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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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): JANUARY 6, 1998
BOLT TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMISSION FILE NUMBER 0-10723
CONNECTICUT 06-0773922
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATON NO.)
FOUR DUKE PLACE
NORWALK, CONNECTICUT 06854
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(203) 853-0700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
(1)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 14, 1997, Bolt Technology Corporation, (the "Registrant"), a
Connecticut Corporation, entered into an asset purchase agreement with Custom
Products Corporation of North Haven, Connecticut, pursuant to which the
Registrant agreed to purchase substantially all of the assets of Custom Products
Corporation. Custom Products Corporation is a privately held manufacturer of
miniature precision mechanical and pneumatic slip clutches sold under the
"Polyclutch" trade name. In order to facilitate the acquisition, the Registrant
formed a wholly-owned subsidiary which will assume the Custom Products
Corporation name.
On January 6, 1998, the purchase was completed. In consideration of the purchase
of the assets of Custom Products Corporation, the Registrant delivered to the
seller (i) $4,971,457 in cash; (ii) 135,000 shares of common stock of the
Registrant valued at $880,875 and (iii) contingent cash payments. Such payments
could total $4,000,000 and are dependent on annual increases in the net sales of
Custom Products Corporation for the period January 1, 1998 to December 31, 2003.
In connection with the purchase, the Registrant established a $3,500,000
unsecured line of credit with Fleet National Bank. The term of the loan, which
bears interest at the prime rate, is five years. The Registrant borrowed
$800,000 under the credit line for the purchase of Custom Products Corporation.
The principal tangible assets related to the Custom Products operation acquired
by the Registrant include (i) cash; (ii) accounts receivable; (iii) machinery
and equipment and (iv) a lease for property located in North Haven, Connecticut.
The liabilities assumed include (i) accounts payable; (ii) certain accrued
liabilities and (iii) a note payable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
As of the date of filing this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the financial statements required by this Item
7(a). In accordance with item 7(a)(4) of Form 8-K, such financial statements
shall be filed by amendment to this Form 8-K no later than 60 days after January
21, 1998.
(b) Pro Forma Financial Information.
As of the date of filing this Current Report on Form 8-K, it is impracticable
for the Registrant to provide the pro forma financial information required by
this Item 7(b). In accordance with Item 7(b) of Form 8-K, such financial
statements shall be filed by amendment to this Form 8-K no later than 60 days
after January 21, 1998.
(2)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (CONT'D.)
(c) Exhibits.
2.1 Asset Purchase Agreement dated as of November 14, 1997, by and among Bolt
Technology Corporation and Gerald Shaff and Carole Shaff.
4.1 Commercial Revolving Loan and Security Agreement dated January 5, 1998 by
and between Bolt Technology Corporation and Fleet National Bank.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BOLT TECHNOLOGY CORPORATION
By: /s/ Raymond M. Soto
-------------------
Raymond M. Soto
President and Chief Executive Officer
January 14, 1998
(3)
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ASSET PURCHASE AGREEMENT EXHIBIT 2.1
THIS ASSET PURCHASE AGREEMENT dated as of November 14, 1997 (the
"Agreement"), by and among Bolt Technology Corporation, a Connecticut
corporation (the "Buyer"); Custom Products Corporation, a Connecticut
corporation (the "Seller") and Gerald Shaff and Carole Shaff, individuals (the
"Stockholders").
W I T N E S S E T H
WHEREAS, Seller is desirous of selling the tangible and intangible assets
related to the manufacture and sale of miniature precision clutches and fence
stretching jacks (the "Products") under the tradenames "Polyclutch" and
"Puljaks" (the "Business") and having Buyer assume certain scheduled liabilities
of Seller;
WHEREAS, Buyer is desirous of purchasing such assets and assuming such
liabilities on the terms and subject to the conditions hereinafter set forth;
and
WHEREAS, Stockholders own 93.43% of the issued and outstanding shares of
stock of Seller.
NOW, THEREFORE, in consideration of the premises and of the representations
and warranties, covenants and agreements hereinafter made, the parties hereto
hereby agree as hereinafter set forth:
1. AGREEMENT TO BUY AND SELL CERTAIN ASSETS
(a) Acquired Assets
---------------
Subject to the terms and conditions hereinafter set forth, Seller shall
sell, transfer, assign, convey and deliver to Buyer, and Buyer shall purchase,
acquire and accept delivery of all of the assets (excluding the assets
specifically set forth on Schedule 1(b)) relating to the Business, including
without limitation the following:
(i) all of Seller's inventory of the Business on hand on the Closing Date,
whether work in process, raw materials or finished goods, used or held for use
in connection with the Business, wherever located, as described on Schedule
1(a)(i) to be delivered at the Closing (the "Inventory");
(ii) all of Seller's right, title and interest in and to certain trademarks,
trade names, patents and service marks and applications therefor, proprietary
processes and formulae and
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technical information used in the Business as described on Schedule 1(a)(ii)
attached hereto (collectively the "Intangible Assets");
(iii) all books and records of Seller concerning purchases and
sales relating to the Business, wherever located, including, without limitation,
all customer lists, lists of suppliers, promotional materials, graphic materials
and product literature concerning the Business and information relating to the
special needs of customers of the Business, in existence on the date hereof or
on the Closing Date; all sales and credit information, mailing lists, sales,
advertising and purchasing materials and correspondence relating to the
Business;
(iv) all of the equipment, machinery, tooling, dies, patterns, molds,
stampings, computers, software, furniture, fixtures, supplies and all other
moveable property not normally included in inventory, used or held for use in
connection with the Business, wherever located, set forth on Schedule 1(a)(iv)
attached hereto and to be updated and delivered at the Closing (the
"Equipment");
(v) all accounts receivable, notes receivable and miscellaneous receivables
of Seller derived from the operation of the Business prior to the Closing Date,
set forth on Schedule 1(a)(v) to be delivered at the Closing (collectively the
"Accounts Receivable");
(vi) all of Seller's right, title and interest in those certain leases and
the leasehold improvements, set forth on Schedule 1(a)(vi) attached hereto and
to be updated and delivered at the Closing, including assignments relating
thereto;
(vii) all oral and written contracts, purchase commitments and other
agreements pertaining to the Business that are set forth on Schedule 1(a)(vii)
attached hereto and to be updated and delivered at the Closing;
(viii) all governmental permits, licenses and authorizations of any kind
whatsoever associated with the Business set forth on Schedule 1(a)(viii)
attached hereto and to be updated and delivered at the Closing to the extent
that the same are legally transferable; and
(ix) all other assets owned by Seller, wherever located, relating to the
Business, existing on the date hereof, of every kind and nature, whether or not
carried on the books of Seller excluding the assets set forth on Schedule 1(b).
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All of the assets to be acquired by Buyer as set forth above are
hereinafter sometimes collectively referred to as the "Acquired Assets".
(b) Excluded Assets
---------------
Notwithstanding Section 1(a), Seller does not sell, transfer, assign,
convey or deliver, and Buyer does not purchase, acquire or accept, the assets
listed on Schedule 1(b) attached hereto.
2. ASSUMPTION OF CERTAIN LIABILITIES
(a) Assumed Liabilities
-------------------
Buyer shall assume the liabilities listed on Schedule 2(a) to be delivered
at the Closing, shall pay the listed debts, and shall honor and fill the listed
customer orders; all in accordance with the terms set forth in the Schedule (the
"Assumed Liabilities").
(b) Excluded Liabilities
--------------------
With the exception of the Assumed Liabilities, as provided in Section 2(a),
Buyer shall assume no liabilities or other obligations, commercial or otherwise,
of Seller or Stockholders, known or unknown, fixed or contingent, choate or
inchoate, liquidated or unliquidated, secured or unsecured or otherwise
("Excluded Liabilities"). Without in any way limiting the generality of the
foregoing, Buyer shall not assume any obligation or liability of Seller or
Stockholders with respect to the following: (i) any transaction by Seller or
Stockholders occurring after the Closing Date; (ii) any liability of Seller or
Stockholders for federal, state or local taxes, fees, assessments, custom duties
or other similar charges; (iii) any responsibility of Seller with respect to
salary, wages, vacation pay, savings plans, severance pay, deferred
compensation, or other obligations for the benefit of any employee of Seller,
including pension benefits accrued (vested or unvested), or arising out of
employment of employees for which Seller shall be liable and/or their
termination of employment by Seller, as to which Buyer shall have no
responsibility whatsoever arising prior to the Closing Date; (iv) any liability
or obligation incurred in connection with, or related to, the transfer of the
Acquired Assets other than obligations to The Chase Manhattan Bank of
Connecticut pursuant hereto including transfer taxes or stamp taxes except for
liability imposed by statute upon purchasers of assets; (v) any liability of any
kind whatsoever resulting from the failure of Seller to comply prior to
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the Closing Date with the requirements of all applicable building, fire, zoning,
customs or environmental laws, laws relating to occupational health and safety
and other laws applicable to Seller or the conduct of the Business; (vi) any
liability under any contract assumed by Buyer to the extent such liability
arises out of Seller's failure to perform its obligations thereunder prior to
the Closing Date; and (vii) any liability for Products shipped or manufactured
by or services provided by Seller prior to the Closing Date.
Seller shall have any and all responsibility to all creditors and all third
parties and to Buyer with respect to, and shall pay, discharge and perform when
due, any liability or obligation of Seller not expressly assumed by Buyer.
Notwithstanding the foregoing, no such creditor or third party is intended to be
a third party beneficiary of this Agreement. Seller and Stockholders shall,
jointly and severally, indemnify and hold Buyer harmless from and against any
and all cost, loss, liability (including reasonable attorneys' fees) arising
from obligations or liabilities not expressly assumed by Buyer.
3. PAYMENTS TO SELLER
(a) Purchase Price
--------------
In consideration of the purchase of the Business, Buyer shall deliver to
Seller (i) Five Million Dollars ($5,000,000) payable in cash, (ii) stock
certificates bearing restrictive legends representing 116,618 shares of the
Common Stock of Buyer ("Restricted Shares") unless changed as a result of their
Adjusted Value as determined pursuant to Section 3(b) of this Agreement and
(iii) contingent payments totaling Four Million Dollars ($4,000,000) payable in
cash depending on increases in net sales of the Business as determined pursuant
to Section 4(b)(ii)-(vi). In the event that the book value of the Acquired
Assets purchased by Buyer minus the dollar value of the Assumed Liabilities at
the Closing is less than Five Hundred Thousand Dollars ($500,000), the Purchase
Price payable at the Closing shall be reduced in an amount equal to that
difference.
(b) Adjusted Value of Shares of Buyer at Closing
--------------------------------------------
At the Closing, the Buyer's Common Stock shall be valued using the average
of the closing prices of a share for the ten most recent days that the stock has
traded ending on the trading date immediately prior to the Closing Date, as
reported on the American
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Stock Exchange (the "Average Price").
In the event that the dollar amount derived by multiplying the Average
Price by the number of Restricted Shares referred to in Section 3(a)(ii) above
is greater than One Million One Hundred Thousand Dollars ($1,100,000), then the
number of Restricted Shares required to be delivered at the Closing shall be
decreased to a number which, when multiplied by the Average Price, equals One
Million One Hundred Thousand Dollars ($1,100,000).
In the event that the dollar amount derived by multiplying the Average
Price by the number of Restricted Shares referred to in Section 3(a)(ii) above
is less than Nine Hundred Thousand Dollars ($900,000), then, at the option of
the Buyer, Buyer may either: (a) deliver the number of Restricted Shares which,
when multiplied by the Average Price equals Nine Hundred Thousand Dollars
($900,000); or (b) deliver cash of Nine Hundred Thousand Dollars ($900,000); or
(c) a combination of Restricted Shares and cash with a value of Nine Hundred
Thousand Dollars ($900,000).
No fraction of a share of Buyer's Common Stock will be issued; but in lieu
thereof, Seller shall receive cash (rounded to the nearest whole cent) equal to
such fraction multiplied by the Average Price.
(c) Allocation of Purchase Price
----------------------------
The final Purchase Price shall be allocated among the Acquired Assets in
accordance with the breakdown set forth on Schedule 3(c) to be delivered at the
Closing. Seller shall complete and execute a Form 8594 consistent with such
allocation, deliver a copy to Buyer and file such form in a timely manner with
the Internal Revenue Service.
4. CLOSING AND PAYMENT OF THE PURCHASE PRICE
(a) Closing
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Subject to satisfaction or waiver of the conditions precedent set forth in
Article 10 and Article 11, the closing of the transactions contemplated hereby
(the "Closing") shall be held at the offices of Thomas J. Demchak located at
3190 Whitney Avenue, Building 2, Hamden, CT on January 6, 1998 at 10:00 A.M. or
on such other date and at such other place as Seller and Buyer shall mutually
agree (the "Closing Date").
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(b) Payment of Purchase Price
-------------------------
The Purchase Price for the Business shall be paid by Buyer as follows:
(i) at the Closing, cash of Five Million Dollars ($5,000,000) and the
delivery of stock certificates representing restricted shares of Common
Stock of Buyer (plus cash, if any, in lieu of fractional share) with a
value of One Million Dollars ($1,000,000), as it may be modified in
accordance with Section 3(a) and (b); plus
(ii) on or before February 15, 1999, a sum equal to Eight Hundred
Thousand Dollars ($800,000) provided that net sales of the Business for the
twelve months ended December 31, 1998 shall be greater than Three Million
Four Hundred Twelve Thousand Dollars ($3,412,000);
(iii) on or before February 15, 2000, a sum equal to One Million Six
Hundred Thousand Dollars ($1,600,000) (less the sum, if any, paid pursuant
to clause (ii)) provided that the net sales of the Business for the twenty-
four months ended December 31, 1999 shall be greater than Six Million Nine
Hundred Ninety-Five Thousand Dollars ($6,995,000);
(iv) on or before February 15, 2001, a sum equal to Two Million Four
Hundred Thousand Dollars ($2,400,000) (less the sums, if any, paid pursuant
to clauses (ii) and (iii)) provided the net sales of the Business for the
thirty-six months ended December 31, 2000 shall be greater than Ten Million
Seven Hundred Fifty-Seven Thousand Dollars ($10,757,000);
(v) on or before February 15, 2002, a sum equal to Three Million Two
Hundred Thousand Dollars ($3,200,000) (less the sums, if any, paid pursuant
to clauses (ii), (iii) and (iv)) provided the net sales of the Business for
the forty-eight months ended December 31, 2001 shall be greater than
Fourteen Million Seven Hundred Seven Thousand Dollars ($14,707,000); and
(vi) on or before February 15, 2003, a sum equal to Four Million
Dollars ($4,000,000) (less the sums, if any, paid pursuant to clauses (ii),
(iii), (iv) and (v)) provided that the net sales of the Business for the
sixty months ended December 31,2002 shall be greater than Eighteen Million
Eight
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Hundred Fifty-Five Thousand Dollars ($18,855,000).
(c) Transfer of Acquired Assets
---------------------------
At the Closing, Seller shall transfer to Buyer all right, title and
interest in and to the Acquired Assets as provided herein. Said transfer shall
be effected by the delivery to Buyer of fully executed bills of sale,
endorsements, assignments and other good and sufficient instruments of
conveyance and transfer, all in form and substance reasonably satisfactory to
Buyer and to its counsel as may vest in Buyer good record and marketable title
to all of the Acquired Assets, free and clear of all liens and encumbrances
except any liens in favor of The Chase Manhattan Bank of Connecticut.
(d) Assumption of Liabilities
-------------------------
At the Closing, Buyer shall execute and deliver an Assumption of
Liabilities Agreement assuming and undertaking to perform and pay when due the
Assumed Liabilities, all in form and substance reasonably satisfactory to Seller
and its counsel.
(e) Determination of Net Sales
--------------------------
In the event Seller and Buyer fail to agree as to amount of the net sales
of the business for the applicable earn out period, Buyer shall cause its
independent certified public accountant to make the determination of net sales
of the Business for the applicable earn out period and to issue a report of its
determination to the President of Buyer, to Gerald Shaff and to Thomas J.
Demchak. If either Seller or Buyer disagrees with the determination of Buyer's
independent certified public accountant, such dispute shall be resolved by
arbitration pursuant to Article 12.
(f) Security For Contingent Payments
--------------------------------
In the event Buyer fails to make one or more contingent payments required
to be made as required by Section (b)(ii) through (vi) during the applicable
earn out period, Buyer shall promptly execute and deliver to Seller a demand
promissory note bearing the date of February 15 of each year in which the
required payment is missed in the principal amount of the missed payment at an
annual interest rate equal to prime plus 2% per annum. Buyer shall execute and
deliver a financing statement granting a security interest in all of the assets
of Buyer and its wholly owned
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subsidiary, Customs Products Corporation, which secure any senior indebtedness
which security interest is to be junior and subordinate to the security interest
granted to any financial institution, including without limitation, any bank,
insurance company, trust company or other institution, incurred for, or in
connection with, money borrowed which is incurred before the date of the note or
notes delivered to Seller. Seller and Stockholders agree to execute and deliver
such subordination agreements and any other necessary documents with respect to
such notes as any such financial institution may reasonably require prior to, or
simultaneously with, the delivery of Buyer's promissory note and financing
statement to Seller.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Stockholders, jointly and severally, represent and warrant as of
the date hereof and as of the Closing Date as follows:
(a) Organization of Seller
----------------------
Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut. Seller has requisite
corporate power and authority to own, lease and operate all of its properties
and assets relating to the Business and to conduct the Business in the manner
and in the places where such properties are owned or leased or the Business is
now conducted.
(b) Authority of Seller
-------------------
This Agreement and each of the agreements and other documents and
instruments delivered or to be delivered to Buyer pursuant to, or as
contemplated in this Agreement will constitute, when so delivered, valid and
binding obligations of Seller and shall be enforceable in accordance with their
respective terms except insofar as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors' rights generally and except as to the availability of
equitable remedies. The execution, delivery and performance of this Agreement
and each of the agreements and other documents and instruments delivered or to
be delivered to Buyer by Seller have been duly authorized by all necessary
action of Seller and are within Seller's corporate powers.
Except as set forth on Schedule 5(b) attached hereto, the
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execution, delivery and performance of this Agreement or any other agreement,
document or instrument delivered by Seller does not and will not, with the
passage of time, or the giving of notice, or both:
(i) result in a breach of, or constitute a default, or result in any
right of termination, or other effect adverse to Seller or the Acquired
Assets, under any indenture or loan or credit agreement of Seller, or any
other agreement, lease or instrument to which Seller is a party or by which
any of the Acquired Assets is bound or affected;
(ii) result in, or require, the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest or other charge or
encumbrance or claim of any nature whatsoever on the Acquired Assets;
(iii) result in a violation of, or default under any law, rule, or
regulation, or any order, writ, judgment, injunction, decree, determination
or award now in effect having applicability to Seller or to the Acquired
Assets;
(iv) violate any provisions of the Certificate of Incorporation or By-
Laws of Seller;
(v) require any approval, consent or waiver of, or filing with, any
person or entity, private or governmental; or
(vi) cause Seller to be liable for damages to any other person or give
such other person any equitable right against Seller or the Acquired
Assets.
(c) Financial Statements
--------------------
Seller has delivered to Buyer unaudited balance sheets of Seller as at
December 31 in each of the years 1994, 1995 and 1996, and as at September 30,
1997 for the nine months then ended together with the related unaudited
statements of income, changes in stockholders' equity, and cash flow for such
years and for the nine months ended September 30, 1997 (the "Financial
Statements"), together with the unaudited balance sheet as of October 31, 1997
and related income statement for the period then ended (the "Interim Financial
Statements"). The Financial Statements have been prepared on a "review" basis
by Thomas J. Demchak, CPA. The Financial Statements present in fair fashion
the financial condition and results of operations, changes in stockholder's
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equity, and cash flow of the Seller as of the respective dates shown and the
periods referred to therein, all prepared in accordance with generaly accepted
accounting principles. The Interim Financial Statements have been prepared by
Seller and have not been reviewed by Thomas J. Demchak, CPA, and are subject to
normal recurring year end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the Financial Statements) and the Financial Statements and the Interim Financial
Statements reflect the consistent application of accounting principles
throughout the periods involved.
(d) Books of Account, Etc.
----------------------
The books of account and other records of Seller relating to the Business
are complete and correct and have been maintained in accordance with sound
business practices.
(e) Condition and Sufficiency of Acquired Assets
--------------------------------------------
The buildings used by Seller are structurally sound, to the best knowledge
of Seller and Stockholders, and the Equipment reflected on Schedule 1(a)(iv) are
in good operating condition and repair and are adequate for the use to which
they are being put and are sufficient for the continued conduct of the Business
after the Closing, in substantially the same manner as conducted prior to the
Closing.
(f) Assets
------
Seller is the lawful owner of, has good and valid record and marketable
title to, and has the full right to sell, convey, transfer, assign and deliver
the Acquired Assets, without any restrictions of any kind whatsoever. Except as
set forth on Schedule 5(f) attached hereto all of the Acquired Assets are
entirely free and clear of any security interest, liens, claims, charges,
options, mortgages, debts, leases (or subleases), conditional sales agreements,
title retention agreements, encumbrances of any kind, or restrictions against
the transfer or assignment thereof (collectively, "Encumbrances"), and there are
no filings in any registry of deeds in any jurisdiction or under the Uniform
Commercial Code or similar statute in any jurisdiction showing the Seller as
debtor which create or perfect or which purport to create or perfect any
Encumbrance in or on any of the Acquired Assets.
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All Inventory, reflected on Schedule 1(a)(i) to be delivered at the
Closing, including finished goods, work in process and raw materials are in good
condition and are usable in the ordinary course of business. All inventory not
written off has been priced at the lower of cost or net realizable value on a
first in, first out basis. The quantities of each item of inventory are not
excessive, but are reasonable in the present circumstances of the Business.
All Accounts Receivable of the Seller that are reflected on Schedule
1(a)(v) to be delivered at the Closing represent or will represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. The Accounts Receivable are or will be as of
the Closing Date current and collectible, net of any reserves shown on the
Interim Balance Sheet as of the Closing Date. Each of the Accounts Receivable
will be collected in full, without any set-off, other than returns in the
ordinary course of business, after the date on which it first becomes due and
payable in accordance with the collection experience of Seller with respect to
the applicable obligor. There is no contest, claim or right of set-off under
any contract with any obligor of an Account Receivable relating to the amount or
validity of such Account Receivable.
At the Closing, Seller shall deliver a true aged list of unpaid Accounts
Receivable to be acquired by Buyer.
(g) Trade Names, Trademarks, Patents and Service Marks
--------------------------------------------------
All trade names, registered or common law trademarks, trademark
applications, patents and service marks owned by or licensed to Seller and
listed in Schedule 1(a)(ii) attached hereto have been duly registered in, filed
in or issued by, the United States Patent and Trademark Office or the
corresponding offices of states or other jurisdictions to the extent set forth
on said Schedule 1(a)(ii) and have been properly maintained and renewed in
accordance with all applicable provisions of law and administrative regulations
in the United States and each such state or other jurisdiction. Except as set
forth in said Schedule 1(a)(ii), use of said trade names and trademarks does not
require the consent of any third party and the same are freely transferable and
are owned exclusively by the Seller, free and clear of any attachments, liens,
encumbrances or adverse claims. No outstanding order, decree, judgment or
stipulation, and no proceeding charging Seller with infringement of any
adversely held trade name or trademark has been filed or is threatened to be
filed and the continuing conduct
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of the Business will not result in the infringement of any trade names or
trademarks or other rights owned by or owed to any third party. To the best
knowledge of Seller and Stockholders, no person or entity is infringing upon the
trade names or trademarks set forth on Schedule 1(a)(ii) or has infringed upon
any of the patent or trademark applications, if any, set forth on Schedule
1(a)(ii).
(h) Leases
------
Attached hereto as Schedule 5(h) is a description of each lease (whether
oral or written) which shall be assigned to and assumed by Buyer hereunder and
under which Seller is the lessee of personal or real property. A true, correct
and complete copy of each written lease identified in Schedule 5(h) has been
delivered to Buyer. The personal property covered by the leases is in good
operating condition, reasonable wear and tear excepted. All rentals due to date
under the leases have been paid and there exists no default under the terms of
any such lease, and no event has occurred which, upon the passage of time or
giving of notice, or both, would result in any event of default or prevent
Seller from exercising and obtaining the benefits of any options or other rights
contained therein. Seller has all right, title and interest of the lessee under
the terms of each lease, free and clear of all encumbrances, and all such leases
are valid and in full force and effect. None of the leases is terminable by the
lessor as a result of the transactions contemplated by this Agreement.
(i) Contracts and Commitments
-------------------------
Schedule l(a)(vii) attached hereto sets forth a true, complete and correct
list of all of Seller's contracts, whether oral or written, excluding purchase
orders, and customer orders, which shall be assigned to and assumed by Buyer at
the Closing (the "Contracts"). At the Closing Seller shall deliver a list of
the purchase orders and customer orders to be assigned to and assumed by Buyer
at the Closing. All such Contracts were made at arms' length and were not
entered into with (i) any officer or director of Seller or (ii) any entity which
Seller controls or in which Seller has any direct or indirect interest. No
Contract is in excess of the normal, ordinary and usual requirements of the
Business or for any excessive term or at any excessive price. Each Contract is
in full force and effect, and Seller is not in material default under any such
Contract, nor has any event occurred which, through the passage of time or the
giving of notice, or both, would constitute a material default thereunder, or
cause the acceleration of any obligation of Seller, or result in the creation of
any lien,
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charge or encumbrance whatsoever upon the Acquired Assets. The Contracts have
been entered into on commercially reasonable terms in the ordinary course of
business, and, with respect to any such customer order Seller has not received
any payment thereon as of the Closing Date and, with respect to any such
purchase order, Seller has not received the goods or services ordered as of the
Closing Date. No third party is in material default under any Contract made
with Seller or obligation owed to Seller, nor has any event occurred which, with
the passage of time, or giving of notice, or both, would constitute a material
default thereunder or cause the acceleration of any obligation of Seller, or
result in the creation of any lien, charge or encumbrance whatsoever upon the
Acquired Assets.
(j) Undisclosed Liabilities
-----------------------
Seller does not have, and will not have on the Closing Date, any
liabilities or obligations of any kind or amount, secured by the Acquired
Assets, whether known or unknown and whether accrued, absolute, contingent or
otherwise except for liabilities or obligations reflected or reserved against in
the Interim Financial Statements identified in Section 5(c) other than as
disclosed in this Agreement and current liabilities incurred in the ordinary
course of business since the date thereof. No claim adverse to Buyer or Seller
relating to the Acquired Assets or Assumed Liabilities is pending against Seller
except those which are being discharged at the Closing or assumed by Buyer, nor
to the best knowledge of Seller and Stockholders do any facts exist which may
reasonably be expected to lead to any claim relating to the Acquired Assets or
Assumed Liabilities.
(k) Conduct of the Business
-----------------------
Seller is not a party to, or subject to, or bound by any agreement, oral or
written, or any judgment, law, rule, regulation, order, writ, injunction or
decree of any court or governmental or administrative body which prohibits or
adversely affects the consummation of the transactions contemplated hereby.
(l) Non-Infringement
----------------
Neither Seller nor Stockholders have received notice from any third party
that the manufacture, use or sale of any Product infringes the rights of any
third party. Seller and Stockholders have no knowledge that any third party is
infringing upon Seller's rights to make, use or sell any of the Products by
utilizing its
13
<PAGE>
rights to the Intangible Assets.
(m) Litigation, Etc.
----------------
Except as set forth on Schedule 5(m) attached hereto, no action, suit,
proceeding, or investigation is pending or, to the best knowledge of Seller and
Stockholders, threatened, relating to, or affecting the Seller or any of the
Acquired Assets or relating to or affecting the activities of the Seller carried
on with any of the Acquired Assets, or which questions the validity of this
Agreement or challenges any of the transactions contemplated hereby, nor is
there any basis for any such action, suit, proceeding, or investigation.
(n) Absence of Certain Events
-------------------------
Except as set forth on Schedule 5(n) attached hereto, since January 1,
1997, there has not been:
(i) any increase in the salary or hourly wages of any employee of
Seller;
(ii) any deterioration in Seller's relationship with its customers;
(iii) any dispute with any supplier with respect to the quality of the
products, materials or services being purchased by Seller or otherwise; or
(iv) any material adverse change in the Business or the Acquired
Assets, the prospects, operations or condition of the Business and no event
has occurred or circumstance exists that may result in such a material
adverse change.
(o) Tax Matters
-----------
Seller has filed all tax returns that are or were required to be filed by
it; said returns are true, correct and complete. Seller has paid or made
provision for the payment of all taxes that have or may become due pursuant to
the tax returns or otherwise. There are no tax liens upon the Acquired Assets.
All taxes that Seller is or was required to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
governmental body or other person. Seller and Stockholders have delivered to
Buyer true and complete copies of all federal and state income tax returns filed
by Seller and
14
<PAGE>
Stockholders with respect to the years 1994 through 1996. The federal income
tax liability of the Seller has been finally determined for all fiscal years to
and including the fiscal year ending December 31, 1992.
(p) Brokers or Finders
------------------
Seller has not retained, employed or used any broker or finder in
connection with the sale of the Business or in connection with the negotiation
of this Agreement.
(q) Powers of Attorney, Compensation of Employees and Certain Customers
-------------------------------------------------------------------
Set forth on Schedule 5(q) attached hereto is an accurate and complete list
showing (i) the names of all persons, if any, holding powers of attorney from
Seller and a summary statement of the terms thereof, (ii) the names of all
persons whose salary or wages from Seller for the nine months ended September
30, 1997 exceeded an annualized rate of $20,000, together with a statement of
the aggregate amount paid or payable to each such person for services rendered
during such period, and (iii) the names of all customers whose total purchases
from Seller for either the year ended December 31, 1996 or for the nine-month
period ended September 30, 1997 exceeded $25,000, together with a statement of
the aggregate amount paid by each such customer for merchandise purchased during
each such period.
(r) Employee Agreements
-------------------
Except as set forth on Schedule 5(r) attached hereto, Seller has no
obligations, contingent or otherwise, under any employee benefit plan,
employment contract, consulting agreement, collective bargaining agreement with
employees, compensation agreement, pension plan or retirement plan, profit-
sharing or bonus plan, or stock purchase or stock option plan or any other
similar agreements or plans.
(s) Insurance
---------
Schedule 5(s) attached hereto contains an accurate and complete list of all
policies of insurance, including the amounts, in which Seller is named as the
insured party, or for which Seller has paid any premiums since January 1, 1997.
All such policies (i) are in full force and effect or have been renewed or
replaced by equivalent policies, (ii) are sufficient for compliance by Seller
15
<PAGE>
with all requirements of law and of all agreements to which Seller is a party,
(iii) are valid, outstanding and enforceable, and (iv) provide adequate
insurance coverage, to the best knowledge of Seller and Stockholders, for the
assets and operations of the Business. Except as set forth on Schedule 5(s),
since January 1, 1997, Seller has not been denied any insurance coverage which
it has requested, has not made any material change in the scope or nature of its
insurance coverage and has not experienced, nor does it expect to experience,
any material change in insurance rates or premiums.
(t) Restrictive Documents
---------------------
Except as set forth on Schedule 5(t) attached hereto, neither Seller nor
any Stockholder is subject to, or a party to, any certificate of incorporation,
by-law, mortgage, lien, lease, license, permit, agreement, contract, instrument,
law, rule, ordinance, regulation, order, judgment or decree, or any other
restriction of any kind or character, which materially adversely affects the
Business or the condition of the Acquired Assets, or which would prevent
consummation of the transactions contemplated by this Agreement, prevent
compliance by Seller or Stockholders with its terms, conditions and provisions
or prevent the continued operation of the Business after the Closing on
substantially the same basis as previously operated.
(u) Labor Organizations
-------------------
No labor organization claims that it represents the majority or a
substantial number of the employees of Seller or, to the best knowledge of
Seller and Stockholders, intends to organize any employees, nor is there any
strike or work stoppage by the employees of Seller, either threatened or in
progress as of the date of this Agreement.
(v) Interests in Suppliers, Etc.
----------------------------
Except as set forth in Schedule 5(v) attached hereto, no stockholder or
officer or director of Seller possesses, directly or indirectly, any financial
interest in, or is a director, officer or employee of, any corporation, firm,
association or business organization which is a supplier, customer, lessor,
lessee, or competitor or potential competitor of Seller.
(w) Sales Representatives
---------------------
16
<PAGE>
Seller's sales representatives are listed on Schedule 5(w) attached hereto,
---------------
together with their territories and commission rates.
(x) List of Creditors
-----------------
A list of all creditors of Seller as of December 31, 1997 and the amounts
owed is to be delivered at the Closing.
(y) Consents of Third Parties
-------------------------
Except as set forth in Schedule 5(y) attached hereto, Seller has no
obligations to secure any consent from any third party in order to permit the
consummation of the transactions contemplated by this Agreement.
(z) Conformity of Law
-----------------
Seller has complied with, and is in compliance with (i) all laws, statutes,
governmental regulations, and all judicial or administrative tribunal orders,
judgments, writs, injunctions, decrees, or similar commands applicable to the
Business or any of the Acquired Assets (including, without limitation, any
labor, environmental, occupational health, zoning, or other law, regulation or
ordinance); (ii) all unwaived terms and provisions of all contracts, agreements,
and indentures to which Seller is a party, or by which Seller or any of the
Acquired Assets is subject; and (iii) its Certificate of Incorporation and By-
laws, each as amended to the date of this Agreement.
Seller has not committed, been charged with, or been under investigation
with respect to, nor does there exist, any violation of any provision of any
federal, state, or local law or administrative regulation in respect of the
Business or any of the Acquired Assets.
(aa) Environmental Matters
---------------------
Except as set forth in Schedule 5(aa) attached hereto, Seller (i) is, and
at all times has been, in full compliance with, and has not been and is not in
violation of, or liable under, any Environmental Law, as hereinafter defined,
(ii) has no basis to expect, nor has Seller or any other person for whose
conduct Seller is or may be held to be responsible received, any actual order,
notice, or other communication from (a) any governmental body or private citizen
acting in the public interest, or (b) the current
17
<PAGE>
or prior owner or operator of any property or facility used in the Business, of
any actual or potential violation or failure to comply with any Environmental
Law, or of any actual obligation to undertake or bear the cost of any
responsibility arising from or under any Environmental Law or any occupational
safety and health law with respect to any facility or any other properties or
assets (whether real, personal, or mixed) in which Seller has had an interest,
or with respect to any property or facility at or to which Hazardous Materials,
as hereinafter defined, were generated, manufactured, refined, transferred,
imported, used, or processed by Seller, or by any other person for whose conduct
Seller is or may be held responsible, or from which Hazardous Materials have
been transported, treated, stored, handled, transferred, disposed, recycled, or
received.
Except as set forth on Schedule 5(aa), there are no Hazardous Materials
present on or in the environment at the facilities used in the conduct of the
Business, including any Hazardous Materials contained in barrels, above or
underground storage tanks, landfills, land deposits, dumps, equipment (whether
moveable or fixed) or other containers, either temporary or permanent, or
incorporated into any structure therein or thereon.
Environmental Law refers to any legal requirement that is designed to
minimize, prevent, punish or remedy the consequences of actions that damage or
threaten the environment or public health and safety.
Hazardous Materials refers to any hazardous substance, pollutant or
contaminant designated pursuant to CERCLA, and substances regulated by RCRA, the
Clean Air Act, the Clean Water Act and the Toxic Substance Control Act.
(bb) Employee Benefit Plans
----------------------
Set forth in Schedule 5(r) attached hereto is an accurate and complete list
of all employee benefit plans ("Employee Benefit Plans") within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not any such Employee Benefit Plan is otherwise exempt
from the provisions of ERISA, established, maintained or contributed to by
Seller.
Seller does not maintain or contribute to any such Employee Benefit Plan
subject to ERISA which is not in substantial compliance with ERISA, or which has
incurred any accumulated
18
<PAGE>
funding deficiency within the meaning of Section 412 or 418B of the Internal
Revenue Code (the "Code"), or which has applied for or obtained a waiver from
the Internal Revenue Service of any minimum funding requirement under Section
412 of the Code. Seller has not incurred any liability to the Pension Benefit
Guaranty Corporation ("PBGC") in connection with any Employee Benefit Plan
covering any employees of Seller or ceased operations at any facility or
withdrawn from any such Plan in a manner which could subject it to liability
under Section 4062(f), 4063 or 4064 of ERISA, and knows of no facts or
circumstances which might give rise to any liability of Seller to the PBGC under
Title IV of ERISA which could reasonably be anticipated to result in any claims
being made against Buyer by the PBGC. Seller is not a party to any
multiemployer benefit plan.
Full payment has been made of all amounts which Seller is required, under
applicable law or under any Employee Benefit Plan or any agreement relating to
any Employee Benefit Plan to which Seller is a party, to have paid as
contributions thereto as of the last day of the most recent fiscal year of such
Employee Benefit Plan ended prior to the date hereof. Seller has made adequate
provision for reserves to meet contributions that have not been made because
they are not yet due under the terms of any Employee Benefit Plan or related
agreements. Benefits under all Employee Benefit Plans are as represented and
have not been increased subsequent to the date as of which documents have been
provided to Buyer.
As of the date of this Agreement, the aggregate current value of all
accrued benefits under all Employee Benefit Plans which are subject to Title IV
of ERISA and which are Single Employer Plans did not exceed the aggregate
current value of all assets of such Single Employer Plans allocable to such
accrued benefits, and since January 1, 1997, there has been (i) no material
adverse change in the financial condition of any Single Employer Plan, (ii) no
change in the actuarial assumptions with respect to any Single Employer Plan and
(iii) no increase in benefits under any Single Employer Plan as a result of plan
amendments, change in applicable law or otherwise.
No Reportable Event (as defined in Section 4043 of ERISA) for which the 30-
day notice requirement has not been waived by the PBGC has occurred with respect
to any Employee Benefit Plan and Seller has not engaged in any transaction with
respect to the Employee Benefit Plans which would subject it to tax, penalty or
liability for prohibited transactions under ERISA or the Code nor has any of
19
<PAGE>
their respective directors, officers or employees to the extent they or any of
them are fiduciaries with respect to such plans, breached any of their
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA
or would result in any claim being made under or by or on behalf of any such
plans by any party with standing to make such claims.
Seller does not presently maintain any employee benefit plans or any other
foreign pension, welfare or retirement benefit plans other than those listed in
Schedule 5(r).
Stockholders have delivered or caused to be delivered to Buyer true and
complete copies of (i) all Employee Benefit Plans as in effect, together with
all amendments thereto which will become effective at a later date, as well as
the latest Internal Revenue Service determination letters obtained with respect
to any such Employee Benefit Plan qualified under Section 401 or 501 of the Code
and (ii) form 5500 for the most recent completed fiscal year for each Employee
Benefit Plan required to file such form.
(cc) Disclosure
----------
No representation or warranty in this Article 5 and no statement contained
elsewhere in this Agreement or in any Schedule, Exhibit, Certificate or other
document required to be furnished by Seller or the Stockholders to Buyer
pursuant thereto or in connection with the transactions contemplated under this
Agreement contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact or any fact necessary to make the
statements contained therein not materially misleading.
6. REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof and as of the Closing Date, Buyer represents and
warrants as follows:
(a) Organization of Buyer
---------------------
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut.
(b) Authority of Buyer
------------------
This Agreement and each of the agreements and other documents and
instruments delivered or to be delivered by Buyer to Seller
20
<PAGE>
pursuant to or as contemplated in this Agreement will constitute, when so
delivered, the valid and binding obligation of Buyer and shall be enforceable in
accordance with their respective terms except insofar as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting creditors' rights generally and except as to the
availability of equitable remedies. The execution, delivery and performance of
this Agreement and each such agreement, document and instrument delivered or to
be delivered to Seller by Buyer, has been fully authorized by all necessary
corporate action of Buyer and are within Buyer's corporate powers.
Except as set forth on Schedule 6(b) attached hereto, the execution,
delivery and performance of this Agreement or any other agreement, document of
instrument by the Buyer does not and will not, with the passage of time, or the
giving of notice, or both:
(i) result at the Closing in a breach of or constitute a default under
any material indenture or loan or credit agreement or under any other
material agreement, lease or instrument to which Buyer is a party;
(ii) result in a violation of, or default under, any law, rule, or
regulation, or any order, writ, judgment, injunction, decree, determination
or award now in effect having applicability to Buyer;
(iii) violate any provisions of the Certificate of Incorporation or By-
Laws of Buyer; or
(iv) require any approval, consent or waiver of, or filing with, any
person or entity, private or governmental.
(c) Buyer's Common Shares
---------------------
The shares of Common Stock of Buyer to be delivered to Seller at the
Closing will be duly authorized and validly issued and fully paid and
nonassessable.
(d) Brokers and Finders
-------------------
Buyer has retained, employed or used Marc Beebe & Company as a broker in
connection with the purchase of the Business or in connection with the
negotiation of the purchase of the Business and Buyer will be solely responsible
for its compensation.
21
<PAGE>
(e) Disclosure
----------
No representation or warranty in this Article 6 and no statement contained
elsewhere in this Agreement or in any Schedule, Exhibit, Certificate or other
document required to be furnished by Buyer pursuant hereto or in connection with
the transactions contemplated under this Agreement contains any untrue statement
of a material fact or omits or will omit to state a material fact or any fact
necessary to make the statements contained therein not materially misleading.
7. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS, COVENANTS AND
OBLIGATIONS AND RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, agreements, covenants and obligations
herein or in any Exhibit, Schedule, Certificate or other document delivered by
either party to the other party incident to the transactions contemplated hereby
shall be deemed to have been relied upon by the other party and shall survive
the execution and delivery of this Agreement until December 31, 2002, provided,
however, if a cause of action or a demand for arbitration has been filed with
respect thereto prior to December 31, 2002 the applicable warranty or
representation will continue until final resolution of the related controversy.
The right to indemnification, payment of damages or other remedy based on
such representations, warranties, covenants, and obligations will not be
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of, or compliance with, any such representation,
warranty, covenant or obligation.
8. INDEMNIFICATION AND SET-OFF
(a) Indemnification by Seller and Stockholders
------------------------------------------
Seller and Stockholders, jointly and severally, agree to defend, indemnify
and hold Buyer and its officers, directors, shareholders, employees, and agents
harmless from and against any damages, liabilities, losses and expenses
(including, without limitation, reasonable attorneys' fees) of any kind or
nature whatsoever which may be sustained or suffered by Buyer or its officers,
directors, shareholders, employees and agents, arising
22
<PAGE>
out of, based upon, or by reason of a breach of any representation or warranty,
or a failure to perform any agreement or covenant, made by Seller or
Stockholders in this Agreement or in any Exhibit, Schedule, Certificate or other
document delivered hereunder, or arising out of, based upon, or by reason of any
claim, action or proceeding asserted, instituted or arising out of any matter or
thing covered by such breached representations, warranties, agreements or
covenants.
Notwithstanding anything to the contrary herein, Seller and Stockholders
will have no liability for indemnification until the total of such damages,
liabilities, losses and expenses exceeds Thirty Thousand Dollars ($30,000) and
will have no liability to indemnify Buyer for damages, liabilities, losses and
expenses that exceed the Purchase Price.
In addition, Seller and Stockholders, jointly and severally agree to
defend, indemnify and hold Buyer and its officers, directors, shareholders,
employees, and agents harmless from and against any and all claims, liabilities
and obligations relating to Excluded Liabilities or arising out of the operation
of any business carried on by Seller and/or Stockholders on or prior to the
Closing Date which do not constitute Assumed Liabilities.
(b) Indemnification by Buyer
------------------------
Buyer hereby agrees to defend, indemnify and hold Seller and its officers,
directors, shareholders, employees and agents, harmless from and against any
damages, liabilities, losses and expenses (including, without limitation,
reasonable attorneys' fees) of any kind or nature whatsoever which may be
sustained or suffered by Seller or its officers, directors, shareholders,
employees and agents, arising out of, based upon, or by reason of a breach of
any representation or warranty, or a failure to perform any agreement or
covenant, made by Buyer in this Agreement or in any Exhibit, Schedule or
Certificate or other document delivered hereunder, or arising out of, based
upon, or by reason of any claim, action or proceeding asserted, instituted or
arising out of any matter or thing covered by such breached representations,
warranties, agreements or covenants.
(c) Notice, Defense of Claims
-------------------------
Each party to this Agreement shall give prompt written notice to the other
party of each claim for indemnification hereunder specifying the amount and
nature of the claim, with any supporting
23
<PAGE>
data, and of any matter which is likely to give rise to an indemnification
claim. The indemnifying party has the right to control, at its expense, the
defense of any such matter or its settlement. The indemnifying party will use
reasonable efforts to reach an expeditious resolution of any such matter.
Failure to give timely notice of a matter which may give rise to an
indemnification claim shall not affect the rights of the indemnified party to
collect such claims from the indemnifying party so long as such failure to so
notify does not materially adversely affect the indemnifying party's ability to
defend such claim against a third party. No indemnifying party, in the defense
of any claim or litigation, shall, except with the consent of an indemnified
party, which consent shall not be unreasonably withheld or delayed, consent to
entry of any judgment or enter into any settlement by which such indemnified
party is to be bound and which judgment or settlement does not include as an
unconditional term thereof, the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) Set-off
-------
Subject to Buyer's compliance with the provisions of Section 8(c), the
obligation of Seller and Stockholders to indemnify and hold harmless Buyer
pursuant to this Agreement may, to the extent not paid by Stockholders or
Seller, be satisfied by set-off against amounts otherwise due from Buyer to
Seller.
9. MISCELLANEOUS COVENANTS AND AGREEMENTS OF SELLER AND OF BUYER
(a) Consents of Third Parties
-------------------------
To the extent that any transfer or assignment of any contract, license,
permit, or right to be transferred and assigned to Buyer as provided herein,
shall require the consent of the other party thereto, or of any other person or
governmental or other authority, this Agreement shall not constitute an
agreement to assign the same if any attempted assignment would constitute a
breach thereof or have any other adverse effect thereon. Seller and
Stockholders agree that they will use reasonable efforts before and after the
Closing to obtain and deliver the consent of the other parties and the approvals
of other persons or authorities to the extent necessary, to the assignment of
all such contracts, leases, licenses, permits, commitments or rights to Buyer.
If such consent or approval is not obtained at the Closing, Seller shall act as
Buyer's agent, in order to obtain for Buyer the benefits thereunder
24
<PAGE>
and Seller will cooperate with Buyer in any reasonable arrangement designed to
provide for Buyer all benefits under any such contracts, licenses, leases,
commitments or rights. Nothing herein shall be deemed a waiver by Buyer of its
right to receive at the Closing any effective assignment of all of the Acquired
Assets.
(b) Settlement of Claims
--------------------
Notwithstanding Seller's responsibility therefore, Stockholders agree to
assist Buyer in settling claims by customers arising out of Products sold or
services rendered prior to the Closing Date in a manner reasonably satisfactory
to the customers.
(c) Use of Names
------------
Seller and Stockholders shall assign all their right, title and interest to
the names "Custom Products," "Polyclutch" and "Puljak" and variations thereof as
business and trade names and title throughout the world from and after the
Closing. Seller shall, simultaneously with the Closing, undertake and promptly
pursue proceedings to delete the words "Custom Products" from its corporate name
and change to a name bearing no resemblance to the "Custom Products Corporation"
name and shall deliver evidence satisfactory to Buyer and its counsel promptly
after the Closing of such change.
After the Closing, Seller and Stockholders shall not use the names "Custom
Products," "Polyclutch" or "Puljak" or any variations thereof or similar name as
part of any trade or business name.
(d) Services
--------
Seller shall provide to Buyer the following services during the period
commencing on the Closing Date and ending no later than thirty (30) days
thereafter:
(i) contacting customers by telephone, fax and mail at reasonable
times, as requested by Buyer, to preserve existing business relationships
that Seller enjoys and to assure a successful transfer of the Business to
Buyer. To the extent that Carole Shaff is requested to perform such
services by traveling beyond the North Haven, Connecticut area, Buyer shall
pay reasonable compensation and expenses; the amount thereof, shall be
negotiated in good faith prior to such travel;
25
<PAGE>
(ii) assistance with the transfer of books and records of the Business;
and
(iii) cooperation and assistance on a smooth transition with Seller's
suppliers.
(e) Directorship
------------
Subject to applicable law, Gerald Shaff will be elected a director of Buyer
through the period ending December 31, 2002.
(f) American Stock Exchange Listing
-------------------------------
On or before the Closing, Buyer shall prepare and file an application for
listing by the American Stock Exchange of the shares of Common Stock to be
delivered to Seller at the Closing.
(g) Conduct of Business
-------------------
During the period from the date of this Agreement to the Closing, the
Stockholders shall cause Seller to conduct its business and affairs only in the
ordinary course and consistent with its prior practice and shall maintain, keep
and preserve its assets and properties in good condition and repair and maintain
insurance thereon in accordance with present practices, and Seller will use its
best efforts (i) to preserve the Business and organization of Seller intact,
(ii) to keep available to Buyer the services of Seller's present officers,
employees, agents and independent contractors, (iii) to preserve for the benefit
of Buyer the goodwill of Seller's suppliers, customers, landlord and others
having business relations with it, (iv) to cooperate with Buyer and use
reasonable efforts to assist Buyer in obtaining the consent of any third party
to any contract with Seller where the consent of such landlord or other party
may be required by reason of the transactions contemplated hereby and (v) to
cooperate with Buyer in its efforts to obtain the financing of the Purchase
Price.
Seller shall give Buyer prompt written notice of any material adverse
change in any of the information contained in the representations and warranties
set forth in Article 5 or elsewhere in this Agreement, or in any of the
Schedules referred to herein, which occurs prior to the Closing.
(h) Audited Financials
------------------
Within sixty (60) days following the Closing, Seller and
26
<PAGE>
Stockholders shall cause Thomas J. Demchak, CPA, P.C. to deliver to Buyer
audited balance sheets of Seller as at December 31 in each of the years 1996 and
1997, and the related audited statements of income, changes in stockholders'
equity, and cash flow for each of the fiscal years then ended, together with the
report thereon of Thomas J. Demchak, independent certified public accountant;
all prepared to enable Buyer to file such financial statements in compliance
with the regulations of the Securities and Exchange Commission.
Buyer shall pay the fees and expenses of Thomas J. Demchak, CPA, P.C. for
the preparation and delivery of the above mentioned audited financial statements
to the extent that such fees and expenses do not exceed Ten Thousand Dollars
($10,000).
(i) Further Assurances
------------------
At any time and from time to time after the Closing Date, at Buyer's
reasonable request and without further consideration, Seller will execute and
deliver such other instruments of conveyance and transfer and take such other
action as Buyer may reasonably require to more effectively convey to, transfer
to, and vest in Buyer, or to put Buyer in possession of, any or all of the
Acquired Assets intended to be transferred, conveyed or assigned to Buyer
pursuant to the provisions of this Agreement; and Buyer shall execute and
deliver such other instruments and take such other action as Seller may
reasonably require for Buyer to assume and for Seller to be released from the
Assumed Liabilities.
10. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE
The obligation of Buyer to purchase the Acquired Assets as contemplated
hereby, and to perform its other obligations hereunder to be performed on or
after the Closing, shall be subject to the fulfillment, on or prior to the
Closing Date, unless otherwise waived in writing by Buyer, of the following
conditions;
(a) Representations and Warranties
------------------------------
The representations and warranties of Seller and Stockholders set forth in
Article 5 hereof shall be true and correct in all material respects on the
Closing Date as if made on and as of such date, and Buyer shall have received a
Certificate to such effect, executed by the President of Seller and Stockholders
and dated as of the Closing Date, in form reasonably satisfactory to Buyer and
its counsel.
27
<PAGE>
(b) Performance of Covenants
------------------------
Seller and Stockholders shall have performed all of their obligations
contained in this Agreement to be performed on or prior to the Closing Date, and
Buyer shall have received a Certificate to such effect, executed by the
President of Seller and Stockholders and dated as of the Closing Date, in form
reasonably satisfactory to Buyer and its counsel.
(c) Threatened or Pending Proceedings
---------------------------------
No proceedings shall have been initiated or threatened by any governmental
department, commission, bureau, board, agency or instrumentality or by any other
third party seeking to enjoin or otherwise restrain or to obtain an award for
damages in connection with the consummation of the transactions contemplated
hereby.
(d) Corporate Action
----------------
All corporate action, necessary to authorize (i) the execution, delivery
and performance by Seller of this Agreement and any other agreements or
instruments contemplated hereby to which Seller is a party, and (ii) the
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken by the Board of Directors and stockholders of Seller, and
Buyer shall have been furnished with copies of all applicable resolutions,
certified by the Secretary or Assistant Secretary of Seller.
(e) Legal Opinion
-------------
Buyer shall have received the written opinion of Eisenberg, Anderson,
Michalik & Lynch, counsel to Seller, dated as of the Closing Date, in the form
of Exhibit A hereto.
(f) Instruments of Transfer
-----------------------
Buyer shall have received instruments of transfer of the Acquired Assets to
Buyer, in form reasonably satisfactory to Buyer and its counsel and sufficient
to pass title to the Acquired Assets, free and clear of all liens and
encumbrances.
(g) Inventory
---------
Buyer, with Seller's assistance, shall have conducted a count of the
Inventory on hand prior to the Closing on a date acceptable
28
<PAGE>
to Buyer.
(h) Shaff Employment Agreement
--------------------------
Gerald Shaff shall have executed and delivered to Buyer an Employment
Agreement, in the form of Exhibit B.
(i) Bacon Employment Agreements
---------------------------
Phil Bacon and Elizabeth M. Bacon shall each have executed and delivered to
Buyer an Employment Agreement, in the form of Exhibits C and D.
(j) Consents
--------
Seller shall have received the approvals, consents and authorizations of
all third persons and governmental agencies necessary for the sale and transfer
of the Acquired Assets to Buyer, including, if applicable, compliance with
Connecticut General Statutes (S)22a-134 to 22a-134e, inclusive.
(k) Releases
--------
Seller shall have received and delivered to Buyer releases of any liens on
the Acquired Assets except liens in favor of The Chase Manhattan Bank of
Connecticut.
(l) Lease
-----
Seller shall have delivered to Buyer a lease executed by the landlord of
the premises occupied by Seller in North Haven, Connecticut, in the form of
Exhibit E.
(m) Environmental Survey
--------------------
Buyer shall have received a report from a qualified environmental engineer
as to the environmental condition of the premises, which reported condition is
satisfactory to Buyer.
(n) Financing
---------
Buyer shall have secured the financing necessary to close the transactions
contemplated by this Agreement.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER TO CLOSE
29
<PAGE>
The obligation of Seller to sell the Acquired Assets as contemplated
hereby, and to perform its other obligations hereunder to be performed on or
after the Closing, shall be subject to the fulfillment, on or prior to the
Closing Date, unless otherwise waived in writing by Seller, of the following
conditions:
(a) Representations and Warranties
------------------------------
The representations and warranties of Buyer set forth in Article 6 hereof
shall be true and correct in all material respects on the Closing Date as if
made on and as of such date, and Seller shall have received a Certificate to
such effect, executed by the President or any Vice President of Buyer and dated
as of the Closing Date, in form reasonably satisfactory to Seller and its
counsel.
(b) Performance of Covenants
------------------------
Buyer shall have performed all of its obligations contained in this
Agreement to be performed on or prior to the Closing Date, and Seller shall have
received a Certificate to such effect, executed by the President or any Vice
President of the Buyer and dated as of the Closing Date, in form reasonably
satisfactory to Seller and its counsel.
(c) Corporate Action
----------------
All corporate action necessary to authorize (i) the execution, delivery and
performance by Buyer of this Agreement and any other agreements or instruments
contemplated hereby to which Buyer is a party, and (ii) the consummation of the
transactions and performance of its other obligations contemplated hereby and
thereby shall have been duly and validly taken by Buyer, and Seller shall have
been furnished with copies of all applicable resolutions adopted by the Board of
Directors of Buyer, certified by the Secretary or Assistant Secretary of Buyer.
(d) Legal Opinion
-------------
Seller shall have received the opinion of Gordon R. Erickson, Esq., counsel
to Buyer, dated as of the Closing Date, in form of Exhibit F hereto.
(e) Assumption of Liabilities Agreement
-----------------------------------
Buyer shall have executed and delivered to Seller an
30
<PAGE>
Assumption of Liabilities Agreement, in the form of Exhibit G hereto.
(f) Employment Agreements
---------------------
Buyer shall have executed and delivered to Gerald Shaff and to Phil and
Elizabeth M. Bacon Employment Agreements, in the form of Exhibits B, C and D.
(g) Lease
-----
Buyer shall have assumed the Lease as extended through April 30, 2004 of
the premises occupied by Seller in North Haven, Connecticut,in the form of
Exhibit E.
(h) Offers of Employment
--------------------
Buyer will cause its wholly owned subsidiary to extend offers of employment
to all of Seller's employees except for Gerald Shaff and Phil and Elizabeth M.
Bacon on terms which are in effect on the date of this Agreement. The
employment of such individuals will commence on the date that such individual
reports to work after the Closing at Buyer's wholly owned subsidiary, Custom
Products Corporation.
(i) Release of Stockholders' Guaranties and Liens on Their Assets
-------------------------------------------------------------
Buyer will cause The Chase Manhattan Bank of Connecticut to release its
liens on the assets of Stockholders and release them from any personal
guaranties.
12. ARBITRATION
Any dispute, claim or grievance arising out of, or relating to, the
interpretation or the application of this Agreement, or any breach thereof,
shall be submitted to arbitration under the Commercial Arbitration Rules of the
American Arbitration Association other than any alleged breach of the covenant
not to compete set forth in Article 13 hereof, which shall be submitted to a
court for resolution. Any arbitration hearing shall be held in Hartford,
Connecticut. Seller and Buyer agree that any award rendered by the arbitrator
shall be final and binding and judgment thereon may be entered in any court
having jurisdiction thereof.
13. COVENANT NOT TO COMPETE AND CONFIDENTIALITY
31
<PAGE>
(a) Seller and each Stockholder, severally and jointly, covenant and agree
that from the Closing Date to a date five years following the Closing, that
neither Seller or any Stockholder nor any corporation, firm or other entity
which controls, or is controlled by Seller or its affiliates, or in which
Seller, any Stockholder or an affiliate thereof has a controlling interest,
will, except as an employee of Buyer,:
(i) directly or indirectly, engage in, continue in or carry on a
competitive business alone or with any person, corporation, partnership,
firm or other form of business organization which competes with, or is
engaged in, or carries on, any aspect of the Business or any business
competitive therewith;
(ii) consult with, advise or assist in any way, whether or not for
consideration, any person, corporation, partnership, firm or other business
organization which is now, or becomes, a competitor of Buyer in the
Business being purchased by Buyer from Seller, including, but not limited
to, advertising or otherwise promoting the products of any such competitor;
soliciting customers or otherwise serving as an intermediary for any such
competitor;
(iii) sell, assign or otherwise transfer, whether or not for
consideration, any customer lists, product specifications or designs,
internal memoranda, bills, receipts or any other form of business records
or documents or any tangible materials in any form concerning the Business,
the Acquired Assets or the Assumed Liabilities unless disclosure is
required by law, governmental agency, or is publicly available;
(iv) disclose or cause to be disclosed to any person, firm or
corporation any of the trade secrets, techniques, formulae or processes
relating to the Business and the Acquired Assets which Buyer is purchasing
from Seller or any other information about the confidential affairs of the
Business (including information about its customers and employees); the
secrecy of which is of value to Buyer; and
(v) engage in any practice the purpose of which is to evade the
provisions of this covenant not to compete or commit any act which is
detrimental to the successful continuation of the Business and the Acquired
Assets which Buyer is purchasing from Seller.
32
<PAGE>
(b) The parties agree that the geographic scope of this covenant not to
compete shall extend to all of the trading areas in which Products are sold by
Seller.
(c) The parties agree that Buyer may sell, assign or otherwise transfer
this covenant not to compete, in whole or in part, to any person, corporation,
firm or entity that acquires all or a substantial part of the Business or
Acquired Assets being acquired by Buyer from Seller hereunder.
(d) In the event of any breach of this covenant, the parties recognize that
the remedies at law will be inadequate and that Buyer shall be entitled to
equitable remedies (including an injunction) and such other relief as a court
may deem appropriate.
(e) In the event a court of competent jurisdiction determines that the
provisions of this covenant not to compete are excessively broad as to duration,
geographic scope, or prohibited activities or otherwise, the parties agree that
this covenant shall be reduced or curtailed to the extent necessary to render it
enforceable.
14. MISCELLANEOUS
(a) Expenses
--------
Except as set forth in Section 9(h), Buyer and Seller shall each pay the
fees and expenses of their respective representatives and legal counsel incurred
in connection with the transactions contemplated by this Agreement.
(b) Notices
-------
Any demand, notice or other communication required or permitted under or in
connection with the transactions contemplated by this Agreement shall be in
writing and shall be deemed to be effective when delivered in person, or
deposited in the United States mail and sent by certified or registered mail,
return receipt requested, postage prepaid, addressed as follows (or to such
other address as may be provided by the party to be notified on ten (10) days
prior written notice to the other parties hereto)
To Seller: Customs Products Corporation
17 Whiting Farm Road
Branford, CT 06405
Attn: Gerald Shaff, President
33
<PAGE>
Tel.: (203) 481-9064
To Stockholders: Gerald Shaff and Carole Shaff
17 Whiting Farm Road
Branford, CT 06405
With a copy to: Paul T. Czepiga
Eisenberg, Anderson, Michalik & Lynch
136 West Main Street
New Britain, CT 06050-2950
Tel.: (860) 229-4855
To Buyer: Bolt Technology Corporation
Four Duke Place
Norwalk, CT 06854
Attn: Raymond M. Soto, President
Tel.: (203) 853-0700
Fax : (203) 654-9801
With a copy to: Gordon R. Erickson, Esq.
38 West Cross Road
New Canaan, CT 06840-6541
Tel.: (203) 972-0186
(c) Waiver
------
The failure of any party hereto at any time or times hereafter to exercise
any right, power, privilege or remedy hereunder or to require strict performance
by the other or another party of any of the provisions, terms or conditions
contained in this Agreement or in any other document, instrument or agreement
contemplated hereby or delivered in connection herewith shall not waive, affect,
or diminish any right, power, privilege or remedy of such party at any time or
times thereafter to demand strict performance thereof; and no rights of any
party hereto shall be deemed to have been waived by any act or knowledge of such
party, or any of its agents, officers or employees, unless such waiver is
contained in an instrument in writing, signed by such party. No waiver by any
party hereto of any of its rights on any one occasion shall operate as a waiver
of any other of its rights or any of its rights on a future occasion.
(d) Section Headings
----------------
The section headings in this Agreement are for convenience of
34
<PAGE>
reference only and shall not be deemed to be a part of this Agreement or to
alter or affect any provisions, terms or conditions contained herein.
(e) Exhibits and Schedules
----------------------
Any Exhibits and/or Schedules referenced herein shall be deemed to be
attached hereto and made a part hereof. All references herein to this Agreement
shall include all Schedules, Exhibits, Certificates and other documents required
to be delivered hereunder.
(f) Severability
------------
Wherever possible, each provision of this Agreement shall be interpreted in
such a manner as to be effective and valid under applicable law. If any portion
of this Agreement is declared invalid for any reason in any jurisdiction, such
declaration shall have no effect upon the remaining portions of this Agreement
which shall continue in full force and effect as if this Agreement had been
executed with the invalid portions thereof deleted. Furthermore, the entirety of
this Agreement shall continue in full force and effect in all other
jurisdictions.
(g) Entire Understanding
--------------------
This Agreement contains the entire understanding among the parties hereto
with respect to the transactions contemplated hereby and such understanding
shall not be modified except in writing signed by or on behalf of the parties
hereto.
(h) Binding Effect
--------------
This Agreement shall be binding upon and shall inure to the exclusive
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns. This Agreement
is not intended to, nor shall it, create any rights in any other party.
(i) Assignability
-------------
Neither this Agreement nor any rights or obligations hereunder are
assignable by Seller, Buyer or Stockholders except Buyer may assign this
Agreement, its rights and obligations to a wholly owned subsidiary provided
Buyer shall guaranty all obligations set forth herein.
35
<PAGE>
(j) Remedies
--------
Neither Seller nor Buyer waives any right or remedy available to it to
enforce this Agreement or to seek damages for the breach of the representations
and warranties contained herein except to the extent that such right or remedy
is specifically waived or limited in this Agreement.
(k) Knowledge
---------
The phrase "to the best knowledge of Seller or Stockholders" or variations
thereof means knowledge of such circumstances as would ordinarily lead on
investigation, in the exercise of reasonable diligence, to a knowledge of the
actual facts.
(l) Access to Records
-----------------
Subsequent to Closing, Buyer shall maintain in its possession, and intact,
all records delivered to Buyer pursuant hereto and relating to the Business
created at or prior to the Closing for a period of five (5) years. After the
Closing, Seller shall have reasonable access during normal business hours to all
such records, upon reasonable request therefore, after having identified a
business necessity for such access, such as the preparations of tax returns.
Buyer may, at its option, during such five (5) year period, deliver any of such
records to Seller. Similarly, Seller shall maintain in its possession all
accounting and financial records of the Business not delivered to Buyer for a
period of five (5) years and Buyer shall have reasonable access thereto during
normal business hours and upon reasonable request.
(m) Counter-parts
-------------
This Agreement may be signed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first written above.
SELLER:
Custom Products Corporation
36
<PAGE>
By/s/ Gerald Shaff
------------------
Name: Gerald Shaff
Title: President
STOCKHOLDERS:
/s/ Gerald Shaff
----------------------
Gerald Shaff
/s/ Carole Shaff
----------------------
Carole Shaff
BUYER:
Bolt Technology Corporation
By /s/ Raymond M. Soto
-------------------------
Name: Raymond M. Soto
Title: President
bolt.apa
37
<PAGE>
EXHIBIT 4.1
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
THIS COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT is dated January 5,
1998, by and among BOLT TECHNOLOGY CORPORATION, a Connecticut corporation with
an office at Four Duke Place, Norwalk, Connecticut 06854 (the "Borrower") and
FLEET NATIONAL BANK, a national banking association with an office located at
850 Main Street, Bridgeport, CT 06604 ("Fleet").
RECITALS
--------
A. Borrower has requested that Fleet extend to Borrower a $3,500,000.00
revolving loan facility.
B. The proceeds of the revolving loan facility shall be used to support
the general working capital requirements of the Borrower and to assist the
Borrower with its acquisition of Custom Products Corporation by a wholly owned
subsidiary of the Borrower.
C. Fleet is willing to extend the revolving loan facility to Borrower
subject to the terms and conditions contained herein.
AGREEMENT
---------
In consideration of the Recitals, the terms and conditions contained in
this Agreement, and other good and valuable consideration, Borrower and Fleet
agree as follows:
I. DEFINITIONS
-----------
1.01 DEFINED TERMS. The following terms shall have the following
-------------
meanings when used in the Agreement:
(a) "Affiliate", as applied to any Person, means any other Person directly
---------
or indirectly through one or more intermediaries controlling, controlled by, or
under common control with, that Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of the Person, whether through the
ownership of voting securities or by contract or otherwise.
-1-
<PAGE>
(b) "Agreement" shall mean this Commercial Revolving Loan and Security
---------
Agreement as the same from time to time may be amended, supplemented or
modified.
(c) "Borrowing Base" shall mean an amount which shall not exceed $3,500,000
--------------
during the one year period commencing from the date of closing, (ii) $3,000,000
during the one year period commencing on the first anniversary of the closing
date, (iii) $2,500,000 during the one year period commencing on the second
anniversary of the closing date, (iv) $2,000,000 during the one year period
commencing on the third anniversary of the closing date, and (v) $1,500,000
during the one year period commencing on the fourth anniversary of the closing
date.
(d) "Borrowing Date" shall mean the date on which the Revolving Loan is
--------------
disbursed to Borrower.
(e) "Capital Assets" shall mean assets that in accordance with GAAP are
--------------
required or permitted to be depreciated or amortized on Borrower's balance
sheet.
(f) "Capital Leases" shall mean capital leases, conditional sales contracts
--------------
and other title retention agreements relating to the purchase or acquisition of
Capital Assets.
(g) "Debt Service Coverage Ratio" shall mean EBITDA less cash taxes paid
---------------------------
divided by current maturities of long term debt and interest expense.
(h) "Default(s)" shall mean any of the events specified in Section 8.01
----------
below, whether or not any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
(i) "Dollars" and "$" shall mean lawful currency of the United States of
------- -
America payable in immediately available funds.
(j) "Earnings Before Interest, Taxes, Depreciation, and Amortization
---------------------------------------------------------------
("EBITDA")" shall mean, for the applicable period, income from continuing
------
operations before interest, tax expense, depreciation, and amortization,
determined in accordance with GAAP.
(k) "Environmental Laws" shall mean all present and future laws, statutes,
------------------
ordinances, rules, regulations, orders, codes, licenses, permits, decrees,
judgments, directives or the equivalent of or by any Governmental Authority
relating to or addressing the protection of the environment or human health.
-2-
<PAGE>
(l) "ERISA" shall mean the Employee Retirement Income Security Act of 1974
-----
and all rules and regulations promulgated pursuant to said Act, as amended from
time to time.
(m) "Event(s) of Default" shall mean any of the events specified in Section
-------------------
8.01 below, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
(n) "GAAP" shall mean generally accepted accounting principals applied in a
------
manner consistent with that employed in the preparation of the financial
statements described in Section 6.01 below.
(o) "Governmental Authority" shall mean any nation or government, any state
----------------------
or other political subdivision, any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing.
(p) "Guarantors" shall mean all existing and future subsidiaries of the
----------
Borrower, including Custom Products Corporation.
(q) "Hazardous Materials" shall mean any material or substance that,
-------------------
whether by its nature or use, is now or hereafter defined as hazardous waste,
hazardous substance, pollutant or contaminant under any Environmental Laws which
is toxic, explosive, corrosive, inflammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter
regulated under any Environmental Laws, or which is or contains petroleum,
gasoline, diesel fuel or another petroleum hydrocarbon product.
(r) "Indebtedness" shall mean all obligations that in accordance with GAAP
------------
should be classified as liabilities upon Borrower's balance sheet as liabilities
or to which reference should be made by footnotes to the balance sheet.
(s) "Intangible Assets" shall mean assets that in accordance with GAAP are
-----------------
properly classifiable as intangible assets, including, but not limited to,
goodwill, franchises, licenses, patents, trademarks, trade names and copyrights.
(t) "Interest" shall mean, for the applicable period, all interest paid or
--------
payable, including, but not limited to, interest paid or payable on Indebtedness
and on Capital Leases, determined in accordance with GAAP.
-3-
<PAGE>
(u) "Leverage Ratio" shall mean Total Liabilities divided by Total Net
--------------
Worth.
(v) "LIBOR" shall mean, as applicable to any LIBOR advance for a particular
-----
interest period (hereinafter, a "LIBOR Advance"), the rate per annum (rounded
upward, if necessary, to the nearest 1/32 of one percent) as determined on the
basis of the offered rates for deposits in U.S. dollars, for a period of time
comparable to such LIBOR Advance which appears on the Telerate page 3750 as of
11:00 a.m. London time on the date that is two London Banking Days preceding the
first day of such LIBOR Advance; provided, however, if the rate described above
does not appear on the Telerate System on any applicable interest determination
date, the LIBOR rate shall be the rate (rounded upwards as described above, if
necessary) for deposits in dollars for a period substantially equal to the
interest period on the Reuters Page "LIBO" (or such other page as may replace
the LIBO Page on that service for the purpose of displaying such rates), as of
11:00 a.m. (London time), on the day that is two (2) London Business Days prior
to the beginning of such interest period. "Banking Day" shall mean, in respect
of any city, any date on which commercial banks are open for business in that
city.
If both the Telerate and Reuters system are unavailable, then the rate for
that date will be determined on the basis of the offered rates for deposits in
U.S. dollars for a period of time comparable to such LIBOR Advance which are
offered by four major banks in the London interbank market at approximately
11:00 a.m. London time, on the day that is two (2) London Banking Days preceding
the first day of such LIBOR Advance as selected by the Calculation Agent. The
principal London office of each of the four major London banks will be requested
to provide a quotation of its U.S. dollar deposit offered rate. If at least two
such quotations are provided, the rate for that date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S. dollars to leading European banks for a period of time comparable to
such LIBOR Advance offered by major banks in New York City at approximately
11:00 a.m. New York City time, on the day that is two London Banking Days
preceding the first day of such LIBOR Advance. In the event that Fleet is
unable to obtain any such quotation as provided above, it will be deemed that
LIBOR pursuant to a LIBOR Advance cannot be determined. The LIBOR borrowing
options will be made available at 30, 60, and 90-day intervals, as determined to
be available and appropriate by Fleet.
IN THE EVENT THAT THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
SHALL IMPOSE A RESERVE PERCENTAGE WITH RESPECT TO LIBOR DEPOSITS OF FLEET, THEN
FOR ANY PERIOD DURING WHICH SUCH RESERVE PERCENTAGE SHALL APPLY, LIBOR SHALL BE
EQUAL TO THE
-4-
<PAGE>
AMOUNT DETERMINED ABOVE DIVIDED BY AN AMOUNT EQUAL TO 1 MINUS THE RESERVE
PERCENTAGE.
(w) "Lien" shall mean any mortgage, pledge, security interest,
----
hypothecation, assignment, deposit arrangement, encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction).
(x) "Loan" shall mean the Revolving Loan made by Fleet to Borrower pursuant
----
to the Agreement.
(y) "Loan Documents" shall mean this Agreement, the Note, and all other
--------------
documents or agreements executed in connection with this Agreement, together
with any amendments, supplements or modifications hereto or thereto.
(z) "Maturity Date" shall mean the Revolving Loan Maturity Date.
-------------
(aa) "Note" shall mean the Revolving Loan Note.
----
(ab) "Obligations" shall mean and include all loans, advances, interest,
-----------
indebtedness, liabilities, obligations, guaranties, covenants and duties at any
time owing by Borrower to Fleet of every kind and description, whether or not
evidenced by any note or other instrument, whether or not for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, including but not limited to the
indebtedness, liabilities and obligations arising under this Agreement, the
Note, and the other Loan Documents, and all costs, expenses, fees, charges,
expenses and attorneys', paralegals', and professionals' fees incurred in
connection with any of the foregoing, or in any way connected with, involving or
related to the preservation, enforcement, protection, and defense of this
Agreement, the Note, the other Loan Documents, any related agreement, document
or instrument, any Lien, any of the Borrower's business assets, and the
resulting rights and remedies.
(ac) "Person" shall mean any individual, corporation, limited liability
------
company, partnership, joint venture, trust, unincorporated organization or any
other juridical entity, or a government or state or any agency or political
subdivision thereof.
-5-
<PAGE>
(ad) "Plan" shall mean any plan of a type described in Section 4021(a) of
----
ERISA in respect of which Borrower is an "employer" as defined in Section 3(5)
of ERISA.
(ae) "Post Default Rate" shall mean at any time a rate of interest equal to
-----------------
4.0% per annum in excess of the Prime Rate.
(af) "Prime Rate" shall mean the variable per annum rate of interest so
----------
designated from time to time by Fleet as its "Prime Rate." The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer.
(ag) "Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder.
(ah) "Revolving Loan" shall mean the Loan made pursuant to Section 2.01
--------------
below.
(ai) "Revolving Loan Maturity Date" shall mean January 4, 2003.
----------------------------
(aj) "Revolving Loan Note" shall mean the Note referred to in Section 2.01
-------------------
below.
(ak) "Revolving Loan Commitment" shall mean the obligation of Fleet to make
-------------------------
Revolving Loans to Borrower during the Revolving Loan Commitment Period pursuant
to the terms of this Agreement as such Commitment is described in Section 2.01
below.
(al) "Revolving Loan Commitment Period" shall mean the period from the date
--------------------------------
of this Agreement until the Revolving Loan Maturity Date.
(am) "Subsidiary or Subsidiaries" of any Person shall mean any corporation
--------------------------
or corporations of which the Person or one or more of its Subsidiaries, owns,
directly or indirectly, at least a majority of the securities having ordinary
voting power for the election of directors.
(an) "Tangible Net Worth" shall mean Total Net Worth minus Intangible
------------------
Assets.
-6-
<PAGE>
(am) "Total Assets" shall mean total assets determined in accordance with
------------
GAAP.
(ao) "Total Liabilities" shall mean total Indebtedness determined in
-----------------
accordance with GAAP.
(ap) "Total Net Worth" shall mean, for the applicable period, the excess of
---------------
Total Assets minus Total Liabilities.
1.02 ACCOUNTING TERMS. Except as otherwise specifically set forth in this
----------------
Agreement, each accounting term used in this Agreement shall have the meaning
given to it under GAAP. Any dispute or disagreement between Borrower and Fleet
relating to the determination of GAAP shall, in the absence of manifest error,
be conclusively resolved for all purposes by the written opinion delivered to
Fleet, of independent accountants selected by Borrower and approved by Fleet for
the purposes of auditing the periodic financial statements of Borrower.
II. LOAN FACILITY.
-------------
2.01 REVOLVING LOAN. Subject to the terms and conditions, and relying upon
--------------
the representations and warranties set forth in this Agreement, Fleet agrees to
make revolving loans (a "Revolving Loan") to Borrower at any time until
--------------
terminated as provided in Section 3.02 below, in the principal amount which
shall not exceed the Borrowing Base in the aggregate at any time. In addition
to this Agreement, the Revolving Loan shall be evidenced by the Commercial
Revolving Promissory Note of this date, a copy of which is attached as EXHIBIT
"A" (the "Revolving Loan Note"). Advances under the Revolving Loan Note shall
be subject to a $1,000,000.00 sublimit for issuance of commercial letters of
credit or bankers' acceptances for the account of the Borrower. All commercial
letters of credit and bankers' acceptances shall be made available at standard
issuance costs and may have expiration dates up to one-hundred twenty (120)
days.
(a) Procedure For Revolving Loan Borrowing. Provided that the Revolving
--------------------------------------
Loan Commitment has not been terminated as provided in Section 3.02 below,
during the Revolving Loan Commitment Period Borrower may borrow under the
Revolving Loan Commitment by giving Fleet irrevocable notice of a request for a
Revolving Loan on or before the date such borrowing is to be made, such
irrevocable notice setting forth (A) the amount of the Loan requested, which
shall not be less than $5,000, and (B) the requested Borrowing Date. Such
notice must be written (including, without limitation, via facsimile
transmission) and shall be sufficient if received by 2:00 p.m. (Eastern Standard
Time) on the date on which such notice is to be given. Unless
-7-
<PAGE>
notification is otherwise furnished by Borrower to Fleet (in a manner consistent
with the requirements of this Section 2.01(a)), Revolving Loans will be made by
credits to Borrower's deposit account maintained with Fleet.
-8-
<PAGE>
2.02 OTHER EVENTS.
------------
(a) In the event that, after the date hereof, any enactment of or change in
applicable law, regulation, condition, directive or interpretation thereof
(including any request, guideline or policy whether or not having the force of
law and including, without limitation, Regulation D promulgated by the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect) by any authority charged with the administration or interpretation
thereof:
(i) subjects Fleet to a tax with respect to any Loan (other than
any tax measured by or based upon the overall net income of Fleet or any
branch or office thereof, imposed by the United States of America or by any
other jurisdiction in which Fleet is qualified to do business or any
political subdivision or taxing authority); or
(ii) changes the basis of taxation or payment to Fleet of
principal of or interest on any Loan or any Revolving Loan Commitment under
this Agreement or any other amounts payable (other than any tax measured by
or based upon the overall net income of Fleet or any branch or office,
imposed by the United States of America or by any other jurisdiction in
which Fleet is qualified to do business or any political subdivision or
taxing authority therein); or
(iii) imposes, modifies or deems applicable any reserve or
deposit requirements against any assets held by, deposits with or for the
account of, or loans or commitments by, an office of Fleet in connection
with payments by Fleet under this Agreement; or
(iv) imposes upon Fleet any other condition with respect to any
amount paid or payable to or by Fleet pursuant to this Agreement; and the
result of any of the foregoing is to increase the cost to Fleet of making
the payment or maintaining its commitment or to reduce the amount of the
payment receivable by Fleet or to require Fleet to make the payment on or
calculated by reference to the gross amount of the sum received by it
pursuant to this Agreement, in each case by an amount which Fleet in its
reasonable judgment deems material, then:
(A) Fleet shall promptly notify Borrower in writing of the
happening of such event;
(B) Fleet shall promptly deliver to Borrower a certificate
stating the change which has occurred or the reserve requirements or
other
-9-
<PAGE>
conditions which have been imposed on Fleet or the request, direction
or requirement with which it has complied, together with the date
thereof, the amount of such increased cost, reduction or payment and
the way in which such amount has been calculated; and
(C) Borrower shall pay to Fleet within thirty (30) days after
delivery of the certificate referred to in clause (B) above such an
amount or amounts as will reasonably compensate Fleet for such
additional cost, reduction or payment.
(b) No failure on the part of Fleet to demand compensation under
subsection (a) above on any one occasion shall constitute a waiver of its right
to demand such compensation on any other occasion and no failure on the part of
Fleet to deliver any certificate in a timely manner shall in any way reduce any
obligations of Borrower to Fleet under this Section 2.02.
III. INTEREST, TERM, AND FEES.
------------------------
3.01 INTEREST RATE.
-------------
(a) The Note shall bear, and Borrower promises to pay, interest on the
indebtedness on the terms and conditions set forth in the Note.
(b) All agreements between the Borrower and Fleet are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to Fleet for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. As used herein, the term "applicable law" shall mean the
law in effect as of the date hereof provided, however, that in the event there
is a change in the law which results in a higher permissible rate of interest,
then the Note shall be governed by such new law as of its effective date. In
this regard, it is expressly agreed that it is the intent of the Borrower and
Fleet in the execution, delivery, and acceptance of the Note to contract in
strict compliance with the laws of the State of Connecticut from time to time in
effect. If, under or from any circumstances whatsoever, fulfillment of any
provision hereof or of any of the Loan Documents at the time of performance of
such provision shall be due, shall involve transcending the limit of such
validity prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limits of such validity, and if under or from
circumstances whatsoever Fleet should ever receive as interest an amount which
would exceed the highest lawful rate, such amount which would be excessive
interest
-10-
<PAGE>
shall be applied to the reduction of the principal balance evidenced hereby and
not to the payment of interest. This provision shall control every other
provision of all agreements between the Borrower and Fleet.
3.02 TERM AND TERMINATION. Unless sooner terminated as a result of the
--------------------
occurrence of an Event of Default, the Revolving Loan Commitment shall terminate
and be due and payable in full on the Revolving Loan Maturity Date. Upon
termination of the Revolving Loan Commitment, Borrower shall have no ability to
receive, and Fleet shall have no obligation to make any further advances under
the Revolving Loan Commitment. All of the rights, interest, and remedies of
Fleet and Obligations of Borrower under this Agreement and the other Loan
Documents shall survive termination of the Revolving Loan Commitment until all
of the Obligations of Borrower are fully satisfied.
3.03 REPAYMENTS. Any payments made by Borrower to Fleet shall be credited
----------
first to late charges, then to costs and expenses, then to accrued and unpaid
interest, and then to the outstanding principal balance due in the inverse order
of maturity.
3.04 PREPAYMENTS.
-----------
(a) Prime Rate Loans. If the interest rate selected by the Borrower is
----------------
Fleet's Prime Rate, Borrower may prepay the Revolving Loan without any penalty
or premium.
(b) Fixed Rate Loans. If the interest rate selected by the Borrower
----------------
is LIBOR, Borrower may prepay a LIBOR Advance, as such term is defined in the
Note, without any penalty or premium upon the maturity of such LIBOR Advance.
At any time that (i) there is a LIBOR Advance outstanding, and (ii) Fleet in its
sole discretion should determine that current market conditions can accommodate
a prepayment request, the Borrower shall have the right at any time and from
time to time to prepay the LIBOR Advance in whole (but not in part), and the
Borrower shall pay to Fleet a yield maintenance fee in an amount computed as
follows: The current rate for United States Treasury securities (bills on a
discounted basis shall be converted to a bond equivalent) with a maturity date
closest to the maturity date of the term chosen for the LIBOR Advance as to
which the prepayment is made, shall be subtracted from the "cost of funds"
component of the fixed rate in effect at the time of prepayment. If the result
is zero or a negative number, there shall be no yield maintenance fee. If the
result is a positive number, then the resulting percentage shall be multiplied
by the amount of the principal balance being prepaid. The resulting amount
shall be divided by 360 and multiplied by the number of days remaining in the
term chosen for the LIBOR Advance as to which the
-11-
<PAGE>
prepayment is made. Said amount shall be reduced to present value calculated by
using the number of days remaining in the designated term using the above
referenced United States Treasury security rate and the number of days remaining
in the term chosen for the LIBOR Advance as to which the prepayment is made.
The resulting amount shall be the yield maintenance fee due to Fleet upon
prepayment of the LIBOR Advance. If by reason of an Event of Default Fleet
elects to declare the Loan to be immediately due and payable, then any yield
maintenance fee with respect to the Loan shall become due and payable in the
same manner as though the Borrower had exercised such right of prepayment.
IV. CONDITIONS OF LENDING.
---------------------
Borrower agrees that the Loans are subject to fulfillment by Borrower of
the following conditions precedent, all in form, scope and substance
satisfactory to Fleet and its counsel in their sole discretion:
(a) Evidence of Corporate and Company Action. Fleet shall have
----------------------------------------
received certified copies of all corporate and company action taken by Borrower
to authorize the execution, delivery and performance of this Agreement, the
Note, the other Loan Documents, and the borrowings to be made hereunder,
together with copies of Borrower's Certificate of Incorporation and Bylaws, all
amendments thereto, and such other papers and documents as Fleet or its counsel
may require.
(b) Note. Fleet shall have received the duly executed Note drawn to
----
its order.
(c) Insurance. Fleet shall have received evidence of hazard and
---------
liability insurance in such amounts and with such companies satisfactory to
Fleet.
(d) Opinion of Counsel. Borrower shall provide Fleet with an opinion
------------------
from counsel in form and content satisfactory to Fleet opining to, among other
things, the valid, binding, and enforceable nature of the Loan Documents and the
authority of Borrower to enter into the Loan Documents.
(e) Trade Checks. Fleet shall have performed trade checks which shall
------------
be satisfactory to Fleet in all respects.
(f) EAB Termination. Fleet shall have received evidence of the
---------------
Borrower's termination of its $1,500,000.00 line of credit with European
American Bank.
-12-
<PAGE>
(g) Other. Fleet shall have received such other documents as it deems
-----
necessary.
V. REPRESENTATIONS AND WARRANTIES.
------------------------------
Borrower represents and warrants to Fleet that:
(a) Good Standing and Qualification. Borrower is a corporation duly
-------------------------------
organized, validly existing, and in good standing under the laws of the state or
province, as the case may be, of its incorporation. Borrower has all requisite
corporate power and authority to own and operate its properties and to carry on
its business as presently conducted and is qualified to do business and is in
good standing as a foreign corporation in each jurisdiction wherein the
character of the properties owned or leased by it therein or in which the
transaction of its business therein makes such qualification necessary.
(b) Corporate Authority. Borrower has full power and authority to
-------------------
enter into and perform the obligations under this Agreement and to make the
borrowings contemplated, to execute and deliver the Note and the other Loan
Documents and to incur the obligations provided for, all of which have been duly
authorized by all necessary and proper corporate action. No other consent or
approval or the taking of any other action in respect of shareholders or of any
public authority is required as a condition to the validity or enforceability of
this Agreement, the Note, or any of the other Loan Documents. The execution and
delivery of this Agreement is for valid purposes and will not violate its
Certificate of Incorporation, By-Laws, or any other agreement to which it is a
party or by which it is bound.
(c) Binding Agreements. This Agreement constitutes, and the Note and
------------------
the other Loan Documents delivered in connection herewith shall constitute,
valid and legally binding obligations of Borrower, enforceable in accordance
with their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally.
(d) Litigation. Except as set forth on the attached SCHEDULE "5(D)",
---------- --------------
there are no actions, suits, proceedings or investigations pending or, to the
knowledge of the officers of Borrower, threatened against Borrower before any
court or administrative agency, which either in any case or in the aggregate, if
adversely determined, would materially and adversely affect the financial
condition, assets or operations of Borrower or which question the validity of
this Agreement, the Note, or any of the other Loan Documents, or any action to
be taken in connection with the transaction contemplated hereby.
-13-
<PAGE>
(e) No Conflicting Law or Agreements. The execution, delivery, and
--------------------------------
performance by Borrower of this Agreement, the Note, and the other Loan
Documents (i) do not violate any provision of the Certificate of Incorporation
or By-Laws of Borrower, (ii) do not violate any order, decree or judgment, or
any provision of any statute, rule, or regulation, (iii) do not violate or
conflict with, result in a breach of, or constitute (with notice or lapse of
time, or both) a default under any shareholder agreement, stock preference
agreement, mortgage, indenture, or contract to which Borrower is a party, or by
which any of its properties are bound, and (iv) do not result in the creation or
imposition of any lien, charge, or encumbrance of any nature whatsoever upon any
property or assets of Borrower except as contemplated in this Agreement.
(f) Taxes. With respect to all taxable periods of Borrower, Borrower
-----
has filed all tax returns required to be filed by it and has paid all Federal,
state, municipal, franchise, and other taxes shown on such filed returns and has
reserved against the same, as required by GAAP, and Borrower knows of no unpaid
assessments against it.
(g) Financial Statements. Borrower has delivered to Fleet its
--------------------
company-prepared financial statements as of September 30, 1997. Such statements
fairly present the financial condition of Borrower as of the dates and for the
periods referred to therein and have been prepared in accordance with GAAP
applied on a consistent basis by Borrower throughout the periods involved. There
are no liabilities, direct or indirect, fixed or contingent, of Borrower as of
the date of the balance sheet which are not reflected therein or in the notes
thereto, other than liabilities or obligations not material in amount which are
not required to be reflected in corporate balance sheets prepared in accordance
with GAAP. There has been no material adverse change in the financial condition,
business, operations, affairs or prospects of Borrower since the date of such
financial statements.
(h) Existence of Assets and Title Thereto. Borrower has good and
-------------------------------------
marketable title to its properties and assets, including the properties and
assets reflected in the financial statements referred to above. These properties
and assets are not subject to any mortgage, pledge, lien, lease, security
interest, encumbrance, restriction or charge except those permitted under the
terms of this Agreement or as set forth in SCHEDULE "5(H)", and none of the
--------------
foregoing prohibit or interfere with ownership of any of Borrower's assets or
the operation of its business as presently conducted.
(i) Regulations G. T, U, and X. The proceeds of the Loan will not
--------------------------
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin stock in contravention of Regulations G, T, U, or X promulgated by the
Board of Governors of the Federal Reserve System.
-14-
<PAGE>
(j) Compliance. The Borrower is not in default with respect to or in
----------
violation of any order, writ, injunction or decree of any court or of any
Federal, state, provincial, municipal or other governmental department,
commission, board, bureau, agency, authority or official, or in violation of any
law, statute, rule or regulation to which it or its properties is or are
subject, where such default or violation would materially and adversely affect
the financial condition of Borrower. Borrower represents that it has not
received notice of any such default from any party. Borrower is not in default
in the payment or performance of any of its obligations to any third parties or
in the performance of any mortgage, indenture, lease, contract or other
agreement to which it is a party or by which any of its assets or properties are
bound.
(k) Leases. Borrower enjoys quiet and undisturbed possession under all
------
leases under which it is operating, and all such leases are valid and subsisting
and Borrower is not in default under any of its leases.
(l) Pension Plans. To the best of Borrower's knowledge, no fact,
-------------
including but not limited to any "Reportable Event", as that term is defined in
---------- -----
Section 4043 of ERISA, as the same may be amended from time to time exists in
connection with any Plan of each of Borrower which might constitute grounds for
termination of any such Plan by the Pension Benefit Guaranty Corporation or for
the appointment by the appropriate United States District Court of a Trustee to
administer any such Plan. No "Prohibited Transaction" as defined by ERISA exists
----------------------
or will exist upon the execution and delivery of this Agreement or the
performance by the parties hereto of their respective duties and obligations
hereunder. Borrower agrees to do all acts including, but not limited to, making
all contributions necessary to maintain compliance with ERISA and agrees not to
terminate any such Plan in a manner or do or fail to do any act which could
result in the imposition of a lien on any property of Borrower pursuant to
Section 4068 of ERISA. Borrower has not incurred any withdrawal liability under
the Multiemployer Pension Plan Amendment Act of 1980. Borrower has no unfunded
liability in contravention of ERISA.
(m) Office. The chief executive office and principal place of business
------
of Borrower is as set forth in the first paragraph of this Agreement.
(n) Places of Business. Borrower has no other places of business and
------------------
locates no business assets, specifically including books and records, at any
location other than those set forth in the attached SCHEDULE "5(N)".
--------------
(o) Contingent Liabilities. Except as set forth on the attached
----------------------
SCHEDULE "5(O)", Borrower is not a party to any suretyship, guarantyship, or
other similar type agreement; and it has not offered its endorsement to any
individual, concern, corporation
-15-
<PAGE>
or other entity or acted or failed to act in any manner which would in any way
create a contingent liability that does not appear in the financial statements
referred to above.
(p) Contracts. No contract, governmental or otherwise, to which
---------
Borrower is a party, is subject to renegotiation, nor is Borrower in default of
any material contract.
(q) Union Contracts and Pension Plans. Borrower is not a party to any
---------------------------------
collective bargaining, union or pension plan agreement, except as set forth on
the attached SCHEDULE "5(Q)". The union contracts set forth on SCHEDULE "5(Q)"
-------------- --------------
are in full force and effect and are not currently subject to renegotiation.
Borrower is in full compliance with the terms and conditions of all such union
contracts and knows of no threatened work stoppage by any union members.
(r) Stock Matters. There are no options or rights outstanding to
-------------
purchase any of Borrower's capital stock, except as set forth on the attached
SCHEDULE "5(R)".
- ---------------
(s) Licenses. Borrower has all licenses, permits, approvals, and
--------
other authorizations required by any government, agency or subdivision thereof,
or from any licensing entity necessary for the conduct of its business, all of
which Borrower represents to be current, valid and in full force and effect.
(t) Collateral. Borrower is and shall continue to be the sole owner
----------
of all of its business assets free and clear of all liens, encumbrances,
security interests, and claims except the liens and the security interests
permitted to be granted hereunder. If Borrower is required to grant to Fleet a
security interest pursuant to the terms of this Agreement, Borrower is fully
authorized to sell, transfer, pledge, or grant to Fleet a security interest in
each and every item of its business assets.
(u) Financial Information. All financial information submitted by
---------------------
Borrower to Fleet, whether previously or in the future, is and will be true and
correct in all material respects, and is and will be complete insofar as may be
necessary to give Fleet a true and accurate knowledge of the subject matter.
(v) Environmental Health and Safety Laws. Borrower has not received
------------------------------------
any notice, order, petition, or similar document in connection with or arising
out of any violation or possible violation of any environmental health or safety
law, regulation or order, and Borrower knows of no basis for any such violation
or threat thereof for which it may become liable.
-16-
<PAGE>
(w) Parent, Affiliate or Subsidiary Corporations. Borrower has no
--------------------------------------------
parent corporation and, except as set forth on the attached SCHEDULE "5(W)", has
--------------
no domestic or foreign Affiliate or Subsidiary corporations.
VI. COVENANTS.
---------
6.01 FINANCING REPORTING. Borrower covenants and agrees that from the date
-------------------
hereof until payment in full of all Obligations and the termination of this
Agreement, Borrower shall furnish to Fleet the following, all to be prepared on
a consolidating basis and in conformity with GAAP, applied on a basis consistent
with the preceding period:
(a) within ninety (90) days after the end of each fiscal year,
unqualified, audited financial statements certified by an independent
accountant, showing the operations and financial condition of Borrower at the
close of such year. Fleet may perform annual field examinations at the
Borrower's sole cost and expense in connection with such financial statements.
(b) within sixty (60) days after the end of each quarter of each year,
quarterly financial statements prepared by the management of the Borrower (the
form of such statements to be satisfactory to Fleet), showing the operations and
financial condition of Borrower at the close of such fiscal quarters, together
with a Certificate of Compliance of Borrower in the form of the attached EXHIBIT
"B" and certified by the Borrower's Chief Financial Officer.
(c) promptly upon Fleet's written request from time to time, such
other information about the financial condition and operations of Borrower as
Fleet may reasonably request.
6.02 AFFIRMATIVE COVENANTS. Borrower covenants and agrees from the date
---------------------
hereof until payment in full of all obligations and termination of this
Agreement, Borrower shall:
(a) Insurance. Keep its properties and business insured against
---------
fire and other hazards (so-called "All Risk" coverage) in amounts and with
companies reasonably satisfactory to Fleet covering such risks as are herein set
forth; maintain public liability coverage, against claims for personal injuries
or death;
and maintain all worker's compensation, employment or similar insurance as may
be required by applicable law. All insurance shall be in amounts reasonably
satisfactory to Fleet and shall contain such terms, be in such form, be for such
periods, and be written by
-17-
<PAGE>
carriers duly licensed by the state of Connecticut and reasonably satisfactory
to Fleet. In the event of Borrower's failure to provide and maintain insurance
as so provided, Fleet may, at its option, provide such insurance and charge the
amount to the Revolving Loan. Borrower shall furnish to Fleet certificates or
other satisfactory evidence of compliance with the foregoing insurance
provisions.
(b) Taxes and Other Liens. Comply with all statutes and government
---------------------
regulations and pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against it or its
property which, if unpaid, might become a lien or charge against Borrower or its
properties, except liabilities being contested in good faith and against which,
if requested by Fleet, Borrower shall set up reserves in amounts and in form
reasonably satisfactory to Fleet.
(c) Place of Business. Maintain its chief place of business and chief
-----------------
executive offices at the address set forth in the beginning of this Agreement.
(d) Inspections. After reasonable notice and during normal business
-----------
hours, allow Fleet by or through any of its officers, attorneys, accountants, or
other agents designated by Fleet, for the purpose of ascertaining whether or not
each and every provision hereof and of the other Loan Documents, is being
performed, to enter the offices and plants of Borrower or its subsidiaries to
examine or inspect any of the properties, books, and records or extracts
therefrom, to make copies of such books and records or extracts therefrom, and
to discuss the affairs, finances, and accounts with Borrower all at such times
and as often as Fleet or any representatives of Fleet may reasonably request.
Fleet agrees not to disclose to any third party and shall keep confidential all
information obtained through (i) its inspection of the Borrower's books and
records, and (ii) its discussions with the Borrower regarding the same, except
as is necessary to disclose in a court of competent jurisdiction in connection
with any litigation regarding the collection of the Obligations.
(e) Litigation. Advise Fleet of the commencement or threat of
----------
litigation, including arbitration proceedings and any proceedings before any
governmental agency, which is instituted against Borrower and is reasonably
likely to have a material adverse effect upon the condition, financial,
operating, or otherwise, of Borrower.
(f) Maintain Existence. Maintain its corporate existence and comply
------------------
with all applicable statutes, rules, and regulations.
-18-
<PAGE>
(g) Maintain Assets. Maintain its properties in good repair,
---------------
working order, and operating condition. Borrower shall immediately notify Fleet
of any event causing material loss in the value of its assets.
(h) ERISA. Comply in all material respects with ERISA.
-----
(i) Notice of Certain Events. Give prompt written notice to Fleet of:
------------------------
(i) any dispute that arises between Borrower and any governmental
regulatory body or law enforcement agency;
(ii) any labor controversy resulting or likely to result in a
strike or work stoppage against Borrower;
(iii) any proposal by any public authority to acquire the assets
or business of Borrower;
(iv) the location of any of Borrower's business assets other than
at any of Borrower's places of business disclosed in this Agreement other
than any business assets in transit in the ordinary course of Borrower's
business;
(v) any proposed or actual change of the name, identity, or
corporate structure of Borrower;
(vi) any other matter which has resulted or is likely to result
in a material adverse change in the financial condition or operations of
Borrower; and
(vii) any information received by Borrower with respect to its
accounts receivables that may materially affect the value of the accounts
receivable.
(j) Defaults. Give prompt written notice to Fleet upon the occurrence
--------
of any Default or of any event which, but for giving of notice or passage of
time or both, would constitute an Event of Default, signed by the president or
chief financial officer of Borrower describing such occurrence and the steps, if
any, being taken to cure the Default.
(k) Account Duties. Comply with any and all Federal, state, and local
--------------
laws affecting its business, including, but not limited to, payment of all
Federal, state and
-19-
<PAGE>
provincial taxes. Borrower agrees to indemnify and hold Fleet harmless from all
claims, actions and losses, including reasonable attorneys' fees and costs
actually incurred by Fleet, arising from any contention that there has been a
failure to comply with such laws.
(l) Collateral Duties. If a security interest is granted to Fleet
-----------------
pursuant to Article VII of this Agreement, do whatever Fleet may reasonably
request from time to time by way of obtaining, executing, delivering, and filing
financing statements, assignments, landlord's or mortgagee's waivers, and other
notices and amendments and renewals thereof, and Borrower will take such actions
as Fleet shall reasonably request in order to create and maintain a valid and
enforceable first lien upon, pledge of, and first priority security interest in,
any and all of its business assets as may be required by the terms of this
Agreement. If Borrower fails to timely provide financing statements, Fleet is
authorized to file financing statements without the signature of Borrower and to
execute and file such financing statements on behalf of Borrower as specified by
the Uniform Commercial Code to perfect or maintain its security interest in all
of the Borrower's business assets. All charges, expenses and fees which Fleet
incurs in filing any of the foregoing, together with costs and expenses of any
lien search required by Fleet, and any taxes relating thereto, shall be charged
to the balance of the Revolving Loan and added to the Obligations.
(m) Officers and Directors. Promptly notify Fleet in writing upon any
----------------------
changes or additions to any of Borrower's officers or directors.
6.03 NEGATIVE COVENANTS. Borrower covenants and agrees that from the date
------------------
hereof until payment in full of all Obligations and termination of this
Agreement, Borrower shall not without the prior written consent of Fleet:
(a) Encumbrances. Incur or permit to exist, or allow any of its
------------
existing or future subsidiaries from incurring or permitting to exist, any lien,
mortgage, charge, or other encumbrance against any of their properties or
assets, whether now owned or hereafter acquired, except: (i) liens required or
expressly permitted by this Agreement; (ii) pledges or deposits in connection
with or to secure worker's compensation, unemployment, or liability insurance;
and (iii) tax liens which are being contested in good faith and in compliance
with this Agreement.
(b) Limitation on Indebtedness. Except as set forth on the attached
--------------------------
SCHEDULE "6.03(B)", create, incur or guaranty any indebtedness or obligation,
- -----------------
borrow money from, or issue or sell any obligations of Borrower to any lender or
Person other than Fleet, except in the ordinary course of business.
-20-
<PAGE>
(c) Contingent Liabilities. Assume, guaranty, endorse or otherwise
----------------------
become liable upon the obligations of any person, firm or corporation, or enter
into any purchase or option agreement or other arrangement having substantially
the same effect as such a guarantee, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
(d) Consolidation or Merger. Merge into or consolidate with or into
-----------------------
any corporation or entity, except for the asset purchase of Custom Products
Corporation.
(e) Loans, Advances, Investments. Use the proceeds of the Loan,
----------------------------
either directly or indirectly, to make or permit to exist any loans or advances
to (other than in the ordinary course of business), or purchase any stock, other
than securities or evidences of indebtedness, or make or permit to exist any
investment, including without limitation the acquisition of stock of a
corporation, or acquire any interest whatsoever in, any other person or entity.
(f) Acquisition of Stock of Borrower. Purchase, acquire, redeem or
--------------------------------
retire, or make any commitment to purchase, acquire, redeem or retire any of the
common stock of any Borrower, whether now or hereafter outstanding.
(g) Sale and Lease of Assets. Sell, lease or otherwise dispose of any
------------------------
of its assets, except in the ordinary course of business.
(h) Name Changes. Change its corporate or company name or conduct its
------------
business under any trade name other than as set forth in this Agreement.
(i) Change of Control. Intentionally deleted.
-----------------
(j) Prohibited Transfers. Transfer, in any manner, either directly or
--------------------
indirectly, any cash, property, or other assets to any parent or any Affiliate
or Subsidiary, except for any cash, property, or other assets that may be
transfered to Custom Products Corporation and except for any sales made in the
ordinary course of business and for fair consideration on terms no less
favorable than if such sale had been an arms-length transaction between Borrower
and an unaffiliated entity.
(k) Use of Proceeds. Apply any of the proceeds from the Loans to
---------------
any Affiliate or Subsidiary, except in connection with the acquisition of Custom
Products Corporation and the operation of Custom Acquisition Corporation.
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<PAGE>
(l) No Management Change. Suffer any change in the management of
--------------------
Borrower which Fleet deems, in its reasonable discretion, to be a material
adverse change.
(m) Leasebacks. Lease any real estate or other capital asset from any
----------
lessor who shall have acquired such property from Borrower.
(n) Business Operations. Engage in any business other than the
-------------------
business in which it is currently engaged or a business reasonably related
thereto, except for any business that may be conducted through its wholly owned
subsidiary Custom Acquisition Corporation.
(o) Dividend. Declare or pay any cash dividend on Borrower's capital
--------
stock or make any other Distribution with respect to Borrower's capital stock or
redeem, retire, purchase or otherwise acquire, directly or indirectly, for value
or set apart any sum for the redemption, retirement, purchase or other
acquisition of, directly or indirectly, any share of Borrower' capital stock,
unless after giving effect hereto, Borrower is in compliance with the Financial
Covenants as set forth in Section 6.04.
(p) Contingent Liabilities. Assume, guaranty, endorse or otherwise
----------------------
become liable upon the obligations of any Person, except as required by this
Agreement and by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
(q) Investment, Loans, Guarantees, Revolving Loans. Lend or advance
-----------------------------------------------
money, credit or property to any Person, or invest in (by capital contribution,
creation of subsidiaries or otherwise), or purchase or repurchase the stock or
indebtedness, or all or a substantial part of the assets of properties, of any
Person, other than with respect to Custom Acquisition Corporation, or enter into
any exchange of securities with any Person, or guaranty, assume, endorse, or
otherwise become responsible for (directly or indirectly or by any instrument
having the effect of assuring any Person's payment or performance or capability)
the indebtedness, performance, obligations, stock, or dividends of any Person,
or agree to do any of the foregoing, or permit or suffer any Subsidiary to do
so, except:
(i) endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
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<PAGE>
(ii) investments representing the indebtedness of any Person
owing as a result of the sale of goods by Borrower or Borrower's
Subsidiaries in the ordinary course of business;
(iii) the extension of credit to customers in the ordinary
course of business.
(r) Immigration. Hire any employee in violation of any law regulating
-----------
immigration and naturalization.
6.04 FINANCIAL COVENANTS. Borrower agrees and covenants that from the
-------------------
date hereof until payment in full and performance of all Obligations, it shall
not:
(a) Minimum Tangible Net Worth. Permit its Tangible Net Worth to be
--------------------------
less than $3,000,000.00 at any time. Beginning with the Borrower's fiscal year
end of June 30, 1998, this level must increase each year by an amount equal to
50% of the Borrower's annual net income. This covenant shall be tested
quarterly.
(b) Minimum Debt Service Coverage Ratio. Permit its Debt Service
-----------------------------------
Coverage Ratio to be less than 2.0 to 1.0 at any time. This covenant shall be
tested quarterly.
(c) Maximum Leverage Ratio. Permit its Leverage Ratio to be greater
----------------------
than 1.25 to 1 at any time. This covenant shall be tested quarterly.
(d) No Two Consecutive Quarterly Losses: Permit its net income, as
-----------------------------------
defined by GAAP, to be less than one dollar ($1.00) in two consecutive quarters.
This covenant shall be tested quarterly.
VII. FUTURE GRANT OF COLLATERAL.
--------------------------
The Borrower hereby agrees that in the event the Borrower fails to make a
contingent payment required to be made under the Asset Purchase Agreement dated
as of November 14, 1997, by and among the Borrower, Custom Products Corporation,
Gerald Shaff and Carole Shaff (the "Custom Products Agreement"), the Borrower
shall immediately pledge, assign, transfer, and grant to Fleet and, in the case
of its subsidiaries cause to be granted to Fleet, a continuing, first priority
lien and security interest in all of the Borrower's and its subsidiaries'
business assets including, but not limited to, inventory, equipment, work in
process, accounts receivable, real estate, and intangibles, in order to secure
the payment and performance of the Obligations hereunder. In such
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event, and upon Fleet's request, the Borrower shall immediately execute and
deliver to Fleet, or cause to be immediately executed and delivered to Fleet,
security agreements, in form and substance satisfactory to Fleet, together with
UCC-1 financing statements.
VIII. DEFAULT.
-------
8.01 EVENTS OF DEFAULT. The Obligations shall, at the option of Fleet,
-----------------
become immediately due and payable in full without notice or demand unless
otherwise provided in this Agreement upon the occurrence of any of the following
events (collectively, "Events of Default" and individually, an "Event of
----------------- --------
Default"):
(a) failure of Borrower to pay any installment of principal or
interest or any other Obligation arising under this Agreement, the Note, or the
other Loan Documents when such Obligation becomes due;
(b) breach of any of the Obligations by Borrower including, without
limitation, any covenant, representation, or warranty contained in this
Agreement, or of Borrower's failure to perform any act, duty or obligation as
required by this Agreement or any of the other Loan Documents;
(c) the making by Borrower of any material misrepresentation of a
material fact to Fleet;
(d) insolvency (failure of Borrower to pay its debts as they mature or
when the fair value of Borrower's assets is less than its liabilities) of
Borrower, or business failure, appointment of a receiver or custodian, or
assignment for the benefit of creditors or the commencement of any proceedings
under any bankruptcy or insolvency law by or against Borrower for the
Obligations; appointment of a committee of creditors or liquidating banks, or
offering of a composition or extension to creditors by, for or of Borrower;
however, if an involuntary bankruptcy petition is filed, an Event of Default
shall occur if the petition is not dismissed within thirty (30) days of filing;
(e) the loss, revocation or failure to renew any license or permit now
held or hereafter acquired by Borrower which materially affects the ability of
the Borrower to continue its operations as presently conducted;
(f) a default, after any applicable cure period, in any other Loan
Document or other agreements between Fleet and Borrower;
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<PAGE>
(g) the filing of any lien or security interest, voluntary or
involuntary, against any of the Borrower's business assets, or against any of
its subsidiaries business assets, except for (i) an involuntary lien that is
discharged of record within thirty (30) days of filing, or (ii) a security
interest granted to Custom Products Corporation pursuant to Section 4(f) of the
Custom Products Agreement which is junior and subordinate to the security
interest to be granted in favor of Fleet upon the occurrence of a default under
the Custom Products Agreement;
(h) if the Borrower or any of its subsidiaries shall enter into an
agreement with any of their creditors not to grant any lien or security interest
in any of their business assets;
(i) dissolution or termination of existence of Borrower;
(j) failure by Borrower to pay or perform any other Indebtedness in
excess of $5,000 (other than trade debt), or if any such other Indebtedness
shall be accelerated, or if there shall exist any default under any instrument,
document or agreement governing, evidencing or securing such other Indebtedness;
(k) a material adverse change in the condition, financial or
otherwise, of Borrower as determined by Fleet in its reasonable discretion;
Upon the happening of any one or more Events of Default, any requirements upon
Fleet to make further Revolving Loans shall terminate. Borrower expressly
waives any presentment, demand, protest, notice of protest or other notice of
any kind. Fleet may proceed to enforce the rights of Fleet whether by suit in
equity or by action at law, whether for specific performance of any covenant or
agreement contained in this Agreement, the Note, or any other Loan Documents, or
in aid of the exercise of any power granted in either this Agreement, the Note,
or the other Loan Documents, or it may proceed to obtain judgment or any other
relief whatsoever appropriate to the enforcement of such rights, or proceed to
enforce any legal or equitable right which it may have by reason of the
occurrence of any Event of Default.
8.02 DECLARED DEFAULT. Upon the occurrence of an Event of Default, Fleet
----------------
shall have in any jurisdiction where enforcement is sought, in addition to all
other rights and remedies which Fleet may have under law and equity, the
following rights and remedies, in the event a security interest shall be granted
to Fleet pursuant to the terms of this Agreement, all of which may be exercised
with or without further notice to Borrower and without a prior judicial or
administrative hearing or notice, which notice and hearing are expressly waived:
(a) to enforce or foreclose the liens and security interests created
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<PAGE>
under the Loan Documents, this Agreement or under any other agreement relating
to any of the Borrower's business assets by any available judicial procedure or
without judicial process, (b) to enter any premises where any of the Borrower's
business assets may be located for the purpose of taking possession or removing
the same, (c) to sell, assign, lease, or otherwise dispose of any of the
Borrower's business assets or any part thereof, either at public or private
sale, in lots or in bulk, for cash, on credit or otherwise, with or without
representations or warranties, and upon such terms as shall be acceptable to
Fleet, all at Fleet's sole option and as it in its sole discretion may deem
advisable, (d) to bid or become purchaser at any such sale if public, free from
any right of Borrower of redemption, after sale, which is expressly waived by
Borrower, and (e) at the option of Fleet, to apply or be credited with the
amount of all or any part of the Obligations owing to Fleet against the purchase
price bid by Fleet at any such sale.
8.03 SPECIFIC POWERS. In the event a security interest is granted to
---------------
Fleet pursuant to Article VII of this Agreement, Fleet may at any time, after
the occurrence of an Event of Default, at its sole discretion:
(a)(i) give notice of assignment to any Account debtor of Borrower;
(ii) collect Accounts directly and charge the collection costs and expenses to
Borrower's demand deposit account; (iii) settle or adjust disputes and claims
directly with Account debtors of Borrower for amounts and upon terms which Fleet
considers advisable, and credit the demand deposit account with the net amounts
received in payment of Accounts; (iv) exercise all other rights granted in this
Agreement and the other Loan Documents; (v) receive, open and dispose of all
mail addressed to Borrower and notify the Post Office authorities to change the
address for delivery of Borrower's mail to an address designated by Fleet; (vi)
endorse the name of Borrower on any checks or other evidence of payment that may
come into possession of Fleet and on any invoice, freight or express bill, bill
of lading or other documents; (vii) in the name of Borrower or otherwise,
demand, sue for, collect, and give acquittance for any and all monies due or to
become due on Accounts; (viii) compromise, prosecute, or defend any action,
claim or proceeding concerning Accounts; and (ix) do any and all things
necessary and proper to carry out the purposes contemplated in this Agreement,
the other Loan Documents, and any other agreement between the parties.
(b) Fleet and any person acting as its attorney hereunder shall not be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law, except for bad faith and willful misconduct. Borrower agrees that the
powers granted hereunder, being coupled with an interest, shall be irrevocable
so long as any Obligation remains unsatisfied. Notwithstanding the foregoing, it
is understood that Fleet is under no duty to take the foregoing actions and
that after having made demand upon the account
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<PAGE>
debtors of Borrower for payment, Fleet shall have no further duty as to the
collection or protection of Accounts or any income therefrom and no further duty
to preserve any rights pertaining thereto, other than the safe custody thereof.
8.04 DUTIES AFTER DEFAULT. In the event a security interest is granted to
--------------------
Fleet pursuant to Article VII of this Agreement, Fleet may at any time, after
the occurrence of an Event of Default, at its sole discretion:
(a) require the Borrower to assemble all of its business assets and
make it available to Fleet at places which Fleet may reasonably select and will
make available to Fleet all premises and facilities of Borrower for the purpose
of Fleet taking possession of the Borrower's business assets or of removing or
putting the Borrower's business assets in salable form. In the event any goods
called for in any sales order, contract, invoice, or other instrument or
agreement evidencing or purporting to give rise to any Account shall not have
been delivered or shall be claimed to be defective by any customer, Fleet shall
have the right in its discretion to use and deliver to such customer any goods
of Borrower to fulfill such order, contract or the like so as to make good any
such Account. If any of the Borrower's business assets shall require repairing,
maintenance, preparation, or the like, or is in process or other unfinished
state, Fleet shall have the right, but shall not be obligated, to do such
repairing, maintenance, preparation, processing, or completion of manufacturing
for the purpose of putting the same in such salable form as Fleet shall deem
appropriate, but Fleet shall have the right to sell or dispose of any of such
Borrower's business assets without such processing.
(b) The net cash proceeds resulting from the collection, liquidation,
sale, lease, or other disposition of the Borrower's business assets shall be
applied first to the expenses, including all reasonable attorneys' and
professional fees, of retaking, holding, storing, processing, and preparing for
sale, selling, collecting, liquidating, and the like and then to the
satisfaction of all Obligations, application as to particular Obligations or
against principal or interest to be at Fleet's sole discretion and the balance
of the proceeds, if any, shall be paid to Borrower. Borrower shall be liable to
Fleet and shall pay to Fleet on demand any deficiency which may remain after
such sale, disposition, collection or liquidation of the Borrower's business
assets.
8.05 BORROWER'S INDEMNIFICATION. Fleet shall not, under any circumstances
--------------------------
or in any event whatsoever, have any liability for any error or omission or
delay of any kind occurring in the liquidation of any of the Borrower's business
assets, including the settlement, collection or payment of any of the Borrower's
business assets, accounts or any instrument received in payment thereof, or any
damage resulting therefrom. Borrower shall indemnify and hold harmless Fleet
against and from any claim,
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<PAGE>
loss or damage arising out of the liquidation of any of the Borrower's business
assets, including the settlement, collection or payment of any of the Accounts
or any instrument received in payment thereof, provided that Fleet acted in a
commercially reasonable manner in its liquidation of any of the Borrower's
business assets.
8.06 CUMULATIVE REMEDIES. The enumeration of Fleet's rights and remedies
-------------------
set forth in this Section is not intended to be exhaustive, and the exercise by
Fleet of any right or remedy shall not preclude the exercise of any other rights
or remedies, all of which shall be cumulative and shall be in addition to any
other right or remedy given hereunder or under any other agreement between the
parties or which may now or hereafter exist in law or at equity or by suit or
otherwise. No delay or failure to take action on the part of Fleet in exercising
any right, power or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power, or privilege preclude other
or further exercise thereof or the exercise of any other right, power or
privilege or shall be construed to be a waiver of any event of default. No
course of dealing between Borrower and Fleet or their employees shall be
effective to change, modify, or discharge any provision of this Agreement or to
constitute a waiver of any default.
IX. MISCELLANEOUS.
-------------
9.01 EXPENSES. Borrower agrees to pay all expenses (including reasonable
--------
fees and expenses of Fleet or its counsel) incidental to the collection of
monies due hereunder or under the Notes or the other Loan Documents or the
enforcement of the rights (including the protection thereof) of Fleet under any
provisions of this Agreement, and the Note and the other Loan Documents.
9.02 SET-OFF. Upon a default under the Note or this Agreement, and
-------
without notice of any kind, the Borrower hereby grants to Fleet, a lien,
security interest, and right of setoff as security for all liabilities and
obligations to Fleet, whether now existing or hereafter arising, upon and
against all deposits, credits, collateral, and property, now or hereafter in the
possession, custody, safekeeping or control of Fleet or any entity under the
control of Fleet Financial Group, Inc., or in transit to any of them. At any
time, without demand or notice, Fleet may set off the same or any part thereof
and apply the same to any liability or obligation of the Borrower and any
guarantor even though unmatured and regardless of the adequacy of any other
collateral securing the Loan. ANY AND ALL RIGHTS TO REQUIRE FLEET TO EXERCISE
ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
LOAN, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS,
CREDITS, OR OTHER PROPERTY OF THE BORROWER OR
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<PAGE>
ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY, AND IRREVOCABLY WAIVED.
9.03 COVENANTS TO SURVIVE. BINDING AGREEMENT. All covenants, agreements,
---------------------------------------
warranties, and representations made herein, in the Note, in the other Loan
Documents, and in all certificates or other documents of Borrower shall survive
the advances of money made by Fleet to Borrower and the delivery of the Note,
and the other Loan Documents. All such covenants, agreements, warranties, and
representations shall be binding upon Borrower and its successors and assigns,
and inure to the benefit of Fleet and its successors and assigns, whether or not
so expressed.
9.04 CROSS-COLLATERALIZATION. Any and all of the Borrower's business assets
-----------------------
which Fleet may at any time acquire from Borrower or from any other source in
connection with Obligations arising under this Agreement and the other Loan
Documents shall constitute collateral for each and every Obligation, without
apportionment or designation as to particular Obligations. All Obligations,
however and whenever incurred, shall be secured by all of the Borrower's
business assets however and wherever acquired. Fleet shall have the right, in
its sole discretion, to determine the order in which its rights in or remedies
against any the Borrower's business assets are to be exercised and which type of
the Borrower's business assets or which portions of the Borrower's business
assets are to be proceeded against and the order of application of proceeds of
the Borrower's business assets as against particular Obligations.
9.05 CROSS-DEFAULT. The Loan shall be cross-defaulted with current and
-------------
future financing accommodations extended or to be extended by Fleet to Borrower
so that a default under any loan to Borrower shall be an Event of Default
hereunder and under all of the other loans extended by Fleet.
9.06 AMENDMENTS AND WAIVERS. This Agreement, the Note, the other Loan
----------------------
Documents, and any term, covenant, or condition hereof or thereof may not be
changed, waived, discharged, modified or terminated except by a writing executed
by the parties. The failure on the part of Fleet to exercise, or Fleet's delay
in exercising, any right, remedy or power hereunder or under the Note or the
other Loan Documents shall not preclude any other or future exercise thereof, or
the exercise of any other right, remedy or power.
9.07 NOTICES. All notices, requests, consents, demands and other
-------
communications shall be in writing and shall be mailed by registered or
certified first class mail or delivered by an overnight courier to the
respective parties to this Agreement as follows:
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<PAGE>
If to Borrower: Bolt Technology Corporation
Four Duke Place
Norwalk, Connecticut 06854
Attention: Raymond M. Soto
If to the Bank: Fleet National Bank
850 Main Street
Bridgeport, Connecticut 06604
Attention: Diane Hernandez
with a copy to: Brody and Ober, P.C.
135 Rennell Drive
Southport, Connecticut 06490
Attention: Seth L. Cooper
9.08 TRANSFER OF INTEREST.
--------------------
(a) Fleet may at any time pledge all or any portion of its rights under the
Loan Documents including any portion of the Note to any of the twelve (12)
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341. No such pledge or enforcement thereof shall release Fleet
from its obligations under any of the Loan Documents.
(b) Fleet shall have the unrestricted right at any time or from time to
time, and without Borrower's or any Guarantor's consent, to assign all or any
portion of its rights and obligations hereunder to one or more banks or other
financial institutions (each, an "Assignee"), and Borrower and each Guarantor
agrees that it shall execute, or cause to be executed, such documents, including
without limitation, amendments to this Agreement and to any other documents,
instruments, and agreements executed in connection herewith as Fleet shall deem
necessary to effect the foregoing. In addition, at the request of Fleet and any
such Assignee, Borrower shall issue one or more new promissory notes, as
applicable, to any such Assignee and, if Fleet has retained any of its rights
and obligations hereunder following such assignment, to Fleet, which new
promissory notes shall be issued in replacement of, but not in discharge of, the
liability evidenced by the promissory note held by Fleet prior to such
assignment and shall reflect the amount of the respective commitments and loans
held by such Assignee and Fleet after giving effect to such assignment. Upon
the execution and delivery of appropriate assignment documentation, amendments
and any other documentation required by Fleet in connection with such
assignment, and the payment by Assignee of the purchase price agreed to by Fleet
and such Assignee, such Assignee shall be a party to this Agreement and shall
have
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<PAGE>
all of the rights and obligations of Fleet hereunder (and under any and all
other guaranties, documents, instruments, and agreements executed in connection
herewith) to the extent that such rights and obligations have been assigned by
Fleet pursuant to the assignment documentation between Fleet and such Assignee,
and Fleet shall be released from its obligations hereunder and thereunder to a
corresponding extent.
(c) Fleet shall have the unrestricted right at any time and from time to
time, and without the consent of or notice to the Borrower (or any Guarantor),
to grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in Fleet's obligation to lend hereunder
and/or any or all of the loans held by Fleet hereunder. In the event of any such
grant by Fleet of a participating interest to a Participant, whether or not upon
notice to Borrower, Fleet shall remain responsible for the performance of its
obligations hereunder and Borrower shall continue to deal solely and directly
with Fleet in connection with Fleet's rights and obligations hereunder.
Fleet may furnish any information concerning Borrower in its possession
from time to time to prospective Assignees and Participants, provided that Fleet
shall require any such prospective Assignee or Participant to agree in writing
to maintain the confidentiality of such information.
9.09 SECTION HEADINGS, SEVERABILITY, ENTIRE AGREEMENT. Section and
------------------------------------------------
subsection headings have been inserted herein for the convenience of Fleet only
and shall not be construed as part of this Agreement. Every provision of this
Agreement, the Note, and the other Loan Documents is intended to be severable;
if any term or provision of this Agreement, the Note, the other Loan Documents,
or any other document delivered in connection herewith shall be invalid,
illegal, or unenforceable for any reason whatsoever, the validity, legality, and
enforceability of the remaining provisions hereof or thereof shall not in any
way be affected or impaired thereby. All Exhibits and Schedules to this
Agreement shall be deemed to be part of this Agreement. This Agreement, the
other Loan Documents, and the Exhibits and Schedules attached hereto and thereto
embody the entire agreement and understanding between Borrower and Fleet and
supersede all prior agreements and understandings relating to the subject matter
hereof unless otherwise specifically reaffirmed or restated herein.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which, when so executed and delivered shall be an
original, and it shall not be necessary when making proof of this Agreement to
produce or account for more than one counterpart.
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<PAGE>
9.11 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement and the
--------------------------------------
other Loan Documents, and all transactions, assignments and transfers hereunder
and thereunder, and all the rights of the parties, shall be governed as to
validity, construction, enforcement and in all other respects by the laws of the
State of Connecticut. Borrower agrees that the Superior Court for the Judicial
District of Bridgeport or the United States District Court for the District of
Connecticut at Bridgeport shall have jurisdiction to hear and determine any
claims or disputes pertaining to the financing transactions of which this
Agreement is a part and to any matter arising or in any way related to this
Agreement or any other agreement between Fleet and Borrower. Borrower expressly
submits and consents in advance to such jurisdiction in any action or
proceeding.
9.12 UNIFORM COMMERCIAL CODE. Borrower shall comply with and, in the event
-----------------------
a security interest is granted to Fleet pursuant to the terms of this Agreement,
Fleet shall have all the rights and remedies of a secured party under the
Uniform Commercial Code, as enacted in Connecticut, as amended.
9.13 FURTHER ASSURANCES/REPLACEMENT DOCUMENTS.
----------------------------------------
(a) At the request of Fleet, Borrower agrees that at its expense, it shall
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that Fleet may request,
in order to perfect and protect any security granted or purported to be granted
hereby including, but not limited to UCC-l financing statements, or to enable
Fleet to exercise and enforce its rights and remedies hereunder.
(b) Upon receipt of an affidavit of an officer of Fleet as to the loss,
theft, destruction or mutilation of the Note or any other security document
which is not of public record, and, in the case of any such loss, theft,
destruction, or mutilation, upon surrender and cancellation of such Note or
other security document, Borrower will issue, in lieu thereof, a replacement
Note or other security document in the same principal amount thereof and
otherwise of like tenor.
9.14 PREJUDGMENT REMEDY WAIVER; WAIVERS. BORROWER ACKNOWLEDGES THAT THE
----------------------------------
LOAN, AND SECURITY INTERESTS THAT MAY BE GRANTED PURSUANT TO ARTICLE VII OF THIS
AGREEMENT, ARE COMMERCIAL TRANSACTIONS AND WAIVES ITS RIGHT TO NOTICE AND
HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE
ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH
FLEET MAY
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DESIRE TO USE, AND FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT,
NOTICE OF NONPAYMENT, PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS.
BORROWER ALSO WAIVES IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT BY FLEET THE
RIGHT TO ASSERT WITH REGARD TO THIS AGREEMENT, ANY OFFSETS OR COUNTERCLAIMS IT
MIGHT HAVE. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, WILLINGLY
AND VOLUNTARILY, AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF
THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
9.15 JURY TRIAL WAIVER. BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY
-----------------
SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY
WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART OR
THE ENFORCEMENT OF ANY OF FLEET'S RIGHTS. BORROWER ACKNOWLEDGES THAT IT MAKES
THIS WAIVER KNOWINGLY, WILLINGLY AND VOLUNTARILY, AND WITHOUT DURESS, AND ONLY
AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS
ATTORNEYS. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR FLEET TO ACCEPT
THE NOTE AND MAKE THE LOAN.
The parties have executed this Agreement on January 5, 1998.
Signed in the presence of: BOLT TECHNOLOGY CORPORATION
______________________________
By /s/ Raymond M. Soto
----------------------
______________________________ Raymond M. Soto
Its President, duly authorized
FLEET NATIONAL BANK
_____________________________
_____________________________ By /s/ Diane Hernandez
----------------------
Diane Hernandez
Its Vice President
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<PAGE>
STATE OF CONNECTICUT )
) ss: Fairfield
COUNTY OF FAIRFIELD )
On this the ___ day of January, 1998, before me, the undersigned officer,
personally appeared Raymond M. Soto who acknowledged himself to be the President
of BOLT TECHNOLOGY CORPORATION, a Connecticut corporation, and that he, as such
officer, being authorized so to do, executed the foregoing instrument for the
purposes therein contained and acknowledged the same to be his free act and deed
individually and as such officer, and the free act and deed of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
_________________________________
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss: Fairfield
COUNTY OF FAIRFIELD )
On this the ___ day of January, 1998, before me, the undersigned officer,
personally appeared Diane Hernandez, who acknowledged herself to be the Vice
President of FLEET NATIONAL BANK, a national banking association, and that she,
as such officer, being authorized so to do, executed the foregoing instrument
for the purposes therein contained and acknowledged the same to be her free act
and deed individually and as such officer, and the free act and deed of the
national banking association.
IN WITNESS WHEREOF, I hereunto set my hand.
_________________________________
Commissioner of the Superior Court
slc/loandocs/fleet/bolt.loa
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FLEET NATIONAL BANK
$3,500,000.00 Revolving Loan
made to
BOLT TECHNOLOGY CORP.
December ___, 1997
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List of Exhibits and Schedules
Exhibit A Revolving Loan Note
Exhibit B Form of Certificate of Compliance
Schedule 5(d) Pending or threatened litigation
Schedule 5(h) Other encumbrances
Schedule 5(n) Places of business
Schedule 5(o) Contingent liabilities
Schedule 5(q) Union contracts and pension agreements
Schedule 5(r) Stock Matters
Schedule 5(w) Parent, affiliate or subsidiary corporations
Schedule 6.03(b) Exceptions to limitation on indebtedness
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EXHIBIT B
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BOLT TECHNOLOGY CORPORATION
Covenant Compliance Calculations
Agreement with Fleet National Bank dated January 5, 1998
6.04(a) Tangible Net Worth shall not be less than $3,000,000 at any time.
Beginning with the Borrower's fiscal year end of June 30, 1998, this
level must increase each year by an amount equal to 50% of the
Borrower's annual net income.
Definition: Total Net Worth less Intangible Assets, as defined in the
Agreement.
Total Net Worth ___
Less: Intangibles ___
Tangible Net Worth ___
6.04(b) Debt Service Coverage Ratio shall not be less than 2.0 to 1.0 at any
time.
Definition: EBITDA less cash taxes paid/current maturities of long
term debt plus Interest
EBITDA ___
less cash taxes paid ___
Subtotal ___
Divided by
current maturities of long term debt ___
plus Interest ___
Subtotal ___
Debt Service Coverage Ratio ___
6.03(c) Leverage Ratio shall not be greater than 1.25 to 1.0 at any time.
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Definition: Total Liabilities divided by Total Net Worth, as defined
in the Agreement.
Total Liabilities ___
divided by Total Net Worth ___
Leverage Ratio ___
6.04(d) Quarterly Losses: Net income, as defined by GAAP, shall not be less
than $1.00 for two consecutive quarters.
Net Income ___
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