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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 1999
HIA, INC.
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(Exact name of Registrant as specified in its charter)
New York 0-9599 16-1028783
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4275 Forest Street
Denver, Colorado 80216
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (303) 394-6040
(Former name or former address, if changed since last report): NA
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 25, 1999, the Company acquired from Bruce J. Grinnell,
Jr. all of the issued and outstanding common stock of Western Pipe Supply, Inc.,
a Colorado corporation ("WPS"), for a purchase price of $2,662,495. Of the total
purchase price, $1,485,385 was paid in cash and $1,177,110 was in the form of a
subordinated promissory note, amortizable over 10 years, bearing interest at 8%
per annum. The subordinated promissory note is secured by a portion of the
outstanding common stock of WPS. The cash portion of the purchase price was paid
in part from additional borrowings on the Company's existing line of credit from
Norwest Bank Denver and in part with the proceeds of a new $1,000,000 loan from
Norwest Bank Denver which is repayable over five years with interest at 8.25%
per annum. In addition, the Company borrowed $442,504 against its line of credit
with Norwest Bank Denver to refinance WPS's bank debt.
WPS is engaged in the business of distributing plumbing,
irrigation and sprinkler supplies. It has locations in Boulder and Fort Collins,
Colorado. The assets of WPS consist primarily of inventory and the equipment and
trade fixtures in its two locations. WPS leases the land and buildings it
occupies from partnerships of which Mr. Grinnell is a member. The Company
intends to continue the business of WPS substantially in accordance with past
practices, modified to fit the Company's systems and procedures.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The financial statements of WPS required by this Item
will be filed by amendment within 60 days after the date that this report was
due.
(b) Pro Forma Financial Information.
The pro forma financial information required by this
Item relating to the acquisition described above will be filed by amendment
within 60 days after the date that this report was due.
(c) Exhibits.
2.1 Stock Purchase Agreement between Bruce J.
Grinnell, Jr., as Seller, CPS Distributors,
Inc., as Buyer, and HIA, Inc., as Guarantor
dated as of March 30, 1999.
10.1 Second Amended and Restated Credit Agreement
dated as of May 25, 1999 among CPS
Distributors, Inc., Water Systems, Inc.,
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Western Pipe Supply Co., Inc., and Norwest
Bank Colorado, National Association.
10.2 Amended and Restated Guaranty by Company
dated May 25, 1999 by HIA, Inc. for the
benefit of Norwest Bank Colorado, N.A.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Current
Report on Form 8-K to be signed on its behalf by the undersigned thereunto duly
authorized.
HIA, INC.
Date: June 8, 1999 By: /s/ Alan C. Bergold
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Alan C. Bergold, President
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER DESCRIPTION
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2.1 Stock Purchase Agreement between Bruce J. Grinnell,
Jr., as Seller, CPS Distributors, Inc., as Buyer, and
HIA, Inc., as Guarantor dated as of March 30, 1999.
10.1 Second Amended and Restated Credit Agreement dated as
of May 25, 1999 among CPS Distributors, Inc., Water
Systems, Inc., Western Pipe Supply Co., Inc., and
Norwest Bank Colorado, National Association.
10.2 Amended and Restated Guaranty by Company dated May 25,
1999 by HIA, Inc. for the benefit of Norwest Bank
Colorado, N.A.
</TABLE>
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EXHIBIT 2.1
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STOCK PURCHASE AGREEMENT
between
BRUCE J. GRINNELL, JR.
as Seller,
and
CPS DISTRIBUTORS, INC.,
as Buyer,
and
HIA, INC.,
as Guarantor,
Dated as of March 30, 1999
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TABLE OF CONTENTS
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PAGE
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SECTION 1
DEFINITIONS..............................................................................................1
1.1. Certain Defined Terms...........................................................................1
1.2. Other Defined Terms.............................................................................3
SECTION 2
PURCHASE AND SALE OF STOCK...............................................................................4
2.1. Basic Agreement.................................................................................4
2.2. Purchase Price..................................................................................4
2.3. Assets to be Retained by Seller.................................................................4
2.4. Leases and Options..............................................................................4
2.5. Closing Date Liabilities........................................................................4
2.6. Closing.........................................................................................5
SECTION 3
REPRESENTATIONS AND WARRANTIES OF SELLER.................................................................5
3.1. The Company.....................................................................................5
3.2. The Transaction Agreements......................................................................6
3.3. The Business Assets.............................................................................6
3.4. Financial Matters...............................................................................7
3.5. Operational Matters............................................................................10
3.6. Employee Matters...............................................................................12
3.7. Environmental Matters..........................................................................13
3.8. Brokers, Finders, etc..........................................................................13
SECTION 4
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................13
4.1. Organization and Standing......................................................................13
4.2. Execution and Validity of Agreements...........................................................14
4.3. No Violation or Approval.......................................................................14
4.4. SEC Reports....................................................................................14
4.5. Brokers, Finders, etc..........................................................................14
4.6. Securities Law Matters.........................................................................14
4.7. Pending Litigation.............................................................................15
4.8. Security Interests.............................................................................15
SECTION 5
PRE-CLOSING COVENANTS...................................................................................15
5.1. Operation in Ordinary Course...................................................................15
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5.2. Access.........................................................................................15
5.3. Confidentiality................................................................................15
5.4. Audit..........................................................................................16
5.5. Fulfillment of Conditions......................................................................16
5.6. Exclusivity....................................................................................16
5.7. Non-Solicitation...............................................................................16
5.8. Environmental Reports..........................................................................16
SECTION 6
CONDITIONS PRECEDENT; TERMINATION.......................................................................17
6.1. Conditions Precedent to Obligations of Seller..................................................17
6.2. Conditions Precedent to Obligations of Buyer...................................................17
6.3. Condition Precedent to the Obligations of Each Party...........................................19
6.4. Termination....................................................................................19
SECTION 7
POST-CLOSING COVENANTS..................................................................................19
7.1. Confidential Information.......................................................................19
7.2. Assistance After Closing.......................................................................19
7.3. Further Assurances.............................................................................20
7.4. Termination of Obligations.....................................................................20
7.5. Letters to Suppliers and Customers.............................................................20
SECTION 8
INDEMNIFICATION.........................................................................................20
8.1. By Seller......................................................................................20
8.2. By Buyer and HIA...............................................................................21
8.3. Defense of Claims..............................................................................22
8.4. Insurance......................................................................................23
8.5. Limitations....................................................................................23
SECTION 9
MISCELLANEOUS...........................................................................................24
9.1. Arbitration....................................................................................24
9.2. Governing Law..................................................................................24
9.3. Notices........................................................................................24
9.4. Entire Agreement, Assignability, Etc...........................................................25
9.5. Counterparts...................................................................................25
9.6. Representations as to Knowledge................................................................25
9.7. Headings, Terms................................................................................26
9.8. Waivers........................................................................................26
9.9. Severability...................................................................................26
9.10. Remedies Cumulative............................................................................26
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9.11. Expenses.......................................................................................26
9.12. Construction...................................................................................26
9.13. Survival.......................................................................................27
9.14. Incorporation of Exhibits......................................................................27
</TABLE>
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EXHIBITS
Exhibit A - Leases and Options
Exhibit B - Noncompetition Agreement
Exhibit C - Note
Exhibit D - Guaranty
Exhibit E - Pledge Agreement
Exhibit F - Company Financial Statements
SCHEDULES
Schedule 1.1.15 Premises
Schedule 2.3 Excluded Assets
Schedule 3.1.3 Capitalization
Schedule 3.2.2 Consents
Schedule 3.3.1 Business Assets
Schedule 3.3.2 Encumbrances
Schedule 3.3.3 Leased Personal Property
Schedule 3.3.7 Computer Software
Schedule 3.4.2 Undisclosed Liabilities
Schedule 3.4.3 Certain Changes
Schedule 3.4.4 Tax Returns
Schedule 3.5.1 Suppliers
Schedule 3.5.2 Customers
Schedule 3.5.4 Litigation
Schedule 3.5.5 Product and Service Liability Claims
Schedule 3.5.6 Licenses
Schedule 3.5.7 Contracts
Schedule 3.5.8 Transactions with Affiliates
Schedule 3.5.9 Insurance
Schedule 3.5.11 Bank Accounts; Powers of Attorney
Schedule 3.6.1 Medical, Dental and Short-Term Disability Insurance
Schedule 3.6.2 Employees
Schedule 3.7.1 Environmental Matters
Schedule 4.7 Buyer Pending Litigation
Schedule 4.8 Buyer Security Interests
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THIS STOCK PURCHASE AGREEMENT is made on March 30, 1999, among Bruce J.
Grinnell, Jr. ("Seller"), CPS Distributors, Inc., a Colorado corporation
("Buyer"), and HIA, Inc., a New York corporation ("HIA").
RECITALS
Seller owns all of the stock of Western Pipe Supply Co., Inc., a
Colorado corporation (the "Company"). Seller has agreed to sell all of the stock
of the Company to Buyer on the terms and conditions set forth in this Agreement.
HIA owns all of the issued and outstanding stock of Buyer.
AGREEMENT
Accordingly, Seller and Buyer agree as follows:
SECTION 1
DEFINITIONS
1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms have the indicated meanings:
1.1.1. "Adverse Consequences" means all actions, suits,
proceedings, investigations, complaints, claims, demands, orders, decrees,
rulings, injunctions, judgments, directives, notices of violation, Liabilities,
liens, losses (including loss of value), damages, penalties, fines, settlements,
costs, remediation costs, expenses and fees (including court costs and
reasonable fees and expenses of counsel and other experts).
1.1.2. "Affiliate" means, as to any Person, another Person that
controls, is controlled by or is under common control with such Person and, as
to any natural Person, any relative by blood, marriage or adoption. For that
purpose, "control" means the power, directly or indirectly, by stock ownership,
contract, family relationship, employment, position or otherwise, to
significantly influence the business decisions of another Person.
1.1.3. "Business Assets" means all assets, properties and rights
owned by the Company or used by the Company in the conduct of its business,
tangible or intangible, real or personal, including the Leased Personal
Property, but excluding, in all cases, the Excluded Assets.
1.1.4. "Closing Date Liabilities" means all Liabilities of the
Company as of the Closing Date. For that purpose, any Liability of the Company
shall be deemed to exist as of the Closing Date to the extent that it is based
upon or arises out of facts, events or circumstances existing or occurring on or
before the Closing Date, even though the Liability is not known on the Closing
Date.
1.1.5. "Code" means the United States Internal Revenue Code of
1986, as amended.
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1.1.6. "Encumbrance" means any interest in an asset securing
performance of an obligation, any adverse claim of title to or the right to
possession or use of an asset and any option or other right to acquire title to
or the right to possession or use of an asset.
1.1.7. "Environmental Law" means all present and future statutes,
ordinances, codes, common law principles, rules, regulations, orders, decrees,
standards, procedures, permit or license requirements or other requirements of
any governmental authority relating to land use, public health, safety, welfare
or the environment, including, without limitation, the Resource Conservation and
Recovery Act, as amended, and the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended.
1.1.8. "Hazardous Substance" means any pollutant, contaminant,
toxic or hazardous material, substance, chemical, compound or mixture that is
defined, listed, classified or regulated by any Environmental Law.
1.1.9. "Leased Personal Property" means personal property leased
by the Company from a Third Party under a lease that is not required to be
capitalized for accounting purposes.
1.1.10. "Leases and Options" means the real property leases and
options to purchase in the form attached to this Agreement as EXHIBIT A to be
entered into at the Closing among the Company, as lessee, the Buyer, as
guarantor, and (i) 3-G Partnership, as lessor, with respect to the premises at
5700 Valmont, Boulder, Colorado, (ii) Egg Partnership, as lessor, with respect
to the premises at 5690 Valmont, Boulder, Colorado, and (iii) D&D Associates, as
lessor, with respect to the premises at 1841 Boston Avenue, Longmont, Colorado.
1.1.11. "Liability" means any liability, debt or obligation,
whether known or unknown, absolute or contingent, arising under contract, in
tort, by statute or regulation or otherwise, accrued or unaccrued, liquidated or
unliquidated and due or to become due, and whether for the payment of money, the
provision of goods or services or the performance of any other obligation.
1.1.12. "Noncompetition Agreement" means the Noncompetition
Agreement between Buyer and Seller in the form annexed hereto as EXHIBIT B.
1.1.13. "Person" means an individual and any corporation,
partnership, trust, limited liability company, association, governmental
authority or any other entity.
1.1.14. "Premises" means the real property occupied by Company, as
described in SCHEDULE 1.1.15.
1.1.15. "Tax" means any federal, state or local tax or any foreign
tax (including, without limitation, any net income, gross income, profits,
premium, estimated, excise, sales, value added, services, use, occupancy, gross
receipts, franchise, license, ad valorem, severance,
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capital levy, production, stamp, transfer, withholding, employment,
unemployment, social security (including FICA), payroll or property tax, customs
duty, or any other governmental charge or assessment), together with any
interest, addition to tax or penalty.
1.1.16. "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
1.1.17. "Third Party" means a Person who is not Seller or an
Affiliate of the Company or Seller.
1.1.18. "Transaction Agreements" means this Agreement, the
Noncompetition Agreement, the Leases and Options, the Note, the Guaranty, the
Pledge Agreement, and all other instruments and agreements executed and
delivered pursuant to this Agreement.
1.2. OTHER DEFINED TERMS. In addition to the terms defined above, the
following terms are defined in the Sections indicated below:
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Term Section
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Adjustment Report Section 2.6.3
Audited Balance Sheet Section 2.6
Audited Financial Statements Section 5.4
Audited Net Worth Section 2.6.1
Buyer Preamble
Buyer's Accountants Section 5.4
Claim Section 8.4
Closing Section 2.7
Closing Date Section 2.7
COBRA Section 3.6.1
Company Recitals
Company Financial Statements Section 3.4.1
Dispute Notice Section 2.6.2
Employee Pension Benefit Plan Section 3.6.1
Employee Welfare Benefit Plan Section 3.6.1
ERISA Section 3.6.1
Excluded Assets Section 2.3
GAAP Section 2.6.2
Guaranty Section 2.2
HIA Section 4.4
Indemnitee Sections 8.1 and 8.2
Indemnitor Sections 8.1 and 8.2
Independent Accountants Section 2.6.3
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<TABLE>
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Note Section 2.2
Pledge Agreement Section 2.2
Purchase Price Section 2.2
Review Period Section 2.6.2
SEC Reports Section 4.4
Seller Preamble
Stock Section 2.1
</TABLE>
SECTION 2
PURCHASE AND SALE OF STOCK
2.1. BASIC AGREEMENT. Seller agrees to sell to Buyer, and Buyer agrees
to purchase from Seller, at the Closing, all of the issued and outstanding
capital stock of the Company (the "Stock").
2.2. PURCHASE PRICE. The aggregate purchase price (the "Purchase
Price") to be paid by Buyer to Seller for the Stock and the covenant not to
compete set forth in the Noncompetition Agreement shall be $2,700,000. The
Purchase Price will be paid (i) $1,500,000 by wire transfer to an account
designated by Seller at least two business days prior to the Closing and (ii)
$1,200,000 by Buyer's Subordinated Promissory Note in the form attached to this
Agreement as EXHIBIT C (the "Note"). The Note will be guaranteed by HIA pursuant
to the guaranty agreement attached to this Agreement as EXHIBIT D (the
"Guaranty"). The Note and the obligations of HIA under the Guaranty shall be
secured by a security interest in a portion of the Stock pursuant to the
security agreement attached to this Agreement as EXHIBIT E (the "Pledge
Agreement").
2.3. ASSETS TO BE RETAINED BY SELLER. On or before the Closing Date,
Seller will cause the Company to distribute to Seller or to otherwise dispose of
the assets described in SCHEDULE 2.3 (the "Excluded Assets"). Seller shall be
responsible for, and shall reimburse the Company for, all Taxes payable by the
Company as a result of such distribution or other disposition.
2.4. LEASES AND OPTIONS. At the Closing, the Company and the respective
lessors shall enter into the Leases and Options.
2.5. CLOSING DATE LIABILITIES. At the Closing, the Company shall not
owe or be obligated to perform any Liability other than (i) the obligations of
the Company under the Leases and Options, (ii) the obligations of the Company
under the leases of the Leased Personal Property, insofar as they arise from the
possession or use of the Leased Personal Property after the Closing, (iii) the
obligations of the Company reflected on the Audited Balance Sheet, (iv)
contractual Liabilities incurred in the ordinary course of business since
December 31, 1998 that do not constitute a breach of the Seller's
representations and warranties in this Agreement and that do not arise from any
breach of contract or warranty, and (v) the obligations of the Company under the
contracts described in SCHEDULE 3.5.7 and other contracts that do not constitute
a breach of Seller's
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representations and warranties in Section 3.5.7 insofar as they relate to the
operations of the Company after the Closing.
2.6. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall be held at the offices of Sherman & Howard
L.L.C., 633 Seventeenth Street, Suite 3000, Denver, Colorado 80202 at 9:00 a.m.
on the fifth business day following the later of (a) the delivery of the Audited
Financial Statements to Seller and Buyer and (b) the completion of the processes
contemplated by Section 5.8, or at such other time or place as the parties may
mutually agree (the "Closing Date").
SECTION 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1. THE COMPANY.
3.1.1. ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Colorado. The Company is not required to be qualified to do business as
a foreign corporation in any jurisdiction. The Company has the requisite
corporate power and authority to own its assets and carry on its business as
presently being conducted. Complete and correct copies of the charter, bylaws,
minute books and stock records of the Company current as of the date of this
Agreement have been delivered to Buyer.
3.1.2. SUBSIDIARIES. The Company does not own, directly or
indirectly, any capital stock of, any partnership, equity or other ownership
interest in, or any other security issued by, any other corporation,
organization, association, entity, business enterprise or other Person.
3.1.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 50,000 shares of Class A Common Stock, no par value, of which 22,500
shares are issued and outstanding, and 100 shares of Class B Common Stock, no
par value, of which no shares are issued and outstanding. All of the Stock is
duly authorized, validly issued, fully paid and nonassessable and is owned of
record and beneficially by Seller, free and clear of Encumbrances, except as
reflected in SCHEDULE 3.1.3. When transferred to Buyer at the Closing, the Stock
will be owned by Buyer free and clear of Encumbrances, except such as may be
created by Buyer. There are no outstanding options, warrants, convertible
securities or other rights to acquire any of the Stock from any Seller or any
other capital stock or security from the Company. The Stock was not issued in
violation of any preemptive or similar right of any Person and has not been
transferred in violation of, and is not currently subject to, any right of first
refusal or similar right of any Person. The Stock is not subject to any voting
trust or other voting agreement.
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3.2. THE TRANSACTION AGREEMENTS.
3.2.1. EXECUTION AND VALIDITY. This Agreement has been duly
executed and delivered by Seller and constitutes, and each of the other
Transaction Agreements to which Seller is a party will be duly executed and
delivered by Seller at Closing and will constitute, the legal, valid and binding
obligation of Seller, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, moratorium, reorganization and similar laws of general
applicability affecting the rights and remedies of creditors and to general
principles of equity, regardless of whether enforcement is sought in proceedings
in equity or at law.
3.2.2. NO VIOLATION OR APPROVAL. The execution, delivery and
performance by Seller of the Transaction Agreements and the consummation of the
transactions contemplated by the Transaction Agreements does not and will not
constitute or result in (i) a violation of any order, judgment or decree of any
court or governmental agency or body having jurisdiction over Seller, the
Company or any of the Business Assets, or (ii) a breach of or default under, or
the acceleration of any obligation or creation of any Encumbrance under (whether
immediately, upon the passage of time or after the giving of notice), or
otherwise require a consent or waiver under, any material agreement, instrument,
lease, contract, mortgage, deed or license to which Seller or the Company is a
party or by which Seller or the Company or any of their assets are bound or
affected or (iii) a violation of or a conflict with the Articles of
Incorporation or bylaws of the Company. Except as set forth on SCHEDULE 3.2.2,
no notice to, or consent, approval, order or authorization of, or declaration or
filing with, any governmental authority or entity or other Person is required to
be obtained or made by Seller or the Company in connection with the execution,
delivery and performance of or the consummation of the transactions contemplated
by any of the Transaction Agreements.
3.3. THE BUSINESS ASSETS.
3.3.1. DESCRIPTION. The Business Assets and the Premises
constitute all of the assets, properties and rights used by the Company to
conduct the Business and necessary to conduct the Business as currently
conducted. The Company does not use any assets in its business that are owned or
leased by Seller or any Affiliate of Seller, other than certain of the Premises.
SCHEDULE 3.3.1 is a true and complete description of the Business Assets, other
than the Leased Personal Property, including a list of all tangible Business
Assets, other than the Leased Personal Property.
3.3.2. TITLE. The Company has good and marketable title to all of
the Business Assets, except the Leased Personal Property, free and clear of
Encumbrances except (a) Encumbrances securing current Taxes not yet due and
payable and (b) Encumbrances set forth in SCHEDULE 3.3.2.
3.3.3. LEASED PERSONAL PROPERTY. SCHEDULE 3.3.3 is a true and
complete list of the Leased Personal Property, including a description of all
applicable leases and related
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agreements. All of those leases and agreements are in full force and effect and
neither the Company nor, to the Sellers' knowledge, any other Person is in
default under any such lease or agreement. The Company enjoys peaceful and
undisturbed possession of all Leased Personal Property.
3.3.4. CONDITION. The tangible Business Assets, taken as a whole,
are in good operating condition and repair, subject to ordinary wear and tear
reasonably to be expected in a business of the type operated by the Company, and
are suitable for the purposes for which they are currently used. The Company's
inventory of merchandise held for sale is current and suitable for sale in the
ordinary course of the Company's business.
3.3.5. ACCOUNTS RECEIVABLE. All of the accounts receivable of the
Company (whether reflected in the Company Financial Statements or arising after
the date thereof and prior to the Closing Date) arose or will arise from bona
fide transactions in the ordinary course of business, are subject to no setoffs
or counterclaims and are current and collectable in the ordinary course of
business; provided, however, that Seller shall not be deemed to be in breach of
this representations as to the collectability of accounts receivable unless and
except to the extent that the amount of uncollectable accounts exceeds an amount
equal to the allowance for bad debt used in the preparation of the Audited
Financial Statements.
3.3.6. TRADE NAMES. The Company does not use or do business under
any name other than its proper corporate name.
3.3.7. SOFTWARE. SCHEDULE 3.3.7 lists the computer software used
by the Company in the conduct of its business and the agreements pursuant to
which the software is used. The Company is not in default under any of those
agreements. Except as set forth in those agreements, the Company is not required
to make any payments in order to continue to use such software.
3.4. FINANCIAL MATTERS.
3.4.1. COMPANY FINANCIAL STATEMENTS. Attached to this Agreement as
EXHIBIT F are the unaudited balance sheets of the Company as of December 31,
1997 and 1998 and the related unaudited statements of income and cash flows for
the fiscal years then ended (collectively, the "Company Financial Statements").
The Company Financial Statements were prepared from the books and records of the
Company, which books and records are correct and complete. The Company Financial
Statements present fairly and accurately the financial position of the Company
and the results of its operations as of the respective dates and for the periods
presented therein.
3.4.2. NO UNDISCLOSED LIABILITIES. Except as set forth in the
Company Financial Statements, the Company has no Liabilities except (i)
Liabilities set forth on SCHEDULE 3.4.2, and (ii) Liabilities which have arisen
after December 31, 1998 in the ordinary course of
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business, consistent with historical practice. The Company is not a guarantor or
otherwise liable for any liability or obligation of any other Person.
3.4.3. ABSENCE OF CHANGES. Since December 31, 1998 the Company has
not undergone any adverse change in its business, condition (financial or
otherwise) or prospects, or suffered any damage, destruction or loss (whether or
not covered by insurance). Since December 31, 1998, the Company has operated
only in the ordinary course of business, consistent in all respects with
historical practice, and, except for the distribution of the Excluded Assets to
Sellers, no change has been made or transaction entered into in anticipation of
the transactions contemplated hereby. Without limiting the generality of the
foregoing, since December 31, 1998, except as set forth on SCHEDULE 3.4.3, the
Company has not:
(a) made any loan, advance or other extension of credit to Seller
or any officer, director or employee of the Company or any Affiliate of any
thereof;
(b) increased or experienced any adverse change in any assumption
underlying any method of calculating bad debts, contingencies or other reserves
from that reflected in the Company Financial Statements;
(c) cancelled, compromised, written down, written off or waived
any claim or right of $500 or more;
(d) sold, transferred, distributed or otherwise disposed of any of
its assets except for (i) sales of merchandise in the ordinary course of
business, (ii) sales or other dispositions of used equipment in arm's-length
transactions in the ordinary course of business and (iii) sales or distributions
of Excluded Assets;
(e) made any capital expenditure or commitment for additions to
property, plant or equipment except such as have been fully paid as of the date
of this Agreement;
(f) increased the compensation payable or benefits provided to any
officer, director or employee of the Company or paid any bonus to any officer,
director or employee of the Company;
(g) lost any key employee or key sales representative or
consultant of the Company;
(h) paid any severance or termination pay to any officer, director
or employee of the Company;
(i) entered into, added to or modified any plan or any other
arrangement or practice relating to employees, other than the extension of
coverage to other employees who became eligible after December 31, 1998;
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(j) changed the methods of accounting or accounting principles or
practices of the Company set forth in or reflected by the Company Financial
Statements;
(k) entered into any contract or received any payment as a result
of which the Company would be required to provide goods or services to any
Person after the Closing without receiving full payment for those goods or
services at or after the time they are provided, except for prepayments on
special order items;
(l) entered into any transaction or contract, or amended or
terminated any transaction or contract, with respect to the business of the
Company, except normal transactions or contracts consistent in nature and scope
with prior practices and entered into in the ordinary course of business in
arm's-length transactions, none of which transactions or contracts, or
amendments or terminations thereof, could reasonably be expected to have a
material adverse effect upon the business of the Company or the financial
condition or prospects thereof;
(m) paid or declared any dividend or other distribution to,
purchased or otherwise acquired any asset from or sold or otherwise transferred
any asset to, any shareholder of the Company or any Affiliate of a shareholder;
(n) changed in any material respect the business policies or
practices of the Company or failed to operate the business of the Company in
good faith and in the ordinary course; or
(o) agreed, whether in writing or not, to do any of the foregoing.
3.4.4. TAXES. The Company has filed all Tax Returns that it has
been required to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company have been paid. The Company is
not currently the beneficiary of any extension of time within which to file any
Tax Return. The Company has not received notice from an authority in a
jurisdiction where it does not file Tax Returns that it may be subject to
taxation by that jurisdiction. The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. SCHEDULE 3.4.4 lists all Tax Returns filed by the Company since January
1, 1989 (complete copies of which have been delivered to Buyer) and indicates
those Tax Returns that have been audited or are currently being audited. The
Company has not waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency. The
Company does not have any liability for the Taxes of any Person under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract, or otherwise. The Company has
not been a member of an affiliated group filing a consolidated federal income
Tax Return (or any other consolidated, combined or unitary income Tax Return).
The Company has not filed a consent under Code section 341(f) concerning
collapsible corporations. The Company has not filed or been required to file any
Tax Return in any state other than Colorado.
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3.5. OPERATIONAL MATTERS.
3.5.1. SUPPLIERS. SCHEDULE 3.5.1 is a list of the suppliers or
subcontractors from which the Company purchased goods or services in excess of
$600 during the year ended December 31, 1998. Seller does not believe and has
not received any threat or notice that any such supplier or subcontractor
intends to discontinue or to reduce delivery of any goods or services or default
under or terminate any agreement with the Company, whether as a result of the
transactions contemplated by this Agreement or otherwise; provided, however,
that this representation shall not be deemed to constitute a guaranty by Seller
that any of the Company's suppliers will continue to do business with the
Company after the Closing on the same terms or to the same extent as before the
Closing, or at all.
3.5.2. CUSTOMERS. SCHEDULE 3.5.2 is a list of the customers
(without naming them) to which the Company sold goods or services in excess of
$25,000 during the year ended December 31, 1998. Except as set forth on SCHEDULE
3.5.2, Seller does not believe and has not received any threat or notice that
any such customer intends to discontinue or to reduce significantly purchases of
such goods or services or default under or terminate any agreement with the
Company, whether as a result of the transactions contemplated by this Agreement
or otherwise; provided, however, that this representation shall not be deemed to
constitute a guaranty by Seller that any of the Company's customers will
continue to do business with the Company after the Closing on the same terms or
to the same extent as before the Closing, or at all. At the Closing, Seller
shall deliver to Buyer a new version of SCHEDULE 3.5.2 that names the customers
listed thereon and that new version shall become part of this Agreement.
3.5.3. COMPLIANCE WITH LAW. The Company has conducted its
operations in compliance with applicable law. The Seller does not know of and
the Company has not received notice of any violations of law relating to the
Company, the Premises, the Company's operations or the Business Assets. Neither
Seller, the Company nor any officer, employee or agent of the Company has
directly or indirectly given or agreed to give any gift, contribution, payment
or similar benefit to any supplier, customer, governmental official or employee
or other Person who was, is or may be in a position to help or hinder the
Company, other than promotional items of nominal value bearing the Company's
name or the name of a product sold by it, or made or agreed to make any
contribution, or reimbursed any political gift or contribution made by any other
Person, to any candidate for United States federal, state, local, or foreign
public office, which would subject the Company to any Liability or the failure
to make which in the future could adversely affect the business or prospects of
the Company.
3.5.4. LITIGATION. Except as disclosed in SCHEDULE 3.5.4, there
are no actions, claims, suits, audits, examinations, investigations or
proceedings pending or to the Sellers' knowledge threatened against the Company,
whether by a private Person or a governmental agency or body, nor, to the
Sellers' knowledge, is there any reasonable basis for any such action, claim,
suit, audit, examination, proceeding or investigation. Except as disclosed in
SCHEDULE 3.5.4, no
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<PAGE> 16
judgments, orders, decrees, citations, fines or penalties have been entered or
assessed against the Company.
3.5.5. PRODUCT QUALITY, WARRANTY AND LIABILITY. No product or
service sold, rented, leased, provided or delivered by the Company to customers
on or prior to the Closing is subject to any guaranty, warranty or other
indemnity beyond the manufacturer's warranties and the standard terms and
conditions of sale, rental or lease. All material product or service liability
claims that have been asserted against the Company since December 31, 1995,
whether covered by insurance or not and whether litigation has resulted or not,
except claims fully covered by a manufacturer's warranty, are listed and
summarized on SCHEDULE 3.5.5.
3.5.6. LICENSES, ETC. To the best of Seller's knowledge, the
Company has all governmental and regulatory licenses and permits necessary for
the conduct of its business as presently conducted and the ownership or use of
the Business Assets. The licenses and permits are set forth on SCHEDULE 3.5.6
and are in full force and effect. No written notice of any violation has been
received by the Company relating to any license or permit.
3.5.7. CONTRACTS. SCHEDULE 3.5.7 lists the Company's contracts
with Rain Bird and Hunter. Except for those contracts, the Company is not a
party to any contract other than contracts that were entered into in the
ordinary course of business and are terminable by the Company on not more than
30 days notice without payment of any termination fee, severance or similar
payment. The Company is not in breach or violation of or default under any
material contract.
3.5.8. TRANSACTIONS WITH AFFILIATES. Except as described in
SCHEDULE 3.5.8, neither Seller nor any director, officer, stockholder or
employee of the Company, and no Affiliate of any thereof, is currently a party
to any contract for the purchase or sale of goods or services or has been a
party to any material transaction with the Company since January 1, 1995.
3.5.9. INSURANCE. SCHEDULE 3.5.9 is a list of all insurance
policies (including self-insurance arrangements) maintained by the Company
(including coverage limits, deductibles, named insureds and policy periods), all
of which policies are in full force and effect. True and complete copies of all
such insurance policies have been provided to Buyer.
3.5.10. BOOKS AND RECORDS. The books and records made available to
Buyer prior to the date of this Agreement and to be made available to Buyer
pursuant to Section 5.2 are and shall be true and correct copies thereof,
subject to the limitations contemplated by Section 5.2.
3.5.11. BANK ACCOUNTS; POWERS OF ATTORNEY. SCHEDULE 3.5.11 sets
forth a list of all bank and brokerage accounts maintained by the Company,
together with a list of all authorized signatories for such accounts, and all
safe deposit boxes maintained by the Company and all Persons authorized to gain
access thereto. SCHEDULE 3.5.11 also sets forth a list of all powers of attorney
granted by the Company.
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<PAGE> 17
3.5.12. PREMISES. The Premises constitute all of the real
property, buildings and improvements used by the Company in its business. The
Premises are supplied with utilities and other services necessary for the
current operation thereof. The Premises have been maintained in accordance with
normal industry practice, are in good operating condition and repair and are
suitable for the purposes for which they presently are used.
3.6. EMPLOYEE MATTERS.
3.6.1. BENEFIT PLANS. SCHEDULE 3.6.1 lists the policies comprising
the Company's medical, dental and short-term disability insurance plans for its
employees. Except for those plans (and other medical and dental insurance plans
maintained in prior periods), the Company does not have and has not had (i) any
nonqualified deferred compensation or retirement plan or arrangement which is an
"Employee Pension Benefit Plan" as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended (including the regulations
and orders promulgated thereunder, "ERISA"); (ii) any qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan; (iii) any qualified defined benefit retirement plan or arrangement which
is an Employee Pension Benefit Plan (including any Multiemployer Plan, as
defined in Section 3(37) of ERISA); (iv) any "Employee Welfare Benefit Plan" as
defined in Section 3(1) of ERISA or (v) any bonus or other incentive
compensation plans, other than discretionary bonuses. Sellers have provided
Buyer complete and accurate copies of the policies described in SCHEDULE 3.6.1.
The Company has operated its medical and dental insurance plans in accordance
with applicable law and the terms of the plans. The Company has no existing
obligation to provide medical or dental insurance to any employee whose
employment has terminated or may terminate in the future, except as required by
law.
3.6.2. EMPLOYEES. SCHEDULE 3.6.2 lists all employees of the
Company and shows for each such employee: (i) his or her position and title;
(ii) his or her date of hire; (iii) his or her salary; (iv) his or her unpaid
wages, accrued vacation time and accrued personal time as of January 1, 1999;
and (v) any bonuses paid to him or her with respect to the fiscal year ended
December 31, 1998 or earned by or promised to him or her with respect to the
current fiscal year. The Company has paid its employees for all accrued vacation
through December 31, 1998. The Company has no employment contracts with its
employees, other than oral agreements that are terminable at will.
3.6.3. LABOR RELATIONS. To Seller's knowledge, there is no
existing dispute between the Company and any current or former employee. The
Company is not a party to or bound by any collective bargaining agreement. To
Seller's knowledge, there is no labor union organizing activity by or among its
employees.
3.6.4. CERTAIN AGREEMENTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance, parachute
payment, bonus or otherwise) becoming due to any employee or any other Person
from the Company under any plan, agreement
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<PAGE> 18
or otherwise, (ii) increase any benefits otherwise payable to any employee under
any plan or agreement, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits. None of the Company's employees is
subject to any covenant against competition or similar agreement that would
limit his or her ability to participate in all aspects of the Company's business
at any present or future location.
3.7. ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 3.7.1, to
the best of Seller's knowledge: (a) the Company is conducting and at all times
has conducted its business and operations, and has occupied, used and operated
all real property and facilities presently or previously owned, occupied, used
or operated by the Company, in compliance with all Environmental Laws and so as
not to give rise to Liability under any Environmental Laws or to any adverse
impact on the Company's business or activities; (b) there is no substance or
condition on the premises that is legally required to be reported, removed or
remediated under applicable Environmental Law or that could give rise to
liability on the part of the Company under applicable Environmental Law; (c) the
Company has not generated, handled, used, transported or disposed of Hazardous
Substances; (d) there are no underground or above ground storage tanks on the
Premises; (e) all underground storage tanks previously located on the Premises
have been removed in accordance with applicable Environmental Law and no further
monitoring of or other action with respect to the tank sites is required; and
(f) no structure on the Premises contains asbestos or asbestos-containing
materials.
3.8. BROKERS, FINDERS, ETC. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
intervention of any Person acting on behalf of Seller or the Company in such
manner as to give rise to any valid claim against Seller, the Company or Buyer
for any brokerage or finder's commission, fee or similar compensation.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1. ORGANIZATION AND STANDING. Each of Buyer and HIA is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation. Buyer and HIA are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction where such
qualification is required. Buyer and HIA have the requisite corporate power and
authority to execute and deliver each of the Transaction Agreements to which
they are parties and to perform their obligations thereunder. The execution,
delivery and performance by Buyer and HIA of this Agreement and the other
Transaction Agreements to which they are parties, and the consummation by Buyer
and HIA of the transactions contemplated hereby and thereby, have been duly and
validly authorized and approved by all necessary corporate action on the part of
Buyer and HIA.
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<PAGE> 19
4.2. EXECUTION AND VALIDITY OF AGREEMENTS. This Agreement has been duly
executed and delivered by Buyer and HIA and constitutes, and each of the other
Transaction Agreements to which Buyer and HIA are parties will be duly executed
and delivered at Closing and will constitute, the legal, valid and binding
obligation of Buyer and HIA, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, moratorium, reorganization and similar laws of
general applicability affecting the rights and remedies of creditors and to
general principles of equity, regardless of whether enforcement is sought in
proceedings in equity or at law.
4.3. NO VIOLATION OR APPROVAL. The execution, delivery and performance
by Buyer and HIA of each of the Transaction Agreements to which it is a party
and the consummation of the transactions contemplated thereby do not and will
not result in (i) a violation of any law, rule or regulation, order, judgment or
decree applicable to Buyer or HIA or any order, judgment or decree of any court
or any governmental agency or body having jurisdiction over Buyer or HIA or
their properties or assets, (ii) a breach or a default under (whether
immediately, upon the passage of time or after giving notice), or the
acceleration of any payment under any material agreement, instrument, lease,
contract, mortgage, or license to which Buyer is a party or by which it or any
of its properties or assets is bound, or (iii) a violation of or a conflict with
their charter or bylaws. No consent, approval, order or authorization of, or
declaration or filing with, any governmental authority or entity or other party
is required to be, and has not been, obtained or made by Buyer or HIA in
connection with the execution, delivery and performance of or the consummation
of the transactions contemplated by any of the Transaction Agreements.
4.4. SEC REPORTS. HIA has provided Seller with copies of its Annual
Reports on Form 10-K for the years ended November 30, 1996, 1997 and 1998 and
all reports filed by HIA with the Securities and Exchange Commission subsequent
to its 1998 10-K (collectively, the "SEC Reports"). The financial statements
contained in the SEC Reports present fairly and accurately the financial
position and results of operations of HIA and its subsidiaries on a consolidated
basis as of the dates and for the periods covered thereby and have been prepared
in accordance with GAAP. Since the date of the most recent SEC Report, there has
been no material adverse change in the business or financial condition of HIA.
4.5. BROKERS, FINDERS, ETC. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
intervention of any Person acting on behalf of Buyer in such manner as to give
rise to any valid claim against any Seller for any brokerage or finder's
commission, fee or similar compensation.
4.6. SECURITIES LAW MATTERS. Buyer is acquiring the Stock for its own
account and with no view to the distribution thereof. Buyer acknowledges that
the Stock has not been registered under the Securities Act of 1933, as amended,
or the securities laws of any state and cannot be offered or sold by Buyer
unless subsequently so registered or unless exemptions from the registration
requirements of that Act and all applicable state securities laws are available
for the transaction.
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<PAGE> 20
4.7. PENDING LITIGATION. Except as disclosed on SCHEDULE 4.7, there is
no litigation or other proceeding before any court or administrative agency
pending or, to the knowledge of Buyer or HIA, threatened against Buyer or HIA,
the outcome of which could materially impair the financial condition of Buyer or
HIA or the ability of Buyer or HIA to carry on business.
4.8. SECURITY INTERESTS. There are no security interests in or liens,
mortgages, or other encumbrances on any of the assets of Buyer or HIA, except to
Norwest Bank Colorado and except as disclosed in the SEC Reports or on SCHEDULE
4.8.
SECTION 5
PRE-CLOSING COVENANTS
5.1. OPERATION IN ORDINARY COURSE. From the date of this Agreement
through the Closing Date, unless Buyer otherwise agrees in writing, Seller shall
cause the Company to operate only in the ordinary course of business, consistent
with past practice, and shall not cause or allow the Company to take any action
described in Section 3.4.3 or that would otherwise cause any of the Seller's
representations and warranties to be untrue as of the Closing Date, except as
expressly contemplated by this Agreement with the understanding that news of the
sale may affect operations somewhat.
5.2. ACCESS. From the date of this Agreement to the Closing Date,
Seller shall provide and shall cause the Company to provide Buyer and its
accountants, attorneys and other consultants or representatives access to the
books and records of the Company, the Business Assets, the Premises and the
officers and employees of the Company, subject to the following limitations: (a)
prior to the Closing, Seller shall not be required to disclose to anyone other
than Buyer's auditors the identity of any customer or information concerning the
Company's pricing structure; and (b) before disclosing information to Buyer's
auditors relating to the Company's customers or pricing structure, Seller shall
be entitled to require Buyer's auditors to sign a confidentiality agreement
reasonably satisfactory to Seller prohibiting Buyer's auditors from disclosing
such information to Buyer or any other Person unless and until the Closing shall
have occurred. Buyer and its representatives shall exercise that right of access
after reasonable notice to Buyer and in a manner that does not unreasonably
interfere with the operations of the Company.
5.3. CONFIDENTIALITY. Buyer and all of Buyer's representatives,
employees, accountants, attorneys, directors, and officers shall hold in strict
confidence all information provided by Seller or the Company to Buyer in
connection with the transactions contemplated hereby and shall use such
information solely for the purposes of such transactions. If this Agreement is
terminated pursuant to Section 6.4, Buyer shall return all written information
received from Seller or the Company. If the Closing occurs, this covenant shall
terminate.
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5.4. AUDIT. Promptly following the execution of this Agreement, Buyer
shall cause its accountants, BDO Seidman, LLP ("Buyer's Accountants"), to audit
the financial statements of the Company for the years ended December 31, 1996
through 1998 (the resulting audited financial statements being referred to as
the "Audited Financial Statements"). Subject to Section 5.2, Seller shall
cooperate and shall cause the Company to cooperate with Buyer's Accountants in
conducting that audit, including, without limitation, signing such management
representation letters as Buyer's Accountants may reasonably request. Seller
acknowledges that the Audited Financial Statements will be used to prepare
reports filed with the Securities and Exchange Commission by HIA and will be
prepared in accordance with applicable SEC accounting regulations. Buyer shall
pay all fees and expenses of Buyer's Accountants.
5.5. FULFILLMENT OF CONDITIONS. Buyer and Seller shall each use
reasonable commercial efforts to cause the conditions to their obligations
hereunder to be fulfilled at or prior to the Closing and to avoid any breach of
their respective representations and warranties. Without limiting the generality
of the foregoing, Buyer and Seller shall use reasonable commercial efforts to
obtain all necessary consents and approvals for the consummation of the
transactions contemplated hereby.
5.6. EXCLUSIVITY. So long as this Agreement has not been terminated
pursuant to Section 6.4, Seller shall not, and shall not allow the Company to,
provide any information to or engage in any negotiations or discussions with any
Person other than Buyer in connection with any proposed sale of the stock or
assets of the Company or any merger, consolidation, share exchange or other
transaction that would result in any change in the ownership of the Company.
Seller shall promptly notify Buyer if he or the Company receives any inquiry or
communication relating to such a transaction from any Person.
5.7. NON-SOLICITATION. From the date of this Agreement until the
Closing or the second anniversary of the termination of this Agreement, Buyer
shall not solicit any current employee of the Company to leave the Company and
become an employee of Buyer or any Affiliate of Buyer.
5.8. ENVIRONMENTAL REPORTS. Promptly after the execution of this
Agreement, Seller and Buyer shall obtain environmental assessments of all of the
Premises. The environmental engineer retained to perform those assessments and
the scope of the work to be performed shall be mutually agreed upon by Seller
and Buyer. Seller and Buyer shall share the cost of those assessments equally.
If the results of those assessments are not satisfactory to Buyer in its sole
discretion, Seller and Buyer shall negotiate in good faith in an effort to agree
upon a plan to address the relevant issues through further testing, remediation
or otherwise. If such an agreement has not been reached within 15 days after the
report is received, Buyer may terminate this Agreement by written notice to
Seller. If such an agreement is reached prior to the termination of this
Agreement, such agreement shall address the effects of the steps to be taken
thereunder on the timing of the Closing and the termination rights of the
parties and shall control in the event of any conflict with this Agreement.
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SECTION 6
CONDITIONS PRECEDENT; TERMINATION
6.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller to consummate the transactions contemplated by this Agreement are subject
to the satisfaction, prior to or contemporaneously with the Closing, of the
following conditions, which may be waived in whole or in part by Seller in
writing:
6.1.1. PURCHASE PRICE. Buyer shall have paid the Purchase Price as
required by Section 2.
6.1.2. BUYER'S TRANSACTION AGREEMENTS. Buyer shall have executed
and delivered each of the Transaction Agreements to which it is a party and
shall have delivered to Seller certificates representing the shares of Stock
pledged under the Pledge Agreement.
6.1.3. HIA'S TRANSACTION AGREEMENTS. HIA shall have executed and
delivered each of Transaction Agreements to which it is a party.
6.1.4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. The
representations and warranties of Buyer and HIA shall be true and correct in all
material respects as of the Closing Date and Buyer and HIA shall have performed
all of the covenants to be performed by them at or before the Closing. Seller
shall have received a certificate executed on behalf of Buyer and HIA by a duly
authorized officer as to the fulfillment of the conditions set forth in this
Section 6.1.4. Buyer and HIA shall have furnished appropriate corporate
resolutions authorizing the execution of all the Transaction Agreements.
6.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction, prior to or contemporaneously with the Closing, of
the following conditions, which may be waived in whole or in part by Buyer in
writing:
6.2.1. STOCK CERTIFICATES. Seller shall have delivered to Buyer
certificates representing the Stock, duly endorsed for transfer to Buyer, free
and clear of any Encumbrance, and bearing no legend or restriction other than
standard legends reflecting restrictions on transfer under applicable securities
laws, none of which shall indicate that any consent or approval of or filing
with any governmental agency is required in connection with the transfer of the
Stock to Buyer except such as have been obtained on or before the Closing Date.
6.2.2. RESIGNATION OF DIRECTORS AND OFFICERS OF THE COMPANY. Each
director and officer of the Company shall have tendered his or her resignation
effective as of the Closing Date.
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<PAGE> 23
6.2.3. TRANSACTION AGREEMENTS. Seller shall have executed and
delivered the Transaction Agreements to which Seller is a party.
6.2.4. RELEASE OF ENCUMBRANCES. Buyer shall have received written
assurances satisfactory to it that all Encumbrances on the Company's assets or
the Stock have been or will be released.
6.2.5. DELIVERY OF POSSESSION, ETC. Seller shall have delivered to
Buyer possession and control of the Business Assets, the Premises and the
Company, including, without limitation, all stock records, minute books, and all
other corporate and financial records of the Company and keys or access codes to
the Premises.
6.2.6. RELEASE OF CLAIMS FOR INDEMNIFICATION. All directors and
officers of the Company shall have delivered to Buyer executed releases
releasing the Company from any claims for indemnification, whether known or
unknown.
6.2.7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. The
representations and warranties of Seller shall be true and correct in all
material respects as of the Closing Date and Seller shall have performed all of
the covenants to be performed by him at or before the Closing. Buyer shall have
received a certificate executed by Seller as to the fulfillment of the
conditions set forth in this Section 6.2.7.
6.2.8. SUBORDINATION AGREEMENT. Seller shall have executed a
subordination agreement acceptable to Seller and Buyer's bank, Norwest Bank
Colorado, subordinating the Note and the Pledge Agreement to the obligation of
Buyer and HIA to that bank.
6.2.9. NONDISTURBANCE AGREEMENT. Buyer shall have received from
each person having an Encumbrance on the Premises a nondisturbance agreement
reasonably satisfactory to Buyer.
6.2.10. AUDIT. Buyer's Accountants shall have completed the
Audited Financial Statements and shall have advised the Company that (i) they
were able to conduct an audit in compliance with applicable auditing standards,
(ii) they were able to issue an unqualified opinion as to the Audited Financial
Statements and (iii) the Audited Financial Statements comply with GAAP and
applicable SEC regulations. The Audited Financial Statements shall show that the
Company's net cash flow for the year ended December 31, 1998 was not less than
$451,250 and that its net worth as of December 31, 1998 was not less than
$913,000.
6.2.11. DUE DILIGENCE. Buyer shall have completed its due
diligence review of the Company and the results of that review shall be
satisfactory to Buyer.
6.2.12. CONSENTS. All consents and approvals required for the
consummation of the transactions contemplated hereby shall have been obtained.
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6.2.13. ENVIRONMENTAL ASSESSMENTS. The processes contemplated by
Section 5.8 shall have been completed and the results of the environmental
assessments obtained pursuant to that Section or of any further testing,
remediation or other steps agreed upon by the parties pursuant to that Section
shall be satisfactory to Buyer in its sole discretion as provided in that
Section, subject to any agreement entered into by Seller and Buyer pursuant to
that Section.
6.2.14. NEW CUSTOMER SCHEDULE. Seller shall have delivered to
Buyer the new version of SCHEDULE 3.5.2 contemplated by Section 3.5.2.
6.3. CONDITION PRECEDENT TO THE OBLIGATIONS OF EACH PARTY. The
obligations of each of the parties to consummate the transactions contemplated
by this Agreement shall be subject to the additional condition that no temporary
restraining order, preliminary or permanent injunction or other order by any
federal or state court or governmental body prohibiting, preventing or
materially restraining the consummation of the transactions contemplated by this
Agreement shall have been issued and shall not have expired or been withdrawn or
reversed and there shall be no pending or threatened litigation or other
proceeding seeking to prohibit, prevent or materially restrict or impose any
material limitations on the consummation of such transactions. The parties
hereto shall use their commercially reasonable efforts to cause any such
temporary restraining order, preliminary or permanent injunction or other order
to be vacated or lifted as promptly as possible.
6.4. TERMINATION. Either party may terminate this Agreement by written
notice to the other party if (a) any condition to his or its obligations
hereunder has not been fulfilled on or before the Closing Date, unless the
nonfulfillment results from a breach of this Agreement by him or it or (b) the
Closing has not occurred on or before May 30, 1999. Upon such termination,
neither party shall have any further obligations hereunder, but each party shall
remain liable for any breach occurring prior to the termination. The terminating
party may, notwithstanding the termination, pursue all available remedies for
any breach occurring prior to the termination.
SECTION 7
POST-CLOSING COVENANTS
7.1. CONFIDENTIAL INFORMATION. After the Closing, Seller will treat and
hold as confidential, will not disclose to any Person other than an authorized
representative of the Company or Buyer, and will not use for any purpose other
than the performance of his responsibilities under Section 7.2 or 7.3 any
information concerning the Company, the Business Assets or the operations or
affairs of the Company, whether before or after the Closing. This covenant shall
not apply to any information that becomes publicly available other than by or
through Seller or to any information that Seller is required by law to disclose
(but only to the extent necessary to comply with such requirement).
7.2. ASSISTANCE AFTER CLOSING. For a period of three months following
the Closing Date, Seller shall be available to Buyer to assist Buyer's personnel
in becoming familiar with
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the business and operations of the Company, to introduce Buyer's personnel to
customers, suppliers and others with whom the Company does business and
generally to facilitate the transfer of the management and administration of the
Company to Buyer. Seller shall be available for such time during that period as
Buyer may reasonably request, but in no event shall Seller be obligated to
devoted more than 40 hours per week to the performance of services for Buyer
under this Section 7.2. Seller shall not be entitled to any separate
compensation for such services, but shall be reimbursed for any authorized
expenses incurred by him in performing such services.
7.3. FURTHER ASSURANCES. From and after the Closing Date, Seller shall
execute and deliver such documents and take such other action as Buyer may
reasonably request to consummate the transactions contemplated hereby and to
allow Buyer to effectively continue the operation of the business of the
Company, including, but not limited to: (i) assisting in responding to any
inquiry of any customer with respect to the sale of products or provision of
services prior to the Closing; (ii) assisting in good faith in any litigation,
threatened litigation or claim relating to periods prior to the Closing and
cooperating therein with other parties and their advisors and representatives,
including providing relevant documents and evidence and maintaining
confidentiality in connection with such litigation or threatened litigation or
claims; (iii) assisting in the preparation of audited financial statements for
the Company, including signing any management representation letters reasonably
required by the auditors relating to periods prior to the Closing; and (iv)
cooperating with Buyer (at Buyer's expense except as provided in this Agreement)
in exercising any right or pursuing any claim relating to periods prior to the
Closing, whether by litigation or otherwise.
7.4. TERMINATION OF OBLIGATIONS. Effective as of the Closing Date,
neither the Company nor Buyer shall have any Liability to Seller or any
Affiliate of Seller or of the Company, except for Liabilities under this
Agreement and the other Transaction Agreements. Effective as of the Closing
Date, Seller shall not have any Liability to the Company or Buyer, except for
Liabilities under this Agreement and the other Transaction Agreements.
7.5. LETTERS TO SUPPLIERS AND CUSTOMERS. After the Closing, Seller and
Buyer shall jointly send a letter to a mutually agreed list of suppliers and
customers of the Company advising them of the sale. The letters to suppliers
will indicate that all personal guarantees of Seller for the obligations of the
Company are terminated.
SECTION 8
INDEMNIFICATION
8.1. BY SELLER. Seller (in such capacity, the "Indemnitor") shall
indemnify and hold harmless, to the fullest extent permitted by law, Buyer, HIA,
the Company, and each of their respective officers, directors, employees and
Affiliates (each, in such capacity, an "Indemnitee") from, against and in
respect of any and all Adverse Consequences arising from, or otherwise related
to, directly or indirectly, any of the following:
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8.1.1. Any breach of any representation or warranty made by Seller
in this Agreement or any other Transaction Agreement.
8.1.2. Any breach or default in performance by Seller of any
covenant or other agreement in this Agreement or any other Transaction
Agreement.
8.1.3. All Closing Date Liabilities, other than those contemplated
by Section 2.5, including any failure to fully pay or satisfy or cause to be
paid or satisfied any such Liability when due and payable.
8.1.4. Any other event, act, omission, condition, fact or
circumstance occurring, existing or first arising prior to the Closing and
relating to the Company or the Premises, whether or not such event, act,
omission, condition, fact or circumstance is described in this Agreement or
otherwise known to Buyer or was known to any Seller or the Company, except such
as constitute or give rise to a breach of the representations, warranties or
covenants of Buyer hereunder.
8.1.5. Subject to any agreement entered into by the parties
pursuant to Section 5.8, any Liability arising under any Environmental Law
relating to any condition existing at the Closing Date not disclosed in the
environmental assessments obtained pursuant to that Section.
The parties intend that Seller's obligation to indemnify against
Liabilities arising under Environmental Laws shall be limited to Sections 8.1.1
(as it relates to Seller's representations and warranties in Section 3.7) and
8.1.5. Seller shall have no obligation to indemnify against Liabilities arising
under Environmental Laws under any other provision of this Section 8.1.
8.2. BY BUYER AND HIA. Buyer and HIA (each, in such capacity, an
"Indemnitor") shall jointly and severally indemnity and hold harmless, to the
fullest extent permitted by law, Seller (in such capacity, the "Indemnitee")
from, against and in respect of any and all Adverse Consequences arising from,
or otherwise related to, directly or indirectly, any of the following:
8.2.1. Any breach of any representation or warranty made by Buyer
or HIA in this Agreement or any other Transaction Agreement.
8.2.2. Any breach or default in performance by Buyer or HIA of any
covenant or other agreement in this Agreement or any other Transaction
Agreement.
8.2.3. The Closing Date Liabilities contemplated by Section 2.5
and all Liabilities of the Company based upon or arising out of facts, events or
circumstances first existing or occurring after the Closing Date, including the
failure to fully pay or satisfy or cause to be paid or satisfied any such
Liability when due and payable.
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<PAGE> 27
8.3. DEFENSE OF CLAIMS. The procedures to be followed with respect to
the defense and settlement of any claim made by a third party which, if true,
would give rise to a right on the part of an Indemnitee to be indemnified
against resulting Adverse Consequences in whole or in part, under this Section 8
(a "Claim") shall be as follows:
(a) Unless in the reasonable judgment of Indemnitee (i) there is a
conflict between the positions of the Indemnitor and the Indemnitee in
conducting the defense of such Claim or (ii) legitimate legal or business
considerations would require the Indemnitee to defend or respond to such Claim
in a manner different from that recommended by the Indemnitor, the Indemnitor
shall, by giving notice thereof to the Indemnitee confirming the Indemnitor's
obligation under this Section 8 to indemnify the Indemnitee in respect of such
Claim, be entitled, at his or its expense, to assume and control such defense
with counsel chosen by it or him. The Indemnitee shall be entitled to
participate therein after such assumption, but the costs of such participation
(other than the costs of providing witnesses or documents at the request of the
Indemnitor or in response to legal process) following such assumption shall be
at the expense of the Indemnitee. Upon assuming such defense, the Indemnitor
shall have full right to enter into any compromise or settlement which is
dispositive of the matter involved; provided that, except for the settlement of
a Claim that involves no obligation of the Indemnitee other than the payment of
money for which indemnification is provided hereunder, the Indemnitor shall not
settle or compromise any Claim without the prior written consent of the
Indemnitee, which consent will not be unreasonably withheld; and provided,
further, that the Indemnitor may not consent to entry of any judgment or enter
into any settlement in respect of a Claim which does not include an
unconditional release of the Indemnitee from all liability in respect of such
Claim.
(b) With respect to a Claim as to which the Indemnitor (i) does
not have the right to assume the defense under Section 8.2(a) or (ii) shall not
have exercised its right to assume the defense, the Indemnitee shall assume and
control the defense of and contest such Claim with counsel chosen by it and the
Indemnitor shall be obligated to pay all reasonable attorneys' fees and expenses
of the Indemnitee incurred in connection with such defense, regardless of the
outcome. The Indemnitor shall be entitled to participate in the defense of such
Claim at its own expense. Notwithstanding the foregoing, the Indemnitee shall
not be required to defend any Claim under this Section 8.2(b) unless (i) the
Indemnitor confirms its obligation under this Section 8 to indemnify the
Indemnitee in respect of such Claim by written notice to the Indemnitee and (ii)
if requested by the Indemnitee, the Indemnitor provides reasonable assurance to
the Indemnitee of the Indemnitor's financial ability to indemnify the Indemnitee
against the costs of defense and any liability that may result from such Claim,
including providing a bond or other security therefor if reasonably requested by
the Indemnitee. If the Indemnitee is not required to defend any Claim under the
immediately preceding sentence, it shall owe no duties to the Indemnitor with
respect to such Claim, and may defend, fail to defend or settle such Claim
without affecting its right to indemnity hereunder.
(c) The Indemnitee may compromise or settle any Claim against it
at any time; provided, however, that the Indemnitee shall not settle or
compromise any Claim without the prior written consent of the Indemnitor, which
consent will not be unreasonably withheld; and
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<PAGE> 28
provided, further, that if in the reasonable judgment of the Indemnitee it would
be materially harmed or otherwise prejudiced by not entering into a proposed
settlement or compromise and the Indemnitor withholds consent to such settlement
or compromise, the Indemnitee may enter into such settlement or compromise, but
such settlement or compromise shall not be conclusive as to the existence or
amount of the liability of the Indemnitor to the Indemnitee or any third party.
(d) Both the Indemnitor and the Indemnitee shall cooperate fully
with one another in connection with the defense, compromise or settlement of any
Claim, including without limitation making available to the other all pertinent
information and witnesses within its control at reasonable intervals during
normal business hours.
(e) Each of the matters described in SCHEDULE 3.5.4 shall be
treated for all purposes as a Claim for which notice has been given pursuant to
Section 8.2(a) to Buyer as Indemnitee that Seller as Indemnitor has assumed and
shall control the defense of such Claims and the remaining subsections of this
Section 8.3 shall be applicable to such Claims.
8.4. INSURANCE. Notwithstanding any other provision of this Agreement,
the amount to which any Indemnitee is entitled under Section 8.1 or 8.2 shall be
offset by the proceeds of any insurance policy that covers the Adverse
Consequences in question to the extent that such proceeds are actually received
by or available to such Indemnitee. If any Indemnitee receives insurance
proceeds after a claim has been paid under Section 8.1 or 8.2, such proceeds
shall be paid to the person who made such payment, up to the full amount of such
payment. Each Indemnitee waives any right of subrogation its insurer may have as
a result of any payment made in respect of a claim against which the Indemnitee
has a claim for indemnification hereunder.
8.5. LIMITATIONS. Notwithstanding any other provision of this Section
8, but subject to any agreement entered into by the parties under Section 5.8:
(a) Seller shall not be obligated to indemnify any or all
Indemnitees under Section 8.1 for an aggregate amount that exceeds the Purchase
Price;
(b) Seller shall not be obligated to indemnify any Indemnitee
under Section 8.1 unless and until the aggregate amount of the Adverse
Consequences suffered or incurred by all Indemnitees exceeds $7,500, and then
only to the extent of such excess; and
(c) Before seeking to collect any amount due under Section 8.2
from other assets of Seller, Buyer shall first exercise its rights of set off
under the Note up to the full amount owing thereunder.
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<PAGE> 29
SECTION 9
MISCELLANEOUS
9.1. ARBITRATION. Any dispute arising under this Agreement shall be
submitted to binding arbitration in Denver, Colorado. The arbitration shall be
conducted before the Judicial Arbiter Group, but under the rules of the American
Arbitration Association. If the Judicial Arbiter Group is unavailable to conduct
the arbitration, then it shall be before another arbitral body selected by the
parties or, if they cannot agree on another arbitral body, the American
Arbitration Association. The parties shall endeavor to agree upon a single
arbitrator. If they are unable to do so, the arbitrator shall be selected from a
list of five persons provided by the arbitral body conducting the arbitration.
The parties shall alternately strike one name from the list, beginning with the
party who commenced the arbitration, and the last person remaining on the list
shall be the arbitrator. Judgment on an award of the arbitrator may be entered
by any court of competent jurisdiction. The arbitrator shall have the authority
to grant equitable relief. The prevailing party in any arbitration shall be
entitled to recover, in addition to any other relief awarded by the arbitrator,
its reasonable costs and expenses, including attorneys' fees, of preparing for
and participating in the arbitration. If each party prevails on specific issues
in the arbitration, the arbitrator may allocate the costs incurred by all
parties on a basis he or she deems appropriate.
9.2. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO WITHOUT GIVING EFFECT TO
ANY CHOICE OR CONFLICT OF LAWS RULE OR PROVISION THAT WOULD CAUSE THE
APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER JURISDICTION.
9.3. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing (including any facsimile transmission or
similar writing), and may be given by any means selected by the sender. Each
such notice or other communication shall be effective (i) if sent by telecopy to
the recipient's fax number given below, when such telecopy is transmitted and
the sender's telecopier confirms transmission, (ii) if sent by recognized
overnight courier to the recipient's address given below, one business day after
being delivered to such courier or (iii) if sent by any other means, when
actually received.
To Buyer:
CPS Distributors, Inc.
4275 Forest Street
Denver, Colorado 80216
Fax No.: (303) 394-2667
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<PAGE> 30
With a copy to:
Sherman & Howard L.L.C.
633 Seventeenth Street, Suite 3000
Denver, Colorado 80202
Attention: Andrew L. Blair, Jr.
Fax No.: (303) 298-0940
To any Seller:
Bruce J. Grinnell, Jr.
339 Pratt Street
Longmont, Colorado 80501
With a copy to:
John Gaddis, Esq.
Bernard, Lyons & Gaddis, P.C.
515 Kimbark Street
Longmont, Colorado 80501-0978
Fax No.: 303-413-1003
Any party may change its address or telecopier number to be used for purposes of
this Section 9.3 by notice to the other parties.
9.4. ENTIRE AGREEMENT, ASSIGNABILITY, ETC. This Agreement (including
the SCHEDULES and EXHIBITS attached hereto) (i) constitutes the entire
agreement, and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the transactions and
matters contemplated hereby and (ii) is not intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder. Neither party
may assign its rights under this Agreement prior to Closing without the consent
of the other party.
9.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, no one of which need be signed by all parties, each of which shall
be deemed an original and all of which together shall constitute one and the
same instrument. This Agreement may be executed or delivered by facsimile.
9.6. REPRESENTATIONS AS TO KNOWLEDGE. The representations and
warranties contained in Sections 3 and 4 will, in each case where a statement to
the "knowledge" of a party or words of similar import is made, be deemed to mean
knowledge in good faith after reasonable investigation (including, in the case
of the Seller, inquiry of the appropriate employees of the Company), with due
diligence, in the best efforts of such party.
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<PAGE> 31
9.7. HEADINGS, TERMS. The section headings contained in this Agreement
are inserted for convenience only and will not affect in any way the meaning or
interpretation of this Agreement. Defined terms are applicable to both singular
and plural forms. All pronouns will be deemed to refer to the masculine,
feminine or neuter, as the identity of the Person may require. The singular or
plural includes the other, as the context requires or permits. The word include
(and any variation) is used in an illustrative sense rather than a limiting
sense. The word day means a calendar day. All references to "Sections" are to
sections of this Agreement unless indicated otherwise.
9.8. WAIVERS. No waiver by any party of any default, misrepresentation
or breach of warranty or covenant hereunder, whether intentional or not, will be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence, and no waiver will be
effective unless set forth in writing and signed by the party against whom such
waiver is asserted.
9.9. SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10. REMEDIES CUMULATIVE. All remedies of the parties under this
Agreement or any other Transaction Agreement are cumulative with each other and
with any other remedies available at law, in equity or by contract. Any decision
to pursue one remedy shall not prevent a party from pursuing any other remedy at
the same or any subsequent time.
9.11. EXPENSES.
(a) Buyer will bear all costs and expenses (including, without
limitation, all legal, accounting and tax related fees and expenses) incurred by
it in connection with this Agreement or the transactions contemplated hereby,
including the fees of Buyer's Accountants.
(b) Seller will bear all costs and expenses (including, without
limitation, all legal, accounting and tax related fees and expenses and all
fees, commissions, expenses and other amounts payable to any broker, finder or
agent) incurred by Seller or the Company in connection with this Agreement or
the transactions contemplated hereby.
9.12. CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement will be construed as
if drafted jointly by the parties and no presumption or burden of proof will
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The parties intend that each representation,
warranty and covenant contained herein will have independent significance. If
any party breaches any representation, warranty or covenant contained herein,
the fact that there exists another representation, warranty or covenant relating
to the same subject matter (regardless of the relative levels of specificity)
which
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<PAGE> 32
the party has not breached will not detract from or mitigate the fact that the
party is in breach of the first representation, warranty or covenant.
9.13. SURVIVAL. The representations and warranties of the parties in
this Agreement shall survive the Closing, but the accuracy of such
representations and warranties shall be determined as of the date of this
Agreement and as of the Closing Date.
9.14. INCORPORATION OF EXHIBITS. The EXHIBITS and SCHEDULES identified
in this Agreement are incorporated herein by reference and made a part hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SELLER:
/s/ BRUCE J. GRINNELL, JR.
----------------------------------------------
Bruce J. Grinnell, Jr.
BUYER:
CPS Distributors, Inc.
By: /s/ [ILLEGIBLE]
------------------------------------------
Title: C.O.O.
------------------------------------
GUARANTOR:
HIA, Inc.
By: /s/ [ILLEGIBLE]
------------------------------------------
Title: President
------------------------------------
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<PAGE> 33
EXHIBIT A
LEASE AGREEMENT
FOR 1841 BOSTON AVENUE, LONGMONT, COLORADO
THIS LEASE AGREEMENT, is made this _____ day of May,1999, by and
between D&D Associates, hereinafter referred to as landlord, and Western Pipe
Supply Co., Inc., a Colorado corporation, as tenant,
IN CONSIDERATION of the covenants herein, it is agreed:
1. Lease of Premises
The landlord hereby leases to the tenant, and the tenant hereby leases
from the landlord, the land and all improvements located at 1841 Boston Avenue,
Longmont, Colorado, more fully described on Exhibit "A" attached hereto and all
easements, rights of way and all appurtenances thereto, and all fixtures
attached thereto, in present condition, (the "Leased Premises").
2. Condition of Property
To the best of the knowledge of Landlord, Landlord warrants and
represents that the Leased Premises are in compliance with all applicable laws,
rules and regulations, and that the structures and systems are free of latent
defects.
3. Term
The term of this Lease shall be for five (5) years, commencing at 12:01
A.M. on May ____, 1999, and ending at midnight on May ____, 2004. Provided
Tenant is not then in default, Tenant shall have the option to renew this Lease
for an additional term of five (5) years by giving written notice to Landlord at
least 90 days prior to the expiration date of the initial term of this Lease.
4. Delivery of Possession
The tenant shall be entitled to possession of the Leased Premises at
commencement of the lease term.
5. Rental
Tenant shall pay to the landlord, at such place as the Landlord may
designate in writing the following rent:
A. Base Rental
Rental of $7,350.00 per month due in advance on the fourteenth day of
each month commencing May ____, 1999, and continuing to be due on the fourteenth
day of each month thereafter until the Lease terminates. If the Lease term
includes only a part of any calendar month, rental for such part of a calendar
month shall be prorated accordingly.
<PAGE> 34
B. Increase in Base Rental
On May ____, 2000, and annually thereafter, the base rental payable by
tenant shall be increased by 5 percent of the previous year's base rental
amount.
C. Late Charge
Tenant will pay a late charge equal to five percent of any monthly
rental payment not paid within ten days of when due.
6. Use
The tenant shall initially use and occupy the Leased Premises for
purposes of a wholesale and retail sales and distribution center for irrigation
and plumbing supplies, and may use and occupy the Leased Premises for any lawful
purpose, and tenant shall not use or occupy nor permit the leased property or
any part thereof to be used or occupied for any unlawful business, use or
purpose, nor for any business, use, or purpose deemed extra-hazardous, or which
would void or make voidable any insurance coverage, nor for any purpose or in
any manner which is in violation of any present or future governmental laws or
regulations. The tenant shall indemnify the landlord against all costs,
expenses, liabilities, losses, damages, injunctions, suits, fines, penalties,
claims, and demands, including reasonable attorney's fees, arising out of any
violation of or default in this covenant by tenant.
Tenant shall not engage in any business wherein hazardous substances
are used or any hazardous materials released or threatened to be released,
including, but not limited to, the business of generating, transporting,
storing, treating or disposing of hazardous substances or hazardous waste except
in conformance with all applicable laws and regulations concerning the use,
storage and transportation of hazardous materials. Hazardous Waste or Hazardous
Materials shall mean and include, any hazardous, toxic or dangerous waste,
substance or material defined as such in any federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material as now or at any time hereafter in
effect, including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et.
seq; or Colo. Rev. Stat. Sections 25-16-101 et seq. or 25-15-101 et seq.; the
Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801 et seq.;
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et
seq; or any amendments or supplements thereto. The Leased Premises shall not be
used for the storing or disposal of hazardous waste or for storing or disposal
of hazardous substances during the term of the Lease except in conformance with
all applicable laws and regulations concerning the use, storage and
transportation of hazardous materials.
<PAGE> 35
Tenant shall comply with all applicable environmental laws, rules and
regulations concerning the Tenant's business conducted at the Leased Premises.
Tenant shall provide to Landlord copies of all reports required by environmental
agencies within (15) fifteen days of filing. Tenant shall provide Landlord
monthly with copies of manifests and any paperwork related to the generation,
transportation and disposal of hazardous substances from the premises during the
prior month. Landlord shall have the right to reasonably review Tenant's files
for any reports, manifests, and other paperwork related to the terms of this
paragraph in order to ensure Tenant's compliance.
7. Possession and Quiet Enjoyment.
The Tenant, upon the payment of the rent and upon the performance of
all the terms of this Lease, shall at all times while the Lease is in force,
peaceably and quietly possess and enjoy the Leased Premises without any
disturbance from the Landlord.
8. Maintenance and Repairs.
All ordinary and customary maintenance, repairs and replacements to the
Leased Premises shall be performed by Tenant, at its own expense, including all
necessary repairs to pipes, heating systems, plumbing systems, electrical
systems, window glass, doors, fixtures, interior decorations, and all other
appliances and appurtenances. Such repairs ordinary as well as extraordinary,
shall be made promptly, as and when necessary. All such repairs and replacements
shall be in quality and class at least equal to the original work. On default of
the Tenant in making such repairs or replacements, the Landlord may, but shall
not be required to, make such repairs and replacements for the Tenant's account,
and the expense shall constitute and be collectable as additional rent, together
with interest thereon at the rate of twelve percent per annum until paid.
Landlord shall be responsible for maintaining the structural and HVAC system
components of the Leased Premises including but not limited to, the roof,
foundation, exterior walls and interior support systems unless caused by
Tenant's act or negligence, in which case, Tenant shall pay for all necessary
repairs and replacements to the extent not covered by insurance.
Tenant shall be responsible for and pay for the routine maintenance of
the Leased Premise's asphalt and concrete areas including the ingress and egress
areas, parking lots and storage areas. For that purpose, routine maintenance
shall be limited to sealing cracks in the asphalt and concrete to the extent
that such cracks can effectively be repaired by sealing. In addition, Tenant
shall be responsible for any damages Tenant or Tenant's invitees cause to these
areas. In the event that these areas need other than routine maintenance
repairs, and Tenant or Tenant's invitees have not caused the need for such
repairs, Landlord will be responsible for such repairs.
Tenant shall not allow or permit any waste of the Leased Premises, and
shall keep the leased grounds free of trash or debris.
<PAGE> 36
9. Condition Upon Surrender.
The Tenant shall vacate the Leased Premises in the same condition in
which the Premises now is, ordinary wear and tear excepted, and excepting any
alterations approved by Landlord in accordance with Paragraph 10 and shall
remove all of the Tenant's property, so that the Landlord can repossess the
Leased Premises not later than noon on the day upon which this Lease or any
extension ends, whether upon notice, holdover or otherwise. The Landlord shall
have the same rights to enforce this covenant by ejectment and for damages or
otherwise as for the breach of any other condition or covenant of this Lease.
Except as otherwise provided herein, the Tenant may at any time prior to the
termination of this Lease or any renewal or extension, remove all materials,
equipment, and property of every other sort or nature, installed and owned by
the Tenant, provided that such property is removed without substantial injury to
the Leased Premises. No injury shall be considered substantial if it is promptly
corrected by restoration to the condition prior to the installation of such
property. Any such property not removed shall become the property of the
Landlord.
10. Alterations.
The Tenant shall have the right, from time to time, to make
non-structural alterations and improvements to the Leased Premises provided that
prior to commencement of any such work, the Landlord shall in each case have
approved in writing the plans and specifications for such work, which approval
shall not be unreasonably withheld or delayed. If within ten days after such
plans and specifications are submitted by the Tenant to the Landlord for such
approval, the Landlord shall have not given the Tenant notice of disapproval,
stating the reason for such disapproval, such plans and specifications shall be
considered approved by the Landlord. All work done by Tenant shall conform to
all applicable governmental regulations and requirements with all required
permits to be paid for by Tenant. Further, in connection with any improvements
and alterations to the Leased Premises, Tenant shall indemnify the Landlord from
any lien arising out of any such work performed or materials furnished, and
shall indemnify and hold harmless the Landlord from any liability or loss, of
any type or nature, including reasonable attorney's fees, arising out of any
lien or claim based on work performed or materials furnished. Landlord shall
have the right to require Tenant to furnish adequate bond or other security
acceptable to Landlord for payment of any such work performed by Tenant, and
shall have the right to require adequate lien waivers on any such work performed
by Tenant. Landlord shall also have the right to post notice of non-liability
for any such work, at appropriate places in the Leased Premises. Landlord shall
not be responsible for any building code violations of which Tenant may incur
due to Tenant's remodeling even if Landlord approves Tenant's remodeling plans,
and Tenant shall be liable for any code violations and the cost to restore the
premises into a condition in compliance with applicable codes.
<PAGE> 37
11. Signs.
Tenant shall place no signs on the Leased Premises without prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All signs shall comply with applicable sign codes and shall be at
Tenant's expense. Landlord makes no representation as to the availability of
signage rights under applicable codes and Tenant shall make its own
determination of applicable codes.
12. Taxes and Assessments
The Tenant shall pay as additional rent, all real estate taxes,
assessments, as they become due and payable, and other charges, as shall, from
and after the date hereof, be assessed upon the Leased Premises and any
appurtenances or improvements to the extent the same are levied with respect to
any period of time after commencement of this Lease. Landlord warrants and
represents that the Leased Premises comprise a separate tax parcel. The Tenant
may in good faith contest, by appropriate proceeding and at the Tenant's
expense, in the Landlord's or Tenant's name, whenever necessary, any assessment,
and may defer payment thereof, provided that Tenant shall deposit with Landlord
a sum which shall be at least twenty-five percent (25%) greater than the amount
of the item so contested plus interest and penalties. The Landlord may pay such
contested item out of any sums so deposited in case of undue delay in the
prosecution of such proceeding or if Landlord deems it necessary for the
protection of the Leased Premises. Landlord shall refund any excess monies held
on deposit after payment or conclusion of the dispute.
13. Utilities.
Landlord represents that all customary utilities are available for
service to the Leased Premises. The Landlord shall not be required to furnish to
Tenant any facilities or services of any kind, such as but not limited to,
water, hot water, heat, gas electricity, light, and power. The Tenant shall be
responsible for all expenses related to utility charges to the Leased Premises.
14. Insurance.
Tenant shall insure the premises against loss by fire, flood, or other
casualty normally covered under property damage insurance coverages in an amount
to cover full replacement cost of the improvements on the Landlord's property.
In addition, Tenant shall maintain, at the sole expense of the Tenant,
the following insurance throughout the term of this Lease:
<PAGE> 38
A. Liability.
Claims for liability and property damage under a comprehensive general
broad form liability policy with limits of not less than a $1,000,000.00
combined single limit liability policy.
B. Tenant Improvements.
Insurance covering all of Tenant's leasehold improvements, alterations,
additions or improvements to the Premises, in an amount not less than 100
percent (100%) of their full replacement cost from time to time during the term
of this Lease, providing protection against any peril included within a broad
form policy. Any policy proceeds shall be used for the repair or replacement of
the property damaged or destroyed unless this Lease shall cease and terminate
due to destruction of the premises as provided below.
C. Other.
Against such other hazards and in such amounts as the holder of any
mortgage or deed of trust to which this Lease is subordinate may reasonably
require from time to time.
D. Other Provisions Regarding Tenant's Insurance.
All insurance required of Tenant in this Lease shall be effected under
enforceable policies issued by insurors of recognized responsibility licensed to
do business in this State. At least fifteen days prior to the expiration date of
any such policy, a certificate evidencing such insurance shall be delivered by
the Tenant to the Landlord. Within fifteen days after the premium on any policy
shall become due and payable, the Landlord shall be furnished with satisfactory
evidence of its payment. All policies of insurance shall name the Landlord as an
additional insured and the Tenant as the insured, as their respective interests
may appear. At the request of the Landlord any insurance policy shall be made
payable to the holders of any master lease, mortgage or deeds of trust to which
this Lease is at any time subordinate, as the interest of such holders may
appear. To the extent obtainable, all policies shall contain an agreement by the
insurors that any loss shall be payable to the Landlord or the holder of any
such mortgage or deed of trust, notwithstanding any act or negligence of the
Tenant which might otherwise result in forfeiture of such insurance, and that
such policies shall not be canceled except upon ten (10) days prior written
notice to the Landlord or the holders of any mortgage or deed of trust to whom
loss may be payable, and that the coverage afforded thereby shall not be
affected by the performance of any work in or about the Leased Premises.
If the Tenant provides any insurance required of Tenant by this Lease
in the form of a blanket policy, the Tenant shall furnish satisfactory proof
that such blanket policy complies in all respects with the provisions of this
Lease, and that the coverage thereunder is at least equal to the coverage which
would be provided under a separate policy covering only the Leased Premises.
<PAGE> 39
If the definition of insurance industry policy language relating to
broad form insurance or other term changes, the insurance requirements hereunder
shall be modified to conform to the existing insurance industry language,
however, the coverages required under this Lease shall not be less than those
existing at the time of the effective beginning date of this Lease.
15. Right of Entry.
Upon reasonable notice by Landlord to Tenant, the Landlord and its
representatives may enter the Leased Premises at any reasonable time for the
purpose of inspecting the Leased Premises, reading meters, performing any work
which the Landlord elects to undertake made necessary by reason of Tenant's
default under the terms of this Lease, exhibiting the Leased Premises for sale,
Lease, or mortgage financing, or posting notices of non-responsibility under any
mechanic's lien law.
16. Casualty Damage.
If the Leased Premises, shall be so damaged by fire or other casualty
as to render them wholly untenantable, and if such damage shall be so great that
a competent architect, in good standing, selected by Landlord shall certify in
writing to Landlord and Tenant that the Premises, with the exercise of
reasonable diligence, cannot be made fit for occupancy within one hundred eighty
(180) working days, then this Lease shall cease and terminate from the date of
the occurrence of such damage; and Tenant thereupon shall surrender to Landlord
the Premises and all interest hereunder, and Landlord may reenter and take
possession of the Premises and remove Tenant therefrom. Tenant shall pay rent
and other charges duly apportioned, up to the time of such termination of this
Lease.
If, however, the damage shall be such that said architect shall certify
that the Premises can be made tenantable within a one hundred eighty (180) day
period, then, except as hereinafter provided Landlord shall, repair the damage
in a competent manner to the extent of the insurance proceeds received by
Landlord.
If the fire or other casualty causing injury to the Premises or other
parts of the Building shall have been caused by the negligence or misconduct of
Tenant, its agents, servants or employees, or by any other person entering upon
the Premises under express or implied invitation of Tenant, such injury shall be
repaired by Landlord only to the extent of the insurance proceeds received by
Landlord, and any additional costs of necessary repairs shall be at Tenant's
expense.
Notwithstanding the foregoing, in the event the holder of a mortgage
granted by the owner of the property, covering the Leased Premises, fails to
authorize the repair or restoration of the Premises or fails to release the
insurance proceeds, then this Lease shall terminate as of the date Landlord
notifies Tenant of such event and the rental
<PAGE> 40
payments and other charges due under the Lease shall be apportioned to the date
of occurrence of the damage.
17. Condemnation.
If the whole of the Leased Premises or such portion thereof which will
make the Leased Premises unsuitable for the purposes herein leased, is condemned
for any public use or purpose by any legally constituted authority, then in
either of such events this Lease shall terminate from the time when possession
is taken by such public authority and rental shall be accounted for as of the
date of the surrender of possession. Landlord, or the owner of the Leased
Premises, shall receive the entire award or consideration for the lands and
improvements taken up to the amount of the then applicable Option Purchase Price
and Tenant waives any claim to such award, except that Tenant may separately
claim and recover from the condemning authority the value of any personal
property owned by Tenant and the value of the Leased Premises in excess of the
applicable Option Purchase Price..
18. Assignment and Subletting.
The Tenant shall not assign, mortgage, or encumber this Lease, nor
sublet or permit the Leased Premises or any part thereof to be used by others,
without the prior written consent of the Landlord in each instance, which
consent shall not be unreasonably withheld or delayed. Tenant acknowledges that
any subletting may be subject to Landlord obtaining the consent of the holder of
any mortgage on the property. If this Lease is assigned, or if the Leased
Premises or any part thereof is sublet, or occupied by anyone other than the
Tenant, the Landlord may, after default by the Tenant, collect rent from the
assignee, sub-tenant, or occupant and apply the net amount collected against all
rent herein reserved. No such assignment, subletting, occupancy, or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee,
sub-tenant, or occupant as tenant, or a release of Tenant from further
performance by the Tenant of the covenants in this Lease. The consent by the
Landlord to an assignment or subletting shall not be construed to relieve the
Tenant from obtaining the consent in writing of the Landlord to any further
assignment or subletting.
19. Subordination to Mortgage.
This Lease shall be subject and subordinate at all times to the lien of
any existing and/or future mortgages and trust deeds on the Leased Premises.
Although no instrument or act on the part of the Tenant shall be necessary to
effectuate such subordination the Tenant will, execute and deliver such further
instruments subordinating this Lease to the lien of any such mortgages or trust
deeds as may be desired by the mortgagee or holder of such trust deeds. The
Tenant hereby appoints the Landlord as his attorney in fact, irrevocably, to
execute and deliver any such instrument for the Tenant. Tenant further agrees at
any time and from time to time upon not less than ten (10) days prior written
request by Landlord, to execute, acknowledge, and deliver to Landlord an
<PAGE> 41
estoppel affidavit in form acceptable to Landlord and the holder of any existing
mortgage or deed of trust encumbering the Leased Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant (1) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (2) that there are no uncured defaults in Landlord's
performance; and (3) that not more than one (1) month's rent has been paid in
advance. Further, upon request, Tenant shall supply to Landlord a corporate
resolution certifying that the party signing this statement on behalf of Tenant
is properly authorized to do so, if Tenant is a corporation.
Tenant agrees with Lender, Owner and Landlord that if there is a
foreclosure of any such mortgage or deed of trust and pursuant to such
foreclosure, the Public Trustee or other appropriate officer executes and
delivers a deed to the lender or its designee to the Leased Premises, or in the
event Owner conveys the Leased Premises to the lender or its designee in lieu of
foreclosure, Tenant will attorn to such grantee of the Leased Premises, rather
than to Landlord, to perform all of Tenant's obligations under the Lease, and
neither Lender nor Tenant shall have the right to terminate the Lease by reason
of the foreclosure or deed given in lieu thereof. Landlord shall deliver to
Tenant at the time of execution hereof a reasonable Attornment and
Non-Disturbance Agreement.
20. Indemnity.
The Tenant shall indemnify and hold harmless the Landlord from and
against all liabilities, penalties, damages, judgments, and expenses, including
reasonable attorney's fees incurred by Landlord in defending or satisfying any
claim of any type or nature, including personal injury claims or property damage
claims, arising out of the use, occupancy, or control of the leased property or
any of its appurtenances by Tenant. Landlord hereby agrees to indemnify and hold
Tenant harmless from any and all claims, losses, liabilities, penalties,
damages, judgments, and expenses, including reasonable attorney's fees incurred
by Tenant in defending or satisfying any claim of any type or nature, including
personal injury claims or property damage claims, arising out of the use,
occupancy, or control of the leased property or any of its appurtenances prior
to closing. Tenant hereby agrees to indemnify Landlord and hold Landlord
harmless from and against any and all claims, losses, damages, liabilities,
fines, penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind and all
costs and expenses incurred in connection therewith (including but not limited
to attorney's fees and expenses), arising directly or indirectly from any
releases or discharges at the Leased Premises of any Hazardous Materials as
defined in Section 6 hereof), in connection with the handling, treatment,
removal, storage, decontamination, cleanup, transport or disposal of Hazardous
Materials at the Leased Premises by Tenant or any employees, agents, contractors
or subcontractors of Tenant or other persons occupying or present on the Leased
Premises (except Landlord, its agents, contractors and employees) at the
invitation of Tenant during the term of this Lease. The foregoing indemnity
shall include any residual contamination on or under the Leased Premises or
affecting any natural resources and to any contamination of any of the Leased
Premises and/or natural resources arising in
<PAGE> 42
connection with the generation, use, handling, storage, transport or disposal of
any such Hazardous Materials by or on behalf of Tenant and irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable laws, regulations, codes and ordinances.
21. Security.
Landlord has waived the requirement of a security deposit.
22. Default.
The occurrence of any of the following shall constitute an event of
default: (1) Delinquency for more than six (6) days in the due and punctual
payment of any rent or additional rent payable under this Lease; (2) Delinquency
by the Tenant in the performance of or compliance with any conditions contained
in this Lease other than those referred to in the foregoing subparagraph (1),
for a period of thirty (30) days after written notice thereof from the Landlord
to the Tenant, except for any default not susceptible of being cured within such
thirty (30) day period, in which event the time permitted to the Tenant to cure
such default shall be extended for as long as shall be reasonably necessary to
cure such default, provided the Tenant commences promptly and proceeds
diligently to cure such default, and provided further that such period of time
shall not be so extended as to jeopardize the interest of the Landlord in this
Lease or so as to subject the Landlord or the Tenant to any civil or criminal
liabilities; (3) filing by the Tenant in any court pursuant to any statutes,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors; (4) filing against the Tenant in any court
pursuant to any statute, either of the United States or of any state, of a
petition in bankruptcy or insolvency or for reorganization, or for appointment
of a receiver or trustee of all or a portion of the Tenant's property, if within
ninety days after the commencement of any such proceeding against the Tenant
such petition shall not have been dismissed.
A. Upon the occurrence of an event of default, the Landlord at any time
thereafter may give written notice to the Tenant specifying such event of
default and stating that this Lease shall terminate on the date specified in
such notice, which shall be at least three days after the giving of such notice,
and upon the date specified in such notice this Lease and all rights of the
Tenant shall terminate. Upon the expiration of this Lease pursuant to this
article, the Tenant shall peacefully surrender the Leased Premises to the
Landlord, and the Landlord, at any time after such expiration, may without
further notice re-enter the Leased Premises and repossess it by force, summary
proceedings, ejectment, or otherwise, and may dispossess the Tenant and remove
the Tenant and all other persons and property from the Leased Premises and may
have, hold, and enjoy the Leased Premises and the right to receive all rental
income therefrom.
<PAGE> 43
B. At any time after any such termination the Landlord may relet the
Leased Premises or any part thereof, in the name of the Landlord or otherwise,
for such term (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this Lease) and on such
conditions (which may include concessions or free rent) as the Landlord, in its
reasonable discretion, may determine, and may collect and receive the rent
therefor. The Landlord shall in no way be responsible or liable for any failure
to relet the Leased Premises or any part thereof, or for any failure to collect
any rent due upon any such reletting.
C. No such termination of this Lease shall relieve the Tenant of its
liability and obligations under this Lease, and such liability and obligations
shall survive any such termination. In the event of any such termination,
whether or not the Leased Premises or any part thereof shall have been relet,
the Tenant shall pay to the Landlord the rent and additional rent required to be
paid by the Tenant up to the time of such termination and thereafter the Tenant,
until the end of what would have been the term of this Lease in the absence of
such termination, shall be liable to the Landlord for, and shall pay to the
Landlord, as and for liquidated and agreed current damages for the Tenant's
default: (1) The equivalent of the amount of the rent and additional rent which
would be payable under this Lease by the Tenant if this Lease were still in
effect, less (2) The net proceeds of any reletting effected pursuant to the
provisions of paragraph B of this article, after deducting all the Landlord's
expenses in connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, reasonable attorney's
fees, alteration costs, and expenses of preparation of such reletting. The
Tenant shall pay such current damages, herein called deficiency, to the Landlord
monthly on the days on which the rent and additional rent would have been
payable under this Lease if this Lease were still in effect. Nothing herein
contained shall limit or prejudice the right of the Landlord to prove for and
obtain damages by reasons of such termination.
D. The Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to re-enter provided for in any statute, or
of the institution of legal proceedings to that end. The Tenant, for and on
behalf of itself and all persons claiming through or under the Tenant, also
waives any right of redemption or reentry or repossession or to restore the
operation of this Lease in case the Tenant shall be dispossessed by a judgment
or by warrant of any court or judge or in case of re-entry or repossession by
the Landlord. In case of any litigation under this Lease, the Landlord and the
Tenant, so far as permitted by law, waive trial by jury in any action,
proceeding, or counterclaim brought by either of the parties hereto against the
other on any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, the Tenant's use or occupancy of the Leased
Premises, or any claim of injury or damage; and further agree that the party not
in default shall be entitled to recover, from the party in default, all costs
and reasonable attorney's fees incurred by the non-defaulting party in enforcing
its rights under this Lease.
<PAGE> 44
E. The terms "enter", "re-enter", "entry" or "re-entry", as used in
this Lease are not restricted to their technical legal meaning.
F. Any amounts not paid by Tenant to Landlord when due shall draw
interest at the rate of twelve percent per annum from due date until paid.
Payment of such interest shall not excuse or cure any default by Tenant under
this Lease.
G. No assent, express or implied, to any breach of one or more of the
covenants or terms of this Lease shall be deemed or construed to be a waiver of
any succeeding or other breach.
H. Notwithstanding anything to the contrary contained herein,
Landlord's liability under this Lease agreement shall be limited to Landlord's
interest in the Leased Premises.
I. In case of any litigation under this Lease, the prevailing party
shall be entitled to recover reasonable attorneys fees and costs.
23. Notices
Any notice from one party to another, required by the terms of this
Lease agreement, may be delivered in person to such party, or shall be delivered
by first class mail, postage prepaid, and shall be deemed given one day after
the date mailed, addressed to the respective parties as follows:
LANDLORD: D&D Associates
c/o Richard L. Gray
1529 16th Place
Longmont, Colorado 80501
Copy to:
John W. Gaddis, Esq.
Bernard, Lyons & Gaddis, P.C.
515 Kimbark Street
Longmont, Colorado 80501
TENANT: Western Pipe Supply Co., Inc.
4275 Forest Street
Denver, Colorado 80216
Each party may notify the other of any change in such mailing address
by a notice given in the manner required above.
<PAGE> 45
24. Binding Effect
This Lease shall bind and extend to the heirs, representatives,
successors, and assigns of the parties hereto.
25. Option to Purchase During Original Lease Term
During the original five year lease term, Tenant shall have an option
to purchase the Leased Premises. In the first year of the Lease, the purchase
price shall be $875,000. The purchase price shall escalate 5% per year. This
option shall terminate May ____, 2004. This option shall be deemed validly and
effectively exercised if notice of the exercise thereof is either mailed by
certified mail or delivered in person to Landlord in the manner provided for
notices under this Lease at any time after May ____, 1999, and prior to May
____, 2004 (the "Option Period"). If the option is exercised by Tenant, the
purchase shall be closed within sixty (60) days after giving notice of exercise,
pursuant to customary terms and conditions as set forth in the standard contract
approved by the Colorado Real Estate Commission.
Within fifteen (15) days after the notice date of Tenant's election to
exercise said option, Landlord shall furnish Tenant, at Landlord's expense, a
commitment for an owner's policy of title insurance issued by a title insurance
company satisfactory to Tenant. All premiums, fees, and costs of such title
insurance shall be paid by seller at or before closing. Tenant may survey the
property at its election and expense.
At closing, Tenant shall pay the purchase price in cash to Landlord and
Landlord shall execute, acknowledge, and deliver to Tenant, or its nominee, a
Special Warranty Deed, conveying the Leased Premises to Tenant, or its nominee
subject to liens, encumbrances, covenants, restrictions, rights of way, and
reservations of record as of the date hereof, provided any encumbrances
remaining against the Leased Premises shall be credited against the purchase
price. Possession of the Leased Premises shall be delivered to Tenant, or its
nominee, at the closing.
This option shall be binding upon and shall inure to the benefit of
Landlord and Tenant and their respective successors and assigns, including
assignees of this lease permitted pursuant to paragraph 18 hereof. However, the
option granted herein may not be otherwise assigned without Landlord's written
consent.
The parties shall enter into a Memorandum of Option Agreement which may
be recorded by Tenant at its sole discretion.
Rents shall be prorated as of the date of closing. The terms and
provisions of this Lease shall continue in effect until closing. Upon payment of
the purchase price and delivery of the deed to Tenant pursuant to this option,
this Lease and all obligations of Tenant hereunder shall terminate except for
any indemnities set forth in the Lease for the period of time for which Tenant
leased the Premises from Landlord.
<PAGE> 46
26. Option to Purchase If Lease Term is Extended
If the Tenant has renewed this Lease for an additional five (5) year
term pursuant to paragraph 3 above, then Tenant shall be granted an additional
five year option to purchase the Leased Premises for a purchase price equal to
the value established pursuant to the appraisal provisions set forth below.
This option shall be deemed validly and effectively exercised if notice
of the exercise thereof is either mailed by certified mail or delivered in
person to Landlord in the manner provided for notices under this Lease at any
time after May ____, 2004, and prior to May ____, 2009, (the "Option Period").
If the option is exercised by Tenant, the purchase shall be closed within sixty
(60) days after giving notice of the exercise of the option.
Within fifteen (15) days after the notice date of Tenant's election to
exercise said option, Landlord shall furnish Tenant, at Landlord's expense, a
commitment for an owner's policy of title insurance issued by a title insurance
company satisfactory to Tenant. All premiums, fees, and costs of such title
insurance shall be paid by Seller at or before closing. Tenant may survey the
property at its election and expense.
At closing, Tenant shall pay the purchase price in cash to Landlord and
Landlord shall execute, acknowledge, and deliver to Tenant, or its nominee, a
Special Warranty deed conveying the Leased Premises to Tenant, or its nominee,
subject to all liens, encumbrances, covenants, restrictions, rights of way and
reservations of record.
The option shall be binding upon and shall inure to the benefit of
Landlord and Tenant and their respective successors and assigns; however, the
option granted herein may not be assigned without landlord's written consent.
Rents shall be prorated as of the date of closing. The terms and
provisions of this Lease shall continue in effect until closing. Upon payment of
the purchase price and delivery of the deed to Tenant pursuant to this option,
this Lease and all obligations of Tenant hereunder shall terminate except for
any indemnities set forth in the Lease for the period of time for which Tenant
leased the Premises from Landlord.
For purposes of the option granted to Tenant under this paragraph 26,
the purchase price at which the option may be exercised shall be determined as
follows:
A. Within ten days of Tenant giving notice of its election to exercise
its option rights, the parties shall attempt to agree upon a single MAI
appraiser;
B. In the event the parties are unable to agree upon a single MAI
appraiser, Landlord and Tenant shall each designate in writing one MAI appraiser
within 10 days following the Tenant's notice of election to exercise the option
to purchase, and the two appraisers shall then, within ten days after the date
of their appointment, agree upon the value of the real property. In the event
the two appraisers are unable to agree within said ten day period, they shall
themselves appoint a third MAI appraiser and the three appraisers shall set the
value of the property within 10 days of the appointment of
<PAGE> 47
the third appraiser. The decision of a majority of the three appraisers as to
the value of the real property shall control and be binding on all parties. If
there is no majority opinion, the average of the two appraisals closest in value
shall control and be binding on all parties. For a period of 10 days after
Tenant's receipt of a written report setting forth the establishment of the
value by the appraisers, Tenant shall have the option (exercisable in the manner
provided above for the initial notice of exercise of the option) of purchasing
the property at the value established by the appraiser(s) with the closing to
occur within 30 days. If Tenant purchases the property, the Landlord and Tenant
shall each bear one-half of the costs of the valuation. If Tenant elects not to
purchase the property, Tenant shall bear all the costs of the valuation. If any
party fails to timely designate an MAI appraiser, the opinion of the appraiser
appointed by the other party as to the value of the property shall control.
The parties shall enter into a Memorandum of Option which may be
recorded by Tenant at its sole discretion.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement on
the date set forth opposite their respective signatures.
LANDLORD: TENANT:
D&D ASSOCIATES WESTERN PIPE SUPPLY CO., INC.
By
- ---------------------------- ----------------------------
The undersigned persons, jointly and severally, guarantee the
obligations of Tenant set forth above.
- ---------------------------- ----------------------------
- ----------------------------
<PAGE> 48
LEASE AGREEMENT
FOR 5700 VALMONT, BOULDER, COLORADO
THIS LEASE AGREEMENT, is made this ______ day of May,1999, by and
between 3-G Partnership, hereinafter referred to as landlord, and Western Pipe
Supply Co., a Colorado corporation, as tenant,
IN CONSIDERATION of the covenants herein, it is agreed:
1. Lease of Premises
The landlord hereby leases to the tenant, and the tenant hereby leases
from the landlord, the land and all improvements located at 5700 Valmont,
Boulder, Colorado, more fully described on Exhibit "A" attached hereto and all
easements, rights of way and all appurtenances thereto, and all fixtures
attached thereto, in present condition, (the "Leased Premises").
2. Condition of Property
To the best of the knowledge of Landlord, Landlord warrants and
represents that the Leased Premises are in compliance with all applicable laws,
rules and regulations, and that the structures and systems are free of latent
defects.
3. Term
The term of this Lease shall be for five (5) years, commencing at 12:01
A.M. on May ____, 1999, and ending at midnight on May ____, 2004. Provided
Tenant is not then in default, Tenant shall have the option to renew this Lease
for an additional term of five (5) years by giving written notice to Landlord at
least 90 days prior to the expiration date of the initial term of this Lease.
4. Delivery of Possession
The tenant shall be entitled to possession of the Leased Premises at
commencement of the lease term.
5. Rental
Tenant shall pay to the landlord, at such place as the Landlord may
designate in writing the following rent:
A. Base Rental
Rental of $4,250.00 per month due in advance on the fourteenth day of
each month commencing May ____, 1999, and continuing to be due on the fourteenth
day of each month thereafter until the Lease terminates. If the Lease term
includes only a part of any calendar month, rental for such part of a calendar
month shall be prorated accordingly.
<PAGE> 49
B. Increase in Base Rental
On May ____, 2000, and annually thereafter, the base rental payable by
tenant shall be increased by 5 percent of the previous year's base rental
amount.
C. Late Charge
Tenant will pay a late charge equal to five percent of any monthly
rental payment not paid within ten days of when due.
6. Use
The tenant shall initially use and occupy the Leased Premises for
purposes of a wholesale and retail sales and distribution center for irrigation
and plumbing supplies, and may use and occupy the Leased Premises for any lawful
purpose, and tenant shall not use or occupy nor permit the leased property or
any part thereof to be used or occupied for any unlawful business, use or
purpose, nor for any business, use, or purpose deemed extra-hazardous, or which
would void or make voidable any insurance coverage, nor for any purpose or in
any manner which is in violation of any present or future governmental laws or
regulations. The tenant shall indemnify the landlord against all costs,
expenses, liabilities, losses, damages, injunctions, suits, fines, penalties,
claims, and demands, including reasonable attorney's fees, arising out of any
violation of or default in this covenant by tenant.
Tenant shall not engage in any business wherein hazardous substances
are used or any hazardous materials released or threatened to be released,
including, but not limited to, the business of generating, transporting,
storing, treating or disposing of hazardous substances or hazardous waste except
in conformance with all applicable laws and regulations concerning the use,
storage and transportation of hazardous materials. Hazardous Waste or Hazardous
Materials shall mean and include, any hazardous, toxic or dangerous waste,
substance or material defined as such in any federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material as now or at any time hereafter in
effect, including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et.
seq; or Colo. Rev. Stat. Sections 25-16-101 et seq. or 25-15-101 et seq.; the
Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801 et seq.;
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et
seq; or any amendments or supplements thereto. The Leased Premises shall not be
used for the storing or disposal of hazardous waste or for storing or disposal
of hazardous substances during the term of the Lease except in conformance with
all applicable laws and regulations concerning the use, storage and
transportation of hazardous materials.
<PAGE> 50
Tenant shall comply with all applicable environmental laws, rules and
regulations concerning the Tenant's business conducted at the Leased Premises.
Tenant shall provide to Landlord copies of all reports required by environmental
agencies within (15) fifteen days of filing. Tenant shall provide Landlord
monthly with copies of manifests and any paperwork related to the generation,
transportation and disposal of hazardous substances from the premises during the
prior month. Landlord shall have the right to reasonably review Tenant's files
for any reports, manifests, and other paperwork related to the terms of this
paragraph in order to ensure Tenant's compliance.
7. Possession and Quiet Enjoyment.
The Tenant, upon the payment of the rent and upon the performance of
all the terms of this Lease, shall at all times while the Lease is in force,
peaceably and quietly possess and enjoy the Leased Premises without any
disturbance from the Landlord.
8. Maintenance and Repairs.
All ordinary and customary maintenance, repairs and replacements to the
Leased Premises shall be performed by Tenant, at its own expense, including all
necessary repairs to pipes, heating systems, plumbing systems, electrical
systems, window glass, doors, fixtures, interior decorations, and all other
appliances and appurtenances. Such repairs ordinary as well as extraordinary,
shall be made promptly, as and when necessary. All such repairs and replacements
shall be in quality and class at least equal to the original work. On default of
the Tenant in making such repairs or replacements, the Landlord may, but shall
not be required to, make such repairs and replacements for the Tenant's account,
and the expense shall constitute and be collectable as additional rent, together
with interest thereon at the rate of twelve percent per annum until paid.
Landlord shall be responsible for maintaining the structural components of the
Leased Premises including but not limited to, the roof, foundation, exterior
walls and interior support systems unless caused by Tenant's act or negligence,
in which case, Tenant shall pay for all necessary repairs and replacements to
the extent not covered by insurance.
Tenant shall be responsible for and pay for the routine maintenance of
the Leased Premise's asphalt and concrete areas including the ingress and egress
areas, parking lots and storage areas. For that purpose, routine maintenance
shall be limited to sealing cracks in the asphalt and concrete to the extent
that such cracks can effectively be repaired by sealing. In addition, Tenant
shall be responsible for any damages Tenant or Tenant's invitees cause to these
areas. In the event that these areas need other than routine maintenance
repairs, and Tenant or Tenant's invitees have not caused the need for such
repairs, Landlord will be responsible for such repairs.
Tenant shall not allow or permit any waste of the Leased Premises, and
shall keep the leased grounds free of trash or debris.
<PAGE> 51
9. Condition Upon Surrender.
The Tenant shall vacate the Leased Premises in the same condition in
which the Premises now is, ordinary wear and tear excepted, and excepting any
alterations approved by Landlord in accordance with Paragraph 10 and shall
remove all of the Tenant's property, so that the Landlord can repossess the
Leased Premises not later than noon on the day upon which this Lease or any
extension ends, whether upon notice, holdover or otherwise. The Landlord shall
have the same rights to enforce this covenant by ejectment and for damages or
otherwise as for the breach of any other condition or covenant of this Lease.
Except as otherwise provided herein, the Tenant may at any time prior to the
termination of this Lease or any renewal or extension, remove all materials,
equipment, and property of every other sort or nature, installed and owned by
the Tenant, provided that such property is removed without substantial injury to
the Leased Premises. No injury shall be considered substantial if it is promptly
corrected by restoration to the condition prior to the installation of such
property. Any such property not removed shall become the property of the
Landlord.
10. Alterations.
The Tenant shall have the right, from time to time, to make
non-structural alterations and improvements to the Leased Premises provided that
prior to commencement of any such work, the Landlord shall in each case have
approved in writing the plans and specifications for such work, which approval
shall not be unreasonably withheld or delayed. If within ten days after such
plans and specifications are submitted by the Tenant to the Landlord for such
approval, the Landlord shall have not given the Tenant notice of disapproval,
stating the reason for such disapproval, such plans and specifications shall be
considered approved by the Landlord. All work done by Tenant shall conform to
all applicable governmental regulations and requirements with all required
permits to be paid for by Tenant. Further, in connection with any improvements
and alterations to the Leased Premises, Tenant shall indemnify the Landlord from
any lien arising out of any such work performed or materials furnished, and
shall indemnify and hold harmless the Landlord from any liability or loss, of
any type or nature, including reasonable attorney's fees, arising out of any
lien or claim based on work performed or materials furnished. Landlord shall
have the right to require Tenant to furnish adequate bond or other security
acceptable to Landlord for payment of any such work performed by Tenant, and
shall have the right to require adequate lien waivers on any such work performed
by Tenant. Landlord shall also have the right to post notice of non-liability
for any such work, at appropriate places in the Leased Premises. Landlord shall
not be responsible for any building code violations of which Tenant may incur
due to Tenant's remodeling even if Landlord approves Tenant's remodeling plans,
and Tenant shall be liable for any code violations and the cost to restore the
premises into a condition in compliance with applicable codes.
<PAGE> 52
11. Signs.
Tenant shall place no signs on the Leased Premises without prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All signs shall comply with applicable sign codes and shall be at
Tenant's expense. Landlord makes no representation as to the availability of
signage rights under applicable codes and Tenant shall make its own
determination of applicable codes.
12. Taxes and Assessments
The Tenant shall pay as additional rent, all real estate taxes,
assessments, as they become due and payable, and other charges, as shall, from
and after the date hereof, be assessed upon the Leased Premises and any
appurtenances or improvements to the extent the same are levied with respect to
any period of time after commencement of this Lease. Landlord warrants and
represents that the Leased Premises comprise a separate tax parcel. The Tenant
may in good faith contest, by appropriate proceeding and at the Tenant's
expense, in the Landlord's or Tenant's name, whenever necessary, any assessment,
and may defer payment thereof, provided that Tenant shall deposit with Landlord
a sum which shall be at least twenty-five percent (25%) greater than the amount
of the item so contested plus interest and penalties. The Landlord may pay such
contested item out of any sums so deposited in case of undue delay in the
prosecution of such proceeding or if Landlord deems it necessary for the
protection of the Leased Premises. Landlord shall refund any excess monies held
on deposit after payment or conclusion of the dispute.
13. Utilities.
Landlord represents that all customary utilities are available for
services to the Leased Premises. The Landlord shall not be required to furnish
to Tenant any facilities or services of any kind, such as but not limited to,
water, hot water, heat, gas electricity, light, and power. The Tenant shall be
responsible for all expenses related to utility charges to the Leased Premises.
14. Insurance.
Tenant shall insure the premises against loss by fire, flood, or other
casualty normally covered under property damage insurance coverages in an amount
to cover full replacement cost of the improvements on the Landlord's property.
In addition, Tenant shall maintain, at the sole expense of the Tenant,
the following insurance throughout the term of this Lease:
<PAGE> 53
A. Liability.
Claims for liability and property damage under a comprehensive general
broad form liability policy with limits of not less than a $1,000,000.00
combined single limit liability policy.
B. Tenant Improvements.
Insurance covering all of Tenant's leasehold improvements, alterations,
additions or improvements to the Premises, in an amount not less than 100
percent (100%) of their full replacement cost from time to time during the term
of this Lease, providing protection against any peril included within a broad
form policy. Any policy proceeds shall be used for the repair or replacement of
the property damaged or destroyed unless this Lease shall cease and terminate
due to destruction of the premises as provided below.
C. Other.
Against such other hazards and in such amounts as the holder of any
mortgage or deed of trust to which this Lease is subordinate may reasonably
require from time to time.
D. Other Provisions Regarding Tenant's Insurance.
All insurance required of Tenant in this Lease shall be effected under
enforceable policies issued by insurors of recognized responsibility licensed to
do business in this State. At least fifteen days prior to the expiration date of
any such policy, a certificate evidencing such insurance shall be delivered by
the Tenant to the Landlord. Within fifteen days after the premium on any policy
shall become due and payable, the Landlord shall be furnished with satisfactory
evidence of its payment. All policies of insurance shall name the Landlord as an
additional insured and the Tenant as the insured, as their respective interests
may appear. At the request of the Landlord any insurance policy shall be made
payable to the holders of any master lease, mortgage or deeds of trust to which
this Lease is at any time subordinate, as the interest of such holders may
appear. To the extent obtainable, all policies shall contain an agreement by the
insurors that any loss shall be payable to the Landlord or the holder of any
such mortgage or deed of trust, notwithstanding any act or negligence of the
Tenant which might otherwise result in forfeiture of such insurance, and that
such policies shall not be canceled except upon ten (10) days prior written
notice to the Landlord or the holders of any mortgage or deed of trust to whom
loss may be payable, and that the coverage afforded thereby shall not be
affected by the performance of any work in or about the Leased Premises.
If the Tenant provides any insurance required of Tenant by this Lease
in the form of a blanket policy, the Tenant shall furnish satisfactory proof
that such blanket policy complies in all respects with the provisions of this
Lease, and that the coverage thereunder is at least equal to the coverage which
would be provided under a separate policy covering only the Leased Premises.
<PAGE> 54
If the definition of insurance industry policy language relating to
broad form insurance or other term changes, the insurance requirements hereunder
shall be modified to conform to the existing insurance industry language,
however, the coverages required under this Lease shall not be less than those
existing at the time of the effective beginning date of this Lease.
15. Right of Entry.
Upon reasonable notice by Landlord to Tenant, the Landlord and its
representatives may enter the Leased Premises at any reasonable time for the
purpose of inspecting the Leased Premises, reading meters, performing any work
which the Landlord elects to undertake made necessary by reason of Tenant's
default under the terms of this Lease, exhibiting the Leased Premises for sale,
Lease, or mortgage financing, or posting notices of non-responsibility under any
mechanic's lien law.
16. Casualty Damage.
If the Leased Premises, shall be so damaged by fire or other casualty
as to render them wholly untenantable, and if such damage shall be so great that
a competent architect, in good standing, selected by Landlord shall certify in
writing to Landlord and Tenant that the Premises, with the exercise of
reasonable diligence, cannot be made fit for occupancy within one hundred eighty
(180) working days, then this Lease shall cease and terminate from the date of
the occurrence of such damage; and Tenant thereupon shall surrender to Landlord
the Premises and all interest hereunder, and Landlord may reenter and take
possession of the Premises and remove Tenant therefrom. Tenant shall pay rent
and other charges duly apportioned, up to the time of such termination of this
Lease.
If, however, the damage shall be such that said architect shall certify
that the Premises can be made tenantable within a one hundred eighty (180) day
period, then, except as hereinafter provided Landlord shall, repair the damage
in a competent manner to the extent of the insurance proceeds received by
Landlord.
If the fire or other casualty causing injury to the Premises or other
parts of the Building shall have been caused by the negligence or misconduct of
Tenant, its agents, servants or employees, or by any other person entering upon
the Premises under express or implied invitation of Tenant, such injury shall be
repaired by Landlord only to the extent of the insurance proceeds received by
Landlord, and any additional costs of necessary repairs shall be at Tenant's
expense.
Notwithstanding the foregoing, in the event the holder of a mortgage
granted by the owner of the property, covering the Leased Premises, fails to
authorize the repair or restoration of the Premises or fails to release the
insurance proceeds, then this Lease shall terminate as of the date Landlord
notifies Tenant of such event and the rental
<PAGE> 55
payments and other charges due under the Lease shall be apportioned to the date
of occurrence of the damage.
17. Condemnation.
If the whole of the Leased Premises or such portion thereof which will
make the Leased Premises unsuitable for the purposes herein leased, is condemned
for any public use or purpose by any legally constituted authority, then in
either of such events this Lease shall terminate from the time when possession
is taken by such public authority and rental shall be accounted for as of the
date of the surrender of possession. Landlord, or the owner of the Leased
Premises, shall receive the entire award or consideration for the lands and
improvements taken up to the amount of the then applicable Option Purchase
Price, and Tenant waives any claim to such award, except that Tenant may
separately claim and recover from the condemning authority the value of any
personal property owned by Tenant and the value of the Leased Premises in excess
of the applicable Option Purchase Price.
18. Assignment and Subletting.
The Tenant shall not assign, mortgage, or encumber this Lease, nor
sublet or permit the Leased Premises or any part thereof to be used by others,
without the prior written consent of the Landlord in each instance, which
consent shall not be unreasonably withheld or delayed. Tenant acknowledges that
any subletting may be subject to Landlord obtaining the consent of the holder of
any mortgage on the property. If this Lease is assigned, or if the Leased
Premises or any part thereof is sublet, or occupied by anyone other than the
Tenant, the Landlord may, after default by the Tenant, collect rent from the
assignee, sub-tenant, or occupant and apply the net amount collected against all
rent herein reserved. No such assignment, subletting, occupancy, or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee,
sub-tenant, or occupant as tenant, or a release of Tenant from further
performance by the Tenant of the covenants in this Lease. The consent by the
Landlord to an assignment or subletting shall not be construed to relieve the
Tenant from obtaining the consent in writing of the Landlord to any further
assignment or subletting.
19. Subordination to Mortgage.
This Lease shall be subject and subordinate at all times to the lien of
any existing and/or future mortgages and trust deeds on the Leased Premises.
Although no instrument or act on the part of the Tenant shall be necessary to
effectuate such subordination the Tenant will, execute and deliver such further
instruments subordinating this Lease to the lien of any such mortgages or trust
deeds as may be desired by the mortgagee or holder of such trust deeds. The
Tenant hereby appoints the Landlord as his attorney in fact, irrevocably, to
execute and deliver any such instrument for the Tenant. Tenant further agrees at
any time and from time to time upon not less than ten (10) days prior written
request by Landlord, to execute, acknowledge, and deliver to Landlord an
<PAGE> 56
estoppel affidavit in form acceptable to Landlord and the holder of any existing
mortgage or deed of trust encumbering the Leased Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant (1) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (2) that there are no uncured defaults in Landlord's
performance; and (3) that not more than one (1) month's rent has been paid in
advance. Further, upon request, Tenant shall supply to Landlord a corporate
resolution certifying that the party signing this statement on behalf of Tenant
is properly authorized to do so, if Tenant is a corporation.
Tenant agrees with Lender, Owner and Landlord that if there is a
foreclosure of any such mortgage or deed of trust and pursuant to such
foreclosure, the Public Trustee or other appropriate officer executes and
delivers a deed to the lender or its designee to the Leased Premises, or in the
event Owner conveys the Leased Premises to the lender or its designee in lieu of
foreclosure, Tenant will attorn to such grantee of the Leased Premises, rather
than to Landlord, to perform all of Tenant's obligations under the Lease, and
neither Lender nor Tenant shall have the no right to terminate the Lease by
reason of the foreclosure or deed given in lieu thereof. Landlord shall deliver
to Tenant at the time of execution hereof a reasonable Attornment and
Non-Disturbance Agreement.
20. Indemnity.
The Tenant shall indemnify and hold harmless the Landlord from and
against all liabilities, penalties, damages, judgments, and expenses, including
reasonable attorney's fees incurred by Landlord in defending or satisfying any
claim of any type or nature, including personal injury claims or property damage
claims, arising out of the use, occupancy, or control of the leased property or
any of its appurtenances by Tenant. Landlord hereby agrees to indemnify and hold
Tenant harmless from any and all claims, losses, liabilities, penalties,
damages, judgments, and expenses, including reasonable attorney's fees incurred
by Tenant in defending or satisfying any claim of any type or nature, including
personal injury claims or property damages claims, arising out of the use,
occupancy, or control of the leased property or any of its appurtenances prior
to closing. Tenant hereby agrees to indemnify Landlord and hold Landlord
harmless from and against any and all claims, losses, damages, liabilities,
fines, penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind and all
costs and expenses incurred in connection therewith (including but not limited
to attorney's fees and expenses), arising directly or indirectly from any
releases or discharges at the Leased Premises of any Hazardous Materials as
defined in Section 6 hereof), in connection with the handling, treatment,
removal, storage, decontamination, cleanup, transport or disposal of Hazardous
Materials at the Leased Premises by Tenant or any employees, agents, contractors
or subcontractors of Tenant or other persons occupying or present on the Leased
Premises (except Landlord, its agents, contractors and employees) at the
invitation of Tenant during the term of this Lease. The foregoing indemnity
shall include any residual contamination on or under the Leased Premises or
affecting any natural resources and to any contamination of any of the Leased
Premises and/or natural resources arising in
<PAGE> 57
connection with the generation, use, handling, storage, transport or disposal of
any such Hazardous Materials by or on behalf of Tenant and irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable laws, regulations, codes and ordinances.
21. Security.
Landlord has waived the requirement of a security deposit.
22. Default.
The occurrence of any of the following shall constitute an event of
default: (1) Delinquency for more than six (6) days in the due and punctual
payment of any rent or additional rent payable under this Lease; (2) Delinquency
by the Tenant in the performance of or compliance with any conditions contained
in this Lease other than those referred to in the foregoing subparagraph (1),
for a period of thirty (30) days after written notice thereof from the Landlord
to the Tenant, except for any default not susceptible of being cured within such
thirty (30) day period, in which event the time permitted to the Tenant to cure
such default shall be extended for as long as shall be reasonably necessary to
cure such default, provided the Tenant commences promptly and proceeds
diligently to cure such default, and provided further that such period of time
shall not be so extended as to jeopardize the interest of the Landlord in this
Lease or so as to subject the Landlord or the Tenant to any civil or criminal
liabilities; (3) filing by the Tenant in any court pursuant to any statutes,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors; (4) filing against the Tenant in any court
pursuant to any statute, either of the United States or of any state, of a
petition in bankruptcy or insolvency or for reorganization, or for appointment
of a receiver or trustee of all or a portion of the Tenant's property, if within
ninety days after the commencement of any such proceeding against the Tenant
such petition shall not have been dismissed.
A. Upon the occurrence of an event of default, the Landlord at any time
thereafter may give written notice to the Tenant specifying such event of
default and stating that this Lease shall terminate on the date specified in
such notice, which shall be at least three days after the giving of such notice,
and upon the date specified in such notice this Lease and all rights of the
Tenant shall terminate. Upon the expiration of this Lease pursuant to this
article, the Tenant shall peacefully surrender the Leased Premises to the
Landlord, and the Landlord, at any time after such expiration, may without
further notice re-enter the Leased Premises and repossess it by force, summary
proceedings, ejectment, or otherwise, and may dispossess the Tenant and remove
the Tenant and all other persons and property from the Leased Premises and may
have, hold, and enjoy the Leased Premises and the right to receive all rental
income therefrom.
<PAGE> 58
B. At any time after any such termination the Landlord may relet the
Leased Premises or any part thereof, in the name of the Landlord or otherwise,
for such term (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this Lease) and on such
conditions (which may include concessions or free rent) as the Landlord, in its
reasonable discretion, may determine, and may collect and receive the rent
therefor. The Landlord shall in no way be responsible or liable for any failure
to relet the Leased Premises or any part thereof, or for any failure to collect
any rent due upon any such reletting.
C. No such termination of this Lease shall relieve the Tenant of its
liability and obligations under this Lease, and such liability and obligations
shall survive any such termination. In the event of any such termination,
whether or not the Leased Premises or any part thereof shall have been relet,
the Tenant shall pay to the Landlord the rent and additional rent required to be
paid by the Tenant up to the time of such termination and thereafter the Tenant,
until the end of what would have been the term of this Lease in the absence of
such termination, shall be liable to the Landlord for, and shall pay to the
Landlord, as and for liquidated and agreed current damages for the Tenant's
default: (1) The equivalent of the amount of the rent and additional rent which
would be payable under this Lease by the Tenant if this Lease were still in
effect, less (2) The net proceeds of any reletting effected pursuant to the
provisions of paragraph B of this article, after deducting all the Landlord's
expenses in connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, reasonable attorney's
fees, alteration costs, and expenses of preparation of such reletting. The
Tenant shall pay such current damages, herein called deficiency, to the Landlord
monthly on the days on which the rent and additional rent would have been
payable under this Lease if this Lease were still in effect. Nothing herein
contained shall limit or prejudice the right of the Landlord to prove for and
obtain damages by reasons of such termination.
D. The Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to re-enter provided for in any statute, or
of the institution of legal proceedings to that end. The Tenant, for and on
behalf of itself and all persons claiming through or under the Tenant, also
waives any right of redemption or reentry or repossession or to restore the
operation of this Lease in case the Tenant shall be dispossessed by a judgment
or by warrant of any court or judge or in case of re-entry or repossession by
the Landlord. In case of any litigation under this Lease, the Landlord and the
Tenant, so far as permitted by law, waive trial by jury in any action,
proceeding, or counterclaim brought by either of the parties hereto against the
other on any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, the Tenant's use or occupancy of the Leased
Premises, or any claim of injury or damage; and further agree that the party not
in default shall be entitled to recover, from the party in default, all costs
and reasonable attorney's fees incurred by the non-defaulting party in enforcing
its rights under this Lease.
<PAGE> 59
E. The terms "enter", "re-enter", "entry" or "re-entry", as used in
this Lease are not restricted to their technical legal meaning.
F. Any amounts not paid by Tenant to Landlord when due shall draw
interest at the rate of twelve percent per annum from due date until paid.
Payment of such interest shall not excuse or cure any default by Tenant under
this Lease.
G. No assent, express or implied, to any breach of one or more of the
covenants or terms of this Lease shall be deemed or construed to be a waiver of
any succeeding or other breach.
H. Notwithstanding anything to the contrary contained herein,
Landlord's liability under this Lease agreement shall be limited to Landlord's
interest in the Leased Premises.
I. In case of any litigation under this Lease, the prevailing party
shall be entitled to recover reasonable attorneys fees and costs.
23. Notices
Any notice from one party to another, required by the terms of this
Lease agreement, may be delivered in person to such party, or shall be delivered
by first class mail, postage prepaid, and shall be deemed given one day after
the date mailed, addressed to the respective parties as follows:
LANDLORD: 3-G Partnership
c/o Richard L. Gray
1529 16th Place
Longmont, Colorado 80501
Copy to:
John W. Gaddis, Esq.
Bernard, Lyons & Gaddis, P.C.
515 Kimbark Street
Longmont, Colorado 80501
TENANT: Western Pipe Supply Co., Inc.
4275 Forest Street
Denver, Colorado 80216
Each party may notify the other of any change in such mailing address
by a notice given in the manner required above.
<PAGE> 60
24. Binding Effect
This Lease shall bind and extend to the heirs, representatives,
successors, and assigns of the parties hereto.
25. Option to Purchase During Original Lease Term
During the original five year lease term, Tenant shall have an option
to purchase the Leased Premises. However, in order to exercise this option,
Tenant must also contemporaneously exercise its option to purchase 5690 Valmont,
granted in the LEASE AGREEMENT FOR 5690 VALMONT, BOULDER, COLORADO. In the first
year of the Lease, the purchase price shall be $525,000. The purchase price
shall escalate 5% per year. This option shall terminate May ____, 2004. This
option shall be deemed validly and effectively exercised if notice of the
exercise thereof is either mailed by certified mail or delivered in person to
Landlord in the manner provided for notices under this Lease at any time after
May ____, 1999, and prior to May ____, 2004 (the "Option Period"). If the option
is exercised by Tenant, the purchase shall be closed within sixty (60) days
after giving notice of exercise, pursuant to customary terms and conditions as
set forth in the standard contract approved by the Colorado Real Estate
Commission.
Within fifteen (15) days after the notice date of Tenant's election to
exercise said option, Landlord shall furnish Tenant, at Landlord's expense, a
commitment for an owner's policy of title insurance issued by a title insurance
company satisfactory to Tenant. All premiums, fees, and costs of such title
insurance shall be paid by seller at or before closing. Tenant may survey the
property at its election and expense.
At closing, Tenant shall pay the purchase price in cash to Landlord and
Landlord shall execute, acknowledge, and deliver to Tenant, or its nominee, a
Special Warranty Deed, conveying the Leased Premises to Tenant, or its nominee
subject to liens, encumbrances, covenants, restrictions, rights of way, and
reservations of record as of the date hereof, provided any encumbrances
remaining against the Leased Premises shall be credited against the purchase
price. Possession of the Leased Premises shall be delivered to Tenant, or its
nominee, at the closing.
This option shall be binding upon and shall inure to the benefit of
Landlord and Tenant and their respective successors and assigns including
assignees of this Lease permitted pursuant to paragraph 18 hereof. However, the
option granted herein may not be otherwise assigned without Landlord's written
consent.
The parties shall enter into a Memorandum of Option Agreement which may
be recorded by Tenant at its sole discretion.
Rents shall be prorated as of the date of closing. The terms and
provisions of this Lease shall continue in effect until closing. Upon payment of
the purchase price and delivery of the deed to Tenant pursuant to this option,
this Lease and all obligations of Tenant hereunder shall terminate except for
any indemnities set forth in the Lease for the period of time for which Tenant
leased the Premises from Landlord.
<PAGE> 61
26. Option to Purchase If Lease Term is Extended
If the Tenant has renewed this Lease for an additional five (5) year
term pursuant to paragraph 3 above, then Tenant shall be granted an additional
five year option to purchase the Leased Premises for a purchase price equal to
the value established pursuant to the appraisal provisions set forth below.
However, in order to exercise this option, Tenant must also contemporaneously
exercise its option to purchase 5690 Valmont, granted in the LEASE AGREEMENT FOR
5690 VALMONT, BOULDER, COLORADO.
This option shall be deemed validly and effectively exercised if notice
of the exercise thereof is either mailed by certified mail or delivered in
person to Landlord in the manner provided for notices under this Lease at any
time after May ____, 2004, and prior to May ____, 2009, (the "Option Period").
If the option is exercised by Tenant, the purchase shall be closed within sixty
(60) days after giving notice of the exercise of the option.
Within fifteen (15) days after the notice date of Tenant's election to
exercise said option, Landlord shall furnish Tenant, at Landlord's expense, a
commitment for an owner's policy of title insurance issued by a title insurance
company satisfactory to Tenant. All premiums, fees, and costs of such title
insurance shall be paid by Seller at or before closing. Tenant may survey the
property at its election and expense.
At closing, Tenant shall pay the purchase price in cash to Landlord and
Landlord shall execute, acknowledge, and deliver to Tenant, or its nominee, a
Special Warranty deed conveying the Leased Premises to Tenant, or its nominee,
subject to all liens, encumbrances, covenants, restrictions, rights of way and
reservations of record.
The option shall be binding upon and shall inure to the benefit of
Landlord and Tenant and their respective successors and assigns; however, the
option granted herein may not be assigned without landlord's written consent.
Rents shall be prorated as of the date of closing. The terms and
provisions of this Lease shall continue in effect until closing. Upon payment of
the purchase price and delivery of the deed to Tenant pursuant to this option,
this Lease and all obligations of Tenant hereunder shall terminate except for
any indemnities set forth in the Lease for the period of time for which Tenant
leased the Premises from Landlord.
For purposes of the option granted to Tenant under this paragraph 26,
the purchase price at which the option may be exercised shall be determined as
follows:
A. Within ten days of Tenant giving notice of its election to exercise
its option rights, the parties shall attempt to agree upon a single MAI
appraiser;
B. In the event the parties are unable to agree upon a single MAI
appraiser, Landlord and Tenant shall each designate in writing one MAI appraiser
within 10 days following the Tenant's notice of election to exercise the option
to purchase, and
<PAGE> 62
the two appraisers shall then, within ten days after the date of their
appointment, agree upon the value of the real property. In the event the two
appraisers are unable to agree within said ten day period, they shall themselves
appoint a third MAI appraiser and the three appraisers shall set the value of
the property within 10 days of the appointment of the third appraiser. The
decision of a majority of the three appraisers as to the value of the real
property shall control and be binding on all parties. If there is no majority
opinion, the average of the two appraisals closest in value shall control and be
binding on all parties. For a period of 10 days after Tenant's receipt of a
written report setting forth the establishment of the value by the appraisers,
Tenant shall have the option (exercisable in the manner provided above for the
initial notice of exercise of the option) of purchasing the property at the
value established by the appraiser(s) with the closing to occur within 30 days.
If Tenant purchases the property, the Landlord and Tenant shall each bear
one-half of the costs of the valuation. If Tenant elects not to purchase the
property, Tenant shall bear all the costs of the valuation. If any party fails
to timely designate an MAI appraiser, the opinion of the appraiser appointed by
the other party as to the value of the property shall control.
The parties shall enter into a Memorandum of Option which may be
recorded by Tenant at its sole discretion.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement on
the date set forth opposite their respective signatures.
LANDLORD: TENANT:
3-G PARTNERSHIP WESTERN PIPE SUPPLY CO., INC.
By By
---------------------------- ----------------------------
The undersigned persons, jointly and severally, guarantee the
obligations of Tenant set forth above.
- ---------------------------- ----------------------------
- ----------------------------
<PAGE> 63
LEASE AGREEMENT
FOR 5690 VALMONT, BOULDER, COLORADO
THIS LEASE AGREEMENT, is made this ______ day of May,1999, by and
between EGG Partnership, hereinafter referred to as landlord, and Western Pipe
Supply Co., a Colorado corporation, as tenant,
IN CONSIDERATION of the covenants herein, it is agreed:
1. Lease of Premises
The landlord hereby leases to the tenant, and the tenant hereby leases
from the landlord, a portion of the land and all improvements located at 5690
Valmont, Boulder, Colorado, more fully described on Exhibit "A" attached hereto
and all easements, rights of way and all appurtenances thereto, (including
shared parking with other tenants), and all fixtures attached thereto, in
present condition, (the "Leased Premises").
2. Condition of Property
To the best of the knowledge of Landlord, Landlord warrants and
represents that the Leased Premises are in compliance with all applicable laws,
rules and regulations and that the structures and systems are free of latent
defects.
3. Term
The term of this Lease shall be for five (5) years, commencing at 12:01
A.M. on May ____, 1999, and ending at midnight on May ____, 2004. Provided
Tenant is not then in default, Tenant shall have the option to renew this Lease
for an additional term of five (5) years by giving written notice to Landlord at
least 90 days prior to the expiration date of the initial term of this Lease.
4. Delivery of Possession
The tenant shall be entitled to possession of the Leased Premises at
commencement of the lease term.
5. Rental
Tenant shall pay to the landlord, at such place as the Landlord may
designate in writing the following rent:
A. Base Rental
Rental of $775.00 per month due in advance on the fourteenth day of
each month commencing May ____, 1999, and continuing to be due on the _____ day
of each
<PAGE> 64
month thereafter until the Lease terminates. If the Lease term includes
only a part of any calendar month, rental for such part of a calendar month
shall be prorated accordingly.
B. Increase in Base Rental
On May ____, 2000, and annually thereafter, the base rental payable by
tenant shall be increased by 5 percent of the previous year's base rental
amount.
C. Late Charge
Tenant will pay a late charge equal to five percent of any monthly
rental payment not paid within ten days of when due.
6. Use
The tenant shall initially use and occupy the Leased Premises for
purposes of a wholesale and retail sales and distribution center for irrigation
and plumbing supplies, and may use and occupy the Leased Premises for any lawful
purpose, and tenant shall not use or occupy nor permit the leased property or
any part thereof to be used or occupied for any unlawful business, use or
purpose, nor for any business, use, or purpose deemed extra-hazardous, or which
would void or make voidable any insurance coverage, nor for any purpose or in
any manner which is in violation of any present or future governmental laws or
regulations. The tenant shall indemnify the landlord against all costs,
expenses, liabilities, losses, damages, injunctions, suits, fines, penalties,
claims, and demands, including reasonable attorney's fees, arising out of any
violation of or default in this covenant by tenant.
Tenant shall not engage in any business wherein hazardous substances
are used or any hazardous materials released or threatened to be released,
including, but not limited to, the business of generating, transporting,
storing, treating or disposing of hazardous substances or hazardous waste except
in conformance with all applicable laws and regulations concerning the use,
storage and transportation of hazardous materials. Hazardous Waste or Hazardous
Materials shall mean and include, any hazardous, toxic or dangerous waste,
substance or material defined as such in any federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous, toxic
or dangerous waste, substance or material as now or at any time hereafter in
effect, including but not limited to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et.
seq; or Colo. Rev. Stat. Sections 25-16-101 et seq. or 25-15-101 et seq.; the
Hazardous Materials Transportation Act of 1975, 49 U.S.C. Sections 1801 et seq.;
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Sections 6901 et
seq; or any amendments or supplements thereto. The Leased Premises shall not be
used for the storing or disposal of hazardous waste or for storing or disposal
of hazardous substances during the term of the Lease except in conformance with
all applicable laws and regulations concerning the use, storage and
transportation of hazardous materials.
<PAGE> 65
Tenant shall comply with all applicable environmental laws, rules and
regulations concerning the Tenant's business conducted at the Leased Premises.
Tenant shall provide to Landlord copies of all reports required by environmental
agencies within (15) fifteen days of filing. Tenant shall provide Landlord
monthly with copies of manifests and any paperwork related to the generation,
transportation and disposal of hazardous substances from the premises during the
prior month. Landlord shall have the right to reasonably review Tenant's files
for any reports, manifests, and other paperwork related to the terms of this
paragraph in order to ensure Tenant's compliance.
7. Possession and Quiet Enjoyment.
The Tenant, upon the payment of the rent and upon the performance of
all the terms of this Lease, shall at all times while the Lease is in force,
peaceably and quietly possess and enjoy the Leased Premises without any
disturbance from the Landlord.
8. Maintenance and Repairs.
All ordinary and customary maintenance, repairs and replacements to the
Leased Premises shall be performed by Tenant, at its own expense, including all
necessary repairs to pipes, heating systems, plumbing systems, electrical
systems, window glass, doors, fixtures, interior decorations, and all other
appliances and appurtenances. Such repairs ordinary as well as extraordinary,
shall be made promptly, as and when necessary. All such repairs and replacements
shall be in quality and class at least equal to the original work. On default of
the Tenant in making such repairs or replacements, the Landlord may, but shall
not be required to, make such repairs and replacements for the Tenant's account,
and the expense shall constitute and be collectable as additional rent, together
with interest thereon at the rate of twelve percent per annum until paid.
Landlord shall be responsible for maintaining the structural components of the
Leased Premises including but not limited to, the roof, foundation, exterior
walls and interior support systems unless caused by Tenant's act or negligence,
in which case, Tenant shall pay for all necessary repairs and replacements to
the extent not covered by insurance.
Tenant shall be responsible for and pay for the routine maintenance of
the Leased Premise's asphalt and concrete areas including the ingress and egress
areas, parking lots and storage areas. For that purpose, routine maintenance
shall be limited to sealing cracks in the asphalt and concrete to the extent
that such cracks can effectively be repaired by sealing. In addition, Tenant
shall be responsible for any damages Tenant or Tenant's invitees cause to these
areas. In the event that these areas need other than routine maintenance
repairs, and Tenant or Tenant's invitees have not caused the need for such
repairs, Landlord will be responsible for such repairs.
Tenant shall not allow or permit any waste of the Leased Premises, and
shall keep the leased grounds free of trash or debris.
<PAGE> 66
9. Condition Upon Surrender.
The Tenant shall vacate the Leased Premises in the same condition in
which the Premises now is, ordinary wear and tear excepted, and excepting any
alterations approved by Landlord in accordance with Paragraph 10 and shall
remove all of the Tenant's property, so that the Landlord can repossess the
Leased Premises not later than noon on the day upon which this Lease or any
extension ends, whether upon notice, holdover or otherwise. The Landlord shall
have the same rights to enforce this covenant by ejectment and for damages or
otherwise as for the breach of any other condition or covenant of this Lease.
Except as otherwise provided herein, the Tenant may at any time prior to the
termination of this Lease or any renewal or extension, remove all materials,
equipment, and property of every other sort or nature, installed and owned by
the Tenant, provided that such property is removed without substantial injury to
the Leased Premises. No injury shall be considered substantial if it is promptly
corrected by restoration to the condition prior to the installation of such
property. Any such property not removed shall become the property of the
Landlord.
10. Alterations.
The Tenant shall have the right, from time to time, to make
non-structural alterations and improvements to the Leased Premises provided that
prior to commencement of any such work, the Landlord shall in each case have
approved in writing the plans and specifications for such work, which approval
shall not be unreasonably withheld or delayed. If within ten days after such
plans and specifications are submitted by the Tenant to the Landlord for such
approval, the Landlord shall have not given the Tenant notice of disapproval,
stating the reason for such disapproval, such plans and specifications shall be
considered approved by the Landlord. All work done by Tenant shall conform to
all applicable governmental regulations and requirements with all required
permits to be paid for by Tenant. Further, in connection with any improvements
and alterations to the Leased Premises, Tenant shall indemnify the Landlord from
any lien arising out of any such work performed or materials furnished, and
shall indemnify and hold harmless the Landlord from any liability or loss, of
any type or nature, including reasonable attorney's fees, arising out of any
lien or claim based on work performed or materials furnished. Landlord shall
have the right to require Tenant to furnish adequate bond or other security
acceptable to Landlord for payment of any such work performed by Tenant, and
shall have the right to require adequate lien waivers on any such work performed
by Tenant. Landlord shall also have the right to post notice of non-liability
for any such work, at appropriate places in the Leased Premises. Landlord shall
not be responsible for any building code violations of which Tenant may incur
due to Tenant's remodeling even if Landlord approves Tenant's remodeling plans,
and Tenant shall be liable for any code violations and the cost to restore the
premises into a condition in compliance with applicable codes.
<PAGE> 67
11. Signs.
Tenant shall place no signs on the Leased Premises without prior
written consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All signs shall comply with applicable sign codes and shall be at
Tenant's expense. Landlord makes no representation as to the availability of
signage rights under applicable codes and Tenant shall make its own
determination of applicable codes.
12. Taxes and Assessments.
The Tenant shall pay as additional rent, 25% of the real estate taxes,
assessments, as they become due and payable, and other charges assessed against
the entire parcel known as 5690 Valmont, Boulder, Colorado, as shall, from and
after the date hereof, be assessed upon the Leased Premises and any
appurtenances or improvements to the extent the same are levied with respect to
any period of time after commencement of this Lease. The Tenant may in good
faith contest, by appropriate proceeding and at the Tenant's expense, in the
Landlord's or Tenant's name, whenever necessary, any assessment, and may defer
payment thereof, provided that Tenant shall deposit with Landlord a sum which
shall be at least twenty-five percent (25%) greater than the amount of the item
so contested plus interest and penalties. The Landlord may pay such contested
item out of any sums so deposited in case of undue delay in the prosecution of
such proceeding or if Landlord deems it necessary for the protection of the
Leased Premises. Landlord shall refund any excess monies held on deposit after
payment or conclusion of the dispute.
13. Utilities.
Landlord represents that all customary utilities are available for
service to the Leased Premises. The Landlord shall not be required to furnish to
Tenant any facilities or services of any kind, such as but not limited to,
water, hot water, heat, gas electricity, light, and power. The Tenant shall be
responsible for all expenses related to utility charges to the Leased Premises.
14. Insurance.
Tenant shall insure the premises against loss by fire, flood, or other
casualty normally covered under property damage insurance coverages in an amount
to cover full replacement cost of the improvements on the Landlord's property.
In addition, Tenant shall maintain, at the sole expense of the Tenant,
the following insurance throughout the term of this Lease:
<PAGE> 68
A. Liability.
Claims for liability and property damage under a comprehensive general
broad form liability policy with limits of not less than a $1,000,000.00
combined single limit liability policy.
B. Tenant Improvements.
Insurance covering all of Tenant's leasehold improvements, alterations,
additions or improvements to the Premises, in an amount not less than 100
percent (100%) of their full replacement cost from time to time during the term
of this Lease, providing protection against any peril included within a broad
form policy. Any policy proceeds shall be used for the repair or replacement of
the property damaged or destroyed unless this Lease shall cease and terminate
due to destruction of the premises as provided below.
C. Other.
Against such other hazards and in such amounts as the holder of any
mortgage or deed of trust to which this Lease is subordinate may reasonably
require from time to time.
D. Other Provisions Regarding Tenant's Insurance.
All insurance required of Tenant in this Lease shall be effected under
enforceable policies issued by insurors of recognized responsibility licensed to
do business in this State. At least fifteen days prior to the expiration date of
any such policy, a certificate evidencing such insurance shall be delivered by
the Tenant to the Landlord. Within fifteen days after the premium on any policy
shall become due and payable, the Landlord shall be furnished with satisfactory
evidence of its payment. All policies of insurance shall name the Landlord as an
additional insured and the Tenant as the insured, as their respective interests
may appear. At the request of the Landlord any insurance policy shall be made
payable to the holders of any master lease, mortgage or deeds of trust to which
this Lease is at any time subordinate, as the interest of such holders may
appear. To the extent obtainable, all policies shall contain an agreement by the
insurors that any loss shall be payable to the Landlord or the holder of any
such mortgage or deed of trust, notwithstanding any act or negligence of the
Tenant which might otherwise result in forfeiture of such insurance, and that
such policies shall not be canceled except upon ten (10) days prior written
notice to the Landlord or the holders of any mortgage or deed of trust to whom
loss may be payable, and that the coverage afforded thereby shall not be
affected by the performance of any work in or about the Leased Premises.
If the Tenant provides any insurance required of Tenant by this Lease
in the form of a blanket policy, the Tenant shall furnish satisfactory proof
that such blanket policy complies in all respects with the provisions of this
Lease, and that the coverage thereunder is at least equal to the coverage which
would be provided under a separate policy covering only the Leased Premises.
<PAGE> 69
If the definition of insurance industry policy language relating to
broad form insurance or other term changes, the insurance requirements hereunder
shall be modified to conform to the existing insurance industry language,
however, the coverages required under this Lease shall not be less than those
existing at the time of the effective beginning date of this Lease.
15. Right of Entry.
Upon reasonable notice by Landlord to Tenant, the Landlord and its
representatives may enter the Leased Premises at any reasonable time for the
purpose of inspecting the Leased Premises, reading meters, performing any work
which the Landlord elects to undertake made necessary by reason of Tenant's
default under the terms of this Lease, exhibiting the Leased Premises for sale,
Lease, or mortgage financing, or posting notices of non-responsibility under any
mechanic's lien law.
16. Casualty Damage.
If the Leased Premises, shall be so damaged by fire or other casualty
as to render them wholly untenantable, and if such damage shall be so great that
a competent architect, in good standing, selected by Landlord shall certify in
writing to Landlord and Tenant that the Premises, with the exercise of
reasonable diligence, cannot be made fit for occupancy within one hundred eighty
(180) working days, then this Lease shall cease and terminate from the date of
the occurrence of such damage; and Tenant thereupon shall surrender to Landlord
the Premises and all interest hereunder, and Landlord may reenter and take
possession of the Premises and remove Tenant therefrom. Tenant shall pay rent
and other charges duly apportioned, up to the time of such termination of this
Lease.
If, however, the damage shall be such that said architect shall certify
that the Premises can be made tenantable within a one hundred eighty (180) day
period, then, except as hereinafter provided Landlord shall, repair the damage
in a competent manner to the extent of the insurance proceeds received by
Landlord.
If the fire or other casualty causing injury to the Premises or other
parts of the Building shall have been caused by the negligence or misconduct of
Tenant, its agents, servants or employees, or by any other person entering upon
the Premises under express or implied invitation of Tenant, such injury shall be
repaired by Landlord only to the extent of the insurance proceeds received by
Landlord, and any additional costs of necessary repairs shall be at Tenant's
expense.
Notwithstanding the foregoing, in the event the holder of a mortgage
granted by the owner of the property, covering the Leased Premises, fails to
authorize the repair or restoration of the Premises or fails to release the
insurance proceeds, then this Lease shall terminate as of the date Landlord
notifies Tenant of such event and the rental
<PAGE> 70
payments and other charges due under the Lease shall be apportioned to the date
of occurrence of the damage.
17. Condemnation.
If the whole of the Leased Premises or such portion thereof which will
make the Leased Premises unsuitable for the purposes herein leased, is condemned
for any public use or purpose by any legally constituted authority, then in
either of such events this Lease shall terminate from the time when possession
is taken by such public authority and rental shall be accounted for as of the
date of the surrender of possession. Landlord, or the owner of the Leased
Premises, shall receive the entire award or consideration for the lands and
improvements taken up to the amount of the then applicable Option Purchase Price
and Tenant waives any claim to such award, except that Tenant may separately
claim and recover from the condemning authority the value of any personal
property owned by Tenant and the value of the Leased Premises in excess of the
applicable Option Purchase Price.
18. Assignment and Subletting.
The Tenant shall not assign, mortgage, or encumber this Lease, nor
sublet or permit the Leased Premises or any part thereof to be used by others,
without the prior written consent of the Landlord in each instance, which
consent shall not be unreasonably withheld or delayed. Tenant acknowledges that
any subletting may be subject to Landlord obtaining the consent of the holder of
any mortgage on the property. If this Lease is assigned, or if the Leased
Premises or any part thereof is sublet, or occupied by anyone other than the
Tenant, the Landlord may, after default by the Tenant, collect rent from the
assignee, sub-tenant, or occupant and apply the net amount collected against all
rent herein reserved. No such assignment, subletting, occupancy, or collection
shall be deemed a waiver of this covenant, or the acceptance of the assignee,
sub-tenant, or occupant as tenant, or a release of Tenant from further
performance by the Tenant of the covenants in this Lease. The consent by the
Landlord to an assignment or subletting shall not be construed to relieve the
Tenant from obtaining the consent in writing of the Landlord to any further
assignment or subletting.
19. Subordination to Mortgage.
This Lease shall be subject and subordinate at all times to the lien of
any existing and/or future mortgages and trust deeds on the Leased Premises.
Although no instrument or act on the part of the Tenant shall be necessary to
effectuate such subordination the Tenant will, execute and deliver such further
instruments subordinating this Lease to the lien of any such mortgages or trust
deeds as may be desired by the mortgagee or holder of such trust deeds. The
Tenant hereby appoints the Landlord as his attorney in fact, irrevocably, to
execute and deliver any such instrument for the Tenant. Tenant further agrees at
any time and from time to time upon not less than ten (10) days prior written
request by Landlord, to execute, acknowledge, and deliver to Landlord an
<PAGE> 71
estoppel affidavit in form acceptable to Landlord and the holder of any existing
mortgage or deed of trust encumbering the Leased Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant (1) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (2) that there are no uncured defaults in Landlord's
performance; and (3) that not more than one (1) month's rent has been paid in
advance. Further, upon request, Tenant shall supply to Landlord a corporate
resolution certifying that the party signing this statement on behalf of Tenant
is properly authorized to do so, if Tenant is a corporation.
Tenant agrees with Lender, Owner and Landlord that if there is a
foreclosure of any such mortgage or deed of trust and pursuant to such
foreclosure, the Public Trustee or other appropriate officer executes and
delivers a deed to the lender or its designee to the Leased Premises, or in the
event Owner conveys the Leased Premises to the lender or its designee in lieu of
foreclosure, Tenant will attorn to such grantee of the Leased Premises, rather
than to Landlord, to perform all of Tenant's obligations under the Lease, and
neither Lender nor Tenant shall have the right to terminate the Lease by reason
of the foreclosure or deed given in lieu thereof. Landlord shall deliver to
Tenant at the time of execution hereof a reasonable Attornment and Non
Disturbance Agreement.
20. Indemnity.
The Tenant shall indemnify and hold harmless the Landlord from and
against all liabilities, penalties, damages, judgments, and expenses, including
reasonable attorney's fees incurred by Landlord in defending or satisfying any
claim of any type or nature, including personal injury claims or property damage
claims, arising out of the use, occupancy, or control of the leased property or
any of its appurtenances by Tenant. Landlord hereby agrees to indemnify and hold
Tenant harmless from any and all claims, losses, liabilities, penalties,
damages, judgments, and expenses, including reasonable attorney's fees incurred
by Tenant in defending or satisfying any claim of any type or nature, including
personal injury claims or property damages claims, arising out of the use,
occupancy, or control of the leased property or any of its appurtenances prior
to closing by Tenant. Tenant hereby agrees to indemnify Landlord and hold
Landlord harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial action requirements, enforcement actions of any
kind and all costs and expenses incurred in connection therewith (including but
not limited to attorney's fees and expenses), arising directly or indirectly
from any releases or discharges at the Leased Premises of any Hazardous
Materials as defined in Section 6 hereof), in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transport or disposal of
Hazardous Materials at the Leased Premises by Tenant or any employees, agents,
contractors or subcontractors of Tenant or other persons occupying or present on
the Leased Premises (except Landlord, its agents, contractors and employees) at
the invitation of Tenant during the term of this Lease. The foregoing indemnity
shall include any residual contamination on or under the Leased Premises or
affecting any natural resources and to any contamination of any of the Leased
Premises and/or natural resources arising in
<PAGE> 72
connection with the generation, use, handling, storage, transport or disposal of
any such Hazardous Materials by or on behalf of Tenant and irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable laws, regulations, codes and ordinances.
21. Security.
Landlord has waived the requirement of a security deposit.
22. Default.
The occurrence of any of the following shall constitute an event of
default: (1) Delinquency for more than six (6) days in the due and punctual
payment of any rent or additional rent payable under this Lease; (2) Delinquency
by the Tenant in the performance of or compliance with any conditions contained
in this Lease other than those referred to in the foregoing subparagraph (1),
for a period of thirty (30) days after written notice thereof from the Landlord
to the Tenant, except for any default not susceptible of being cured within such
thirty (30) day period, in which event the time permitted to the Tenant to cure
such default shall be extended for as long as shall be reasonably necessary to
cure such default, provided the Tenant commences promptly and proceeds
diligently to cure such default, and provided further that such period of time
shall not be so extended as to jeopardize the interest of the Landlord in this
Lease or so as to subject the Landlord or the Tenant to any civil or criminal
liabilities; (3) filing by the Tenant in any court pursuant to any statutes,
either of the United States or any state, of a petition in bankruptcy or
insolvency, or for reorganization, or for the appointment of a receiver or
trustee of all or a portion of the Tenant's property, or an assignment by the
Tenant for the benefit of creditors; (4) filing against the Tenant in any court
pursuant to any statute, either of the United States or of any state, of a
petition in bankruptcy or insolvency or for reorganization, or for appointment
of a receiver or trustee of all or a portion of the Tenant's property, if within
ninety days after the commencement of any such proceeding against the Tenant
such petition shall not have been dismissed.
A. Upon the occurrence of an event of default, the Landlord at any time
thereafter may give written notice to the Tenant specifying such event of
default and stating that this Lease shall terminate on the date specified in
such notice, which shall be at least three days after the giving of such notice,
and upon the date specified in such notice this Lease and all rights of the
Tenant shall terminate. Upon the expiration of this Lease pursuant to this
article, the Tenant shall peacefully surrender the Leased Premises to the
Landlord, and the Landlord, at any time after such expiration, may without
further notice re-enter the Leased Premises and repossess it by force, summary
proceedings, ejectment, or otherwise, and may dispossess the Tenant and remove
the Tenant and all other persons and property from the Leased Premises and may
have, hold, and enjoy the Leased Premises and the right to receive all rental
income therefrom.
<PAGE> 73
B. At any time after any such termination the Landlord may relet the
Leased Premises or any part thereof, in the name of the Landlord or otherwise,
for such term (which may be greater or less than the period which would
otherwise have constituted the balance of the term of this Lease) and on such
conditions (which may include concessions or free rent) as the Landlord, in its
reasonable discretion, may determine, and may collect and receive the rent
therefor. The Landlord shall in no way be responsible or liable for any failure
to relet the Leased Premises or any part thereof, or for any failure to collect
any rent due upon any such reletting.
C. No such termination of this Lease shall relieve the Tenant of its
liability and obligations under this Lease, and such liability and obligations
shall survive any such termination. In the event of any such termination,
whether or not the Leased Premises or any part thereof shall have been relet,
the Tenant shall pay to the Landlord the rent and additional rent required to be
paid by the Tenant up to the time of such termination and thereafter the Tenant,
until the end of what would have been the term of this Lease in the absence of
such termination, shall be liable to the Landlord for, and shall pay to the
Landlord, as and for liquidated and agreed current damages for the Tenant's
default: (1) The equivalent of the amount of the rent and additional rent which
would be payable under this Lease by the Tenant if this Lease were still in
effect, less (2) The net proceeds of any reletting effected pursuant to the
provisions of paragraph B of this article, after deducting all the Landlord's
expenses in connection with such reletting, including, without limitation, all
repossession costs, brokerage commissions, legal expenses, reasonable attorney's
fees, alteration costs, and expenses of preparation of such reletting. The
Tenant shall pay such current damages, herein called deficiency, to the Landlord
monthly on the days on which the rent and additional rent would have been
payable under this Lease if this Lease were still in effect. Nothing herein
contained shall limit or prejudice the right of the Landlord to prove for and
obtain damages by reasons of such termination.
D. The Tenant hereby expressly waives, so far as permitted by law, the
service of any notice of intention to re-enter provided for in any statute, or
of the institution of legal proceedings to that end. The Tenant, for and on
behalf of itself and all persons claiming through or under the Tenant, also
waives any right of redemption or reentry or repossession or to restore the
operation of this Lease in case the Tenant shall be dispossessed by a judgment
or by warrant of any court or judge or in case of re-entry or repossession by
the Landlord. In case of any litigation under this Lease, the Landlord and the
Tenant, so far as permitted by law, waive trial by jury in any action,
proceeding, or counterclaim brought by either of the parties hereto against the
other on any matter arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, the Tenant's use or occupancy of the Leased
Premises, or any claim of injury or damage; and further agree that the party not
in default shall be entitled to recover, from the party in default, all costs
and reasonable attorney's fees incurred by the non-defaulting party in enforcing
its rights under this Lease.
<PAGE> 74
E. The terms "enter", "re-enter", "entry" or "re-entry", as used in
this Lease are not restricted to their technical legal meaning.
F. Any amounts not paid by Tenant to Landlord when due shall draw
interest at the rate of twelve percent per annum from due date until paid.
Payment of such interest shall not excuse or cure any default by Tenant under
this Lease.
G. No assent, express or implied, to any breach of one or more of the
covenants or terms of this Lease shall be deemed or construed to be a waiver of
any succeeding or other breach.
H. Notwithstanding anything to the contrary contained herein,
Landlord's liability under this Lease agreement shall be limited to Landlord's
interest in the Leased Premises.
I. In case of any litigation under this Lease, the prevailing party
shall be entitled to recover reasonable attorneys fees and costs.
23. Notices
Any notice from one party to another, required by the terms of this
Lease agreement, may be delivered in person to such party, or shall be delivered
by first class mail, postage prepaid, and shall be deemed given one day after
the date mailed, addressed to the respective parties as follows:
LANDLORD: EGG Partnership
c/o Elysse Grinnell
339 Pratt Street
Longmont, Colorado 80501
Copy to:
John W. Gaddis, Esq.
Bernard, Lyons & Gaddis, P.C.
515 Kimbark Street
Longmont, Colorado 80501
TENANT: Western Pipe Supply Co., Inc.
4275 Forest Street
Denver, Colorado 80216
Each party may notify the other of any change in such mailing address
by a notice given in the manner required above.
<PAGE> 75
24. Binding Effect
This Lease shall bind and extend to the heirs, representatives,
successors, and assigns of the parties hereto.
25. Option to Purchase During Original Lease Term
During the original five year lease term, Tenant shall have an option
to purchase the Leased Premises. However, in order to exercise this option,
Tenant must also contemporaneously exercise its option to purchase 5700 Valmont
granted under the LEASE AGREEMENT FOR 5700 VALMONT, BOULDER, COLORADO. In the
first year of the Lease, the purchase price shall be $275,000. The purchase
price shall escalate 5% per year. This option shall terminate May ____, 2004.
This option shall be deemed validly and effectively exercised if notice of the
exercise thereof is either mailed by certified mail or delivered in person to
Landlord in the manner provided for notices under this Lease at any time after
May ____, 1999, and prior to May ____, 2004 (the "Option Period"). If the option
is exercised by Tenant, the purchase shall be closed within sixty (60) days
after giving notice of exercise, pursuant to customary terms and conditions as
set forth in the standard contract approved by the Colorado Real Estate
Commission.
Within fifteen (15) days after the notice date of Tenant's election to
exercise said option, Landlord shall furnish Tenant, at Landlord's expense, a
commitment for an owner's policy of title insurance issued by a title insurance
company satisfactory to Tenant. All premiums, fees, and costs of such title
insurance shall be paid by seller at or before closing. Tenant may survey the
property at its election and expense.
At closing, Tenant shall pay the purchase price in cash to Landlord and
Landlord shall execute, acknowledge, and deliver to Tenant, or its nominee, a
Special Warranty Deed, conveying the Leased Premises to Tenant, or its nominee
subject to liens, encumbrances, covenants, restrictions, rights of way, and
reservations of record as of the date hereof, provided any encumbrances
remaining against the Leased Premises shall be credited against the purchase
price. Possession of the Leased Premises shall be delivered to Tenant, or its
nominee, at the closing.
This option shall be binding upon and shall inure to the benefit of
Landlord and Tenant and their respective successors and assigns, including
assignees of this Lease permitted pursuant to paragraph 18 hereof. However, the
option granted herein may not be otherwise assigned without Landlord's written
consent.
Rents shall be prorated as of the date of closing. The terms and
provisions of this Lease shall continue in effect until closing. Upon payment of
the purchase price and delivery of the deed to Tenant pursuant to this option,
this Lease and all obligations of Tenant hereunder shall terminate except for
any indemnities set forth in the Lease for the period of time for which Tenant
leased the Premises from Landlord.
The parties shall enter into a Memorandum of Option Agreement which may
be recorded by Tenant at its sole discretion.
<PAGE> 76
26. Option to Purchase If Lease Term is Extended
If the Tenant has renewed this Lease for an additional five (5) year
term pursuant to paragraph 3 above, then Tenant shall be granted an additional
five year option to purchase the Leased Premises for a purchase price equal to
the value established pursuant to the appraisal provisions set forth below.
However, in order to exercise this option, Tenant must also contemporaneously
exercise its option to purchase 5700 Valmont granted under the LEASE AGREEMENT
FOR 5700 VALMONT, BOULDER, COLORADO.
This option shall be deemed validly and effectively exercised if notice
of the exercise thereof is either mailed by certified mail or delivered in
person to Landlord in the manner provided for notices under this Lease at any
time after May ____, 2004, and prior to May ____, 2009, (the "Option Period").
If the option is exercised by Tenant, the purchase shall be closed within sixty
(60) days after giving notice of the exercise of the option.
Within fifteen (15) days after the notice date of Tenant's election to
exercise said option, Landlord shall furnish Tenant, at Landlord's expense, a
commitment for an owner's policy of title insurance issued by a title insurance
company satisfactory to Tenant. All premiums, fees, and costs of such title
insurance shall be paid by Seller at or before closing. Tenant may survey the
property at its election and expense.
At closing, Tenant shall pay the purchase price in cash to Landlord and
Landlord shall execute, acknowledge, and deliver to Tenant, or its nominee, a
Special Warranty deed conveying the Leased Premises to Tenant, or its nominee,
subject to all liens, encumbrances, covenants, restrictions, rights of way and
reservations of record.
The option shall be binding upon and shall inure to the
benefit of Landlord and Tenant and their respective successors and assigns;
however, the option granted herein may not be assigned without landlord's
written consent.
Rents shall be prorated as of the date of closing. The terms and
provisions of this Lease shall continue in effect until closing. Upon payment of
the purchase price and delivery of the deed to Tenant pursuant to this option,
this Lease and all obligations of Tenant hereunder shall terminate except for
any indemnities set forth in the Lease for the period of time for which Tenant
leased the Premises from Landlord.
For purposes of the option granted to Tenant under this paragraph 26,
the purchase price at which the option may be exercised shall be determined as
follows:
A. Within ten days of Tenant giving notice of its election to exercise
its option rights, the parties shall attempt to agree upon a single MAI
appraiser;
B. In the event the parties are unable to agree upon a single MAI
appraiser, Landlord and Tenant shall each designate in writing one MAI appraiser
within 10 days following the Tenant's notice of election to exercise the option
to purchase, and
<PAGE> 77
the two appraisers shall then, within ten days after the date of their
appointment, agree upon the value of the real property. In the event the two
appraisers are unable to agree within said ten day period, they shall themselves
appoint a third MAI appraiser and the three appraisers shall set the value of
the property within 10 days of the appointment of the third appraiser. The
decision of a majority of the three appraisers as to the value of the real
property shall control and be binding on all parties. If there is no majority
opinion, the average of the two appraisals closest in value shall control and be
binding on all parties. For a period of 10 days after Tenant's receipt of a
written report setting forth the establishment of the value by the appraisers,
Tenant shall have the option (exercisable in the manner provided above for the
initial notice of exercise of the option) of purchasing the property at the
value established by the appraiser(s) with the closing to occur within 30 days.
If Tenant purchases the property, the Landlord and Tenant shall each bear
one-half of the costs of the valuation. If Tenant elects not to purchase the
property, Tenant shall bear all the costs of the valuation. If any party fails
to timely designate an MAI appraiser, the opinion of the appraiser appointed by
the other party as to the value of the property shall control.
The parties shall enter into a Memorandum of Option which may be
recorded by Tenant at its sole discretion.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement on
the date set forth opposite their respective signatures.
LANDLORD: TENANT:
EGG PARTNERSHIP Western Pipe Supply Co., Inc.
By By
---------------------------- ----------------------------
The undersigned persons, jointly and severally, guarantee the
obligations of Tenant set forth above.
- ---------------------------- ----------------------------
- ----------------------------
<PAGE> 78
EXHIBIT B
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
May 24, 1999 among CPS Distributors, Inc., a Colorado corporation (the "Buyer"),
and Western Pipe Supply Co., Inc., a Colorado corporation (the "Company"), on
the one hand, and Bruce J. Grinnell, Jr. (the "Shareholder"), on the other.
Recitals
Pursuant to the Stock Purchase Agreement (the "Purchase Agreement") of
even date herewith between the Buyer and the Shareholder, the Buyer is acquiring
all of the stock of the Company. The Shareholder was the sole shareholder of the
Company prior to that acquisition.
The execution and delivery of this Agreement is a condition precedent
to the obligations of the parties to the Purchase Agreement to consummate the
transactions contemplated by the Purchase Agreement. The Shareholder will
receive substantial direct economic benefits from the consummation of those
transactions.
Agreement
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, in order to fulfill a condition to the obligations
of the parties under the Purchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the
parties agree as follows:
1. Noncompetition.
(a) The Shareholder covenants and agrees that, for a period of
ten years after the date of this Agreement, without the prior written consent of
the Buyer, neither the Shareholder nor any of his Affiliates (terms capitalized
but not defined herein are used as defined in the Purchase Agreement) will
engage, anywhere in the State of Colorado or Wyoming, directly or indirectly, as
an owner of a voting, equity or profits interest (or any option or right to
acquire a voting, equity or profits interest), director, officer, employee,
consultant, representative, principal, agent, lender or guarantor of
indebtedness or otherwise, in any business involving the wholesale or retail
sale or distribution of any of the following products: irrigation products,
plumbing products, electrical products and products for use in water and sewer
distribution and collection systems; provided, however, that Shareholder shall
not be prohibited from working directly for a manufacturer of such products in
connection with the sale of such products by the manufacturer to wholesale
distributors.
(b) Notwithstanding the provisions of Section 1(a), this
Agreement will not be deemed to prohibit the Shareholder or any of his
Affiliates from owning equity securities of another Person engaged in an
activity that, if engaged in by the Shareholder, would be prohibited by Section
1(a), so long as the equity securities so owned by the Shareholder and all of
his Affiliates are of a class of equity security registered under the Securities
Exchange Act of 1934, as amended,
<PAGE> 79
and do not represent, in the aggregate, more than 2% of the voting power of all
outstanding equity securities of, or more than 2% of the profits interests in,
the issuer thereof.
2. No Competitive Hiring. The Shareholder covenants and agrees that for
a period of ten years after the date of this Agreement, he will not, and will
cause his Affiliates not to, directly or indirectly solicit for employment any
employee of the Company (except any employee whose employment with the Company
has terminated) without the Company's prior written consent.
3. Corporate Opportunities. The Shareholder covenants and agrees that
for a period of ten years after the date of this Agreement, the Shareholder
will, and will cause his Affiliates to, promptly refer to the Company any
information or inquiry received by the Shareholder or any of his Affiliates
concerning any potential business opportunity within the scope of the business
of the Company.
4. Termination Upon Default. The obligations of Shareholder under
Sections 1, 2 and 3 shall terminate if (a) the Buyer fails to make any payment
due under its Subordinated Promissory Note of even date herewith payable to
Shareholder in the principal amount of One Million One Hundred and Seventy Seven
Thousand One Hundred and Ten Dollars ($1,177,110) (the "Note") and such failure
continues for 30 days after notice of nonpayment from Shareholder or (b) the
holder of any Senior Indebtedness (as defined in the Note) declares a default
thereunder and accelerates the maturity of the principal amount thereof, unless
such default is cured or such Senior Indebtedness is paid within 30 days after
the default is declared.
5. Specific Performance. The Shareholder acknowledges and agrees that
any breach of his covenants set forth herein will result in irreparable damage
to the Buyer and the Company for which damages at law will not alone provide an
adequate remedy. Therefore, the parties agree that the Buyer and the Company may
in their sole discretion seek temporary and permanent orders from any court of
competent jurisdiction enjoining any breach of such covenants, without prejudice
to any other right or remedy to which the Buyer and the Company may be entitled
at law, in equity or under this Agreement.
6. Arbitration. Except as provided in Section 5, any dispute arising
under this Agreement shall be submitted to binding arbitration in Denver,
Colorado. The arbitration shall be conducted under the auspices of the Judicial
Arbiter Group or another arbitral body selected by the parties. Judgment on an
award of the arbitrator may be entered by any court of competent jurisdiction.
The arbitrator shall have the authority to grant equitable relief. The
prevailing party in any arbitration shall be entitled to recover, in addition to
any other relief awarded by the arbitrator, its reasonable costs and expenses,
including attorneys' fees, of preparing for and participating in the
arbitration. If each party prevails on specific issues in the arbitration, the
arbitrator may allocate the costs incurred by all parties on a basis he deems
appropriate to reflect the costs of the issues on which each party prevailed.
2
<PAGE> 80
7. Severability. The parties agree that the restrictions on the
Shareholder set forth herein are reasonable and fair in light of the
transactions contemplated hereby and by the Purchase Agreement. The parties
acknowledge that the 10-year term of this Agreement is designed to coincide with
the period over which the Note will be paid. Although that term is long, it is
agreed to be reasonable as part of the transactions contemplated by the Purchase
Agreement. Whenever possible, each provision of this Agreement will be
interpreted so as to be fully effective and valid under applicable law. If any
provision of this Agreement is determined to be invalid, illegal or
unenforceable against the Shareholder in any respect as written, such provision
will be automatically modified to the minimum extent necessary to make it
enforceable and the provision as so modified will be enforced, without
invalidating any other provision of this Agreement. This Agreement constitutes a
fully negotiated agreement between the parties, each with the aid and assistance
of legal counsel. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and will be
construed and interpreted as though drafted by all the parties to this
Agreement.
8. Miscellaneous.
(a) Modification; Waiver. This Agreement may be amended, and
any right or remedy hereunder may be waived, only in a writing signed by the
parties hereto. Any failure by a party hereto to insist upon strict compliance
with any term, covenant or condition hereof will not be deemed to be a waiver of
such term, covenant or condition, nor will the relinquishment of any right or
power hereunder by a party hereto at any one or more times be deemed a waiver or
relinquishment of such right or power by such party at any other time or times.
(b) Extension of Period. The period of time set forth in
Section 1 shall be extended by the length of time during which the Shareholder
or any of his Affiliates is in breach of the provisions of such Section.
(c) Inurement. This Agreement shall inure to the benefit of
and be binding upon the parties and their successors and assigns.
(d) Headings. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(e) Complete Agreement. This Agreement embodies the complete
agreement and understanding among the parties and supersedes and preempts any
prior understandings, agreements or representations by the parties, written or
oral, which may relate to the subject matter hereof.
(f) CHOICE OF LAW. THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW OF THE
STATE OF COLORADO WITHOUT REFERENCE TO ANY CONFLICT OF LAW PRINCIPLES.
3
<PAGE> 81
(g) Notices. All notices hereunder shall be in writing. Any
notice hereunder shall be deemed duly given if it is sent by registered or
certified mail, return receipt requested, postage prepaid, or by courier,
telecopy or facsimile, and addressed to the intended recipient as follows: (i)
if to the Shareholder: Bruce J. Grinnell, Jr., 339 Pratt, Longmont, Colorado
80501; or (ii) if to Buyer or the Company: CPS Distributors, Inc., 4275 Forest
Street, Denver, Colorado 80216, Attn: President, Telecopy: (303) 394-2667.
Notices will be deemed given three days after mailing if sent by certified mail,
when delivered if sent by courier, and upon receipt of confirmation by person or
machine if sent by telecopy or facsimile transmission. Any party may change the
address or facsimile number to which notices hereunder are to be delivered by
giving the other party notice in the manner herein set forth.
IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date first above written.
CPS Distributors, Inc.
By:
---------------------------------
Carl J. Bentley, President
Western Pipe Supply Co., Inc.
By:
---------------------------------
Bruce J. Grinnell, Jr., President
---------------------------------
Bruce J. Grinnell, Jr.
4
<PAGE> 82
EXHIBIT C
SUBORDINATED PROMISSORY NOTE
$1,177,110 May 24, 1999
FOR VALUE RECEIVED, the undersigned, CPS DISTRIBUTORS, INC., a
Colorado corporation (the "Maker"), promises to pay Bruce J. Grinnell, Jr. (the
"Payee"), at 339 Pratt Street, Longmont, Colorado 80501, in lawful money of the
United States of America and in immediately available funds, the principal
amount of One Million One Hundred Seventy Seven Thousand One Hundred Ten Dollars
($1,177,110), subject to the terms and conditions set forth below. Maker further
promises to pay interest which shall accrue at the rate of eight percent (8%)
per annum on the unpaid principal amount hereof from time to time outstanding.
Interest shall be computed on the basis of a 365 day year.
1. Payment and Prepayment. The principal and interest of this
Subordinated Note shall be payable in 119 equal monthly installments of
$14,281.59 each, and a final installment of $14,281.59, commencing on June 24,
1999 and continuing on the 24th day of each succeeding month until paid in full.
Maker may from time to time prepay this Subordinated Note in whole or in part
without premium or penalty.
2. Default Interest. If any amount owing hereunder, whether
for principal or interest, is not paid when due or declared due hereunder, the
overdue amount shall bear interest at the rate of twelve percent (12%) per
annum, payable on demand.
3. Subordination. This Subordinated Note is subordinate to all
Senior Indebtedness of the Maker. For that purpose, Senior Indebtedness means
all indebtedness of the Maker or any corporation that directly or indirectly
owns the Maker, or that is directly or indirectly under common ownership with
the Maker, for borrowed money, including all indebtedness under leases that are
required to be capitalized under generally accepted accounting principles.
Without limiting the foregoing, no payments in respect of this Subordinated Note
shall be paid:
(a) Upon liquidation of Maker, until all existing and future
Senior Indebtedness is paid in full;
(b) Upon a payment default on any existing or future Senior
Indebtedness, until such default is cured or waived; or
(c) Upon a covenant default on any existing or future Senior
Indebtedness, which default permits the holder thereof to
accelerate the maturity thereof, until such default is cured
or waived.
This Subordinated Note is further subject to that certain
Subordination Agreement dated May 24, 1999 (the "Subordination Agreement"),
among the Maker, the Payee, and Norwest Bank Colorado, N.A. (the "Bank"), which
Subordination Agreement is made a part hereof by this
<PAGE> 83
reference. If the Maker proposes to enter into other agreements with the holders
of Senior Indebtedness, the Payee agrees at the request of the Maker to execute
reasonable subordination agreements with such holders. For that purpose, a
subordination agreement that is not materially different from the Subordination
Agreement in its impact on the Payee and this Subordinated Note shall be deemed
reasonable.
The consent of the Payee shall not be required for the
creation of additional Senior Indebtedness or for any extension, renewal,
refinancing or modification of existing Senior Indebtedness. However, within a
reasonable time after any of the foregoing events (except for minor amendments
to existing agreements), the Maker shall provide the Payee with copies of the
documents governing the new or modified Senior Indebtedness, to the extent not
previously furnished.
Except as expressly provided above or in the Subordination
Agreement or any similar agreement hereafter executed by the Payee, nothing
contained in this Note shall prevent the Payee from declaring a default
hereunder or exercising any remedy to enforce this Note.
4. Application of Payments; Holidays, Etc. All payments
received by Payee in respect of this Subordinated Note shall be applied first to
accrued and unpaid interest hereon, and then to outstanding principal hereof. If
any payment on this Subordinated Note becomes due and payable on a Saturday,
Sunday or other day on which commercial banks in the State of Colorado are
authorized or required by law to close under the laws of such State, such
payment shall instead become due and payable on the immediately following
business day and, in the case of any payment of principal, interest thereon
shall be payable at the then applicable rate during such extension.
5. Covenants. Maker covenants and agrees that, so long as any
amounts remain outstanding under this Subordinated Note:
(a) the Maker will maintain its corporate existence;
(b) the Maker will not sell or otherwise dispose of all or
substantially all of its assets or enter into any merger or consolidation other
than in the ordinary course of business;
(c) the Maker will furnish to the Payee the annual and
quarterly reports of the Maker's ultimate parent, HIA, Inc., a New York
corporation ("HIA"), to the Securities and Exchange Commission promptly after
each such report is filed;
(d) the Maker will furnish such other information
concerning the Maker, its subsidiary, Western Pipe Supply Co., a Colorado
corporation, or HIA as the Payee may reasonably request, subject to Payee's
execution of a reasonably satisfactory confidentiality agreement to prevent
misuse or disclosure of non-public information; and
- 2 -
<PAGE> 84
(e) the Maker will promptly notify the Payee of the
occurrence of a default, as defined in paragraph 6, or any condition or event
that would constitute a default with the giving of notice or passage of time, or
any material adverse change in the financial condition of Buyer.
6. Default. The Maker shall be in default under this
Subordinated Note upon the occurrence of any of the following:
(a) the Maker fails to make any payment of principal or
interest hereunder within 10 days after it becomes due;
(b) the Maker fails to perform any of its covenants under
paragraph 5 above; provided, however, that (i) no default shall arise under
paragraph 5(a) if the failure to maintain corporate existence was unintentional
and the Maker promptly takes appropriate steps to reinstate its existence; (ii)
no default shall arise under paragraph 5(c) or (d) unless the failure to furnish
reports or information continues for 30 days after written notice of such
failure is given by the Payee; and (iii) no default shall arise under paragraph
5(e) unless the failure to give notice has a material adverse effect upon the
Payee or its rights hereunder; or
(c) the holder of any Senior Indebtedness declares a
default under the agreements governing such Senior Indebtedness and accelerates
the maturity thereof, unless such Senior Indebtedness is discharged in full or
such acceleration is rescinded within 15 days after the declaration.
Upon the occurrence and during the continuance of a default, Payee by written
notice to Maker may declare this Subordinated Note to be forthwith due and
payable, and exercise all available remedies to collect all amounts owing
hereunder.
7. Costs of Collection. In addition to any other amounts due
hereunder, Maker shall pay to Payee all reasonable attorneys' fees and other
costs and expenses incurred by Payee in enforcing its rights hereunder. In the
event of a bankruptcy or other proceeding, such costs shall include the fees of
Payee's counsel for attending meetings of creditors and otherwise participating
in and advising Payee in connection with such proceedings.
8. Set-Off. The Maker shall be entitled to set off against any
amounts owing to the Payee hereunder any amounts owing to the Maker under the
Stock Purchase Agreement among the Maker, HIA and the Payee of even date
herewith (the "Purchase Agreement"). Any such set-off shall be effected only as
provided in this paragraph 8.
The Maker shall give the Payee written notice of its intent to
effect a set-off, specifying the provisions of the Purchase Agreement and the
facts and circumstances on the basis of which the Maker believes it has a right
to recover from the Payee under the Purchase Agreement and explaining in
reasonable detail the calculation of the amount of the proposed set-off. The
parties
- 3 -
<PAGE> 85
shall negotiate in good faith to arrive at an agreement as to whether the Maker
is entitled to recover from the Payee under the Purchase Agreement and, if so,
the amount of the recovery. That agreement shall be set forth in a writing
signed by the parties. If an agreement has not been reached within 15 days after
the notice from the Maker, the Maker may at any time thereafter commence an
arbitration under the Purchase Agreement to determine whether it is entitled to
a recovery under the Purchase Agreement. During the pendency of such
negotiations and any ensuing arbitration, the Maker shall continue to make
payments hereunder.
Upon the conclusion of any such arbitration (or litigation if
the parties for any reason become involved in litigation in which the Maker's
right to recover under the Purchase Agreement is determined), if the Maker is
determined to be entitled to recover under the Purchase Agreement, the Payee
shall pay to the Maker an amount equal to all payments made under this
Subordinated Note on or after the date of the Maker's notice, including
principal and interest (but not to exceed the total amount that the Maker was
determined to be entitled to recover), plus interest thereon at the rate of 12%
per annum compounded quarterly from the date each such payment was made to the
date of the payment by Payee (applying the earliest payments first if the total
amount of the payments exceeds the amount that the Maker is entitled to
recover). If the total amount of such payments is less than the amount the Maker
is entitled to recover, the remainder shall be set off against the outstanding
principal balance of this Subordinated Note (and no interest shall accrue on or
after the date of the Maker's notice on the amount so set off) and, if the
outstanding principal balance is not sufficient, against accrued interest. If
the principal and accrued interest are not sufficient to fully satisfy the
Maker's claim, the Payee shall pay the balance to the Maker as provided in the
Purchase Agreement.
This right of set off shall be enforceable against the Payee
and its successors and assigns. Any subsequent holder or assignee of this
Subordinated Note shall be subject to the Maker's right of set off,
notwithstanding any notice to the Maker of an assignment or other transfer
hereof.
9. Guaranty; Security. This Subordinated Note is guaranteed by
a Guaranty Agreement of even date herewith executed by HIA, as guarantor, for
the benefit of the Payee (the "Guaranty"). This Subordinated Note and the
performance of the obligations of HIA under the Guaranty are secured by a Stock
Pledge Agreement executed by the Maker in favor of the Payee. The holder of this
Subordinated Note is entitled to the benefits of the Guaranty and the Stock
Pledge Agreement.
10. Miscellaneous. The responsibilities and duties of Payee to
Maker are limited to those described in this Subordinated Note. Any waiver or
forbearance under this Subordinated Note by Payee must be in writing. This
Subordinated Note shall be construed under and governed by the laws of the State
of Colorado. In the event litigation is commenced under this Subordinated Note,
Maker waives any jurisdictional defenses and consents to the jurisdiction of the
appropriate court in the State of Colorado. No delay or omission on the part of
Payee in exercising any right under this Subordinated Note or other related
instrument shall operate as a waiver of such right or of any other right. A
waiver on any one occasion shall not be construed as a bar to or waiver of any
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<PAGE> 86
such right or remedy on any future occasion. Maker waives presentment, protest,
notice of dishonor and any other condition precedent to the enforcement of Payee
of any remedy. This Subordinated Note shall be binding upon Maker and upon
Maker's successors and assigns, and shall benefit Payee and his successors and
assigns.
CPS Distributors, Inc.,
a Colorado corporation
By:
--------------------------------
Carl J. Bentley, President
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT
BY BRUCE J. GRINNELL, JR., IN FAVOR OF NORWEST BANK COLORADO, N.A. DATED
AS OF MAY 24, 1999.
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<PAGE> 87
EXHIBIT D
GUARANTY AGREEMENT
1. DEBTOR:
CPS Distributors, Inc., a Colorado corporation, 4275 Forest Street,
Denver, Colorado 80216
2. GUARANTOR:
HIA, Inc., a New York corporation, 4275 Forest Street, Denver, Colorado
80216
3. BENEFICIARY:
Bruce J. Grinnell, 339 Pratt Street, Longmont, Colorado 80501
4. INDEBTEDNESS:
All principal, interest and other obligations of Debtor under or in
respect of its Subordinated Promissory Note of even date herewith payable to
Beneficiary in the principal amount of $1,177,110 and any renewals or extensions
thereof (the "Note").
THE TERMS AND CONDITIONS SET FORTH BELOW ARE A PART OF THIS
AGREEMENT.
Dated: May 24, 1999
GUARANTOR:
HIA, Inc.
By:
---------------------------------
Alan C. Bergold, President
<PAGE> 88
5. GUARANTY AND INDEMNIFICATION. For value received, Guarantor unconditionally
guarantees the prompt payment of the Indebtedness when due, by reason of
acceleration or otherwise, including interest on the principal amount thereof at
such basic and default rates, as applicable, as are provided for in the Note.
Guarantor further agrees to indemnify Beneficiary for all expenses, including
without limitation reasonable attorneys' fees, court costs and related legal
expenses, incurred by Beneficiary in endeavoring to collect the Indebtedness, or
any part thereof, or enforcing this Guaranty. The right of recovery against
Guarantor under this Guaranty is in addition to Guarantor's liability under any
other obligations or guaranties of Guarantor for the benefit of Beneficiary.
6. RIGHTS OF BENEFICIARY. Guarantor hereby agrees that Beneficiary may, at his
option, without the consent of Guarantor, sell, assign or transfer all, but not
less than all, of the Indebtedness, in which case the subsequent holder shall
have the same rights, powers and benefits hereunder as Beneficiary. Beneficiary
shall give Guarantor written notice of any such assignment or transfer within a
reasonable time after it is made. Guarantor further agrees that Beneficiary may,
without notice to or the consent of Guarantor, (a) renew, from time to time, for
any period, any Indebtedness, in whole or in part; (b) extend or accelerate or
otherwise change, from time to time, the time for payment of the Indebtedness;
(c) retain or obtain, in addition to this Guaranty, a security interest in any
property to secure all or any part of the Indebtedness; (d) retain the primary
or secondary liability of any party in addition to Guarantor with respect to all
or any part of the Indebtedness; (e) release its security interest, if any, in
any property securing any of the Indebtedness, permit any substitution or
exchange for any such property, or fail to perfect or continue to perfect any
security interest for any such property, (f) release or compromise any liability
of any other guarantor or any other party with respect to the Indebtedness or
any security therefor; and (g) amend, modify, delete or add any term or
condition of or to any of the Indebtedness.
7. WAIVERS BY GUARANTORS. Guarantor hereby expressly waives (a) notice of the
acceptance of this Guaranty, (b) notice of the existence or creation of all or
any part of the Indebtedness, (c) notice of termination as to future liability
given by any other guarantor, (d) notice of demand, advertisement or notice of
time or place of sale of any collateral securing any of the Indebtedness, (e)
all presentments, demands for performance, notices of nonperformance, protests
and all other notices whatsoever, (f) any right to require Beneficiary to
proceed against Debtor or any security held in relation to the Indebtedness or
to pursue any other right or remedy in Beneficiary's power, (g) any right to
contest the enforcement of this Guaranty by virtue of any statute of limitations
or other law varying the terms of this Guaranty, and (h) any other defense
available to Guarantor at law or in equity other than payment in full of the
Indebtedness.
8. EXTENT OF LIABILITY; REMEDIES. Any indebtedness of Debtor to Guarantor, if
Beneficiary so requests after default in payment of the Indebtedness, shall be
collected, enforced and received by Guarantor as trustee for Beneficiary, but
without reducing or in any manner affecting the liability of Guarantor under any
other provision of this Guaranty. Guarantor further agrees that this Guaranty
shall continue to be effective or be reinstated, as the case may be if payment,
or any
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<PAGE> 89
part thereof, of the Indebtedness is rescinded or must otherwise be returned by
Beneficiary upon the insolvency, bankruptcy or reorganization of Debtor,
Guarantor or any other person or otherwise, all as though such payment to
Beneficiary had not been made. No delay or neglect on the part of Beneficiary in
the exercise of any right or remedy existing under law or by virtue of this
Guaranty shall operate as a waiver thereof but such rights and remedies shall
continue in full force and effect until specifically waived or released by an in
instrument in writing executed by Beneficiary and designated as a waiver or
release, and no single or partial exercise by Beneficiary of any right or remedy
shall preclude further exercise thereof or the exercise of any other right or
remedy. No action of Beneficiary permitted hereunder shall in any way impair or
affect this Guaranty.
9. PAYMENTS. Guarantor agrees that all payments to Beneficiary pursuant to this
Guaranty shall be accompanied by written notice that such payment is made under
this Guaranty. Until all Indebtedness shall have been paid in full, Guarantor
shall have no right of subrogation and hereby waives any right to enforce any
remedy that Beneficiary now has or may hereafter have against Debtor, and waives
any benefit of, and any right to participate in, any security now or hereafter
held by Beneficiary. Upon full and final payment of all Indebtedness, Guarantor
shall be subrogated to all rights of Beneficiary against Debtor in respect of
the Indebtedness, including any rights as a secured party.
10. NO TERMINATION OF GUARANTY. This Guaranty shall remain in full force and
effect and be binding upon Guarantor and relied upon by Beneficiary and cannot
be terminated.
11. GENERAL. The terms "Debtor", "Guarantor", "Beneficiary" and "Indebtedness"
are defined in paragraphs 1 through 4 respectively. Any consent, notice or other
communication required or contemplated by this Guaranty shall be in writing, and
if intended for Guarantor shall be deemed given if hand delivered or mailed,
postage prepaid, to Guarantor at the address given on the front page of this
Guaranty or at such other address to which Guarantor may have requested
Beneficiary in writing to deliver communications. If intended for Beneficiary,
it shall be deemed given if hand delivered or mailed, postage prepaid, to
Beneficiary at the address given on the first page of this Guaranty or at such
other address to which Beneficiary may have requested Guarantor in writing to
deliver communications. This Guaranty shall be binding upon Guarantor and
Guarantor's successors and assigns. Guarantor represents and warrants to
Beneficiary that this Guaranty has been duly authorized, executed and delivered
and is a binding obligation of Guarantor. All words used herein in the singular
shall be deemed to have been used in the plural where the content and
construction so require. This Guaranty shall be construed under and governed by
the laws of Colorado. Whenever possible each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid, but if any provision of
this Guaranty shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Guaranty.
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<PAGE> 90
EXHIBIT E
STOCK PLEDGE AGREEMENT
Agreement made May 24, 1999, between CPS Distributors, Inc., 4275 Forest Street,
Denver, Colorado 80216, referred to as Pledgor, and Bruce J. Grinnell, Jr., 339
Pratt Street, Longmont, Colorado 80501, referred to a Pledgee.
SECTION ONE
CREATION OF SECURITY INTEREST
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Pledgor hereby grants to Pledgee a security interest in
10,000 shares of the Class A Common Stock, no par value (the "Shares"), of
Western Pipe Supply Co., Inc., a Colorado corporation (the "Company"), and the
proceeds thereof (collectively, the "Collateral"), to secure all of the
following (collectively, the "Obligations"): (a) the prompt payment and
performance by Pledgor of its obligations under the Subordinated Promissory Note
of even date herewith in the principal amount of $1,177,110 payable to Pledgee
(the "Note"); (b) the prompt payment and performance by HIA, Inc., a New York
corporation ("HIA"), of its obligations under the Guaranty Agreement of even
date herewith executed by it for the benefit of Pledgee and guaranteeing the
Note (the "Guaranty"); (c) the prompt payment and performance by Pledgor of its
obligations hereunder; and (d) any and all renewals, extensions or amendments of
any of the foregoing. The Shares are represented by 10 separate certificates
described in Schedule A to this Agreement. Those certificates, together with
duly executed blank stock powers, have been delivered to Pledgee upon the
execution hereof.
SECTION TWO
PARTIAL RELEASES
On each anniversary of the date of the Note, commencing June 24, 2000 and
continuing on each June 24 thereafter, provided that all payments due under the
Note through that date have been made, Pledgee shall release from the security
interest granted herein the number of Shares indicated for that anniversary in
Schedule A. If any payment has not been made on such anniversary, but is
subsequently made, and all defaults are cured, Pledgee shall release such Shares
promptly after the payment and cure. If a partial prepayment is made on the
Note, Pledgee shall promptly release a number of Shares sufficient to cause the
percentage of the original Shares that has been released to equal the percentage
of the original principal amount of the Note that has been paid after the
prepayment. Each such release shall be evidenced and effected by Pledgee
returning to Pledgor certificates representing the released Shares and the
related stock powers. If the Company splits the outstanding shares of its Class
A Common Stock into a greater number of shares, by stock dividend or otherwise,
or combines the outstanding shares of its Class A Common Stock into a smaller
number of shares, all Share numbers in this Agreement shall be proportionately
adjusted.
<PAGE> 91
SECTION THREE
REPRESENTATIONS AND WARRANTIES
Pledgor hereby represents and warrants that Pledgor owns the Shares pledged,
that the Shares are not subject to any lien, pledge, charge, encumbrance,
security interest, or a right or option on the part of any third person to
purchase or acquire such Shares or any part of them with the exception of a
security interest in favor of Norwest Bank Colorado and any other security
interest securing Senior Indebtedness (as defined in the Note).
SECTION FOUR
PLEDGEE'S RIGHTS
Pledgee shall have, with respect to the Collateral, the rights and obligations
of a secured party under the Colorado Uniform Commercial Code ("UCC").
SECTION FIVE
REMEDIES
Upon default, as defined in the Note, Pledgee shall have and may exercise all
remedies available to a secured party under the UCC or otherwise provided in
this Agreement or by law, subject only to the subordination provisions of the
Note and any related subordination agreement. All expenses incurred in
connection with any sale, assignment, or delivery of Collateral, including
reasonable attorneys' fees, shall constitute part of the Obligations. If Pledgee
is the purchaser at any such sale, Pledgee may pay for the Shares or any part
thereof by cancelling a principal amount of the Note that is equal to the
purchase price.
Prior to conducting such sale, Pledgee agrees to notify Pledgor at least fifteen
days before the date of the sale. Pledgee may sell the Shares or any portion of
them, without first resorting to any other property of the Pledgor. Pledgor
waives any right of redemption with respect to the Shares sold.
SECTION SIX
APPLICATION OF PROCEEDS
The proceeds from the sale of the Shares or any part thereof, upon default,
shall be applied by the Pledgee as follows:
First, to the payment of the costs and expenses of collection incurred by the
Pledgee, including, but not limited to, costs of any public or private sale,
attorney fees, and all other reasonable expenses.
Second, to the payment of the entire amount of the principal and interests due
and owed upon the Note.
Any remaining proceeds from the sale will be delivered to the Pledgor.
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<PAGE> 92
SECTION SEVEN
COLLECTION OF DIVIDENDS AND INTEREST
During the term of this Agreement and while the Shares are held by the Pledgee,
the Pledgor shall be entitled to receive and commingle with its general funds
all dividends and other amounts that may be, or become, due on any of the
Shares; provided, however, that in the event of default in the payment of the
Note, the Pledgee shall be entitled to receive the dividends and other amounts
due on any of the Shares and apply them toward the payment of the Note. However,
Pledgee is under no obligation to collect or receive dividends and other amounts
that may be or become due on any of the Shares after default.
SECTION EIGHT
TERMINATION
On the payment in full of the Note, Pledgee shall release his security interest
in the Shares that remain pledged under this Agreement and deliver to Pledgor
the stock certificates representing such Shares and the related stock powers,
together with any other properties or funds delivered or received by it as part
of the Collateral.
SECTION NINE
RENEWALS OR EXTENSIONS
No renewal or extensions of the Note, and no delay in the enforcement or
exercise of the rights granted the Pledgee under this Agreement shall constitute
a waiver or affect the rights of the Pledgee with respect to the Shares or any
part of them.
SECTION TEN
NOTICES
All notices or other communications by either party to this agreement must be in
writing and either mailed by registered or certified mail, postage prepaid, or
hand delivered to the following addresses during regular business hours:
Pledgor: 4275 Forest Street, Denver, Colorado 80216
Pledgee: 339 Pratt Street, Longmont, Colorado 80501
Courtesy copy: John W. Gaddis, Esq., Bernard, Lyons & Gaddis, P.C.,
P. 0. Box 978, Longmont, Colorado 80502-0978
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<PAGE> 93
SECTION ELEVEN
AMENDMENT OR MODIFICATION
This Agreement may not be amended or modified except in writing, duly executed
and signed by the parties.
SECTION TWELVE
ADDITIONAL DOCUMENTS AND BINDING EFFECT
Pledgor stipulates that he will execute and deliver to Pledgee any and all
additional documents which my be necessary to perfect the security interest
given to Pledgee under this Agreement.
This Agreement shall be binding upon the parties and their representatives,
heirs, successors, and assigns.
In witness whereof, Pledgor and Pledgee have executed this agreement at Denver,
Colorado, the day and year first above written.
PLEDGOR: PLEDGEE:
CPS Distributors, Inc.
By:
------------------------------------- --------------------------------
Carl J. Bentley, President Bruce J. Grinnell, Jr.
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<PAGE> 94
SCHEDULE A
<TABLE>
<CAPTION>
NO. OF SHARES REPRESENTED
CERT. BY CERTIFICATE AND TO BE
NO ANNIVERSARY RELEASED UPON ANNIVERSARY
---- ----------- --------------------------
<S> <C> <C>
2 1 680
3 2 737
4 3 798
5 4 865
6 5 936
7 6 1,014
8 7 1,098
9 8 1,189
10 9 1,288
11 10 1,395
-------
10,000
</TABLE>
<PAGE> 95
EXHIBIT F
[NOT PROVIDED]
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 24, 1999
CPS DISTRIBUTORS, INC., a Colorado corporation, WATER SYSTEMS, INC., a
Wyoming corporation, and WESTERN PIPE SUPPLY CO., INC., a Colorado corporation
(referred to collectively herein as the "Borrower"), and NORWEST BANK COLORADO,
NATIONAL ASSOCIATION, a national banking association (the "Lender"), hereby
agree as follows:
RECITALS
CPS, WSI, and the Lender entered into an Amended and Restated Credit
Agreement dated as of January 9, 1995 (the "Former Credit Agreement"). The
advances under the Former Credit Agreement were evidenced by the revolving note
of WSI in the original principal amount of $4,000,000 dated as of May 8, 1996,
and by the revolving note of CPS in the original principal amount of $4,000,000
dated as of May 8, 1996 (collectively, the "Former Notes").
CPS now desires to purchase Western Pipe Supply Co., Inc., a Colorado
corporation ("Western"), using advances provided by the Lender pursuant to a new
term loan, and the Lender is willing to provide such term loan provided, among
other things, that the Former Credit Agreement to be amended and restated in
full as set forth herein (as so amended and restated, the "Agreement").
In connection with the execution of the Agreement, CPS, WSI, and Western
are executing a replacement revolving note of even date herewith, which note is
given in replacement of and in substitution for, but not in repayment of, the
Former Notes.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, the parties hereto agree that the Former Credit Agreement is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
DEFINITIONS
Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
<PAGE> 2
"Accounts" means, as to any Person, the aggregate unpaid obligations of
customers and other account debtors to such Person arising out of the sale or
lease of goods or rendition of services by such Person on an open account or
deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means any Person controlled by, controlling or
under common control with the Borrower, including (without limitation) any
subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit Agreement.
"Base Rate" means the rate of interest publicly announced from time to time
by the Lender as its "prime rate" or, if such bank ceases to announce a rate so
designated, any similar successor rate designated by the Lender.
"Borrowing Base" means, at any time, the lesser of:
(a) the Maximum Line; or
(b) the sum of:
(i) 80% of Eligible Accounts without dating terms, plus
(ii) the lesser of $1,000,000 or 65% of Eligible Accounts with dating
terms which are not past due, plus
(iii) the lesser of $2,000,000 or 50% of (Eligible Inventory less 105%
of the total outstanding balance owed by Borrower to Deutsche Financial
Services Corporation), less
(iv) the outstanding principal balance under the Term Note.
"CPS" means CPS Distributors, Inc., a Colorado corporation.
"Collateral" means all of the Borrower's Equipment, General Intangibles,
Inventory, Receivables, all sums on deposit in any Collateral Account, and any
items in any Lockbox; together with (i) all substitutions and replacements for
and products of any of the foregoing; (ii) proceeds of any and all of the
foregoing; (iii) in the case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in
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<PAGE> 3
connection with any tangible goods; (v) all warehouse receipts, bills of lading
and other documents of title now or hereafter covering such goods;
"Collateral Account" has the meaning specified in Section 2.09 hereof.
"Commitment" means the agreement of the Lender to make Revolving Advances
hereunder, as the context may require.
"Current Assets" means the aggregate amount of assets of the Borrower which
may be properly classified in accordance with generally accepted accounting
principles as current assets, after deducting adequate reserves where proper.
"Current Liabilities" means all Debt due on demand or within one year from
the date of determination thereof, and all other items (including taxes accrued
as estimated) which, in accordance with generally accepted accounting
principles, may be properly classified as current liabilities.
"Debt" of any Person means (i) all items of indebtedness or liability which
in accordance with generally accepted accounting principles would be included in
determining total liabilities as shown on the liabilities side of a balance
sheet of that Person as at the date as of which Debt is to be determined, (ii)
indebtedness secured by any mortgage, pledge, lien or security interest existing
on property owned by such Person, whether or not the indebtedness secured
thereby shall have been assumed, and (iii) guaranties and endorsements (other
than for purposes of collection in the ordinary course of business) by such
Person and other contingent obligations of such Person in respect of, or to
purchase or to otherwise acquire, indebtedness of others.
"Default" means an event that, with giving of notice or passage of time or
both, would constitute an Event of Default.
"Eligible Accounts" means all unpaid Accounts of the Borrower, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(a) That portion of Accounts over 90 days past the invoice date
thereof, except for Accounts with dating terms;
(b) That portion of Accounts which have dating terms and (i) which
dating terms are in excess of 150 days, (ii) which are not yet due or (iii)
on which any payment is more than 60 days past due;
(c) Accounts that are disputed or subject to a claim of offset or a
contra account;
(d) Accounts owed by any unit of government, whether foreign or
domestic, other than a Colorado, New Mexico or Wyoming municipality,
provided, however, that if such
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<PAGE> 4
Accounts would be Eligible Accounts except for the provisions of this
subsection (d), Accounts owed by the United States of America or any agency
thereof shall be Eligible Accounts if properly assigned to the Lender
pursuant to the United States Assignment of Claims Act;
(e) Accounts owed by an account debtor located outside the United
States or Canada which are not (i) backed by a bank letter of credit
assigned to the Lender and acceptable to the Lender in all respects, in its
sole discretion; or (ii) insured under a policy of receivables insurance
naming the Lender as loss payee and secured party and acceptable to the
Lender in all respects, in its sole discretion;
(f) Accounts owed by an account debtor that is the subject of
bankruptcy proceedings or has gone out of business;
(g) Accounts owed by a subsidiary, Affiliate, officer or employee of
the Borrower;
(h) Accounts subject to a security interest other than a security
interest in favor of the Lender;
(i) Any portion of Accounts that are prebillings;
(j) Accounts that have been restructured, extended, amended or
modified;
(k) "Bill and hold" Accounts unless Lender has received documentation
from the account debtor satisfactory to Lender in its sole discretion
evidencing the terms of the sale and the account debtor's ownership of the
purchased goods upon billing, and the goods purchased and being held are
segregated and identified by Account debtor and remain insured;
(l) Accounts owed by an account debtor, regardless of whether
otherwise eligible if 10% or more of the total amount due under Accounts
from such account debtor are ineligible under subparagraphs (a), (b) and
(c) above, unless (i) no more than 25% of the total amount due under
Accounts for such account debtor is more than 90 days past invoice date,
and Borrower holds a perfected materialman's lien to secure the amounts
more than 90 days outstanding, or (ii) not more than 25% of the total
amount due under Accounts for such account debtor is more than 90 days past
invoice date and the account debtor is a Colorado or Wyoming municipality;
and
(m) Accounts otherwise deemed ineligible by the Lender in its sole
discretion.
"Eligible Inventory" means all of the Borrower's inventory of finished
goods and raw materials, at the lower of average cost or market value as
determined in accordance with generally
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<PAGE> 5
accepted accounting principles; except that the following shall not in any event
be deemed Eligible Inventory:
(a) Except as otherwise agreed by the Lender, inventory which is
in-transit; located in a warehouse or any other premises not approved by
the Lender in writing; located outside of the states, or localities as
applicable, in which the Lender has filed financing statements to perfect a
first priority security interest in such inventory; covered by any
negotiable or non-negotiable warehouse receipt, bill of lading or other
document of title not in the possession of the Lender; on consignment to or
from any other person or subject to any bailment; or held by salespeople of
the Borrower; or
(b) Inventory which is held for testing, trial or sample purposes;
(c) Work-in-process inventory;
(d) Inventory which is damaged, obsolete, not useable in the normal
course of the Borrower's operations or part of any new or unproven product
line of the Borrower, including without limitation inventory in an amount
equal to any reserve for obsolescence;
(e) Inventory which the Borrower has returned or attempted to return,
is in the process of returning, or intends to return to the vendor thereof;
(f) Inventory which is subject to a security interest other than a
security interest in favor of the Lender (except for a security interest in
favor of Deutsch Financial Service Corporation);
(g) Goods held on consignment;
(h) Slow Moving Inventory;
(i) Inventory on loan to any customer of the Borrower; and
(j) Inventory otherwise deemed ineligible by the Lender in its sole
discretion.
"Equipment" means all of the Borrower's equipment, as such term is defined
in the UCC, whether now owned or hereafter acquired, including but not limited
to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
-5-
<PAGE> 6
"Event of Default" has the meaning specified in Section 7.01 hereof.
"Floating Rate" means an annual rate equal to the Base Rate, which Floating
Rate shall change in all events when and as the Base Rate changes; provided,
however, that from the first day of any month during which any Default or Event
of Default occurs or exists at any time, the Floating Rate shall, in the
Lender's discretion and without waiving any of its other rights and remedies,
mean an annual rate equal to the sum of the Floating Rate as otherwise defined
herein plus two percent (2.00%), which Floating Rate shall change when and as
the Base Rate changes.
"General Intangibles" means all of the Borrower's general intangibles, as
such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guaranty" means the guaranty of all or a portion of the Indebtedness
executed by a Guarantor.
"Guarantor" means HIA, Inc., a New York corporation.
"Indebtedness" means the Borrower's obligation to repay all loans and
Advances under and in accordance with this Agreement and the Notes.
"Inventory" means all of the Borrower's inventory, as such term is defined
in the UCC, whether now owned or hereafter acquired, whether consisting of whole
goods, spare parts or components, supplies or materials, whether acquired, held
or furnished for sale, for lease or under service contracts or for manufacture
or processing, and wherever located.
"Loan Documents" means this Agreement, the Notes, and the Security
Documents.
"Maturity Date" means April 30, 2001.
"Maximum Line" means $4,000,000.
"Note" means the Revolving Note or the Term Note; and "Notes" means the
Revolving Note and the Term Note.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
-6-
<PAGE> 7
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower and covered by Title IV of the Employee Retirement
Income Security Act of 1974, as amended.
"Premises" means all premises where the Borrower conducts its business and
has any rights of possession.
"Receivables" means each and every right of the Borrower to the payment of
money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in Title IV
of the Employee Retirement Income Security Act of 1974, as amended.
"Revolving Advance" has the meaning given in Section 2.01.
"Revolving Note" means the Revolving Note of the Borrower payable to the
order of the Lender in substantially the form attached hereto as Exhibit C.
"Security Documents" means this Agreement and any other document delivered
to the Lender from time to time to secure the Indebtedness, as the same may
hereafter be amended, restated, or supplemented from time to time.
"Security Interest" has the meaning given in Section 2.15.
"Seller" means Bruce J. Grinnell, Jr.
"Slow Moving Inventory" means inventory which otherwise meets all of the
requirements for Eligible Inventory, but which has not sold for the past two
fiscal years of Borrower.
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"Subordinated Debt" of any Person means all Debt of such Person which has
been subordinated in the right of payment to the Indebtedness on terms and
conditions approved by the Lender in writing.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Tangible Capital Funds" means the sum of Tangible Net Worth plus
Subordinated Debt.
"Tangible Net Worth" means the difference between (i) the tangible assets
of the Borrower, which, in accordance with GAAP are tangible assets, after
deducting adequate reserves in each case where, in accordance with GAAP, a
reserve is proper and (ii) all Debt of the Borrower; provided, however, that
notwithstanding the foregoing in no event shall there be included as such
tangible assets patents, trademarks, trade names, copyrights, licenses,
goodwill, receivables from Affiliates, directors, officers or employees,
deposits, deferred charges or treasury stock or any securities or Debt of the
Borrower or any other securities unless the same are readily marketable in the
United States of America or entitled to be used as a credit against federal
income tax liabilities, and any other assets designated from time to time by the
Lender, in its sole discretion.
"Term Advance" has the meaning given in Section 2.04.
"Term Note" means the Term Note of the Borrower payable to the order of the
Lender in substantially the form attached hereto as Exhibit D.
"Term Rate" means an annual rate equal to eight and one-eighth percent
(8.125%) provided, however, that from the first day of any month during which
any Default or Event of Default occurs or exists at any time, the Term Floating
Rate shall, in the Lender's discretion and without waiving any of its other
rights and remedies, mean an annual rate equal to ten and one-eighth percent
(10.125%).
"Termination Date" means the earliest of (a) the Maturity Date or (b) the
date on which the Lender terminates its Commitment hereunder pursuant to Section
7.02.
"UCC" means the Uniform Commercial Code as in effect from time to time in
the state designated in Section 8.07 as the state whose laws shall govern this
Agreement, or in any other state whose laws are held to govern this Agreement or
any portion hereof.
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"Western" means Western Pipe Supply Co., Inc., a Colorado corporation.
"Working Capital" means Current Assets less Current Liabilities but
excluding any undistributed and unsubordinated Subchapter S earnings, which
shall be classified instead as Current Liabilities. Also to be excluded from
Working Capital are notes due from shareholders and officers of the Borrower, if
any, such notes to be classified as non-current assets, unless they are advances
against a current liability due the same officer or shareholder.
"WSI" means Water Systems, Inc., a Wyoming corporation.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.01 Revolving Advances. The Lender agrees, on the terms and
subject to the conditions hereinafter set forth, to make Revolving Advances to
the Borrower from time to time during the period from the date hereof to and
including the Termination Date, in an aggregate amount at any time outstanding
not to exceed the Borrowing Base. The Revolving Advances shall be secured by the
Collateral as provided in this Article II. The Commitment shall be a revolving
facility and it is contemplated that the Borrower will request Revolving
Advances, make prepayments and request additional Revolving Advances. The
Borrower agrees to comply with the following procedures in requesting Revolving
Advances under this Section 2.01:
(a) Each request for a Revolving Advance may be made in writing or by
telephone, specifying the date of the requested Revolving Advance and the
amount thereof, and shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person
reasonably believed by the Lender to be an officer of the Borrower
designated as such by Borrower, or such a designated agent.
(b) Upon the Lender's determination to make the Revolving Advance,
except as otherwise instructed in writing by the Borrower, the Lender may
disburse loan proceeds by deposit with any bank to or for the account of
the Borrower or to or for the account of any third party designated by such
officer, agent or person of the Borrower, or by an instrument payable to
the Borrower or to any such third party delivered to any such officer,
agent or person or to any such third party, or in any other manner deemed
appropriate by the Lender. Upon request of the Lender, the Borrower shall
promptly confirm each telephonic request for a Revolving Advance by
executing and delivering an appropriate confirmation certificate to the
Lender. The Borrower shall be obligated to repay all Revolving Advances
under this Section 2.01 notwithstanding the failure of the Lender to
receive such confirmation and notwithstanding the fact that the person
requesting the same was not in fact authorized to do so. Any request for a
Revolving Advance under this Section 2.01, whether written or telephonic,
shall be deemed to be
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a representation by the Borrower that the statements set forth in Section
3.02 hereof are correct as of the time of the request.
Section 2.02 Notes.
(a) All Revolving Advances shall be evidenced by and repayable with
interest in accordance with the Revolving Note. The principal of the
Revolving Note shall be payable as provided herein and on the earlier of
the Termination Date or acceleration by the Lender pursuant to Section 7.02
hereof, and shall bear interest as provided herein.
(b) The Term Advance shall be evidenced by and repayable with interest
in accordance with the Term Note. The principal of the Term Note shall be
payable as provided in Section 2.05, and shall bear interest as provided
herein.
Section 2.03 Interest.
(a) REVOLVING NOTE. The outstanding Revolving Advances shall bear
interest (computed on the basis of actual days elapsed in a 360-day year)
at the Floating Rate; provided, however, that in any event no rate change
shall be put into effect which would result in a rate greater than the
highest rate permitted by law. Interest accruing on the Revolving Advances
outstanding from time to time shall be payable on the last day of each
month and on the Termination Date or earlier prepayment in full. The
Borrower agrees that the Lender may at any time or from time to time,
without further request by the Borrower, make a Revolving Advance to the
Borrower, or apply the proceeds of any Revolving Advance, for the purpose
of paying all such interest promptly when due.
(b) TERM NOTE. The Term Advance shall bear interest (computed on the
basis of actual days elapsed in a 360-day year) at the Term Rate; provided,
however, that in any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Interest accruing on the Term Advance outstanding from time to time shall
be payable on June 30, 1999 and monthly thereafter on the last day of each
month and on the Termination Date or earlier prepayment in full. The
Borrower agrees that the Lender may at any time or from time to time,
without further request by the Borrower, make a Revolving Advance to the
Borrower, or apply the proceeds of any Revolving Advance, for the purpose
of paying all such interest promptly when due.
(c) If any Person shall acquire a participation in Advances under this
Agreement and shall elect to accept interest with respect to such
participation at a lesser rate than the rate otherwise applicable
hereunder, the rate of interest payable by the Borrower with respect to
such participation shall be such lesser rate of interest, if, to the extent
that and so long as such Person shall hold such participation. The Lender
shall not be obligated to request, induce or permit any Person to acquire
or to retain any
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participation at all or in any particular amount or at any particular rate
of interest or on any particular terms.
Section 2.04 Term Advance. The Lender agrees, on the terms and subject
to the conditions herein set forth, to make an advance to the Borrower in the
aggregate amount of $1,000,000 (the "Term Advance"). The Borrower's obligation
to pay the Term Advance shall be evidenced by the Term Note and shall be secured
by the Collateral as provided in this Article II. Upon fulfillment of the
applicable conditions set forth in Article IV, the Lender shall deposit the
proceeds of the requested Term Advance in the manner agreed by the Lender and
the Borrower in writing.
Section 2.05 Payment of Term Advance. The outstanding principal
balance of the Term Note shall be due and payable as follows:
(a) On August 31, 1999 and monthly thereafter on the last day of each
month, in equal payments of $11,905; and
(b) on the earliest of (i) May 31, 2004, or (ii) acceleration by the
Lender pursuant to Section 7.02 hereof, the entire unpaid principal balance
of the Term Note, and all unpaid interest accrued thereon, shall in any
event be due and payable.
Section 2.06 Voluntary Prepayment; Prepayment Fees.
(a) VOLUNTARY PREPAYMENT. Except as otherwise provided herein, the
Borrower may prepay the Revolving Advances in whole at any time or from
time to time in part. The Borrower may prepay the Term Advances (other than
in accordance with Section 2.05) if it (i) gives the Lender at least 30
days' prior written notice and (ii) pays the Lender the prepayment,
termination or line reduction fees in accordance with Section 2.06(b). Any
prepayment of the Term Advances (other than in accordance with Section
2.05) must be in an amount not less than $25,000 or an integral multiple
thereof. Any partial prepayments of the Term Note (other than in accordance
with Section 2.05) shall be applied to principal payments due and owing in
inverse order of their maturities.
(b) PREPAYMENT FEES. If the Term Note is prepaid for any reason except
in accordance with Section 2.05, the Borrower shall pay to the Lender a fee
in an amount equal to a percentage of the amount prepaid as follows: (i)
three-quarters of one percent (0.75%) if prepayment occurs on or before the
first anniversary of the Funding Date; (ii) one-half of one percent (0.5%)
if prepayment occurs after the first anniversary of the Funding Date but on
or before the second anniversary of the Funding Date; and (iii) one-quarter
of one percent (0.25%) if prepayment occurs after the second anniversary of
the Funding Date. The Borrower will not be required to pay the prepayment
fees otherwise due under this Section 2.06(b) if such prepayment is made
out of increased cash flow
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from the Borrower's operations (which requirement shall be met only to the
extent the Borrower does not refinance such prepaid amount within 120 days
of such prepayment).
Section 2.07 Mandatory Prepayment. The Borrower shall prepay the
Revolving Advances immediately without notice or demand if the sum of the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base. The prepayment required by this Section shall be equal to
the amount necessary to reduce the sum of the outstanding principal balance of
the Revolving Advances to the Borrowing Base. Any prepayment received by the
Lender under this Section or under Section 2.06 may be applied to the
Indebtedness, including interest thereon and any fees, commissions, costs and
expenses hereunder in such order and in such amounts as the Lender, in its
discretion, may from time to time determine. If the amount of a required
prepayment exceeds the outstanding principal balance of the Revolving Advances,
the Borrower shall nevertheless make the full amount of such prepayment, and the
Lender shall hold the excess in a non-interest bearing account at a bank or
other financial institution selected by the Lender as additional security for,
and the Borrower hereby grants the Lender a security interest in such funds to
secure, the Indebtedness.
Section 2.08 Computation of Interest and Fees. The interest, the
commissions and the fees hereunder shall be computed on the basis of actual
number of days elapsed and a year of 360 days.
Section 2.09 Payment. All payments of principal of and interest on the
Indebtedness and of the fees and commissions hereunder shall be made to the
Lender in immediately available funds. The Borrower hereby authorizes the Lender
to charge against the Borrower's account with the Lender an amount equal to the
principal, accrued interest, commissions and fees from time to time due and
payable to the Lender hereunder and further authorizes the Lender, in its
discretion, to make a Revolving Advance under this Article II to the extent
necessary to pay any such amounts.
Section 2.10 Payment on Non-Business Days. Whenever any payment to be
made hereunder shall be stated to be due on a Saturday, Sunday or holiday for
banks under the laws of the State of Minnesota or Colorado, such payment may be
made on the next succeeding bank business day, and such extension of time shall
in such case be included in the computation of interest on the Indebtedness or
the fees hereunder, as the case may be.
Section 2.11 Use of Proceeds. The proceeds of the Term Advance shall
be used to purchase the common stock of Western held by the Seller. Up to
$500,000 of proceeds of Revolving Advances may be used by the Borrower to
purchase or to repurchase the common stock of Western held by the Seller. The
remaining proceeds of Revolving Advances under the Commitment shall be used by
the Borrower to pay out Colorado Business Bank in an amount of approximately
$450,000 and otherwise for ordinary working capital and general business
purposes.
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Section 2.12 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to any and all Advances made or
repaid and interest accrued or paid under this Agreement. All entries made on
any such record shall be presumed correct until the Borrower establishes the
contrary. On demand by the Lender, the Borrower will admit and certify in
writing the exact principal balance which Borrower then asserts to be
outstanding to the Lender for Advances under this Agreement. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless specific written notice of exception is given to
the Lender by the Borrower within 120 days after its receipt by the Borrower.
Section 2.13 Setoff. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any indebtedness owed to the Lender by the Borrower
(for Advances or for any other transaction or event), whether or not due. In
addition, each other Person holding a participating interest in any Advances
made to the Borrower by the Lender or other Indebtedness shall have the right to
appropriate or setoff any deposit or other liability then owed by such Person to
the Borrower, whether or not due, and apply the same to the payment of said
participating interest, as fully as if such Person had lent directly to the
Borrower the amount of such participating interest.
Section 2.14 Origination Fee. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $5,000, due and
payable upon the execution of this Agreement.
Section 2.15 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Indebtedness.
Section 2.16 Notification of Account Debtors and Other Obligors. The
Lender may at any time (whether or not a Default or Event of Default then exists
and is continuing) notify any account debtor or other person obligated to pay
the amount due that such right to payment has been assigned or transferred to
the Lender for security and shall be paid directly to the Lender. The Borrower
will join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, in the Lender's name or in the Borrower's name,
(a) demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral
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as permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.
Section 2.17 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default or Event of Default then exists
and is continuing, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proof of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
Section 2.18 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time if any Default or Event of
Default exists and is continuing.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose
of goods that are Collateral and for other purposes that the Lender may in
good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Indebtedness
and termination of the Commitment, and (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 2.18.
Section 2.19 License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks,
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franchises, trade names, copyrights and patents of the Borrower for the purpose
of selling, leasing or otherwise disposing of any or all Collateral at any time
a Default or Event of Default exists and is continuing.
Section 2.20 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
CPS Distributors, Inc.
4275 Forest Street
Denver, Colorado 80216
Federal Tax Identification No.
----------------------
Water Systems, Inc.
1215 N. Wolcott
Casper, Wyoming 82601
Federal Tax Identification No.
----------------------
Western Pipe Supply Co., Inc.
5700 Valmont
Boulder, Colorado 80301
Federal Tax Identification No. 84-0729202
Name and address of Secured Party:
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, Colorado 80274-8673
Section 2.21 Setoff. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Indebtedness, whether or not due. In addition,
each other Person holding a participating interest in any Indebtedness shall
have the right to appropriate or setoff any deposit or other liability then owed
by such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
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ARTICLE III
Conditions Precedent
Section 3.01 Conditions Precedent to the Term Advance. The Lender's
obligation to make the Term Advance hereunder shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Notes, properly executed by the Borrower.
(c) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(d) An Amended and Restated Guaranty duly executed by the Guarantor,
whereby the Guarantor agrees to guaranty all of the Advances hereunder.
(e) A certificate of Western's Secretary certifying as to (i) the
resolutions of the Borrower's directors and, if required, shareholders,
authorizing the execution, delivery and performance of the Loan Documents,
(ii) Western's articles of incorporation and bylaws, and (iii) the
signatures of Western's officers or agents authorized to execute and
deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on Western's behalf.
(f) A current certificate issued by the Secretary of State of
Colorado, certifying that Western is duly incorporated and in good standing
with the State of Colorado.
(g) An opinion of counsel to Western, addressed to the Lender.
(h) Evidence that the Seller has provided carry-back financing to
Western in an amount no less than $1,200,000 and at an interest rate no
greater than 8.5%, maturing no sooner than March 31, 2009.
(i) A subordination agreement in favor of the Lender, properly
executed by the Seller in his personal capacity.
(j) A copy of the Stock Purchase Agreement executed by the Seller,
Western, and CPS.
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(k) A copy of the leases pursuant to which Western is leasing its
premises, together with a landlord's disclaimer and consent with respect to
each such Lease.
(l) A Non-Competition Agreement executed by the Seller whereby the
Seller agrees not to compete with the Borrower.
(m) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.14 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
8.04, including all legal expenses incurred through the date of this
Agreement.
(n) Such other documents as the Lender in its sole discretion may
require.
Section 3.02 Additional Conditions Precedent to All Advances. The
obligation of the Lender to make each Advance (including the initial Advance)
shall be subject to the further conditions precedent that on the date thereof:
(a) the representations and warranties contained in Article IV hereof
are correct on and as of the date of such Advance as though made on and as
of such date, except to the extent that such representations and warranties
relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance which constitutes a Default or an Event of Default.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 4.01 Corporate Existence and Power; Name. CPS and Western are
corporations duly incorporated, validly existing and in good standing under the
laws of the State of Colorado, WSI is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Wyoming, and each
of CPS , WSI, and Western is duly licensed or qualified to transact business in
all jurisdictions where the character of the property owned or leased or the
nature of the business transacted by it makes such licensing or qualification
necessary. The Borrower has all requisite power and authority, corporate or
otherwise, to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under the Loan Documents. During
its corporate existence, the
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Borrower has done business solely under the names CPS Distributors, Inc., Water
Systems, Inc. and Western Pipe Supply Co., Inc.
Section 4.02 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, or any
authorization, consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (b) violate any
provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (c)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (d) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 4.03 Legal Agreements. Upon due execution by the Borrower and
the other parties thereto, the Loan Documents constitute the legal, valid and
binding obligations of the Borrower and are enforceable against the Borrower in
accordance with their respective terms.
Section 4.04 Subsidiaries. The only subsidiaries of CPS are Western
and WSI. Neither WSI nor Western has any subsidiaries.
Section 4.05 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished the following financial statements to the Lender: the
audited financial statements of the Guarantor for its fiscal year ended November
30, 1998, and the audited financial statements of Western for the fiscal year
ended December 31, 1998. All such financial statements fairly present the
financial condition of the Borrower and the Guarantor on the date thereof and
the results of the operations and cash flow of such company for the periods then
ended, and were prepared in accordance with generally accepted accounting
principles. Since the date of the most recent financial statements, there has
been no material adverse change in the business, properties or condition
(financial or otherwise) of Borrower or the Guarantor.
Section 4.06 Litigation. Except as otherwise disclosed to you in
writing, there are no actions, suits or proceedings pending or, to the knowledge
of the Borrower, threatened against or affecting the Borrower or its properties
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic
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or foreign, which, if determined adversely to the Borrower, would have a
material adverse effect on the financial condition, properties, or operations of
the Borrower.
Section 4.07 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 4.08 Taxes. The Borrower has paid or caused to be paid to the
proper authorities when due all federal, state and local taxes required to be
withheld by it. The Borrower has filed all federal, state and local tax returns
which are required to be filed, and the Borrower has paid or caused to be paid
to the respective taxing authorities all taxes as shown on said returns or on
any assessment received by it to the extent such taxes have become due.
Section 4.09 Titles and Liens. The Borrower has good title to all
collateral described in the collateral reports provided to the Lender and all
other properties and assets reflected in the pro forma balance sheet referred to
in Section 4.05 hereof, free and clear of all mortgages, security interests,
liens and encumbrances, except for mortgages, security interests and liens
permitted by Section 6.01 hereof and covenants, restrictions, rights, easements
and minor irregularities in title which do not materially interfere with the
business or operations of the Borrower as presently conducted. No financing
statement naming the Borrower as debtor is on file in any office except to
perfect only security interests permitted by Section 6.01 hereof.
Section 4.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower or any Affiliate maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any Affiliate has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or may become
payable to participants or beneficiaries of any such Plan).
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<PAGE> 20
Section 4.11 Default. The Borrower is not in default of a material
provision under any material agreement, instrument, decree or order to which it
is a party or by which it or its property is bound or affected.
Section 4.12 Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any governmental
authority or any third party is required in connection with the execution and
delivery of any Loan Document, or any of the agreements or instruments herein
mentioned to which the Borrower is a party, or in connection with the carrying
out or performance of any of the transactions required or contemplated hereby or
thereby or, if required, such consent, approval, order or authorization has been
obtained or such registration, declaration or filing has been accomplished or
such notice has been given prior to the date hereof.
Section 4.13 Environmental Protection. The Borrower has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws relating to emissions, discharges, releases of pollutants,
contaminants, hazardous or toxic materials, or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
("Environmental Laws") at the Borrower's facilities or in connection with the
operation of its facilities. Except as previously disclosed to the Lender in
writing, the Borrower and all activities of the Borrower at its facilities
complied or comply with all Environmental Laws and with all terms and conditions
of any required permits, licenses and authorizations applicable to the Borrower
with respect thereto. Except as previously disclosed to the Lender in writing,
the Borrower was or is also in compliance with all limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in the Environmental Laws or contained in any plan, order,
decree, judgment or notice of which the Borrower is aware. Except as previously
disclosed to the Lender in writing, the Borrower is not aware of, nor has the
Borrower received notice of, any events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance with, or which may give rise to any liability under, any
Environmental Laws.
Section 4.14 Submissions to Lender. All financial and other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 4.15 Financing Statements. The proper places to file financing
statements to perfect the Security Interest are the office of the Secretary of
State of the State of Colorado, the office of the Secretary of State of Wyoming
and the County Clerk for Natrona County, Wyoming. When the financing statements
heretofore signed by the
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Borrower are filed there, the Lender will have a valid and perfected security
interest in all Collateral which is capable of being perfected by filing
financing statements, subject to no prior security interest, assignment, lien or
encumbrance except interests, if any, permitted by Section 6.01 hereof.
ARTICLE V
AFFIRMATIVE COVENANTS OF THE BORROWER
So long as the Indebtedness shall remain unpaid or the Commitment
shall be outstanding, the Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:
Section 5.01 Reporting Requirements. The Borrower will deliver, or
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, audited financial statements of
the Borrower and of HIA, Inc. with the unqualified opinion of independent
certified public accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the balance sheet
of the Borrower as at the end of such fiscal year and the related
statements of income, retained earnings and cash flows of the Borrower for
the fiscal year then ended, all in reasonable detail and prepared in
accordance with generally accepted accounting principles applied on a
consistent basis, together with a certificate of the chief financial
officer of the Borrower stating that such financial statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis and whether or not the officer has knowledge
of the occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 30 days after the end
of each month an unaudited balance sheet and statements of income and
retained earnings of the Borrower as at the end of and for such month and
for the year to date, in reasonable detail and stating in comparative form
the figures for the corresponding date and period in the previous year, all
prepared on a consolidated basis in accordance with generally accepted
accounting principles applied on a consistent basis and certified by the
chief financial officer of the Borrower, subject to year-end audit
adjustments; and accompanied by a certificate of that officer substantially
in the form of Exhibit B hereto stating (i) that such officer certifies the
accuracy of the amount of the Borrowing Base set forth in such certificate,
(ii) that such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis,
(iii) whether or not such officer has
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<PAGE> 22
knowledge of the occurrence of any Default or Event of Default hereunder
not theretofore reported and remedied and, if so, stating in reasonable
detail the facts with respect thereto, and (iv) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not
the Borrower is in compliance with the requirements set forth in Sections
5.09 through 5.11 and 6.10 hereof;
(c) within 30 days after the end of each fiscal quarter, agings of the
Borrower's accounts receivable and inventory stock certifications;
(d) within 60 days after the end of each quarter, copies of all Forms
10-QSB submitted by the Guarantor to the Securities and Exchange
Commission and within 90 days after the end of each fiscal year of the
Guarantor, copies of all Forms 10-KSB submitted by the Guarantor to the
Securities and Exchange Commission;
(e) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected income statements for each month of such year, each
in reasonable detail, representing the Borrower's good faith projections
and certified by the Borrower's chief financial officer as being the most
accurate projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such supporting
schedules and information as the Lender may in its discretion require;
(f) from time to time, any and all receivables schedules, collection
reports, equipment schedules, copies of invoices to account debtors and
shipment documents and delivery receipts for goods sold, and other
material, reports, records or information required by the Lender;
(g) immediately after the commencement thereof, notice in writing of
all litigation of any type and of all proceedings before any governmental
or regulatory agency affecting the Borrower of the type described in
Section 4.06 hereof or which seek a monetary recovery against the Borrower
in excess of $25,000;
(h) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any event which constitutes a Default or Event of Default,
notice of such occurrence, together with a detailed statement by a
responsible officer of the Borrower of the steps being taken by the
Borrower to cure the effect of such event;
(i) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the chief financial officer of
the Borrower setting forth details as to such Reportable Event and the
action which the Borrower proposes to
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<PAGE> 23
take with respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any disputes or
claims by customers of the Borrower involving an amount in excess of
$25,000; (ii) any goods returned to or recovered by the Borrower involving
an amount in excess of $50,000; (iii) any change in the persons
constituting the officers and directors of the Borrower; and (iv) the
occurrence of any breach, default or event of default by or attributable to
the Borrower under this Agreement or any of the Loan Documents;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent
to its stockholders;
(l) From time to time, with reasonable promptness, such further
information regarding the business, operations, affairs and financial and
other condition of the Borrower as the Lender may request.
Section 5.02 Books and Records; Inspection and Examination. The
Borrower will keep accurate books of record and account for itself in which true
and complete entries will be made in accordance with generally accepted
accounting principles consistently applied and, upon request of the Lender, will
permit any officer, employee, attorney or accountant for the Lender to audit,
review, make extracts from, or copy any and all corporate and financial books,
records and properties of the Borrower at all times during ordinary business
hours, to send and discuss with account debtors and other obligers requests for
verification of amounts owed to the Borrower, and to discuss the affairs of the
Borrower with any of its directors, officers, employees or agents. The Borrower
will at all reasonable times permit the Lender or its representatives to examine
or inspect any collateral, or any evidence of collateral, wherever located;
provided, however, that so long as neither a Default or an Event of Default has
occurred or is continuing, the Borrower shall not be required to pay any fees
and costs of Lender incurred with respect to examining or inspecting the
collateral in excess of fees and costs incurred with respect to conducting one
such inspection during each calendar year.
Section 5.03 Compliance with Laws; Environmental Indemnity. The
Borrower will (a) comply with the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its business or its financial condition, and (b) comply with all applicable
environmental, hazardous waste or substance, toxic substance and underground
storage laws and regulations and obtain any permits, licenses or similar
approvals required by any such laws or regulations. The Borrower will indemnify,
defend and hold Lender harmless from and against any claims, loss or damage to
which the Lender may be subjected as a result of any past, present or future
existence, use, handling, storage, transportation or disposal of any hazardous
waste or substance or toxic substance by the Borrower or on property owned,
leased or controlled by the Borrower. This
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<PAGE> 24
indemnification agreement shall survive the termination of this Agreement and
payment of the Indebtedness hereunder.
Section 5.04 Payment of Taxes and Other Claims. The Borrower will pay
or discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, or upon any properties
belonging to it, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon any properties of the Borrower; provided, that the Borrower
shall not be required to pay any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
Section 5.05 Maintenance of Properties. The Borrower will keep and
maintain all of its properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear excepted) provided,
however, that nothing in this Section shall prevent the Borrower from
discontinuing the operation and maintenance of any of its properties if such
discontinuance is, in the judgment of the Borrower, desirable in the conduct of
its business and not disadvantageous in any material respect to the Lender.
Section 5.06 Insurance. The Borrower will obtain and maintain
insurance (naming the Lender as loss payee) with insurers believed by the
Borrower to be responsible and reputable, in such amounts and against such risks
as may from time to time be required by the Lender, but in all events in such
amounts and against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general areas in
which the Borrower operates.
Section 5.07 Preservation of Corporate Existence. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business;
shall conduct its business in an orderly, efficient and regular manner; and
shall not liquidate, merge, dissolve, suspend business operations, or sell all
or substantially all of its assets or stock.
Section 5.08 Net Worth. The Borrower shall at all times during each of
the periods set forth below, maintain its Tangible Capital Funds at or above the
amounts set forth opposite such period.
<TABLE>
<CAPTION>
Period Tangible Capital Funds
------ ----------------------
<S> <C>
All times during the months of December, January, $2,000,000
February, March, April, May, June, and July of each
year
</TABLE>
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<PAGE> 25
<TABLE>
<S> <C>
All times during the months of August, September, $2,600,000
October and November of each year
</TABLE>
Section 5.09 Debt to Tangible Capital Funds. The Borrower shall at all
times maintain the ratio of the Borrower's Debt to the Borrower's Tangible
Capital Funds at a ratio which is less than or equal to 3.5 to 1.0.
Section 5.10 Current Ratio. The Borrower shall at all times maintain
the ratio of its Current Assets to Current Liabilities at a ratio which is
greater than or equal to 1.25 to 1.0.
Section 5.11 Minimum Debt Service Coverage. The Borrower shall at the
last day of each fiscal quarter maintain the ratio between (i) the sum of the
Borrower's net income, depreciation expense and interest expense, to (ii) the
sum of the Borrower's interest expense and current maturities of long-term Debt,
each determined for the four-quarter period ending on such day, at a ratio which
is greater than or equal to 1.30 to 1.0.
ARTICLE VI
NEGATIVE COVENANTS
So long as the Indebtedness shall remain unpaid or the Commitment
shall be outstanding, the Borrower agrees that, without the prior written
consent of the Lender:
Section 6.01 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing:
(a) mortgages, deeds of trust, pledges, liens, security interests and
assignments securing any indebtedness in existence on the date hereof and
listed in Exhibit A hereto;
(b) the security interest granted to the Lender pursuant to Article II
hereof; and
(c) purchase money security interests relating the acquisition of
machinery and equipment of the Borrower so long as the Borrower is in, and
maintains, compliance with every other provision of this Agreement.
Section 6.02 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
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<PAGE> 26
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Exhibit A hereto;
(c) indebtedness relating to liens permitted in accordance with
Section 6.01(c) hereof; and
(d) Subordinated Debt.
Section 6.03 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Exhibit A hereto.
Section 6.04 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist
any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, except:
(i) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the
United States of America having a maturity of one year or less,
commercial paper issued by U.S. corporations rated "A-1" or "A-2"
by Standard & Poor's Corporation or "P-1" or "P-2" by Moody's
Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in excess
of $100,000,000 (which certificates of deposit or bankers'
acceptances are fully insured by the Federal Deposit Insurance
Corporation); and
(ii) advances in the form of progress payments, prepaid rent or
security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary
except that CPS may maintain WSI and Western.
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<PAGE> 27
Section 6.05 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly, and shall not make any payments to HIA,
Inc. or pay any expenses of HIA, Inc., in excess of $50,000 in the aggregate in
any 12 month period.
Section 6.06 Sale of Assets. The Borrower will not sell, lease,
assign, transfer or otherwise dispose of all or a substantial part of its assets
(whether in one transaction or in a series of transactions) to any other Person
other than in the ordinary course of business.
Section 6.07 Consolidation and Merger. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
Section 6.08 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 6.09 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower.
Section 6.10 Accounting. The Borrower will not adopt, permit or
consent to any material change in accounting principles other than as required
by generally accepted accounting principles. The Borrower will not adopt, permit
or consent to any change in its fiscal year.
Section 6.11 Discounts, etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold.
Section 6.12 Transfers. The Borrower will not in any manner transfer
any property without prior or present receipt of full and adequate
consideration. For the purposes of this Section 6.13, the creation of an Account
in the ordinary course of business shall constitute consideration.
Section 6.13 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
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<PAGE> 28
Section 6.14 Place of Business; Location of Collateral; Name. The
Borrower will not transfer its executive office or chief or principal place of
business; move, relocate, close or sell any business location. The Borrower will
not permit any tangible Collateral or any records pertaining to the Collateral
to be located in any state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to be, but has
not in fact been, filed in order to perfect the Security Interest. The Borrower
shall not change its name.
Section 6.15 Articles of Incorporation. The Borrower will not amend
its certificate of incorporation, articles of incorporation or bylaws.
ARTICLE VII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 7.01 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any interest on or principal of any Note
when it becomes due and payable, whether at the maturity thereof or as a
result of a required mandatory prepayment thereof pursuant to Section 2.07;
or
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement shall not be
repaid; or
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower in this Agreement (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and the continuance of such default
or breach for a period of 15 days after receipt by the Borrower of written
notice from the Lender of such default or breach; or
(d) The Borrower or any Guarantor, as the case may be, shall be or
become insolvent, or admit in writing its inability to pay its debts as
they mature, or make an assignment for the benefit of creditors; or the
Borrower or any Guarantor, as the case may be, shall apply for or consent
to the appointment of any receiver, trustee, or similar officer for it or
for all or any substantial part of its property; or such receiver, trustee
or similar officer shall be appointed without the application or consent of
the Borrower or any Guarantor, as the case may be; or the Borrower or any
Guarantor, as the case may be, shall institute (by petition, application,
answer, consent or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation or similar
proceeding relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower or any Guarantor, as the case may be; or any judgment,
writ, warrant of attachment or execution or similar process
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<PAGE> 29
shall be issued or levied against a substantial part of the property of the
Borrower or any Guarantor, as the case may be; or
(e) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or
any Guarantor as debtor; or
(f) Any representation or warranty made by the Borrower in this
Agreement or by the Borrower (or any of its officers) in any certificate,
instrument or financial statement or other statement contemplated by or
made or delivered pursuant to or in connection with this Agreement, shall
prove to have been incorrect in any material respect when made; or
(g) The rendering against the Borrower or any Guarantor of a final
judgment, decree or order for the payment of money in excess of $10,000 and
the continuance of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of execution; or
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower or under any indenture or other instrument
under which any such evidence of indebtedness has been issued or by which
it is governed and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture or other
instrument; or
(i) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or any Plan shall have been terminated, or a trustee shall have
been appointed by an appropriate United States District Court to administer
any Plan, or the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or notice of any lien shall be filed or issued in connection with any
Plan; or
(j) An event of default shall occur under the Security Documents or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note; or
(k) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without
the prior written consent of the Lender; or
(l) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books
-29-
<PAGE> 30
adequate reserves therefor) or notice of any state or federal tax liens
shall be filed or issued; or
(m) The Borrower shall default in the payment of any amount owed by
the Borrower to the Lender other than any indebtedness arising hereunder;
or
(n) The Borrower shall pay any principal or interest of any
Subordinated Debt except as may specifically be permitted by the
subordination agreement with respect thereto or may be otherwise consented
to by the Lender in writing.
Section 7.02 Rights and Remedies. Upon the occurrence of an Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Lender, the Lender may exercise any or all of the
following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the entire
unpaid principal amount of any Note then outstanding, all interest accrued
and unpaid thereon, and all amounts payable under this Agreement to be
forthwith due and payable, whereupon such Note, all such accrued interest
and all such amounts shall become and be forthwith due and payable, without
presentment, notice of dishonor, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower;
(b) The Lender may, by notice to the Borrower, terminate its
Commitment.
(c) The Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Indebtedness, including interest accrued thereon, and of all
other sums then owing by the Borrower hereunder;
(d) The Lender may exercise and enforce its rights and remedies under
the Security Documents; and
(e) The Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 7.01(e) hereof, the Commitment shall terminate and the
entire unpaid principal amount of the Notes (whether contingent or funded), all
interest accrued and unpaid thereon and all other amounts payable under this
Agreement shall be immediately due and payable automatically without
presentment, demand, protest or notice of any kind.
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<PAGE> 31
ARTICLE VIII
MISCELLANEOUS
Section 8.01 No Waiver; Cumulative Remedies. No failure or delay on
the part of the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 8.02 Amendments, Etc. No amendment, modification, termination
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom shall be effective unless the same shall be in writing
and signed by the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.
Section 8.03 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by certified mail return receipt requested, (c)
sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed to the party to whom notice is being given at
its address as set forth below and, if telecopied, transmitted to that party at
its telecopier number set forth below:
If to the Borrower:
CPS Distributors, Inc.
Attn: Alan C. Bergold
4275 Forest Street
Denver, Colorado 80216
Telecopier: (303) 394-2667
If to the Lender:
Norwest Bank Colorado, National Association
Attn: Randall Schmidt
1740 Broadway
Denver, Colorado 80274-8673
Telecopier: (303) 863-6670
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if delivered personally, (b) two days after the date of
posting if delivered by mail, (c) one day following the date sent if sent by
overnight courier, or (d) the date of
-31-
<PAGE> 32
transmission if delivered by telecopy, except that notices or requests to the
Lender pursuant to any of the provisions of Article II hereof shall not be
effective until received by the Lender.
Section 8.04 Costs and Expenses. The Borrower will reimburse the
Lender for any and all reasonable costs and expenses, including (without
limitation) attorneys' fees, paid or incurred by the Lender in connection with
(a) the negotiation of any amendments, modifications or extensions to or of any
of the Loan Documents and any other document or agreement related hereto or
thereto and occurring subsequent to the date hereof, any instruments or
agreements and the preparation of any and all documents necessary or desirable
to effect such amendments, modifications or extensions, but not including any
expenses or fees associated with the Lender's annual renewal of the credit
facility made available to the Borrower pursuant to this Agreement; (b)
customary transaction fees of the Lender incurred in connection with the loans
contemplated hereby; (c) fees and expenses in connection with any audits or
inspections by the Lender of any collateral or the operations or business of the
Borrower, whether conducted at the Borrower's premises or at the offices of the
Lender or elsewhere; provided, however, that so long as neither a Default or an
Event of Default has occurred or is continuing, the Borrower shall not be
required to pay any fees and costs of Lender incurred with respect to examining
or inspecting the collateral in excess of fees and costs incurred with respect
to conducting one such inspection during each calendar year; (d) any and all
other out-of-pocket expenses by the Lender in connection with any of the
transactions contemplated hereby; and (e) the enforcement, protection or
preservation by the Lender during the term hereof or thereafter of any of the
rights or remedies of the Lender under any of the foregoing documents,
instruments or agreements or under applicable law, whether or not suit is filed
with respect thereto. The Borrower acknowledges that the Lender may perform
annual collateral audits at the expense of the Borrower pursuant to this
Agreement at the Lender's current audit charge per auditor hour, plus
out-of-pocket expenses, the total amount not to exceed $2,500 per audit.
Section 8.05 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 8.06 Binding Effect, Assignment. The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights thereunder or any interest therein without the prior
written consent of the Lender. This Agreement, together with the Loan Documents,
comprises the complete and integrated agreement of the parties on the subject
matter hereof and supersedes all prior agreements, written or oral, on the
subject matter hereof.
Section 8.07 Governing Law. The Loan Documents shall be governed by,
and construed in accordance with, the laws of the State of Colorado.
-32-
<PAGE> 33
Section 8.08 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.09 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 8.10 Arbitration.
(a) AGREEMENT TO ARBITRATE. Subject to the provisions of the next
paragraph below, the Lender and the Borrower agree to submit to binding
arbitration any and all claims, disputes and controversies between or among
them, whether in tort, contract or otherwise (and their respective
employees, officers, directors, attorneys, and other agents) arising out of
or relating to in any way to the Advances, the Indebtedness, the Credit
Agreement, the Notes, or any of the Security Documents or the negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, collection, enforcement,
default or termination thereof.
Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate thereunder, shall limit the right of any party hereto (1) to
foreclose against any real or personal property collateral by the exercise
of the power of sale under a deed of trust, mortgage, or other security
agreement, or instrument, or applicable law; (2) to exercise self-help
remedies such as setoff or repossession; or (3) to obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction, before, during
or after the pendency of any arbitration proceeding. The institution and
maintenance of any action for such judicial relief, or pursuit to
provisional or ancillary remedies, or exercise of self-help remedies shall
not constitute a waiver of the right or obligation of any party to submit
any claim or dispute to arbitration, including those claims or disputes
arising from exercise of any such judicial relief, or pursuit of
provisional or ancillary remedies, or exercise of self-help remedies.
(b) SELECTION OF ARBITRATOR. If the amount in dispute is $500,000 or
more, arbitration hereunder shall be before a three-person panel of neutral
arbitrators, consisting of one person from each of the following
categories: (1) an attorney who has practiced in the area of commercial law
in the State of Colorado for at least eight (8) years or a retired judge at
the district court or appellate court level from State of Colorado; (2) a
person with at least eight (8) years experience in commercial lending; and
(3) a person with at least eight (8) years experience in the turf
irrigation equipment and well pumps industry. The parties to the dispute or
their representatives shall obtain from the American Arbitration
Association ("AAA") a list of persons meeting the criteria outlined above
and the parties shall select the person in the manner established by the
AAA.
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<PAGE> 34
If the amount in dispute is less than $500,000, the arbitration shall
be conducted before one arbitrator who shall be an attorney who has
practiced in the area of commercial law for at least eight (8) years or a
retired judge at the District Court or appellate court level. The parties
to the dispute or their representatives shall obtain from AAA a list of the
persons meeting the criteria outlined above and the parties shall select
the person in the manner established by the AAA.
(c) GOVERNING LAWS AND RULES. Such arbitration shall proceed in the
State of Colorado in the City and County of Denver, Colorado, shall be
governed by Colorado law, including all applicable statutes of limitations,
and shall be conducted in accordance with the Commercial Arbitration Rules
of the AAA. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction.
(d) DISCOVERY. In any arbitration hereunder: (1) the arbitrator(s)
shall decide (by documents only or with a hearing, at the arbitrators'
discretion) any pre-hearing motions which are substantially similar to
pre-hearing motions to dismiss for failure to state a claim or motions for
summary adjudication; (2) discovery shall be permitted, but shall be
limited as provided in Rule 26.1 (c) of the Colorado Rules of Civil
Procedure, and shall be subject to the scheduling by the arbitrator(s), and
any discovery disputes shall be subject to final determination by the
arbitrator(s); and (3) the arbitrator(s) shall award costs and expenses of
the arbitration proceeding in accordance with the provisions of the Credit
Agreement, the Notes and/or other Security Documents.
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<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
CPS DISTRIBUTORS, INC.
By: /s/ Carl J. Bentley
------------------------------
Carl J. Bentley
Its: President
WATER SYSTEMS, INC.
By: /s/ Donald L. Champlin
------------------------------
Donald L. Champlin
Its: Vice President
WESTERN PIPE SUPPLY CO., INC.
By: /s/ Donald L. Champlin
------------------------------
Donald L. Champlin
Its: President
NORWEST BANK COLORADO, NATIONAL
ASSOCIATION
By: /s/ Randall Schmidt
------------------------------
Randall Schmidt
Its: Vice President
-35-
<PAGE> 36
SCHEDULE OF EXHIBITS
EXHIBIT A Permitted Liens, Indebtedness and Guaranties
EXHIBIT B Borrowing Base Certification
EXHIBIT C Revolving Note
EXHIBIT D Term Note
<PAGE> 37
Exhibit A to Second Amended
and Restated Credit Agreement
<TABLE>
<CAPTION>
Inventory CPS Western WSI
--------- --- ------- ---
<S> <C> <C> <C>
ITT Commercial Finance Corp.
Motorola 882086224
Hesstor Corp. (Woods Div.) 877050292
Taylor & Pittsburgh Implement 877023255
Textron 882091828 U790033
Carswell Import & Marketing Associates, Inc. (Robin) 882100327
Chrysler First Commercial Corp. (Exmark) 902091925
Transamerica Commercial Finance 892002466
Equipment
---------
Associates Leasing, Inc. 902022609
Triple H Construction Co. 892073461
Pitney Bowes 872869173
General Electric Capital Corp. (Applicon) 9020059202
880283351
892049368
Tri State Bank (Lease Finance) 892001430
First Concord Acceptance (M & R Leasing, Inc.) 91201601
Hewlett Packard 922034249
</TABLE>
<PAGE> 38
Exhibit B to Second Amended
and Restated Credit Agreement
<PAGE> 39
Exhibit C to Second Amended
and Restated Credit Agreement
REVOLVING NOTE
$4,000,000 Denver, Colorado
May 24, 1999
For value received, the undersigned, CPS DISTRIBUTORS, INC., a
Colorado corporation, WATER SYSTEMS, INC., a Wyoming corporation, and WESTERN
PIPE SUPPLY CO., INC., a Colorado corporation (collectively, the "Borrower"),
hereby jointly and severally promise to pay on the Termination Date under the
Credit Agreement (defined below), to the order of NORWEST BANK COLORADO, N.A.
(the "Lender"), at its main office in Denver, Colorado, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of Four
Million Dollars ($4,000,000) or, if less, the aggregate unpaid principal amount
of all Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Second
Amended and Restated Credit Agreement of even date herewith (as the same may
hereafter be amended, supplemented or restated from time to time, the "Credit
Agreement") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement, and may now or hereafter be
secured by one or more other security agreements, mortgages, deeds of trust,
assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
CPS DISTRIBUTORS, INC. WATER SYSTEMS, INC. WESTERN PIPE SUPPLY
CO., INC.
By _____________________ By _____________________ By _____________________
Carl J. Bentley Donald L. Champlin Donald L. Champlin
Its President Its Vice President Its President
<PAGE> 40
Exhibit D to Second Amended
and Restated Credit Agreement
TERM NOTE
$1,000,000 Denver, Colorado
May 24, 1999
For value received, the undersigned, CPS DISTRIBUTORS, INC., a
Colorado corporation, WATER SYSTEMS, INC., a Wyoming corporation, and WESTERN
PIPE SUPPLY CO., INC., a Colorado corporation (collectively, the "Borrower"),
hereby jointly and severally promise to pay on the dates set forth in the Credit
Agreement (defined below), but in any event no later than May 31, 2004, to the
order of NORWEST BANK COLORADO, N.A. (the "Lender"), at its main office in
Denver, Colorado, or at any other place designated at any time by the holder
hereof, in lawful money of the United States of America and in immediately
available funds, the principal sum of One Million Dollars ($1,000,000) or, if
less, the aggregate unpaid principal amount of the Term Advance made by the
Lender to the Borrower under the Credit Agreement (defined below) together with
interest on the principal amount hereunder remaining unpaid from time to time,
computed on the basis of the actual number of days elapsed and a 360-day year,
from the date hereof until this Note is fully paid at the rate from time to time
in effect under the Second Amended and Restated Credit Agreement of even date
herewith (as the same may hereafter be amended, supplemented or restated from
time to time, the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement, and may now or hereafter be secured by
one or more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
CPS DISTRIBUTORS, INC. WATER SYSTEMS, INC. WESTERN PIPE SUPPLY
CO., INC.
By _____________________ By _____________________ By _____________________
Carl J. Bentley Donald L. Champlin Donald L. Champlin
Its President Its Vice President Its President
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED GUARANTY BY COMPANY
Denver, Colorado
May 24, 1999
This Amended and Restated Guaranty, dated as of May 24, 1999, is made
by HIA, Inc., a New York corporation (the "Guarantor"), for the benefit of
Norwest Bank Colorado, N.A. (with its participants, successors and assigns, the
"Lender").
CPS Distributors, Inc., a Colorado corporation, and Water Systems,
Inc., a Wyoming corporation (collectively the "Existing Borrowers") and the
Lender entered into an Amended and Restated Credit Agreement dated as of January
9, 1995 (the "Former Credit Agreement"), pursuant to which the Lender agreed to
make advances and extend other financial accommodations to the Existing
Borrowers.
The Former Borrowers and Western Pipe Supply Co., Inc., a Colorado
corporation ("Western", and, collectively with the Existing Borrowers, the
"Borrower"), have requested that the Former Credit Agreement be amended and
restated in full a second time to provide, among other things, for the addition
of a term loan and also to provide for the inclusion of Western as a Borrower
thereunder (as so amended and restated, the "Credit Agreement"). The Lender is
willing to do so provided, among other things, that the Guarantor agree to
guaranty such term loan and all debt owing from Western, and provided further
than the Guarantor agree to amend and restate this Guaranty as set forth herein.
ACCORDINGLY, the Guarantor, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are not
otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Indebtedness Guaranteed. The Guarantor hereby absolutely and
unconditionally guarantees to the Lender the full and prompt payment when due,
whether at maturity or earlier by reason of acceleration or otherwise, of (i)
the "Indebtedness" (as such term is defined in the Credit Agreement) and (ii)
each and every other sum now or hereafter owing to the Lender by the Borrower,
including but not limited to, debts, liabilities and obligations arising out of
loans, credit transactions, financial accommodations, discounts, purchases of
property or other transactions with the Borrower or for the Borrower's account
or out of any other transaction or event, owed to the Lender or owed to others
by reason of participations granted to or interests acquired or created for or
sold to them by the Lender, in each case whether now existing or hereafter
arising, whether arising directly in a transaction or event involving the Lender
or acquired by the Lender from another by purchase or assignment or as
collateral security, whether owed by the Borrower as drawer, maker, endorser,
accommodation party, guarantor, principal, surety or as a member of any
partnership, syndicate, association or group or in any other capacity, whether
absolute or contingent, direct or indirect, primary or secondary, sole, joint,
several or joint and several,
<PAGE> 2
secured or unsecured, due or not due, contractual, tortious or statutory,
liquidated or unliquidated, arising by agreement or imposed by law or otherwise
(all of said sums being hereinafter called the "Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor represents
and warrants to the Lender that (i) the Guarantor is a corporation, duly
organized and existing in good standing and has full power and authority to make
and deliver this Guaranty; (ii) the execution, delivery and performance of this
Guaranty by the Guarantor have been duly authorized by all necessary action of
its directors and stockholders and do not and will not violate the provisions
of, or constitute a default under, any presently applicable law or its articles
of incorporation or bylaws or any agreement presently binding on it; (iii) this
Guaranty has been duly executed and delivered by the authorized officers of the
Guarantor and constitutes its lawful, binding and legally enforceable
obligation; and (iv) the authorization, execution, delivery and performance of
this Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrower and expects to
derive substantial benefits therefrom and from any loans, credit transactions,
financial accommodations, discounts, purchases of property and other
transactions and events resulting in the creation of the Indebtedness guarantied
hereby, and that this Guaranty is given for a corporate purpose. The Guarantor
agrees to rely exclusively on the right to revoke this Guaranty prospectively as
to future transactions, in accordance with paragraph 4, if at any time, in the
opinion of the directors or officers, the benefits then being received by the
Guarantor in connection with this Guaranty are not sufficient to warrant the
continuance of this Guaranty as to the future Indebtedness of the Borrower.
Accordingly, so long as this Guaranty is not revoked prospectively in accordance
with paragraph 4, the Lender may rely conclusively on a continuing warranty,
hereby made, that the Guarantor continues to be benefitted by this Guaranty and
the Lender shall have no duty to inquire into or confirm the receipt of any such
benefits, and this Guaranty shall be effective and enforceable by the Lender
without regard to the receipt, nature or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of payment
of the Indebtedness and shall continue to be in force and be binding upon the
Guarantor, whether or not all of the Indebtedness is paid in full, until this
Guaranty is revoked prospectively as to future transactions, by written notice
actually received by the Lender, and such revocation shall not be effective as
to the amount of Indebtedness existing or committed for at the time of actual
receipt of such notice by the Lender, or as to any renewals, extensions,
refinancings or refundings thereof.
-2-
<PAGE> 3
5. Dissolution or Insolvency of Guarantor. The dissolution or
adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty,
except upon actual receipt of written notice thereof by the Lender and only
prospectively, as to future transactions, as herein set forth. If the Guarantor
shall be dissolved or shall be or become insolvent (however defined), then the
Lender shall have the right to declare immediately due and payable, and the
Guarantor will forthwith pay to the Lender, the full amount of all of the
Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily
commences or there is commenced involuntarily against the Guarantor a case under
the United States Bankruptcy Code, the full amount of all Indebtedness, whether
due and payable or unmatured, shall be immediately due and payable without
demand or notice thereof.
6. Subrogation. The Guarantor will not exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to the Guarantor
as to any of the Indebtedness, or against any person liable therefor, or as to
any collateral security therefor, unless and until all of the Indebtedness shall
have been fully paid and discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the Lender
for all costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
Guaranty.
8. Lender's Rights. The Lender shall not be obligated by reason of its
acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and the
Borrower has been changed or ended and whether or not this Guaranty has been
revoked, the Lender may enter into transactions resulting in the creation or
continuance of the Indebtedness and may otherwise agree, consent to or suffer
the creation or continuance of any of the Indebtedness, without any consent or
approval by the Guarantor and without any prior or subsequent notice to the
Guarantor. The Guarantor's liability shall not be affected or impaired by any of
the following acts or things (which the Lender is expressly authorized to do,
omit or suffer from time to time, both before and after revocation of this
Guaranty, without consent or approval by or notice to the Guarantor): (i) any
acceptance of collateral security, guarantors, accommodation parties or sureties
for any or all of the Indebtedness; (ii) one or more extensions or renewals of
the Indebtedness (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Indebtedness or any amendment or modification of
any of the terms or provisions of any loan agreement or other agreement under
which the Indebtedness or any part thereof arose; (iii) any waiver or indulgence
granted to the Borrower, any delay or lack of diligence in the enforcement of
the Indebtedness or any failure to institute proceedings, file a claim, give any
required notices or otherwise protect any of the Indebtedness; (iv) any full or
partial release of, compromise or settlement with, or agreement not to sue, the
Borrower or any guarantor or other person liable in respect of any of the
Indebtedness; (v) any release, surrender, cancellation or other discharge of any
evidence of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor; (vi) any failure to obtain collateral security
-3-
<PAGE> 4
(including rights of setoff) for the Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; or any modification, alteration, substitution, exchange,
surrender, cancellation, termination, release or other change, impairment,
limitation, loss or discharge of any collateral security; (vii) any collection,
sale, lease or disposition of, or any other foreclosure or enforcement of or
realization on, any collateral security; (viii) any assignment, pledge or other
transfer of any of the Indebtedness or any evidence thereof; (ix) any manner,
order or method of application of any payments or credits upon the Indebtedness;
and (x) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
10. Waivers by Guarantor. The Guarantor waives any and all defenses,
claims, setoffs and discharges of the Borrower, or any other obligor, pertaining
to the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality
or unenforceability which may be available to the Borrower or any other person
liable in respect of any of the Indebtedness, or any setoff available against
the Lender to the Borrower or any other such person, whether or not on account
of a related transaction. The Guarantor expressly agrees that the Guarantor
shall be and remain liable for any deficiency remaining after foreclosure of any
mortgage or security interest securing the Indebtedness, whether or not the
liability of the Borrower or any other obligor for such deficiency is discharged
pursuant to statute or judicial decision. The liability of the Guarantor shall
not be affected or impaired by any voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of the
assets, marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar event or
proceeding affecting, the Borrower or any of its assets. The Guarantor will not
assert, plead or enforce against the Lender any claim, defense or setoff
available to the Guarantor against the Borrower. The Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Indebtedness. The Lender shall not be required
first to resort for payment of the Indebtedness to the Borrower or other
persons, or their properties, or first to enforce, realize upon or exhaust any
collateral security for the Indebtedness, before enforcing this Guaranty.
11. If Payments Set Aside, etc. If any payment applied by the Lender to
the Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
-4-
<PAGE> 5
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
12. Additional Obligation of Guarantor. The Guarantor's liability under
this Guaranty is in addition to and shall be cumulative with all other
liabilities of the Guarantor to the Lender as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Indebtedness or obligation
of the Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
13. No Duties Owed by Lender. The Guarantor acknowledges and
agrees that the Lender (i) has not made any representations or warranties with
respect to, (ii) does not assume any responsibility to the Guarantor for, and
(iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness and
until the Indebtedness is paid in full will independently and without reliance
on the Lender continue to make such determinations.
14. Miscellaneous. This Guaranty shall be effective upon
delivery to the Lender, without further act, condition or acceptance by the
Lender, shall be binding upon the Guarantor and the successors and assigns of
the Guarantor and shall inure to the benefit of the Lender and its participants,
successors and assigns. Any invalidity or unenforceability of any provision or
application of this Guaranty shall not affect other lawful provisions and
application thereof, and to this end the provisions of this Guaranty are
declared to be severable. This Guaranty may not be waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
Guarantor and the Lender. This Guaranty shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Colorado. The Guarantor hereby (i) consents to the personal jurisdiction of the
state and federal courts located in the State of Colorado in connection with any
controversy related to this Guaranty; (ii) waives any argument that venue in any
such forum is not convenient, (iii) agrees that any litigation initiated by the
Lender or the Guarantor in connection with this Guaranty shall be venued in
either the District Court for the City and County of Denver, Colorado, or the
United States District Court, District of Colorado; and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
15. Waiver of Jury Trial. THE GUARANTOR HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY.
-5-
<PAGE> 6
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor the date first written above.
HIA, INC.
By /s/ ALAN C. BERGOLD
----------------------------------
Alan C. Bergold
Its President
Address: 4275 Forest Street
Denver, Colorado 80216
STATE OF Colorado )
---------- )
COUNTY OF Denver )
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The foregoing instrument was acknowledged before me this 25th day of
May, 1999 by Alan C. Bergold, the President of HIA, Inc., a New York
corporation, on behalf of the corporation.
/s/ TEDDY L. MASSEY
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Notary Public
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