources of energy in recent years has made this market relatively
inactive.
The Company has directed resources to meet the needs of hospitals,
industry and local governments whose typical solid waste disposal requirements
are up to 500 tons per day. Federal, state, and local air pollution laws,
designed to protect ambient air quality, in many instances specify emissions
standards that require the Company to supplement its equipment with
emission-reducing equipment. In response, the Company has developed a dry
scrubber fabric filter emissions control system to match its incinerator model
line and actively markets both systems. Management believes that the development
of its own flue gas cleaning equipment allows the Company to increase
manufacturing volume, control quality and provide equipment in a more cost
effective manner. Historically the Company has purchased and will continue, when
appropriate, to purchase flue gas cleaning equipment from other suppliers.
The Company has granted a licensing arrangement to manufacture its
products in Colombia.
RAW MATERIALS
The principal raw materials and supplies purchased by the Company are
steel, refractory material, pressure vessels, and electrical and hydraulic
components, all of which are readily available from several suppliers. The
Company has not experienced any shortage of raw materials in the past five
years. The Company has no special long-term arrangements with any suppliers of
raw materials needed to produce its products.
PATENTS AND TRADEMARKS
The controlled air technology basic to the Company's system of solid
waste disposal and energy recovery is not protected by patents. Management of
the Company believes that the lack of patents has not increased competition
since competitors use a variety of processes to incinerate waste.
SEASONAL CONSIDERATIONS
The Company's manufacturing business is not subject to seasonal
considerations. Occasionally, a customer will ask the Company to defer testing
until the weather improves, and bad weather in winter occasionally delays
installation of equipment.
<PAGE>
MARKETING
The Company markets its systems on a direct basis and through dealers
who purchase products for resale. The Company's employees service the orders
placed by dealers and follow up leads for direct sales. From time to time,
project developers have purchased equipment and systems from the Company and
assumed certain financial risks such as bonding and construction financing.
Sales arrangements generally provide for progress payments beginning at
the signing of the contract. The Company and the dealer or end-user purchasing a
system generally agree to use the percentage of completion method or establish a
payment schedule based upon completion of components upon which periodic
progress payments are based. As the system is manufactured, the Company receives
periodic progress payments in accordance with the contract. If retainage is
included in the negotiated payment structure, typically a portion is due at
mechanical completion and final payment is due upon final testing of the system
or at the conclusion of such period as is specified by contract. Testing may be
involved in satisfying contract specifications respecting performance.
Direct sales to customers in foreign countries are made only after
receipt of an irrevocable letter of credit.
In connection with certain direct sales, the Company may pay
commissions to its dealers. Commissions on such sales are intended to compensate
dealers for services in connection with such sales. These services typically
involve locating customers with a need for Consumat equipment, assistance in
coordinating installation after a sale is made, furnishing information to the
purchaser's staff and maintaining contact with customers and potential
customers.
DEPENDENCE ON LARGE CUSTOMERS
Because of the dollar amount of a contract for a large hospital,
municipal or industrial system in relation to the Company's size, in any year or
financial period, the sale may account for a substantial percentage (10% or
greater) of the Company's sales. In 1995, 25% of the Company's sales were made
to one customer.
The Company devotes substantially all of its manufacturing capacity to
a large contract when the equipment for that contract is being built. In
addition, since the Company is presently unable to obtain bonding on large
projects, the Company has and will need to continue to arrange surety bonds and
financial guarantees through entities (principally dealers) having an interest
in those projects. Historically, a significant portion of the Company's revenues
have been comprised of a relatively small number of large sales, generally not
to the same customer, resulting from the manufacture of large waste disposal and
energy conversion systems.
BACKLOG
The nature of the Company's business is such that it does not maintain
inventories of its principal products and manufactures only pursuant to purchase
orders or contracts. At December 31, 1995, and December 31, 1994, the Company
had manufacturing and related backlog of $3,155,000 and $3,225,000,
respectively.
The Company believes that backlog that can be filled in approximately a
six to nine month period is the most satisfactory level attainable. At current
levels of operations the Company's backlog is at an appropriate level. See Item
6: Backlog. However, additional orders must be received in order to maintain
operations through the end of 1996. The Company's backlog at any one time is not
necessarily indicative of anticipated revenues for any fiscal period.
COMPETITION
The Company conducts its business under competitive conditions. There
are a number of organizations that offer equipment to produce energy from solid
waste. The Company chooses to compete in the small systems markets in which the
principal existing competitors for the systems the
<PAGE>
Company sells are Crawford Equipment and Engineering, International Waste
Industries, and Simonds Manufacturing Corporation. The Company believes
that the principal bases for competition in this market are product
performance and price. The Company believes that its ability to engineer
its products to the specific needs of customers is a competitive advantage.
The Company's relative small size and limited financial resources pose
competitive disadvantages which the Company seeks to counter by aligning
itself with dealers and other larger companies which act as suppliers or
developers.
The Company's products also may be subject to competition from
alternative medical waste treatment technologies such as autoclaving and
microwaving.
RESEARCH AND DEVELOPMENT
Due to its current financial condition, the Company has no dedicated
research and development effort. However, in connection with modifying the
Company's products to meet the specified needs of particular customers, the
Company conducts engineering and research efforts at its facility in
Mechanicsville, Virginia. This activity fosters the improvement and development
of the Company's existing products and the broadening of the Company's product
line. Research and development costs, which are not material to the Company's
operations, are included in product overhead.
ENVIRONMENTAL MATTERS
The uncertain regulatory environment strongly influenced the Company's
business during 1995. Almost every state as well as the federal government was
either in the process of tightening their air quality standards or had recently
tightened them. The air quality changes included both more stringent particulate
emission standards and control over acid gas and other emissions. In addition,
pending federal and other regulations affecting the disposal of ash residue
remain uncertain. New or pending regulations affect both the permitting process
for installation of the Company's equipment and the design of the equipment
itself.
Customers are reluctant to order equipment and regulators are slow to
issue permits while laws are being changed. In order for an installation to be
made, environmental permit(s) must be obtained. This complex process sometimes
requires analysis of site background data in addition to the technical analysis
of the proposed equipment to be installed. Management believes that the slower
permit process which caused many companies to delay capital expenditures,
resulted in a slowdown in orders for equipment fabrication during 1995 and 1994.
Prior to recent changes in regulations of air quality, Consumat
equipment met most regulations without additional complex emissions control
equipment. New laws often require system design changes to include the addition
of emissions control devices. When appropriate, the Company has incorporated
these required changes into its design.
The Company's manufacturing operations are regulated by certain
federal, state, and local clean air and water laws now in effect or anticipated
to be in effect. Because the Company's manufacturing operations discharge no
waste into the air or water in its manufacturing process and produce no
regulated quantities or types of solid waste, the effects of such regulation
have been minimal to date.
EMPLOYEES
At December 31, 1995, the Company employed 35 full-time employees. In
the opinion of management, the Company's labor relations are satisfactory. The
Company's workforce is not unionized.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's manufacturing plant is located in Mechanicsville, Hanover
County, Virginia near Richmond. The Company's facilities are located on a site
of 15.5 acres. This facility, which was
<PAGE>
owned by the Company prior to 1992, was sold in July 1992 as part of a
sale-leaseback transaction. The Company has a ten year lease on the property
with two five year renewal options. In addition, the Company has the option to
repurchase the property after the third year of the lease at a predetermined
price. This transaction resulted in a one-time loss to the Company of $495,706
during 1992. Approximately fifty percent of this acreage is used for buildings,
streets, and utilities. The remaining portion is vacant land available for
expansion and development. On this site are located the Company's plant
facility, engineering offices and shops, sales offices, and main administrative
offices. The buildings currently utilized total approximately 78,000 square
feet. See Note 12 to the Audited Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
As of March 29, 1996, the Company is not a party to any pending legal
proceeding and the property of the Company is not the subject of any pending
legal proceeding. On March 28, 1996, the Bankruptcy Court entered a Final Decree
closing the Company's Chapter 11 bankruptcy proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders through
the solicitation of proxies during the fourth quarter of the Company's 1995
fiscal year. However, beginning on November 20, 1995, the Company solicited the
votes of security holders pursuant to the Bankruptcy Code, 11 U.S.C. (s)(s) 101
et seq., in connection with the First Amended Plan of Reorganization dated
November 16, 1995, filed by the Company in its Chapter 11 bankruptcy proceeding.
The Company withdrew the First Amended Plan of Reorganization as a result of the
vote rejecting such plan cast by Environmental Systems Company, a creditor of
the Company and the holder of approximately 36% of the issued and outstanding
shares of the old common stock of the Company. As described in Item 1, the
Company filed its Second Amended Plan of Reorganization on January 4, 1996,
which was submitted to a vote of creditors and security holders beginning
January 26, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the NASDAQ Bulletin Board. The
following table shows the high and low bid prices for the Company's old common
stock for each quarterly period during the two-year period ended December 31,
1995. Such high and low bid quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
BID PRICE
1994 HIGH LOW
First Quarter $ 1/2 $ 3/8
Second Quarter 3/8 1/4
Third Quarter 1/4 1/4
Fourth Quarter 1/4 1/4
<PAGE>
BID PRICE
1995 HIGH LOW
First Quarter $ 3/8 $ 1/4
Second Quarter 7/16 1/4
Third Quarter 7/16 1/4
Fourth Quarter 7/16 3/16
The number of record holders of the Company's old common stock as of December
31, 1995 was 429.(1)
The Company has never paid any dividends on its old common stock. There is no
expectation that the Company will pay dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
As was discussed in Item 1, the Company ended fiscal year 1995 operating
as a debtor-in-possession in its Chapter 11 bankruptcy proceeding. The Company's
Chapter 11 reorganization plan was confirmed on February 28, 1996, and the
Effective Date of the Plan was March 12, 1996. As is detailed further in Note 3
to the Audited Consolidated Financial Statements the Company accounted for its
reorganization using fresh start reporting. This reporting allowed the Company
to eliminate the retained deficit of the Company as of the Effective Date and to
restate the balance sheet at that time.
The effect of this reporting allowed the Company to emerge from its
Chapter 11 bankruptcy proceeding in a financial position stronger than its
financial position prior to the commencement of its Chapter 11 bankruptcy
proceeding.
In addition, the Company was able to obtain a loan in the amount of
$1,500,000 from Sirrom Capital Corporation. The loan proceeds, received both
during and subsequent to the Chapter 11 bankruptcy proceeding, were used to
provide working capital for operations and to consummate the Plan.
The effects of the consummation of the Plan and the fresh-start reporting
allows the Company to emerge from its Chapter 11 bankruptcy proceeding with a
working capital surplus of approximately $1,074,000 and a net capital surplus of
$1,010,000.
This stronger financial position should allow the Company to improve its
operations and to improve its credit worthiness and stature with both vendors
and potential customers.
RESULTS OF OPERATIONS
An increase in revenues, an improved gross margin on the core
manufacturing operation, and the further reduction of general and administrative
expenses allowed the Company to generate income from operations in 1995.
In 1995, the Company had income from continuing operations of $89,238, as
compared with a loss from continuing operations of $356,756 in 1994. The 1995
results are based on revenues of $4,399,309, as compared to 1994 revenues of
$4,310,143. In 1994, the Company reported income of $1,183,071, which income was
principally the result of the gains on the Company's sale of the stock of its
wholly-owned subsidiary, Consumat Sanco, Inc., as discussed in Item 1.
(1) As of the Effective Date of the Plan, there were 482 record holders of
the 1,010,000 issued and outstanding shares of the new common stock of the
Company. As previously indicated, the Effective Date of the Plan was March
12, 1996, and since that date through March 29, 1996, the high and low bid
prices for the new common stock of the Company were 1 1/8 and 13/16,
respectively.
<PAGE>
RESULTS OF OPERATIONS -- 1995 COMPARED WITH 1994
REVENUES
Total revenues from continuing operation increased 2.1%, from $4.3
million in 1994 to $4.4 million in 1995 primarily due to increased manufacturing
revenues.
GROSS MARGINS
Gross margins increased to 26.2% in 1995 compared to 20.5% in 1994
principally due to greater cost control and the effects of cost reductions from
previous years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $3,900 as the
result of significant cost reductions in previous years.
INTEREST EXPENSE
Interest expenses for 1995 decreased by 58.8% as the effects of the debt
settled from the sale of the Sanco stock in 1994 took its full effect.
BACKLOG
The Company manufactures only pursuant to purchase orders or contracts.
At December 31, 1995, the Company had backlog of $3,155,000. Backlog levels
indicate the expected near-term manufacturing and related sales. Total backlog
as of December 31, 1995, is expected to be filled during the first six months of
1996. Obtaining more orders is essential to maintaining manufacturing operations
at levels necessary to permit continued operations.
Since the Company's sales are generally composed of a relatively small
number of large contracts, backlog levels have varied widely. Backlog levels are
not necessarily indicative of the continued success or failure of the Company in
obtaining further orders. Economic circumstances as they relate to capital
expenditures in general and sales negotiations in progress are a better
indicator for probable new business.
GOVERNMENTAL REGULATION
Tighter government regulations on incineration in some cases work in the
Company's favor because the Company generally uses the latest technology
developed by the Company and others. However, the Company has experienced and
may experience in the future significant periods of inactivity in the industry
because of significant pending legislation. Potential customers of the Company's
products tend to delay purchases when significant environmental regulations or
legislation are proposed or known to be under consideration in order to assure
that any equipment purchased will satisfy all government regulations.
Many waste processing entities have experienced some public opposition.
Public opposition to waste processing is usually localized to the site where the
processing will occur and is focused on the location of the facility.
BONDING
In the Company's principal business of manufacturing controlled air
incineration systems, supply bonds may be required. Bonds and retainage are used
to protect the customer in the event of non-delivery. The Company at various
times in the past has arranged surety bonds through certain affiliated entities
and others who have demonstrated an interest and capability to bond projects for
the Company. The Company will be required to seek outside help for bonding as
long as its capital remains limited and will seek such help from affiliated
entities and others as long as management believes it is in the best interests
of the Company and its shareholders. The Company's limited bonding capacity may
hinder its development of major projects.
<PAGE>
INFLATION
It is the Company's policy to increase sales prices as costs increase
over time. The Company also attempts to offset these increases with efficiencies
which allow the Company to be more competitive. Inflation affects inventories,
labor and services throughout the Company.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued several standards
which the Company will adopt in future years. As discussed in Note 21 to the
Audited Consolidated Financial Statements, management does not currently expect
the adoption of the standards to affect materially the Company's financial
condition.
ITEM 7. FINANCIAL STATEMENTS
The Audited Consolidated Financial Statements of the Company listed on
Item 13(a) are incorporated herein by reference and are filed as part of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported, the Board of Directors of the Company accepted
the resignation of Coopers & Lybrand as the Company's auditors effective
December 1, 1994. Effective December 1, 1994, the Board of Directors approved
the engagement of Parham, P.C. as independent auditors of the Company for the
fiscal years ended December 31, 1995, and December 31, 1994. The shareholders of
the Company ratified the Company's engagement of Parham, P.C., at the Company's
annual meeting held on June 14, 1995.
The financial statements of the Company include the audit report of
Parham, P.C., on the financial statements of the fiscal years ended December 31,
1995, and December 31, 1994.
Parham, P.C.'s report on the financial statements of the Company for
the years ended December 31, 1995, and December 31, 1994, did not contain an
adverse opinion, disclaimer of opinion or a qualification or modification as to
certainty, audit scope or accounting principals, except that the report
contained an explanatory paragraph which questioned the ability of the Company
to continue as a going concern.
There were no disagreements between the Company and Parham, P.C., on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Parham, P.C., would have caused Parham, P.C. to make reference
to the subject matter of the disagreement(s) in connection with its reports, and
there have been no "reportable events" during such period as such term is
defined in Item 304(a) of Regulation S-B promulgated by the Securities and
Exchange Commission.
The Company furnished Parham, P.C., with a copy of the disclosure
contained in this Form 10-KSB, and advised Parham, P.C., that if it believed
that the statements made by the Company in response to Item 304(a) of Regulation
S-B were incomplete or incorrect, the accountant could present its views in a
brief statement to be included in this Form 10-KSB. Parham, P.C., did not submit
such statement of views to the Company.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The information required by this Item 9 is incorporated herein by
reference from the Company's proxy statement.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is incorporated herein by
reference from the Company's proxy statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 11 is incorporated herein by
reference from the Company's proxy statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is incorporated herein by
reference from the Company's proxy statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents
(i) Financial Statements
The financial statements filed as part of this report
are listed in the Index to Financial Statements and
Schedules on page F-1 hereof.
(ii) Financial Statement Schedules
The financial statement schedules filed as a part of
this report are listed in the Index to Financial
Statements and Schedules on page F-1 hereof.
(iii) Exhibits filed or incorporated by reference
An Exhibit Index appears immediately after the
signatures to this report.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated October 6, 1995, concerning "Item
3. Bankruptcy or Receivership" and "Item 5. Other Events".
(ii) Current Report on Form 8-K, dated February 28, 1996, concerning
"Item 3. Bankruptcy or Receivership" and "Item 5. Other Events".
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REORGANIZED CONSUMAT SYSTEMS, INC.
(Registrant)
Date: March 29, 1996 By: /s/ ROBERT L. MASSEY
--------------------
Robert L. Massey
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ ROBERT L. MASSEY Chairman of the Board of Directors, March 29, 1996
- ---------------------------- President and Chief Executive
Robert L. Massey Officer
/s/ MARK E. HILLS Principal Financial and March 29, 1996
- ---------------------------- Accounting Officer
Mark E. Hills
/s/ ALEXANDER Y. HOFF Director March 29, 1996
- ---------------------------
Alexander Y. Hoff
/s/ PETER T. SOCHA Director March 29, 1996
- ---------------------------
Peter T. Socha
</TABLE>
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Pages
<S> <C>
Report of independent accountants F-2
Audited consolidated financial statements:
Balance sheet as of December 31, 1995 F-3
Statements of common stock, capital in excess of par value, and retained
earnings (deficit) for the years ended December 31, 1995 and 1994 F-4
Statements of operations for the years ended December 31, 1995 and 1994 F-5
Statements of cash flows for the years ended December 31, 1995 and 1994 F-6
Notes to audited consolidated financial statements F-7 - F-18
Table I--Plan of Reorganization Recovery Analysis F-19
Table II--Balance Sheet March 12, 1996 F-20
</TABLE>
Supplemental information:
Consolidated schedules:
<TABLE>
<S> <C>
II Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties F-21
V Property, plant and equipment F-22
VI Accumulated depreciation, depletion and amortization F-23
VIII Valuation and qualifying accounts and reserves F-24
</TABLE>
Schedules other than those listed above are omitted because they are not
applicable or are not required.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Reorganized Consumat Systems, Inc.
We have audited the consolidated financial statements and financial statement
scheudle of Reorganized Consumat Systems, Inc. (the "Company") (previously
Consumat Systems, Inc. and subsidiaries) as of December 31, 1995 and for the
years ended December 31, 1995 and 1994, respectively, listed in the index
on page F-1 of this Form 10-KSB. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statements schedules 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.
As discussed in Note 3, Reorganized Consumat Systems, Inc.'s plan of
reorganization was confirmed on February 28, 1996, and became effective
on March 12, 1996. The Company has implemented the guidance as to the
accounting for entities emerging from Chapter 11 set forth in Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("Fresh Start Reporting") as of March 12, 1996. The impact
of this Fresh Start Reporting is Presented in Note 3. The implementation of
Fresh Start Reporting as a result of the Company's emergence from Chapter 11
materially changed the amounts reported in the financial statements of the
Company as of and for periods ending subsequent to March 12, 1996. As a result
of the reorganization and the implementation of Fresh Start Reporting, assets
and liabilities are recorded at fair values and outstanding obligations
relating to the claims of creditors have been discharged in exchange for cash,
new indebtedness and equity. The accompanying consolidated financial statements
as of December 31, 1995 and for the years ended December 31, 1995 and 1994 do
not give effect to any adjustments that were made as a result of the Company's
reorganization and emergence from Chapter 11.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Reorganized Consumat Systems, Inc. as of December 31, 1995, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1995 and 1994, respectively, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Richmond, Virginia
March 27, 1996
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED CONSOLIDATED BALANCE SHEET
December 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 138,748
Accounts receivable (net of allowance for doubtful accounts of $10,000) 528,213
Inventories 222,652
Prepaid expenses and other 87,201
TOTAL CURRENT ASSETS 976,814
Property, plant and equipment, at cost, net of accumulated depreciation and amortization 630,624
Notes receivable from officer 38,000
Debt issuance costs, net of accumulated amortization 27,244
$ 1,672,682
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts payable $ 56,121
Customer deposits 50,719
Accrued contract and warranty expense 90,856
Other accrued expense 215,836
Current portion of indebtedness 64,611
TOTAL CURRENT LIABILITIES 478,143
Indebtedness
Senior debt 500,000
Capitalized lease obligation less current portion 576,750
Liabilities subject to compromise 743,862
TOTAL INDEBTEDNESS 1,820,612
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $3 par value: authorized 3,333,333
shares: issued 1,564,699 4,694,097
Capital in excess of par value 5,208,958
Retained earnings (deficit) (10,529,128)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (626,073)
$ 1,672,682
</TABLE>
See accompany notes to audited consolidated financial statements.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED CONSOLIDATED STATEMENTS OF COMMON STOCK, CAPITAL
IN EXCESS OF PAR VALUE, AND RETAINED EARNINGS (DEFICIT)
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock
===========================
Number $3 Capital in Retained
of Par Excess of Earnings
Shares Value Par Value (Deficit)
<S> <C> <C> <C> <C>
Balance at December 31, 1993 1,094,539 $3,283,618 $4,927,747 ($11,801,437)
Approval of MWA reorganization 450,793 1,352,378 332,687
Net income for 1995 1,183,071
Compensatory stock issued 12,500 37,500 (32,875) 0
======================================================
Balance at December 31, 1995 1,557,832 4,673,496 5,227,559 (10,618,366)
Adjustment for Stock conversion (133) (399) 399
Net income for 1995 89,238
Compensatory stock issued 7,000 21,000 (19,000) 0
======================================================
Balance at December 31, 1995 1,564,699 $4,694,097 $5,208,958 ($10,618,366)
</TABLE>
See accompanying notes to audited consolidated financial statements.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
Revenues $4,399,309 $4,310,143
Costs of goods sold 3,246,326 3,425,344
GROSS PROFIT 1,152,983 884,799
Selling, general and administrative expenses 992,110 995,976
OPERATING INCOME (LOSS) 160,873 (111,177)
Other income (expense):
Investment income 5,264 3,978
Interest expense (107,217) (260,669)
Other 30,318 11,112
(71,635) (245,579)
INCOME (LOSS) FROM
CONTINUING OPERATIONS 89,238 (356,756)
Discontinued operations:
Gain on the sale of net assets, net
of income taxes $183,468--1994 -- 356,145
Income from discontinued operations,
net of income taxes of $91,186--1994 -- 177,009
INCOME FROM DISCONTINUED
OPERATIONS -- 533,154
INCOME BEFORE EXTRAORDINARY
GAIN 89,238 176,398
Extraordinary gain on extinguishment of debt,
net of taxes $248,886--1994 483,133
Income tax benefit due to loss carryforward -- 523,540
NET INCOME $ 89,238 $1,183,071
Earnings per share:
Income(loss) from continuing operations $ 0.06 $ (0.23)
Income from discontinued operations $ -- $ 0.34
Extraordinary gain on extinguishment of debt $ -- $ 0.31
Income tax benefit due to loss carryforward $ -- $ 0.34
Net income $ 0.06 $ 0.76
See accompany notes to audited consolidated financial statements.
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 89,238 $ (356,756)
Adjustments to reconcile net income (loss) to net cash used by
operating activities:
Depreciation and amortization 131,759 168,201
Noncash compensation costs 2,000 4,625
Income tax benefit due to loss carryforward -- 523,540
Changes in operating assets and liabilities, net of
noncash transactions:
Accounts receivable (283,893) 581,091
Inventories 4,064 17,202
Prepaid expenses and other 17,767 83,563
Accounts payable (243,666) (1,428,313)
Customer deposits -- (29,659)
Accrued contract and warranty expenses (314,115) (503,943)
Other accrued expenses (8,625) (29,173)
Net cash used in operating activities of continuing operations (605,471) (969,622)
Operating cash flows from reorganized items--Liabilities subject to
compromise:
Accounts payable 76,857
Accrued professional fees 30,000
Accrued interest 49,210
Accrued contract and warranty expenses 132,722 --
288,789 --
Net cash provided by operating activities of discontinued operations -- 689,279
NET CASH USED IN TOTAL
OPERATING ACTIVITIES (316,682) (280,343)
Cash flows from investing activities:
Proceeds of sale of common stock of Sanco -- 3,502,180
NET CASH PROVIDED BY
INVESTING ACTIVITIES
OF CONTINUING OPERATIONS -- 3,502,180
Net cash used in investing activities of discontinued operations -- (920,663)
NET CASH USED IN TOTAL
INVESTING ACTIVITIES -- 2,581,517
Cash flows from financing activities:
Net borrowings under Senior Debt (post petition) 471,818
Repayment on note payable to stockholder -- (1,890,000)
Early extinguishment of debt -- (483,133)
Proceeds from borrowings 4,048
Repayments on borrowings (20,359) (80,471)
Repayments on capital lease obligation (55,212) --
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES OF
CONTINUING OPERATIONS 396,247 (2,449,556)
NET CASH PROVIDED BY
FINANCING ACTIVITIES OF
DISCONTINUED OPERATIONS -- 161,927
NET CASH PROVIDED BY
(USE IN) TOTAL FINANCING
ACTIVITIES 396,247 (2,287,629)
Net increase in cash and cash equivalents 79,565 13,545
Cash and cash equivalents at beginning of year 59,183 45,638
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 138,748 $ 59,183
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest $ 84,880 $ 83,586
Income taxes -- --
</TABLE>
See accompanying notes to audited consolidated financial statements.
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Reorganized Consumat Systems, Inc. (the "Company"), incorporated in 1960,
manufactures and sells incineration systems comprised of multiple modular
components and individual units of waste disposal equipment. The Company ended
1995 operating as a Debtor-In-Possession in its Chapter 11 bankruptcy
proceedings. Second Amended Plan of Reorganization ("The Plan") was confirmed on
February 28, 1996 and the Effective Date of the Plan was March 12, 1996. The
Company accounted for its reorganization using fresh start reporting (See Note
3). In accordance with the Plan, the articles of incorporation and bylaws of the
Company were amended and restated effective on the Effective Date, to (a)
prohibit the issuance of nonvoting equity securities in accordance with Section
1123(a)(6) of the Bankruptcy Code, (b) change the name of the Company to
Reorganized Consumat Systems, Inc. and ( c ) effectuate the provisions of the
Plan.
The Company sold it's wholly owned subsidiary, Consumat Sanco Inc. ("Sanco"), on
July 13, 1994, which owned and operated a permitted landfill and, accordingly,
has reported the Sanco transactions as discontinued operations for 1994. (See
Note 20).
All significant intercompany balances and transactions have been eliminated.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTINUING OPERATIONS
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid unrestricted
investments with an original maturity of three months or less when acquired to
be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out)
or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is depreciated
using the straight-line method over estimated useful lives as follows:
YEARS
Land improvements 5 - 35
Buildings 10 - 40
Machinery and equipment 3 - 20
F-7
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The costs of major renewals and replacements are capitalized while the costs of
maintenance and repairs are charged to operations as incurred. Such repairs and
maintenance costs approximated $12,000 for 1995 and 1994. When properties are
sold or retired, their costs and the related accumulated depreciation are
removed from the accounts and the gains or losses are reflected in operations.
REVENUE RECOGNITION - Waste systems are manufactured under customer contracts
which provide for the manufacture and delivery of modular units comprising the
system. Revenue is recognized on these systems using the percentage of
completion method. The percentage of completion is based primarily on contract
manufacturing costs incurred to date compared with total estimated manufacturing
costs. Changes in estimated contract costs and anticipated contract losses, if
any, are recognized in the period they are determined. Recognized revenues in
excess of billings are included in accounts receivable. Billings in excess of
recognized revenue are deferred and included in accrued contract and warranty
expenses.
COST OF OPERATIONS - Cost of goods sold includes manufacturing, engineering and
field service costs. The Company accrues estimated warranty and other costs
related to completed contracts.
INCOME TAXES - The Company accounts for income taxes using the liability method.
The liability method provides that deferred tax assets and liabilities are
recorded based on the difference between the tax return basis of assets and
liabilities and their corresponding amounts for financial reporting purposes.
See Note 16.
EARNINGS (LOSS) PER COMMON SHARE - Earnings (loss) per common share are computed
based on the weighted average number of common and common equivalent shares
outstanding during the year to the extent the equivalents have a dilutive effect
on earnings per common share. The number of shares used in computing primary
earnings per share was 1,560,348 in 1995 and 1,552,033 in 1994. All shares and
per-share amounts reflect the effect of the one-for-three reverse stock split
which occurred on December 30, 1992 (See Note 14). Fully diluted earnings per
share are the same as the amounts presented.
F-8
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
DISCONTINUED OPERATIONS
PROPERTY, PLANT AND EQUIPMENT - The cost of the landfill was being amortized
using a units-of-fill method. Sanco capitalized interest and labor as elements
of the costs of constructing the landfill.
REVENUE RECOGNITION - Revenues from landfill operations were recognized when
materials were received at the facility.
CLOSURE AND POST CLOSURE MAINTENANCE - The future estimated costs of closing and
post-closure monitoring of the landfill were accrued as materials were received,
based on the estimated capacity of the landfill.
NOTE 3: REORGANIZATION UNDER CHAPTER 11
On October 6, 1995, the Company filed a petition for relief under Chapter 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Eastern District of Virginia, Richmond Division. Under Chapter 11, certain
claims of the Debtor in existence prior to the filing of the petition are stayed
while the Debtor continues business operations as Debtor-In-Possession ("DIP").
These claims are reflected in the December 31, 1995 balance sheet as
"liabilities subject to compromise".
The Debtor received approval from the Bankruptcy Court ("the Court") on October
26, 1995 to incur up to $500,000 in Debtor-In-Possession financing during the
Bankruptcy proceeding. This debt is recorded as "Senior debt" in the December
31, 1995 balance sheet. Subsequent to the balance sheet date, the Court approved
an additional $500,000 in DIP financing, which was received in January 1996.
On February 28, 1996, the Court confirmed the Company's Second Amended Plan of
Reorganization, with Modifications. The Effective Date of the confirmed plan was
March 12, 1996 ("Effective Date").
F-9
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 3: REORGANIZATION UNDER CHAPTER 11--CONTINUED
The confirmed plan provided for the following:
SECURED DEBT - The secured debts of AFCO, $33,679 and Air Pollution Control
Products, Inc. ("APC"), $132,722 were assumed on March 12, 1996. Regarding the
secured debt to Lighthouse Investments, LLC, $213,673 as of March 12, 1996, was
issued a new note in the amount of $192,306. The terms of the note are as
follows: March 31, 1996 -- $18,695 payment of interest and principal for the
period March 12, 1996 to March 31, 1996 and eleven (11) equal quarterly payments
of $18,358 beginning June 30, 1996. A note was issued to Sirron Capital
Corporation in the amount of $21,367, 10% interest, payable as follows: March
31, 1996, $2,077 of principal and interest for the period March 12, 1996 to
March 31, 1996 and eleven (11) quarterly installments of $2,040 beginning June
30, 1996.
TAX AND OTHER PRIORITY CLAIMS - All Tax and Other Priority Claims, totaling
$24,984 were paid on the Effective Date.
UNSECURED TRADE CLAIMANTS - The holders of all trade claims, totaling $82,559
were paid fifty percent (50%) of their claim on the Effective Date.
UNSECURED MISCELLANEOUS CLAIMANTS - The holders of all other miscellaneous
claims were paid twenty-five percent of their claim in cash and received a
pro-rata share of 150,000 shares (14.85%) of the common stock in the reorganized
company. The total of the Allowed Unsecured Miscellaneous Claims included
approximately $309,000 of recorded liabilities and approximately $615,000 of
previously contingent liabilities.
COMMON STOCK - The holders of approximately 1,565,000 outstanding shares of the
Company's existing common stock received, in exchange for their shares,
500,000 shares or 49.5% of the shares in the reorganized company.
As a result of adopting fresh-start reporting, the Company recorded
reorganization value in excess of amounts allocable to identifiable assets of
approximately $1,398,000 as of the Effective date. This intangible asset will be
amortized on a straight-line method over a twenty year period. The following
tables (Table I and Table II) summarize the recovery of the various classes of
debt under the plan as confirmed and the effects of the plan and the adoption of
fresh-start reporting on the company's balance sheet as of the Effective Date
March 12, 1996.
F-10
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4: CONTRACT SETTLEMENT
During the fourth quarter of 1991, the Company and its subsidiary, Consumat
Medical Services, Inc., reached a settlement agreement with Medical Waste
Associates of Baltimore, Maryland ("MWA"), whereby the Company issued 450,793
shares of its common stock (the "Shares") to MWA and another party and
transferred to MWA all assets and rights related to a medical waste facility in
Baltimore, Maryland, that the Company had contracted to build and operate for
MWA.
Under certain circumstances, however, claims against the Company by MWA or
others might have been made notwithstanding such settlement. In June, 1994, MWA
filed for protection under Chapter 11 of the Bankruptcy Code. In December, 1994,
MWA's plan for reorganization was approved and finalized by the Bankruptcy
Court. As part of the plan, the Company was released and all claimants
permanently enjoined from making any claim now or in the future. Therefore any
claims which might have been made regarding the Baltimore project have been
extinguished.
NOTE 5: RELATED-PARTY TRANSACTIONS
Prior to November 19, 1991, the Company was 54%-owned by Environmental Systems
Company ("ENSCO"), which, until its acquisition in 1992 by Brambles
International, was a publicly owned company, located in Little Rock, Arkansas.
On November 19, 1991, the Company issued 367,460 shares to MWA as part of the
settlement of its contract to construct and operate a medical waste facility in
Baltimore, Maryland (see Note 4). In the 1994 Bankruptcy of MWA, the stock was
distributed to Yankee Engineering, Inc. and Gill-Simpson Company as partial
settlement for their claims. At December 31, 1995, ENSCO and Yankee owned 36%
and 19%, respectively, of the Company's common stock.
NOTE 5: RELATED-PARTY TRANSACTIONS, CONTINUED
During 1989, the Company issued 11% demand notes totaling $2,000,000 to ENSCO
which were collateralized by the common stock of Consumat Sanco, Inc. The
proceeds from these borrowings were used to repay the Company's $2,000,000 bank
line of credit that was due on October 1, 1989. Interest expense incurred on the
ENSCO notes was $110,000, (see Note 3, included in the unsecured miscellaneous
debt) for the period January 1, 1994 through the date of sale, and $220,000 for
1993. Accrued interest payable to ENSCO totaled $12,923 (see Note 3 included in
the unsecured miscellaneous debt) at December 31, 1995.
During 1993, the Company issued a 10% note in the amount of $170,000 to
Lighthouse Investments LLC, a limited liability corporation which is principally
owned by several of the Company's dealers, including two of its directors. The
balance outstanding was $174,048 (see Note 3) as of December 31, 1995. Accrued
interest as of December 31, 1995 amounted to $36,288. The proceeds were used as
operating funds. The note is collateralized by the intellectual properties of
the Company.
F-11
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 6: ACCOUNTS RECEIVABLE AND CONTRACT COSTS
Accounts receivable consist of the following as of December 31, 1995:
Billed accounts receivable
(net of allowance for doubtful accounts) $293,853
Revenue recognized in excess of billings 234,360
--------
$528,213
========
Recognized revenues for uncompleted contracts totaled $2,551,630 and $3,377,823
at December 31, 1995 and 1994, respectively and progress billings on these
contracts totaled $2,521,228 and $4,385,827 at December 31, 1995 and 1994,
respectively. As described in Note 10, billings in excess of recognized revenues
totaled $223,525 at December 31, 1995.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Significant concentrations of accounts receivable
for continuing operations are as follows at December 31, 1995:
Equipment distributors located
throughout the United States $250,092
Equipment distributors located
outside the United States 278,121
NOTE 7: INVENTORIES
Inventories consist of the following at December 31, 1995:
Raw materials $204,509
Work in process 18,143
--------
Total $222,652
========
F-12
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 8: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 1995:
Land improvements $ 148,008
Buildings 1,411,751
Machinery and equipment 2,159,486
---------
3,719,245
Less accumulated depreciation
and amortization 3,246,817
472,428
Land 158,196
-----------
$ 630,624
===========
Depreciation and amortization expense on property, plant and equipment was
$130,820 and $167,320 for 1995 and 1994, respectively. See Note 12 regarding the
sale and leaseback of the Company's manufacturing facility in 1992.
NOTE 9: NOTES RECEIVABLE FROM OFFICER
The Company provided an interest free loan to one officer in conjunction with
his employment contract. The loan is to be repaid out of bonuses during the
officer's employment or one year thereafter.
NOTE 10: ACCRUED CONTRACT AND WARRANTY EXPENSE
Accrued contract and warranty expense includes billings in excess of recognized
revenues on long-term manufacturing contracts of $223,525 at December 31, 1995.
NOTE 11: LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1995:
Long term debt $ 171,025
Less current maturities 83,108
------
$ 87,917
Long-term debt at December 31, 1995 consisted of an installment note and other
deferred payment arrangements bearing interest at rates of 5.1% to 9% per annum,
payable through 1997. No interest was capitalized by the Company's continuing
operations for 1995. Interest expensed by the Company's continuing operations
amounted to $107,217 and $260,669 for 1995 and 1994, respectively.
F-13
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 12: CAPITAL LEASE OBLIGATION
The Company sold its manufacturing facility for $800,000 on July 1, 1992 in a
sale-leaseback transaction. The book value of the land and buildings exceeded
the net sales proceeds and the Company has recognized a loss of $495,706. The
lease has an initial term of 10 years with two five-year renewal options.
Beginning July 1995, the Company can repurchase the property for an approximate
price of $875,000, increasing annually thereafter to approximately $1,044,000 in
2002.
Pursuant to the lease, the Company pays monthly rent, property taxes, insurance,
repairs and other executory costs related to the property. The lease meets the
criteria for a capital lease and has been recorded in the accompanying financial
statements.
Minimum lease payments for the five years subsequent to 1995 and in the
aggregate are:
1996 $124,224
1997 127,948
1998 131,790
1999 135,740
2000 139,812
Thereafter 217,075
-------
876,589
Less amount representing interest 235,227
Present value of net minimum
lease payments 641,362
-------
Less current maturities 64,612
-------
Amount due after one year $576,750
=======
NOTE 13: SENIOR DEBT
During the Bankruptcy proceedings and approved by the Court, the Company
incurred Senior Debt in the amount of $500,000 as of December 31, 1995. The debt
is at an interest rate of 14%. The interest is payable monthly in arrears. The
principal is due in a balloon payment in 2000. Additionally, the Company has
borrowed $500,000 in January 1996 and $500,000 in March 1996 in Senior Debt,
interest payable monthly in arrears and the principal due in balloon payments in
2001. The lender was granted a stock purchase warrant to purchase up to 475,000
shares in the reorganized company.
F-14
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 14: CAPITAL STOCK AND RELATED MATTERS
The Board of Directors is authorized to issue, in one or more series, up to
1,000,000 shares of preferred stock once the Board has designated the relative
rights and preferences of such stock and filed documents with the state. At
December 31, 1995 no shares of preferred stock were issued or outstanding.
On September 30, 1992, the Company's Board of Directors approved a one-for-three
reverse stock split. This action was subsequently ratified at a meeting of the
Company's stockholders on December 30, 1992. All share and per-share data in the
accompanying financial statements have been restated to give effect to the
reverse stock split.
The Company issued 7,000 and 12,500 shares of common stock during 1995 and 1994,
respectively, to persons as compensation for their services as outside
directors.
As of the Effective Date equity interest consisting of options, warrants and
other agreements requiring the issuance of equity interests of the Company are
disallowed and canceled under the Plan. Thus the following outstanding warrants
as of December 31, 1995 are canceled.
In connection with the sale and leaseback of its manufacturing facility (See
Note 12), the Company issued a warrant to purchase 33,333 shares of its common
stock at $2.25 per share. The warrant expires on July 1, 2002.
No value was assigned by the Company to the warrant.
NOTE 15: COMMON STOCK OPTIONS
As of the Effective Date equity interest consisting of options, warrants and
other agreements requiring the issuance of equity interests of the Company are
disallowed and canceled under the Plan. Thus the following outstanding common
stock options as of December 31, 1995 are canceled.
On October 21, 1993, the stockholders approved the 1993 Employee Stock Option
Plan and the Non-employee Directors' Stock Option Plan, each of which reserves
200,000 shares of the Company's common stock for issuance upon the exercise of
options granted pursuant to the plans. At December 31, 1995 there were
outstanding options for the purchase of 150,000 shares at prices ranging from
$0.375 to $0.9375 per share. No further options will be granted under the
Company's previous plans and all previously outstanding options were canceled or
expired during 1993.
On July 23, 1992, the Company entered into a stock option agreement with a
consulting firm assisting in the Company's restructuring plans as part of the
consideration for services rendered. Under the terms of the agreement, options
to purchase a total of 65,333 shares of the Company's common stock were granted
over a period of several months with all options available for exercise on
October 1, 1992 and expiring on July 23, 1997. The Company recorded an expense
of $83,000 in 1992 for the excess of the fair value of the common stock over the
exercise price.
F-15
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 16: INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes," which requires the liability method of accounting
similar to the method previously used by the Company under FASB Statement No.
96.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $8,750,000 for both financial statement and tax return purposes,
which expire in the years 1996 to 2007. Due to certain ownership changes in
1992, the use of these net operating losses prior to 1993 are limited to
approximately $250,000 per year in future years. The difference between the net
operating loss carryforward for financial statement and tax return purposes
results principally from the use of accelerated depreciation methods for tax
return purposes and financial statement provisions for accrued contract,
warranty and bad debt expenses which do not enter into the determination of
taxable income until actually paid or incurred.
NOTE 17: MAJOR CUSTOMERS
Air Pollution Control Products, Inc., accounted for approximately 25% and
65% of the Company's revenues from continuing operations for 1995 and 1994,
respectively.
NOTE 18: EMPLOYEE BENEFIT PLANS AND EMPLOYMENT CONTRACTS
The Company has employment contracts with certain of its executive officers and
other management personnel. Under the terms of such agreements, severance
payments would become payable in the event of specified terminations. The
maximum contingent liability of the Company pursuant to all such agreements was
approximately $427,500 at December 31, 1995.
NOTE 19: CHANGE IN ESTIMATES AND FOURTH QUARTER ADJUSTMENTS
As disclosed in Note 2, changes in estimated contract costs are recognized in
the period they are determined. Income from continuing operations for 1994
decreased by approximately $7,000 due to a change in estimated contracts.
F-16
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 20: SALE OF AND DISCONTINUED OPERATIONS OF CONSUMAT SANCO, INC.
On July 13, 1994, the Company completed the sale of its landfill operation
through the sale of the stock of the Company's subsidiary, Consumat Sanco, Inc.
(SANCO).
The sale generated $3,050,000, consisting of cash and notes receivable, and the
entire proceeds of the sale were used to satisfy existing debts of the Company.
The Company recognized a gain on this sale of $539,613 less tax effect of
$183,468 which represented the present value of the proceeds received in excess
of the Company's basis in this asset.
ENSCO agreed to accept a portion of the proceeds as total satisfaction of its
claims against the Company except for a new note for $110,000 due in July, 1995.
Additionally, an agreement was reached with certain of the Company's unsecured
creditors whereby those creditors agreed to accept the balance of the sale
proceeds, consisting of two promissory notes, in exchange for the total releases
of their outstanding claims. Therefore, at this time the company has no further
interest in such proceeds. The agreement was approved by 100% of these creditors
who represented approximately, $1,285,000 of accounts and notes payable plus
related accrued interest.
The above debt forgiveness resulted in a gain of $732,019 less tax effect of
$248,886.
Sanco's results of operations have been presented as discontinued operations;
its revenues and income have been excluded from continuing operations. Summary
results of Sanco's operations are as follows:
JANUARY 1 - JULY 13
1994
-------------------
Revenues $2,739,972
===================
Gross profit 844,997
===================
Income tax (91,186)
===================
Net income $ 268,195
===================
F-17
<PAGE>
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 21: RECENTLY ISSUED ACCOUNTING STANDARDS:
The Company does not offer its employees post-retirement benefits; accordingly,
FASB Statement No. 106, " Employers' Accounting for Post-retirement Benefits
Other Than Pension," will not apply to the Company.
FASB Statement No. 112, "Employers' Accounting for Post-employment Benefits,"
was issued in November 1991 and is effective for fiscal years beginning after
December 15, 1993.
F-18
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
Plan of Reorganization Recovery Analysis
<TABLE>
<CAPTION>
Recovery
--------------------------------------------------------------------------------
Adjustment Elimination Common Stock* Total Recovery
for Allowed Allowed of Debt and Surviving Subordinated -----------------------------------
Claims Claims Equity Debt Cash Debt % Value $ %
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Postpetition
liabilities $ 2,244,149 $2,244,149 $2,244,149 $2,244,149 100.00%
Claim/Interest
Secured debt 224,977 224,977 11,303 $213,674 224,977 100.00%
Priority tax
claim 547 21,004 21,551 $ 21,551 21,551 100.00%
Other priority
claims 3,433 3,433 3,433 3,433 100.00%
Trade claims 89,357 -6,798 82,559 -$41,280 41,279 41,279 50.00%
Other
miscellaneous
claims 308,835 630,654 932,691 -613,262 169,429 14.85% $150,000 319,429 34.25%
-----------------------------------------------------------------------------------------------------------------
627,149 644,860 1,265,211 -654,542 11,303 235,692 213,674 150,000 610,669
Common
stockholders 9,903,055 9,903,055 -9,903,055 49.50% 500,000 500,000
Deficit -10,490,442 -10,490,442 10,490,442
-----------------------------------------------------------------------------------------------------------------
$2,283,911 $644,860 $2,921,973 -$67,155 $2,255,452 $235,692 $213,674 $650,000 $3,354,818
=================================================================================================================
</TABLE>
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
BALANCE SHEET
MARCH 12, 1996
<TABLE>
<CAPTION>
Post Exchange Issuance Reorganized
Pre Confirmation Debt of of New Fresh Balance
Confirmation Loan Discharge Stock Stock Start Sheet
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $222,078 $462,055 -$323,917 $360,216
Accounts receivable (net of allowance
for doubtful accounts of
$10,000--1995 and 1994) 1,112,756 1,112,756
Stock subscription $17,633 17,633
Inventories 173,148 173,148
Prepaid expenses and other 74,507 74,507
-----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,582,489 462,055 -323,917 0 17,633 0 1,738,260
Property, plant and equipment, at cost,
net of accumulated depreciation and
amortization 614,418 614,418
Notes receivable from officer 38,000 -18,972 19,028
Debt issuance costs, net of accumulated
amortization 56,359 37,945 94,304
Reorganization value in excess of amounts
allocable to indentifiable assets $1,398,480 1,398,480
-----------------------------------------------------------------------------------
$2,291,266 $500,000 -$342,889 $17,633 $1,398,480 $3,864,490
===================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Current liabilities
Accounts/note payable 43,846 43,846
Other liabilities 570,114 -89,320 480,794
Current portion of indebtedness 78,424 82,075 -21,367 139,132
-----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 692,384 -7,245 -21,367 663,772
Liabilities subject to compromise 627,149 -627,149
Indebtedness
Senior debt 1,000,000 500,000 1,500,000
Long-term debt less current portion 131,598 131,598
Capitalized lease obligation less
current portion 559,120 559,120
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock-old 4,694,097 -4,694,097
Common stock-new 150,000 500,000 360,000 1,010,000
Capital in excess of par value 5,208,958 4,194,097 -321,000 -9,082,055
Retained earnings (deficit) -10,490,442 9,907 10,480,535
-----------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) -587,387 0 159,907 0 39,000 1,398,480 1,010,000
-----------------------------------------------------------------------------------
$2,291,266 $500,000 -$342,889 $0 $17,633 $1,398,480 $3,864,490
===================================================================================
</TABLE>
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Balance at Balance at
Beginning of Amounts End of
Description Period Additions Collected Period
Robert L. Massey
Years ended:
December 31, 1994 $ 38,000 $38,000
December 31, 1995 38,000 38,000
The is a noninterest-bearing note which is payable out of the officers' future
bonuses during employment or one year thereafter.
F-21
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Balance at Balance at
Beginning of Additions End of
Period at Cost Retirements Period
------------------------------------------------
Year ended December 31, 1994
Land and improvements $ 306,204 $ 306,204
Buildings 1,411,751 1,411,751
Machinery and equipment 2,193,700 - - 2,159,486
$3,911,655 $ - $ - 3,877,441
Year ended December 31, 1995
Land and improvements $ 306,204 $ 306,204
Buildings 1,411,751 1,411,751
Machinery and equipment 2,193,700 - 34,214 2,159,486
$3,911,655 $ - $ 34,214 $3,877,441
F-22
<PAGE>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED
SCHEDULE V
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Retirements Period
----------------------------------------------
Year ended December 31, 1994
Land and improvements $ 135,993 $ 5,733 $ 141,726
Buildings 879,574 56,285 935,859
Machinery and equipment 1,967,324 105,302 - 2,072,626
$2,982,891 $167,320 $ - $3,150,211
Year ended December 31, 1995
Land and improvements $ 141,726 $ 5,350 $ 147,076
Buildings 935,859 55,749 991,608
Machinery and equipment 2,072,626 69,721 34,214 2,108,133
$3,150,211 $130,820 $ 34,214 $3,246,817
F-23
<PAGE>
<TABLE>
<CAPTION>
REORGANIZED CONSUMAT SYSTEMS, INC.
(PREVIOUSLY CONSUMAT SYSTEMS, INC. AND SUBSIDIARIES--DEBTOR IN POSSESSION)
AUDITED
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Addition
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
- -------------------------------------------- --------------------------------------------------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts receivable $ 110,000 $ - $100,000 $ 10,000
Accrued warranty expense 48,791 - - 48,791
Year ended December 31, 1995:
Allowance for doubtful accounts receivable $ 10,000 $ 7,828 $ 7,828 $ 10,000
Accrued warranty expense 48,791 85,264 43,199 90,856
</TABLE>
F-24
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2 (a) Second Amended Plan of Reorganization of Company and
Modification to Second Amended Plan of Reorganization filed by
Company and confirmed by the United States Bankruptcy Court
for the Eastern District of Virginia, Richmond Division, on
February 28, 1996 (Incorporated by reference to Exhibits 2(a)
and 2(b) on the Company's Current Report on Form 8-K filed on
February 28, 1996).
2 (b) Mutual General Release dated March 12, 1996, by and among the
Company, Lighthouse Investment, L.L.C., Sirrom Capital
Corporation, Environmental Systems Company, and Thomas A.
Pearson and T. Jackson Lawson, Trustees.
3 (a) Articles of Amendment and Restatement to the Amended and
Restated Articles of Incorporation of the Company.
3 (b) Amended and Restated Bylaws of the Company.
4 (a) Instruments defining rights of security holders (See Exhibits
3 (a) and 3 (b).)
4 (b) Specimen certificate for the Company's common stock, par value
$1.00 per share.
4 (c) Promissory Note dated March 12, 1996, in the
original principal amount of $192,306.29 payable to
Lighthouse Investments, L.L.C.
4(d) Loan Agreement with Lighthouse Investments, L.L.C. dated July
2, 1993 (Incorporated by reference to Exhibit (a) to the
Company's Quarterly Report on Form 10-Q filed on August 16,
1993).
4(e) Loan Agreement with Sirrom Capital Corporation dated October
11, 1995.
4(f) Amendment to Loan Agreement with Sirrom Capital Corporation
dated October 26, 1995
4(g) Amended and Restated Secured Promissory Note dated
October 26, 1995, in the original principal amount of
$500,000 payable to Sirrom Capital Corporation.
<PAGE>
EXHIBIT NO. DESCRIPTION
4(h) Loan Agreement with Sirrom Capital Corporation dated January
16, 1996.
4(i) Secured Promissory Note dated January 16, 1996, in the
original principal amount of $500,000 payable to Sirrom
Capital Corporation.
4(j) Loan Agreement with Sirrom Capital Corporation dated March 12,
1996.
4(k) Secured Promissory Note dated March 12, 1996, in the
original principal amount of $500,000 payable to Sirrom
Capital Corporation.
4(l) Stock Purchase Warrant dated March 12, 1996, granted to Sirrom
Capital Corporation.
10 (a) Promissory Note dated December 11, 1985, in the amount of
$75,000 from Robert L. Massey to the Company (Incorporated by
reference to Exhibit 10 (e) to the Company's Annual Report on
Form 10-K filed on March 31, 1986).
10(b) Employment Contract with Robert S. Lee dated February 12,
1991. (Incorporated by reference to Exhibit 10 (g) to the
Company's Annual Report filed on March 31, 1993).
10(c) Purchase and Lease Agreements relating to the sale and
leaseback of the Company's headquarters and manufacturing
facility in Mechanicsville, Virginia (Incorporated by
reference to Exhibit 6(a)(2) of the Company's Quarterly
Report on Form 10-Q filed August 7, 1992).
10(d) Employment Contract dated February 12, 1991, between the
Company and Robert L. Massey.
10(e) Employment Contract dated June 14, 1995, between the Company
and Mark E. Hills.
MUTUAL GENERAL RELEASE OF CLAIMS
WHEREAS Consumat Systems, Inc. ("Consumat"), filed for Chapter 11
bankruptcy relief on October 6, 1995, and operated its business and managed its
affairs as debtor-in-possession through and including February 28, 1996, when
the United States Bankruptcy Court for the Eastern District of Virginia,
Richmond Division (the "Bankruptcy Court"), entered an Order confirming
Consumat's Second Amended Plan Of Reorganization (the "Plan"); and
WHEREAS, in accordance with the terms of the Plan, the name of Consumat
has been changed to Reorganized Consumat Systems, Inc. (Consumat and Reorganized
Consumat Systems, Inc., hereinafter sometimes being referred to herein as
"RCS"); and
WHEREAS Lighthouse Investments, L.L.C. ("Lighthouse") was a creditor
holding a secured claim against Consumat and is the holder of a promissory note
in the original principal amount of $192,306.29 (the "Lighthouse Note") made by
RCS and delivered to Lighthouse in accordance with the Plan; and
WHEREAS Environmental Systems Company ("ENSCO") was a creditor of
Consumat holding an unsecured claim deemed allowed by the Bankruptcy Court and
fixed in the amount of $120,849.35 and was paid $30,212.37 by RCS in accordance
with the terms of the Plan; and
WHEREAS Thomas A. Pearson and T. Jackson Lawson, Trustees (jointly, the
"Trustees"), and ENSCO (the Trustees and ENSCO are referred to herein
collectively as "ENSCO/Trustees") were creditors of Consumat holding an
unsecured claim deemed allowed by the Bankruptcy Court and fixed in the amount
of $120,000 and were paid $30,000 by RCS in accordance with the terms of the
Plan; and
WHEREAS Sirrom Capital Corporation, its affiliates, and/or their
respective assigns (collectively "Sirrom") agreed to pay $7,500.00 to
ENSCO/Trustees in exchange for: (1) the dismissal with prejudice of the
adversary proceeding commenced by ENSCO/Trustees against Lighthouse and (2)
mutual general releases by and among RCS, Lighthouse, Sirrom, ENSCO, and
ENSCO/Trustees.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, RCS, Lighthouse, Sirrom, ENSCO, and ENSCO/Trustees, for
themselves, their assigns and successors in interest, hereby forever release and
discharge each other, their officers, employees, agents, subsidiaries,
affiliates, parents, shareholders, and successors in interest from any and all
liability, claims, and causes of action of whatsoever kind, whether contingent
in whole or in part or fixed, accrued in whole or in part or unaccrued, legal or
equitable, known or unknown, sounding in tort, contract or otherwise, that they
have or may have against each other and each others' officers, employees,
agents, subsidiaries, affiliates, parents, shareholders, and successors.
Nothing in this Release is intended to, and the Release shall not have
the effect of, releasing RCS of its obligations to: (1) Lighthouse under the
Lighthouse Note and (2) Sirrom
<PAGE>
under the Loan Agreement dated March 12, 1996, by and between RCS and Sirrom and
the instruments, agreements, and other documents executed and delivered in
connection therewith.
This Release may be executed in counterparts and shall be effective as
of February 28, 1996.
IN WITNESS WHEREOF the parties have executed this Release, or have
caused this Release to be executed by their duly authorized officers, as of the
12th day of March, 1996.
REORGANIZED CONSUMAT
SYSTEMS, INC.
By: /s/ ROBERT L. MASSEY
Robert L. Massey, President and Chief
Executive Officer
LIGHTHOUSE INVESTMENTS, L.L.C.
By: /s/ CHARLES WILLIAMS, JR.
Charles Williams, Jr., Manager
SIRROM CAPITAL CORPORATION
By: /s/ PETER T. SOCHA
Peter T. Socha, Vice President and
Chief Credit Officer
ENVIRONMENTAL SYSTEMS
COMPANY
By: /s/ CHAD B. GUNDERSON
Chad B. Gunderson, Secretary and
Treasurer
<PAGE>
ENSCO/TRUSTEES:
ENVIRONMENTAL SYSTEMS
COMPANY
By: /s/ CHAD B. GUNDERSON
Chad B. Gunderson, Secretary and
Treasurer
/s/ THOMAS A. PEARSON
Thomas A. Pearson, Trustee
/s/ T. JACKSON LAWSON
T. Jackson Lawson, Trustee
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY OF RICHMOND )
On this 12th day of March, 1996, before me personally appeared Robert
L. Massey, President and Chief Executive Officer of Reorganized Consumat
Systems, Inc., known to me or identified to be the person who executed the
within Release on behalf of the corporation and acknowledged to me that with due
authority he executed the same on behalf of the corporation.
/s/ CYNTHIA T. ANDERSON
Notary Public
My commission expires: 2/28/98
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY OF RICHMOND )
On this 12th day of March, 1996, before me personally appeared Peter T.
Socha, Vice President and Chief Credit Officer of Sirrom Capital Corporation,
known to me or identified to be the person who executed the within Release on
behalf of the corporation and acknowledged to me that with due authority he
executed the same on behalf of the corporation.
/s/ CYNTHIA T. ANDERSON
Notary Public
My commission expires: 2/28/98
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY/COUNTY OF RICHMOND )
On this 12th day of March, 1996, before me personally appeared Charles
Williams, Jr., manager of Lighthouse Investments, L.L.C., known to me or
identified to be the person who executed the within Release on behalf of the
company and acknowledged to me that with due authority he executed the same on
behalf of the company.
/s/ BONNIE R. McNEAL
Notary Public/Justice of
the Peace
My commission expires: 8/31/98
STATE OF ARKANSAS )
) to-wit:
COUNTY OF UNION )
On this 12 day of March, 1996, before me personally appeared Chad B.
Gunderson, Secretary and Treasurer of Environmental Systems Company, known to me
or identified to be the person who executed the within Release on behalf of the
corporation and acknowledged to me that with due authority he executed the same
on behalf of the corporation.
/s/ HELENE RAINWATER
Notary Public
My commission expires: 7/9/02
<PAGE>
STATE OF ARKANSAS )
) to-wit:
COUNTY OF UNION )
On this 12 day of March, 1996, before me personally appeared Chad B.
Gunderson, Secretary and Treasurer of Environmental Systems Company, known to me
or identified to be the person who executed the within Release on behalf of the
corporation and acknowledged to me that with due authority he executed the same
on behalf of the corporation.
/s/ HELENE RAINWATER
Notary Public
My commission expires: 7/9/02
COMMONWEALTH OF VIRGINIA )
) to-wit:
COUNTY OF HENRICO )
On this 13th day of March, 1996, before me personally appeared Thomas
A. Pearson, Trustee, known to me or identified to be the person who executed the
within Release.
/s/ KATHLEEN B. GREGORY
Notary Public/Justice of
the Peace
My commission expires: 4/30/96
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY/COUNTY OF HANOVER )
On this 13 day of March, 1996, before me personally appeared T. Jackson
Lawson, Trustee, known to me or identified to be the person who executed the
within Release.
/s/ SAUNDRA J. SHUPE
Notary Public/Justice of
the Peace
My commission expires: 5/3/99
ARTICLES OF AMENDMENT AND RESTATEMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CONSUMAT SYSTEMS, INC.
1. The name of the Corporation is Consumat Systems, Inc.
2. The articles of incorporation of the Corporation are
amended and restated to read as Exhibit A attached hereto.
3. On October 6, 1995, pursuant to Chapter 11 of Title 11 of the
United States Code, the Corporation filed a voluntary petition for
reorganization in the United States Bankruptcy Court for the Eastern District of
Virginia, Richmond Division (the "Court"). The Court has jurisdiction over the
matter pursuant to ss.ss. 1334 and 1408 of Title 28 of the United States Code.
The reorganization proceeding is styled In re Consumat Systems, Inc. and bears
case number 95-34253-S.
4. On February 28, 1996, the Court entered an order
approving the Corporation's Second Amended Plan of Reorganization, which
included the amendments to the articles of incorporation that are reflected
in the Amended and Restated Articles of Incorporation attached hereto as Exhibit
A.
5. Pursuant to (S) 13.1-604.1 of the Code of Virginia
(1950), as amended, the amended and restated articles of incorporation are
hereby adopted by the Corporation without action by the board of directors or
shareholders of the Corporation.
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6. Pursuant to (S) 13.1-606 of the Code of Virginia (1950), as
amended, the effective time and date of these Articles of Amendment and
Restatement shall be 12:01 a.m., on March 12, 1996.
IN WITNESS WHEREOF, Consumat Systems, Inc. has caused this instrument
to be executed in its name and on its behalf by its President, who warrants and
represents that the foregoing statements are true and correct, this 6th day of
March, 1996.
CONSUMAT SYSTEMS, INC.
By: /s/ ROBERT L. MASSEY
Robert L. Massey, President
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EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
REORGANIZED CONSUMAT SYSTEMS, INC.
ARTICLE I
NAME
The name of the Corporation is REORGANIZED CONSUMAT SYSTEMS, INC.
ARTICLE II
PURPOSE
The Corporation is organized to engage in any lawful business not
required by the Virginia Stock Corporation Act (the "Act," which term shall be
deemed to include the Act or any successor statute or section thereof, as now
written or hereafter amended) to be stated in the articles of incorporation.
ARTICLE III
CAPITAL STOCK
A. Authorized Shares. The number and designation of shares that
the Corporation shall have authority to issue and the par value per share are as
follows:
Class No. of Shares Par Value
Common 5,000,000 $1.00
Preferred 1,000,000 $1.00
B. Nonvoting Equity Securities. Pursuant to Section
1123(a)(6) of Title 11 of the United States Code, the Corporation
shall not issue any nonvoting equity securities.
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C. Preemptive Rights. No holder of outstanding shares of
any class of stock shall have any preemptive right with respect
to (1) any shares of any class of stock of the Corporation
whether now or hereafter authorized, (2) any warrants, rights or
options to purchase any such stock, or (3) any obligations
convertible into any such stock or into warrants, rights or
options to purchase such stock.
D. Preferred Stock.
(1) Except as otherwise provided herein, the Board of
Directors is authorized, without any further stockholder action, to issue the
Preferred Stock from time to time in one or more series and to provide for the
relative rights and preferences of each series by the adoption of a resolution
or resolutions fixing:
(a) the maximum number of shares in a series and the
designation of the series, which designation shall distinguish the
shares thereof from the shares of any other series or class;
(b) the rate of dividends, the time of payment,
whether dividends shall be cumulative, and, if so, the dates from which
they shall be cumulative, and the extent of participation rights, if
any;
(c) any right to vote with holders of shares of any
other series or class and any right to vote as a class, either
generally or as a condition to specified corporate action;
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(d) the price at and the terms and conditions on
which such shares may be redeemed;
(e) the amount payable upon shares in the event of
involuntary liquidation;
(f) the amount payable upon shares in the event of
voluntary liquidation;
(g) sinking fund provisions for the redemption or
purchase of shares;
(h) the terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege of
conversion; and
(i) any other designations, rights, preferences or
limitations that are now or hereafter permitted by the laws of the
Commonwealth of Virginia and are not inconsistent with the provisions
of this Paragraph D(1).
(2) Before the issuance of any shares of a series of the
Preferred Stock, the amendment to these Amended and Restated Articles of
Incorporation creating the series shall be set forth in articles of amendment
which may be adopted by the Board of Directors without stockholder action and
filed with, and made effective by, the State Corporation Commission of Virginia,
as required by law.
(3) All shares of the Preferred Stock, regardless of series,
shall be identical with each other in all respects except as otherwise provided
in the description of the series.
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E. Common Stock. Subject to the provisions contained in
the articles of amendment for any series of the Preferred Stock,
the holders of outstanding shares of the Common Stock shall be
entitled to receive dividends if, when and as declared by the
Board of Directors out of funds legally available therefor.
F. Voting Rights. Each outstanding share of Common Stock
and each outstanding share of Preferred Stock is entitled to one
vote on each matter voted at a shareholders' meeting.
ARTICLE IV
DIRECTORS
The number of directors shall be fixed by the bylaws and, in the
absence of any bylaw fixing the number, the number shall be three.
ARTICLE V
INDEMNIFICATION
A. Definitions. For purposes of this Article, the following
definitions shall apply:
"Corporation" means this Corporation only and no predecessor
entity or other legal entity.
"Expenses" include counsel fees, expert witness fees, and
costs of investigation, litigation and appeal, as well as any amounts extended
in asserting a claim for indemnification.
"Legal Entity" means a corporation, partnership, joint
venturer, trust, employee benefit plan or other enterprise. A
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person is considered to be serving an employee benefit plan at the Corporation's
request if his duties to the Corporation also impose duties on, or otherwise
involve services by him, to the plan or to participants in or beneficiaries of
the plan.
"Liability" means the obligation to pay a judgment,
settlement, penalty, fine, or other such obligation, including, without
limitation, any excise tax assessed with respect to an employee benefit plan.
"Predecessor Entity" means a legal entity the existence of
which ceased upon its acquisition by the Corporation in a merger or otherwise.
"Proceedings" means any threatened, pending, or completed
action, suit, proceeding or appeal, whether civil, criminal, administrative or
investigative and whether formal or informal.
B. Indemnification of Directors and Officers. The Corporation shall
indemnify, and may contract in advance to indemnify, an individual who is, was
or is threatened to be made a party to a Proceeding (regardless of whether the
Proceeding is by or in the right of the Corporation) because he is or was a
director or officer of the Corporation or while a director or officer of the
Corporation served any other Legal Entity in any capacity at the request of the
Corporation against all Liabilities and reasonable Expenses incurred in the
Proceeding except such Liabilities and Expenses as are incurred through June 30,
1987 because of his gross negligence or willful misconduct,
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and, from and after July 1, 1987 because of his willful misconduct or knowing
violation of criminal law. The determination that indemnification under this
Paragraph B is permissible and the evaluation as to the reasonableness of
Expenses in a specific case shall be made, in the case of a director, as
provided by law, and in the case of an officer, as authorized from time to time
by general or specific action of the Board of Directors, which action may be
taken before or after a claim for indemnification is made, or as otherwise
provided by law. Unless a determination has been made that indemnification is
not permissible, the Corporation shall, at the request of the director or
officer, make advances and reimbursements for Expenses incurred by a director or
officer in a Proceeding upon receipt of an undertaking from him to repay the
same if it is ultimately determined that he is not entitled to indemnification.
Such undertaking shall be an unlimited, unsecured general obligation of the
director or officer and shall be accepted without reference to his ability to
make repayment. The termination of a Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that a director or officer acted in such a manner
as to make him ineligible for indemnification.
C. Indemnification of Others. If not required to do so under
Paragraph B of this Article, the Corporation may, to a lesser extent or to the
same extent that the Corporation is
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required to provide indemnification and made advances and reimbursements for
Expenses to its directors and officers, provide indemnification and make
advances and reimbursements for Expenses to its employees and agents, the
directors, officers, employees and agents of its subsidiaries and Predecessor
Entities, and any person serving any other Legal Entity in any capacity at the
request of the Corporation, or, if authorized by general or specific action of
the Board of Directors, may contract in advance to do so. The determination that
indemnification under this Paragraph C is permissible, the authorization of such
indemnification and the evaluation as to the reasonableness of Expenses in a
specific case shall be made as authorized from time to time by general or
specific action of the Board of Directors, which action may be taken before or
after a claim for indemnification is made, or as otherwise provided by law.
D. Miscellaneous. Every reference in this Article to persons who
are or may be entitled to indemnification shall include all persons who formerly
occupied any of the positions referred to and their respective heirs, executors
and administrators. Indemnification pursuant to this Article shall not be
exclusive of any other right of indemnification to which any person may be
entitled, including indemnification pursuant to a valid contract,
indemnification by Legal Entities other than the Corporation and indemnification
under policies of insurance purchased and maintained by the Corporation or
others. However,
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no person shall be entitled to indemnification by the Corporation to the extent
he is indemnified by another, including an insurer. The provisions of this
Article shall not be deemed to prohibit the Corporation from entering into
contracts otherwise permitted by law with any individuals or Legal Entities,
including those named above, for the purpose of conducting the business of the
Corporation.
ARTICLE VI
LIMIT ON LIABILITY
In every instance in which the Act, as it exists on the date hereof or
may hereafter be amended, permits the limitation or elimination of liability of
directors or officers of a corporation to the corporation or its shareholders,
the directors and officers of the Corporation shall not be liable to the
Corporation or its shareholders.
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REORGANIZED CONSUMAT SYSTEMS, INC.
AMENDED AND RESTATED
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. Meetings of shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, and at
such time, as may be provided in the notice of the meeting and approved by the
Chairman of the Board of Directors (the "Chairman"), the President or the Board
of Directors.
1.2 Organization and Order of Business. The Chairman or, in his
absence, the President shall serve as chairman at all meetings of the
shareholders. In the absence of both of the foregoing officers or if both of
them decline to serve, a majority of the shares entitled to vote at a meeting,
may appoint any person entitled to vote at the meeting to act as chairman. The
secretary of the Corporation or, in his absence, an assistant secretary, shall
act as secretary at all meetings of the shareholders. In the event that neither
the secretary nor any assistant secretary is present, the chairman of the
meeting may appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he may deem
necessary or desirable for the proper conduct of each meeting of the
shareholders, including, without limitation, the authority to make the agenda
and to establish procedures for
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(i) dismissing of business not properly presented, (ii) maintaining of order and
safety, (iii) placing limitations on the time allotted to questions or comments
on the affairs of the Corporation, (iv) placing restrictions on attendance at a
meeting by persons or classes of persons who are not shareholders or their
proxies, (v) restricting entry to a meeting after the time prescribed for the
commencement thereof and (vi) commencing, conducting and closing voting on any
matters.
1.3 Annual Meeting. The annual meeting of shareholders
shall be held each year on a date to be fixed by the Directors.
At each annual meeting of shareholders, only such business shall be
conducted as is proper to consider and has been brought before the meeting (i)
pursuant to the Corporation's notice of the meeting, (ii) by or at the direction
of the Board of Directors or (iii) by a shareholder who is a shareholder of
record of a class of shares entitled to vote on the business such shareholder is
proposing, both at the time of the giving of the shareholder's notice
hereinafter described in this Section 1.3 and on the record date for such annual
meeting, and who complies with the notice procedures set forth in this Section
1.3.
In order to bring before an annual meeting of shareholders any business
which may properly be considered and which a shareholder has not sought to have
included in the Corporation's proxy statement for the meeting, a shareholder who
meets the requirements set forth in the preceding paragraph must give the
Corporation timely written notice. To be timely, a shareholder's
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notice must be given, either by personal delivery to the Secretary or an
Assistant Secretary of the Corporation at the principal office of the
Corporation, or by first class United States mail, with postage thereon prepaid,
addressed to the Secretary of the Corporation at the principal office of the
Corporation. Any such notice must be received not less than 60 days before the
date of the meeting.
Each such shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Corporation's stock transfer books, of the
shareholder proposing business, (ii) the class and number of shares of stock of
the Corporation beneficially owned by such shareholder, (iii) a representation
that such shareholder is a shareholder of record at the time of the giving of
the notice and intends to appear in person or by proxy at the meeting to present
the business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such
business, and (v) any interest which the shareholder may have in such business.
The Secretary or Assistant Secretary of the Corporation shall deliver
each shareholder's notice that has been timely received to the Chairman for
review.
Notwithstanding the foregoing provisions of this Section 1.3, a
shareholder seeking to have a proposal included in the
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Corporation's proxy statement for an annual meeting of shareholders shall comply
with the requirements of Regulation 14A under the Securities Exchange Act of
1934, as amended from time to time, or with any successor regulation.
1.4 Special Meetings. Special meetings of the shareholders
may be called only by the Chairman, the President or the Board of
Directors. Only business within the purpose or purposes
described in the notice for a special meeting of shareholders may
be conducted at the meeting.
1.5 Record Dates. The Board of Directors shall fix, in advance, a
record date to make a determination of shareholders entitled to notice of, or to
vote at, any meeting of shareholders, to receive any dividend or for any
purpose, such date to be not more than 70 days before the meeting or action
requiring a determination of shareholders. If no such record date is set the
record date shall be the close of business on the day before the date on which
the first notice is given.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made, such determination shall be
effective for any adjournment of the meeting unless the Board of Directors fixes
a new record date, which it shall do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
1.6 Notice of Meetings. Written notice stating the place, day and
hour of each meeting of shareholders and, in the case of a special meeting, the
purpose or purposes for which the meeting
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is called, shall be given not less than ten nor more than 60 days before the
date of the meeting (except when a different time is required in these Bylaws or
by law) either personally or by mail, telephone, telegraph, teletype, telecopy
or other form of wire or wireless communication, or by private courier, to each
shareholder of record entitled to vote at such meeting and to such nonvoting
shareholders as may be required by law. If mailed, such notice shall be deemed
to be effective when deposited in first class United States mail with postage
thereon prepaid, addressed to the shareholder at his address as it appears on
the share transfer books of the Corporation. If given in any other manner, such
notice shall be deemed effective when (i) given personally or by telephone, (ii)
sent by telegraph, teletype, telecopy or other form of wire or wireless
communication or (iii) given to a private courier to be delivered.
Notice of a shareholder's meeting to act on (i) an amendment of the
Articles of Incorporation; (ii) a plan of merger or share exchange; (iii) the
sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business, or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date of
the meeting. Any notice given pursuant to this section shall state that the
purpose, or one of the purposes, of the meeting is to consider such action and
shall be
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accompanied by (x) a copy of the proposed amendment, (y) a copy of the proposed
plan of merger or share exchange, or (z) a summary of the agreement pursuant to
which the proposed transaction will be effected. If only a summary of the
agreement is sent to the shareholders, the Corporation shall also send a copy of
the agreement to any shareholder who requests it.
If a meeting is adjourned to a different date, time or place, notice
need not be given if the new date, time or place is announced at the meeting
before adjournment. However, if a new record date for an adjourned meeting is
fixed, notice of the adjourned meeting shall be given to shareholders as of the
new record date, unless a court provides otherwise.
Notwithstanding the foregoing, no notice of a meeting of shareholders
need be given to a shareholder if (i) an annual report and proxy statements for
two consecutive annual meetings of shareholders or (ii) all, and at least two,
checks in payment of dividends or interest on securities during a 12-month
period, have been sent by first-class United States mail, with postage thereon
prepaid, addressed to the shareholder at his address as it appears on the share
transfer books of the Corporation, and returned undeliverable. The obligation of
the Corporation to give notice of meetings of shareholders to any such
shareholder shall be reinstated once the Corporation has received a new address
for such shareholder for entry on its share transfer books.
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1.7 Waiver of Notice; Attendance at Meeting. A shareholder may waive
any notice required by law, the Articles of Incorporation or these Bylaws before
or after the date and time of the meeting that is the subject of such notice.
The waiver shall be in writing, be signed by the shareholder entitled to the
notice, and be delivered to the Secretary of the Corporation for inclusion in
the minutes or filing with the corporate records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting, and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
1.8 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action, unless a greater number of
affirmative votes is required by law. Directors shall be elected by a
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plurality of the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present. Less than a quorum may adjourn a meeting.
1.9 Proxies. A shareholder may vote his shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment form, either personally or by his attorney-in-fact. An appointment
of a proxy is effective when received by the Secretary or other officer or agent
authorized to tabulate votes and is valid for eleven (11) months unless a longer
period is expressly provided in the appointment form. An appointment of a proxy
is revocable by the shareholder unless the appointment form conspicuously states
that it is irrevocable and the appointment is coupled with an interest.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment. An irrevocable appointment is revoked when the interest
with which it is coupled is extinguished. A transferee for value of shares
subject to an irrevocable appointment may revoke the appointment if he did not
know of its existence when he acquired the shares and the existence of the
irrevocable appointment was not noted conspicuously on the certificate
representing the shares. Subject to any legal limitations on the
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right of the Corporation to accept the vote or other action of a proxy and to
any express limitation on the proxy's authority appearing on the face of the
appointment form, the Corporation is entitled to accept the proxy's vote or
other action as that of the shareholder making the appointment. Any fiduciary
who is entitled to vote any shares may vote such shares by proxy.
1.10 Voting List. The officer or agent having charge of the share
transfer books of the Corporation shall make, at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to vote at
such meeting or any adjournment thereof, with the address of and the number of
shares held by each. For a period of ten days prior to the meeting such list
shall be kept on file at the registered office of the Corporation or at its
principal office or at the office of its transfer agent or registrar and shall
be subject to inspection by any shareholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting for the purpose thereof. The original share transfer
books shall be prima facia evidence as to who are the shareholders entitled to
examine such list or transfer books or to vote at any meeting of the
shareholders. The right of a shareholder to inspect such list prior to the
meeting shall be subject to the conditions and limitations set forth by law. If
the requirements of this section have not been substantially complied with, the
meeting shall, on the demand of
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any shareholder in person or by proxy, be adjourned until such requirements are
met. Refusal or failure to prepare or make available the shareholders' list does
not affect the validity of action taken at the meeting prior to the making of
any such demand, but any action taken by the shareholders after the making of
any such demand shall be invalid and of no effect.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors.
All corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2.2 Number and Term. The number of directors of the Corporation shall
be not less than three nor more than nine. The number of directors may be
changed from time to time, within the minimum and maximum, by the shareholders
or by the Board of Directors. Only the shareholders may change the range for the
size of the Board of Directors or change from a variable range to a fixed size
board or vice versa. No decrease in number shall have the effect of shortening
the term of any incumbent director. Each director shall hold office until his
death, resignation or removal or until his successor is elected.
2.3 Nomination of Directors. No person shall be eligible for
election as a director at a meeting of shareholders unless nominated (i) by the
Board of Directors or (ii) by a shareholder
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who is a shareholder of record of a class of shares entitled to vote for the
election of directors, both at the time of the giving of the shareholder's
notice hereinafter described in this Section 2.3 and on the record date for the
meeting at which directors will be elected, and who complies with the notice
procedures set forth in this Section 2.3.
In order to nominate for election as directors at a meeting of
shareholders any persons who are not listed as nominees in the Corporation's
proxy statement for the meeting, a shareholder who meets the requirements set
forth in the preceding paragraph must give the Corporation timely written
notice. To be timely, a shareholder's notice must be given, either by personal
delivery to the Secretary or an Assistant Secretary of the Corporation at the
principal office of the Corporation, or by first class United States mail, with
postage thereon prepaid, addressed to the Secretary of the Corporation at the
principal office of the Corporation. Any such notice must be received (i) not
less than 60 days before an annual meeting, or (ii) not later than the close of
business on the tenth day following the day on which notice of a special meeting
of shareholders called for the purpose of electing directors is first given to
shareholders.
Each such shareholder's notice shall set forth the following: (i) as to
the shareholder giving the notice, (a) the name and address of such shareholder
as they appear on the Corporation's stock transfer books, (b) the class and
number of shares of the Corporation beneficially owned by such shareholder,
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(c) a representation that such shareholder is a shareholder of record at the
time of giving the notice and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice, and (d) a
description of all arrangements or understandings, if any, between such
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made; and
(ii) as to each person whom the shareholder wishes to nominate for election as a
director, (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the Corporation which are beneficially owned by such
person, and (d) all other information that is required to be disclosed about
nominees for election as directors in solicitations of proxies for the election
of directors under the rules and regulations of the Securities and Exchange
Commission. In addition, each such notice shall be accompanied by the written
consent of each proposed nominee to serve as a director if elected and such
consent shall contain a statement from the proposed nominee to the effect that
the information about him contained in the notice is correct.
2.4 Election. Except as provided in Section 2.5 the directors (other
than initial directors) shall be elected by the holders of the Common shares at
each annual meeting of shareholders and those persons who receive the greatest
number of
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votes shall be deemed elected even though they do not receive a majority of the
votes cast. No individual shall be named or elected as a director without his
prior consent.
2.5 Removal; Vacancies. The shareholders may remove one or more
directors with or without cause. If a director is elected by a voting group,
only the shareholders of that voting group may elect to remove him. Unless the
Articles of Incorporation require a greater vote, a director may be removed if
the number of votes cast to remove him constitutes a majority of the votes
entitled to be cast at an election of directors of the voting group or voting
groups by which such director was elected. A director may be removed by the
stockholders only at a meeting called for the purpose of removing him and the
meeting notice must state that the purpose, or one of the purposes of the
meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from
the removal of a director or an increase in the number of directors, may be
filled by (i) the shareholders, (ii) the Board of Directors or (iii) the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors, and may, in the case of a resignation that
will become effective at a specified later date, be filled before the vacancy
occurs but the new director may not take office until the vacancy occurs.
2.6 Annual and Regular Meetings. An annual meeting of the
Board of Directors, which shall be considered a regular meeting,
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shall be held immediately following each annual meeting of shareholders, for the
purpose of electing officers and carrying on such other business as may properly
come before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
2.7 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman, the President or a majority of the Directors of the
Corporation, and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.8 Notice of Meetings. No notice need be given of regular
meetings of the Board of Directors.
Notices of special meetings of the Board of Directors shall be given to
each director in person or delivered to his residence or business address (or
such other place as he may have directed in writing) not less than twenty-four
(24) hours before the meeting by mail, messenger, telecopy, telegraph, or other
means of written communication or by telephoning such notice to him.
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Any such notice shall set forth the time and place of the meeting and state the
purpose for which it is called.
2.9 Waiver of Notice; Attendance at Meeting. A director may waive any
notice required by law, the Articles of Incorporation, or these Bylaws before or
after the date and time stated in the notice, and such waiver shall be
equivalent to the giving of such notice. Except as provided in the next
paragraph of this section, the waiver shall be in writing, signed by the
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the beginning of
the meeting or promptly upon his arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
2.10 Quorum; Voting. A majority of the number of directors fixed in
these Bylaws shall constitute a quorum for the transaction of business at a
meeting of the Board of Directors. If a quorum is present when a vote is taken,
the affirmative vote of a majority of the directors present is the act of the
Board of Directors. A director who is present at a meeting of the Board of
Directors or a committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless (i) he objects at
the beginning of the meeting, or promptly upon his arrival, to holding it or
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<PAGE>
transacting specified business at the meeting; or (ii) he votes against, or
abstains from, the action taken.
2.11 Telephonic Meetings. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.12 Action Without Meeting. Action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting if the
action is taken by all members of the Board. The action shall be evidenced by
one or more written consents stating the action taken, signed by each director
either before or after the action taken, and included in the minutes or filed
with the corporate records reflecting the action taken. Action taken under this
section shall be effective when the last director signs the consent unless the
consent specifies a different effective date in which event the action taken is
effective as of the date specified therein provided the consent states the date
of execution by each director.
2.13 Compensation. The Board of Directors may fix the compensation
of directors and may provide for the payment of all expenses incurred by them in
attending meetings of the Board of Directors.
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<PAGE>
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees. The Board of Directors may create one or more
committees and appoint members of the Board of Directors to serve on them.
Unless otherwise provided in these Bylaws, each committee shall have two or more
members who serve at the pleasure of the Board of Directors. The creation of a
committee and appointment of members to it shall be approved by the number of
directors required to take action under Section 2.10 of these Bylaws.
3.2 Authority of Committees. To the extent specified by the Board of
Directors, each committee may exercise the authority of the Board of Directors,
except that a committee may not (i) approve or recommend to shareholders action
that is required by law to be approved by shareholders; (ii) fill vacancies on
the Board of Directors or on any of its committees; (iii) amend the Articles of
Incorporation; (iv) adopt, amend, or repeal these Bylaws; (v) approve a plan of
merger not requiring shareholder approval; (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors; or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares, except that the
Board of Directors may authorize a committee, or a senior executive officer of
the
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<PAGE>
Corporation, to do so within limits specifically prescribed by the Board of
Directors.
3.3 Committee Meetings; Miscellaneous. The provisions of these Bylaws
which govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
ARTICLE IV
OFFICERS
4.1 Officers. The officers of the Corporation shall be in a Chairman of
the Board of Directors, a President, one of whom shall be designated as Chief
Executive Officer, a Secretary, a Treasurer, and a Chief Financial Officer, and,
in the discretion of the Board of Directors one or more Vice-Presidents and such
other officers as may be deemed necessary or advisable to carry on the business
of the Corporation. Any two or more offices may be held by the same person.
4.2 Election; Term. Officers shall be elected at the annual meeting of
the Board of Directors and may be elected at such other time or times as the
Board of Directors shall determine. Officers shall hold office, unless sooner
removed, until the next annual meeting of the Board of Directors or until their
successors are elected. Any officer may resign at any time upon written notice
to the Board of Directors, and such
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<PAGE>
resignation shall be effective when notice is delivered unless the notice
specifies a later effective date.
4.3 Removal of Officers. The Board of Directors may remove
any officer at any time, with or without cause.
4.4 Duties of the Officers. The Chairman and the other Officers shall
have such powers and duties as generally pertain to their respective offices as
well as such powers and duties as may be delegated to them from time to time by
the Board of Directors.
4.5 Voting Securities of Other Corporations. Any one of the Chairman,
the President or the Treasurer shall have the power to act for and vote on
behalf of the Corporation at all meetings of the shareholders of any corporation
in which this Corporation holds stock, or in connection with any consent of
shareholders in lieu of any such meeting.
4.6 Bonds. The Board of Directors may require that any or all officers,
employees and agents of the Corporation give bond to the Corporation, with
sufficient sureties, conditioned upon the faithful performance of the duties of
their respective offices or positions.
ARTICLE V
SHARE CERTIFICATES
5.1 Form. Shares of the Corporation shall, when fully paid, be
evidenced by certificates containing such information as is required by law and
approved by the Board of Directors.
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<PAGE>
Certificates shall be signed by the President and the Secretary and may (but
need not) be sealed with the seal of the Corporation. The seal of the
Corporation and any or all of the signatures on a share certificate may be
facsimile. If any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar on the date of issue.
5.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of certificates representing the
shares of the Corporation. Transfers of shares and of the certificates
representing such shares shall be made upon the books of he Corporation by
surrender of the certificates representing such shares accompanied by written
assignments given by the owners or their attorneys-in-fact.
5.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of the
certificate representing the shares. Unless so noted a restriction is not
enforceable against a person without knowledge of the restriction.
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<PAGE>
5.4 Lost or Destroyed Share Certificates. The Corporation may issue a
new share certificate in the place of any certificate theretofore issued which
is alleged to have been lost or destroyed and may require the owner of such
certificate, or his legal representative, to give the Corporation a bond, with
or without surety, or such other agreement, undertaking or security as the Board
of Directors shall determine is appropriate, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Corporate Seal. The corporate seal of the Corporation
shall be circular and shall have inscribed thereon, within and
around the circumference "REORGANIZED CONSUMAT SYSTEMS, INC.".
In the center shall be the word "SEAL".
6.2 Fiscal Year. The fiscal year of the Corporation shall be
determined in the discretion of the Board of Directors, but in the absence of
any such determination it shall be the calendar year.
6.3 Amendments. These Bylaws may be amended or repealed, and new
Bylaws may be made, at any regular or special meeting of the Board of Directors.
Bylaws made by the Board of Directors may be repealed or changed and new Bylaws
may be made by the shareholders, and the shareholders may prescribe that any
Bylaw
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<PAGE>
made by them shall not be altered, amended or repealed by the Board of
Directors.
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REORGANIZED CONSUMAT SYSTEMS, INC.
Incorporated Under The Laws Of The Commonwealth Of Virginia
COMMON STOCK
NUMBER
SHARES
RCS CUSIP 760257 10 5
See Reverse For Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF ONE DOLLAR EACH OF THE
Common Stock Of
REORGANIZED CONSUMAT SYSTEMS, 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.
Reorganized Consumat Systems, Inc. Virginia
SEAL
/s/PATRICIA B. BRADLEY /s/ROBERT L. MASSEY
Secretary President
Countersigned and Registered
CHEMICAL MELLON SHAREHOLDER SERVICES,L.L.C.
(New York, New York)
Transfer Agent and Registrar
By
Authorized Signature
Information regarding the designations, relative rights, preferences and
limitations applicable to each class of series of capital stock of the Company,
the variations therein and the authority of the Board of Directors to determine
variations for future classes or series may be obtained at no cost by written
request made by the holder of record hereof to the Secretary of the Company at
the principal Executive Offices of the Company.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-- as tenants in common
TEN ENT-- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT --___________Custodian____________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________ hereby sell, assign and transfer unto
Please insert social security or other identifying number of assignee
[ ]
- --------------------------------------------------------------------------------
(please print or typewrite name and address, including zip code, of assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint______________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated____________________________________________
------------------------------------------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
PROMISSORY NOTE
$192,306.29 Richmond, Virginia
March 12, 1996
FOR VALUE RECEIVED, REORGANIZED CONSUMAT SYSTEMS, INC., a Virginia
corporation (the "Maker"), hereby unconditionally promises to pay to the order
of Lighthouse Investments, L.L.C. (the "Holder"), the principal amount of ONE
HUNDRED NINETY-TWO THOUSAND THREE HUNDRED AND SIX DOLLARS AND TWENTY-NINE CENTS
($192,306.29) plus interest at the per annum rate of ten percent (10%) as
follows: on March 31, 1996, the sum of $18,694.71 consisting of $1,053.74 as
interest for the period of March 12, 1996, through March 31, 1996, and principal
in the amount of $17,640.97, and thereafter in eleven (11) equal consecutive
quarter-annual installments of $18,358.37 each beginning on June 30, 1996, and
ending on December 31, 1998. The Maker is entitled to prepay this Note in full
or part at any time without penalty.
Both principal and interest are payable in lawful money of the United
States of America to the Holder in care of Charles Williams, Jr., at the offices
of Air Pollution Control Products, Inc., P.O. Box 6113, Ashland, Virginia 23005
in federal or other immediately available funds.
This Note is the promissory note under, is secured in
accordance with the terms of, and is entitled to the benefits of, the Plan of
Reorganization which, among other things, contains provisions with respect to
security for the indebtedness evidenced hereby. For the purposes of this Note,
"Plan of Reorganization" means the Second Amended Plan of Reorganization
confirmed by Order entered on February 28, 1996, by the United States Bankruptcy
Court for the Eastern District of Virginia, Richmond Division, in the Maker's
Chapter 11 bankruptcy case (Case No. 95-34253-S), as the same may be modified,
supplemented or restated from time to time in accordance with 11 U.S.C. (s)
1127(b).
Presentment for payment, demand, protest and notice of demand, notice
of dishonor, and notice of non-payment and all other notices are hereby waived
by the Maker.
The Maker hereby agrees to pay on demand all reasonable costs and
expenses actually incurred in collecting the Maker's obligations hereunder or in
enforcing or attempting to enforce any of the Holder's rights hereunder,
including, but not limited to, reasonable attorneys' fees and expenses actually
incurred if collected by or through an attorney.
This Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
REORGANIZED CONSUMAT SYSTEMS, INC.
By: /s/ ROBERT L. MASSEY
Robert L. Massey, President
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 11th day of October,
1995, is made and entered into on the terms and conditions hereinafter set
forth, by and between CONSUMAT SYSTEMS, INC., a Virginia corporation
("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
RECITALS:
WHEREAS, Borrower filed for Chapter 11 bankruptcy relief on October 6,
1995, in the United States Bankruptcy Court for the Eastern District of
Virginia, Richmond Division (the "Bankruptcy Court"), and is operating its
business and managing its affairs as a debtor-in-possession pursuant to
11 U.S.C. (s)(s) 1107(a) and 1108;
WHEREAS, Borrower has requested that Lender make available to Borrower
a term loan facility in an aggregate principal not to exceed FIVE HUNDRED
THOUSAND and NO/100ths DOLLARS ($500,000) (the "Loan") on the terms and
conditions hereinafter set forth, and for the purpose(s) hereinafter set forth;
WHEREAS, in order to induce Lender to make the Loan to Borrower,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrower, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the
terms and conditions hereof, the Lender shall make the Loan to Borrower by one
or more wire transfers in immediately available funds. The Loan shall be
evidenced by a Secured Promissory Note in an original principal amount not to
exceed FIVE HUNDRED
<PAGE>
THOUSAND and NO/100ths DOLLARS ($500,000), substantially in the form of Exhibit
A attached hereto and incorporated herein by this reference (the "Note"), dated
as of the date hereof, executed by Borrower, in favor of Lender. The Loan shall
be payable in accordance with the terms of the Note.
1.2 Fees. Borrower shall pay a processing fee of $12,500 to Lender at
closing. In addition, Borrower shall pay a commitment fee of $50,000 (the
"Commitment Fee") to Lender on or before December 15, 1995, which Commitment Fee
shall be waived by Lender provided that Borrower confirms a plan of
reorganization on or before December 15, 1995, and that Lender provides the
financing for such plan.
1.3 Purpose(s) of Loan and Use of Proceeds. The purposes of the Loan
shall be to provide working capital to Borrower, and to pay all costs and
expenses incurred by the parties hereto in connection with the making and
documenting of the Loan, including attorneys' fees and expenses. The proceeds of
the Loan shall not be used for any other purpose.
1.4 Security. As security for the full and timely payment of the
indebtedness of Borrower evidenced by the Note and of all other Obligations (as
defined in Section 3.1 hereof), Borrower shall be and hereby is granted security
interests in and liens upon all real and personal property of Borrower (the
"Collateral") as described in a Security Agreement, substantially in the form of
Exhibit B attached hereto (the "Security Agreement"). This Agreement, the Note,
the Security Agreement, and any other instruments and documents executed by
Borrower, now or hereafter evidencing, securing or in any way related to the
indebtedness evidenced by the Note are herein individually referred to as a
"Loan Document" and collectively referred to as the "Loan Documents."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower hereby represents and
warrants to Lender as follows:
(a) Corporate Status. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia; and has the corporate power to own and
operate its properties, to carry on its business as now conducted and
to enter into and to perform its obligations under this Agreement and
the other Loan Documents to which it is a party. Borrower is duly
qualified to do business and in good standing in the Commonwealth of
Virginia and each other state in which a failure to be so qualified and
in good standing would have a material adverse effect on Borrower's
financial positions or its ability to conduct its business in the
manner now conducted.
(b) Other Business Organizations. Borrower neither owns
nor has an interest in, directly or indirectly, any other corporation,
partnership, joint venture or other business organization
("Subsidiaries").
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<PAGE>
(c) Authorization. Borrower has full legal right, power and
authority to conduct its business and affairs. Borrower has full legal
right, power and authority to enter into and perform its obligations
under the Loan Documents, without the consent or approval of any other
person, firm, governmental agency or other legal entity. The execution
and delivery of this Agreement, the borrowing hereunder, the execution
and delivery of each Loan Document to which Borrower is a party, and
the performance by Borrower of its obligations thereunder is within the
corporate powers of Borrower and has been duly authorized by all
necessary corporate action properly taken, has received all necessary
governmental approvals, if any were required, and do not and will not
contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental
agency, the articles of incorporation or bylaws of Borrower, or any
agreement binding upon Borrower. The officer(s) executing this
Agreement and all other Loan Documents to which Borrower is a party is
(are) duly authorized to act on behalf of Borrower.
(d) Validity and Binding Effect. This Agreement and all other
Loan Documents are the legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) Capitalization. The authorized capital stock of Borrower
consists solely of 3,333,333 shares of common stock of which 1,564,699
shares (the "Shares") are issued and outstanding. All of the Shares are
duly authorized, validly issued and outstanding and fully paid and
nonassessable and free of preemptive rights. Except for the Shares,
there are no shares of capital stock or other securities of Borrower
issued or outstanding. Except as set forth on Schedule 2.1(e), there
are no outstanding options, warrants or rights to purchase or acquire
from Borrower any securities of Borrower, and there are no contracts,
commitments, agreements, understandings, arrangements or restrictions
as to which Borrower is a party or by which it is bound relating to any
shares of capital stock or other securities of Borrower (including the
Shares), whether or not outstanding.
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an accurate
and complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses,
formulas and applications therefor owned by Borrower or used or
required by Borrower in the operation of its business, title to each of
which is, except as set forth in Schedule 2.1(f) hereto, held by
Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. There is no
infringement action, lawsuit, claim or complaint which asserts that
Borrower's operations violate or infringe the rights or the trade
names, trademarks, trademark registration, service name, service mark
or copyright of others with respect to any apparatus or method of
Borrower or any adversely held trademark, trade name, trademark
registration, service name, service mark or copyright, nor is Borrower
in any way making use of any confidential information or trade secrets
of any person except with the consent of such person.
3
<PAGE>
(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the Obligations of Borrower under
and by virtue of the Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, security deed or
agreement, deed of trust, lease, bank loan or credit agreement,
corporate charter or bylaws, agreement or certificate of limited
partnership, partnership agreement, license, franchise or any other
instrument or agreement to which Borrower is a party or by which
Borrower, or its respective properties may be bound or affected or to
which Borrower has not obtained an effective waiver.
(h) Litigation. Except as set forth in Schedule 2.1(h) hereto,
there are no actions, suits or proceedings pending, or, to the
knowledge of Borrower, threatened, against or affecting Borrower or
involving the validity or enforceability of any of the Loan Documents
at law or in equity, or before any governmental or administrative
agency; and to Borrower's knowledge, Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court
or any governmental authority.
(i) Financial Statements. The unaudited financial statements
of Borrower, dated August 31, 1995, attached hereto as Schedule
2.1(i)(A), are true and correct in all material respects have been
prepared on the basis of accounting principles consistently applied,
and fairly present the financial condition of Borrower as of the
date(s) thereof. No material adverse change has occurred in the
financial condition of Borrower since the date(s) thereof, and no
additional borrowings have been made by Borrower since the date(s)
thereof other than as set forth on Schedule 2.1(i)(B).
(j) Other Agreements; No Defaults. Except as set forth on
Schedule 2.1(j) hereto, Borrower is not a party to indentures, loan or
credit agreements, leases or other agreements or instruments, or
subject to any articles of incorporation or corporate restrictions that
could have a material adverse effect on the business, properties,
assets, operations or conditions, financial or otherwise, of Borrower,
or the ability of Borrower to carry out its obligations under the Loan
Documents to which it is a party. Borrower is not in default in any
respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or
instrument material to its business to which it is a party, including
but not limited to this Agreement and the other Loan Documents, and no
other default or event has occurred and is continuing that with notice
or the passage of time or both would constitute a default or event of
default under any of same.
(k) Compliance With Law. Borrower has obtained all material
licenses, permits and approvals and authorizations necessary or
required in order to conduct its business and affairs as heretofore
conducted and as hereafter intended to be conducted. To Borrower's
knowledge, Borrower is in compliance with all laws, regulations,
decrees and orders applicable to it (including but not limited to laws,
regulations, decrees and orders relating to environmental, occupational
and health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition), to the extent that noncompliance, in the
aggregate, cannot reasonably be expected to have a material adverse
effect on its business, operations, property or financial
4
<PAGE>
condition and will not materially adversely affect Borrower's ability
to perform its obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list of
all credit agreements, indentures, purchase agreements, promissory
notes and other evidences of indebtedness, guaranties, capital leases
and other instruments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which Borrower, or any of the
properties thereof is in any manner directly or contingently obligated;
and the maximum principal or face amounts of the credit in question
that are outstanding and that can be outstanding are correctly stated,
and all liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
(m) Taxes. Borrower has filed or caused to be filed all tax
returns that to Borrower's knowledge are required to be filed (except
for returns that have been appropriately extended), and, except as set
forth on Schedule 2.1(m) hereto, has paid, or will pay when due, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith
by appropriate proceedings, for which appropriate amounts have been
reserved). No tax liens have been filed against Borrower, or any of the
property thereof.
(n) Small Business Concern. Borrower, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal
Regulations, (s) 121.401), is a "small business concern" within the
meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder. The information set forth in
the Small Business Administration Forms 480, 652 and Part A of Form
1031 regarding Borrower upon delivery, pursuant to Section 4.1 hereof,
will be accurate and complete. Borrower does not presently engage in,
and it will not hereafter engage in, any activities which, and Borrower
will not, directly or indirectly, use the proceeds from the Loan for
any purpose for which a Small Business Investment Company is prohibited
from providing funds by the Small Business Investment Act and the
regulations thereunder, including Title 13, Code of Federal Regulations
(s)107.901.
(o) Certain Transactions. Except as set forth on
Schedule 2.1(o) hereto, Borrower is not indebted, directly or
indirectly, to any of its shareholders, officers, or directors or to
their respective spouses or children, in any amount whatsoever; none of
said shareholders, officers or directors or any members of their
immediate families, are indebted to Borrower or have any direct or
indirect ownership interest in any firm or corporation with which
Borrower has a business relationship, or any firm or corporation which
competes with Borrower, except that shareholders, officers and/or
directors of Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with Borrower. No officer
or director
5
<PAGE>
of Borrower or any member of their immediate families, is, directly or
indirectly, interested in any material contract with Borrower. Borrower
is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
(p) Statements Not False or Misleading. No representation or
warranty given as of the date hereof by Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by Borrower to Lender pursuant hereto, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading.
(q) Margin Regulations. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock. No proceeds received pursuant to this Agreement will be
used to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended.
(r) Significant Contracts. Schedule 2.1(r) is a complete and
correct list of all contracts, agreements and other documents pursuant
to which Borrower receives revenues in excess of $25,000 per fiscal
year. Each such contract, agreement and other document is in full force
and effect as of the date hereof and Borrower knows of no reason why
such contracts, agreements and other documents would not remain in full
force and effect pursuant to the terms thereof.
(s) Environment. Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder, except to the
extent that failure to do so would not have a material adverse effect
on its business. Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and
approvals relating to (1) air emissions; (2) discharges to surface
water or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation or disposal
of toxic or hazardous substances or wastes (which shall include any and
all such materials listed in any federal, state or local law, code or
ordinance and all rules and regulations promulgated thereunder as
hazardous or potentially hazardous); or (6) other environmental, health
or safety matters, except to the extent that failure to do so would not
have a material adverse effect on its business. Borrower has not
received notice of, or knows of, or suspects facts which might
constitute any violations of any federal, state or local environmental,
health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to its businesses,
operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill,
release or discharge into or upon (1) the air; (2) soils, or any
improvements located thereon; (3) surface water or
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groundwater; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing the premises, of any toxic or
hazardous substances or wastes at or from the premises; and accordingly
the premises of Borrower are free of all such toxic or hazardous
substances or wastes. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any person
or entity with respect to (1) air emissions; (2) spills, releases or
discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or
disposal systems servicing the premises; (3) noise emissions; (4) solid
or liquid waste disposal; (5) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or waste;
or (6) other environmental, health or safety matters affecting Borrower
or its business, operations, assets, equipment, property, leaseholds or
other facilities. Borrower has no indebtedness, obligation or liability
(absolute or contingent, matured or not matured), with respect to the
storage, treatment, cleanup or disposal of any solid wastes, hazardous
wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect
to any current regulation, law or statute regarding such storage,
treatment, cleanup or disposal).
(t) Administrative Super-Priority; Lien Priority. Indebtedness
evidenced by the Note and all other Obligations will constitute allowed
administrative expense claims in Borrower's bankruptcy case and shall
have priority over all other administrative expense claims of the kind
specified in 11 U.S.C. (s)(s) 503(b) and 507(b), subject and
subordinate only to the payment of fees pursuant to 28 U.S.C. (s) 1930
and accrued and unpaid counsel fees and disbursements, not to exceed
$15,000, incurred or to be incurred by Borrower from time to time
allowed by the Court as an administrative expense. Indebtedness
evidenced by the Note and all other Obligations will be secured by
valid and perfected first-priority senior security interests in and
liens against the Collateral, except as agreed in writing by Lender.
(u) The Financing Order (as defined in Section 4.1(q)) is in
full force and effect, and has not been reversed, stayed, modified or
amended.
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this
Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrower to Lender,
direct or contingent, however evidenced or denominated, and however and whenever
incurred, including but not limited to the Commitment Fee and any indebtedness
incurred pursuant to any present or future commitment of Lender to Borrower,
together with interest thereon, and any extensions, modifications,
consolidations and/or renewals thereof and any notes given in payment thereof
(the "Obligations").
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3.2 Financial Statements and Reports. Borrower shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of Borrower, a consolidated balance sheet of Borrower as
of the close of such fiscal year, a consolidated statement of earnings and
retained earnings of Borrower as of the close of such fiscal year and a
consolidated statement of cash flows for Borrower for such fiscal year, prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP"), audited by an independent certified public accountant acceptable to
Lender and certified by an officer of Borrower and accompanied by a certificate
of the President of Borrower, stating that to the best of the knowledge of such
officer, Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents during the
preceding fiscal year and that no Event of Default, as herein defined, has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action Borrower has taken or proposes to take in connection therewith), (ii)
within fifteen (15) days of the end of each calendar month, a consolidated
balance sheet of Borrower as of the close of such month and a consolidated
statement of earnings and retained earnings of Borrower as of the close of such
month, all in reasonable detail (including financial information for the
preceding six (6) months), and prepared substantially in accordance with GAAP
(except for the absence of footnotes and subject to year-end adjustments), and
(iii) with reasonable promptness, such other financial data as Lender may
reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrower shall
maintain its books, accounts and records in accordance with GAAP, and after
reasonable notice from Lender, shall permit Lender, its officers, employees and
any professionals designated by Lender in writing, at Borrower's expense, to
visit, inspect and/or audit any of its properties, books and financial records,
and to discuss its accounts, affairs and finances with Borrower or the principal
officers of Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such visit, inspection and/or
audit shall materially interfere with the conduct of Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the
other Loan Documents, Borrower shall maintain in amounts customary for entities
engaged in comparable business activities, (i) to the extent required by
applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), (ii) fire and "all risk" casualty insurance
on its properties against such hazards and in at least such amounts as are
customary in Borrower's business, (iii) "Key-man" life insurance on the lives of
Robert L. Massey, Robert S. Lee, and Mark E. Hills with each policy naming
Lender as beneficiary and shall be in an amount not less than $250,000 with an
insurance company reasonably acceptance to Lender. Borrower will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at a
cost, deemed reasonable to the Borrower's Board of Directors. At the request of
Lender, Borrower will deliver forthwith a certificate specifying the details of
such insurance in effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax
returns and appropriate schedules thereto that are required to be filed under
applicable law, prior to the date of
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delinquency, (ii) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon Borrower upon its income and profits or upon any
properties belonging to it, prior to the date on which penalties attach thereto,
and (iii) pay all taxes, assessments and governmental charges or levies that, if
unpaid, might become a lien or charge upon any of its properties; provided,
however, that Borrower in good faith may contest any such tax, assessment,
governmental charge or levy described in the foregoing clauses (ii) and (iii) so
long as appropriate reserves are maintained with respect thereto.
3.6 Corporate Existence. Borrower shall maintain its corporate
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction in
which such qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure
to do so would not materially adversely affect Borrower's operations or its
ability to fulfill its obligations under the Loan Documents, Borrower shall
maintain its business, operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances governing such business operations and the use and
ownership of such property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which Borrower is a party or by which Borrower or
any of its properties is bound. Without limiting the foregoing, Borrower shall
pay all of its indebtedness promptly in accordance with the terms thereof.
3.8 Notice of Default. Borrower shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings instituted by any persons
whomsoever against Borrower, or affecting any of the assets of Borrower, wherein
the amount at issue is in excess of Twenty-Five Thousand and No/100ths
Dollars ($25,000.00), and (ii) any dispute, not resolved within sixty (60)
days of the commencement thereof, between Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of Borrower.
3.10 Conduct of Business. Borrower will continue to engage in a
business of the same general type and manner as conducted by it on the date of
this Agreement.
3.11 ERISA Plan. If Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406,
September 2, 1974, 88 Stat. 829, 29 U.S.C.A. (s) 1001 et seq. (1975), as amended
from time to time ("ERISA"), then the following warranty and covenants shall be
applicable during such period as any such plan (the "Plan") shall be in effect:
(i) Borrower hereby warrants that no fact that might constitute grounds for the
involuntary termination of the Plan, or for the appointment by the appropriate
United States District Court of a trustee to administer the Plan, exists at the
time of execution of this Agreement, (ii) Borrower hereby covenants that
throughout the existence of the Plan,
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<PAGE>
Borrower's contributions under the Plan will meet the minimum funding standards
required by ERISA and Borrower will not institute a distress termination of the
Plan, and (iii) Borrower covenants that it will send to Lender a copy of any
notice of a reportable event (as defined in ERISA) required by ERISA to be filed
with the Labor Department or the Pension Benefit Guaranty Corporation, at the
time that such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. Borrower shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of Borrower, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital of
shareholders, nor make any payments in cash or property in respect of any stock
options, stock bonus or similar plan (except as required or permitted
hereunder), nor grant any preemptive rights with respect to the capital stock of
Borrower, without the prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
written consent, Borrower shall not guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to Borrower for deposit or collection in the ordinary course of
business. Without Lender's prior express written consent, Borrower shall not (i)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (ii) make any payment on any subordinated
debt.
3.14 Debt. Without the express prior written consent of Lender,
Borrower shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever, (excluding (i) the indebtedness evidenced by the Note,
(ii) the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business, (iii) indebtedness incurred in
the ordinary course of business (each of which, individually, does not exceed
$25,000) and (iv) the indebtedness listed on Schedule 2.1(l) hereto).
3.15 No Liens. Borrower shall not create, incur, assume or suffer to
exist any lien, security interest, security title, mortgage, deed of trust or
other encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except:
a. liens in favor of Lender;
b. liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;
c. liens in connection with the leasing of equipment in
favor of the Lessor of such equipment; and
d. liens described on Schedule 2.1(l) hereto.
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3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower shall not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (d) create any Subsidiaries nor convey any of its assets to any
Subsidiary.
3.17 Transactions With Affiliates. Borrower shall not enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a person not
an affiliate. For the purposes of this Section 3.17, "affiliate" shall mean a
person, corporation, partnership or other entity controlling, controlled by or
under common control with Borrower.
3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
Borrower's premises; immediately contain and remove the same, in compliance with
all applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the Loan, up
to an amount approved by the Bankruptcy Court on a preliminary basis, on the
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and
conditions required by this Agreement.
(b) Lender shall have received an opinion of the Borrower's
counsel, Christian, Barton, Epps, Brent & Chappell, dated the Closing
Date, in form and substance satisfactory to Lender's counsel.
(c) Borrower shall have delivered to Lender the Note
executed by Borrower.
(d) Intentionally omitted.
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(e) Borrower shall have delivered to Lender the Security
Agreement executed by Borrower and related UCC-1 Financing Statement(s)
(in form acceptable to Lender) executed by Borrower.
(f) Intentionally omitted.
(g) Borrower shall have delivered to Lender the Small
Business Administration Forms 480, 652 and 1031 (Part A) completed by
Borrower.
(h) Borrower shall have delivered to Lender a Small Business
Administration Economic Impact Assessment completed by Borrower, in a
form acceptable to Lender.
(i) Borrower shall have delivered to Lender a Landlord's
Consent and Subordination of Lien, executed by Borrower's landlord, in
a form acceptable to Lender.
(j) Lender shall have received copies of the articles of
incorporation and other publicly filed organizational documents of
Borrower, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.
(k) Lender shall have received certified (as of the date of
this Agreement) copies of all corporate action taken by Borrower,
including resolutions of its Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(l) Lender shall have received a certificate as to the legal
existence and good standing of Borrower, issued by the Secretary of
State or other appropriate public official in the jurisdiction in which
Borrower is incorporated.
(m) Lender shall have received certificates of the Secretaries
of State or other appropriate public officials as to Borrower's
qualification to do business and good standing in each jurisdiction in
which a failure to be so qualified would have a material adverse effect
on its financial positions or its ability to conduct its business in
the manner now conducted and as hereafter intended to be conducted.
(n) Intentionally omitted.
(o) Borrower shall have commenced all necessary actions to
obtain "key-man" life insurance on the lives of Robert L. Massey,
Robert S. Lee, and Mark E. Hills with each policy naming Lender as
beneficiary and shall be in an amount not less than $250,000 with an
insurance company reasonably acceptance to Lender.
(p) Intentionally omitted.
(q) The Bankruptcy Court shall have entered a Preliminary
Order Authorizing Debtor To Obtain Post-Petition Financing Pursuant To
11 U.S.C. (s) 364(c), (d), substantially in the form attached hereto as
Exhibit C (the "Financing Order"), Lender shall have received a
certified copy of such order, and such order shall be in full force and
effect and shall not have been reversed, stayed, modified or amended.
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4.2 Final Order. The obligation of Lender to fund the full amount
of the Loan is subject to the fulfillment, on or prior to such funding, of each
of the following conditions:
(a) Borrower shall have delivered to Lender an Assignment(s)
of Life Insurance Policy as Collateral (in a form acceptable to Lender)
executed by Borrower in duplicate, and a Life Insurance Assignment
Questionnaire executed by Borrower covering the lives of Robert L.
Massey, Robert S. Lee, and Mark E. Hills, in a form acceptable to
Lender.
(b) The Bankruptcy Court shall have entered a Final Order
Authorizing Debtor To Obtain Post-Petition Financing Pursuant To 11
U.S.C. (s) 364(c), (d), substantially in the form attached hereto as
Exhibit D, Lender shall have received a certified copy of such order,
and such order shall be in full force and effect and shall not have
been reversed, stayed, modified or amended.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following
shall constitute an Event of Default hereunder:
(a) Default by Borrower in the payment of the principal of or
interest on the indebtedness evidenced by the Note in accordance with
the terms of the Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrower as to any material
matter hereunder or under any of the other Loan Documents, or delivery
by Borrower of any schedule, statement, resolution, report,
certificate, notice or writing to Lender that is untrue in any material
respect on the date as of which the facts set forth therein are stated
or certified;
(c) Failure of Borrower to perform any of its
obligations, covenants or agreements under this Agreement, the Note or
any of the other Loan Documents;
(d) Borrower (i) shall generally not pay or shall be unable to
pay its post-petition debts as such debts become due; or (ii) shall
make an assignment for the benefit of creditors or petition or apply to
any tribunal for the appointment of a custodian, receiver or trustee
for it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or
a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
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(e) Borrower shall be liquidated, dissolved, partitioned
or terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the
other Loan Documents and, if subject to a cure right, such default or
event of default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower now or hereafter
owed to Lender;
(h) Borrower shall have defaulted and continue to be in
default in the timely payment or performance of any other post-petition
indebtedness or obligation;
(i) Either Robert L. Massey, Robert S. Lee or Mark E.
Hills shall no longer be significantly involved in the management
and/or daily operations of Borrower;
(j) Any of the following:
(1) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order,
appointing a trustee or an examiner;
(2) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order,
converting Borrower's Chapter 11
case to a Chapter 7 case;
(3) Entry of an order by the Bankruptcy
Court confirming a plan of
reorganization of Borrower, which
plan does not contain a provision
for payment of the Loan and payment
in full in cash of all other
Obligations on or before the
effective date of such plan upon
entry thereof;
(4) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order,
dismissing Borrower's Chapter 11
case, unless such order contains a
provision for payment in full in
cash of the Loan and payment in full
in cash of all other Obligations as
a condition to such dismissal;
(5) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order, (i) to
revoke, reverse, stay, modify,
supplement or amend the Financing
Order or (ii) to permit any
administrative expense or any claim
(now existing or hereafter arising,
of any kind or nature whatsoever) to
have administrative priority as to
Borrower equal or superior to the
priority of Lender in
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<PAGE>
respect of the Obligations, except
for allowed administrative expenses
having priority over the Obligations
as set forth in the Financing Order;
(6) Filing by any person other than
Borrower of an application for any
of the orders described in clauses
(1), (2), (3), (4), or (5) above and
such application is not contested by
Borrower in good faith and the
relief requested is granted in an
order that is not stayed pending
appeal;
(7) Entry of an order by the Bankruptcy
Court that is not stayed pending
appeal granting relief from the
automatic stay to any creditor of
Borrower; or
(8) Entry by Borrower into any consent
or settlement decree or agreement or
similar arrangement with a
governmental authority or entry of
any judgment, order, decree or
similar action against Borrower
based on or arising from the
violation of or pursuant to any
environmental law, or the
generation, storage, transportation,
treatment, disposal or release of
any hazardous materials.
(k) Failure of Borrowers to obtain confirmation by the
Bankruptcy Court on or before December 15, 1995, of a plan of
reorganization proposed by Borrower in a form satisfactory to Lender in
its sole discretion.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any
Event of Default the indebtedness evidenced by the Note as well as any and all
other Obligations, Lender may, at its option, declare the Note and all other
Obligations to be forthwith due and payable in full. Upon the occurrence of any
such Event of Default and the acceleration of the maturity of the indebtedness
evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an
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<PAGE>
acquiescence therein, and every right, power and remedy given by this Agreement
and the other Loan Documents to Lender may be exercised from time to time and as
often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including, without
limitation, reasonable attorney's fees incurred by Lender in connection
with the exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole discretion, to
cure the default that has occurred;
Third, to the payment of the Obligations of Borrower under the
Loan Documents, including but not limited to the payment of the
principal of and interest on the indebtedness evidenced by the Note, in
such order of priority as Lender shall determine in its sole
discretion; and
Fourth, the remainder, if any, to Borrower or to any other
person lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the payment by Borrower of all amounts owed to Lender, at which
time Lender shall cancel the Note and deliver it to Borrower; provided, however,
that if at any time Borrower has satisfied all Obligations to Lender, Borrower
may terminate this Agreement by providing written notice to Lender.
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
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7.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the making of the Loan, including but not
limited to filing fees, recording taxes, indebtedness taxes, and reasonable
attorneys' fees, promptly upon demand of Lender. Borrower further agrees to pay
all premiums for insurance required to be maintained by Borrower pursuant to the
terms of the Loan Documents and all of the costs and expenses, including but not
limited to reasonable attorneys' fees, incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents or prepayment of the
Loan. In addition, Borrower agrees to pay all costs and expenses, including but
not limited to reasonable attorneys' fees and expenses, incurred by Lender in
connection with monitoring Borrower's bankruptcy case and taking all such other
actions as Lender in its sole discretion determines is appropriate in connection
with Borrower's bankruptcy case.
7.4 Assignment. The Note, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in all or any portion of its
interest in the indebtedness evidenced by the Note, and in such event Borrower
shall continue to make payments due under the Loan Documents to Lender and
Lender shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts. Borrower shall not assign any of
its rights nor delegate any of its duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under all
of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the
17
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indebtedness evidenced by the Note shall exceed the maximum amounts collectible
under applicable laws in effect from time to time, then ipso facto, the
obligation to pay such interest and/or loan charges shall be reduced to the
maximum amounts collectible under applicable laws in effect from time to time,
and any amounts collected by Lender that exceed such maximum amounts shall be
applied to the reduction of the principal balance of the indebtedness evidenced
by the Note and/or refunded to Borrower so that at no time shall the interest or
loan charges paid or payable in respect of the indebtedness evidenced by the
Note exceed the maximum amounts permitted from time to time by applicable law.
7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement or any of the Loan Documents shall be
in writing, signed by the party giving such notice, election or demand and shall
be delivered personally, telecopied, or sent by certified mail or overnight via
nationally recognized courier service (such as Federal Express), to the other
party at the address set forth below, or at such other address as may be
supplied in writing and of which receipt has been acknowledged in writing. The
date of personal delivery, telecopy or telex or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purposes of this Agreement:
The address of Lender is: Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
Attention: George M. Miller, II, President
Telecopy: 615/726-1208
with a copy to: LeClair Ryan, A Professional Corporation
707 East Main Street
11th Floor
Richmond, VA 23219
Attention: William A. Broscious, Esq.
Telecopy: 804/783-2294
The address of Borrower is: Consumat Systems, Inc.
8407 Erle Road
Mechanicsville, VA 23111
or
P.O. Box 9379
Richmond, VA 23227
Attention: Robert L. Massey, President and
Chief Executive Officer
Telecopy: 804/730-9056
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with a copy to: Christian, Barton, Epps, Brent & Chappell
1200 Mutual Building
909 East Main Street
Richmond, VA 23219
Attention: Augustus C. Epps, Jr., Esquire
Telecopy: 804/697-4112
7.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrower were not based upon any fact or material provided by Lender, nor was
the Borrower induced or influenced to enter into this Agreement or the other
Loan Documents by any representation, statement, analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State except to
the extent certain rights and privileges may be granted Lender under applicable
federal laws in which event federal law shall control. No amendment or
modification hereof shall be effective except in a writing executed by each of
the parties hereto.
7.12 Survival of Representations and Warranties. All covenants,
representations, and warranties contained herein or in any of the Loan
Documents, or made by or furnished on behalf of Borrower in connection herewith
or with any of the Loan Documents, shall survive the execution and delivery of
this Agreement and all other Loan Documents and shall continue in full force and
effect so long as the Obligations are unpaid.
7.13 Jurisdiction and Venue. Borrower hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action obligations arising under this Agreement or
any other Loan Documents or with respect to the transactions contemplated
hereby, and expressly waives any and all objections it may have as to venue in
any of such courts; provided that the provisions of this section shall not be
deemed to be consent of Borrower to such jurisdiction and venue while Borrower's
Chapter 11 case is pending in the Bankruptcy Court.
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
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7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
7.17 Bankruptcy Qualification. All covenants, representations, and
warranties contained herein or in any of the Loan Documents, or made by or
furnished on behalf of Borrower in connection herewith or with any of the Loan
Documents, are subject to the qualification that Borrower is a
debtor-in-possession in a Chapter 11 case over which the Bankruptcy Court has
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ PETER SOCHA
Peter Socha, Vice President and
Chief Credit Officer
BORROWER:
CONSUMAT SYSTEMS, INC., a Virginia
corporation
By: /s/ ROBERT L. MASSEY
Robert L. Massey, President and
Chief Executive Officer
20
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INDEX OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Preliminary Order Authorizing Debtor To Obtain Post-Petition
Financing
Exhibit D - Form of Final Order Authorizing Debtor To Obtain Post-Petition
Financing Pursuant To 11 U.S.C. (s) 364(c), (d)
Schedule 2.1(e) - Options, Warrants, Etc.
Schedule 2.1(f) - Trademarks, Patents, Etc.
Schedule 2.1(h) - Litigation
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(j) - Defaults
Schedule 2.1(l) - Debt and Liens
Schedule 2.1(m) - Taxes
Schedule 2.1(o) - Shareholder Loans
Schedule 2.1(r) - Significant Contracts
AMENDMENT TO LOAN AGREEMENT
This Amendment To Loan Agreement (the "Amendment") is made as of
October 26, 1995, by and between CONSUMAT SYSTEMS, INC., a Virginia corporation
(the "Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation (the
"Lender").
RECITALS.
A. On October 11, 1995, the Lender and the Borrower executed a
Loan Agreement (the "Loan Agreement") pursuant to which the Lender made a
preliminary loan in the amount of $200,000 to the Borrower. The Loan Agreement
and the loan were approved by the Bankruptcy Court pursuant to a Preliminary
Order Authorizing Debtor To Obtain Post-Petition Financing entered on October
11, 1995 (the "Preliminary Order").
B. At a final hearing on October 26, 1995, the Bankruptcy
Court approved the Loan Agreement and authorized the Borrower to borrow an
additional $300,000 from the Lender pursuant to the terms of the Loan Agreement,
as amended hereby, and a Final Order Authorizing Debtor To Obtain Post-Petition
Financing entered on October 26, 1995.
AGREEMENT.
In consideration of the foregoing, the agreements hereinafter set
forth, and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. Definitions. Except as indicated herein, all
definitions used herein shall have the same meaning as provided in the Loan
Agreement. As used herein, "Note" shall mean the Amended Note as defined
hereinafter.
2. Amendment to Section 2.1(t). Section 2.1(t) of the
Loan Agreement shall be deleted in its entirety and the following inserted in
the place thereof:
(t) Administrative Super-Priority; Lien Priority. Indebtedness
evidenced by the Note and all other Obligations will constitute allowed
administrative claims in the Borrower's bankruptcy case and shall have priority
over all other administrative expense claims of the kind specified in 11 U.S.C.
(S)(S) 503(b) and 507(b), subject and subordinate only to the payment of fees
pursuant to 28 U.S.C. (S) 1930, accrued and unpaid counsel fees and
disbursements, not to exceed $15,000, incurred or to be incurred by Borrower
from time to time allowed by the Court as an administrative expense, and
post-petition employment and unemployment federal tax liability. Indebtedness
evidenced by the Note and all other Obligations will be secured by valid and
perfected first-priority senior security interests in and liens against the
Collateral, except as such security interests and liens are junior to the
security interests and liens specified in the Final Order Authorizing Debtor To
Obtain Post-Petition Financing enterd by the Court on October 26, 1995.
3. Amended And Restated Secured Promissory Note. The
Borrower has executed and delivered to the Lender an Amended And Restated
Secured Promissory Note in the original principal amount of $500,000 and dated
October 26, 1995 (the "Amended Note").
4. Reaffirmation. The Borrower hereby confirms and agrees that
the $200,000 loan made pursuant to the Loan Agreement and evidenced by the
Secured Promissory Note is the loan mentioned in, secured by and entitled to the
benefits of, the Loan Agreement. The property subject to the Loan Agreement and
the Loan Documents, as defined in the Loan Agreement, shall remain subject to
the lien, charge and encumbrance of the Loan Agreement and such Loan Documents,
and nothing contained in this Amendment or done pursuant hereto shall affect any
of the provisions of the Loan Agreement or such Loan Documents, or release or
diminish in any manner whatsoever any person who may now or hereafter be liable
under or on account of the loans or the Loan Agreement or such Loan Documents.
5. Representations and Warranties. The Borrower hereby
acknowledges that all representations and warranties made by the Borrower in the
Loan Agreement, the Loan Documents and in any document, instrument, report,
opinion, schedule or certificate heretofore or herewith submitted to the Lender
are true and correct as of the date hereof, with the same force and effect as if
all such representations and warranties were fully set forth herein.
6. No Novation. This Amendment is a revision only and not a
novation, and, except as herein provided, all of the terms and conditions of the
Loan Agreement and the Loan Documents are hereby reaffirmed and shall remain in
full force and effect until payment of all outstanding indebtedness from the
Borrower to the Lender in full.
7. Governing Law. This Amendment shall be governed by,
and construed and interpreted in accordance with, the laws of the State of
Tennessee.
8. Counterparts. This Amendment may be executed in two
or more counterparts and each counterpart shall be deemed to be an original
hereof.
9. Construction. In the case of conflict, the terms
and intent of this Amendment shall control the terms of the Loan Agreement.
10. Further Assurances. The Borrower shall execute,
deliver and file all such further instruments, documents, financing statements,
and perform such other acts, as the Lender may reasonably request from time to
time.
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
as of the date and year set forth above.
BORROWER:
CONSUMAT SYSTEMS, INC.,
a Virginia corporation
ATTEST:
/s/ PATRICIA B. BRADLEY_ By: /s/ ROBERT L. MASSEY
Patricia B. Bradley, Corporate Robert L. Massey, President and Chief
Secretary Executive Officer
LENDER:
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: /s/ PETER SOCHA
Peter Socha, Vice President and Chief
Credit Officer
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY,
WITHOUT A VIEW TO RESALE OR DISTRIBUTION AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, MADE SUBJECT TO A SECURITY INTEREST, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS.
AMENDED AND RESTATED SECURED PROMISSORY NOTE
$500,000 October 26, 1995
FOR VALUE RECEIVED, the undersigned, CONSUMAT SYSTEMS, INC., a Virginia
corporation ("Maker"), promises to pay to the order of SIRROM CAPITAL
CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at First American Trust Company, Custody Department, 800 First
American Center, Nashville, Tennessee 37237, Attn: Jeff Eubanks, or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($500,000),
together with interest on the outstanding principal balance hereof from the date
hereof at the rate of fourteen percent (14%) per annum (computed on the basis of
a 360-day year); provided, however, that Holder may charge and receive interest
upon any renewal or extension hereof at the greater of (i) the rate set out
above, or (ii) any rate agreed to by the undersigned that is not in excess of
the maximum rate of interest allowed to be charged under applicable law (the
"Maximum Rate") at the time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of December, 1995, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until November, 2000
(the "Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, or in the event that any default or event of default shall
occur under that certain Loan Agreement of even date herewith, between Maker and
Payee (as may be amended from time to time, the "Loan Agreement"), default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Maker be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
(subject to any applicable notice and cure period provisions that may be set
forth therein); then, and in such event, the entire outstanding principal
balance of the indebtedness evidenced hereby, together with any other sums
advanced hereunder, under the Loan Agreement and/or under any other instrument
or document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, or in the Loan Agreement at the option of Holder and without notice to
Maker, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of (i) the rate that is two
percentage points (2.0%) in excess of the above-specified interest rate, or (ii)
the Maximum Rate in effect from time to time, regardless of whether or not there
has been an acceleration of the payment of principal as set forth herein. All
such interest shall be paid at the time of and as a condition precedent to the
curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement. This Note has
been executed and delivered in substitution of (and not in satisfaction of) the
obligations of the Maker pursuant to the Secured Promissory Note dated October
11, 1995.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
IN WITNESS WHEREOF, the Maker has caused this instrument to be executed
by its duly authorized officer, and its seal to be affixed and adopted, as of
the day written above.
MAKER:
CONSUMAT SYSTEMS, INC.,
a Virginia corporation
ATTEST:
By: /s/ PATRICIA B. BRADLEY By: /s/ ROBERT L. MASSEY
Patricia B. Bradley, Corporate Robert L. Massey, President
Secretary and Chief Executive Officer
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 16th day of January,
1996, is made and entered into on the terms and conditions hereinafter set
forth, by and between CONSUMAT SYSTEMS, INC., a Virginia corporation
("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation
("Lender").
RECITALS:
WHEREAS, Borrower filed for Chapter 11 bankruptcy relief on October 6,
1995, in the United States Bankruptcy Court for the Eastern District of
Virginia, Richmond Division (the "Bankruptcy Court"), and is operating its
business and managing its affairs as a debtor-in-possession pursuant to 11
U.S.C. (s)(s) 1107(a) and 1108;
WHEREAS, Borrower and Lender are parties to a Loan Agreement dated
October 11, 1995, as amended by an Amendment To Loan Agreement dated October 26,
1995 (the "First Loan Agreement"), pursuant to which Lender loaned $500,000 to
Borrower after entry by the Bankruptcy Court of a Final Order Authorizing Debtor
To Obtain Post-Petition Financing Pursuant To 11 U.S.C. (s) 364(c), (d), dated
October 26, 1995;
WHEREAS, Borrower has requested that Lender make available to Borrower
an additional term loan facility in an aggregate principal not to exceed FIVE
HUNDRED THOUSAND and NO/100ths DOLLARS ($500,000) (the "Loan") on the terms and
conditions hereinafter set forth, and for the purpose(s) hereinafter set forth;
WHEREAS, in order to induce Lender to make the Loan to Borrower,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrower, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the
terms and conditions hereof, the Lender shall make the Loan to Borrower by one
or more wire transfers in immediately available funds. The Loan shall be
evidenced by a Secured
<PAGE>
Promissory Note in an original principal amount not to exceed FIVE HUNDRED
THOUSAND and NO/100ths DOLLARS ($500,000), substantially in the form of Exhibit
A attached hereto and incorporated herein by this reference (the "Note"), dated
as of the date hereof, executed by Borrower, in favor of Lender. The Loan shall
be payable in accordance with the terms of the Note.
1.2 Fees. Borrower shall pay a processing fee of $12,500 to Lender at
closing. In addition, Borrower shall pay a commitment fee of $50,000 (the
"Commitment Fee") to Lender on or before February 15, 1996, which Commitment Fee
shall be waived by Lender provided that Borrower confirms a plan of
reorganization on or before February 15, 1996, and that Lender provides the
financing for such plan.
1.3 Purpose(s) of Loan and Use of Proceeds. The purposes of the Loan
shall be to provide working capital to Borrower, and to pay all costs and
expenses incurred by the parties hereto in connection with the making and
documenting of the Loan, including attorneys' fees and expenses. The proceeds of
the Loan shall not be used for any other purpose.
1.4 Security. As security for the full and timely payment of the
indebtedness of Borrower evidenced by the Note and of all other Obligations (as
defined in Section 3.1 hereof), Borrower shall be and hereby is granted security
interests in and liens upon all real and personal property of Borrower (the
"Collateral") as described in a Security Agreement, substantially in the form of
Exhibit B attached hereto (the "Security Agreement"). This Agreement, the Note,
the Security Agreement, and any other instruments and documents executed by
Borrower, now or hereafter evidencing, securing or in any way related to the
indebtedness evidenced by the Note are herein individually referred to as a
"Loan Document" and collectively referred to as the "Loan Documents."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower hereby represents and
warrants to Lender as follows:
(a) Corporate Status. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia; and has the corporate power to own and
operate its properties, to carry on its business as now conducted and
to enter into and to perform its obligations under this Agreement and
the other Loan Documents to which it is a party. Borrower is duly
qualified to do business and in good standing in the Commonwealth of
Virginia and each other state in which a failure to be so qualified and
in good standing would have a material adverse effect on Borrower's
financial positions or its ability to conduct its business in the
manner now conducted.
(b) Other Business Organizations. Borrower neither owns
nor has an interest in, directly or indirectly, any other corporation,
partnership, joint venture or other business organization
("Subsidiaries").
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<PAGE>
(c) Authorization. Borrower has full legal right, power and
authority to conduct its business and affairs. Borrower has full legal
right, power and authority to enter into and perform its obligations
under the Loan Documents, without the consent or approval of any other
person, firm, governmental agency or other legal entity. The execution
and delivery of this Agreement, the borrowing hereunder, the execution
and delivery of each Loan Document to which Borrower is a party, and
the performance by Borrower of its obligations thereunder is within the
corporate powers of Borrower and has been duly authorized by all
necessary corporate action properly taken, has received all necessary
governmental approvals, if any were required, and do not and will not
contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental
agency, the articles of incorporation or bylaws of Borrower, or any
agreement binding upon Borrower. The officer(s) executing this
Agreement and all other Loan Documents to which Borrower is a party is
(are) duly authorized to act on behalf of Borrower.
(d) Validity and Binding Effect. This Agreement and all other
Loan Documents are the legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) Capitalization. The authorized capital stock of Borrower
consists solely of 3,333,333 shares of common stock of which 1,564,699
shares (the "Shares") are issued and outstanding. All of the Shares are
duly authorized, validly issued and outstanding and fully paid and
nonassessable and free of preemptive rights. Except for the Shares,
there are no shares of capital stock or other securities of Borrower
issued or outstanding. Except as set forth on Schedule 2.1(e), there
are no outstanding options, warrants or rights to purchase or acquire
from Borrower any securities of Borrower, and there are no contracts,
commitments, agreements, understandings, arrangements or restrictions
as to which Borrower is a party or by which it is bound relating to any
shares of capital stock or other securities of Borrower (including the
Shares), whether or not outstanding.
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an accurate
and complete list of all patents, trademarks, tradenames, trademark
registrations, service names, service marks, copyrights, licenses,
formulas and applications therefor owned by Borrower or used or
required by Borrower in the operation of its business, title to each of
which is, except as set forth in Schedule 2.1(f) hereto, held by
Borrower free and clear of all adverse claims, liens, security
agreements, restrictions or other encumbrances. There is no
infringement action, lawsuit, claim or complaint which asserts that
Borrower's operations violate or infringe the rights or the trade
names, trademarks, trademark registration, service name, service mark
or copyright of others with respect to any apparatus or method of
Borrower or any adversely held trademark, trade name, trademark
registration, service name, service mark or copyright, nor is Borrower
in any way making use of any confidential information or trade secrets
of any person except with the consent of such person.
3
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(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the Obligations of Borrower under
and by virtue of the Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, security deed or
agreement, deed of trust, lease, bank loan or credit agreement,
corporate charter or bylaws, agreement or certificate of limited
partnership, partnership agreement, license, franchise or any other
instrument or agreement to which Borrower is a party or by which
Borrower, or its respective properties may be bound or affected or to
which Borrower has not obtained an effective waiver.
(h) Litigation. Except as set forth in Schedule 2.1(h) hereto,
there are no actions, suits or proceedings pending, or, to the
knowledge of Borrower, threatened, against or affecting Borrower or
involving the validity or enforceability of any of the Loan Documents
at law or in equity, or before any governmental or administrative
agency; and to Borrower's knowledge, Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court
or any governmental authority.
(i) Financial Statements. The unaudited financial statements
of Borrower, dated December 31, 1995, attached hereto as Schedule
2.1(i)(A), are true and correct in all material respects have been
prepared on the basis of accounting principles consistently applied,
and fairly present the financial condition of Borrower as of the
date(s) thereof. No material adverse change has occurred in the
financial condition of Borrower since the date(s) thereof, and no
additional borrowings have been made by Borrower since the date(s)
thereof other than as set forth on Schedule 2.1(i)(B).
(j) Other Agreements; No Defaults. Except as set forth on
Schedule 2.1(j) hereto, Borrower is not a party to indentures, loan or
credit agreements, leases or other agreements or instruments, or
subject to any articles of incorporation or corporate restrictions that
could have a material adverse effect on the business, properties,
assets, operations or conditions, financial or otherwise, of Borrower,
or the ability of Borrower to carry out its obligations under the Loan
Documents to which it is a party. Borrower is not in default in any
respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or
instrument material to its business to which it is a party, including
but not limited to this Agreement and the other Loan Documents, and no
other default or event has occurred and is continuing that with notice
or the passage of time or both would constitute a default or event of
default under any of same.
(k) Compliance With Law. Borrower has obtained all material
licenses, permits and approvals and authorizations necessary or
required in order to conduct its business and affairs as heretofore
conducted and as hereafter intended to be conducted. To Borrower's
knowledge, Borrower is in compliance with all laws, regulations,
decrees and orders applicable to it (including but not limited to laws,
regulations, decrees and orders relating to environmental, occupational
and health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition), to the extent that noncompliance, in the
aggregate, cannot reasonably be expected to have a material adverse
effect on its business, operations, property or financial
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condition and will not materially adversely affect Borrower's ability
to perform its obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list of
all credit agreements, indentures, purchase agreements, promissory
notes and other evidences of indebtedness, guaranties, capital leases
and other instruments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which Borrower, or any of the
properties thereof is in any manner directly or contingently obligated;
and the maximum principal or face amounts of the credit in question
that are outstanding and that can be outstanding are correctly stated,
and all liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
(m) Taxes. Borrower has filed or caused to be filed all tax
returns that to Borrower's knowledge are required to be filed (except
for returns that have been appropriately extended), and, except as set
forth on Schedule 2.1(m) hereto, has paid, or will pay when due, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith
by appropriate proceedings, for which appropriate amounts have been
reserved). No tax liens have been filed against Borrower, or any of the
property thereof.
(n) Small Business Concern. Borrower, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal
Regulations, (s) 121.401), is a "small business concern" within the
meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder. The information set forth in
the Small Business Administration Forms 480, 652 and Part A of Form
1031 regarding Borrower upon delivery, pursuant to Section 4.1 hereof,
will be accurate and complete. Borrower does not presently engage in,
and it will not hereafter engage in, any activities which, and Borrower
will not, directly or indirectly, use the proceeds from the Loan for
any purpose for which a Small Business Investment Company is prohibited
from providing funds by the Small Business Investment Act and the
regulations thereunder, including Title 13, Code of Federal Regulations
(s)107.901.
(o) Certain Transactions. Except as set forth on
Schedule 2.1(o) hereto, Borrower is not indebted, directly or
indirectly, to any of its shareholders, officers, or directors or to
their respective spouses or children, in any amount whatsoever; none of
said shareholders, officers or directors or any members of their
immediate families, are indebted to Borrower or have any direct or
indirect ownership interest in any firm or corporation with which
Borrower has a business relationship, or any firm or corporation which
competes with Borrower, except that shareholders, officers and/or
directors of Borrower may own no more than 4.9% of outstanding stock of
publicly traded companies which may compete with Borrower. No officer
or director
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of Borrower or any member of their immediate families, is, directly or
indirectly, interested in any material contract with Borrower. Borrower
is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
(p) Statements Not False or Misleading. No representation or
warranty given as of the date hereof by Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by Borrower to Lender pursuant hereto, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading.
(q) Margin Regulations. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock. No proceeds received pursuant to this Agreement will be
used to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended.
(r) Significant Contracts. Schedule 2.1(r) is a complete and
correct list of all contracts, agreements and other documents pursuant
to which Borrower receives revenues in excess of $25,000 per fiscal
year. Each such contract, agreement and other document is in full force
and effect as of the date hereof and Borrower knows of no reason why
such contracts, agreements and other documents would not remain in full
force and effect pursuant to the terms thereof.
(s) Environment. Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder, except to the
extent that failure to do so would not have a material adverse effect
on its business. Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and
approvals relating to (1) air emissions; (2) discharges to surface
water or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation or disposal
of toxic or hazardous substances or wastes (which shall include any and
all such materials listed in any federal, state or local law, code or
ordinance and all rules and regulations promulgated thereunder as
hazardous or potentially hazardous); or (6) other environmental, health
or safety matters, except to the extent that failure to do so would not
have a material adverse effect on its business. Borrower has not
received notice of, or knows of, or suspects facts which might
constitute any violations of any federal, state or local environmental,
health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to its businesses,
operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with a valid governmental permit,
license, certificate or approval, there has been no emission, spill,
release or discharge into or upon (1) the air; (2) soils, or any
improvements located thereon; (3) surface water or
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groundwater; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing the premises, of any toxic or
hazardous substances or wastes at or from the premises; and accordingly
the premises of Borrower are free of all such toxic or hazardous
substances or wastes. There has been no complaint, order, directive,
claim, citation or notice by any governmental authority or any person
or entity with respect to (1) air emissions; (2) spills, releases or
discharges to soils or improvements located thereon, surface water,
groundwater or the sewer, septic system or waste treatment, storage or
disposal systems servicing the premises; (3) noise emissions; (4) solid
or liquid waste disposal; (5) the use, generation, storage,
transportation or disposal of toxic or hazardous substances or waste;
or (6) other environmental, health or safety matters affecting Borrower
or its business, operations, assets, equipment, property, leaseholds or
other facilities. Borrower has no indebtedness, obligation or liability
(absolute or contingent, matured or not matured), with respect to the
storage, treatment, cleanup or disposal of any solid wastes, hazardous
wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect
to any current regulation, law or statute regarding such storage,
treatment, cleanup or disposal).
(t) Administrative Super-Priority; Lien Priority. Indebtedness
evidenced by the Note and all other Obligations will constitute allowed
administrative expense claims in Borrower's bankruptcy case and shall
have priority over all other administrative expense claims of the kind
specified in 11 U.S.C. (s)(s) 503(b) and 507(b), subject and
subordinate only to the payment of fees pursuant to 28 U.S.C. (s) 1930
and accrued and unpaid counsel fees and disbursements, not to exceed
$15,000, incurred or to be incurred by Borrower from time to time
allowed by the Court as an administrative expense, and post-petition
employment and unemployment federal tax liability. Indebtedness
evidenced by the Note and all other Obligations will be secured by
valid and perfected first-priority senior security interests in and
liens against the Collateral, except as such security interests and
liens are junior to the security interests and liens specified in the
Financing Order.
(u) The Financing Order (as defined in Section 4.1(q)) is in
full force and effect, and has not been reversed, stayed, modified or
amended.
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this
Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrower to Lender,
direct or contingent, however evidenced or denominated, and however and whenever
incurred, including but not limited to the Commitment Fee and any indebtedness
incurred pursuant to any present or future commitment of Lender to Borrower,
together with interest thereon, and any extensions, modifications,
consolidations and/or renewals thereof and any notes given in payment
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thereof, including but not limited to the Amended And Restated Secured
Promissory Note dated October 26, 1995, in the original principal amount of
$500,000 (the "First Note") (the "Obligations").
3.2 Financial Statements and Reports. Borrower shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of Borrower, a consolidated balance sheet of Borrower as
of the close of such fiscal year, a consolidated statement of earnings and
retained earnings of Borrower as of the close of such fiscal year and a
consolidated statement of cash flows for Borrower for such fiscal year, prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP"), audited by an independent certified public accountant acceptable to
Lender and certified by an officer of Borrower and accompanied by a certificate
of the President of Borrower, stating that to the best of the knowledge of such
officer, Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents during the
preceding fiscal year and that no Event of Default, as herein defined, has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action Borrower has taken or proposes to take in connection therewith), (ii)
within fifteen (15) days of the end of each calendar month, a consolidated
balance sheet of Borrower as of the close of such month and a consolidated
statement of earnings and retained earnings of Borrower as of the close of such
month, all in reasonable detail (including financial information for the
preceding six (6) months), and prepared substantially in accordance with GAAP
(except for the absence of footnotes and subject to year-end adjustments), and
(iii) with reasonable promptness, such other financial data as Lender may
reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrower shall
maintain its books, accounts and records in accordance with GAAP, and after
reasonable notice from Lender, shall permit Lender, its officers, employees and
any professionals designated by Lender in writing, at Borrower's expense, to
visit, inspect and/or audit any of its properties, books and financial records,
and to discuss its accounts, affairs and finances with Borrower or the principal
officers of Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such visit, inspection and/or
audit shall materially interfere with the conduct of Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the
other Loan Documents, Borrower shall maintain in amounts customary for entities
engaged in comparable business activities, (i) to the extent required by
applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), (ii) fire and "all risk" casualty insurance
on its properties against such hazards and in at least such amounts as are
customary in Borrower's business, (iii) "Key-man" life insurance on the lives of
Robert L. Massey, Robert S. Lee, and Mark E. Hills with each policy naming
Lender as beneficiary and shall be in an amount not less than $250,000 with an
insurance company reasonably acceptance to Lender. Borrower will make reasonable
efforts to obtain and maintain public liability insurance in an amount, and at a
cost, deemed reasonable to the Borrower's Board
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of Directors. At the request of Lender, Borrower will deliver forthwith a
certificate specifying the details of such insurance in effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that Borrower in good faith may
contest any such tax, assessment, governmental charge or levy described in the
foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained
with respect thereto.
3.6 Corporate Existence. Borrower shall maintain its corporate
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction in
which such qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure
to do so would not materially adversely affect Borrower's operations or its
ability to fulfill its obligations under the Loan Documents, Borrower shall
maintain its business, operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances governing such business operations and the use and
ownership of such property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which Borrower is a party or by which Borrower or
any of its properties is bound. Without limiting the foregoing, Borrower shall
pay all of its indebtedness promptly in accordance with the terms thereof.
3.8 Notice of Default. Borrower shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings instituted by any persons
whomsoever against Borrower, or affecting any of the assets of Borrower, wherein
the amount at issue is in excess of Twenty-Five Thousand and No/100ths
Dollars ($25,000.00), and (ii) any dispute, not resolved within sixty (60)
days of the commencement thereof, between Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of Borrower.
3.10 Conduct of Business. Borrower will continue to engage in a
business of the same general type and manner as conducted by it on the date of
this Agreement.
3.11 ERISA Plan. If Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406,
September 2, 1974, 88 Stat. 829, 29 U.S.C.A. (s) 1001 et seq. (1975), as amended
from time to time ("ERISA"), then the following warranty and
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<PAGE>
covenants shall be applicable during such period as any such plan (the "Plan")
shall be in effect: (i) Borrower hereby warrants that no fact that might
constitute grounds for the involuntary termination of the Plan, or for the
appointment by the appropriate United States District Court of a trustee to
administer the Plan, exists at the time of execution of this Agreement, (ii)
Borrower hereby covenants that throughout the existence of the Plan, Borrower's
contributions under the Plan will meet the minimum funding standards required by
ERISA and Borrower will not institute a distress termination of the Plan, and
(iii) Borrower covenants that it will send to Lender a copy of any notice of a
reportable event (as defined in ERISA) required by ERISA to be filed with the
Labor Department or the Pension Benefit Guaranty Corporation, at the time that
such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. Borrower shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of Borrower, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital of
shareholders, nor make any payments in cash or property in respect of any stock
options, stock bonus or similar plan (except as required or permitted
hereunder), nor grant any preemptive rights with respect to the capital stock of
Borrower, without the prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
written consent, Borrower shall not guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to Borrower for deposit or collection in the ordinary course of
business. Without Lender's prior express written consent, Borrower shall not (i)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (ii) make any payment on any subordinated
debt.
3.14 Debt. Without the express prior written consent of Lender,
Borrower shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever, (excluding (i) the indebtedness evidenced by the Note,
(ii) the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business, (iii) indebtedness incurred in
the ordinary course of business (each of which, individually, does not exceed
$25,000) and (iv) the indebtedness listed on Schedule 2.1(l) hereto).
3.15 No Liens. Borrower shall not create, incur, assume or suffer to
exist any lien, security interest, security title, mortgage, deed of trust or
other encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except:
a. liens in favor of Lender;
b. liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;
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c. liens in connection with the leasing of equipment in
favor of the Lessor of such equipment; and
d. liens described on Schedule 2.1(l) hereto.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower shall not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (d) create any Subsidiaries nor convey any of its assets to any
Subsidiary.
3.17 Transactions With Affiliates. Borrower shall not enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a person not
an affiliate. For the purposes of this Section 3.17, "affiliate" shall mean a
person, corporation, partnership or other entity controlling, controlled by or
under common control with Borrower.
3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
Borrower's premises; immediately contain and remove the same, in compliance with
all applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the Loan, up
to an amount approved by the Bankruptcy Court on a preliminary basis, on the
date hereof (the "Closing Date") is subject to the fulfillment, on or prior to
the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and
conditions required by this Agreement.
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(b) Lender shall have received an opinion of the Borrower's
counsel, Christian, Barton, Epps, Brent & Chappell, dated the Closing
Date, in form and substance satisfactory to Lender's counsel.
(c) Borrower shall have delivered to Lender the Note
executed by Borrower.
(d) Intentionally omitted.
(e) Borrower shall have delivered to Lender the Security
Agreement executed by Borrower and related UCC-1 Financing Statement(s)
(in form acceptable to Lender) executed by Borrower.
(f) Intentionally omitted.
(g) Borrower shall have delivered to Lender the Small
Business Administration Forms 480, 652 and 1031 (Part A) completed by
Borrower.
(h) Borrower shall have delivered to Lender a Small Business
Administration Economic Impact Assessment completed by Borrower, in a
form acceptable to Lender.
(i) Borrower shall have delivered to Lender a Landlord's
Consent and Subordination of Lien, executed by Borrower's landlord, in
a form acceptable to Lender.
(j) Lender shall have received copies of the articles of
incorporation and other publicly filed organizational documents of
Borrower, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.
(k) Lender shall have received certified (as of the date of
this Agreement) copies of all corporate action taken by Borrower,
including resolutions of its Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(l) Lender shall have received a certificate as to the legal
existence and good standing of Borrower, issued by the Secretary of
State or other appropriate public official in the jurisdiction in which
Borrower is incorporated.
(m) Lender shall have received certificates of the Secretaries
of State or other appropriate public officials as to Borrower's
qualification to do business and good standing in each jurisdiction in
which a failure to be so qualified would have a material adverse effect
on its financial positions or its ability to conduct its business in
the manner now conducted and as hereafter intended to be conducted.
(n) Borrower shall have delivered to Lender a Collateral
Assignment Of Intellectual Property executed by Borrower in a form
acceptable to Lender.
(o) Borrower shall have delivered to Lender an Assignment(s)
of Life Insurance Policy as Collateral (in a form acceptable to Lender)
executed by Borrower in duplicate, and a Life Insurance Assignment
Questionnaire executed by Borrower covering
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the lives of Robert L. Massey, Robert S. Lee, and Mark E. Hills, in a
form acceptable to Lender.
(p) Intentionally omitted.
(q) The Bankruptcy Court shall have entered a Final Order
Authorizing Debtor To Obtain Post-Petition Financing Pursuant To 11
U.S.C. (s) 364(c), (d), substantially in the form attached hereto as
Exhibit C (the "Financing Order"), Lender shall have received a
certified copy of such order, and such order shall be in full force and
effect and shall not have been reversed, stayed, modified or amended.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following
shall constitute an Event of Default hereunder:
(a) Default by Borrower in the payment of the principal of or
interest on the indebtedness evidenced by the Note in accordance with
the terms of the Note, which default is not cured within five (5) days,
or an Event of Default under the First Loan Agreement, the First Note,
and/or any other agreements, instruments or other documents executed in
connection therewith;
(b) Any misrepresentation by Borrower as to any material
matter hereunder or under any of the other Loan Documents, or delivery
by Borrower of any schedule, statement, resolution, report,
certificate, notice or writing to Lender that is untrue in any material
respect on the date as of which the facts set forth therein are stated
or certified;
(c) Failure of Borrower to perform any of its
obligations, covenants or agreements under this Agreement, the Note or
any of the other Loan Documents;
(d) Borrower (i) shall generally not pay or shall be unable to
pay its post-petition debts as such debts become due; or (ii) shall
make an assignment for the benefit of creditors or petition or apply to
any tribunal for the appointment of a custodian, receiver or trustee
for it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or
a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
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(e) Borrower shall be liquidated, dissolved, partitioned
or terminated, or the charter thereof shall expire or be revoked;
(f) A default or event of default shall occur under any of the
other Loan Documents and, if subject to a cure right, such default or
event of default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower now or hereafter
owed to Lender;
(h) Borrower shall have defaulted and continue to be in
default in the timely payment or performance of any other post-petition
indebtedness or obligation;
(i) Either Robert L. Massey, Robert S. Lee or Mark E.
Hills shall no longer be significantly involved in the management
and/or daily operations of Borrower;
(j) Any of the following:
(1) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order,
appointing a trustee or an examiner;
(2) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order,
converting Borrower's Chapter 11
case to a Chapter 7 case;
(3) Entry of an order by the Bankruptcy
Court confirming a plan of
reorganization of Borrower, which
plan does not contain a provision
for payment of the Loan and payment
in full in cash of all other
Obligations on or before the
effective date of such plan upon
entry thereof;
(4) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order,
dismissing Borrower's Chapter 11
case, unless such order contains a
provision for payment in full in
cash of the Loan and payment in full
in cash of all other Obligations as
a condition to such dismissal;
(5) Entry of an order by the Bankruptcy
Court, or the filing by Borrower of
an application for an order, (i) to
revoke, reverse, stay, modify,
supplement or amend the Financing
Order or (ii) to permit any
administrative expense or any claim
(now existing or hereafter arising,
of any kind or nature whatsoever) to
have administrative priority as to
Borrower equal or superior to the
priority of Lender in
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<PAGE>
respect of the Obligations, except
for allowed administrative expenses
having priority over the Obligations
as set forth in the Financing Order;
(6) Filing by any person other than
Borrower of an application for any
of the orders described in clauses
(1), (2), (3), (4), or (5) above and
such application is not contested by
Borrower in good faith and the
relief requested is granted in an
order that is not stayed pending
appeal;
(7) Entry of an order by the Bankruptcy
Court that is not stayed pending
appeal granting relief from the
automatic stay to any creditor of
Borrower; or
(8) Entry by Borrower into any consent
or settlement decree or agreement or
similar arrangement with a
governmental authority or entry of
any judgment, order, decree or
similar action against Borrower
based on or arising from the
violation of or pursuant to any
environmental law, or the
generation, storage, transportation,
treatment, disposal or release of
any hazardous materials.
(k) Failure of Borrowers to obtain confirmation by the
Bankruptcy Court on or before February 15, 1996, of a plan of
reorganization proposed by Borrower in a form satisfactory to Lender in
its sole discretion.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any
Event of Default the indebtedness evidenced by the Note as well as any and all
other Obligations, Lender may, at its option, declare the Note and all other
Obligations to be forthwith due and payable in full. Upon the occurrence of any
such Event of Default and the acceleration of the maturity of the indebtedness
evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an
15
<PAGE>
acquiescence therein, and every right, power and remedy given by this Agreement
and the other Loan Documents to Lender may be exercised from time to time and as
often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
First, to the costs and expenses, including, without
limitation, reasonable attorney's fees incurred by Lender in connection
with the exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole discretion, to
cure the default that has occurred;
Third, to the payment of the Obligations of Borrower,
including but not limited to the payment of the principal of and
interest on the indebtedness evidenced by the Note and the First Note,
in such order of priority as Lender shall determine in its sole
discretion; and
Fourth, the remainder, if any, to Borrower or to any other
person lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the payment by Borrower of all amounts owed to Lender, at which
time Lender shall cancel the Note and deliver it to Borrower; provided, however,
that if at any time Borrower has satisfied all Obligations to Lender, Borrower
may terminate this Agreement by providing written notice to Lender.
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
16
<PAGE>
7.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
7.3 Costs and Expenses. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the making of the Loan, including but not
limited to filing fees, recording taxes, indebtedness taxes, and reasonable
attorneys' fees, promptly upon demand of Lender. Borrower further agrees to pay
all premiums for insurance required to be maintained by Borrower pursuant to the
terms of the Loan Documents and all of the costs and expenses, including but not
limited to reasonable attorneys' fees, incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents or prepayment of the
Loan. In addition, Borrower agrees to pay all costs and expenses, including but
not limited to reasonable attorneys' fees and expenses, incurred by Lender in
connection with monitoring Borrower's bankruptcy case and taking all such other
actions as Lender in its sole discretion determines is appropriate in connection
with Borrower's bankruptcy case.
7.4 Assignment. The Note, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in all or any portion of its
interest in the indebtedness evidenced by the Note, and in such event Borrower
shall continue to make payments due under the Loan Documents to Lender and
Lender shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts. Borrower shall not assign any of
its rights nor delegate any of its duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under all
of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the
17
<PAGE>
indebtedness evidenced by the Note shall exceed the maximum amounts collectible
under applicable laws in effect from time to time, then ipso facto, the
obligation to pay such interest and/or loan charges shall be reduced to the
maximum amounts collectible under applicable laws in effect from time to time,
and any amounts collected by Lender that exceed such maximum amounts shall be
applied to the reduction of the principal balance of the indebtedness evidenced
by the Note and/or refunded to Borrower so that at no time shall the interest or
loan charges paid or payable in respect of the indebtedness evidenced by the
Note exceed the maximum amounts permitted from time to time by applicable law.
7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement or any of the Loan Documents shall be
in writing, signed by the party giving such notice, election or demand and shall
be delivered personally, telecopied, or sent by certified mail or overnight via
nationally recognized courier service (such as Federal Express), to the other
party at the address set forth below, or at such other address as may be
supplied in writing and of which receipt has been acknowledged in writing. The
date of personal delivery, telecopy or telex or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purposes of this Agreement:
The address of Lender is: Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
Attention: George M. Miller, II, President
Telecopy: 615/726-1208
with a copy to: LeClair Ryan, A Professional Corporation
707 East Main Street
11th Floor
Richmond, VA 23219
Attention: William A. Broscious, Esq.
Telecopy: 804/783-2294
The address of Borrower is: Consumat Systems, Inc.
8407 Erle Road
Mechanicsville, VA 23111
or
P.O. Box 9379
Richmond, VA 23227
Attention: Robert L. Massey, President and
Chief Executive Officer
Telecopy: 804/730-9056
18
<PAGE>
with a copy to: Christian, Barton, Epps, Brent & Chappell
1200 Mutual Building
909 East Main Street
Richmond, VA 23219
Attention: Augustus C. Epps, Jr., Esquire
Telecopy: 804/697-4112
7.10 Entire Agreement. This Agreement and the other written agreements
between Borrower and Lender represent the entire agreement between the parties
concerning the subject matter hereof, and all oral discussions and prior
agreements are merged herein; provided, if there is a conflict between this
Agreement and any other document executed contemporaneously herewith with
respect to the Obligations, the provision of this Agreement shall control. The
execution and delivery of this Agreement and the other Loan Documents by the
Borrower were not based upon any fact or material provided by Lender, nor was
the Borrower induced or influenced to enter into this Agreement or the other
Loan Documents by any representation, statement, analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State except to
the extent certain rights and privileges may be granted Lender under applicable
federal laws in which event federal law shall control. No amendment or
modification hereof shall be effective except in a writing executed by each of
the parties hereto.
7.12 Survival of Representations and Warranties. All covenants,
representations, and warranties contained herein or in any of the Loan
Documents, or made by or furnished on behalf of Borrower in connection herewith
or with any of the Loan Documents, shall survive the execution and delivery of
this Agreement and all other Loan Documents and shall continue in full force and
effect so long as the Obligations are unpaid.
7.13 Jurisdiction and Venue. Borrower hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action obligations arising under this Agreement or
any other Loan Documents or with respect to the transactions contemplated
hereby, and expressly waives any and all objections it may have as to venue in
any of such courts; provided that the provisions of this section shall not be
deemed to be consent of Borrower to such jurisdiction and venue while Borrower's
Chapter 11 case is pending in the Bankruptcy Court.
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
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<PAGE>
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
7.17 Bankruptcy Qualification. All covenants, representations, and
warranties contained herein or in any of the Loan Documents, or made by or
furnished on behalf of Borrower in connection herewith or with any of the Loan
Documents, are subject to the qualification that Borrower is a
debtor-in-possession in a Chapter 11 case over which the Bankruptcy Court has
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ PETER SOCHA
Peter Socha, Vice President and
Chief Credit Officer
[CORPORATE SEAL] BORROWER:
ATTEST: CONSUMAT SYSTEMS, INC., a Virginia
corporation
By:/s/ PATRICIA B. BRADLEY By: /s/ ROBERT L. MASSEY
Patricia B. Bradley, Robert L. Massey, President and
Corporate Secretary Chief Executive Officer
20
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Final Order Authorizing Debtor To Obtain
Post-Petition Financing Pursuant To 11 U.S.C. (s) 364(c), (d)
Schedule 2.1(e) - Options, Warrants, Etc.
Schedule 2.1(f) - Trademarks, Patents, Etc.
Schedule 2.1(h) - Litigation
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(j) - Defaults
Schedule 2.1(l) - Debt and Liens
Schedule 2.1(m) - Taxes
Schedule 2.1(o) - Shareholder Loans
Schedule 2.1(r) - Significant Contracts
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY,
WITHOUT A VIEW TO RESALE OR DISTRIBUTION AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, MADE SUBJECT TO A SECURITY INTEREST, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS.
SECURED PROMISSORY NOTE
$500,000 January 16, 1996
FOR VALUE RECEIVED, the undersigned, CONSUMAT SYSTEMS, INC., a Virginia
corporation ("Maker"), promises to pay to the order of SIRROM CAPITAL
CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holder[s] hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at First American Trust Company, Custody Department, 800 First
American Center, Nashville, Tennessee 37237, Attn: Jeff Eubanks, or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($500,000),
together with interest on the outstanding principal balance hereof from the date
hereof at the rate of fourteen percent (14%) per annum (computed on the basis of
a 360-day year); provided, however, that Holder may charge and receive interest
upon any renewal or extension hereof at the greater of (i) the rate set out
above, or (ii) any rate agreed to by the undersigned that is not in excess of
the maximum rate of interest allowed to be charged under applicable law (the
"Maximum Rate") at the time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of February, 1996, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until January 1, 2001
(the "Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, or in the event that any default or event of default shall
occur under that certain Loan Agreement of even date herewith, between Maker and
Payee (as may be amended from time to time, the "Loan Agreement"), default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Maker be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
(subject to any applicable notice and cure period provisions that may be set
forth therein); then, and in such event, the entire outstanding principal
balance of the indebtedness evidenced hereby, together with any other sums
advanced hereunder, under the Loan Agreement and/or under any other instrument
or document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, or in the Loan Agreement at the option of Holder and without notice to
Maker, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of (i) the rate that is two
percentage points (2.0%) in excess of the above-specified interest rate, or (ii)
the Maximum Rate in effect from time to time, regardless of whether or not there
has been an acceleration of the payment of principal as set forth herein. All
such interest shall be paid at the time of and as a condition precedent to the
curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
IN WITNESS WHEREOF, the Maker has caused this instrument to be executed
by its duly authorized officer, and its seal to be affixed and adopted, as of
the day written above.
[CORPORATE SEAL] MAKER:
ATTEST: CONSUMAT SYSTEMS, INC.,
a Virginia corporation
By: /s/ PATRICIA B. BRADLEY By: /s/ ROBERT L. MASSEY
Patricia B. Bradley, Corporate Robert L. Massey, President
Secretary and Chief Executive
Officer
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of the 12th day of March,
1996, is made and entered into on the terms and conditions hereinafter set
forth, by and between REORGANIZED CONSUMAT SYSTEMS, INC., a Virginia
corporation, formerly Consumat Systems, Inc. ("Borrower"), and SIRROM CAPITAL
CORPORATION, a Tennessee corporation ("Lender").
RECITALS:
WHEREAS, Borrower filed for Chapter 11 bankruptcy relief on October 6,
1995, in the United States Bankruptcy Court for the Eastern District of
Virginia, Richmond Division (the "Bankruptcy Court");
WHEREAS, Borrower and Lender are parties to a Loan Agreement dated
October 11, 1995, pursuant to which Lender made a debtor-in-possession loan in
the principal amount of $500,000 to Borrower, which loan was approved by the
Bankruptcy Court pursuant to a Final Order Authorizing Debtor To Obtain
Post-Petition Financing entered on October 26, 1995, and also are parties to a
Loan Agreement dated January 11, 1996, pursuant to which Lender made an
additional debtor-in-possession loan in the principal amount of $500,000 to
Borrower, which loan was approved by the Bankruptcy Court pursuant to a Final
Order Authorizing Debtor To Obtain Post-Petition Financing entered on January
16, 1996 (jointly the "DIP Loan Agreements");
WHEREAS, the Bankruptcy Court entered a Confirmation Order on February
28, 1996 (the "Confirmation Order"), pursuant to which the Second Amended Plan
of Reorganization (the "Reorganization Plan") filed by Borrower was confirmed in
accordance with 11 U.S.C. (s) 1129(a);
WHEREAS, Borrower, as set forth in the Reorganization Plan and the
Confirmation Order, has requested that Lender make available to Borrower a term
loan in an aggregate principal amount of FIVE HUNDRED THOUSAND and NO/100ths
DOLLARS ($500,000) (the "Loan") on the terms and conditions hereinafter set
forth, and for the purpose(s) hereinafter set forth;
WHEREAS, in order to induce Lender to make the Loan to Borrower,
Borrower has made certain representations to Lender; and
WHEREAS, Lender, in reliance upon the representations and inducements
of Borrower, has agreed to make the Loan upon the terms and conditions
hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable
<PAGE>
consideration, the receipt and sufficiency of which are hereby acknowledged,
Borrower and Lender hereby agree as follows:
ARTICLE 1
THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms
and conditions hereof, the Lender shall make the Loan to Borrower by one or more
wire transfers in immediately available funds. The Loan shall be evidenced by a
Secured Promissory Note in an original principal amount of FIVE HUNDRED THOUSAND
and NO/100ths DOLLARS ($500,000), substantially in the form of Exhibit A
attached hereto and incorporated herein by this reference (the "Note"), dated as
of the date hereof, executed by Borrower, in favor of Lender. The Loan shall be
payable in accordance with the terms of the Note.
1.2 Fees. Borrower shall pay a processing fee of $25,000 to
Lender at closing. Lender agrees that Borrower's obligation under the DIP Loan
Agreements to pay a commitment fee of $50,000 is waived.
1.3 Purpose(s) of Loan and Use of Proceeds. The purposes of the Loan
shall be to enable Borrower to satisfy its obligations under the Reorganization
Plan, to provide working capital to Borrower, and to pay all costs and expenses
incurred by the parties hereto in connection with the making and documenting of
the Loan, including attorneys' fees and expenses. The proceeds of the Loan shall
not be used for any other purpose.
1.4 Security. As security for the full and timely payment of the
indebtedness of Borrower evidenced by the Note and of all other Obligations (as
defined in Section 3.1 hereof), Borrower shall be and hereby is granted security
interests in and liens upon all real and personal property of Borrower (the
"Collateral") as described in a Security Agreement, substantially in the form of
Exhibit B attached hereto (the "Security Agreement"). This Agreement, the Note,
the Security Agreement, and any other instruments and documents executed by
Borrower, now or hereafter evidencing, securing or in any way related to the
indebtedness evidenced by the Note are herein individually referred to as a
"Loan Document" and collectively referred to as the "Loan Documents."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Borrower's Representations. Borrower hereby represents and
warrants to Lender as follows:
(a) Corporate Status. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia; and has the corporate power to own and
operate its properties, to carry on its business as now conducted and
to enter into and to perform its obligations under this Agreement and
the other Loan Documents to which it is a party. Borrower is duly
qualified to
2
<PAGE>
do business and in good standing in the Commonwealth of Virginia and
each other state in which a failure to be so qualified and in good
standing would have a material adverse effect on Borrower's financial
positions or its ability to conduct its business in the manner now
conducted.
(b) Other Business Organizations. Borrower neither owns
nor has an interest in, directly or indirectly, any other corporation,
partnership, joint venture or other business organization
("Subsidiaries").
(c) Authorization. Borrower has full legal right, power and
authority to conduct its business and affairs. Borrower has full legal
right, power and authority to enter into and perform its obligations
under the Loan Documents, without the consent or approval of any other
person, firm, governmental agency or other legal entity. The execution
and delivery of this Agreement, the borrowing hereunder, the execution
and delivery of each Loan Document to which Borrower is a party, and
the performance by Borrower of its obligations thereunder is within the
corporate powers of Borrower and has been duly authorized by all
necessary corporate action properly taken, has received all necessary
governmental approvals, if any were required, and do not and will not
contravene or conflict with any provision of law, any applicable
judgment, ordinance, regulation or order of any court or governmental
agency, the articles of incorporation or bylaws of Borrower, or any
agreement binding upon Borrower. The officer(s) executing this
Agreement and all other Loan Documents to which Borrower is a party is
(are) duly authorized to act on behalf of Borrower.
(d) Validity and Binding Effect. This Agreement and all other
Loan Documents are the legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or the
application of general equitable principles.
(e) Capitalization. The authorized capital stock of Borrower
consists of (i) 5,000,000 shares of common stock, of which 1,010,000
shares (the "Common Shares") are issued and outstanding, and (ii)
1,000,000 share of preferred stock, of which 0 shares (the "Preferred
Shares") are issued and outstanding. All of the Common Shares and the
Preferred Shares (jointly the "Shares") are duly authorized, and the
Common Shares are validly issued and outstanding and fully paid and
nonassessable and free of preemptive rights. Except for the Shares,
there are no shares of capital stock or other securities of Borrower
issued or outstanding. Except as set forth on Schedule 2.1(e), there
are no outstanding options, warrants or rights to purchase or acquire
from Borrower any securities of Borrower, and there are no contracts,
commitments, agreements, understandings, arrangements or restrictions
as to which Borrower is a party or by which it is bound relating to any
shares of capital stock or other securities of Borrower (including the
Shares), whether or not outstanding.
(f) Trademarks, Patents, Etc. Schedule 2.1(f) is an
accurate and complete list of all patents, trademarks, tradenames,
trademark registrations, service names,
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service marks, copyrights, licenses, formulas and applications therefor
owned by Borrower or used or required by Borrower in the operation of
its business, title to each of which is, except as set forth in
Schedule 2.1(f) hereto, held by Borrower free and clear of all adverse
claims, liens, security agreements, restrictions or other encumbrances.
There is no infringement action, lawsuit, claim or complaint which
asserts that Borrower's operations violate or infringe the rights or
the trade names, trademarks, trademark registration, service name,
service mark or copyright of others with respect to any apparatus or
method of Borrower or any adversely held trademark, trade name,
trademark registration, service name, service mark or copyright, nor is
Borrower in any way making use of any confidential information or trade
secrets of any person except with the consent of such person.
(g) No Conflicts. Consummation of the transactions hereby
contemplated and the performance of the Obligations of Borrower under
and by virtue of the Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, security deed or
agreement, deed of trust, lease, bank loan or credit agreement,
corporate charter or bylaws, agreement or certificate of limited
partnership, partnership agreement, license, franchise or any other
instrument or agreement to which Borrower is a party or by which
Borrower, or its respective properties may be bound or affected or to
which Borrower has not obtained an effective waiver.
(h) Litigation. Except as set forth in Schedule 2.1(h) hereto,
there are no actions, suits or proceedings pending, or, to the
knowledge of Borrower, threatened, against or affecting Borrower or
involving the validity or enforceability of any of the Loan Documents
at law or in equity, or before any governmental or administrative
agency; and to Borrower's knowledge, Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court
or any governmental authority.
(i) Financial Statements. The unaudited financial statements
of Borrower, dated February 29, 1996, attached hereto as Schedule
2.1(i)(A), are true and correct in all material respects have been
prepared on the basis of accounting principles consistently applied,
and fairly present the financial condition of Borrower as of the
date(s) thereof. No material adverse change has occurred in the
financial condition of Borrower since the date(s) thereof, and no
additional borrowings have been made by Borrower since the date(s)
thereof other than as set forth on Schedule 2.1(i)(B).
(j) Other Agreements; No Defaults. Except as set forth on
Schedule 2.1(j) hereto, Borrower is not a party to indentures, loan or
credit agreements, leases or other agreements or instruments, or
subject to any articles of incorporation or corporate restrictions that
could have a material adverse effect on the business, properties,
assets, operations or conditions, financial or otherwise, of Borrower,
or the ability of Borrower to carry out its obligations under the Loan
Documents to which it is a party. Borrower is not in default in any
respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement or
instrument material to its business to which it is a party, including
but not limited to this Agreement and the other Loan Documents, and no
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other default or event has occurred and is continuing that with notice
or the passage of time or both would constitute a default or event of
default under any of same.
(k) Compliance With Law. Borrower has obtained all material
licenses, permits and approvals and authorizations necessary or
required in order to conduct its business and affairs as heretofore
conducted and as hereafter intended to be conducted. To Borrower's
knowledge, Borrower is in compliance with all laws, regulations,
decrees and orders applicable to it (including but not limited to laws,
regulations, decrees and orders relating to environmental, occupational
and health standards and controls, antitrust, monopoly, restraint of
trade or unfair competition), to the extent that noncompliance, in the
aggregate, cannot reasonably be expected to have a material adverse
effect on its business, operations, property or financial condition and
will not materially adversely affect Borrower's ability to perform its
obligations under the Loan Documents.
(l) Debt. Schedule 2.1(l) is a complete and correct list of
all credit agreements, indentures, purchase agreements, promissory
notes and other evidences of indebtedness, guaranties, capital leases
and other instruments, agreements and arrangements presently in effect
providing for or relating to extensions of credit (including agreements
and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which Borrower, or any of the
properties thereof is in any manner directly or contingently obligated;
and the maximum principal or face amounts of the credit in question
that are outstanding and that can be outstanding are correctly stated,
and all liens of any nature given or agreed to be given as security
therefor are correctly described or indicated in such Schedule.
(m) Taxes. Borrower has filed or caused to be filed all tax
returns that to Borrower's knowledge are required to be filed (except
for returns that have been appropriately extended), and, except as set
forth on Schedule 2.1(m) hereto, has paid, or will pay when due, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on them by any
governmental authority, agency or instrumentality, prior to any
delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith
by appropriate proceedings, for which appropriate amounts have been
reserved). No tax liens have been filed against Borrower, or any of the
property thereof.
(n) Small Business Concern. Borrower, together with its
"affiliates" (as that term is defined in Title 13, Code of Federal
Regulations, (s) 121.401), is a "small business concern" within the
meaning of the Small Business Investment Act of 1958, as amended, and
the regulations promulgated thereunder. The information set forth in
the Small Business Administration Forms 480, 652 and Part A of Form
1031 regarding Borrower upon delivery, pursuant to Section 4.1 hereof,
will be accurate and complete. Borrower does not presently engage in,
and it will not hereafter engage in, any activities which, and Borrower
will not, directly or indirectly, use the proceeds from the Loan for
any purpose for which a Small Business Investment Company is prohibited
from providing funds by the Small Business Investment Act
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and the regulations thereunder, including Title 13, Code of Federal
Regulations (s) 107.901.
(o) Certain Transactions. Except as set forth on Schedule
2.1(o) hereto, Borrower is not indebted, directly or indirectly, to any
of its shareholders, officers, or directors or to their respective
spouses or children, in any amount whatsoever; none of said
shareholders, officers or directors or any members of their immediate
families, are indebted to Borrower or have any direct or indirect
ownership interest in any firm or corporation with which Borrower has a
business relationship, or any firm or corporation which competes with
Borrower, except that shareholders, officers and/or directors of
Borrower may own no more than 4.9% of outstanding stock of publicly
traded companies which may compete with Borrower. No officer or
director of Borrower or any member of their immediate families, is,
directly or indirectly, interested in any material contract with
Borrower. Borrower is not a guarantor or indemnitor of any indebtedness
of any other person, firm or corporation.
(p) Statements Not False or Misleading. No representation or
warranty given as of the date hereof by Borrower contained in this
Agreement or any schedule attached hereto or any statement in any
document, certificate or other instrument furnished or to be furnished
by Borrower to Lender pursuant hereto, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a
material fact, or omits or will (as of the time so furnished) omit to
state any material fact which is necessary in order to make the
statements contained therein not misleading.
(q) Margin Regulations. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock. No proceeds received pursuant to this Agreement will be
used to purchase or carry any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended.
(r) Significant Contracts. Schedule 2.1(r) is a complete and
correct list of all contracts, agreements and other documents pursuant
to which Borrower receives revenues in excess of $25,000 per fiscal
year. Each such contract, agreement and other document is in full force
and effect as of the date hereof and Borrower knows of no reason why
such contracts, agreements and other documents would not remain in full
force and effect pursuant to the terms thereof.
(s) Environment. Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds or other
facilities are in compliance with, the provisions of all federal, state
and local environmental, health, and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder, except to the
extent that failure to do so would not have a material adverse effect
on its business. Borrower has been issued and will maintain all
required federal, state and local permits, licenses, certificates and
approvals relating to (1) air emissions; (2) discharges to surface
water or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage,
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transportation or disposal of toxic or hazardous substances or wastes
(which shall include any and all such materials listed in any federal,
state or local law, code or ordinance and all rules and regulations
promulgated thereunder as hazardous or potentially hazardous); or (6)
other environmental, health or safety matters, except to the extent
that failure to do so would not have a material adverse effect on its
business. Borrower has not received notice of, or knows of, or suspects
facts which might constitute, any violations of any federal, state or
local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder with respect to its
businesses, operations, assets, equipment, property, leaseholds, or
other facilities. Except in accordance with a valid governmental
permit, license, certificate or approval, there has been no emission,
spill, release or discharge into or upon (1) the air; (2) soils, or any
improvements located thereon; (3) surface water or groundwater; or (4)
the sewer, septic system or waste treatment, storage or disposal system
servicing the premises, of any toxic or hazardous substances or wastes
at or from the premises; and accordingly the premises of Borrower are
free of all such toxic or hazardous substances or wastes. There has
been no complaint, order, directive, claim, citation or notice by any
governmental authority or any person or entity with respect to (1) air
emissions; (2) spills, releases or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system
or waste treatment, storage or disposal systems servicing the premises;
(3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation or disposal of toxic or hazardous
substances or waste; or (6) other environmental, health or safety
matters affecting Borrower or its business, operations, assets,
equipment, property, leaseholds or other facilities. Borrower has no
indebtedness, obligation or liability (absolute or contingent, matured
or not matured), with respect to the storage, treatment, cleanup or
disposal of any solid wastes, hazardous wastes or other toxic or
hazardous substances (including without limitation any such
indebtedness, obligation, or liability with respect to any current
regulation, law or statute regarding such storage, treatment, cleanup
or disposal).
(t) Lien Priority. Indebtedness evidenced by the Note and all
other Obligations will be or are secured by valid and perfected
first-priority senior security interests in and liens against the
Collateral, except as set forth in the Reorganization Plan and the
Confirmation Order.
(u) Confirmation Order. The Confirmation Order is final
and in full force and effect, and has not been reversed, stayed,
modified or amended.
ARTICLE 3
COVENANTS AND AGREEMENTS
Borrower covenants and agrees that during the term of this
Agreement:
3.1 Payment of Obligations. Borrower shall pay the indebtedness
evidenced by the Note according to the terms thereof, and shall timely pay or
perform, as the case may be, all of the other obligations of Borrower to Lender,
direct or contingent, however evidenced or denominated, and however and whenever
incurred, including but not limited to the
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indebtedness of Borrower to Lender under the DIP Loan Agreements, the Amended
And Restated Secured Promissory Note dated October 11, 1995, the Secured
Promissory Note dated January 11, 1996, and any other indebtedness incurred
pursuant to any present or future commitment of Lender to Borrower, together
with interest thereon, and any extensions, modifications, consolidations and/or
renewals thereof and any notes given in payment thereof (the "Obligations").
3.2 Financial Statements and Reports. Borrower shall furnish to Lender
(i) as soon as practicable and in any event within ninety (90) days after the
end of each fiscal year of Borrower, a consolidated balance sheet of Borrower as
of the close of such fiscal year, a consolidated statement of earnings and
retained earnings of Borrower as of the close of such fiscal year and a
consolidated statement of cash flows for Borrower for such fiscal year, prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP"), audited by an independent certified public accountant acceptable to
Lender and certified by an officer of Borrower and accompanied by a certificate
of the President of Borrower, stating that to the best of the knowledge of such
officer, Borrower has kept, observed, performed and fulfilled each covenant,
term and condition of this Agreement and the other Loan Documents during the
preceding fiscal year and that no Event of Default, as herein defined, has
occurred and is continuing (or if an Event of Default has occurred and is
continuing, specifying the nature of same, the period of existence of same and
the action Borrower has taken or proposes to take in connection therewith), (ii)
within fifteen (15) days of the end of each calendar month, a consolidated
balance sheet of Borrower as of the close of such month and a consolidated
statement of earnings and retained earnings of Borrower as of the close of such
month, all in reasonable detail (including financial information for the
preceding six (6) months), and prepared substantially in accordance with GAAP
(except for the absence of footnotes and subject to year-end adjustments), and
(iii) with reasonable promptness, such other financial data as Lender may
reasonably request.
3.3 Maintenance of Books and Records; Inspection. Borrower shall
maintain its books, accounts and records in accordance with GAAP, and, after
reasonable notice from Lender, shall permit Lender, its officers, employees and
any professionals designated by Lender in writing, at Borrower's expense, to
visit, inspect and/or audit any of its properties, books and financial records,
and to discuss its accounts, affairs and finances with Borrower or the principal
officers of Borrower during reasonable business hours, all at such times as
Lender may reasonably request; provided that no such visit, inspection and/or
audit shall materially interfere with the conduct of Borrower's business.
3.4 Insurance. Without limiting any of the requirements of any of the
other Loan Documents, Borrower shall maintain in amounts customary for entities
engaged in comparable business activities, (i) to the extent required by
applicable law, worker's compensation insurance (or maintain a legally
sufficient amount of self insurance against worker's compensation liabilities,
with adequate reserves, under a plan approved by Lender, such approval not to be
unreasonably withheld or delayed), (ii) fire and "all risk" casualty insurance
on its properties against such hazards and in at least such amounts as are
customary in Borrower's business, (iii) "Key-man" life insurance on the lives of
Robert L. Massey, Robert S. Lee, and Mark E. Hills with each policy naming
Lender as beneficiary and shall be in an amount not less than $250,000 with an
insurance company reasonably
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acceptance to Lender. Borrower will make reasonable efforts to obtain and
maintain public liability insurance in an amount, and at a cost, deemed
reasonable to the Borrower's Board of Directors. At the request of Lender,
Borrower will deliver forthwith a certificate specifying the details of such
insurance in effect.
3.5 Taxes and Assessments. Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon Borrower upon its
income and profits or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties; provided, however, that Borrower in good faith may
contest any such tax, assessment, governmental charge or levy described in the
foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained
with respect thereto.
3.6 Corporate Existence. Borrower shall maintain its corporate
existence and good standing in the state of its incorporation, and its
qualification and good standing as a foreign corporation in each jurisdiction in
which such qualification is necessary pursuant to applicable law.
3.7 Compliance with Law and Other Agreements. Except where the failure
to do so would not materially adversely affect Borrower's operations or its
ability to fulfill its obligations under the Loan Documents, Borrower shall
maintain its business, operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances governing such business operations and the use and
ownership of such property, and (ii) all agreements, licenses, franchises,
indentures and mortgages to which Borrower is a party or by which Borrower or
any of its properties is bound. Without limiting the foregoing, Borrower shall
pay all of its indebtedness promptly in accordance with the terms thereof.
3.8 Notice of Default. Borrower shall give written notice to Lender of
the occurrence of any default, event of default or Event of Default under this
Agreement or any other Loan Document promptly upon the occurrence thereof.
3.9 Notice of Litigation. Borrower shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings instituted by any persons
whoever against Borrower, or affecting any of the assets of Borrower, wherein
the amount at issue is in excess of Twenty-Five Thousand and No/100ths
Dollars ($25,000.00), and (ii) any dispute not resolved within sixty (60)
days of the commencement thereof, between Borrower on the one hand and any
governmental regulatory body on the other hand, which dispute might materially
interfere with the normal operations of Borrower.
3.10 Conduct of Business. Borrower will continue to engage in a
business of the same general type and manner as conducted by it on the date of
this Agreement.
3.11 ERISA Plan. If Borrower has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
the Employee Retirement Income Security
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Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29 U.S.C.A.
(s) 1001 et seq. (1975), as amended from time to time ("ERISA"), then the
following warranty and covenants shall be applicable during such period as any
such plan (the "Plan") shall be in effect: (i) Borrower hereby warrants that no
fact that might constitute grounds for the involuntary termination of the Plan,
or for the appointment by the appropriate United States District Court of a
trustee to administer the Plan, exists at the time of execution of this
Agreement, (ii) Borrower hereby covenants that throughout the existence of the
Plan, Borrower's contributions under the Plan will meet the minimum funding
standards required by ERISA and Borrower will not institute a distress
termination of the Plan, and (iii) Borrower covenants that it will send to
Lender a copy of any notice of a reportable event (as defined in ERISA) required
by ERISA to be filed with the Labor Department or the Pension Benefit Guaranty
Corporation, at the time that such notice is so filed.
3.12 Dividends, Distributions, Stock Rights, etc. Borrower shall not
declare or pay any dividend of any kind (other than stock dividends payable to
all holders of any class of capital stock), in cash or in property, on any class
of the capital stock of Borrower, or purchase, redeem, retire or otherwise
acquire for value any shares of such stock, nor make any distribution of any
kind in cash or property in respect thereof, nor make any return of capital of
shareholders, nor make any payments in cash or property in respect of any stock
options, stock bonus or similar plan (except as required or permitted
hereunder), nor grant any preemptive rights with respect to the capital stock of
Borrower, without the prior written consent of Lender.
3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express
written consent, Borrower shall not guarantee nor be liable in any manner,
whether directly or indirectly, or become contingently liable after the date of
this Agreement in connection with the obligations or indebtedness of any person
or entity whatsoever, except for the endorsement of negotiable instruments
payable to Borrower for deposit or collection in the ordinary course of
business. Without Lender's prior express written consent, Borrower shall not (i)
make any loan, advance or extension of credit to any person other than in the
normal course of its business, or (ii) make any payment on any subordinated
debt.
3.14 Debt. Without the express prior written consent of Lender,
Borrower shall not create, incur, assume or suffer to exist indebtedness of any
description whatsoever, (excluding (i) the indebtedness evidenced by the Note,
(ii) the endorsement of negotiable instruments payable to Borrower for deposit
or collection in the ordinary course of business, (iii) indebtedness incurred in
the ordinary course of business (each of which, individually, does not exceed
$25,000) and (iv) the indebtedness listed on Schedule 2.1(l) hereto).
3.15 No Liens. Borrower shall not create, incur, assume or suffer to
exist any lien, security interest, security title, mortgage, deed of trust or
other encumbrance upon or with respect to any of its properties, now owned or
hereafter acquired, except:
a. liens in favor of Lender;
b. liens for taxes or assessments or other governmental
charges or levies if not yet due and payable;
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c. liens in connection with the leasing of equipment in
favor of the Lessor of such equipment; and
d. liens described on Schedule 2.1(l) hereto.
3.16 Mergers, Consolidations, Acquisitions and Sales. Without the prior
written consent of Lender, Borrower shall not (a) be a party to any merger,
consolidation or corporate reorganization, nor (b) purchase or otherwise acquire
all or substantially all of the assets or stock of, or any partnership or joint
venture interest in, any other person, firm or entity, nor (c) sell, transfer,
convey, grant a security interest in or lease all or any substantial part of its
assets, nor (d) create any Subsidiaries nor convey any of its assets to any
Subsidiary.
3.17 Transactions With Affiliates. Borrower shall not enter into any
transaction, including, without limitation, the purchase, sale or exchange of
property or the rendering of any service, with any affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arm's length transaction with a person not
an affiliate. For the purposes of this Section 3.17, "affiliate" shall mean a
person, corporation, partnership or other entity controlling, controlled by or
under common control with Borrower.
3.18 Environment. Borrower shall be and remain in compliance with the
provisions of all federal, state and local environmental, health, and safety
laws, codes and ordinances, and all rules and regulations issued thereunder;
notify Lender immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify Lender immediately of any hazardous discharge from or affecting
Borrower's premises; immediately contain and remove the same, in compliance with
all applicable laws; promptly pay any fine or penalty assessed in connection
therewith; permit Lender to inspect the premises, to conduct tests thereon, and
to inspect all books, correspondence, and records pertaining thereto; and at
Lender's request, and at Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to Lender, and
such other and further assurances reasonably satisfactory to Lender that the
condition has been corrected.
ARTICLE 4
CONDITIONS TO CLOSING
4.1 Closing of the Loan. The obligation of Lender to fund the Loan on
the date hereof (the "Closing Date") is subject to the fulfillment, on or prior
to the Closing Date, of each of the following conditions:
(a) Borrower shall have performed and complied in all material
respects with all of the covenants, agreements, obligations and
conditions required by this Agreement.
(b) Lender shall have received an opinion of the Borrower's
counsel, Christian & Barton, dated the Closing Date, in form and
substance satisfactory to Lender's counsel.
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(c) Borrower shall have delivered to Lender the Note
executed by Borrower.
(d) Borrower shall have delivered to Lender a Stock Purchase
Warrant, substantially in the form of Exhibit C attached hereto,
executed by Borrower.
(e) Borrower shall have delivered to Lender the Security
Agreement executed by Borrower and related UCC-1 Financing Statement(s)
(in form acceptable to Lender) executed by Borrower.
(f) Intentionally omitted.
(g) Borrower shall have delivered to Lender the Small
Business Administration Forms 480, 652, and 1031 (Part A) completed by
Borrower.
(h) Borrower shall have delivered to Lender a Small Business
Administration Economic Impact Assessment completed by Borrower, in a
form acceptable to Lender.
(i) Borrower shall have delivered to Lender a Landlord's
Consent and Subordination of Lien, executed by Borrower's landlord, in
a form acceptable to Lender.
(j) Lender shall have received copies of the articles of
incorporation and other publicly filed organizational documents of
Borrower, certified by the Secretary of State or other appropriate
public official in the jurisdiction in which Borrower is incorporated.
(k) Lender shall have received certified (as of the date of
this Agreement) copies of all corporate action taken by Borrower,
including resolutions of its Board of Directors, authorizing the
execution, delivery and performance of the Loan Documents.
(l) Lender shall have received a certificate as to the legal
existence and good standing of Borrower, issued by the Secretary of
State or other appropriate public official in the jurisdiction in which
Borrower is incorporated.
(m) Lender shall have received certificates of the Secretaries
of State or other appropriate public officials as to Borrower's
qualification to do business and good standing in each jurisdiction in
which a failure to be so qualified would have a material adverse effect
on its financial positions or its ability to conduct its business in
the manner now conducted and as hereafter intended to be conducted.
(n) Intentionally omitted.
(o) Borrower shall have delivered to Lender an Assignment(s)
of Life Insurance Policy as Collateral (in a form acceptable to Lender)
executed by Borrower in duplicate, and a Life Insurance Assignment
Questionnaire executed by Borrower covering the lives of Robert L.
Massey, Robert S. Lee, and Mark E. Hills, in a form acceptable to
Lender.
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(p) Borrower shall have delivered to lender a Collateral
Assignment of Intellectual Property, substantially in the form of
Exhibit D attached hereto, executed by Borrower.
(q) The Reorganization Plan shall be in a form and
substance satisfactory to the Lender in its sole discretion.
(r) Lender shall have received a certified copy of the
Confirmation Order, and the Confirmation Order shall be final and in
full force and effect, and shall not have been reversed, stayed,
modified or amended.
ARTICLE 5
DEFAULT AND REMEDIES
5.1 Events of Default. The occurrence of any of the following
shall constitute an Event of Default hereunder:
(a) Default by Borrower in the payment of the principal of or
interest on the indebtedness evidenced by the Note in accordance with
the terms of the Note, which default is not cured within five (5) days;
(b) Any misrepresentation by Borrower as to any material
matter hereunder or under any of the other Loan Documents, or delivery
by Borrower of any schedule, statement, resolution, report,
certificate, notice or writing to Lender that is untrue in any material
respect on the date as of which the facts set forth therein are stated
or certified;
(c) Failure of Borrower to perform any of its
obligations, covenants or agreements under this Agreement, the Note or
any of the other Loan Documents;
(d) Borrower (i) shall generally not pay or shall be unable to
pay its post-petition debts as such debts become due; or (ii) shall
make an assignment for the benefit of creditors or petition or apply to
any tribunal for the appointment of a custodian, receiver or trustee
for it or a substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; or (iv) shall have
had any such petition or application filed or any such proceeding
commenced against it in which an order for relief is entered or an
adjudication or appointment is made; or (v) shall indicate, by any act
or intentional and purposeful omission, its consent to, approval of or
acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or
a substantial part of its assets; or (vi) shall suffer any such
custodianship, receivership or trusteeship to continue undischarged for
a period of sixty (60) days or more;
(e) Borrower shall be liquidated, dissolved, partitioned
or terminated, or the charter thereof shall expire or be revoked;
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(f) A default or event of default shall occur under any of the
other Loan Documents and, if subject to a cure right, such default or
event of default shall not be cured within the applicable cure period;
(g) Borrower shall default in the timely payment or
performance of any obligation now or hereafter owed to Lender in
connection with any other indebtedness of Borrower now or hereafter
owed to Lender;
(h) Borrower shall have defaulted and continue to be in
default in the timely payment or performance of any other indebtedness
or obligation, which in the aggregate exceeds $10,000 or materially
affects Borrower's financial condition;
(i) Either Robert L. Massey, Robert S. Lee or Mark E.
Hills shall no longer be significantly involved in the management
and/or daily operations of Borrower; and
(j) Entry of an order by the Bankruptcy Court, or the filing
by Borrower of an application for an order to revoke, reverse, stay,
modify, supplement or amend the Confirmation Order.
5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any
Event of Default the indebtedness evidenced by the Note as well as any and all
other Obligations, Lender may, at its option, declare the Note and all other
Obligations to be forthwith due and payable in full. Upon the occurrence of any
such Event of Default and the acceleration of the maturity of the indebtedness
evidenced by the Note:
(a) Lender shall be immediately entitled to exercise any
and all rights and remedies possessed by Lender pursuant to the terms
of the Note and all of the other Loan Documents; and
(b) Lender shall have any and all other rights and remedies
that Lender may now or hereafter possess at law, in equity or by
statute.
5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
5.4 Proceeds of Remedies. Any or all proceeds resulting from the
exercise of any or all of the foregoing remedies shall be applied as set forth
in the Loan Document(s) providing the
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remedy or remedies exercised; if none is specified, or if the remedy is provided
by this Agreement, then as follows:
First, to the costs and expenses, including, without
limitation, reasonable attorney's fees incurred by Lender in connection
with the exercise of its remedies;
Second, to the expenses of curing the default that has
occurred, in the event that Lender elects, in its sole discretion, to
cure the default that has occurred;
Third, to the payment of the Obligations of Borrower under the
Loan Documents and the DIP Loan Agreements, including but not limited
to the payment of the principal of and interest on the indebtedness
evidenced by the Note, the Amended And Restated Secured Promissory Note
dated October 26, 1995, and the Secured Promissory Note dated January
11, 1996, in such order of priority as Lender shall determine in its
sole discretion; and
Fourth, the remainder, if any, to Borrower or to any other
person lawfully thereunto entitled.
ARTICLE 6
TERMINATION
6.1 Termination of this Agreement. This Agreement shall remain in full
force and effect until the later of (i) the Maturity Date (as defined in the
Note), or (ii) the payment by Borrower of all amounts owed to Lender, at which
time Lender shall cancel the Note and deliver it to Borrower; provided, however,
that if at any time Borrower has satisfied all Obligations to Lender, Borrower
may terminate this Agreement by providing written notice to Lender.
ARTICLE 7
MISCELLANEOUS
7.1 Performance By Lender. If Borrower shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
which default is not cured within the applicable cure period, then Lender may,
at its option, pay, perform or observe the same, and all payments made or costs
or expenses incurred by Lender in connection therewith (including but not
limited to reasonable attorney's fees), with interest thereon at the highest
default rate provided in the Note (if none, then at the maximum rate from time
to time allowed by applicable law), shall be immediately repaid to Lender by
Borrower and shall constitute a part of the Obligations. Lender shall be the
sole judge of the necessity for any such actions and of the amounts to be paid.
7.2 Successors and Assigns Included in Parties. Whenever in this
Agreement one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to
the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
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7.3 Costs and Expenses. Borrower agrees to pay all costs and expenses
incurred by Lender in connection with the making of the Loan, including but not
limited to filing fees, recording taxes, indebtedness taxes, and reasonable
attorneys' fees, promptly upon demand of Lender. Borrower further agrees to pay
all premiums for insurance required to be maintained by Borrower pursuant to the
terms of the Loan Documents and all of the costs and expenses, including but not
limited to reasonable attorneys' fees, incurred by Lender in connection with the
collection of the Loan, amendment to the Loan Documents or prepayment of the
Loan.
7.4 Assignment. The Note, this Agreement and the other Loan Documents
may be endorsed, assigned and/or transferred in whole or in part by Lender, and
any such holder and/or assignee of the same shall succeed to and be possessed of
the rights and powers of Lender under all of the same to the extent transferred
and assigned. Lender may grant participations in all or any portion of its
interest in the indebtedness evidenced by the Note, and in such event Borrower
shall continue to make payments due under the Loan Documents to Lender and
Lender shall have the sole responsibility of allocating and forwarding such
payments in the appropriate manner and amounts. Borrower shall not assign any of
its rights nor delegate any of its duties hereunder or under any of the other
Loan Documents without the prior express written consent of Lender.
7.5 Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Borrower hereunder and under all
of the other Loan Documents.
7.6 Severability. If any provision(s) of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note or any of the other Loan Documents to the
contrary notwithstanding, in no event whatsoever, whether by reason of
advancement of proceeds of the Loan, acceleration of the maturity of the unpaid
balance of the Loan or otherwise, shall the interest and loan charges agreed to
be paid to Lender for the use of the money advanced or to be advanced hereunder
exceed the maximum amounts collectible under applicable laws in effect from time
to time. It is understood and agreed by the parties that, if for any reason
whatsoever the interest or loan charges paid or contracted to be paid by
Borrower in respect of the indebtedness evidenced by the Note shall exceed the
maximum amounts collectible under applicable laws in effect from time to time,
then ipso facto, the obligation to pay such interest and/or loan charges shall
be reduced to the maximum amounts collectible under applicable laws in effect
from time to time, and any amounts collected by Lender that exceed such maximum
amounts shall be applied to the reduction of the principal balance of the
indebtedness evidenced by the Note and/or refunded to Borrower so that at no
time shall the interest or loan charges paid or payable in respect of the
indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
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<PAGE>
7.8 Article and Section Headings; Defined Terms. Numbered and
titled article and section headings and defined terms are for convenience only
and shall not be construed as amplifying or limiting any of the provisions of
this Agreement.
7.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement or any of the Loan Documents shall be
in writing, signed by the party giving such notice, election or demand and shall
be delivered personally, telecopied, or sent by certified mail or overnight via
nationally recognized courier service (such as Federal Express), to the other
party at the address set forth below, or at such other address as may be
supplied in writing and of which receipt has been acknowledged in writing. The
date of personal delivery, telecopy or telex or two (2) business days after the
date of mailing (or the next business day after delivery to such courier
service), as the case may be, shall be the date of such notice, election or
demand. For the purposes of this Agreement:
The address of Lender is: Sirrom Capital Corporation
500 Church Street
Suite 200
Nashville, TN 37219
Attention: George M. Miller, II, President
Telecopy: 615/726-1208
with a copy to: LeClair Ryan, A Professional Corporation
707 East Main Street
11th Floor
Richmond, VA 23219
Attention: William A. Broscious, Esq.
Telecopy: 804/783-2294
The address of Borrower is: Reorganized Consumat Systems, Inc.
8407 Erle Road
Mechanicsville, VA 23111
or
P.O. Box 9379
Richmond, VA 23227
Attention: Robert L. Massey, President and
Chief Executive Officer
Telecopy: 804/730-9056
with a copy to: Christian & Barton
1200 Mutual Building
909 East Main Street
Richmond, VA 23219
Attention: Augustus C. Epps, Jr., Esquire
Telecopy: 804/697-4112
7.10 Entire Agreement. This Agreement and the other written
agreements between Borrower and Lender represent the entire agreement between
the parties concerning the subject
17
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matter hereof, and all oral discussions and prior agreements are merged herein;
provided, if there is a conflict between this Agreement and any other document
executed contemporaneously herewith with respect to the Obligations, the
provision of this Agreement shall control. The execution and delivery of this
Agreement and the other Loan Documents by the Borrower were not based upon any
fact or material provided by Lender, nor was the Borrower induced or influenced
to enter into this Agreement or the other Loan Documents by any representation,
statement, analysis or promise by Lender.
7.11 Governing Law and Amendments. This Agreement and all of the Loan
Documents shall be construed and enforced under the laws of the State of
Tennessee applicable to contracts to be wholly performed in such State except to
the extent certain rights and privileges may be granted Lender under applicable
federal laws in which event federal law shall control. No amendment or
modification hereof shall be effective except in a writing executed by each of
the parties hereto.
7.12 Survival of Representations and Warranties. All covenants,
representations, and warranties contained herein or in any of the Loan
Documents, or made by or furnished on behalf of Borrower in connection herewith
or with any of the Loan Documents, shall survive the execution and delivery of
this Agreement and all other Loan Documents and shall continue in full force and
effect so long as the Obligations are unpaid.
7.13 Jurisdiction and Venue. Borrower hereby consents to the
jurisdiction of the courts of the State of Tennessee and the United States
District Court for the Middle District of Tennessee, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts,
for the purpose of any suit, action obligations arising under this Agreement or
any other Loan Documents or with respect to the transactions contemplated
hereby, and expressly waives any and all objections it may have as to venue in
any of such courts.
7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT
OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT OR THE LOAN DOCUMENTS.
7.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement.
7.16 Construction and Interpretation. Should any provision of this
Agreement require judicial interpretation, the parties hereto agree that the
court interpreting or construing the same shall not apply a presumption that the
terms hereof shall be more strictly construed against one party by reason of the
rule of construction that a document is to be more strictly construed against
the party that itself or through its agent prepared the same, it being agreed
that the Borrower, Lender and their respective agents have participated in the
preparation hereof.
7.17 Assumption and Reaffirmation. Borrower hereby assumes and
reaffirms its indebtedness and obligations to Lender under the DIP Loan
Agreements, the Amended And
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Restated Secured Promissory Note dated October 26, 1995, the Security Agreement
dated October 11, 1995, the Secured Promissory Note dated January 11, 1996, the
Security Agreement dated January 11, 1996, and any and all documents executed
and delivered by Borrower in connection therewith or relating thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their duly authorized officers, as
of the day and year first above written.
LENDER:
SIRROM CAPITAL CORPORATION, a Tennessee
corporation
By: /s/ PETER SOCHA
Peter Socha, Vice President and
Chief Credit Officer
BORROWER:
REORGANIZED CONSUMAT SYSTEMS, INC., a
Virginia corporation
By: /s/ ROBERT L. MASSEY
Robert L. Massey, President and
Chief Executive Officer
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<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Stock Purchase Warrant
Exhibit D - Form of Collateral Assignment of Intellectual Property
Schedule 2.1(e) - Options, Warrants, Etc.
Schedule 2.1(f) - Trademarks, Patents, Etc.
Schedule 2.1(h) - Litigation
Schedule 2.1(i)(A) and (B) - Financial Statements
Schedule 2.1(j) - Defaults
Schedule 2.1(l) - Debt and Liens
Schedule 2.1(m) - Taxes
Schedule 2.1(o) - Shareholder Loans
Schedule 2.1(r) - Significant Contracts
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY,
WITHOUT A VIEW TO RESALE OR DISTRIBUTION AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, MADE SUBJECT TO A SECURITY INTEREST, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS.
SECURED PROMISSORY NOTE
$500,000 March 12, 1996
FOR VALUE RECEIVED, the undersigned, REORGANIZED CONSUMAT SYSTEMS,
INC., a Virginia corporation ("Maker"), promises to pay to the order of SIRROM
CAPITAL CORPORATION, a Tennessee corporation ("Payee"; Payee and any subsequent
holders hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at First American Trust Company, Custody Department, 800 First
American Center, Nashville, Tennessee 37237, Attn: John Landess, or at such
other place as Holder may designate to Maker in writing from time to time, the
principal sum of FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($500,000),
together with interest on the outstanding principal balance hereof from the date
hereof at the rate of fourteen percent (14%) per annum (computed on the basis of
a 360-day year); provided, however, that Holder may charge and receive interest
upon any renewal or extension hereof at the greater of (i) the rate set out
above, or (ii) any rate agreed to by the undersigned that is not in excess of
the maximum rate of interest allowed to be charged under applicable law (the
"Maximum Rate") at the time of such renewal or extension.
Interest only on the outstanding principal balance hereof shall be due
and payable monthly, in arrears, with the first installment being payable on the
first (1st) day of May, 1996, and subsequent installments being payable on the
first (1st) day of each succeeding month thereafter until March 11, 2001 (the
"Maturity Date"), at which time the entire outstanding principal balance,
together with all accrued and unpaid interest shall be immediately due and
payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part,
at any time and from time to time, without penalty. Any such prepayments shall
be credited first to any accrued and unpaid interest and then to the outstanding
principal balance hereof.
Time is of the essence of this Note. It is hereby expressly agreed that
in the event that any default be made in the payment of principal or interest as
stipulated above, or in the event that any default or event of default shall
occur under that certain Loan Agreement of even date herewith, between Maker and
Payee (as may be amended from time to time, the "Loan Agreement"), default or
event of default is not cured following the giving of any applicable notice and
within any applicable cure period set forth in said Loan Agreement; or should
any default by Maker be made in the performance or observance of any covenants
or conditions contained in any other instrument or document now or hereafter
evidencing, securing or otherwise relating to the indebtedness evidenced hereby
(subject to any applicable notice and cure period provisions that may be set
forth therein); then, and in such event, the entire outstanding principal
balance of the indebtedness evidenced hereby, together with any other sums
advanced hereunder, under the Loan Agreement and/or under any other instrument
or document now or hereafter evidencing, securing or in any way relating to the
indebtedness evidenced hereby, together with all unpaid interest accrued
thereon, shall, at the option of Holder and without notice to Maker, at once
become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, or in the Loan Agreement at the option of Holder and without notice to
Maker, all accrued and unpaid interest, if any, shall be added to the
outstanding principal balance hereof, and the entire outstanding principal
balance, as so adjusted, shall bear interest thereafter until paid at an annual
rate (the "Default Rate") equal to the lesser of (i) the rate that is two
percentage points (2.0%) in excess of the above-specified interest rate, or (ii)
the Maximum Rate in effect from time to time, regardless of whether or not there
has been an acceleration of the payment of principal as set forth herein. All
such interest shall be paid at the time of and as a condition precedent to the
curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any endorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest
and nonpayment are hereby waived by Maker and all other parties hereto. No
failure to accelerate the indebtedness evidenced hereby by reason of default
hereunder, acceptance of a past-due installment or other indulgences granted
from time to time, shall be construed as a novation of this Note or as a waiver
of such right of acceleration or of the right of Holder thereafter to insist
upon strict compliance with the terms of this Note or to prevent the exercise of
such right of acceleration or any other right granted hereunder or by applicable
laws. No extension of the time for payment of the indebtedness evidenced hereby
or any installment due hereunder, made by agreement with any person now or
hereafter liable for payment of the indebtedness evidenced hereby, shall operate
to release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
The indebtedness and other obligations evidenced by this Note are
further evidenced by (i) the Loan Agreement and (ii) certain other instruments
and documents, as may be required to protect and preserve the rights of Maker
and Payee as more specifically described in the Loan Agreement.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the Maximum Rate. If, from any circumstances whatsoever, the
fulfillment of any provision of this Note or any other agreement or instrument
now or hereafter evidencing, securing or in any way relating to the indebtedness
evidenced hereby shall involve the payment of interest in excess of the Maximum
Rate, then, ipso facto, the obligation to pay interest hereunder shall be
reduced to the Maximum Rate; and if from any circumstance whatsoever, Holder
shall ever receive interest, the amount of which would exceed the amount
collectible at the Maximum Rate, such amount as would be excessive interest
shall be applied to the reduction of the principal balance remaining unpaid
hereunder and not to the payment of interest. This provision shall control every
other provision in any and all other agreements and instruments existing or
hereafter arising between Maker and Holder with respect to the indebtedness
evidenced hereby.
This Note is intended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of Tennessee, except to the
extent that federal law may be applicable to the determination of the Maximum
Rate.
As used herein, the terms "Maker" and "Holder" shall be deemed to
include their respective successors, legal representatives and assigns, whether
by voluntary action of the parties or by operation of law.
IN WITNESS WHEREOF, the Maker has caused this instrument to be executed
by its duly authorized officer, and its seal to be affixed and adopted, as of
the day written above.
MAKER:
REORGANIZED CONSUMAT
SYSTEMS, INC.,
a Virginia corporation
ATTEST:
By: /s/ PATRICIA B. BRADLEY By: /s/ ROBERT L. MASSEY
Patricia B. Bradley, Corporate Robert L. Massey, President
Secretary and Chief Executive
Officer
STOCK PURCHASE WARRANT
This Warrant is issued this 12th day of March, 1996, by REORGANIZED
CONSUMAT SYSTEMS, INC., a Virginia corporation, formerly Consumat Systems, Inc.
(the "Company"), to SIRROM CAPITAL CORPORATION, a Tennessee corporation (Sirrom
Capital Corporation and any subsequent assignee or transferee hereof are
hereinafter referred to collectively as "Holder" or "Holders").
AGREEMENT:
1. ISSUANCE OF WARRANT; TERM. For and in consideration of the Holder
making a loan to the Company in an amount of Five Hundred Thousand and no/100ths
Dollars ($500,000) pursuant to the terms of a Secured Promissory Note of even
date herewith (the "Note") and the Loan Agreement of even date herewith (the
"Loan Agreement"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby grants to
Holder the right to purchase 250,000 shares of the Company's common stock (the
"Common Stock"), which the Company represents equals approximately 20% of the
capital stock of the Company on the date hereof, calculated on a fully diluted
basis after exercise ("Base Amount"), provided that in the event that any of the
Company's indebtedness evidenced by the Note, the Amended And Restated Secured
Promissory Note dated October 26, 1995, or the Secured Promissory Note dated
January 11, 1996 (the latter two notes being referred to herein as the "DIP
Notes"), is outstanding on the following dates, the Base Amount shall be
increased to the corresponding number set forth below:
DATE BASE AMOUNT
- ------------------- ----------------------------------------------
March 31, 1999 300,000 shares of Common Stock, which
the Company represents equals
approximately 23% of the capital stock of
the Company on the date hereof
calculated on a fully diluted basis after
exercise.
March 31, 2000 375,000 shares of Common Stock, which
the Company represents equals
approximately 27% of the capital stock of
the Company on the date hereof
calculated on a fully diluted basis after
exercise.
March 31, 2001 475,000 shares of Common Stock, which
the Company represents equals
approximately 32% of the capital stock of
the Company on the date hereof
calculated on a fully diluted basis after
exercise.
<PAGE>
The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time and from time to time from on and after March 31, 1998, until April 30,
2001. For purposes of this Warrant the term "fully diluted basis" shall be
determined in accordance with generally accepted accounting principles as of the
date hereof.
2. EXERCISE PRICE. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be One Cent ($.01).
3. EXERCISE. This Warrant may be exercised by the Holder hereof (but only on
the conditions hereinafter set forth) as to all or any increment or increments
of One Hundred (100) Shares (or the balance of the Shares if less than such
number), upon delivery of written notice of intent to exercise to the Company at
the following address: 8407 Erle Road, Mechanicsville, Virginia 23111 or P.O.
Box 9379, Richmond, Virginia 23227, or such other address as the Company shall
designate in a written notice to the Holder hereof, together with this Warrant
and payment to the Company of the aggregate Exercise Price of the Shares so
purchased. The Exercise Price shall be payable, at the option of the Holder, (i)
by certified or bank check, (ii) by the surrender of the Note or portion thereof
having an outstanding principal balance equal to the aggregate Exercise Price or
(iii) by the surrender of a portion of this Warrant having a fair market value
equal to the aggregate Exercise Price. Upon exercise of this Warrant as
aforesaid, the Company shall as promptly as practicable, and in any event within
fifteen (15) days thereafter, execute and deliver to the Holder of this Warrant
a certificate or certificates for the total number of whole Shares for which
this Warrant is being exercised in such names and denominations as are requested
by such Holder. If this Warrant shall be exercised with respect to less than all
of the Shares, the Holder shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this
Warrant. The Company covenants and agrees that it will pay when due any and all
state and federal issue taxes which may be payable in respect of the issuance of
this Warrant or the issuance of any Shares upon exercise of this Warrant.
4. COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
(a) Neither this Warrant nor the Shares have been registered under the
Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may
not be pledged, hypothecated, sold, made subject to a security interest, or
otherwise transferred without (i) an effective registration statement for
such Warrant under the Securities Act and such applicable Blue Sky Laws, or
(ii) an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to the Company and its counsel, that registration is not
required under the Securities Act or under any applicable Blue Sky Laws (the
Company hereby acknowledges that Bass, Berry & Sims is acceptable counsel).
Transfer of the shares issued upon the exercise of this
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<PAGE>
Warrant shall be restricted in the same manner and to the same extent as the
Warrant and the certificates representing such Shares shall bear
substantially the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED UNTIL (I) A
REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
SECURITIES ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS
NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment
therefor, be legally and validly issued and outstanding, fully paid and
nonassessable, free from all taxes, liens, charges and preemptive rights, if
any, with respect thereto or to the issuance thereof. The Company shall at
all times reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant.
(c) The Company covenants and agrees that it shall not sell any shares
of the Company's capital stock at a price below the fair market value of
such shares, without the prior written consent of the Holder hereof. In the
event that the Company sells shares of the Company's capital stock in
violation of this Section 4(c), the number of shares issuable upon exercise
of this Warrant shall be equal to the product obtained by multiplying the
number of shares issuable pursuant to this Warrant prior to such sale by the
quotient obtained by dividing (i) the fair market value of the shares issued
in violation of this Section 4(c) by (ii) the price at which such shares
were sold.
5. TRANSFER OF WARRANT. Subject to the provisions of Section 4 hereof, this
Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer. Upon such presentation for transfer, the Company shall
promptly execute and deliver a new Warrant or Warrants in the form hereof in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred
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by it in connection with the preparation, issuance and delivery of Warrants
under this Section.
6. WARRANT HOLDER NOT SHAREHOLDER; RIGHTS OFFERING; PREEMPTIVE RIGHTS;
PREFERENCE RIGHTS. Except as otherwise provided herein, this Warrant does not
confer upon the Holder, as such, any right whatsoever as a shareholder of the
Company. Notwithstanding the foregoing, if the Company should offer to all of
the Company's shareholders the right to purchase any securities of the Company,
then all shares of Common Stock that are subject to this Warrant shall be deemed
to be outstanding and owned by the Holder and the Holder shall be entitled to
participate in such rights offering. The Company shall not grant any preemptive
rights with respect to any of its capital stock without the prior written
consent of the Holder. The Company shall not issue any securities which entitle
the holder thereof to obtain any preference over holders of Common Stock upon
the dissolution, liquidation, winding-up, sale, merger, or reorganization of the
Company without the prior written consent of the Holder.
7. OBSERVATION RIGHTS. The Holder of this Warrant shall (a) receive notice
of and be entitled to attend or may send a representative to attend all meetings
of the Company's Board of Directors in a non-voting observation capacity, (b)
receive copies of all notices, packages and documents provided to members of the
Company's Board of Directors for each board of directors meeting, and (c)
receive copies of all actions taken by written consent by the Company's Board of
Directors, from the date hereof until such time as the indebtedness evidenced by
the Note and the DIP Notes has been paid in full.
8. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If all or any portion of this Warrant shall be exercised subsequent
to any stock split, stock dividend, recapitalization, combination of shares
of the Company, or other similar event, occurring after the date hereof,
then the Holder exercising this Warrant shall receive, for the aggregate
price paid upon such exercise, the aggregate number and class of shares
which such Holder would have received if this Warrant had been exercised
immediately prior to such stock split, stock dividend, recapitalization,
combination of shares, or other similar event. If any adjustment under this
Section 8(a) would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares subject to this Warrant shall be the
next higher number of shares, rounding all fractions upward. Whenever there
shall be an adjustment pursuant to this Section 8(a), the Company shall
forthwith notify the Holder or Holders of this Warrant of such adjustment,
setting forth in reasonable detail the event requiring the adjustment and
the method by which such adjustment was calculated.
(b) If all or any portion of this Warrant shall be exercised subsequent
to any merger, consolidation, exchange of shares, separation, reorganization
or liquidation of the Company, or other similar event, occurring after the
date hereof, as a result of which
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shares of Common Stock shall be changed into the same or a different number
of shares of the same or another class or classes of securities of the
Company or another entity, then the Holder exercising this Warrant shall
receive, for the aggregate price paid upon such exercise, the aggregate
number and class of shares which such Holder would have received if this
Warrant had been exercised immediately prior to such merger, consolidation,
exchange of shares, separation, reorganization or liquidation, or other
similar event. If any adjustment under this Section 8(b) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares subject to this Warrant shall be the next higher number of shares,
rounding all fractions upward. Whenever there shall be an adjustment
pursuant to this Section 8(b), the Company shall forthwith notify the Holder
or Holders of this Warrant of such adjustment, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated.
9. PUT AGREEMENT.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell to the Company (the "Put") this Warrant for a
period of 30 days immediately prior to the expiration thereof, at a purchase
price (the "Purchase Price") equal to the Fair Market Value (as hereinafter
defined) of the shares of Common Stock issuable to Holder upon exercise of
this Warrant.
(b) The Company shall pay to the Holder, in cash or certified or
cashier's check, the Purchase Price in exchange for the delivery to the
Company of this Warrant within thirty (30) days of the receipt of written
notice, addressed as set forth in Section 3 hereto, from the Holder of its
intention to exercise the Put.
(c) The Fair Market Value of the shares of Common Stock of the Company
issuable pursuant to this Warrant shall be the average trading price of
shares of Common Stock during the week preceding the date of purchase or if
the Common Stock is not publicly traded at such time shall be determined as
follows:
(i) The Company and the Holder shall each appoint an
independent, experienced appraiser who is a member of a recognized
professional association of business appraisers. The two appraisers
shall determine the value of the shares of Common Stock which would be
issued upon the exercise of the Warrant, taking into consideration that
such shares would constitute a minority interest, and would lack
liquidity, and further assuming that the sale would be between a
willing buyer and a willing seller, both of whom have full knowledge of
the financial and other affairs of the Company, and neither of whom is
under any compulsion to sell or to buy.
(ii) If the highest of the two appraisals is not more
than 10% more than the lowest of the appraisals, the Fair Market Value
shall be the average of the two appraisals. If the highest of the two
appraisals is 10% or more than the lowest of the
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two appraisals, then a third appraiser shall be appointed by the two
appraisers, and if they cannot agree on a third appraiser, the American
Arbitration Association shall appoint the third appraiser. The third
appraiser, regardless of who appoints him or her, shall have the same
qualifications as the first two appraisers.
(iii) The Fair Market Value after the appointment of the third
appraiser shall be the mean of the three appraisals.
(iv) The fees and expenses of the appraisers shall be
paid one-half by the Company and one-half by the Holder.
10. REGISTRATION.
(a) The Company and the Holders of the Shares agree that if at any time
after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary offering, it will give notice in writing to such effect to the
registered Holder(s) of the Shares at least thirty (30) days prior to such
filing, and, at the written request of any such registered Holder, made
within ten (10) days after the receipt of such notice, will include therein
at the Company's cost and expense (including the fees and expenses of
counsel to such Holder(s), but excluding underwriting discounts, commissions
and filing fees attributable to the Shares included therein) such of the
Shares as such Holder(s) shall request; provided, however, that if the
offering being registered by the Company is underwritten and if the
representative of the underwriters certifies in writing that the inclusion
therein of the Shares would materially and adversely affect the sale of the
securities to be sold by the Company thereunder, then the Company shall be
required to include in the offering only that number of securities,
including the Shares, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among all selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder, but in no event shall the total number of
Shares included in the offering be less than the number of securities
included in the offering by any other single selling shareholder).
(b) Whenever required under this Agreement to use its best efforts to
effect the registration of any of the Shares, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement covering such
Shares and use its best efforts to cause such registration statement to
be declared effective by the Commission as expeditiously as possible
and to keep such registration effective until the earlier of (A) the
date when all Shares covered by the registration statement have been
sold or (B) two hundred seventy (270) days from the effective date of
the registration statement; provided, that before filing a registration
statement or prospectus or any amendment
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or supplements thereto, the Company will furnish to each Holder of
Shares covered by such registration statement and the underwriters, if
any, copies of all such documents proposed to be filed (excluding
exhibits, unless any such person shall specifically request exhibits),
which documents will be subject to the review of such Holders and
underwriters, and the Company will not file such registration statement
or any amendment thereto or any prospectus or any supplement thereto
(including any documents incorporated by reference therein) with the
Commission if (A) the underwriters, if any, shall reasonably object to
such filing or (B) if information in such registration statement or
prospectus concerning a particular selling Holder has changed and such
Holder or the underwriters, if any, shall reasonably object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section 10(b)(i) and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement, and cause the
prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed with the Commission pursuant to Rule
424 under the Securities Act.
(iii) Furnish to the selling Holder(s) such numbers of copies
of such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), each supplement thereto and such other documents as they
may reasonably request in order to facilitate the disposition of the
Shares owned by them.
(iv) Use its best efforts to register and qualify under such
other securities laws of such jurisdictions as shall be reasonably
requested by any selling Holder and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
selling Holder to consummate the disposition of the Shares owned by
such Holder, in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto
to qualify to transact business or to file a general consent to service
of process in any such states or jurisdictions.
(v) Promptly notify each selling Holder of the happening of
any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not
misleading and, at the request of any such Holder, the Company will
prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus
will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading.
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(vi) Provide a transfer agent and registrar for all such
Shares not later than the effective date of such registration
statement.
(vii) Enter into such customary agreements (including
underwriting agreements in customary form for a primary offering) and
take all such other actions as the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such
Shares (including, without limitation, effecting a stock split or a
combination of shares).
(viii) Make available for inspection by any selling Holder or
any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent
retained by any such selling Holder or underwriter, all financial and
other records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and independent
accountants of the Company to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement.
(ix) Promptly notify the selling Holder(s) and the
underwriters, if any, of the following events and (if requested by any
such person) confirm such notification in writing: (A) the filing of
the prospectus or any prospectus supplement and the registration
statement and any amendment or post-effective amendment thereto and,
with respect to the registration statement or any post-effective
amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that
purpose, and (D) the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale
in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any
order suspending the effectiveness of the registration statement and
obtain at the earliest possible moment the withdrawal of any such
order, if entered.
(xi) Cooperate with the selling Holder(s) and the
underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing the Shares to be sold and not bearing any
restrictive legends, and enable such Shares to be in such lots and
registered in such names as the underwriters may request at least two
(2) business days prior to any delivery of the Shares to the
underwriters.
(xii) Provide a CUSIP number for all the Shares not later than
the effective date of the registration statement.
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(xiii) Prior to the effectiveness of the registration
statement and any post-effective amendment thereto and at each closing
of an underwritten offering, (A) make such representations and
warranties to the selling Holder(s) and the underwriters, if any, with
respect to the Shares and the registration statement as are customarily
made by issuers in primary underwritten offerings; (B) use its best
efforts to obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
selling Holders and the underwriters, if any, such letters to be in
customary form and covering matters of the type customarily covered in
"cold comfort" letters by underwriters in connection with primary
underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of a majority of the
Shares being sold, and (2) by the underwriters, if any, to evidence
compliance with clause (A) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into
by the Company; and (D) obtain opinions of counsel to the Company and
updates thereof (which counsel and which opinions shall be reasonably
satisfactory to the underwriters, if any), covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the selling
Holders and underwriters or their counsel. Such counsel shall also
state that no facts have come to the attention of such counsel which
cause them to believe that such registration statement, the prospectus
contained therein, or any amendment or supplement thereto, as of their
respective effective or issue dates, contains any untrue statement of
any material fact or omits to state any material fact necessary to make
the statements therein not misleading (except that no statement need be
made with respect to any financial statements, notes thereto or other
financial data or other expertized material contained therein). If for
any reason the Company's counsel is unable to give such opinion, the
Company shall so notify the Holders of the Shares and shall use its
best efforts to remove expeditiously all impediments to the rendering
of such opinion.
(xiv) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders earnings statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than
forty-five (45) days after the end of any twelve-month period (or
ninety (90) days, if such period is a fiscal year) (A) commencing at
the end of any fiscal quarter in which the Shares are sold to
underwriters in a firm or best efforts underwritten offering, or (B) if
not sold to underwriters in such an offering, beginning with the first
month of the first fiscal quarter of the Company commencing after the
effective date of the registration statement, which statements shall
cover such twelve-month periods.
(c) After the date hereof, the Company shall not grant to any holder of
securities of the Company any registration rights which have a priority
greater than or equal to those granted to Holders pursuant to this Warrant
without the prior written consent of the Holder(s).
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(d) The Company's obligations under Section 10(a) above with respect to
each Holder of Shares are expressly conditioned upon such Holder's
furnishing to the Company in writing such information concerning such Holder
and the terms of such Holder's proposed offering as the Company shall
reasonably request for inclusion in the registration statement. If any
registration statement including any of the Shares is filed, then the
Company shall indemnify each Holder thereof (and each underwriter for such
Holder and each person, if any, who controls such underwriter within the
meaning of the Securities Act) from any loss, claim, damage or liability
arising out of, based upon or in any way relating to any untrue statement of
a material fact contained in such registration statement or any omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except for any such statement or
omission based on information furnished in writing by such Holder of the
Shares expressly for use in connection with such registration statement; and
such Holder shall indemnify the Company (and each of its officers and
directors who has signed such registration statement, each director, each
person, if any, who controls the Company within the meaning of the
Securities Act, each underwriter for the Company and each person, if any,
who controls such underwriter within the meaning of the Securities Act) and
each other such Holder against any loss, claim, damage or liability arising
from any such statement or omission which was made in reliance upon
information furnished in writing to the Company by such Holder of the Shares
expressly for use in connection with such registration statement.
(e) For purposes of this Section 10, all of the Shares shall be
deemed to be issued and outstanding.
11. CERTAIN NOTICES. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or
make any special dividend or other distribution to the holders of its Common
Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell all or substantially
all of its assets to, another corporation; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up
the affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder of
the Warrant, by certified or registered mail, (i) at least twenty (20) days'
prior written notice of the date
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on which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (ii) in the case of
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least twenty (20) days' prior written notice of
the date when the same shall take place. Any notice required by clause (i) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and any notice required by clause (ii) shall specify the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
REORGANIZED CONSUMAT SYSTEMS, INC.,
a Virginia corporation
By: /s/ ROBERT L. MASSEY
Robert L. Massey, President and
Chief Financial Officer
SIRROM CAPITAL CORPORATION,
a Tennessee corporation
By: /s/ PETER SOCHA
Peter Socha, Vice President and
Chief Credit Officer
11
EXECUTIVE
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 12, 1991 (the "Effective
Date") between Robert L. Massey ("Employee") and Consumat Systems, Inc. ("CSI"),
a Virginia Corporation.
WITNESSETH:
WHEREAS, CSI wishes to employ Employee upon the terms and conditions
set forth in this Agreement, and Employee wishes to accept such employment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto hereby agree as follows:
1. Term of Employment. CSI hereby agrees to employ Employee, and
Employee hereby accepts employment from CSI for a term (the "Employment Period")
commencing on the Effective Date and terminating two years from the Effective
Date, unless sooner terminated as provided herein.
2. Extensions of Term. The term of this contract shall be extended
automatically for one year at a time, unless either party gives the other
written notice that no extensions shall occur. To be effective, such notice must
be given at least 120 days prior to the then current expiration date.
3. Services. During the Employment period, Employee will serve CSI in
the position currently served and accordingly, shall perform the duties and
responsibilities customarily associated with that office, subject to the
direction and control of the Board of Directors of CSI.
4. Salary, Bonus and Benefits.
a. CSI will pay Employee an annual base salary of $125,000.00
(the "Base Salary") payable at the same time as CSI pays the salaries of its
other executives, and subject to increase based on performance reviews
consistent with the manner of reviews CSI conducts of its other executives.
b. In addition to the Base Salary, Employee shall be entitled
to receive reimbursement for all reasonable and customary expenses incurred by
the Employee in performing such services hereunder, including all expenses of
travel and living expenses while away from home on business or at the request of
and in the
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service of CSI, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by CSI. CSI shall
maintain in full force and effect, and the Employee shall be entitled to
continue to participate in, all of the employee benefit plans and arrangements
in effect on the date hereof in which the Employee participates (including
without limitation, annual leave and holidays, stock option plan, group life
insurance and accident plan, medical and dental insurance plans, and disability
plan). CSI shall not make any changes in such plans or arrangements that would
adversely affect the employee's rights or benefits thereunder. Such a change or
termination may be made, however, if it occurs pursuant to a program resulting
in no proportionately greater reduction in the rights of or benefits to the
Employee as compared with any other Employee of CSI. Nothing paid to the
Employee under any plan or arrangement presently in effect or made available in
the future shall be deemed to be in lieu of the base salary payable to the
Employee pursuant to this Agreement. Any payments or benefits payable to the
Employee hereunder in respect of any calendar year during which the Executive is
employed by CSI for less than the entire year shall be prorated, with the
exception of any insurance and like benefit plans which contain their own terms
for entitlement to benefits when the Employee's employment terminates.
c. CSI shall furnish the Employee with office space,
stenographic assistance and such other facilities, equipment and services, as
shall be suitable to the Employee's position and adequate for the performance of
his duties.
5. Employee Confidentiality Agreement.
Employee will disclose and assign to CSI any and all materials of a
proprietary nature including any material or trade secrets which are or could be
patented or copyrighted, which Employee may conceive, invent, or discover,
either solely or jointly with another or others during his employment. Employees
will, upon request of CSI, during, at the time of or after the termination of
his employment by CSI, execute and deliver all papers, including applications
for patents, and do such other legal acts (entirely at CSI's expense) as may be
necessary to obtain and maintain proprietary rights in any and all countries and
to vest title thereto in CSI.
Employee acknowledges that in his employment he is or will be making
use of, acquiring or adding to CSI's Confidential Information which includes
(but is not limited to) models, drawings, memoranda, and other materials or
records of a proprietary nature; engineering or technical data, records and
policy matters relating to research, finance, accounting, sales, personnel,
management, and operations; matters particularly relating to operations such as
customer lists, price lists,
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customer services requirements, costs of providing service and equipment, and
equipment maintenance costs. Therefore, in order to protect CSI's Confidential
Information and to protect other employees who depend on CSI for regular
employment, Employee agrees that Employee will not during or after the term of
his employment in any way utilize any of said Confidential Information, except
in connection with his employment by CSI, and he will not copy, reproduce, or
take with him the original or any copies of said Confidential Information and he
will not disclose any of said Confidential Information to anyone.
In the event of a breach of this paragraph 5, Employee acknowledges
that CSI's remedy at law is inadequate and that CSI shall be entitled to seek an
immediate injunction restraining such breach including incidental damages as
provided by the laws of the State of Arkansas.
6. Death Benefit. If Employee shall die during the Employment Period,
the employment of Employee shall terminate and Employee's estate and his heirs
shall not be entitled to any further payment of Base Salary after the date of
termination. The Company shall maintain term life so that an amount equal to one
year's Base Salary shall be payable to the Employee's named beneficiary in the
event of his death during the term of this contract.
7. Termination by CSI.
a. Termination For Cause. CSI may terminate the employment of
Employee for "Cause" at any time upon written notice to Employee specifying the
cause of termination. If terminated pursuant to this Section, the then current
Base Salary shall be paid to the date of termination. The word "Cause" as used
herein means the happening of any one or more of the following:
(i) Employee's commission of any fraudulent act with respect
to CSI; or
(ii) Employee's conviction of a felony or a serious
misdemeanor; or
(iii) Employee's engaging in activities which are in actual
conflict of interest with CSI.
b. Termination Without Cause. In the event CSI should
terminate the employment of Employee without cause at any time, CSI shall be
obligated to pay the then current Base Salary for one year at CSI's normal pay
intervals. Employee shall be under no duty to mitigate the payment due under
this paragraph. The word "Terminate", as used herein, shall mean any termination
by CSI, other than for "Cause", or any resignation by Employee subsequent
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to any instance where (a) Employee's base pay (or any benefits accoutrements or
bonus) is reduced from the level in effect immediately prior to the Effective
Date, Employee's responsibilities, title or level of authority are reduced as
compared to Employee's responsibilities, title or level of authority existing on
the Effective Date. This Agreement to pay such base salary is irrevocable and,
except as expressly provided herein, unconditional. The amount of base salary is
not subject to deduction (except for withholding taxes and repayment of loans or
advances), reduction, offset or counterclaim.
As an incentive to induce Employee not to compete with CSI in the event
Employee resigns or is terminated without cause, CSI agrees to (a) pay an
additional one year's Base Salary in one lump payment; and (b) to continue all
stock option vesting for a period of one year from termination (with an
additional 90 day exercise period from that anniversary date), but only if
Employee does not compete with CSI for one year following such resignation or
termination. In order to qualify, during that year, Employee must not directly
or indirectly engage in, or become interested in any business which renders
services that compete with services provided by CSI and the Employee to any
customer in a CSI National Sales Area which was serviced by CSI during the
period that he was employed by CSI. Specifically, Employee may not engage in
such activity as an individual, partner, stockholder, director, officer,
principal, agent, employee, trustee, lender of money, or in any other relation
or capacity whatsoever, except that he may acquire and hold shares of CSI and
not to exceed 2% of the outstanding shares of stock of any other corporation if
such shares of stock are publicly traded in the over-the-counter market or
listed on a national securities exchange.
8. Modification or Waiver. No amendment, modification or waiver of this
Agreement shall be binding or effective for any purpose unless it is made in
writing signed by the party against whom enforcement of such amendment,
modification or waiver is sought. No course of dealing between the parties to
this Agreement that is not in writing shall be deemed to affect or to modify,
amend or discharge any provision or term of this Agreement. No delay on the part
of CSI or Employee in the exercise of any of their respective rights or remedies
shall operate as a waiver thereof, and no single or partial exercise by CSI or
Employee of any such right or remedy shall preclude other or further exercise
thereof. A waiver of right or remedy on any one occasion shall not be construed
as a bar to or waiver of any such right or remedy on any other occasion.
9. Governing Law. This Agreement and all rights, remedies and
obligations hereunder including, but not limited to, matters of construction,
validity and performance shall be governed solely by the laws of the State of
Arkansas.
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10. Severability. Whenever possible each provision and term of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, if any provision or term of the agreement shall be held to be
prohibited by or invalid under such applicable law, then such provision or term
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement.
11. Arbitration. Any dispute or controversy, including whether a
termination was "for cause", shall be resolved exclusively before an arbitrator
in Little Rock, Arkansas, in accordance with the rules of the American
Arbitration Association (the "Association") then in effect. In the event the
parties cannot agree on an arbitrator, then the Association will supply both
parties with a list of seven names. The parties alternately strike one name
until only one remains, first choice is determined by a coin toss. The party
winning the coin toss has the option of striking first. Judgement may be entered
on the arbitrator's award in any court of competent jurisdiction to prevent any
continuation of any violations of the provisions of this Agreement. The expense
of such arbitration shall be borne by CSI, including Employee's reasonable legal
fees. This paragraph does not apply to alleged breaches of paragraph 5.
12. Entire Agreement. The parties agree that this instrument
constitutes the entire employment agreement between the parties cancelling all
other contractual relationships (written or oral) between the parties, except
for previously issued stock option rights.
13. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when mailed by United States certified
or registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee:
Robert L. Massey
216 Fulham Circle
Richmond, Virginia 23227
If to CSI:
Consumat Systems, Inc.
P.O. Box 9379
Richmond, Virginia 23227
Attention: Corporate Secretary
5
<PAGE>
Copy to:
Environmental Systems Company
333 Executive Court
Little Rock, Arkansas 72205
Attention: Corporate Secretary
14. This contract is binding on CSI or any successor in interest
via merger, asset transfer, or any other transaction.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
CONSUMAT SYSTEMS, INC.
By: /s/ JOHN E. JOYNER
-----------------------
John E. Joyner
President
ATTEST:
/s/ CARROLL T. HUGHES, JR.
- -----------------------------
Carroll T. Hughes, Jr.
Chairman
EMPLOYEE:
/s/ ROBERT L. MASSEY
--------------------------
Robert L. Massey
Executive Vice President
6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of June 14, 1995
between CONSUMAT SYSTEMS, INC., a Virginia corporation ("Company") and MARK E.
HILLS ("Employee").
RECITAL
Employee is presently serving as the Chief Financial Officer of
Company. The Board of Directors of Company recognizes the valuable contributions
that Employee has made to Company and wishes to arrange for and assure the
continued availability of his services in the future.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties hereto agree as follows:
1. Employment. Company hereby agrees to continue to employ Employee as
Chief Financial Officer, and Employee hereby accepts such employment from the
date hereof until December 31, 1995, provided, however, that beginning on July
1, 1995, the term of this Agreement shall automatically be extended on a
day-for-day basis, it being intended that this Agreement shall perpetually have
a six-month term remaining.
2. Duties. Employee shall perform the customary duties of a
chief financial officer and such other management duties as may be assigned to
him by the President of the Company. Throughout the duration of this Agreement,
Employee shall devote substantially all of his working time, attention, skill,
and energies to the performance of these duties.
3. Compensation. Company shall pay Employee a salary at the rate of not
less than $55,000 per year, payable biweekly. In addition, Employee shall be
eligible for such bonuses as Company shall determine in its sole and absolute
discretion. Nothing contained herein shall be deemed to limit the right of
Company to increase the salary and/or bonus provided herein, and, in such event,
the other terms and conditions of this Agreement shall remain in full force and
effect. All compensation payable to the Employee pursuant to this paragraph 3
will be subject to such deductions as are from time to time required to be made
pursuant to any law, government regulation, or order, or by any agreement with
or consent of the Employee.
4. Fringe Benefits. Company shall maintain and Employee shall be
entitled to continue to participate in all of its employee benefit plans and
arrangements in effect on the date hereof in which employee participates or
plans or arrangements providing Employee with at least equivalent benefits
thereunder. Notwithstanding the foregoing, Company may make changes in any such
arrangements provided that such changes are made pursuant to a program which is
applicable to all executives of Company and which changes do not result in a
proportionately greater reduction in the rights and benefits to Employee as
compared with any other executive officer.
<PAGE>
5. Business Expenses. Company shall reimburse Employee for reasonable
and necessary business expenses, ancillary expenses for travel and similar
items, incurred or expended by Employee in the performance of his duties
hereunder. Such reimbursement shall be in accordance with Company's policy and
procedures governing reimbursement of such expenses, which may be altered or
modified from time to time in the Company's sole discretion.
6. Working Facilities. Employee shall be furnished with a
private office, secretarial help and such other equipment, facilities and
services as are suitable to his position and adequate to enable him to perform
his duties.
7. Confidential Information. Employee recognizes that his position with
the Company will give him access to Company information. For the purposes of
this Agreement, the term "Company Information" shall include information
disclosed to the Employee or known by the Employee as a consequence of or
through his employment by the Company, not generally known in the industry in
which the Company is or may become engaged, about the Company's products,
processes and services, including customer lists and information relating to
research, development, inventions, manufacture, purchasing, finances,
accounting, engineering, marketing, merchandising and selling. Employee
recognizes and acknowledges that such information, as it may exist from time to
time, is a valuable, special and unique asset of the Company's business.
Employee will not, directly or indirectly, during or after the term of this
Agreement, use Company Information or disclose Company Information or any part
thereof to any persons, firm, corporation, association or other entity for any
reasons or purpose whatsoever. Upon termination of his employment, Employee will
promptly deliver to the Company all documents, records, notebooks and similar
repositories of or containing Company Information, including copies thereof,
then in Employee's possession or under Employee's control.
8. Employee's Representations and Warranties. Employee
represents and warrants to the Company the following:
a. Employee has the full power and authority to enter into
this Agreement without the consent or approval of any other person, including
any present or previous employer.
b. Employee's execution, delivery, and performance of this
Agreement will not violate or cause a breach of any existing employment or other
agreement, covenant, promise, or any other duty by which Employee is bound,
including confidentiality obligations or covenants not to compete.
9. Termination Because of Disability or Death.
a. For purposes of this Agreement, the term "Disability" shall
mean the inability of Employee to fulfill his duties to Company because of a
physical or mental impairment which can be expected to result in death or to
continue for a period of at least six months, or because of any such condition
which actually continues for a period of six months. If a doctor
2
<PAGE>
satisfactory to the Company determines that Employee has become disabled, the
Company may terminate his employment by giving him at least thirty days' written
notice.
b. If Employee dies during the term of his employment, this
Agreement shall terminate as of the date of such death, and Company shall pay to
Employee's estate all unpaid compensation payable for the services rendered by
Employee prior to his death. Such payments shall be made in accordance with
normal Company policy.
10. Termination for Cause. Company may, at any time, elect to terminate
Employee's employment under this Agreement for Cause. For purposes of this
Agreement, the term "Cause" shall include, but not be limited to (i) Employee's
prolonged and deliberate neglect of the performance of his duties, except that
if such neglect arises from a disability, then the provisions of paragraph 9
shall apply; (ii) willful misconduct on the part of Employee in connection with
his employment, including but not limited to the misappropriation of funds or
securing or attempting to secure personally any profit in connection with any
transaction entered into on behalf of the Company; or (iii) Employee's
conviction of a felony.
11. Termination for any other Reason. In the event of any termination
of Employee's employment by Company except as specifically permitted by this
Agreement, Company shall continue to pay Employee his salary in full and provide
all benefits for the then remaining term of this Agreement. Employee shall have
no duty to seek other employment or otherwise mitigate damages.
12. Termination by Employee. If Employee resigns or voluntarily leaves
Company's employ, Company's obligations to Employee under this Agreement shall
terminate, and Company shall have no further liability to Employee hereunder,
provided, however, that Company shall pay any amounts of salary or compensation
accrued to the date of termination.
13. Return of Property. Upon the termination of his employment, whether
at the instance of the Company or Employee, Employee will return to the Company
all property including, without limitation, all documents, memoranda, notations,
letters, computer hardware and software, borrower lists, copies of any of the
foregoing and other materials in his possession or under his control (wherever
located) relating to the business of Company.
14. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient, if in writing, and in the case of Employee,
if sent by registered mail to his residence, or in the case of Company, to its
President at the principal office of the Company. Employee agrees to give prompt
notice to the Company of any change in his mailing address.
15. Waiver of Breach. The waiver by the Company of a breach of
any provision of this Agreement by Employee shall not operate or be construed as
a waiver of any subsequent breach by Employee.
3
<PAGE>
16. Assignment. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company. Except as is otherwise provided herein, the rights,
duties, and obligations of Employee are non-assignable, and any such attempted
assignments shall be deemed null and void. The obligations of Employee under
paragraphs 7 and 13 hereof shall continue after the termination of his
employment with Company for any reason, with or without cause, and shall be
binding on Employee's heirs, executors, legal representatives, and assigns.
17. Headings. The paragraph headings in this agreement are solely
for convenience of reference and shall be given no effect in the construction or
interpretation of this agreement.
18. Miscellaneous. This instrument contains the entire agreement
of the parties. It shall be construed by the law of the Commonwealth of
Virginia, without reference to its conflict of laws rules, and shall only be
changed in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year first above written.
CONSUMAT SYSTEMS, INC.
By: /s/ ROBERT L. MASSEY
_____________________________
President
/s/ MARK E. HILLS
--------------------------------
Mark E. Hills
4
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<CURRENT-ASSETS> 977
<PP&E> 3,877
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,673
<SALES> 4,399
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