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U.S. 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) Commission File Number:
December 17, 1997 0-16011
WATSON GENERAL CORPORATION
(Name of small business issuer in its charter)
CALIFORNIA 95-2873757
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization Identification No.)
12265 W. BAYAUD AVE #110 80228
LAKEWOOD, CO
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number: (303) 986-8011
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 17, 1997, Watson General Corporation (the "Company")
acquired all of the outstanding capital stock of Advanced Tank Certification,
Inc. ("ATC"), a Tennessee corporation, for an aggregate of $3.3 million in cash
and stock. ATC was considered the fourth largest provider of statistical
inventory reconciliation (SIR) services in the United States. ATC operations
will be consolidated at the Company's Lakewood, Colorado headquarters in order
to eliminate duplication and increase efficiencies.
In connection with the acquisition, the Company has secured term and
acquisition financing from BankBoston, N.A. Pursuant to the agreement, the
Company has obtained $3,700,000 on a term loan due December 31, 2000 and bearing
interest at the BankBoston Bas Rate plus 2-1/2%. The agreement contains a number
of restrictive covenants as well as other obligations of the Company. The
Company intends to use this financing to facilitate the ATC acquisition, to pay
current debt, to facilitate prospective acquisitions and for working capital
purposes. The agreement with BankBoston provides that additional financing can
be made available to the Company for approved future acquisitions.
Copies of the Primary Stock Purchase Agreement and Contingent Stock
Purchase Agreement with respect to the ATC acquisition, as well as the Term Loan
and Acquisition Line Agreement between the Company and BankBoston, are attached
to this report on Form 8-K as exhibits hereto and are incorporated by this
reference.
ITEM 5. OTHER EVENTS.
On December 16, 1997, the Board of Directors elected three new officers
of ATC as senior executives and officers of the Company.
JAMES B. GRANT, who was the President and Chief Executive Officer of
ATC, has been appointed the Company's Vice President of Corporate Development.
Mr. Grant has been with ATC since 1988 and was instrumental in broadening its
mix of services as well as attracting key customers. Previously, he worked with
the Tennessee Valley Authority (TVA).
ERICA BENGSTON, who was the Chief Operating Officer and
Secretary/Treasurer of ATC, has been named Chief Operating Officer of the
Company. She has been with ATC since 1987 and also worked
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as Director and Chief Analyst of the SIR department, maintaining frequent
contact with customers and regulators.
DAVID BOOTH, who has been a Vice President of ATC, has been appointed
the Chief Financial Officer, Secretary and General Counsel of the Company. He
began providing legal services to ATC in 1988 and became its General Counsel in
1993.
The Company's common stock currently is listed on the NASDAQ Small Cap
Market. New listing standards have been adopted by NASDAQ, and currently listed
companies will have until February 23, 1998 to comply with the new continuing
inclusion requirements. As of the date hereof, the Company satisfies all of the
new requirements with one exception, which requires a listed Company to have
either Net Tangible Assets of $2.0 Million, Market Capitalization of $35.0
Million or Net Income (in latest fiscal year or 2 of the last 3 fiscal years) of
$500,000 or more. With regards to the Market Capitalization requirement, if
the market price of the Company's Common Stock as reported on NASDAQ is not less
than $1.84 per share, then the Company will satisfy the Market Capitalization
requirement and will avoid being delisted from the NASDAQ Small Cap Market. On
December 29, 1997, the closing price of the Common Stock of the Company reported
on the NASDAQ Small Cap Market was $1.625. There can be no assurances that the
Company will be able to comply with the new continuing inclusion requirements of
the NASDAQ Small Cap Market. Delisting could have a material adverse effect on
the market for the Company's Common Stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
As of the date of 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 December 17,
1997.
(b) Pro Forma Financial Information.
As of the date of 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 December 17,
1997.
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(c.) Exhibits.
Exhibit 10.1 Primary Stock Purchase Agreement
Exhibit 10.2 Contingent Stock Purchase Agreement
Exhibit 10.3 Term Loan and Acquisition Line Agreement
Exhibit 10.4 Stock Pledge Agreement
Exhibit 10.5 Security Agreement
Exhibit 10.6 Intercreditor Agreement
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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.
WATSON GENERAL CORPORATION
Date: December 30, 1997 By /s/ Dan R. Cook
--------------------------------
Dan R. Cook,
Chief Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -----------
<S> <C>
Exhibit 10.1 Primary Stock Purchase Agreement
Exhibit 10.2 Contingent Stock Purchase Agreement
Exhibit 10.3 Term Loan and Acquisition Line Agreement
Exhibit 10.4 Stock Pledge Agreement
Exhibit 10.5 Security Agreement
Exhibit 10.6 Intercreditor Agreement
</TABLE>
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EXHIBIT 10.1
PRIMARY STOCK PURCHASE AGREEMENT
This PRIMARY STOCK PURCHASE AGREEMENT ("Primary Agreement"),
dated as of December 11, 1997, is entered into by and between Watson General
Corporation ("Watson"), a publicly traded California corporation and James B.
Grant, an individual, and Erica Bengtson Grant ("Erica Bengtson"), an
individual.
WITNESSETH:
WHEREAS, this Primary Agreement has been entered into
contemporaneously with the CONTINGENT STOCK PURCHASE AGREEMENT ("Contingent
Agreement") between Watson and Environmental Systems Corporation ("ESC") for the
purchase by Watson of all of the common stock of Advanced Tank Certification,
Inc. ("ATC") owned by ESC, that is, eight hundred and seventy (870) shares of
ATC Stock;
WHEREAS, ATC is a Tennessee corporation with its principal place
of business at 211 Center Park Drive, Knoxville, TN 37922;
WHEREAS, James B. Grant is the President and Chief Executive
Officer of ATC;
WHEREAS, Erica Bengtson is the Secretary and Treasurer of ATC;
WHEREAS, no person other than James B. Grant and Erica Bengtson
is an officer of ATC;
WHEREAS, James B. Grant is the Chairman of the Board of Directors
of ATC;
WHEREAS, Erica Bengtson is the Secretary of the Board of
Directors of ATC;
WHEREAS, no person other than James B. Grant and Erica Bengtson
is a member of the Board of Directors of ATC;
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WHEREAS, James B. Grant and Erica Bengtson jointly, after
consultation with one another have the authority to enter into agreements on
behalf of ATC;
WHEREAS, no one other than James B. Grant and Erica Bengtson has
any authority to enter into agreements on behalf of ATC;
WHEREAS, James B. Grant, Erica Bengtson, and ESC own all of the
outstanding capital stock consisting of shares of common stock of ATC;
WHEREAS, the stock ownership of ATC is as follows:
Erica Bengtson 5,583.9 Shares = 55.2199%
James B. Grant 3,658.2 Shares = 36.1764%
ESC 870.0 Shares = 8.6035%
TOTAL 10,112.1 Shares
WHEREAS, Watson desires to acquire all of said 10,112.1 shares
from James B. Grant, Erica Bengtson, and ESC;
WHEREAS, James B. Grant and Erica Bengtson desire to sell their
respective shares of ATC stock to Watson;
WHEREAS, ESC has entered into a Contingent Agreement to sell its
eight hundred and seventy (870) shares of ATC stock to Watson;
WHEREAS, the Primary Agreement and the Contingent Agreement,
taken together, will convey all of the common stock of ATC to Watson;
WHEREAS, this Primary Agreement is wholly contingent upon the
Contingent Agreement being executed and performed. Otherwise, this Primary
Agreement shall be invalid, non-binding, unenforceable, and of no consequence;
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NOW, THEREFORE, in consideration of the premises and of the
respective representations, warranties, covenants, agreements and conditions
contained herein, the parties to this Primary Agreement hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
The terms set forth below in Article I shall have the meanings ascribed to them
below:
Affiliate: with respect to any person, means any person that
directly or indirectly controls, is controlled by or is under common control
with such person.
Applicable Law: means any and all federal, national, state,
regional, local, municipal or foreign laws, statutes, rules, regulations,
guidelines, ordinances, licenses, permits or judicial or administrative
decisions of any country, or any political subdivision, agency, commission,
official or court thereof having jurisdiction over James B. Grant, Erica
Bengtson, or ATC.
Best Efforts: means a party's efforts in accordance with
reasonable commercial practice and without the incurrence of unreasonable
expense.
Business: means all of the business and operations conducted by
ATC.
Code: means the United States Internal Revenue Code of 1986, as
amended, or any amending or superseding Tax laws of the United States.
Environmental Law: means any applicable law (including common
law) regulating or prohibiting Releases into any part of the workplace or the
environment, or pertaining to the protection or improvement of natural resources
or wildlife, the environment or public and employee health and safety including,
without limitation, the Comprehensive
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Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U. S.C.
Section 1801 et seq. ), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), the Clean Water Act (33 U. S.C. Section 1251 et seq.),
the Clean Air Act (42 U.S.C. Section 7401 etseq.), the Toxic Substances Control
Act (15 U.S.C. Section 7401 et seq.), the Atomic Energy Act of 1954 (42 U.S.C.
Section 2014 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.) ("OSHA") and the regulations promulgated pursuant
thereto, and any such applicable state or local statutes, and the regulations
promulgated pursuant thereto, as such laws have been and may be amended or
supplemented.
Hazardous Material: means any substance, material or waste which
is regulated pursuant to any Environmental Law by any public or governmental
authority in any jurisdiction in which ATC conducts business, or the United
States, including, without limitation, any material or substance which is
defined as a "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "contaminant," "toxic
waste," "toxic substance," " source material," "special nuclear material,"
"byproduct material," "high-level radioactive waste," "low-level radioactive
waste" or "spent nuclear material" under any provision of Environmental Law.
IRS: means the United States Internal Revenue Service.
Lien: means any lien, pledge, claim, charge, security interest,
mortgage or other encumbrance, option or other rights of any third person of any
nature whatsoever.
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Permit: means any and all federal, national, state, regional,
local, municipal or foreign licenses, permits, variances, waivers, riders,
registrations or any other governmental authorizations or approvals necessary or
appropriate for ATC to conduct its Business.
Person: means any individual, firm, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization, government or agency or subdivision thereof or any other entity.
Regulation: means a United States Department of Treasury
regulation issued with respect to the Code.
Release: means any release, spill, effluent, emission, leaking,
pumping, pouring, emptying, escaping, dumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment, or into or out of any property currently or formerly owned,
operated or leased by ATC.
Remedial Action: means all actions, including, without
limitation, any capital expenditures, lawfully required by a governmental entity
under any Environmental Law, or voluntarily undertaken to (a) clean up, remove,
treat, or in any other way ameliorate or address any Hazardous Materials or
other substance in the indoor or outdoor environment; (b) prevent the Release or
threat of Release, or minimize the further Release of any Hazardous Material so
it does not endanger or threaten to endanger the public or employee health or
welfare of the indoor or outdoor environment; (c) perform pre-remedial studies
and investigations or post-remedial monitoring and care pertaining or relating
to a Release; or (d) bring the applicable party into compliance with any
Environmental Law.
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Taxes: means all United States federal, state, county and local,
foreign and all other taxes, charges, fees, levies or other assessments,
including, without limitation, all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, profit share, license,
lease, service, service use, value added, withholding, payroll, employment,
excise, estimated, severance, stamp, occupation, premium, real and personal
property, windfall profits, gains, capital stock, production, business and
occupation, disability, custom duties or other taxes of any kind whatsoever,
together with any interest, penalties, additions to tax, fines or other
additional amounts imposed thereon or related thereto, and the term "Tax" means
any one of the foregoing Taxes.
Tax Certificate: shall have the meaning set forth at Section
6.11.
Tax Returns: means all United States federal, local and state and
all foreign returns declarations, reports, estimates, information returns,
statements and other documents of, relating to, or required to be filed in
respect of, any and all Taxes.
ARTICLE II
PURCHASE AND SALE
Section 2.1 The Sale. Upon the terms and subject to the
conditions of this Agreement, at the Closing, as defined below under Article
III, James B. Grant and Erica Bengtson will sell, assign, transfer and deliver
their shares of ATC stock (the "Subject Shares") to Watson (together with a
stock power or powers executed in blank), and Watson will purchase and acquire
the Subject Shares from them.
Section 2.2 Purchase Price. The purchase price for all the
Subject Shares (the "Purchase Price") shall be $3,016,084.22. The Purchase Price
shall be paid by Watson at Closing
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by (i) wire transfer of $2,016,084.22 in immediately available funds to accounts
and in the allocation designated in writing by James B. Grant and Erica Bengtson
before Closing and (ii) delivery of shares of Common Stock of Watson ("Watson
Stock") valued at $1,000,000.00 as provided hereinafter.
(i) Wire Transfer. The $2,016,084.22 subject to wire transfer
shall be distributed as follows:
Erica Bengtson: $1,218,078.98 shall be wire transferred
immediately to her credit pursuant to her accompanying instruction.
James B. Grant: $798,005.24 shall be wire transferred immediately
to his credit pursuant to his accompanying instruction.
(ii) Watson Stock. Pursuant to this Primary Agreement, Watson
Stock valued at $1,000,000.00, that is, 775,194 shares of Watson Stock shall be
part of the purchase price. Said 775,194 shares of Watson Stock shall be
allocated 60.418% to Erica Bengtson and 39.582% to James B. Grant. The number of
shares of Watson Stock to be received by Erica Bengtson shall be 468,357 shares.
The number of shares to be received by James B. Grant shall be 306,837 shares.
ARTICLE III
CLOSING
The closing of transactions contemplated hereby (the "Closing")
shall occur at such time, date and location as mutually agreed to by ESC and the
parties to the Primary Agreement (but in no event later than 11:00 a.m.,
December 22, 1997.)
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF JAMES B. GRANT AND ERICA BENGTSON
James B. Grant and Erica Bengtson jointly and severally represent
and warrant to Watson the following:
Section 4.1 Organization and Good Standing of ATC. ATC is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has full corporate power and
authority to own, operate and lease its assets in the manner currently owned,
operated and leased by it and to carry on its business as now conducted. ATC is
duly qualified to do business as a corporation in all jurisdictions in which the
nature of its business requires such qualification and where the failure to do
so would have a material adverse effect on ATC. Schedule 4.1 is a complete list
of all jurisdictions in which ATC is currently licensed or qualified to transact
business as a foreign entity.
Section 4.2 Corporate Records. Copies of the certificate of
incorporation and by-laws of ATC have been delivered to Watson and are complete
and accurate as of the date hereof. The minute book and stock book of ATC have
been exhibited to Watson, and each is a complete and accurate record of the
material corporate actions of the stockholders and directors (and any committees
thereof) of ATC through the date hereof and all issuances, cancellations and
transfers of the capital stock thereof.
Section 4.3 Authorization. James B. Grant and Erica Bengtson have
full power and authority to execute and deliver this Primary Agreement and the
exhibits and schedules hereto, to consummate the transactions contemplated
herein and to take all actions required to be taken by them pursuant to the
provisions hereof. This Primary Agreement and the exhibits hereto constitute
valid and binding obligations on James B. Grant and Erica Bengtson
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enforceable against them in accordance with the terms of this Primary Agreement,
except as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditorso rights and general principles of equity.
Section 4.4 Non-Contravention. Except as set forth in Schedule
4.4, neither the execution and delivery of this Primary Agreement or any
documents executed in connection herewith, nor the consummation of the
transactions contemplated herein or therein, does or will violate, conflict
with, result in breach of or require notice or consent under any Applicable Law,
the charter or by-laws of ATC or any provision of any agreement or instrument to
which James B. Grant, Erica Bengtson, or ATC is a party or result in the
creation of any Lien upon the capital stock, properties or assets of ATC. Except
as set forth in Schedule 4.4 no consent, approval exemption, authorization or
other action of, or notice to or filing with, any third party, court or
administrative or other governmental or regulatory body is required by James B.
Grant, Erica Bengtson, or ATC to execute, deliver or perform this Primary
Agreement and to consummate the transactions contemplated herein and to take all
actions required to be taken by them pursuant to the provisions hereof.
Section 4.5 Validity. There are no pending or known threatened
judicial or administrative actions, proceedings or investigations which question
the validity of this Primary Agreement or any action taken or contemplated by
James B. Grant or Erica Bengtson in connection with this Primary Agreement.
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Section 4.6 Broker Involvement. Neither James B. Grant, Erica
Bengtson, nor ATC has hired, retained or dealt with any broker or finder in
connection with the transactions contemplated by this Primary Agreement.
Section 4.7 Litigation. Except as set forth in Schedule 4.7,
there is no investigation, claim or proceeding or litigation of any type pending
or threatened involving ATC or that, to the best knowledge of James B. Grant or
Erica Bengtson, would have an adverse effect on ATC, and there is no judgment,
order, writ, injunction or decree of any court, government, governmental agency
or arbitral tribunal against or involving ATC or that, to the knowledge of James
B. Grant and Erica Bengtson, would have an adverse effect on ATC or Watson.
Section 4.8 Title to Shares. All of the outstanding ATC shares of
Common Stock were duly authorized for issuance and are validly issued, fully
paid and nonassessable, and none of such shares are held in treasury. James B.
Grant and Erica Bengtson own, or will own prior to Closing, the Subject Shares
which are the subject of this Primary Agreement beneficially and of record, free
and clear of all Liens, and such shares are not, or will not be prior to
closing, subject to any agreements or understandings with respect to the voting
or transfer of any of the shares. There are no outstanding subscriptions,
options, convertible securities, warrants or calls of any kind issued or granted
by, or binding upon, James B. Grant and Erica Bengtson to purchase or otherwise
acquire or to sell or otherwise dispose of any security of or equity interest in
ATC. James B. Grant and Erica Bengtson have the requisite legal right to sell,
assign and transfer the shares owned by each to Watson and will upon delivery of
a certificate or certificates representing such shares to Watson pursuant to the
terms hereof, transfer to Watson title to such shares, free and clear of any
Liens.
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Section 4.9 Contracts and Commitments. Schedule 4.9 lists all
agreements, leases, commitments, contracts, undertakings or understandings, oral
or written, to which ATC is a party as of the date of execution of this Primary
Agreement, including but not limited to trademark, trade name or patent license
agreements, service agreements, lease, purchase or sale agreements, supply
agreements, distribution or distributor agreements, purchase orders, customer
orders and equipment rental agreements, that are material to ATC and involve
consideration with value of $10,000 or more. ATC is not in breach of or default
under any agreement, lease, contract or commitment listed or of a type required
to be listed (without regard to the date thereof) in Schedule 4.9 (collectively,
the "Agreements"). Each Agreement is a valid, binding and enforceable agreement
of ATC and, to the knowledge of James B. Grant and Erica Bengtson after
reasonable investigation, enforceable except as such enforcement may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditorso rights and general principles of
equity. There has not occurred any breach or default under any Agreement on the
part of the other parties thereto, and no event has occurred which with the
giving of notice or the lapse of time, or both, would constitute a default under
any Agreement. There is no dispute between the parties to any Agreement as to
the interpretation thereof or as to whether any party is in breach or default
thereunder, and no party to any Agreement has indicated its intention to, or
suggested it may evaluate whether to, terminate any Agreement. ATC is not a
party to any covenant or obligation of any nature limiting the freedom of ATC to
compete in any line of business after the Closing. No notice has been given
under any lease to extend the term thereof beyond its current term.
Section 4.10 Taxes.
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(a) ATC and any affiliated, combined or unitary group of which
ATC is or was a member has (i) timely (taking into account any extension) filed
all Tax Returns required to be filed or sent with respect to any Taxes, (ii)
timely paid all Taxes (including estimated Taxes) that are due and payable for
which ATC may be liable, (iii) established reserves that are adequate for the
payment of all Taxes not yet due and payable with respect to the results of
operation of ATC through the Closing Date and (iv) complied in all respects with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has in all respects timely withheld from employee wages
and paid over to the proper taxing and other governmental authorities all
amounts required to be so withheld and paid over, based on the manner in which
ATC has classified its employees under the Fair Labor Standards Act and
Department of Transportation regulations.
(b) Schedule 4.10 sets forth any affiliated, consolidated,
combined, unitary or similar group Tax Return in which ATC is or has been a
member or is or has joined in the filing. Except to the extent being contested
in good faith, all deficiencies asserted as a result of such examinations have
been paid, fully settled or adequately provided for in accordance with GAAP. No
Tax audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes for which ATC would be liable, and no
deficiency for any such Taxes has been proposed, asserted or assessed pursuant
to such examination against ATC by any taxing authority with respect to any
period.
(c) ATC has not executed or entered into with the IRS or any
other taxing authority (i) any agreement or other document extending or having
the effect of extending the period for assessments or collections of any Tax for
which ATC would be liable or (ii) a closing
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agreement pursuant to Section 7121 of the Code that relates to the assets or
operations of ATC other than the items noted on Schedule 4.10. There are no Tax
Liens upon any assets of ATC.
(d) ATC has not made an election under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by ATC.
(e) ATC is not a party to, is not bound by, and has no obligation
under any Tax sharing agreement or similar agreement or arrangement.
Section 4.11 Title to Properties. Except as set forth in Schedule
4.11 hereto, ATC has good and indefeasible title to all of its assets, free and
clear of all Liens.
Section 4.12 Trademarks, Trade Names and Intellectual Property.
Schedule 4.12 contains an accurate and complete list of (a) all patents, pending
patent applications and invention memoranda owned by ATC or relating to the
Business of ATC, (b) all registered United States and foreign trademarks, trade
names and logos owned or used by ATC and all registrations thereof and (c) all
unregistered United States and foreign trademarks, trade names and logos used by
ATC. ATC has the right to use all trademarks, trade names, logos, patents,
pending patent applications and invention memoranda referred to herein. Except
as expressly set forth in Schedule 4.7 hereto, there is no known pending or
threatened action or claim that would impair any such right. Except as set forth
in Schedule 4.12 hereto, ATC believes it is the sole and exclusive owner of,
with all right, title and interest in and to, each item described in Schedule
4.12 and has sole and exclusive rights to the use thereof or to material covered
thereby.
Section 4.13 Financial Records; Budget. The unaudited financial
statements of ATC as of July 31, 1997 and for the year ended September 30, 1996
as set forth on Schedule
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4.13 (the "Financial Statements") are each accurate, complete, true and correct
in all material respects, were prepared in accordance with GAAP (except as set
forth therein), and fairly present in all material respects the financial
condition and results of operations of ATC. Schedule 4.13 sets forth the actual
monthly revenues of ATC for the twelve months ended July 31, 1997 from (i)
Statistical Inventory Reconciliation ("SIR") and (ii) tank testing. All
estimates set forth on Schedule 4.13 represent the good faith best estimates of
management of ATC. Schedule 4.13 also sets forth the number of tanks receiving
SIR services by ATC or for which agreements exist to provide SIR services by ATC
as of July 31, 1997 and the number of tanks tested by ATC in the twelve months
ended July 31, 1997.
Section 4.14 Condition of Assets and Inventory. Except as set
forth in Schedule 4.19, all the assets of ATC are in good, serviceable condition
and fit for the particular purposes for which they are used in the business of
ATC, subject only to normal maintenance requirements and normal wear and tear
reasonably expected in the ordinary course of business.
Section 4.15 Liabilities. Except as set forth in Schedule 4.15 or
in the financial statements and notes thereto referred to in Section 4.13 there
is no existing, contingent or, to the knowledge of James B. Grant or Erica
Bengtson after reasonable investigation, material threatened liability,
obligation, Lien or claim of any nature (absolute, accrued, contingent or
otherwise) that relates to or has been or may be asserted against ATC.
Section 4.16 Employees and Related Matters.
(a) Set forth on Schedule 4.16 is a complete list of all
employees of ATC, listing the title or position held, base salary, any
commissions or other compensation paid or payable in 1996 or 1997 as reflected
on such Schedule, all employee benefits received by such employees
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and any other terms of any oral or written agreement between any such employee
and ATC that will proximately cause a detriment to Watson. James B. Grant and
Erica Bengtson have heretofore delivered to Watson true and correct copies of
each management or employment contract or contract for personal services and a
complete description of any other presently material understanding or commitment
between ATC and any officer, consultant, director, employee or independent
contractor.
(b) ATC is not a party to any collective bargaining agreement or
labor contract.
(c) ATC has taken all necessary actions to comply with the Worker
Adjustment and Retraining Notification Act (The "WARN Act") through the Closing
Date, to the extent it is subject to such Act, and Watson shall not have any
disclosure or announcement obligations under the WARN Act as a result of the
transaction contemplated by this Primary Agreement.
Section 4.17 No Material Change. There has been no material
adverse change in the business, results of operations, assets or financial
position of ATC from July 31, 1997 to and including the date this representation
is made, and no event has occurred which could be expected to lead to or cause
such material adverse change.
Section 4.18 Compliance With Law. ATC is not in violation of any
provision of Applicable Law, including any Environmental Law, and ATC has not
received any notice of any alleged violation of such Applicable Law, which in
either case would result in a material adverse effect on ATC.
Section 4.19 Tangible Personal Property. All of the fixtures,
machinery and equipment reflected in the Financial Statements and/or used in
connection with the Business of ATC are in the possession and under the
operating control of ATC ("Tangible Personal
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Property"). Except as set forth in Schedule 4.19 hereto, no item of tangible
Personal Property requires repairs in excess of $2,500.00 to be in good,
serviceable condition and fit for the particular purpose for which it is
currently used, subject only to normal maintenance requirements and normal wear
and tear reasonably expected in the ordinary course of business.
Section 4.20 Insurance. Schedule 4.20 contains a list of all
insurance policies of ATC or relating to the conduct of the Business and the
status of prepayments. James B. Grant and Erica Bengtson have heretofore
delivered to Watson a copy of all such policies. Such policies are in full force
and effect, and ATC is not in default under any of them.
Section 4.21 Government Licenses, Permits and Related Approvals.
Schedule 4.21 sets forth a list of all Permits required for the conduct of
Business by ATC, all of which are in full force and effect and are not being
violated in any manner which would have a material adverse effect on ATC.
Section 4.22 Distributed Products. Schedule 4.22 sets forth a
complete listing of all products (a) distributed by ATC (and the manufacturer
thereof and the person, if different, for whom ATC distributes such product) or
(b) manufactured or sold by ATC and distributed by others (and the name of such
distributor). Such Schedule also sets forth the terms of each such distribution
arrangement. ATC has full right to distribute all products referred to in clause
(a) of this Section.
Section 4.23 Safety Reports. Schedule 4.23 sets forth a complete
listing of all insurance loss runs, workerso compensation reports and claims,
safety citations and reports, OSHA reports and all documents respecting ATC and
relating to any of the foregoing since January 1, 1994.
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Section 4.24 Transactions with Certain Persons. Except for
transactions with a value of less than $10,000.00, and except as set forth in
Schedule 4.24 ATC has not, directly or indirectly, (i) purchased, leased or
otherwise acquired any property or obtained any services from, or (ii) sold,
leased or otherwise disposed of any property, or (iii) furnished any services
to: (a) James B. Grant, Erica Bengtson, ESC, any officer, or director or
shareholder of ESC, or (b) any person, firm or corporation which, directly or
indirectly, alone or together with others, controls, is controlled by, or is
under common control with James B. Grant or Erica Bengtson. Except as set forth
in Schedule 4.24 ATC does not owe any amount to, or have any contract with or
commitment to, any of its shareholders, directors, officers, employees or
consultants (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of business
not in excess of $10,000.00 in the aggregate), and none of such persons owes any
amount to ATC.
Section 4.25 Accounts Receivable. Except as set forth in Schedule
4.25 as of July 31, 1997 all the accounts receivable of ATC were valid, genuine
and subsisting, arose out of bona fide sales and deliveries of goods,
performance of services or other business transactions in the ordinary course of
business, were owned free and clear and not subject to any Lien, and were
current and collectible, except for approximately $10,000.00 of "bad debt."
Section 4.26 Studies, Etc. Schedule 4.26 sets forth a compete
list of all studies, reports, plans, analyses or similar documents of a material
nature (whether prepared by James B. Grant, Erica Bengtson, or ATC or others) in
the possession or control of James B. Grant or Erica Bengtson or ATC relating to
safety, the environment, Hazardous Material, intellectual property,
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markets, competitors, strategic planning, product liability, warranties or
otherwise relating directly to ATC.
Section 4.27 Disclosure. All schedules to this Primary Agreement
are complete and accurate in all material respects or will be on the Closing
Date. No representation or warranty by James B. Grant or Erica Bengtson in this
Primary Agreement, or in any schedule or exhibit to this Primary Agreement, or
in any statement or certificate or other document furnished to Watson by James
B. Grant or Erica Bengtson, contains or will contain any untrue statement of a
material fact or omits or will omit a material fact necessary to make the
statements therein not misleading, except for such facts as are not known and
could not reasonably have been known by James B. Grant or Erica Bengtson.
Section 4.28 Employee Benefits.
(a) The term "ATC Plan" shall mean any stock purchase, stock
option, pension, profit-sharing, retirement, bonus, deferred compensation,
incentive compensation, commission, severance or termination pay,
hospitalization, medical, dental, disability, life or other insurance, or
supplemental unemployment benefits plan or agreement or policy or contract or
other insurance, or supplemental unemployment benefits plan or agreement or
policy or contract or other arrangement that is or ever has been maintained or
contributed to by ATC for the purpose of providing employment-related
compensation or benefits to any current or former officer, consultant, director,
annuitant, employee, retiree or independent contractor of ATC or members of a
person's family (other than directorso and officerso liability policies),
whether or not insured, including without limitation "employee benefit plans" as
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the rules and regulations thereunder.
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(b) As of the Closing Date, no ATC Plan is or has been (i)
covered by Title IV of ERISA, (ii) subject to the minimum funding requirements
of Section 412 of the Code, (iii) a "multi-employer plan" as defined in Section
3(37) of ERISA, (iv) subject to Section 4063 or 4064 of ERISA, or (v) a
voluntary employeeso beneficiary association within the meaning of Code Section
501(c)(9).
(c) ATC has no commitment or obligation to establish or adopt any
new or additional plans or other arrangements that would constitute an ATC Plan
if adopted, or to increase materially the benefits under any existing ATC Plan.
Schedule 4.28 sets forth true and correct copies of the following:
(i) Each written ATC Plan and all amendments thereto as of
the date hereof;
(ii) A complete written description of each other ATC Plan;
(iii) All current summary Plan descriptions provided to
employees regarding the ATC Plans;
(iv) Each trust agreement and annuity contract (or any other
funding instruments), and each insurance contract, pertaining to any of the ATC
Plans, including all amendments to such documents to the date hereof;
(v) The most recent IRS Form 5500 for any ATC Plan and
schedules thereto; and
(vi) The most recent determination letter issued by the IRS
with respect to any ATC Plan qualified under section 401(a) of the Code.
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(d) Each ATC Plan is in compliance with the provisions of all
applicable laws, rules and regulations, including, without limitations, ERISA
and the Code. No person is known to James B. Grant or Erica Bengtson to have
engaged in any prohibited transaction (within the meaning of Section 4975 of the
Code or Section 406 of ERISA) that could subject ATC to liability.
(e) All contributions and premiums required of ATC by any legal
requirement or by the terms of any ATC Plan or any contract relating thereto
have been timely made (without regard to any waivers granted with respect
thereto) or accrued. All obligations of ATC with respect to each ATC Plan have
been paid or performed.
(f) Except as provided in Schedule 4.28 no ATC Plan provided for
medical, life insurance or health benefits or death benefits after an employee's
termination of employment (including retirement) except for continuation
coverage required pursuant to Section 4980B of the Code and Part 6 of Title I of
ERISA and the regulations thereunder.
(g) ATC has no obligation to make any payments that would be
"excess parachute payments" under Section 280G of the Code. Except as set forth
on Schedule 4.28 consummation of the transactions contemplated by this Primary
Agreement will not (A) entitle any current or former employee of ATC to
severance pay, employment compensation or any other payment, benefit or award
(whether under an ATC Plan or otherwise) or (B) accelerate the time of payment
or vesting, or increase the amount of any benefit, award (including stock
options, restricted stock and similar awards) or compensation due any such
employee or former employee.
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(h) There are no known pending, threatened or anticipated claims
or proceedings against any ATC Plan, the assets of any ATC Plan or ATC, or the
Plan administrator or fiduciary of any ATC Plan with respect to the operation of
any such Plan (other than routine, uncontested benefit claims), and there are no
known facts or circumstances that could form the basis for any such claim or
proceeding.
Section 4.29 Environmental Matters.
(a) The operations of ATC have been and, as of the Closing Date,
will be, in compliance with all Environmental Laws in all material respects;
(b) ATC has obtained and will, as of the Closing Date, maintain
all Permits and has made and will, as of the Closing Date, make all material
filings, reports and notices required under applicable Environmental Law in
connection with the operation of its Business;
(c) As of the date hereof, ATC is not subject to any outstanding
written orders, contracts or agreements with any governmental entity or other
person respecting (i) Environmental Law, (ii) Remedial Action, (iii) any Release
or threatened Release of Hazardous Material or (iv) an assumption of
responsibility for environmental claims of another entity;
(d) ATC has not received any written communication alleging, with
respect to any such party, a material violation of or material liability under
any Environmental Law or requesting, with respect to any such party, information
with respect to an investigation pursuant to CERCLA or any other Environmental
Law;
(e) ATC has no known material contingent liability in connection
with the Release of any Hazardous Material into the indoor or outdoor
environment (whether on-site or off-site) or employee or third-party exposure to
Hazardous Materials;
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(f) The operations of ATC involving the generation,
transportation, treatment, storage or disposal of hazardous waste, as defined
and regulated under 40 C.F.R. parts 260-270 or any state equivalent, are in
compliance with applicable Environmental Laws in all material respects; and
(g) Except as described on Schedule 4.29 there is not now, nor,
to the best knowledge of James B. Grant or Erica Bengtson as of the date hereof,
has there ever been, on or in any property owned, operated, leased or under
option by ATC or for which ATC has assumed responsibility for material
environmental claims, any of the following: (i) any underground storage tanks or
surface impediments, (ii) any on-site disposal of solid waste or Hazardous
Materials, (iii) any asbestos-containing materials or (iv) any polychlorinated
biphenyls.
Section 4.30 Conduct of the Business. Since July 31, 1997, ATC
has complied with the provisions set forth below:
(a) ATC has operated its Business in the ordinary course;
(b) Except as set forth in Schedule 4.30, neither ATC, James B.
Grant nor Erica Bengtson has (i) granted or agreed to grant any bonuses to any
employee, officer, director, representative or agent of ATC, (ii) granted any
general increase in the rates of salaries or compensation of employees,
officers, directors, representatives or agents of ATC, (iii) provided for any
new pension, retirement or other employment benefits to any employee, officer,
director, representative or agent of ATC or any increase in any existing
benefits, (iv) terminated or amended in any material respect or provided for any
material increase in benefits under any ATC Plan or (v) executed any employment
agreement, severance arrangement, consulting
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arrangement, sales agency agreement, representation agreement or distribution
agreement with any employee, officer, director, representative or agent of ATC;
(c) ATC has not amended its certificate of incorporation or
by-laws and neither James B. Grant, Erica Bengtson, nor ATC has entered into any
merger or consolidation agreement involving ATC or its assets;
(d) Neither James B. Grant, Erica Bengtson, nor ATC has
authorized for issuance, issued, sold, delivered or agreed or committed to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
capital stock of any class or any other securities or equity equivalents of ATC
or amended any of the terms of any such securities or agreements;
(e) ATC has not sold, assigned or disposed of any of its material
assets or properties, tangible or intangible, or incurred or assumed any
liabilities or entered into any sale/leaseback or similar transaction, except
for sales and dispositions made, or liabilities incurred, in the ordinary course
of business consistent with past practices;
(f) James B. Grant and Erica Bengtson have used their best
efforts to (i) maintain and preserve the Business, (ii) retain ATC's employees
and (iii) maintain ATC's relationships with customers, suppliers and others;
(g) ATC has not assumed, guaranteed, endorsed or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or made any loans, advances or capital
contributions to or investments in any other person; and
(h) James B. Grant, Erica Bengtson, and ATC have not implemented
or adopted (i) any change in ATC's accounting methods or principles or the
application thereof (including
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depreciation lives) or (ii) any material change in ATC's tax methods or
principles or the application thereof (including depreciation lives).
Section 4.31 Representations Regarding the Watson Stock. With
regard to the Watson Stock that will be issued to James B. Grant and Erica
Bengtson, each represents and warrants that:
(a) He or she is acquiring such Watson Stock for his or her own
account, for investment and not with a view to distribution thereof, and such
Watson Stock will not be sold or distributed in violation of the Securities Act
or applicable state law or the rules and regulations under either. James B.
Grant and Erica Bengtson understand that such Watson Stock has not been
registered under the Securities Act or applicable state securities laws by
reason of the reliance by Watson on an exemption from the registration
requirements of the Securities Act, and applicable state securities laws, and
that such securities must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act and applicable state laws or is
exempt from registration. The financial condition of James B. Grant and Erica
Bengtson is such that they are able to bear all risks of holding such Watson
Stock for an indefinite period of time. They have been afforded an opportunity
to ask questions of and receive answers from Watson and from persons authorized
to act on Watson's behalf, concerning the terms and conditions of the
acquisition of such Watson Stock. James B. Grant and Erica Bengtson have
investigated the acquisition of such Watson Stock to the extent they deem
necessary or desirable, and Watson has provided them with the assistance in
connection therewith that they requested. James B. Grant and Erica Bengtson are
capable of evaluating the merits and risks of the
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acquisition of Watson Stock and of making an informed investment decision with
respect thereto.
(b) James B. Grant and Erica Bengtson acknowledge and agree that
the certificates for the Watson Stock acquired by them shall be endorsed with
substantially the following legend:
"The securities evidenced hereby have not been registered under
the Securities Act of 1933 or applicable state securities laws
and may not be sold, transferred, assigned, offered, pledged, or
otherwise distributed for value unless there is an effective
registration statement under such Act and such laws covering such
securities or the Company receives an opinion of counsel
reasonably acceptable to the Company stating that such sale,
transfer, assignment, offer, pledge, or other distribution for
value is exempt from the registration and prospectus delivery
requirements of such Act and such laws."
Section 4.32 Representations Regarding ATC. James B. Grant and
Erica Bengtson have not engaged in a fraud or deceit upon Watson, in connection
with the sale of the Subject Shares to Watson.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WATSON
Section 5.1 Corporate Status and Good Standing. Watson is a
corporation duly organized, validly existing and in good standing under the laws
of California, with full corporate power and authority under its articles of
incorporation and by-laws to conduct its business as the same exists on the date
hereof and on the Closing Date.
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Section 5.2 Authorization. Watson has full corporate power and
authority under its articles of incorporation and by-laws, and all necessary
corporate action has been taken to authorize it, to execute and deliver this
Primary Agreement, and the exhibits and schedules hereto, to consummate the
transactions contemplated herein and to take all actions required to be taken by
it pursuant to the provisions hereof or thereof, and each of this Primary
Agreement and the exhibits hereto constitutes the valid and binding obligation
of Watson enforceable against Watson in accordance with its terms, except as
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, or other similar laws now or hereafter in effect relating to
creditorso rights and general principles of equity.
Section 5.3 Non-Contravention. Neither the execution and delivery
of this Primary Agreement and the schedules and exhibits hereto, nor the
consummation of the transactions contemplated herein or therein, does or will
violate, conflict with or result in breach of or require notice or consent under
any Applicable Law, the charter or by-laws of Watson or any provision of any
agreement or instrument to which Watson is a party or result in the creation of
any Lien upon the capital stock, property or assets of Watson, such that there
would be a material adverse effect on any benefit to James B. Grant or Erica
Bengtson hereunder. Except as set forth in Schedule 5.3, no consent, approval,
exemption, authorization or other actions of, or notice to or filing with, any
third party, court or administrative or other governmental or regulatory body is
required by Watson to execute, deliver or perform this Primary Agreement and to
consummate the transactions contemplated herein and to take all actions required
to be taken by it pursuant to the provisions hereof.
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Section 5.4 Validity. There are no pending or threatened judicial
or administrative actions, proceedings or investigations which question the
validity of this Primary Agreement or any action taken or contemplated by Watson
in connection with this Primary Agreement.
Section 5.5 Broker Involvement. Watson has not hired, retained or
dealt with any broker or finder in connection with the transactions contemplated
by this Primary Agreement.
Section 5.6 Litigation. There is no investigation, claim or
proceeding or litigation of any type pending or threatened involving Watson and
Watson is unaware of any judgment, order, writ, injunction, or decree of any
court, government or governmental agency or arbitral tribunal against or
involving Watson, that would have a material adverse effect on any benefit to
James B. Grant or Erica Bengtson hereunder.
Section 5.7 Information Regarding Watson. Watson is in compliance
with its reporting obligations under the Securities Exchange Act of 1934, as
amended. Schedule 5.7 hereto and Watson's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997, taken as a whole, do not contain and will not
at the Closing contain any untrue statement of a material fact, and do not omit
and will not at the Closing omit a material fact necessary to make the
statements therein not misleading, except for such facts as are not known and
could not reasonably have been known by Watson.
Section 5.8 Disclosure of Information. Watson further
acknowledges that it shall conduct such investigation of ATC, its assets,
liabilities, operations and financial conditions, prior to the Closing, as it
deems necessary and advisable for purposes of making the purchase contemplated
by this Agreement. Except to the extent of the express representations,
warranties
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and agreements contained in this Agreement, Watson is purchasing the
Subject Shares in reliance upon its own investigation of ATC. Watson agrees and
acknowledges that it is experienced in the statistical inventory reconciliation
business and precision tightness testing business and has the knowledge and
ability to conduct a full investigation of ATC and to evaluate ATC's business,
operations, financial conditions, assets and liabilities. Watson expressly
represents and warrants that it has not relied on any projections or
representations (oral or written) except as set forth in this Agreement and the
schedules thereto, including without limitation Schedule 5.8.
Section 5.9 Restricted Securities. Watson understands that the
Subject Shares are characterized as "restricted securities" under the United
States federal securities laws and that under such laws and applicable rules and
regulations promulgated thereunder the Subject Shares may be resold without
registration under the Securities Act of 1933, as amended (the "Act") only in
certain circumstances. Watson understands that the certificates evidencing the
Subject Shares may contain a legend restricting transfer as provided under the
Act and applicable rules and regulations promulgated thereunder.
ARTICLE VI
ADDITIONAL AGREEMENTS AND COVENANTS
Section 6.1 Other Offers. From and after the date hereof until
Closing, James B. Grant and Erica Bengtson shall not, directly or indirectly,
(a) solicit, enter into or conduct discussions related to, initiate or knowingly
encourage any offer or proposal for, or give any indication of interest in,
directly or indirectly, a merger or business combination involving ATC or the
acquisition of an equity interest in, or a substantial portion of the assets of,
ATC or (b) unless required by law, regulation or judicial compulsion, disclose
any non-public information
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relating to ATC or the Business of ATC, or afford access to the properties,
books or records of ATC, to any person.
Section 6.2 Public Announcements. Prior to Closing, neither party
shall make any public announcement or issue any press release with respect to
this Primary Agreement or the transaction provided for herein without the prior
written consent of the other party, unless, on written advice of counsel, Watson
or James B. Grant or Erica Bengtson determine the release is required to comply
with applicable federal securities laws.
Section 6.3 Further Assurances. James B. Grant and Erica Bengtson
each shall execute, acknowledge and deliver or cause to be executed,
acknowledged and delivered to Watson, such assignments or other instruments of
transfer, assignment and conveyance, in form and substance reasonably
satisfactory to Watson, on advice of their respective counsel, as shall be
necessary to vest in Watson all of the right, title and interest in and to their
ATC shares free and clear of all Liens, charges, encumbrances, rights of others,
mortgages, pledges or security interest, and any other document reasonably
requested by Watson in connection with this Primary Agreement. James B. Grant,
Erica Bengtson, and Watson each agree that, from time to time, whether before,
at or after the Closing Date, they will execute and deliver such further
instruments and take such other action as may be reasonably necessary to carry
out the purposes and intent of this Primary Agreement.
Section 6.4 Covenant Against Competition. As an essential
consideration for the obligations of the parties under this Primary Agreement,
James B. Grant and Erica Bengtson hereby agree and covenant, that, for a period
of five years following the Closing Date (the "Non-Competition Period"), they
will not, neither within any county in the United States in which
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Watson is then conducting business, nor within any foreign country in which
Watson is then conducting business, directly or indirectly, compete with Watson
by carrying on a business that is substantially similar to any business
presently being conducted by Watson or by serving as an officer, director,
employee, consultant, agent or similar capacity for such a business. Without
limiting the generality of the foregoing, James B. Grant and Erica Bengtson
shall not, during the Non-Competition Period, solicit, accept or take away any
customer or employee of Watson. If Watson believes James B. Grant or Erica
Bengtson has violated the provisions hereof, Watson shall have the right to seek
relief from any court of competent jurisdiction. The parties acknowledge that
money damages alone will not provide adequate compensation in the event of a
breach of the covenants of this Section. Therefore, the parties agree that in
addition to all remedies available at law, in equity or under this Primary
Agreement, Watson shall be entitled to seek injunctive relief for the
enforcement of this covenant. The parties agree that the covenants in this
Section are reasonable with respect to their duration, scope and geographical
area. If, at the time of enforcement of this Section, a court should hold that
the restrictions herein are unreasonable under the circumstances then existing
or otherwise, the parties agree that the maximum duration, scope or geographical
area legally permissible under such circumstances will be substituted for the
duration, scope or area stated herein.
Section 6.5 Governmental Filings. As promptly as practicable
after the execution of this Primary Agreement, each party shall, in cooperation
with the other, file any reports or notifications that may be required to be
filed by it under applicable law and shall furnish to the other all such
information in its possession as may be necessary for the completion of the
reports or notifications to be filed by the other.
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Section 6.6 Access to Information. Prior to Closing, Watson may
make such investigation of the Business and properties of ATC as Watson may
desire and, upon reasonable notice, James B. Grant, Erica Bengtson, and ATC
shall give to Watson and its counsel, accountants and other representatives
reasonable access, during normal business hours until the Closing, to the
property, books, commitments, agreements, records, and files of ATC and of James
B. Grant and Erica Bengtson related to ATC, and James B. Grant and Erica
Bengtson shall furnish to Watson during that period all copies of documents and
information concerning the Business of ATC as Watson may reasonably request,
subject to applicable law. Watson shall hold, and shall cause its counsel,
accountants and other agents and representatives to hold, all such information
and documents in confidence. James B. Grant and Erica Bengtson will cooperate
with Watson's transition planning for the acquisition by providing access to key
executives of ATC.
Prior to Closing, James B. Grant and Erica Bengtson may make such
investigation of the business and properties of Watson as they may desire and,
upon reasonable notice, Watson shall give to James B. Grant and Erica Bengtson
and their respective counsel, accountants and other representatives reasonable
access, during normal business hours until the Closing, to the property, books,
commitments, agreements, records, and files of Watson, and Watson shall furnish
to James B. Grant and Erica Bengtson during that period all copies of documents
and information concerning the business of Watson as they may reasonably
request, subject to applicable law. James B. Grant and Erica Bengtson shall
hold, and shall cause their respective counsel, accountants and other agents and
representatives to hold, all such information and documents in confidence.
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Section 6.7 Use of Name. Except as mutually agreed upon, James B.
Grant and Erica Bengtson shall eliminate, and cease and desist from, any use of
any designation indicating an affiliation with ATC immediately following
Closing.
Section 6.8 Other Action. Each of the parties shall use its best
efforts to cause the fulfillment at the earliest practicable date but, in any
event, prior to the Closing Date of all conditions to their respective
obligations to consummate the transactions under this Primary Agreement.
Section 6.9 Cooperation with Financing and Financial Reporting.
James B. Grant and Erica Bengtson acknowledge and understand that in the event
Watson conducts certain offerings of its securities or is subject to reporting
requirements under the Exchange Act, Watson may be required to obtain certain
information relating to ATC or the Business, including, but not limited to,
audited or unaudited financial statements of ATC, and disclose such information
in registration statements and other documents filed with the Securities and
Exchange Commission under the federal securities laws or in disclosure documents
given investors in certain securities offerings. James B. Grant and Erica
Bengtson agree to use their best efforts to cooperate fully and promptly, and
shall cause their Affiliates, accountants, counsel and other agents and
representatives to cooperate fully and promptly, with Watson in connection
therewith.
Section 6.10 Consents. Each party will cooperate with the other
and proceed, as promptly as is practicable, to seek to obtain all necessary
consents and approvals set forth in Schedule 4.4 or Schedule 5.3, and to
endeavor to comply with all other legal or contractual requirements for or
preconditions to the execution and consummation of this Primary Agreement.
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Section 6.11 Tax Certificate. On or before the Closing Date,
James B. Grant and Erica Bengtson will provide to Watson a certificate ("Tax
Certificate") that sets forth the following information as of the date for each
particular item of information which is as close to the Closing Date as is
reasonably practicable:
(a) The following information shall be provided in accordance
with the reporting of such information on the most recently filed Tax Return for
each such Tax:
(i) The adjusted basis for Tax purposes of the assets of ATC,
and
(ii) The amounts of the net operating loss, net capital loss,
foreign Tax credit and Tax credit carry forwards, the overall foreign losses and
the foreign Taxes paid or accrued in excess of the applicable foreign Tax credit
limitations of or allocable to ATC;
(b) All current consents and elections with respect to Taxes of
or with respect to ATC that have been filed with any taxing authority;
(c) All taxable periods for which the income and franchise Tax
Returns of or with respect to ATC are open; and
(d) All Tax partnerships in which ATC is a member.
Section 6.12 Liability for Taxes.
(a) ATC is presently current and at Closing will still be current
in its obligations to taxing authorities. James B. Grant and Erica Bengtson
shall be liable for, and shall defend, indemnify and hold Watson harmless
against, (i) any Taxes incurred, but not paid, by ATC for any taxable period
ending on or before the Closing Date, and (ii) any transfer or sales Taxes
arising from the transactions contemplated in this Agreement.
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(b) After Closing Watson and its Affiliates (including ATC, an
Affiliate wholly owned by Watson) shall be responsible for timely preparing and
filing with the appropriate taxing authorities all Tax Returns.
(c) James B. Grant and Erica Bengtson shall cooperate with Watson
and shall make available all necessary records and timely take all action
necessary to allow Watson to file, or prepare and file, as the case may be, the
Tax Returns described in this paragraph (including, without limitation,
providing or causing to be provided to Watson any powers of attorney which
Watson shall request for purposes of filing any such Tax Returns). Such Tax
Returns shall be prepared on a basis consistent with those prepared with respect
to ATC for taxable periods ending on or before the Closing Date, unless
otherwise required by law.
(d) In the event that ATC or Watson receives a Tax refund or Tax
credit with respect to any prior tax return filed by or on behalf of ATC for a
period ending at or prior to the Closing, Watson shall promptly thereafter pay
to James B. Grant and Erica Bengtson an amount equal to such refund or credit;
and such payment shall be allocated 60.418% to Erica Bengtson and 39.582% to
James B. Grant.
Section 6.13 Cooperation and Exchange of Information. The parties
will provide each other with such cooperation and information as they may
reasonably request of each other in preparing or filing any Tax Return, amended
Tax Return or claim for refund, in determining a liability or a right to refund
or in conducting any audit or other proceeding, in respect of Taxes imposed on
the parties or their respective Affiliates. Watson will preserve and retain all
Tax Returns, schedules, work papers and other documents relating to any such Tax
Returns, claims, audits or other proceedings until the expiration of the
statutory period of limitations (including
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extensions) of the taxable periods to which such documents relate and until the
final determination of any payments which may be required with respect thereto.
James B. Grant and Erica Bengtson and their representatives shall be entitled to
make copies of any such books and records as they shall deem necessary. Any
information obtained pursuant to this Section 6.13 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of Tax
Returns or claims for refund or in conducting any audit or other proceeding.
Section 6.14 Conflict. In the event of a conflict between the
provisions of Sections 6.12 or 6.13 and any other provision of this Primary
Agreement, the provisions of this Article VI shall control.
Section 6.15 Registration of Watson Stock. James B. Grant and
Erica Bengtson shall have the "piggyback" registration rights set forth in
Schedule 6.15 hereto with respect to the Watson Stock.
Section 6.16 Maintenance of Professional Liability Insurance.
Watson shall maintain ATC's current professional liability insurance or a
replacement policy reasonably acceptable to James B. Grant and Erica Bengtson
for a period of not less than three years from the Closing.
ARTICLE VII
EXTENT AND SURVIVAL OF REPRESENTATIONS,
WARRANTIES, COVENANTS AND AGREEMENTS; INDEMNIFICATION
Section 7.1 Indemnification of Watson.
(a) Subject to the limitations set forth in Section 7.1(b) below,
James B. Grant and Erica Bengtson jointly and severally agree to defend,
indemnify and hold harmless Watson
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(including its officers, directors, employees and agents and Affiliates) from
and against, any and all judgments including reasonable and necessary expenses
(including reasonable and necessary attorneyso fees) ("Claim") against Watson,
any Affiliate of Watson, or ATC, as a direct result of (i) any error,
inaccuracy, breach or misrepresentation in any of the representations and
warranties made by or on behalf of James B. Grant and Erica Bengtson in this
Primary Agreement or in any certificate or other instrument delivered by them in
connection with this Primary Agreement (including the Schedules hereto), or (ii)
any violation or breach or default by James B. Grant or Erica Bengtson under the
terms of this Primary Agreement, (iii) any act or omission occurring, or
condition or circumstances existing, prior to the Closing, or any condition or
circumstances caused by any act or omission occurring prior to the Closing, by
James B. Grant and Erica Bengtson or ATC or otherwise with respect to James B.
Grant and Erica Bengtson or ATC, (iv) the past or present presence, release,
remediation or clean-up of, or exposure to, Hazardous Material relating to or
located on, within or under any assets owned, leased or used by James B. Grant
and Erica Bengtson or ATC, or (v) any product liability, strict liability or
other claims concerning (A) products sold or services provided by James B. Grant
and Erica Bengtson or ATC prior to the Closing or (B) inventory owned by James
B. Grant and Erica Bengtson or ATC at the Closing. Except as set forth in
Section 7.1(b), the obligation of James B. Grant and Erica Bengtson to indemnify
Watson pursuant to this Section 7.1 shall be limited to two years after the
Closing, except that any obligation relating to environmental or tax claims
shall be limited to three years. Notwithstanding the foregoing, James B. Grant
and Erica Bengtson shall have no duty to indemnify Watson for a Claim unless and
until the amount to be indemnified by them for one or more Claims aggregates at
least $10,000.00.
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(b) The obligation to indemnify set forth in Section 7.1(a) shall
be limited to the value of the Watson Stock then subject to the escrow
contemplated by the Escrow Agreement entered into at the Closing pursuant to
Section 8.1(h) of this Primary Agreement, except that the obligation to
indemnify shall be unlimited as to time or amount in the event of Claims
resulting from the fraud or deceit by James B. Grant or Erica Bengtson.
Section 7.2 Indemnification of James B. Grant and Erica Bengtson.
Watson agrees to indemnify and hold harmless James B. Grant, Erica Bengtson, and
ATC (including ATC officers, directors, employees and agents) from and against,
any and all Claims incurred by James B. Grant, Erica Bengtson, ATC or Watson as
a result of (a) any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of Watson in this Primary
Agreement or in any certificate or other instrument delivered by or on behalf of
Watson in connection with this Primary Agreement (including the Schedules
hereto), (b) any violation or breach by Watson of or default by Watson under the
terms of this Primary Agreement, (c) any act or omission occurring, or condition
or circumstances existing, after the Closing, or any condition or circumstances
caused by an act or omission occurring after the Closing, by Watson or ATC or
otherwise with respect to Watson or ATC, (d) the post-Closing presence, release,
remediation or clean-up of, or exposure to, Hazardous Material relating to or
located on, within or under any assets owned, leased or used by Watson or ATC,
or (e) any product liability, strict liability or other claims concerning (i)
products sold or services provided by Watson or ATC after the Closing or (ii)
inventory owned by Watson at the Closing and inventory acquired by Watson or ATC
after the Closing. James B. Grant and Erica Bengtson shall be entitled to
recover their reasonable and necessary attorneyso fees and litigation expenses
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incurred in connection with successful enforcement of their rights under this
Section. Watson's obligation to indemnify James B. Grant and Erica Bengtson
pursuant to this Section 7.2 shall be limited to $1,000,000.00 and shall be (i)
limited to two years with respect to clauses (a) and (b) and (ii) shall be
unlimited as to time with respect to clauses (c), (d) and (e). The obligation to
indemnify shall be unlimited as to time or amount in the event of Claims
resulting from the fraud or deceit by Watson.
Section 7.3 Survival. The representations, warranties and
covenants of the parties to this Primary Agreement and in any certificate or
instrument delivered in connection herewith shall be continuing and shall
survive the Closing for the period(s) of time set forth in Sections 7.1 and 7.2
above, (the period during which the representations and warranties shall survive
being referred to herein with respect to such representations and warranties as
the "Survival Period"), but shall thereafter terminate and be of no further
force and effect unless a written notice asserting a claim shall have been made
pursuant to this Article VII within the Survival Period with respect to such
matter. Any claim for indemnification of a Claim made during the Survival Period
shall remain in effect for purposes of such indemnification notwithstanding such
Claim may not be resolved within the Survival Period.
Section 7.4 Indemnification Procedures. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
(a) A party claiming indemnification under this Primary Agreement
(an "Indemnified Party") shall with reasonable promptness (i) notify the party
from whom indemnification is sought (the "Indemnifying Party") of any
third-party claim or claims asserted against the Indemnified Party ("Third Party
Claim") for which indemnification is sought and (ii)
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transmit to the Indemnifying Party a copy of all papers served with respect to
such claim (if any) and a written notice ("Claim Notice") containing a
description in reasonable detail of the nature of the Third Party Claim, an
estimate of the amount of damages attributable to the Third Party Claim to the
extent feasible (which estimate shall not be conclusive of the final amount of
such Claim) and the basis of the Indemnified Party's request for indemnification
under this Agreement.
Within 15 days after receipt of any Claim Notice ("the Election
Period"), the Indemnifying Party shall notify the Indemnified Party whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
with respect to such Third Party Claim and, if the Indemnifying Party does not
dispute its potential liability to the Indemnified Party with respect to such
Third Party Claim, whether the Indemnifying Party elects to defend the
Indemnified Party with respect to such Third Party Claim.
If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party within the Election Period and notifies the
Indemnified Party that it elects to defend such Third Party Claim, the
Indemnifying Party shall control negotiations toward resolution of such claim
without necessity of litigation, and if litigation ensues, to defend the same
with counsel reasonably acceptable to both parties, at the Indemnifying Party's
expense, and the Indemnified Party shall extend reasonable cooperation in
connection with such defense. The Indemnified Party shall be entitled to elect
to participate in, but not to control, the defense of any Third Party Claim
resulting in litigation, at its own cost and expense. However, if the parties to
any suit or proceeding shall include the Indemnifying Party as well as the
Indemnified Party, then the Indemnifying Party and the Indemnified Party shall
use their best efforts to resolve the real or
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potential conflicts inherent in the suit or proceeding. If resolution cannot be
reached on this issue, then resort to Arbitration consistent with Section 7.5 of
this Primary Agreement shall occur.
If the Indemnifying Party does not dispute its potential
liability to the Indemnified Party within the Election Period and the
Indemnifying Party fails to assume control of the negotiations prior to
litigation or to defend such action within a reasonable time, the Indemnified
Party shall be entitled, but not obligated, to assume control of such
negotiations or defense of such action, and the Indemnifying Party shall be
liable to the Indemnified Party for its expenses reasonably incurred or amounts
paid in connection therewith.
If the Indemnifying Party disputes its potential liability to the
Indemnified Party within the Election Period or does not elect to defend such
Third Party Claim, then the Indemnified Party shall be entitled to assume
control of such negotiations or defense of action and the liability for the
expense thereof, as well as any liability with respect to such Third Party
Claim, shall be determined as provided in Section 7.5 below.
If the Indemnifying Party fails to notify the Indemnified Party
within the Election Period that the Indemnifying Party elects to defend the
Indemnified Party pursuant to the preceding paragraph, or if the Indemnifying
Party elects to defend the Indemnified Party but fails to defend or settle the
Third Party Claim as herein provided, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party (if the
Indemnified Party is entitled to indemnification hereunder), the Third Party
Claim by all appropriate proceedings, which proceedings shall be promptly and
vigorously prosecuted by the Indemnified Party to a final conclusion or settled.
The Indemnified Party shall have full control
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of such defense and proceedings. Notwithstanding the foregoing, if the
Indemnifying Party has delivered a written notice to the Indemnified Party to
the effect that the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article VII and if such dispute is resolved in
favor of the Indemnifying Party, the Indemnifying Party shall not be required to
bear the costs and expenses of the Indemnified Party's defense pursuant to this
Section or of the Indemnifying Party's participation therein at the Indemnified
Party's request, and the Indemnified Party shall reimburse the Indemnifying
Party in full for all reasonable and necessary costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control, any
defense or settlement controlled by the Indemnified Party pursuant to this
Section, and the Indemnifying Party shall bear its own costs and expenses with
respect to such participation.
Neither the Indemnifying Party nor the Indemnified Party shall
settle, compromise, or make any other disposition of any Third Party Claim which
would or might result in any liability to the Indemnified Party or the
Indemnifying Party under this Article VII without the written consent of such
other party. Such consent shall be reasonably given.
(b) In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damage attributable to such claim to the
extent feasible (which estimate shall not be conclusive of the final amount of
such claim) and the basis of the Indemnified Party's request for indemnification
under this Primary Agreement. If the Indemnifying Party does not notify the
Indemnified Party within 30 days from its receipt of the Indemnity Notice that
the Indemnifying Party disputes such claim,
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the claim specified by the Indemnified Party in the Indemnity Notice shall be
deemed a liability of the Indemnifying Party hereunder.
Section 7.5 Arbitration of Disputes. If the Indemnifying Party
disputes, either as to the amount or liability, that any claim described in a
Claim Notice or an Indemnity Notice, as the case may be, is covered by such
Indemnifying Party's covenant to indemnify contained in this Article VII, then
the Indemnifying Party and the Indemnified Party agree to promptly negotiate in
good faith to resolve their differences and to mutually agree upon an amount, if
any, owed to the Indemnified Party by the Indemnifying Party hereunder. If the
Indemnifying Party and the Indemnified Party fail to agree within 30 days
thereafter, the dispute shall be resolved by binding and final arbitration of a
single arbitrator mutually agreed to by Watson and James B. Grant and Erica
Bengtson conducted in Lakewood, Colorado in accordance with the rules of
commercial arbitration of the American Arbitration Association. The prevailing
party in any such arbitration proceeding shall be entitled to attorney's fees
and other out-of-pocket expenses reasonably and necessarily incurred in
connection with such proceeding, the amounts of which shall be contained in the
award of the arbitrator. Notwithstanding the foregoing, a court judgment which
has not been successfully appealed shall be determinative as to the amount of a
Claim.
Section 7.6 Offset for Insurance Recoveries. Any insurance
recovery by an Indemnified Party with respect to a Claim shall offset against
the amount of indemnification obligation with respect to such Claim which
otherwise would be owed pursuant to Section 7.1 or 7.2.
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Section 7.7 General. THE COVENANTS AND AGREEMENTS ENTERED INTO
PURSUANT TO THIS PRIMARY AGREEMENT TO BE PERFORMED AFTER THE CLOSING SHALL
SURVIVE THE CLOSING WITHOUT LIMITATION, EXCEPT AS STATED IN THIS ARTICLE VII.
THE INDEMNIFICATION OBLIGATIONS UNDER THIS ARTICLE VII SHALL APPLY REGARDLESS OF
WHETHER ANY CLAIM RESULTS SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR
CONCURRENT NEGLIGENCE OF THE INDEMNIFIED PARTY PRIOR TO THE CLOSING DATE. ALL
ORAL REPRESENTATIONS, WARRANTIES AND COVENANTS AND AGREEMENTS MADE BY THE
PARTIES SHALL NOT BE DEEMED MERGED INTO ANY INSTRUMENTS OR AGREEMENTS DELIVERED
IN CONNECTION WITH THE CLOSING OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY.
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ARTICLE VIII
CONDITIONS TO CLOSING
Section 8.1 Conditions Precedent to Obligations of Watson. The
obligation of Watson to consummate the purchase under this Primary Agreement is
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions (any or all of which may be waived by Watson):
(a) All representations and warranties of James B. Grant and
Erica Bengtson contained in this Primary Agreement including all Schedules to
this Agreement shall be true and correct in all respects at and as of the time
of the Closing with the same effect as though made again at, and as of, that
time, except such as will not have a material adverse effect and except such as
would not reasonably be expected to have a material adverse effect on the
ability of James B. Grant and Erica Bengtson to perform their obligations under
this Primary Agreement;
(b) James B. Grant and Erica Bengtson shall have performed and
complied in all material respects with all obligations and covenants required by
this Primary Agreement to be performed or complied with by them prior to or at
the Closing;
(c) Watson shall have been furnished with a certificate, dated
the Closing Date, executed by James B. Grant and Erica Bengtson certifying to
the fulfillment of the conditions specified in Sections 8.1 (a) and 8.1 (b)
hereof;
(d) No provision of any Applicable Law shall prohibit, and there
shall not be in effect any injunction, restraining order or decree issued by a
court of competent jurisdiction or any governmental body that shall prohibit the
consummation of this Primary Agreement
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and there shall be no action or proceeding pending or threatened seeking any
such injunction, order or decree;
(e) James B. Grant and Erica Bengtson shall have received all
consents, approvals and permits to execute this Primary Agreement and to
consummate the transactions contemplated hereby; and
(f) Watson shall be furnished with an opinion of counsel to James
B. Grant and Erica Bengtson and ATC, as to the due execution and delivery of
this Primary Agreement and the documents delivered by James B. Grant and Erica
Bengtson at Closing and substantially as to the matters set forth in the first
sentence of Section 4.1 hereof.
(g) Watson shall have entered into employment agreements with
each of James B. Grant, Erica Bengtson and David Booth in substantially the form
of Exhibits A, B, and C hereto, respectively.
(h) James B. Grant and Erica Bengtson shall have entered into an
escrow agreement with Watson in substantially the form of Exhibit D hereto.
Section 8.2 Conditions Precedent to Obligations of James B. Grant
and Erica Bengtson. The obligation of James B. Grant and Erica Bengtson to
consummate the sale under this Primary Agreement is subject to the fulfillment,
prior to or at the Closing, of each of the following conditions (any or all of
which may be waived by James B. Grant and Erica Bengtson):
(a) All representations and warranties of Watson contained in
this Agreement, including all Schedules to this Primary Agreement, shall be true
and correct in all respects at and as of the time of the Closing with the same
effect as though made again at, and as of, that time,
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except such as will not have a material adverse effect and except such as would
not reasonably be expected to have a material adverse effect on Watson's ability
to perform its obligations under this Primary Agreement;
(b) Watson shall have performed and complied in all material
respects with all obligations and covenants required by this Primary Agreement
to be performed or complied with by Watson prior to or at the Closing;
(c) James B. Grant and Erica Bengtson shall have been furnished
with a certificate, dated the Closing Date, executed by an authorized officer of
Watson certifying to the fulfillment of the conditions specified in Sections 8.2
(a) and 8.2 (b) hereof; and
(d) No provision of any Applicable Law shall prohibit, and there
shall not be in effect any injunction or restraining order issued by a court of
competent jurisdiction in any action or proceeding against, the consummation of
this Primary Agreement.
(e) James B. Grant and Erica Bengtson shall be furnished with an
opinion of counsel to Watson, as to the due execution and delivery of this
Primary Agreement and the documents delivered by Watson at Closing and
substantially as to the matters set forth in the first sentence of Section 5.1.
(f) James B. Grant, Erica Bengtson and David Booth shall have
entered into employment agreements with Watson in substantially the form of
Exhibits A, B and C hereto, respectively.
ARTICLE IX
ACTIONS TO BE TAKEN AT CLOSING
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Section 9.1 Actions to be Taken by James B. Grant and Erica
Bengtson at the Closing. James B. Grant and Erica Bengtson shall take the
following actions at the Closing:
(a) James B. Grant and Erica Bengtson shall deliver to Watson
copies certified by ATC's Secretary of resolutions duly adopted by the board of
directors of ATC authorizing and approving the execution and delivery of this
Primary Agreement, including the exhibits and schedules hereto, and the
consummation of the transactions contemplated herein;
(b) James B. Grant and Erica Bengtson shall endorse and deliver
to Watson the stock certificates representing their ATC shares;
(c) James B. Grant and Erica Bengtson shall deliver the
certificate referred to in Section 8.1(c);
(d) Watson shall have been furnished with a legal opinion as
provided in Section 8.1(f) hereof;
(e) James B. Grant and Erica Bengtson shall have delivered to
Watson a letter of resignation from each noncontinuing officer and director of
ATC;
(f) Each of James B. Grant, Erica Bengtson and David Booth shall
execute and deliver to Watson his or her employment agreement attached hereto as
Exhibits A, B and C, respectively; and
(g) Each of James B. Grant and Erica Bengtson shall execute and
deliver to Watson the escrow agreement attached hereto as Exhibit D.
Section 9.2 Actions to be Taken by Watson at the Closing. Watson
shall take the following actions at the Closing:
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(a) Watson shall deliver to James B. Grant and Erica Bengtson a
copy certified by its Secretary of resolutions duly adopted by the board of
directors of Watson authorizing and approving the execution and delivery of this
Primary Agreement, including the exhibits and scheduled hereto, and the
consummation of the transactions contemplated herein;
(b) Watson shall make the payment of funds specified for payment
at Closing under Section 2.2;
(c) Watson shall deliver the officer's certificate referred to in
Section 8.2(c);
(d) James B. Grant and Erica Bengtson shall have been furnished
with a legal opinion as provided in Section 8.2(e);
(e) Watson shall execute and deliver the employment agreements
attached hereto as Exhibits A, B and C; and
(f) Watson shall execute and deliver the escrow agreement
attached hereto as Exhibit D.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Termination.
(a) This Primary Agreement may be terminated at any time prior to
the Closing:
(i) By mutual written agreement executed by the Parties; or
(ii) By Watson, in its sole discretion, in the event that
Watson discovers prior to the Closing that the representations and/or warranties
of James B. Grant and Erica Bengtson contained in this Primary Agreement contain
a material misrepresentation or omission; or
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(iii) By James B. Grant or Erica Bengtson, in the sole
discretion of either, in the event James B. Grant or Erica Bengtson discovers
prior to the Closing that the representations and/or warranties of Watson
contained in this Primary Agreement contain a material misrepresentation or
omission.
(b) Upon termination of this Primary Agreement, none of the
parties nor any other person shall have liability or further obligation arising
out of this Primary Agreement except for Watson's liability to Erica Bengtson
for expenses and obligations incurred by her in anticipation of her required
relocation to the Denver, Colorado area, and any liability resulting from the
breach of this Primary Agreement prior to termination. However, the provisions
of Sections 10.2, 10.3, 10.9 and 10.11 shall continue to apply.
Section 10.2 Confidentiality; Publicity; Books and Records.
(a) None of the parties nor any Affiliate will, directly or
indirectly, disclose or provide to any other person any non-public information
of a confidential nature concerning the other party (including ATC) or their
business or operations, except as is required in governmental filings or
judicial, administrative or arbitration proceedings. In the event that a party
or its Affiliate becomes legally required to disclose any such information in
any governmental filings or judicial, administrative or arbitration proceedings,
that party shall, and shall cause such Affiliate to, provide the other party
with prompt notice of such requirements so that the other party may seek a
protective order or other appropriate remedy. In the event that such protective
order or other remedy is not obtained, the disclosing party shall, and shall
cause such Affiliate to, furnish only that portion of the information that the
disclosing party or such Affiliate, as the case may be, is legally required to
disclose and such disclosure shall not result in
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any liability hereunder unless such disclosure was caused by or resulted from a
previous disclosure by the other party which was not permitted by this Primary
Agreement, or by that certain Confidentiality Agreement between the parties
dated as of July 22, 1996. Subject to applicable securities law or stock
exchange requirements, the parties hereto will promptly advise, and obtain the
approval of, the other parties before issuing any press release with respect to
this Primary Agreement or the transactions contemplated hereby.
(b) If the parties fail to Close the acquisition of shares
contemplated in this Primary Agreement, each party shall, and shall cause its
officers, directors, employees, representatives and agents (the
"Representatives") to return all copies of the other party's confidential
non-public information in its possession or in the possession of its
Representatives, and destroy all copies of any analyses, compilations, studies
or other documents prepared by that party or its Representatives or for its use
containing or reflecting any such information.
For purposes of this Primary Agreement, non-public information of
a confidential nature shall not include any information which (i) at the time of
disclosure or thereafter is generally available to and known by the public
(other than as a result of a disclosure directly or indirectly by a party, its
Affiliate or its Representatives), (ii) was available to a party on a
non-confidential basis from a source other than the other party, its Affiliate
or Representatives, provided that such source is not and was not directly or
indirectly bound by a confidentiality agreement with the non-disclosing party,
its Affiliate or Representatives with respect to that information or (iii) has
been independently acquired or developed by the other party, its Affiliate or
Representatives, without violating any obligations under this Primary Agreement,
or that certain Confidentiality Agreement between the parties dated as of July
22, 1996.
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(c) For a period of five years after the Closing Date, Watson
will preserve and retain the books and records of ATC and make such books and
records available at the then current administrative headquarters of Watson to
James B. Grant, Erica Bengtson, and their employees and agents upon reasonable
notice and at reasonable times at the requesting entity's cost and expense, it
being understood that James B. Grant and Erica Bengtson shall be entitled at
Watson's cost and expense to make copies of any such books and records as shall
be reasonably necessary.
Section 10.3 Expenses. Watson shall pay its respective expenses,
including the fees and disbursements of its respective counsel in connection
with the negotiation, preparation and execution of this Primary Agreement and
the consummation of the transactions contemplated herein.
Section 10.4 Entire Agreement. This Primary Agreement, including
all schedules and exhibits hereto, constitutes the entire agreement of the
parties and supersedes any prior oral or written agreements with respect to the
subject matter hereof, and may not be modified, amended or terminated except by
a written instrument specifically referring to this Primary Agreement signed by
all the parties hereto.
Section 10.5 Waivers and Consents. All waivers and consents given
hereunder shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed a
waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar.
Section 10.6 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been received only if
and when (a) personally delivered
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(b) if mailed, on the third day after mailing, by United States mail, first
class, postage prepaid, by certified mail, return receipt requested, addressed
in each case as follows (or to such other address as may be specified by like
notice) or (c) delivered by overnight courier or facsimile:
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(i) If to Watson, to:
Watson General Corporation
c/o USTMAN Industries, Inc.
12265 West Bayaud Street
Suite 110
Lakewood, CO 80228
Attention: President
(ii) If to James B. Grant and Erica Bengtson, to:
David Booth
c/o ATC, Inc.
211 Center Park Drive
Suite 3020
Knoxville, TN 37922
Section 10.7 Successors and Assigns. This Primary Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors, legal representatives and assigns. No third party except
David Booth shall have any rights hereunder.
Section 10.8 Performance. James B. Grant and Erica Bengtson agree
to cause ATC to perform all its obligations and agreements under this Primary
Agreement.
Section 10.9 Choice of Law; Section Headings: Table of Contents.
This Primary Agreement shall be governed by the internal laws of the State of
Colorado (without regard to the choice of law provisions thereof). The section
headings and any table of contents contained in this Primary Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Primary Agreement.
Section 10.10 Counterparts. This Primary Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original and all of which together shall be deemed to be one and the same
instrument.
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Section 10.11 Jurisdiction and Venue. James B. Grant, Erica
Bengtson, and Watson hereby consent to personal jurisdiction in any action
brought with respect to this Primary Agreement and the transactions contemplated
hereunder in any federal or state court in Jefferson County, Colorado and agree
that service of process may be accomplished pursuant to Section 10.6 above.
Section 10.12 Severability. The invalidity or unenforceability of
any provision of this Primary Agreement shall not affect the validity or
enforceability of any other provision of this Primary Agreement which shall
remain in full force and effect.
Section 10.13 Assignment. This Primary Agreement and each party's
rights hereunder may not be assigned without the prior written consent of the
other parties; but no such assignment shall relieve the assigning party of any
of its obligations under this Primary Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
--------------------------------------------
JAMES B. GRANT, individually and as President of ATC
--------------------------------------------
ERICA BENGTSON, individually and as Secretary
and Treasurer of ATC
WATSON GENERAL CORPORATION
By:
----------------------------------------------
DAN R. COOK, President
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EXHIBIT 10.2
CONTINGENT STOCK PURCHASE AGREEMENT
This CONTINGENT STOCK PURCHASE AGREEMENT ("Contingent Agreement") was
entered into on December 11, 1997, by Watson General Corporation ("Watson"), a
publicly traded California corporation and Environmental Systems Corporation
("ESC"), a Tennessee corporation.
WITNESSETH
WHEREAS, this Contingent Agreement has been entered into
contemporaneously with the PRIMARY STOCK PURCHASE AGREEMENT ("Primary
Agreement") between Watson and James B. Grant on the one hand and between Watson
and Erica Bengtson for the purchase by Watson of all of their common stock of
Advanced Tank Certification, Inc. ("ATC"). ATC is a Tennessee corporation;
WHEREAS, this Contingent Agreement is wholly contingent upon the Primary
Agreement being executed and performed. Otherwise, this Contingent Agreement
shall be invalid, non-binding, unenforceable, and of no consequence;
WHEREAS, ESC owns exactly eight hundred and seventy (870.0) shares, no
more and no less, of the common stock of ATC;
WHEREAS, the eight hundred and seventy (870) shares of the common stock
of ATC owned by ESC comprise eight and six thousand and thirty-five ten
thousandths (8.6035) per cent (%) of the total of ten thousand, one hundred and
twelve and one-tenth (10,112.1) shares of ATC stock which have been issued;
WHEREAS, Watson desires to purchase all of said eight hundred and
seventy (870) of said shares of common stock of ATC from ESC upon the terms and
subject to the conditions
<PAGE> 2
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, agreements and conditions contained herein, Watson
and ESC hereby agree as follows:
ARTICLE I
Purchase and Sale
Section 1.1. The Sale. Upon the terms and subject to the conditions of
this Contingent Agreement, at the Closing (as defined in Article II), ESC will
sell, assign, transfer, and deliver its eight hundred and seventy (870) shares
of the stock of ATC to Watson.
Section 1.2. Purchase Price. The total purchase price for all of the
common stock of ATC shall be $3,300,000.00. The purchase price to be paid to ESC
for its eight and six thousand and thirty-five ten thousandths per cent
(8.6035%) of the total of issued ATC stock shall be eight and six thousand and
thirty-five ten thousandths per cent (8.6035%) of the total purchase price
($3,300,000.00), viz., $283,915.78. THE $283,915.78 shall be paid to ESC by
Watson at Closing by wire transfer in immediately available funds to an account
designated in writing by ESC at or before Closing.
ARTICLE II
Closing
The closing of the transactions contemplated hereby (the "Closing")
shall occur at such time, date and location as mutually agreed to by Watson,
ESC, and the parties to the Primary Agreement (but in no event later than 11:00
a.m., December 15, 1997).
ARTICLE III
Representation and Warranties of ESC
<PAGE> 3
Section 3.1. Organization and Good Standing of ESC. ESC is a Tennessee
corporation duly organized, validly existing and in good standing under the laws
of Tennessee and has full corporate power and authority to sell its previously
referenced eight hundred and seventy (870) shares of ATC stock to Watson.
Section 3.2. Authorization. ESC has full corporate power and authority
under its certificate or articles of incorporation and by-laws, and all
necessary corporate action has been taken to authorize it to execute and deliver
this Contingent Agreement, to consummate the transactions contemplated herein
and to take all actions required to be taken by it. This Contingent Agreement
constitutes a valid and binding obligation on ESC enforceable against ESC in
accordance with the terms of this Contingent Agreement, except as such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and general principles of equity.
Section 3.3. Non-Contravention. The execution and delivery of this
Contingent Agreement or any documents executed in connection herewith, the
consummation of the transaction contemplated herein or therein will not violate
conflict with, result in breach of or require notice or consent under any
applicable law, the charter or by-laws of ESC or any provision of any agreement
or instrument to which ESC s a party or result in the creation of any lien or
other encumbrance upon the eight hundred and seventy (870) shares of ATC stock
which are the subject of this Contingent Agreement. No consent, approval
exemption, authorization or other action of, or notice to or filing with, any
third party, court or administrative or other governmental or regulatory body is
required of ESC to execute, deliver or perform this Contingent Agreement and to
consummate the transactions contemplated herein and to take all
<PAGE> 4
actions required to be taken by ESC pursuant to the provisions hereof.
Section 3.4. Validity. There are no pending or threatened judicial or
administrative actions, proceedings or investigations which question the
validity of this Contingent Agreement or any action take or contemplated by ESC
in connection with this Contingent Agreement.
Section 3.5. Successors and Assigns. This Contingent Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors, legal representatives and assigns. No third party shall
have any rights hereunder.
Section 3.6. Broker Involvement. ESC has not hired, retained or dealt
with any broker or finder in connection with the transactions contemplated by
this Contingent Agreement.
Section 3.7. Expenses. ESC shall pay its expenses, including the fees
and disbursements of its respective counsel in connection with the negotiation,
preparation and execution of this Contingent Agreement and the consummation of
the transactions contemplated herein.
Section 3.8. Title to Shares. ESC owns the previously referenced eight
hundred and seventy (870) shares, which represent 8.6035% of the outstanding
shares of ATC stock, beneficially and of record, free and clear of all liens,
and such shares are not, or will not be prior to Closing, subject to any
agreements or understandings with respect to the voting or transfer of any of
the shares. There are no outstanding subscriptions, options, convertible
securities, warrants or calls of any kind issued or granted by, or binding on
ESC to sell or otherwise dispose of any security of or equity interest in its
previously reference eight hundred and seventy (870) shares of ATC stock. ESC
has the requisite legal right to sell, assign and transfer the ATC shares
<PAGE> 5
owned by ESC to Watson and will upon delivery of a certificate or certificates
representing such shares to Watson pursuant to the terms hereof, transfer to
Watson title to such shares, free and clear of any liens.
Section 3.9. Non-Use of Confidential Information. ESC is not in
possession of any confidential or proprietary information of ATC, and agrees not
to use any such information.
ARTICLE IV
Entire Agreement
This Contingent Agreement constitutes the entire agreement between
Watson and ESC and supersedes any prior oral or written agreements with respect
to the subject matter hereof, any may not be modified, amended or terminated
except by a written instrument specifically referring to this Contingent
Agreement signed by all the parties hereto.
ARTICLE V
Waivers and Consents
All waivers and consents given hereunder shall be in writing. No waiver
by any party hereto of any breach or anticipated breach of any provision hereof
by any other party shall be deemed a waiver of any other contemporaneous,
preceding or succeeding breach or anticipated breach, whether or not similar.
ARTICLE VI
Notices
All notices and other communications hereunder shall be in writing and
shall be deemed to have been received only if and when (a) personally delivered
(b) if mailed, on the third day after mailing, by United States mail, first
class, postage prepaid, by certified mail, return receipt requested, addressed
in each case as follows (or to such other address as may be specified by like
notice) or (c) delivered by overnight courier or facsimile:
<PAGE> 6
IF TO WATSON, TO:
Watson General Corporation
c/o USTMAN Industries, Inc.
12265 West Bayaud Avenue
Suite 110
Lakewood, CO 80228
Attention: President
IF TO ESC, TO:
Environmental Systems Corporation
200 Tech Center Drive
Knoxville, TN 37912
Attention: President
IN WITNESS WHEREOF, the parties hereto have executed this Contingent Agreement
on the date first above written.
WATSON GENERAL CORPORATION
By:
-----------------------------------
Dan R. Cook President
ENVIRONMENTAL SYSTEMS CORPORATION
By:
-----------------------------------
Mark J. Margetts President,
Chief Executive Officer and
Chairman of the Board of Directors
<PAGE> 1
EXHIBIT 10.3
TERM LOAN AND ACQUISITION LINE AGREEMENT
BY AND BETWEEN
WATSON GENERAL CORPORATION
AND
BANKBOSTON, N.A.
Dated as of December 16, 1997
-----------------
<PAGE> 2
TABLE OF CONTENTS
Title
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
SECTION 1 - DEFINITIONS 1
1.1. Definitions 1
1.2. Rules of Interpretation 10
SECTION 2 - THE LOANS 10
2.1. The Term Loan 10
2.2. The Term Note 10
2.3. Interest Rate and Payments of Interest on the Term Loan 11
2.4. Additional Interest 11
2.5. Repayment of Term Loan 11
2.6. Acquisition Loans 12
2.7. Notice of Borrowing 12
2.8. Discretionary Nature of Acquisition Line 12
2.9. Acquisition Note 12
2.10. Interest Rates and Payments of Interest on the Acquisition Loans 13
2.11. Repayment of Acquisition Loans 13
2.12. Optional Prepayments of Loans 13
2.13. Mandatory Prepayment of Loans 13
SECTION 3 - CERTAIN GENERAL PROVISIONS 14
3.1. Closing Fee 14
3.2. Funds for Payments 14
3.3. Computations 15
3.4. Additional Costs, Etc. 15
3.5. Capital Adequacy 16
3.6. Certificate 17
3.7. Interest After Default; Late Fee 17
SECTION 4 - COLLATERAL SECURITY 17
SECTION 5 - REPRESENTATIONS AND WARRANTIES 17
5.1. Organization and Qualification 17
5.2. Corporate Authority 18
5.3. Valid Obligations 18
5.4. Consents or Approvals 18
5.5. Title to Properties; Absence of Encumbrances 18
5.6. Financial Statements 19
5.7. Changes 19
5.8. Defaults 19
5.9. Taxes 19
5.10. Litigation 19
5.11. Margin Stock 20
5.12. Subsidiaries 20
5.13. Investment Company Act 20
5.14. Compliance with ERISA 20
5.15. Environmental Matters 20
</TABLE>
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<TABLE>
<S> <C> <C>
5.16. Franchises, Patents, Copyrights, Etc. 21
5.17. No Materially Adverse Contracts, Etc. 22
5.18. Compliance With Other Instruments, Laws, Etc. 22
5.19. Absence of UCC Financing Statements, Etc. 22
5.20. Certain Transactions 22
5.21. Loan Documents 22
SECTION 6 - AFFIRMATIVE COVENANTS 23
6.1. Financial Statements and other Reporting Requirements 23
6.2. Conduct of Business 25
6.3. Maintenance and Insurance 25
6.4. Taxes 25
6.5. Inspection by the Bank 26
6.6. Maintenance of Books and Records 26
6.7. Punctual Payment 26
6.8. Maintenance of Office 26
6.9. Compliance with Laws, Contracts, Licenses, and Permits 26
6.10. Use of Proceeds 27
6.11. Further Assurances 27
SECTION 7 - NEGATIVE COVENANTS 27
7.1. Indebtedness 27
7.2. Leases 28
7.3. Sale and Leaseback 28
7.4. Encumbrances 28
7.5. Merger; Consolidation; Sale or Lease of Assets 29
7.6. Additional Stock Issuance 30
7.7. Distributions 30
7.8. Investments 30
7.9. ERISA 30
7.10. Compliance with Environmental Laws 30
7.11. Subordinated Indebtedness 30
SECTION 8 - FINANCIAL COVENANTS OF THE COMPANY 31
8.1. Tangible Net Worth 31
8.2. Funded Debt to Consolidated EBITDA 31
8.3. Consolidated EBITDA to Interest Charges 31
8.4. Maximum Capital Expenditures 32
8.5. Adjusted Consolidated EBITDA 32
8.6. Consolidated Operating Cash Flow to Debt Service Charges 33
8.7. Transition Expenses 33
SECTION 9 - CLOSING CONDITIONS 35
9.1. Loan Documents 35
9.2. Certified Copies of Organization Documents 35
9.3. By-laws; Resolutions 35
9.4. Incumbency Certificate; Authorized Signers 36
9.5. Validity of Liens 36
9.6. Pledge of Stock 36
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
9.7. Opinion of Counsel Concerning Organization and Loan Documents 36
9.8. Payment of Fees 36
9.9. Agreements with Holders of Subordinated Indebtedness 36
9.10. ATC Acquisition 36
9.11. Minimum Cash-on-Hand 37
9.12. Minimum Consolidated EBITDA 37
9.13. No Adverse Change 37
9.14. Corporate Structure 37
9.15. Additional Documents 37
SECTION 10 - CONDITIONS TO ALL BORROWINGS 37
10.1. Representations True; No Event of Default 37
10.2. No Legal Impediment 38
10.3. Governmental Regulation 38
10.4. Proceedings and Documents 38
SECTION 11 - DEFAULTS 38
11.1. Events of Default 38
11.2. Remedies 41
SECTION 12 - MISCELLANEOUS 41
12.1. Notices 41
12.2. Expenses 42
12.3. Indemnification 43
12.4. Set-Off 43
12.5. Term of Agreement 44
12.6. No Waivers 44
12.7. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE 44
12.8. Amendments 44
12.9. Binding Effect of Agreement 44
12.10. Counterparts 44
12.11. Partial Invalidity 45
12.12. Captions 45
12.13. WAIVER OF JURY TRIAL 45
12.14. Entire Agreement 45
</TABLE>
<PAGE> 5
EXHIBITS
EXHIBIT A - Form of Term Note
EXHIBIT B - Form of Acquisition Loan Certificate
EXHIBIT C - Form of Acquisition Note
EXHIBIT D - Excess Cash Flow Computation Report
EXHIBIT E - Form of Compliance Certificate
SCHEDULES
Schedule 5.10 Litigation
Schedule 5.12 Subsidiaries
Schedule 5.14 ERISA Plans
Schedule 6.2 Subsidiaries to Be Dissolved
Schedule 6.10 Use of Proceeds
Schedule 7.1 Indebtedness
Schedule 7.4 Encumbrances
Schedule 7.8 Investments
<PAGE> 6
TERM LOAN AND ACQUISITION LINE AGREEMENT
THIS TERM LOAN AND ACQUISITION LINE AGREEMENT is made as of December
16, 1997 by and between WATSON GENERAL CORPORATION (the "Company"), a California
corporation having its chief executive office at 12265 West Bayaud Avenue, Suite
110, Lakewood, Colorado 80228 and BANKBOSTON, N.A. (the "Bank"), a national
banking association having its head office at 100 Federal Street, Boston,
Massachusetts 02110.
I. SECTION
DEFINITIONS
A. Definitions.
All capitalized terms used in this Agreement or in the other Loan
Documents or in any certificate, report or other document made or delivered
pursuant to this Agreement (unless otherwise defined therein) shall have the
meanings assigned to them below:
ACQUISITION FACILITY. The discretionary facility provided hereunder to
the Company to obtain Acquisition Loans for Permitted Acquisitions.
ACQUISITION LOAN and ACQUISITION LOANS. See Section 2.5 hereof.
ACQUISITION LOAN CEILING. $2,250,000.00.
ACQUISITION LOAN CERTIFICATE. See Section 2.6 hereof.
ACQUISITION LOAN PERIOD. The period beginning on the date of this
Agreement and ending December 11, 1998.
ACQUISITION NOTE(S). See Section 2.9 hereof.
ADDITIONAL INTEREST. See Section 2.4.
ADJUSTED CONSOLIDATED EBITDA. For any period, the sum of Consolidated
EBITDA plus Transition Expenses incurred in such period to the extent permitted
hereunder.
AGREEMENT. This Term Loan and Acquisition Line Agreement, together with
all Exhibits and Schedules hereto, as supplemented or amended from time to time.
ATC. Advanced Tank Certification, Inc., a Tennessee corporation.
ATC ACQUISITION. The acquisition by the Company of all outstanding
capital stock of ATC pursuant to a Primary Stock Purchase Agreement dated as of
December 11, 1997 and a Contingent Stock Purchase Agreement dated as of December
11, 1997.
BANK. See Preamble.
<PAGE> 7
BASE RATE. The greater of (i) the rate of interest announced from time
to time by the Bank at its head office at 100 Federal Street, Boston,
Massachusetts as its Base Rate, and (ii) the Federal Funds Effective Rate
plus 1/2 of 1% per annum (rounded upwards, if necessary, to the next 1/8 of 1%).
BENEFICIAL OWNERSHIP. As defined in Rule 13d-3 under the Securities
Exchange Act of 1934.
BUSINESS DAY. Any day other than a Saturday, Sunday, legal holiday or
other day on which banks in Boston, Massachusetts are required or permitted by
law to close.
CAPITAL EXPENDITURES. All Capitalized Leases and all expenditures made
by the Company and its Subsidiaries which are capitalized or are required to be
capitalized on the Consolidated balance sheet of the Company and its
Subsidiaries in accordance with Generally Accepted Accounting Principles (but
excluding expenses which are required to be capitalized in connection with the
purchase of any Permitted Acquisitions).
CAPITALIZED LEASES. Leases under which the Company or any of its
Subsidiaries is the lessee or obligor, the discounted future rental payment
obligations under which are capitalized or are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with Generally Accepted
Accounting Principles.
CHANGE IN CONTROL. (a) Any Person or group of Persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934) (other than
Sagaponack) shall have acquired Beneficial Ownership of 25% or more of the
outstanding shares of common stock of the Company, or (b) a majority of the
board of directors of the Company is not comprised of Continuing Directors, or
(c) Sagaponack fails to have Beneficial Ownership of at least 25% of the
outstanding shares of common stock of the Company.
CLOSING DATE. The first date upon which the conditions set forth in
Sections 9 and 10 have been satisfied and any Loans are to be made.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
COLLATERAL. All assets of the Company and its Subsidiaries, whenever
acquired, including, without limitation, all real estate, accounts, inventory,
equipment, general intangibles, and capital stock of the Subsidiaries.
COMPANY. See Preamble.
CONSOLIDATED OR CONSOLIDATED. With reference to any term defined
herein, shall mean that term as applied to the accounts
<PAGE> 8
of the Company and its Subsidiaries, consolidated in accordance with Generally
Accepted Accounting Principles.
CONSOLIDATED EBITDA. With respect to any fiscal period, the result
(determined with respect to the same period and without duplication) of the
following: (a) Consolidated Net Income (or Net Loss); plus (b) all depreciation,
amortization and other non-cash deductions included as an expense of the Company
and its Subsidiaries in the determination of Consolidated Net Income (or
Deficit); minus (c) extraordinary gains included in the determination of
Consolidated Net Income; plus (d) all income taxes included as an expense of the
Company and its Subsidiaries in the determination of Consolidated Net Income (or
Deficit); plus (e) interest included as an expense of the Company and its
Subsidiaries in the determination of Consolidated Net Income (or Deficit), minus
(f) any net income (or net loss) relating to any Discontinued Operations, all as
determined in accordance with Generally Accepted Accounting Principles.
CONSOLIDATED EXCESS CASH FLOW. For any period, an amount equal to the
sum of (i) Consolidated EBITDA, minus (ii) Capital Expenditures permitted
hereunder minus (iii) interest expense paid in cash during such period minus
(iv) income, franchise, and other taxes paid in cash during such period minus
(v) regularly scheduled principal payments made during such period in cash with
respect to the Obligations, minus (vi) the cash portion of the purchase price
paid during such period for any Permitted Acquisitions, minus (vii) net
increases in working capital, plus (viii) net decreases in working capital, all
as determined in accordance with Generally Accepted Accounting Principles.
CONSOLIDATED NET INCOME (OR DEFICIT). With respect to any fiscal
period, the consolidated net income (or deficit) of the Company and its
Subsidiaries, after deduction of all expenses, taxes, and other proper charges,
determined in accordance with Generally Accepted Accounting Principles.
CONSOLIDATED OPERATING CASH FLOW. For any period, an amount equal to
the sum of (i) Adjusted Consolidated EBITDA, minus (ii) Capital Expenditures
permitted hereunder made during such period, minus (iii) income taxes paid in
cash by the Company and its Subsidiaries during such period, all as determined
in accordance with Generally Accepted Accounting Principles.
CONSOLIDATED NET WORTH. At any date as of which the amount thereof
shall be determined, the difference between (a) Consolidated Total Assets and
(b) the sum of Consolidated Total Liabilities of the Company and its
Subsidiaries (exclusive of Subordinated Indebtedness).
CONSOLIDATED TOTAL ASSETS. At any date, all assets of the Company and
its Subsidiaries that, in accordance with Generally Accepted Accounting
Principles, should be classified as assets on a Consolidated balance sheet of
the Company and its Subsidiaries.
CONSOLIDATED TOTAL LIABILITIES. At any date as of which the amount
thereof shall be determined, all obligations that should,
<PAGE> 9
in accordance with generally accepted accounting principles, be classified as
liabilities on the consolidated balance sheet of the Company and its
Subsidiaries, including in any event all Indebtedness.
CONTINUING DIRECTORS. A member of the board of directors of the Company
who (a) was a member of such board prior to the date hereof and continuously
thereafter, or (b) became a member of such board after the date hereof and whose
election or nomination for election was approved by a vote of the majority of
the Continuing Directors then members of such board, or (c) is elected to the
board by Sagaponack or is otherwise elected in accordance with Sagaponack's
rights under its existing agreements with the Company.
CONTROLLED GROUP. All trades or businesses (whether or not
incorporated) under common control that, together with the Company, are treated
as a single employer under Section 414(b) or 414(c) of the Code or Section 4001
of ERISA.
DEBT SERVICE CHARGES. For any period, the sum of (i) Interest Charges
payable in cash during such period, plus (ii) principal payments made or
required to be made by the Company and its Subsidiaries on account of
Indebtedness (including, without limitation, Capitalized Leases) for such
period, in each case determined in accordance with Generally Accepted Accounting
Principles.
DEFAULT. An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given or both, would constitute an
Event of Default.
DISCONTINUED OPERATIONS. Collectively, the business operations of
Toxguard Systems, Inc., and if sold by December 31, 1997, Toxguard Fluid
Technologies, Inc.
DISTRIBUTION. With respect to any Person, the declaration or payment of
any dividend on or in respect of any shares of any class of capital stock, other
than (a) dividends payable solely in shares of common stock of such Person and
(b) the payment of cash in lieu of the distribution of fractional shares in the
event of any stock dividend or stock split; the purchase, redemption, or other
retirement of any shares of any class of capital stock of such Person, directly
or indirectly by such Person through a Subsidiary of such Person or otherwise;
the return of capital by such Person to its shareholders as such; or any other
distribution (whether of such or other property) on or in respect of any shares
of any class of capital stock of such Person.
DRAWDOWN DATE. The date upon which the Bank makes an advance under the
Acquisition Loan.
ENCUMBRANCES. See Section 7.4.
ERISA. The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the
<PAGE> 10
same may from time to time be supplemented or amended and remain in effect.
ERISA AFFILIATE. Any Person which is treated as a single employer with
the Company under Section 414 of the Code.
ERISA REPORTABLE EVENT. A reportable event (other than a reportable
event described in Subsections 4043(b)(2)-(4) and 4043(b)(6)-(9), which do not
require a thirty (30) day notice to the PBGC) with respect to a Guaranteed
Pension Plan within the meaning of Section 4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
ENVIRONMENTAL LAWS. Any and all applicable foreign, federal, state and
local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated), of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over the Company or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and determinations,
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants whether solid, liquid
or gaseous in nature, into the environment or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of such Hazardous Materials, chemical substances, pollutants or
contaminants.
EVENT OF DEFAULT. Any event described in Section 11.
FEDERAL FUNDS EFFECTIVE RATE. For any day, a fluctuating interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the Bank
from three Federal funds brokers of recognized standing selected by the Bank.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Principles that are (i)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (ii) consistently applied with past financial statements of the Company and
its Subsidiaries adopting the same principles; provided that in each case
referred to in this definition of "Generally Accepted Accounting Principles" a
certified public accountant would, insofar as the use of such accounting
principles is pertinent, be in a position to deliver an unqualified opinion
(other than a qualification regarding changes in Generally Accepted Accounting
Principles) as
<PAGE> 11
to financial statements in which such principles have been properly applied.
GUARANTEED PENSION PLAN. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Company or
any ERISA Affiliate the benefits of which are guaranteed on termination in full
or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
GUARANTEES. As applied to the Company and its Subsidiaries, all
guarantees, endorsements or other contingent or surety obligations with respect
to obligations of others whether or not reflected on the consolidated balance
sheet of the Company and its Subsidiaries, including any obligation to furnish
funds, directly or indirectly (whether by virtue of partnership arrangements, by
agreement to keep-well or otherwise), through the purchase of goods, supplies or
services, or by way of stock purchase, capital contribution, advance or loan, or
to enter into a contract for any of the foregoing, for the purpose of payment of
obligations of any other person or entity.
HAZARDOUS MATERIAL. Any substance (i) the presence of which requires or
may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) and any, applicable local statutes and the regulations promulgated
thereunder; (iii) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over the Company; or (iv) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls ("PCB's").
INDEBTEDNESS. As applied to the Company and its Subsidiaries, all
obligations, contingent and otherwise, that in accordance with Generally
Accepted Accounting Principles should be classified upon the consolidated
balance sheet of the Company and its Subsidiaries as liabilities, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified: (i) all obligations for borrowed money or other
extensions of credit, including all obligations representing the deferred
purchase price of property, other than accounts payable arising in the ordinary
course of business, (ii) all obligations evidenced by bonds, notes, debentures
or other similar instruments, (iii) all obligations secured by any mortgage,
pledge, security interest or other lien on property owned or acquired by the
Company or any of its Subsidiaries whether or not the obligations secured
thereby shall have been
<PAGE> 12
assumed, (iv) that portion of all obligations arising under Capital Leases that
is required to be capitalized on the consolidated balance sheet of the Company
and its Subsidiaries, and (v) all Guarantees.
INTEREST CHARGES. For any fiscal period, the expenses of the Company
and its Subsidiaries for such period for interest payable with respect to
Indebtedness (including, without limitation, the Obligations and imputed
interest on Capitalized Leases) and all fees paid on account of or with respect
thereto, determined in accordance with Generally Accepted Accounting Principles.
INVESTMENT. As applied to the Company and its Subsidiaries, the
purchase or acquisition of any share of capital stock, partnership interest,
evidence of indebtedness or other equity security of any other person or entity,
any loan, advance or extension of credit to, or contribution to the capital of,
any other person or entity, any real estate held for sale or investment, any
commodities futures contracts held other than in connection with bona fide
hedging transactions, any other investment in any other person or entity, and
the making of any commitment or acquisition of any option to make an Investment.
LOAN. A loan made to the Company by the Bank pursuant to Section 2 of
this Agreement, and "Loans" means all of such loans, collectively.
LOAN DOCUMENTS. This Agreement, the Notes, the Security Documents, and
other instruments, documents and agreements now or hereafter executed in
connection therewith, as each may be modified, amended, supplemented or
restated.
NET PROCEEDS. the entire proceeds received from a sale or disposition
of any assets of the Company and its Subsidiaries or the sale or issuance of any
of the capital stock of the Company, less (a) the reasonable costs and expenses
incident to realizing such proceeds, including, without limitation, reasonable
brokerage commissions and reasonable legal fees and expenses, and (b) with
respect to the sale or disposition of assets, amounts required to be paid to the
holder of any Permitted Encumbrance on such assets which has priority over the
Bank's lien.
NOTES. Collectively, the Term Note and the Acquisition Note(s).
OBLIGATIONS. Any and all obligations of the Company to the Bank of
every kind and description, direct or indirect, absolute or contingent, primary
or secondary, due or to become due, now existing or hereafter arising,
regardless of how they arise or by what agreement or instrument, if any, and
including obligations to perform acts and refrain from taking action as well as
obligations to pay money.
PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding
to any or all of its functions under ERISA.
<PAGE> 13
PERMITTED ACQUISITIONS. The acquisition by the Company or any of its
Subsidiaries of the assets or capital stock of any Person on terms and
conditions acceptable to the Bank. Without limitation, the ATC Acquisition shall
be deemed a Permitted Acquisition.
PERMITTED ENCUMBRANCES. See Section 7.4.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, limited liability company, business, or other legal entity, and any
government or any governmental agency or political subdivision thereof.
PLAN. At any time, an employee pension or other benefit plan that is
subject to Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Company or any
member of the Controlled Group for employees of the Company or any member of the
Controlled Group or (ii) if such Plan is established, maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Company or any member of the
Controlled Group is then making or accruing an obligation to make contributions
or has within the preceding five Plan years made contributions.
QUALIFIED INVESTMENTS. As applied to the Company and its Subsidiaries,
investments in (i) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit or other deposit instruments or accounts of banks or
trust companies organized under the laws of the United States or any state
thereof that have capital and surplus of at least $100,000,000, (iii) commercial
paper that is rated not less than prime-one or A-1 or their equivalents by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or their successors, and (iv) any repurchase agreement secured by any one or
more of the foregoing.
SAGAPONACK. Individually and collectively, Sagaponack Partners, L.P., a
Delaware limited partnership, and Sagaponack International Partners, L.P., a
Cayman Islands limited partnership, and the affiliates of each of them.
SECURITY DOCUMENTS. All security agreements, mortgages, deeds of trust
and other instruments, documents, and agreements from the Company and/or any of
its Subsidiaries, granting a lien, security interest or other right in favor of
the Bank in any asset of the Company and its Subsidiaries to secure the
Obligations, whether such agreements now exist or hereafter arise.
SUBORDINATED INDEBTEDNESS. Indebtedness due from the Company to
Sagaponack in the aggregate principal sum of $7,000,000.00 evidenced by certain
Senior Subordinated Promissory
<PAGE> 14
Notes dated May 22, 1997, as amended and in effect from time to time.
SUBSIDIARY. Except as provided in the following sentence, any
corporation, association, joint stock company, business trust or other similar
organization of which 50% or more of the ordinary voting power for the election
of a majority of the members of the board of directors or other governing body
of such entity is held or controlled by the Company or a Subsidiary of the
Company; or any other such organization the management of which is directly or
indirectly controlled by the Company or a Subsidiary of the Company through the
exercise of voting power or otherwise; or any joint venture, whether
incorporated or not, in which the Company has a 50% ownership interest.
Notwithstanding the foregoing, for purposes of this Agreement, neither Toxguard
Systems, Inc. nor, if sold by December 31, 1997, Toxguard Fluid Technologies,
Inc. shall be deemed a Subsidiary of the Company.
TERM LOAN. The loan made to the Company pursuant to Section 2.1(b) of
this Agreement.
TERM LOAN MATURITY DATE. December 31, 2000 or such earlier date on
which the Term Loan shall become due and payable pursuant to the terms hereof.
TERM NOTE. See Section 2.2 hereof.
TRANSITION EXPENSES. Non-recurring expenses of the Company incurred in
connection with the ATC Acquisition and with the Company's acquisition of Ustman
Industries, Inc., which expenses consist of salary and severance relating to
terminated employees, duplicate trade show expenses, employee and office related
moving expenses, data entry expenses, legal and consulting fees, and banking and
accounting fees.
A. Rules of Interpretation.
(a) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented from time to
time in accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes
the singular.
(c) A reference to any law includes any amendment or
modification to such law.
(d) A reference to any Person includes its permitted
successors and permitted assigns.
(e) Accounting terms not otherwise defined herein have the
meanings assigned to them by Generally Accepted Accounting Principles.
(f) The words "include", "includes" and "including" are not
limiting.
<PAGE> 15
(g) All terms which are defined in the Uniform Commercial Code
as enacted in Massachusetts and are not otherwise specifically defined herein or
by Generally Accepted Accounting Principles shall have the meanings assigned to
them in the Uniform Commercial Code.
(h) Reference to a particular "Section" refers to that section
of this Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
I. SECTION
THE LOANS
Subpart A - The Term Loan
The Term Loan. (a) Subject to the terms and conditions hereof,
the Company shall borrow, and the Bank shall lend, on the Closing Date the
principal sum of $3,750,000.00 (the "Term Loan").
The Term Note. The Term Loan shall be evidenced by, and
repayable with interest in accordance with, a promissory note in the form of
Exhibit A hereto (the "Term Note"), payable to the order of the Bank and having
a final maturity of December __, 2000. The Term Note shall be dated on or before
the date of the Closing Date and shall be completed with appropriate insertions.
Interest Rate and Payments of Interest on the Term Loan. The
Term Loan shall bear interest on the outstanding principal amount thereof at a
rate equal to the aggregate of the Base Rate plus two and one-half percent (2
1/2%) per annum. Such interest shall be payable on the last day of each of the
Borrower's fiscal quarters commencing December 31, 1997, and when such Term Loan
is due (whether at maturity, by reason of acceleration or otherwise).
Additional Interest. In addition to interest provided in
Section 2.3 hereof, the Company shall also pay to the Bank additional interest
("Additional Interest") equal to the following:
An amount equal to the greater of (i) $150,000.00 or (ii) five
percent (5%) of the result of (A) the Consolidated EBITDA of the
Company and its Subsidiaries for fiscal years 1998, 1999 and 2000
divided by (B) three (3). Such Additional Interest shall be paid on the
date the Company is required to furnish its annual financial statement
for fiscal year 2000 pursuant to the provisions of Section 6.1(a)
hereof and shall be accompanied by a certification of the principal
financial officer of the
<PAGE> 16
Company setting forth in reasonable detail computations evidencing the
calculation of such Additional Interest.
In the event that the Term Loan is prepaid in full prior to
the Term Loan Maturity Date (whether by virtue of acceleration upon the
occurrence of an Event of Default or otherwise), in lieu of the amounts
payable under Section 2.4(a) hereof, an amount equal to the greater of
(i) $150,000.00, or (ii) five percent (5%) of the Consolidated EBITDA
of the Company and its Subsidiaries for the twelve (12) months
immediately preceding such prepayment. Such Additional Interest shall
be paid to the Bank contemporaneously with such prepayment. Such
Additional Interest payment shall be accompanied by a certification of
the principal financial officer of the Company setting forth in
reasonable detail computations evidencing the calculation of such
Additional Interest, provided that if such Additional Interest becomes
due as a result of the acceleration of the Obligations by the Bank, the
Bank may, in its discretion, calculate the amounts payable hereunder
based upon information available to the Bank.
Repayment of Term Loan. The principal balance of the Term Loan
shall be repaid in consecutive quarterly installments payable on the last day of
each March, June, September and December, commencing March 31, 1998 in the
following amounts:
<TABLE>
<CAPTION>
Quarters Ending In Quarterly Installment
------------------ ---------------------
<S> <C>
1998 $125,000.00
1999 $250,000.00
2000 $375,000.00
</TABLE>
Unless sooner paid or accelerated, the outstanding principal balance of the Term
Loan, and all accrued and unpaid interest thereon (other than Additional
Interest which shall be paid in accordance with the provisions of Section 2.4
hereof) shall be due and payable in full on the Term Loan Maturity Date.
Subpart B - The Acquisition Loans
A. Acquisition Loans. Subject to the terms and conditions set forth in this
Agreement, during the Acquisition Loan Period, the Company may borrow a sum not
to exceed in the aggregate the Acquisition Loan Ceiling (each an "ACQUISITION
LOAN" and all of such Loans being referred to herein as "ACQUISITION LOANS") for
the purpose of financing Permitted Acquisitions. The Company may request
Acquisition Loans on more than one occasion. Amounts borrowed under this Section
2.6 and repaid or prepaid may not be reborrowed.
Notice of Borrowing. Whenever the Company desires to make a
borrowing of an Acquisition Loan, the Company shall give the Bank prior written
notice thereof at least thirty (30) Business Days prior to the day on which the
requested Acquisition Loan is to be made. Each notice of borrowing hereunder
shall be substantially in the form of Exhibit B hereto (each an
<PAGE> 17
"ACQUISITION LOAN CERTIFICATE") and shall (a) specify (i) the principal amount
of the Acquisition Loan requested and (ii) the proposed Drawdown Date of the
Acquisition Loan and (b) be accompanied by (i) the Purchase and Sale Agreement
for such Permitted Acquisition, and (ii) a pro forma balance sheet, income
statement, statement of cash flow, and other financial information as the Bank
may reasonably request, for the Company and its Subsidiaries (including the
Permitted Acquisition) covering such period(s) as the Bank may require. Each
notice of borrowing of an Acquisition Loan shall be irrevocable and shall
obligate the Company to accept the Acquisition Loan from the Bank.
Discretionary Nature of Acquisition Line. The Acquisition Line
is not a committed line of financing. All Acquisition Loans shall be made, if at
all, in the sole discretion of the Bank. The making of an Acquisition Loan on
one occasion shall not obligate the Bank to make any other Acquisition Loan on
any other occasions.
Acquisition Note. Each Acquisition Loan shall be evidenced by,
and repayable with interest in accordance with a promissory note in the form of
Exhibit C hereto (the "Acquisition Note"), payable to the order of the Bank.
Each Acquisition Note shall be dated on each Drawdown Date and shall be
completed with the appropriate insertions.
Interest Rates and Payments of Interest on the Acquisition
Loans. (a) The Acquisition Loans shall bear interest on the outstanding
principal amount thereof at a rate per annum equal to the Base Rate plus two and
one-half percent (2 1/2%) which rate shall change contemporaneously with any
change in the Base Rate. Such interest shall be payable on the last day of each
of the Borrower's fiscal quarters, commencing on the last day of the quarter in
which the Drawdown Date for each Acquisition Loan occurs, and when such
Acquisition Loan is due (whether at maturity, by reason of acceleration or
otherwise).
Repayment of Acquisition Loans. The principal balance of each
Acquisition Loan shall be repaid at such times, in such amounts, and upon such
maturity, as the Bank may, in its discretion, establish at the time of the
making of the subject Acquisition Loan.
Subpart C - Applicable to All Loans
A. Optional Prepayments of Loans. The Company shall have the right, at its
election, to repay the outstanding amount of any of the Loans, as a whole or in
part, at any time without penalty or premium. Any prepayment in full of the Term
Loan shall be accompanied by the payment of Additional Interest as provided in
Section 2.4 hereof. All such prepayments shall be applied to the Notes in
inverse order of maturity. No prepayment hereunder shall postpone the date for,
or reduce the amount of, any subsequent payment of the Loans. Any Loans which
are prepaid may not be reborrowed.
<PAGE> 18
Mandatory Prepayment of Loans. In addition to other principal
reductions on the Loans required pursuant hereto, the Company shall pay, and
there shall become due and payable, a prepayment in respect of the Obligations,
the following:
An amount equal to seventy-five percent (75%) of Consolidated
Excess Cash Flow of the Company and its Subsidiaries for each of their
fiscal years. Such prepayment shall be made within ninety (90) days
after the end of each fiscal year of the Company and its Subsidiaries,
and shall be accompanied by the Excess Cash Flow Computation Report in
the form of Exhibit D hereto.
An amount equal to the Net Proceeds received by the Company
and its Subsidiaries from any sales of their assets, other than (i)
sales in the ordinary course of business,(ii) sales of assets for an
aggregate sales price not exceeding $25,000.00 in any fiscal year, or
(iii) sales otherwise permitted under this Agreement. Such prepayment
shall be made within one (1) Business Day of the Company's or any such
Subsidiary's receipt of any such Net Proceeds, and shall be accompanied
by a settlement statement for the subject transaction reflecting in
detail the disbursement of the gross proceeds of the transaction.
An amount equal to the Net Proceeds received by the Company
upon the sale or issuance of any of its capital stock (other than the
issuance of such capital stock to the seller as full or partial payment
of the purchase price in any Permitted Acquisition, or in connection
with any employee compensation or employee stock option plans). Such
prepayment shall be made within one (1) Business Day of the Company's
or any such Subsidiary's receipt of any such Net Proceeds.
The amounts so prepaid pursuant to this ss.2.13 shall be
applied FIRST, to the principal balance of the Term Loan (in inverse
order of maturity) until the principal balance of the Term Loan has
been paid in full; SECOND, to interest, fees and other amounts due on
account of the Term Loan until the Term Loan is paid in full; THIRD, to
the outstanding principal balance of the Acquisition Loans (in such
order and manner as the Bank may, in its discretion determine) until
the Acquisition Loans have been paid in full, and FOURTH, to all other
Obligations. No prepayment made hereunder shall postpone the time for,
or reduce the amount of, any subsequent payment on account of the
Obligations. No amounts prepaid may be reborrowed.
I. SECTION
CERTAIN GENERAL PROVISIONS
A. Closing Fee. The Company agrees to pay to the Bank on the Closing Date a
closing fee on account of the Term Loan in the amount of $37,500.00.
<PAGE> 19
A. Funds for Payments.
a) All payments of principal, interest, commitment fees,
closing fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made to the Bank, at its head office at 100 Federal Street,
Boston, Massachusetts 02110, or at such other location in the Boston,
Massachusetts area that the Bank may from time to time designate, in each case
in immediately available funds.
All payments by the Company hereunder and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, imposts, duties, charges,
fees, deductions, withholdings, compulsory loans, restrictions or conditions of
any nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein unless the
Company is compelled by law to make such deduction or withholding. If any such
obligation is imposed upon the Company with respect to any amount payable by it
hereunder or under any of the other Loan Documents, the Company will pay to the
Bank, on the date on which such amount is due and payable hereunder or under
such other Loan Document, such additional amount as shall be necessary to enable
the Bank to receive the same net amount which the Bank would have received on
such due date had no such obligation been imposed upon the Company. The Company
will deliver promptly to the Bank certificates or other valid vouchers for all
taxes or other charges deducted from or paid with respect to payments made by
the Company hereunder or under such other Loan Document.
Computations. All computations of interest on the Loans and of
other fees payable by the Company to the extent applicable shall be based on a
365-day year and paid for the actual number of days elapsed. Each change in the
Base Rate shall be effective, for purposes of the determination of interest
hereunder, contemporaneously with the effectiveness of such change in the Base
Rate. Whenever a payment hereunder or under any of the other Loan Documents
becomes due on a day that is not a Business Day, the due date for such payment
shall be extended to the next succeeding Business Day, and interest shall accrue
during such extension. The outstanding amount of the Loans as reflected on the
Bank's records from time to time shall be considered correct and binding on the
Company unless within ten (10) Business Days after receipt by the Company from
the Bank of any notice of such outstanding amount, the Company shall notify the
Bank to the contrary.
Additional Costs, Etc. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Bank by any central bank or other
<PAGE> 20
fiscal, monetary or other authority (whether or not having the force of law),
shall:
subject the Bank to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement,
the other Loan Documents, or the Loans (other than taxes based upon or
measured by the income or profits of the Bank); or
materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Bank of the principal of
or the interest on any Loans or any other amounts payable to the Bank
under this Agreement or the other Loan Documents; or
impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Agreement) any
special deposit, reserve, assessment, liquidity, capital adequacy or
other similar requirements (whether or not having the force of law)
against assets held by, or deposits in or for the account of, or loans
by, or commitments of an office of the Bank; or
impose on the Bank any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loans, or any
class of loans or commitments of which any of the Loans forms a part;
and the result of any of the foregoing is
to increase the cost to the Bank of making, funding, issuing,
renewing, extending or maintaining any of the Loans; or
to reduce the amount of principal, interest or other amount
payable to the Bank on account of any of the Loans; or
to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregone interest or other sum is calculated by reference to the gross
amount of any sum receivable or deemed received by the Bank from the
Company hereunder,
then, and in each such case, the Company will, upon demand made by the Bank at
any time and from time to time and as often as the occasion therefor may arise,
pay to the Bank such additional amounts as will be sufficient to compensate the
Bank for such additional cost, reduction, payment or foregone interest or other
sum.
Capital Adequacy. If any present or future law, governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or the interpretation thereof by a court or governmental authority
with appropriate jurisdiction affects the amount of capital required or expected
<PAGE> 21
to be maintained by the Bank or any corporation controlling the Bank and the
Bank determines that the amount of capital required to be maintained by it is
increased by or based upon the existence of the Loans or the commitments made
pursuant hereto, then the Bank may notify the Company of such fact, and the
Company shall pay to the Bank from time to time on demand, as an additional fee
payable hereunder, such amount as the Bank shall determine in good faith and
certify in a notice to the Company to be an amount that will adequately
compensate the Bank in light of those circumstances for its increased costs of
maintaining such capital.
Certificate. A certificate setting forth any additional
amounts payable pursuant to Section 3.4 or Section 3.5 and a brief explanation
of such amounts which are due, submitted by the Bank to the Company, shall be
prima facie evidence that such amounts are due and owing.
Interest After Default; Late Fee. (a) Following the occurrence
of an Event of Default, principal and (to the extent permitted by applicable
law) interest on the Loans and all other amounts payable hereunder or under any
of the other Loan Documents, at the option of the Bank, shall bear interest
(compounded daily) payable on demand at a rate per annum equal to the aggregate
of the Base Rate plus five and one-half percent (5 1/2%) per annum.
(b) If a payment of principal or interest on account of any of
the Loans is not made within ten (10) days of its due date, the Company will
also pay on demand a late payment charge equal to five percent (5%) of the
amount of such payment. Nothing contained in the preceding sentence shall affect
the Bank's right to exercise any of its rights or remedies upon the occurrence
of an Event of Default.
I. SECTION
COLLATERAL SECURITY
The Obligations shall be secured by a perfected first priority security
interest to be held by the Bank (subject only to Permitted Liens) in the
Collateral.
I. SECTION
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make
Loans hereunder, the Company represents and warrants to the Bank that:
Organization and Qualification. Each of the Company and its
Subsidiaries (a) is a corporation duly organized. validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate
<PAGE> 22
power to own its property and conduct its business as now conducted and as
presently contemplated and (c) is duly qualified and in good standing as a
foreign corporation and is duly authorized to do business in each jurisdiction
where the nature of its properties or business requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business, financial condition, assets or properties of the Company
or of the Company and its Subsidiaries taken as a whole.
Corporate Authority. The execution, delivery and performance
of this Agreement and the other Loan Documents to which the Company and its
Subsidiaries are to become a party and the transactions contemplated hereby are
within the corporate power and authority of the Company and its Subsidiaries and
have been authorized by all necessary corporate proceedings, and do not and will
not (a) require any consent or approval of the stockholders of the Company or
its Subsidiaries, except for such consents or approvals as have been obtained or
which may be required from the holders of Indebtedness which will be satisfied
from the proceeds of the Term Loan, (b) contravene any provision of the charter
documents or by-laws of the Company or its Subsidiaries, or any law, rule or
regulation applicable to the Company or its Subsidiaries, (c) contravene any
provision of, or constitute an event of default or event that, but for the
requirement that time elapse or notice be given or both would constitute an
event of default under, any other agreement, instrument, order or undertaking
binding on the Company or its Subsidiaries, or (d) result in or require the
imposition of any Encumbrance on any of the properties, assets or rights of the
Company or its Subsidiaries other than in favor of the Bank.
Valid Obligations. This Agreement and the other Loan Documents
and all of their respective terms and provisions are the legal, valid and
binding obligations of the Company and its Subsidiaries, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally, and except as the remedy of specific
performance, injunctive relief, or other equitable relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
Consents or Approvals. The execution, delivery and performance
of this Agreement and the other Loan Documents and the transactions contemplated
herein do not require any approval or consent of, or filing or registration
with, any governmental or other agency or authority, or any other party, except
for such consents or approvals as have been obtained or which may be required
from the holders of Indebtedness which will be satisfied from the proceeds of
the Term Loan.
Title to Properties; Absence of Encumbrances. Each of the
Company and its Subsidiaries has good and marketable title to all of the
properties, assets and rights of every name and nature now purported to be owned
by it, including, without limitation, such properties, assets and rights as are
reflected
<PAGE> 23
in the financial statements referred to in Section 5.6 (except such properties,
assets or rights as have been disposed of in the ordinary course of business
since the date thereof), free from all Encumbrances except Permitted
Encumbrances, and free from all defects of title that might materially adversely
affect such properties, assets or rights, taken as a whole.
Financial Statements. The Company has furnished the Bank its
Consolidated balance sheet as of June 30, 1997 and its Consolidated statements
of income, changes in stockholders' equity and cash flow for the fiscal year
then ended, and related footnotes, audited and certified by Ernst & Young, LLP.
The Company has also furnished the Bank its Consolidated balance sheet as of
September 30, 1997 and its Consolidated statements of income, changes in
stockholders equity and cash flow for the fiscal quarter then ended, certified
by the principal financial officer of the Company but subject, however, to
normal, recurring year-end adjustments that shall not in the aggregate be
material in amount. All such financial statements were prepared in accordance
with Generally Accepted Accounting Principles applied on a consistent basis
throughout the periods specified and present fairly the financial position of
the Company and its Subsidiaries as of such dates and the results of the
operations of the Company and its Subsidiaries for such periods. There are no
liabilities, contingent or otherwise, not disclosed in such financial statements
that involve a material amount.
Changes. Since the date of the most recent financial
statements referred to in Section 5.6, there have been no changes in the assets,
liabilities, financial condition, business or prospects of the Company or any of
its Subsidiaries other than changes in the ordinary course of business and
changes resulting from the ATC Acquisition, the effect of which has not, in the
aggregate, been materially adverse.
Defaults. As of the date of this Agreement, no Default exists.
Taxes. The Company and each Subsidiary have filed all federal,
state and other tax returns required to be filed, and all taxes, assessments and
other governmental charges due from the Company and each Subsidiary have been
fully paid. The Company and each Subsidiary have established on their books
reserves adequate for the payment of all federal, state and other tax
liabilities.
Litigation. Except as set forth on Schedule 5.10 hereto, there
is no litigation, arbitration, proceeding or investigation pending, or, to the
knowledge of the Company's or any Subsidiary's officers, threatened, against the
Company or any Subsidiary before any court, tribunal or administrative agency or
board that, if adversely determined, could result in a material judgment not
fully covered by insurance or could otherwise have a material adverse effect on
the assets, business, financial condition, or prospects of the Company or any
Subsidiary, or materially impair the right of the Company and its Subsidiaries
to carry on business substantially as now conducted by them, or
<PAGE> 24
which questions the validity of this Agreement or any of the Loan Documents, or
any action taken or to be taken pursuant hereto or thereto.
Margin Stock. No portion of any Loan is to be used for the
"purpose of purchasing or carrying" any "margin stock" or "margin security" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. 221 and 224, as amended.
Subsidiaries. As of the date of this Agreement, all the
Subsidiaries of the Company are listed on Schedule 5.12 hereto. The Company or a
Subsidiary of the Company is the owner, free and clear of all liens and
encumbrances, of all of the issued and outstanding stock of each Subsidiary. All
shares of such stock have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional shares have been
granted, and no options, warrants or similar rights are outstanding.
Investment Company Act. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
Compliance with ERISA. The Company does not maintain or
contribute to any Plan other than as set forth in Schedule 5.14. The Company and
each member of the Controlled Group have fulfilled their obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and
are in compliance in all material respects with the applicable provisions of
ERISA and the Code, and have not incurred any liability to the PBGC or a Plan
under Title IV of ERISA; and no "prohibited transaction" or "reportable event"
(as such terms are defined in ERISA) has occurred with respect to any Plan.
Environmental Matters. (a) The Company and each of its
Subsidiaries have obtained all permits, licenses and other authorizations which
are required under all Environmental Laws, except to the extent failure to have
any such permit, license or authorization would not have a material adverse
effect on the business, financial condition or operations of the Company and its
Subsidiaries. The Company and each of its Subsidiaries are in compliance with
the terms and conditions of all such permits, licenses and authorizations, and
are also in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any applicable Environmental Law or in any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply would
not have a material adverse effect on the business, financial condition or
operations of the Company and its Subsidiaries.
(b) No notice, notification, demand, request for information,
citation, summons or order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or
threatened by any
<PAGE> 25
governmental or other entity with respect to any alleged failure by the Company
or any of its Subsidiaries to have any permit, license or authorization required
in connection with the conduct of its business or with respect to any
Environmental Laws, including, without limitation, Environmental Laws relating
to the generation, treatment storage, recycling, transportation, disposal or
release of any Hazardous Materials.
(c) To the best of the Company's knowledge no material oral or
written notification of a release of a Hazardous Material has been filed by or
on behalf of the Company or any of its Subsidiaries and no property now or
previously owned, leased or used by the Company or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of sites requiring investigation or
clean-up.
(d) There are no liens or encumbrances arising under or
pursuant to any Environmental Laws on any of the real property or properties
owned, leased or used by the Company or any of its Subsidiaries and no
governmental actions have been taken or are in process which could subject any
of such properties to such liens or encumbrances or, as a result of which the
Company or any of its Subsidiaries would be required to place any notice or
restriction relating to the presence of Hazardous Materials at any property
owned by it in any deed to such property.
(e) Neither Company nor any of its Subsidiaries nor, to the
best knowledge of the Company, any previous owner. tenant, occupant or user of
any property owned, leased or used by the Company or any of its Subsidiaries has
(i) engaged in or permitted any operations or activities upon or any use or
occupancy of such property, or any portion thereof, for the purpose of or in any
way involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal (whether legal or illegal,
accidental or intentional) of any Hazardous Materials on, under, in or about
such property, except in compliance with all Environmental Laws, or (ii)
transported any Hazardous Materials to, from or across such property except in
compliance with all Environmental Laws; nor to the best knowledge of the Company
have any Hazardous Materials migrated from other properties upon, about or
beneath such property, nor, to the best knowledge of the Company, are any
Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except in compliance with all
Environmental Laws.
Franchises, Patents, Copyrights, Etc. The Company and its
Subsidiaries possess all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter,
<PAGE> 26
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation that has or is expected in the future to have a materially adverse
effect on the business, assets or financial condition of the Company or its
Subsidiaries. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement that has or is expected, in the judgment of the Company's
officers, to have any materially adverse effect on the business of the Company
or its Subsidiaries.
Compliance With Other Instruments, Laws, Etc. Neither the
Company nor any of its Subsidiaries is in violation of any provision of its
charter or other organization documents, by-laws, or any agreement or instrument
to which it may be subject or by which it or any of its properties may be bound,
or any decree, order, judgment, statute, license, rule or regulation, in any of
the foregoing cases in a manner that could result in the imposition of
substantial penalties or materially and adversely affect the financial
condition, properties or business of the Company and its Subsidiaries.
Absence of UCC Financing Statements, Etc. Except with respect
to Permitted Encumbrances or Encumbrances to be terminated and relating to
Indebtedness to be repaid in full with the proceeds of the Term Loan, there is
no financing statement, security agreement, chattel mortgage, real estate
mortgage or other document filed or recorded with any filing records, registry,
or other public office, that purports to cover, affect or give notice of any
present or possible future lien on, or security interest in, any Collateral or
rights thereunder.
Certain Transactions. Except for those transactions with
Sagaponack under a Securities Purchase Agreement dated as of May 22, 1997 and
related documents (as amended and in effect), none of the officers, trustees,
directors, or employees of the Company or any of its Subsidiaries is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, trustee, director or such employee
or, to the knowledge of the Company, any corporation, partnership, trust or
other entity in which any officer, trustee, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
Loan Documents. All of the representations and warranties of
the Company made in the other Loan Documents or any document or instrument
delivered to the Bank pursuant to or in connection with any of such Loan
Documents are true and correct in all material respects.
<PAGE> 27
I. SECTION
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding, the Company covenants as
follows:
Financial Statements and other Reporting Requirements. The
Company shall furnish to the Bank:
as soon as available to the Company, but in any event within
90 days after the end of each of its fiscal years, a consolidated and
consolidating balance sheet as of the end of, and a related
consolidated and consolidating statement of income, changes in
stockholders equity and cash flow for, such year, audited and certified
by Ernst & Young LLP (or other independent certified public accountants
acceptable to the Bank) in the case of such consolidated statements,
and certified by the chief financial officer in the case of such
consolidating statements, each setting forth in comparative form the
figures for the previous year, prepared in accordance with Generally
Accepted Accounting Principles; and, concurrently with such financial
statements, a copy of said certified public accountants' management
report and notes accompanying such financial statements and a written
statement by such accountants that, in the making of the audit
necessary for their report and opinion upon such financial statements
they have obtained no knowledge of any Default or, if in the opinion of
such accountants any such Default exists, they shall disclose in such
written statement the nature and status thereof;
as soon as available to the Company, but in any event within
45 days after the end of each of its fiscal quarters, a consolidated
and consolidating balance sheet as of the end of, and a related
consolidated and consolidating statement of income and cash flow for,
the period then ended, certified by the principal financial officer of
the Company but subject, however, to normal, recurring year end
adjustments that shall not in the aggregate be material in amount;
as soon as available to the Company, but in any event within
25 days after the end of each month, a consolidated and consolidating
balance sheet as of the end of, and a related consolidated and
consolidating statement of income and cash flow for, the month then
ended, certified by the principal financial officer of the Company but
subject, however, to normal, recurring year end adjustments that shall
not in the aggregate be material in amount;
concurrently with the delivery of each financial statement
pursuant to subsections (a) and (b) of this Section 5.1, a report in
substantially the form of Exhibit E hereto signed on behalf of the
Company by its chief financial officer and setting forth in reasonable
detail
<PAGE> 28
computations evidencing compliance with the covenants contained in
Sections 8.1 through 8.7;
promptly after the receipt thereof by the Company, copies of
any reports submitted to the Company by independent public accountants
in connection with any interim review of the accounts of the Company
made by such accountants;
promptly after the same are available, copies of all proxy
statements, financial statements and reports as the Company shall send
to its stockholders or as the Company may file with the Securities and
Exchange Commission or any governmental authority at any time having
jurisdiction over the Company or its Subsidiaries;
if and when the Company gives or is required to give notice to
the PBGC of any "Reportable Event" (as defined in Section 4043 of
ERISA) with respect to any Plan that might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that any
member of the Controlled Group or the plan administrator of any Plan
has given or is required to give notice of any such Reportable Event, a
copy of the notice of such Reportable Event given or required to be
given to the PBGC;
immediately upon becoming aware of the existence of any
condition or event that constitutes a Default, written notice thereof
specifying the nature and duration thereof and the action being or
proposed to be taken with respect thereto;
promptly upon becoming aware of any litigation or of any
investigative proceedings by a governmental agency or authority
commenced or threatened against the Company or any of its Subsidiaries
of which it has notice, the outcome of which would or might have a
materially adverse effect on the assets, business or prospects of the
Company or the Company and its Subsidiaries on a consolidated basis,
written notice thereof and the action being or proposed to be taken
with respect thereto;
promptly upon becoming aware of any investigative proceedings
by a governmental agency or authority commenced or threatened against
the Company or any of its Subsidiaries regarding any potential
violation of Environmental Laws or any spill, release, discharge or
disposal of any Hazardous Material, written notice thereof and the
action being or proposed to be taken with respect thereto; and
from time to time, such other financial data and information
about the Company or its Subsidiaries as the Bank may reasonably
request.
Conduct of Business. Each of the Company and its Subsidiaries
shall:
<PAGE> 29
duly observe and comply in all material respects with all
applicable laws and valid requirements of any governmental authorities
relative to its corporate existence, rights and franchises, to the
conduct of its business and to its property and assets (including
without limitation all Environmental Laws and ERISA), and shall
maintain and keep in full force and effect all licenses and permits
necessary in any material respect to the proper conduct of its
business;
except as set forth in Schedule 6.2, maintain its corporate
existence; and
remain engaged substantially in the business of furnishing
environmental services for statistical inventory reconciliation leak
detection.
Maintenance and Insurance. Each of the Company and its
Subsidiaries shall maintain its properties in good repair, working order and
condition as required for the normal conduct of its business. Each of the
Company and its Subsidiaries shall at all times maintain insurance on all
Collateral as required by the Loan Documents, and will maintain such other
liability, casualty and other insurance with financially sound and reputable
insurers, against such casualties and contingencies as shall be in accordance
with the general practices of businesses engaged in similar activities and in
amounts, containing such terms, in such forms and for such periods as may be
reasonable and prudent. In the event of failure to provide and maintain
insurance as herein provided, the Bank may, at its option, provide such
insurance and charge the amount thereof to the account of the Company or any of
its Subsidiaries with the Bank. The Company shall furnish to the Bank
certificates or other evidence satisfactory to the Bank of compliance with the
foregoing insurance provisions.
Taxes. The Company shall pay or cause to be paid all taxes,
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due.
Inspection by the Bank. (a) The Company shall permit the Bank
or its designees, at any reasonable time and at reasonable intervals of time,
and upon reasonable notice (or if a Default shall have occurred and is
continuing, at any time and without prior notice), at the Company's expense, to
(i) visit and inspect the properties of the Company and its Subsidiaries, (ii)
examine and make copies of and take abstracts from the books and records of the
Company and its Subsidiaries, and (iii) discuss the affairs, finances and
accounts of the Company and its Subsidiaries with their appropriate officers,
employees and accountants.
(b) Without limiting the rights of the Bank under Section
6.5(a) above, the Company shall permit the Bank, at the Company's expense, (i)
to undertake one (1) commercial finance examination annually; (ii) to obtain
appraisals of any of the Company's and its Subsidiaries' assets in form and
substance and
<PAGE> 30
by appraisers satisfactory to the Bank; and (iii) to obtain environmental site
assessments of any of the Company's or its Subsidiaries' properties, all of the
foregoing at such times and intervals as the Bank may request.
Maintenance of Books and Records. Each of the Company and its
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with Generally
Accepted Accounting Principles consistently applied and applicable law.
Punctual Payment. The Company will duly and punctually pay or
cause to be paid the principal and interest (including Additional Interest) on
the Loans and all interest, fees and other Obligations provided for in this
Agreement, all in accordance with the terms of this Agreement and the Notes, as
well as all other sums owing pursuant to the Loan Documents.
Maintenance of Office. The Borrower will maintain its chief
executive office in Lakewood, Colorado, or at such other place in the United
States of America as the Company shall designate upon not less than forty five
(45) days prior written notice to the Bank.
Compliance with Laws, Contracts, Licenses, and Permits. The
Company will comply with, and will cause each of its Subsidiaries to comply with
(a) all applicable laws and regulations now or hereafter in effect wherever its
business is conducted, including all Environmental Laws, (b) the provisions of
its corporate charter and other charter documents and by-laws, (c) all
agreements and instruments to which it is a party or by which it or any of its
properties may be bound and (d) all applicable decrees, orders, and judgments,
except, with respect to each of the foregoing, for violations which, in the
aggregate, do not have a material adverse effect on the business, operations,
properties, assets, or financial condition of the Company and its Subsidiaries.
If at any time while any Obligation is outstanding, any authorization, consent,
approval, permit or license from any officer, agency or instrumentality of any
government shall become necessary or required in order that the Company or its
Subsidiaries may fulfill any of its obligations hereunder, the Company will
promptly take or cause to be taken all reasonable steps to obtain such
authorization, consent, approval, permit or license and furnish the Bank with
evidence thereof.
Use of Proceeds. The Borrower will use the proceeds (a) of the
Term Loan solely to fund in part the ATC Acquisition, to repay Indebtedness
described in SCHEDULE 6.10 hereto, and to support working capital, capital
expenditures, and general corporate purposes; and (b) of the Acquisition Loans,
solely for Permitted Acquisitions.
Further Assurances. At any time and from time to time the
Company shall, and shall cause each of its Subsidiaries
<PAGE> 31
to, execute and deliver such further instruments and take such further action as
may reasonably be requested by the Bank to effect the purposes of this Agreement
and the other Loan Documents.
I. SECTION
NEGATIVE COVENANTS
So long as the Bank has any commitment to lend hereunder or any Loan or
other Obligation remains outstanding, the Company covenants as follows:
Indebtedness. Neither the Company nor any of its Subsidiaries shall
create, incur, assume, guarantee or be or remain liable with respect to any
Indebtedness other than the following:
Indebtedness of the Company or any of its Subsidiaries to the
Bank or any of its affiliates;
Indebtedness existing as of the date of this Agreement and
disclosed on Schedule 7.1 hereto;
current liabilities of the Company or its Subsidiaries
incurred in the ordinary course of business but not incurred through
(i) the borrowing of money, or (ii) the obtaining of credit except for
credit on an open account basis customarily extended and in fact
extended in connection with normal purchases of goods and services;
Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be
made in accordance with the provisions of Section 6.4;
Indebtedness in respect of judgments or awards that have been
in force for less than the applicable period for taking an appeal so
long as execution is not levied thereunder or in respect of which the
Company shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution
shall have been obtained pending such appeal or review;
endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the
ordinary course of business;
Subordinated Indebtedness;
Indebtedness in connection with insurance premium financing;
and
<PAGE> 32
Other Indebtedness not to exceed $50,000.00 in the
aggregate outstanding at any time.
Leases. Neither the Company nor any of its Subsidiaries shall
during any fiscal year enter into any leases of real or personal property as
lessee, without the prior written consent of the Bank (which shall not be
unreasonably withheld or delayed).
Sale and Leaseback. Neither the Company nor any of its
Subsidiaries shall enter into any arrangement, directly or indirectly, whereby
it shall sell or transfer any property owned by it in order to lease such
property or lease other property that the Company or any such Subsidiary intends
to use for substantially the same purpose as the property being sold or
transferred.
Encumbrances. Neither the Company nor any of its Subsidiaries
shall create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets ("Encumbrances"), or assign or otherwise convey any right to
receive income, including the sale or discount of accounts receivable with or
without recourse, except the following ("Permitted Encumbrances"):
Encumbrances in favor of the Bank or any of its affiliates;
Encumbrances existing as of the date of this Agreement and
disclosed in Schedule 7.4 hereto;
liens for taxes, fees, assessments and other governmental
charges to the extent that payment of the same is not overdue;
landlords' and lessors' liens in respect of rent not in
default or liens in respect of pledges or deposits under workmen's
compensation, unemployment insurance, social security laws, or similar
legislation (other than ERISA) or in connection with appeal and similar
bonds incidental to litigation; mechanics', laborers' and materialmen's
and similar liens, if the obligations secured by such liens are not
then delinquent; liens securing the performance of bids, tenders,
contracts (other than for the payment of money); and statutory
obligations incidental to the conduct of its business and that do not
in the aggregate materially detract from the value of its property or
materially impair the use thereof in the operation of its business;
judgment liens that shall not have been in existence for a
period longer than 30 days after the creation thereof or, if a stay of
execution shall have been obtained, for a period longer than 30 days
after the expiration of such stay;
<PAGE> 33
rights of lessors under Capital Leases; and
easements, rights of way, restrictions and other similar
charges or Encumbrances relating to real property and not interfering
in a material way with the ordinary conduct of its business.
Merger; Consolidation; Sale or Lease of Assets. Neither the
Company nor any of its Subsidiaries shall sell, lease or otherwise dispose of
assets or properties, or liquidate, merge or consolidate into or with any other
person or entity, or effect any asset or stock acquisition except for the
following:
Any Subsidiary of the Company may merge or consolidate into or
with (i) the Company if no Default has occurred and is continuing or
would result from such merger and if the Company is the surviving
company, or (ii) any other wholly-owned Subsidiary of the Company;
Sales, leases or dispositions of assets in the ordinary course
of business;
Permitted Acquisitions;
the sale or other disposition of Toxguard Fluid Technologies,
Inc.; or
transactions contemplated on Schedule 6.2 hereof.
Additional Stock Issuance. The Company shall not permit any of
its Subsidiaries to issue any additional shares of its capital stock or other
equity securities, any options therefor or any securities convertible thereto
other than to the Company. Neither the Company nor any of its Subsidiaries shall
sell, transfer or otherwise dispose of any of the capital stock or other equity
securities of a Subsidiary, except (i) to the Company or any of its wholly-owned
Subsidiaries, or (ii) in connection with a transaction permitted by Section 7.5.
Distributions. The Company shall not make any Distributions.
Investments. Neither the Company nor any of its Subsidiaries
shall make or maintain any Investments other than (i) existing Investments in
Subsidiaries and new Investments in Subsidiaries in connection with Permitted
Acquisitions, (ii) Investments existing on the date hereof and described in
Schedule 7.8 hereto, and (iii) Qualified Investments.
ERISA. Neither the Company nor any member of the Controlled
Group shall permit any Plan maintained by it to (i) engage in any "prohibited
transaction" (as defined in Section 4975 of the Code, (ii) incur any
"accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or
not waived, or (iii) terminate any Plan in a manner that could result in the
imposition of a lien or encumbrance on the assets of the Company or any of its
Subsidiaries pursuant to Section 4068 of ERISA.
<PAGE> 34
Compliance with Environmental Laws. The Company will not, and
will not permit any of its Subsidiaries to, do any of the following: (a) use any
real estate owned or leased by it or any portion thereof as a facility for the
handling, processing, storage or disposal of Hazardous Materials, except in full
compliance with Environmental Laws, (b) cause or permit to be located on any of
such real estate any underground tank or other underground storage receptacle
for Hazardous Materials except in full compliance with Environmental Laws, (c)
generate or dispose of any Hazardous Materials on any of such real estate except
in full compliance with Environmental Laws, or (d) conduct any activity at any
real estate or use any real estate in any manner so as to cause a release.
Subordinated Indebtedness. The Company and its Subsidiaries
shall not modify or amend any of the provisions of the instruments, documents,
and agreements evidencing the Subordinated Indebtedness without the prior
written consent of the Bank.
Affiliate Transactions. The Company shall not, after the date
hereof, enter into transactions with its Subsidiaries, affiliates, officers,
directors, and shareholders (including, without limitation, as compensation for
services rendered or for the purchase, leasing, sale, or exchange of property),
except for transactions upon terms not less favorable to the Company than would
be obtainable at the time in comparable transactions in arms length dealings
with other Persons, provided that, in no event shall the Company:
make any loans or advances to any such Subsidiaries,
affiliates, officers, directors, and shareholders; provided that the
Company may make loans and advances to ATC in an amount not to exceed $
150,000.00 in the aggregate outstanding at any time.
make any additional investments in any such Subsidiaries,
affiliates, officers, directors, and shareholders in excess of the
amounts outstanding on the Closing Date; or
issue any Guarantees of the obligations of any such
Subsidiaries, affiliates, officers, directors, and shareholders.
I. SECTION
FINANCIAL COVENANTS OF THE COMPANY
The Company covenants and agrees that, so long as any Obligation is
outstanding:
A. Consolidated Net Worth. The Company shall at all times maintain a
Consolidated Net Worth equal to or greater than the sum of (a) $8,000,000.00,
plus (b) one hundred percent (100%) of the proceeds realized from the issuance
of any stock or other
<PAGE> 35
equity interests in the Company, plus (c) seventy-five percent (75%) of the
Consolidated Net Income (but not any net loss) of the Company and its
Subsidiaries in each of their fiscal years commencing with the fiscal year
ending June 30, 1998. In the event that Consolidated Net Worth is less than that
required hereunder solely by virtue of the incurrence of a net loss in any
fiscal year, for purposes of calculating Consolidated Net Worth in any such
year, Transition Expenses permitted under Section 8.7 hereof and incurred in the
subject year (in an amount not to exceed the actual net loss) shall be added to
the actual Consolidated Net Worth of the Company and its Subsidiaries.
A. Funded Debt to Adjusted Consolidated EBITDA. The Company shall not permit the
ratio of Indebtedness for borrowed money (including Capital Lease obligations
but excluding Subordinated Indebtedness) to Adjusted Consolidated EBITDA to be
less than the following at any time during the period indicated:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Quarter Ending 3.3:1.0
December 31, 1997
Quarter Ending 3.3:1.0
March 31, 1998
Quarter Ending 2.25:1.0
June 30, 1998
Quarter Ending 2.25:1.0
September 30, 1998
Quarter Ending 2.0:1.0
December 31, 1998 and
Each Quarter end thereafter
</TABLE>
For purposes of calculating compliance with this covenant for each quarter
through the quarter ending December 31, 1998, Adjusted Consolidated EBITDA shall
be calculated by multiplying Adjusted Consolidated EBITDA for the applicable
quarter by four (4).
A. Adjusted Consolidated EBITDA to Interest Charges. The Company shall not
permit the ratio of Adjusted Consolidated EBITDA to Interest Charges paid in
cash to be less than 2.5:1.0 for each of the Company's fiscal quarters ending
December 31, 1997 and March 31, 1998, or 3.0:1.0 for each of the Company's
fiscal quarters ending thereafter.
Maximum Capital Expenditures. The Company and its Subsidiaries
shall not make or incur Capital Expenditures in excess of (a) $500,000.00 in any
fiscal year, and (b) $125,000.00 in any fiscal quarter; provided that, if the
Capital Expenditures of the Company and its Subsidiaries in any fiscal quarter
are less than $125,000.00, the difference between $125,000.00 and the
<PAGE> 36
actual Capital Expenditures made during such fiscal quarter may be carried over
to, and shall increase the amount of Capital Expenditures permitted in, any
other fiscal quarter of the Company and its Subsidiaries of the same fiscal year
(no such carry over being permitted between fiscal years).
Adjusted Consolidated EBITDA. (a) The Company and its
Subsidiaries shall achieve Adjusted Consolidated EBITDA in excess of the
following amounts for the periods indicated:
<TABLE>
<CAPTION>
Period
------
<S> <C>
Quarter Ending $282,000.00
December 31, 1997
Six Months Ending $563,000.00
March 31, 1998
Nine Months Ending $1,048,000.00
June 30, 1998
Twelve Months Ending $1,532,000.00
September 30, 1998
Fifteen Months Ending $1,734,000.00
December 31, 1998
</TABLE>
(b) The Company and its Subsidiaries shall achieve Adjusted
Consolidated EBITDA (calculated on a rolling four quarters basis) in excess of
$1,936,000.00 as of each of their fiscal quarter ends commencing with the
quarter ending March 31, 1999.
A. Consolidated Operating Cash Flow to Debt Service Charges. The Company shall
not permit the ratio of Consolidated Operating Cash Flow to Debt Service Charges
to be less than the following amounts for the periods indicated:
<TABLE>
<CAPTION>
Period Minimum Ratio
------ -------------
<S> <C>
Quarter Ending 1.1:1.0
December 31, 1997
Six Months Ending 1.1:1.0
March 31, 1998
Nine Months Ending 1.1:1.0
June 30, 1998
Twelve Months Ending 1.1:1.0
September 30, 1998
Fifteen Months Ending 1.1:1.0
December 31, 1998
</TABLE>
(b) The Company shall not permit the ratio of Consolidated Operating
Cash Flow to Debt Service Charges (calculated on a rolling four (4) quarters
basis) to be less than 1.1:1.0 as of
<PAGE> 37
the end of any fiscal quarter of the Company, commencing with the fiscal quarter
ending March 31, 1999.
A. Transition Expenses. The Company shall not permit Transition Expenses in
connection with either the ATC Acquisition or the Ustman Industries, Inc.
("Ustman") acquisition to exceed the following amounts for the periods
indicated:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Quarter Ending Ustman - $115,000.00
December 31, 1997 ATC - $310,000.00
Quarter Ending Ustman - $50,000.00
March 31, 1998
Quarter Ending Ustman - $25,000.00
June 30, 1998 ATC - $74,000.00
Quarter Ending Ustman -0-
September 30, 1998 ATC - $38,000.00
Quarter Ending Ustman -0-
December 31, 1998 and thereafter ATC -0-
</TABLE>
I. SECTION
CLOSING CONDITIONS
The obligations of the Bank to make the Term Loan and the Acquisition
Loans shall be subject to satisfaction of the following conditions precedent:
Loan Documents. Each of the Loan Documents shall have been duly
executed and delivered by the respective parties thereto and, shall be in full
force and effect and shall be in form and substance satisfactory to the Bank.
Certified Copies of Organization Documents. The Bank shall have
received from the Company and its Subsidiaries a copy, certified as of a recent
date by the appropriate officer of the State in which Company and its
Subsidiaries is organized to be true and complete, of the corporate charter and
any other organization documents of the Company and its Subsidiaries as in
effect on such date of certification.
By-laws; Resolutions. All action on the part of the Company and its
Subsidiaries necessary for the valid execution, delivery and performance by the
Company and its Subsidiaries of this Agreement and the other Loan Documents to
which it is or is to become a party shall have been duly and effectively taken,
and evidence thereof satisfactory to the Bank shall have been
<PAGE> 38
provided to the Bank. The Bank shall have received from the Company and its
Subsidiaries true copies of the Company's and its Subsidiaries' by-laws and the
resolutions adopted by the Company and its Subsidiaries board of directors
authorizing the transactions described herein, each certified by the Company's
or its Subsidiaries' secretary (as applicable) as of a recent date to be true
and complete.
Incumbency Certificate; Authorized Signers. The Bank shall
have received from the Company and each of its Subsidiaries an incumbency
certificate, dated as of the Closing Date, signed by a duly authorized officer
of the Company and each of its Subsidiaries and giving the name and bearing a
specimen signature of each individual who shall be authorized: (a) to sign, in
the name and on behalf of the Company and each of its Subsidiaries, each of the
Loan Documents to which the Company and each of its Subsidiaries is or is to
become a party; (b) to make requests for Acquisition Loans; and (c) to give
notices and to take other action on behalf of the Company and each of its
Subsidiaries under the Loan Documents.
Validity of Liens. The Security Documents shall be effective
to create in favor of the Bank a legal, valid and enforceable first (except for
Permitted Liens entitled to priority under applicable law) security interest in
the Collateral. All filings, recordings, deliveries of instruments and other
actions necessary or desirable in the opinion of the Bank to protect and
preserve such security interests shall have been duly effected. The Bank shall
have received evidence thereof in form and substance satisfactory to the Bank.
Pledge of Stock. All capital stock of ATC shall have been
pledged by the Company to the Bank to secure the Obligations.
Opinion of Counsel Concerning Organization and Loan Documents.
The Bank shall have received a favorable opinion addressed to the Bank and dated
as of the Closing Date, in form and substance satisfactory to the Bank from
Attorneys Swanson & Meepos, LLP.
Payment of Fees. The Borrower shall have paid to the Bank the
closing fee pursuant to Section 3.1, and shall have paid all fees and expenses
incurred by the Bank, including, without limitation, reasonable attorneys' fees.
Agreements with Holders of Subordinated Indebtedness. The Bank
shall have entered into a subordination agreement with the holders of the
Subordinated Indebtedness on terms satisfactory to the Bank (including, without
limitation, with respect to restrictions on payment of cash interest and
principal on account of the Subordinated Indebtedness until all Obligations have
been paid in full).
ATC Acquisition. The ATC Acquisition shall be consummated on
the Closing Date on terms reasonably satisfactory to the Bank.
<PAGE> 39
Minimum Cash-on-Hand. After payment or accrual of all fees and
expenses paid to the Bank or its counsel or otherwise incurred by the Company
and its Subsidiaries in connection with the consummation of the ATC Acquisition
and this Agreement, the Company shall have cash-on-hand on the Closing Date of
at least $500,000.00.
Minimum Consolidated EBITDA. The Bank shall have received
evidence satisfactory to the Bank that the pro forma Adjusted Consolidated
EBITDA of the Company and its Subsidiaries for the fiscal year ending June 30,
1997 would have been at least $2,250,000.00, assuming the Company had owned and
operated ATC, Ustman Industries, Inc. and all of its existing Subsidiaries for
the entire fiscal year then ending.
Pro Forma Covenant Compliance. The Bank shall have received
from the Company a pro forma Compliance Certificate in the form of Exhibit E
hereto which shall indicate that, as of the Closing Date, on a pro forma basis
(calculated on the basis of the Company's consolidated financial position as of
September 30, 1997), after giving effect to the ATC Acquisition and this
Agreement, the Company and its Subsidiaries are in compliance with the covenants
set forth in Section 8 of this Agreement, provided that the Bank recognizes that
the Transition Expenses incurred through September 30, 1997 exceed the
limitations set forth in Section 8.7 hereof.
No Adverse Change. No event shall have occurred, or shall have
failed to occur, which occurrence or failure has, or could have, a materially
adverse effect on the Borrower's financial condition, business, operations,
properties or prospects.
Corporate Structure. The Bank shall be satisfied with the
corporate, tax, and capital structure of the Company and its Subsidiaries.
Additional Documents. The Company shall have provided such
additional instruments and documents to the Bank as the Bank and its counsel may
have reasonably requested.
I. SECTION
CONDITIONS TO ALL BORROWINGS
The obligations of the Bank to make any Loan, whether on or after the
Closing Date, shall also be subject to the satisfaction of the following
conditions precedent:
Representations True; No Event of Default. Each of the
representations and warranties of the Company and its Subsidiaries contained in
this Agreement, the other Loan Documents or in any document or instrument
delivered pursuant to or in connection with this Agreement shall be true as of
the date as of which they were made and shall also be true at and as of the time
of the making of such Loan, with the same effect as if made
<PAGE> 40
at and as of that time (except to the extent of changes resulting from
transactions contemplated and permitted by this Agreement and the other Loan
Documents and changes occurring in the ordinary course of business that singly
or in the aggregate are not materially adverse, and except to the extent that
such representations and warranties relate expressly to an earlier date) and no
Default or Event of Default shall have occurred and be continuing. The Bank
shall have received a certificate of the Company signed by an authorized officer
of the Company to such effect.
No Legal Impediment. No change shall have occurred in any law
or regulations thereunder or interpretations thereof that in the reasonable
opinion of the Bank would make it illegal for the Bank to make such Loan.
Governmental Regulation. The Bank shall have received such
statements in substance and form reasonably satisfactory to the Bank as the Bank
shall require for the purpose of compliance with any applicable regulations of
the Comptroller of the Currency or the Board of Governors of the Federal Reserve
System.
Proceedings and Documents. All proceedings in connection with
the transactions contemplated by this Agreement, the other Loan Documents and
all other documents incident thereto shall be satisfactory in substance and in
form to the Bank to the Bank's counsel, and the Bank and such counsel shall have
received all information and such counterpart originals or certified or other
copies of such documents as the Bank may reasonably request.
I. SECTION
DEFAULTS
A. Events of Default. There shall be an Event of Default hereunder if any of the
following events occurs:
the Company or any of its Subsidiaries shall fail to pay when
due (i) any amount of principal of any Loans, or (ii) any amount of
interest thereon or any fees or expenses payable hereunder or under the
other Loan Documents; or
the Company or any of its Subsidiaries shall fail to perform
any term, covenant or agreement contained in Sections 6.5, 6.7, 6.10, 7
or 8 hereof or in any other Loan Documents; or
the Company or any of its Subsidiaries shall fail to perform
any term, covenant or agreement (other than those subject to
subsections 11.1(a) through (b) hereof) contained in this Agreement and
such default shall continue for 15 days after notice thereof has been
given to the Company by the Bank; or
<PAGE> 41
any representation or warranty of the Company or any of its
Subsidiaries made in this Agreement or in any other Loan Documents or
in any certificate delivered hereunder shall prove to have been false
in any material respect upon the date when made or deemed to have been
made or repeated; or
there shall occur any material adverse change in the assets,
liabilities, financial condition, business or prospects of the Company
and its Subsidiaries, taken as a whole, as determined by the Bank
acting in good faith; or
the Company or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligations for
borrowed monies or advances, for Capitalized Leases, or for the use of
real or personal property, in each case aggregating in excess of
$50,000.00, or fail to observe or perform any term, covenant or
agreement evidencing or securing such obligations for borrowed monies
or advances, or relating to Capitalized Leases or such use of real or
personal property as and when due or within any applicable period of
grace, which failure has not been waived by the holder or holders of
such Indebtedness, and the result of which failure is to permit the
holder or holders of such Indebtedness to cause such Indebtedness to
become due prior to its stated maturity upon delivery of required
notice, if any; or
the Company or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar official of itself
or of all or a substantial part of its property, (ii) be generally not
paying its debts as such debts become due, (iii) make a general
assignment for the benefit of its creditors, (iv) commence a voluntary
case under the Federal Bankruptcy Code (as now or hereafter in effect).
(v) take any action or commence any case or proceeding under any law
relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts, or any other law providing for the
relief of debtors, (vi) fail to contest in a timely or appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Federal Bankruptcy Code or other law, (vii)
take any action under the laws of its jurisdiction of incorporation or
organization similar to any of the foregoing, or (viii) take any
corporate action for the purpose of effecting any of the foregoing; or
a proceeding or case shall be commenced, without the
application or consent of the Company or any of its Subsidiaries in any
court of competent jurisdiction. seeking (i)the liquidation,
reorganization, dissolution, winding up, or composition or readjustment
of its debts, (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of it or of all or any substantial part of its
assets, or (iii) similar relief in respect of it, under any law
relating to bankruptcy, insolvency,
<PAGE> 42
reorganization, winding-up or composition or adjustment of debts or any
other law providing for the relief of debtors, and such proceeding or
case shall continue undismissed, or unstayed and in effect, for a
period of 45 days; or an order for relief shall be entered in an
involuntary case under the Federal Bankruptcy Code, against the Company
or such Subsidiary; or action under the laws of the jurisdiction of
incorporation or organization of the Company or any of its Subsidiaries
similar to any of the foregoing shall be taken with respect to the
Company or such Subsidiary and shall continue unstayed and in effect
for any period of 30 days; or
a judgment or order for the payment of money shall be entered
against the Company or any of its Subsidiaries by any court, or a
warrant of attachment or execution or similar process shall be issued
or levied against property of the Company or such Subsidiary, that in
the aggregate exceeds $100,000.00 in value and such judgment, order,
warrant or process shall continue undischarged or unstayed for 30 days;
or
the Company or any member of the Controlled Group shall fail
to pay when due an amount or amounts aggregating in excess of
$100,000.00 that it shall have become liable to pay to the PBGC or to a
Plan under Title IV of ERISA; or notice of intent to terminate a Plan
or Plans shall be filed under Title IV of ERISA by the Company, any
member of the Controlled Group, any Plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any such Plan or Plans or a proceeding shall be
instituted by a fiduciary of any such Plan or Plans against the Company
and such proceedings shall not have been dismissed within 30 days
thereafter; or a condition shall exist by reason of which the PBGC
would be entitled to obtain a decree adjudicating that any such Plan or
Plans must be terminated; or
if any of the Loan Documents shall be canceled, terminated,
revoked or rescinded or any action at law, suit or in equity or other
legal proceeding to cancel, revoke or rescind any of the Loan Documents
shall be commenced by or on behalf of the Company or any of its
Subsidiaries, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the
effect that, any material provision of the Loan Documents is illegal,
invalid or unenforceable in accordance with the terms thereof; or
the Company or any of its Subsidiaries shall be indicted for a
federal crime, a punishment for which could include the forfeiture of
any material assets of the Company or such Subsidiaries; or
<PAGE> 43
any change in the ownership of the capital stock of any of the
Company's Subsidiaries (except as otherwise permitted in this
Agreement), or any Change in Control of the Company.
the failure of the Company and its Subsidiaries to maintain,
or the cancellation of, insurance upon the Collateral, in amounts and
covering such risks at least equal to that which existed on the date of
this Agreement, naming the Bank as loss payee and/or additional
insured, as required hereunder and under the other Loan Documents.
Remedies. Upon the occurrence of an Event of Default described
in subsections 11.1(g) and (h), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the Bank's option and upon the Bank's
declaration:
the Bank's commitment to make any further Loans hereunder
shall terminate;
the unpaid principal amount of the Loans together with accrued
interest and all other Obligations shall become immediately due and
payable without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived; and
the Bank may exercise any and all rights it has under this
Agreement, the Note or any other Loan Documents or agreements executed
in connection herewith, or at law or in equity, and proceed to protect
and enforce the Bank's rights by any action at law, in equity or other
appropriate proceeding.
I. SECTION
MISCELLANEOUS
A. Notices. Unless otherwise specified herein, all notices hereunder to any
party hereto shall be in writing and shall be delivered by hand, by registered
or certified first class mail, postage prepaid, by telex, answerback received,
or electronic facsimile transmission, by telegraph company or overnight courier,
addressed to such party at its address indicated below:
If to the Company, at
Watson General Corporation
12265 West Bayaud Avenue, Suite 110
Lakewood, Colorado 80228
Attention: Mr. Dan R. Cook
Telecopier:(303) 986-0075
<PAGE> 44
If to the Bank, at
BankBoston, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention: Diversified Finance
Telecopier: (617) 434-4929
or at any other address specified by such party in writing.
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (i) if delivered by hand, overnight courier or
facsimile directed to a responsible officer of the party to which it is
directed, at the time of the receipt thereof by such officer or the sending of
such facsimile (with confirmation of receipt at its destination) and (ii) if
sent by registered or certified first-class mail, postage prepaid, on the third
Business Day following the mailing thereof.
Expenses. The Company agrees to pay (a) the reasonable costs
of producing and reproducing this Agreement, the other Loan Documents and the
other agreements and instruments mentioned herein, (b) any taxes (including any
interest and penalties in respect thereto) payable by the Bank other than taxes
based upon the Bank's net income), including any recording, mortgage,
documentary or intangibles taxes in connection with the Loan Documents, or other
taxes payable on or with respect to the transactions contemplated by this
Agreement, including any taxes payable by the Bank after the Closing Date (the
Company hereby agreeing to indemnify the Bank with respect thereto), (c) all
appraisal fees, engineer's fees, and the reasonable fees, expenses and
disbursements of the Bank's counsel or any local counsel to the Bank incurred in
connection with the preparation, administration or interpretation of the Loan
Documents and other instruments mentioned herein, each closing hereunder, and
amendments, modifications, approvals, consents or waivers hereto or hereunder,
(d) the fees, expenses and disbursements of the Bank incurred by the Bank in
connection with the preparation, administration or interpretation of the Loan
Documents and other instruments mentioned herein, (e) all reasonable
out-of-pocket expenses (including reasonable attorneys' fees and costs and the
fees and costs of appraisers, engineers, investment bankers or other experts
retained by the Bank in connection with any such enforcement proceedings)
incurred by the Bank in connection with (i) the enforcement of or preservation
of rights under any of the Loan Documents against the Company or any of its
Subsidiaries or the administration thereof and (ii) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to any
Bank's relationship with the Company or any of its Subsidiaries and (f) all
reasonable fees, expenses and disbursements of the Bank incurred in connection
with UCC searches, UCC filings or mortgage recordings. The covenants of this
Section 12.2 shall survive payment or satisfaction of payment of amounts owing
with respect to the Notes.
Indemnification. The Company agrees to indemnify and hold
harmless the Bank, its officers, directors, agents,
<PAGE> 45
employees, attorneys and affiliates, from and against any and all claims,
actions and suits whether groundless or otherwise, and from and against any and
all liabilities, losses, damages and expenses of every nature and character
arising out of this Agreement or any of the other Loan Documents or the
transactions contemplated hereby including, without limitation, (a) any actual
or proposed use by the Company or any of its Subsidiaries of the proceeds of any
of the Loans, (b) any actual or alleged infringement of any patent, copyright,
trademark, service mark or similar right of the Company or any of its
Subsidiaries comprised in the Collateral, (c) the Company's or any of its
Subsidiaries' entering into or performing this Agreement or any of the other
Loan Documents or (d) with respect to the Company and its Subsidiaries and their
respective properties and assets, the violation of any Environmental Law, the
release or threatened release of any Hazardous Materials or any action, suit,
proceeding or investigation brought or threatened with respect to any Hazardous
Materials (including, but not limited to claims with respect to wrongful death,
personal injury or damage to property), in each case including, without
limitation, the reasonable fees and disbursements of counsel and allocated costs
of internal counsel incurred in connection with any such investigation,
litigation or other proceeding. In litigation, or the preparation therefor, the
Bank shall be entitled to select its own counsel and, in addition to the
foregoing indemnity, the Company agrees to pay promptly the reasonable fees and
expenses of such counsel. If, and to the extent that the obligations of the
Company under this Section 12.3 are unenforceable for any reason, the Company
hereby agrees to make the maximum contribution to the payment in satisfaction of
such obligations which is permissible under applicable law. The provisions of
this Section 12.3 shall survive the repayment of the Loan and the termination of
the obligations of the Bank hereunder.
Set-Off. Regardless of the adequacy of any collateral or other
means of obtaining repayment of the Obligations, any deposits, balances or other
sums credited by or due from the Bank or any of its affiliates to the Company or
any of its Subsidiaries may, at any time and from time to time after the
occurrence of an Event of Default hereunder, without notice to the Company or
any of its Subsidiaries or compliance with any other condition precedent now or
hereafter imposed by statute, rule of law, or otherwise (all of which are hereby
expressly waived) be set off, appropriated, and applied by the Bank against any
and all obligations of the Company or any of its Subsidiaries to the Bank or any
of its affiliates in such manner as the Bank in its sole discretion may
determine, and the Company and each of its Subsidiaries hereby grants the Bank a
continuing security interest in such deposits, balances or other sums for the
payment and performance of all such obligations.
Term of Agreement. This Agreement shall continue in force and
effect so long as any Loan or any Obligation shall be outstanding.
No Waivers. No failure or delay by the Bank in exercising any
right, power or privilege hereunder or under the Notes
<PAGE> 46
or under any other Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein and in the other Loan Documents provided are cumulative and not
exclusive of any rights or remedies otherwise provided by agreement or law.
GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW). THE COMPANY AND ITS SUBSIDIARIES AGREE THAT ANY
SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL
COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH
COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE COMPANY BY
MAIL AT THE ADDRESS SPECIFIED IN SECTION 12.1. THE COMPANY AND EACH OF ITS
SUBSIDIARIES HEREBY WAIVE ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
Amendments. Neither this Agreement nor the Note nor any
provision hereof or thereof may be amended, waived, discharged or terminated
except by a written instrument signed by the Bank and, in the case of
amendments, by the Company.
Binding Effect of Agreement. This Agreement shall be binding
upon and inure to the benefit of the Company and the Bank and their respective
successors and assigns; provided that the Company may not assign or transfer its
rights or obligations hereunder. The Bank may sell, transfer or grant
participations in the Loan Documents without the prior written consent of the
Company, and the Company agrees that any transferee or participant shall be
entitled to the benefits of the Loan Documents.
Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures hereto and thereto were
upon the same instrument.
Partial Invalidity. The invalidity or unenforceability of any
one or more phrases, clauses or sections of this Agreement shall not affect the
validity or enforceability of the remaining portions of it.
Captions. The captions and headings of the various sections
and subsections of this Agreement are provided for convenience only and shall
not be construed to modify the meaning of such sections or subsections.
WAIVER OF JURY TRIAL. THE BANK AND THE COMPANY AND ITS
SUBSIDIARIES AGREE THAT NONE OF THEM NOR ANY ASSIGNEE OR
<PAGE> 47
SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM
OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG
ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN
WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS
PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE BANK AND THE COMPANY AND ITS
SUBSIDIARIES, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER
THE BANK NOR THE COMPANY AND ITS SUBSIDIARIES HAS AGREED WITH OR REPRESENTED TO
THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
Entire Agreement. This Agreement, the Note and the other Loan
Documents executed in connection herewith constitute the final agreement of the
parties hereto and supersede any prior agreement or understanding, written or
oral, with respect to the matters contained herein and therein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
WATSON GENERAL CORPORATION
By
------------------------------
Name:
Title:
BANKBOSTON, N.A.
By
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT is made as of this 16th day of December,
1997, by and between Watson General Corporation, a California corporation (the
"Company"), and BankBoston, N.A., a national banking association (the "Bank").
WHEREAS, the Company is the legal and beneficial owner of the issued
and outstanding shares of each class of the capital stock of Advanced Tank
Certification, Inc., a Tennessee corporation, as more particularly described on
Annex A; and
WHEREAS, the Company has entered into a certain Term Loan and
Acquisition Line Agreement of even date herewith (as amended and in effect from
time to time, the "Credit Agreement"), with the Bank, pursuant to which the
Bank, subject to the terms and conditions contained therein, is to make Loans
(as defined therein) to the Company; and
WHEREAS, it is a condition precedent to the Bank making the Loans to
the Company under the Credit Agreement that the Company execute and deliver to
the Bank a pledge agreement in substantially the form hereof; and
WHEREAS, the Company wishes to grant pledges and security interests in
favor of the Bank as herein provided;
NOW, THEREFORE, in consideration of the premises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
Section 1. Pledge of Stock, Etc.
(a) The Company hereby pledges, assigns, grants a security
interest in, and delivers to the Bank, all of the shares of capital stock of the
Subsidiaries (defined below) of every class, as more fully described on Annex A
hereto, to be held by the Bank subject to the terms and conditions hereinafter
set forth. The certificates for such shares, accompanied by stock powers or
other appropriate instruments of assignment thereof duly executed in blank by
the Company, have been delivered to the Bank.
(b) In case the Company shall acquire any additional shares of
the capital stock of any Subsidiary or of any corporation which is the successor
of any Subsidiary, or any securities exchangeable for or convertible into shares
of such capital stock of any class of any Subsidiary, by purchase or otherwise,
then the Company shall forthwith deliver to and pledge such shares or other
securities to the Bank under this Agreement. The Company agrees
-1-
<PAGE> 2
that the Bank may from time to time attach as Annex A hereto an updated list of
the shares of capital stock or securities at the time pledged with the Bank
hereunder.
Section 2. Definitions. The term "Obligations" and all other
capitalized terms used herein without definition shall have the respective
meanings provided therefor in the Credit Agreement. Terms used herein and not
defined in the Credit Agreement or otherwise defined herein that are defined in
the Uniform Commercial Code of Massachusetts have such defined meanings herein,
unless the context otherwise indicated or requires, and the following terms
shall have the following meanings:
Stock. Includes the shares of stock described in Annex A attached
hereto and any additional shares of stock at the time pledged with the Bank
hereunder.
Stock Collateral. The property at any time pledged to the Bank
hereunder (whether described herein or not) and all income therefrom, increases
therein and proceeds thereof, but excluding from the definition of "Stock
Collateral" any income, increases or proceeds received by the Company to the
extent expressly permitted by Section 6.
Subsidiary or Subsidiaries. Advanced Tank Certification, Inc., a
Tennessee corporation, and each other Subsidiary (as defined in the Credit
Agreement) now owned or hereafter acquired by the Company, but excluding,
Toxguard Systems, Inc., Toxguard Fluid Technologies, Inc., and all Persons
listed on Schedule 6.2 to the Credit Agreement.
Section 3. Security for Obligations. This Agreement and the security
interest in and pledge of the Stock Collateral hereunder are made with and
granted to the Bank as security for the payment and performance in full of all
the Obligations.
Section 4. Liquidation, Recapitalization, Etc.
-2-
<PAGE> 3
Any sums or other property paid or distributed upon or with
respect to any of the Stock, whether by dividend or redemption or upon the
liquidation or dissolution of the issuer thereof or otherwise constitute
security for payment of the Obligations, and shall, except to the limited extent
provided in Section 6, be paid over and delivered to the Bank to be held by the
Bank as security for the payment and performance in full of all of the
Obligations. In case, pursuant to the recapitalization or reclassification of
the capital of the issuer thereof or pursuant to the reorganization thereof, any
distribution of capital shall be made on or in respect of any of the Stock or
any property shall be distributed upon or with respect to any of the Stock, the
property so distributed shall be delivered to the Bank to be held by it as
security for the Obligations. Except to the limited extent provided in Section
6, all sums of money and property paid or distributed in respect of the Stock,
whether as a dividend or upon such a liquidation, dissolution, recapitalization
or reclassification or otherwise, that are received by the Company shall, until
paid or delivered to the Bank, be held in trust for the Bank as security for the
payment and performance in full of all of the Obligations.
Section 5. Warranty of Title; Authority. The Company hereby represents
and warrants that: (a) the Company has good and marketable title to the Stock
described in Section 1, subject to no pledges, liens, security interests,
charges, options, restrictions or other encumbrances except the pledge and
security interest created by this Agreement, (b) the Company has full power,
authority and legal right to execute, deliver and perform its obligations under
this Agreement and to pledge and grant a security interest in all of the Stock
Collateral pursuant to this Agreement, and the execution, delivery and
performance hereof and the pledge of and granting of a security interest in the
Stock Collateral hereunder have been duly authorized by all necessary corporate
or other action and do not contravene any law, rule or regulation or any
provision of the Company's charter documents or by-laws or of any judgment,
decree or order of any tribunal or of any agreement or instrument to which the
Company is a party or by which it or any of its property is bound or affected or
constitute a default; thereunder, and (c) the information set forth in Annex A
hereto relating to the Stock is true, correct and complete in all respects. The
Company covenants that it will defend the Bank's rights and security interest in
such Stock against the claims and demands of all persons whomsoever. The Company
further covenants that it will have the like title to and right to pledge and
grant a security interest in the Stock Collateral hereafter pledged or in which
a security interest is granted to the Bank hereunder and will likewise defend
the Bank's rights, pledge and security interest thereof and therein.
Section 6. Dividends, Voting, Etc., Prior to Maturity. So long as no
Default or Event of Default shall have occurred and be continuing, the Company
shall be entitled to receive all cash
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<PAGE> 4
dividends paid in respect of the Stock, to vote the Stock and to give consents,
waivers and ratifications in respect of the Stock; provided, however, that no
vote shall be cast or consent waiver or ratification given by the Company if the
effect thereof would in the reasonable judgment of the Bank impair any of the
Stock Collateral or be inconsistent with or result in any violation of any of
the provisions of the Credit Agreement, the Notes or any of the other Loan
Documents. All such rights of the Company to receive cash dividends shall cease
in case a Default or an Event of Default shall have occurred and be continuing.
All such rights of the Company to vote and give consents, waivers and
ratifications with respect to the Stock shall, at the Bank's option, as
evidenced by the Bank's notifying the Company of such election, cease in case a
Default or an Event of Default shall have occurred and be continuing.
Section 7. Remedies
(a) If a Default or an Event of Default shall have occurred
and be continuing, the Bank shall thereafter have the following rights and
remedies (to the extent permitted by applicable law) in addition to the rights
and remedies of a secured party under the Uniform Commercial Code of
Massachusetts, all such rights and remedies being cumulative, not exclusive, and
enforceable alternatively, successively or concurrently, at such time or times
as the Bank deems expedient:
(i) if the Bank so elects and gives notice of such
election to the Company, the Bank may vote any or all shares of the
Stock (whether or not the same shall have been transferred into its
name or the name of its nominee or nominees) for any lawful purpose,
including, without limitation, if the Bank so elects, for the
liquidation of the assets of the issuer thereof, and give all consents,
waivers and ratifications in respect of the Stock and otherwise act
with respect thereto as though it were the outright owner thereof (the
Company hereby irrevocably constituting and appointing the Bank the
proxy and attorney-in-fact of the Company, with full power of
substitution, to do so);
(ii) the Bank may demand, sue for, collect or make any
compromise or settlement the Bank deems suitable in respect of any
Stock Collateral;
(iii) the Bank may sell, resell, assign and deliver, or
otherwise dispose of any or all of the Stock Collateral, for cash or
credit or both and upon such terms at such place or places, at such
time or times and to such entities or other persons as the Bank thinks
expedient, all without demand for performance by the Company or any
notice or advertisement whatsoever except as expressly provided herein
or as may otherwise be required by law;
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<PAGE> 5
(iv) the Bank may cause all or any part of the Stock held
by it to be transferred into its name or the name of its nominee or
nominees; and
(v) the Bank may set off against the Obligations any
and all sums deposited with it or held by it.
(b) In the event of any disposition of the Stock Collateral as
provided in clause (iii) of Section 7(a), the Bank shall give to the Company at
least five Business Days prior written notice of the time and place of any
public sale of the Stock Collateral or of the time after which any private sale
or any other intended disposition is to be made. The Company hereby acknowledges
that five Business Days prior written notice of such sale or sales shall be
reasonable notice. The Bank may enforce its rights hereunder without any other
notice and without compliance with any other condition precedent now or
hereunder imposed by statute, rule of law or otherwise (all of which are hereby
expressly waived by the Company, to the fullest extent permitted by law). The
Bank may buy any part or all of the Stock Collateral at any public sale and if
any part or all of the Stock Collateral is of a type customarily sold in a
recognized market or is of the type which is the subject of widely-distributed
standard price quotations, the Bank may buy at private sale and may make
payments thereof by any means. The Bank may apply the cash proceeds actually
received from any sale or other disposition to the reasonable expenses of
retaking, holding, preparing for sale, selling and the like, to reasonable
attorneys fees, travel and all other expenses which may be incurred by the Bank
in attempting to collect the Obligations or to enforce this Agreement or in the
prosecution or defense of any action or proceeding related to the subject matter
of this Agreement, and then to the Obligations in the order set forth in such
order or preference as the Bank may determine after proper allowance for
Obligations not then due. Only after such applications, and after payment by the
Bank of any amount required by Section 9-504(1)(c) of the Uniform Commercial
Code of the Commonwealth of Massachusetts, need the Bank account to the Company
for any surplus. To the extent that any of the Obligations are to be paid or
performed by a person other than the Company, the Company waives and agrees not
to assert any rights or privileges which it may have under Section 9-112 of the
Uniform Commercial Code of the Commonwealth of Massachusetts.
(c) The Company recognizes that the Bank may be unable to
effect a public sale of the Stock by reason of certain prohibitions contained in
the Securities Act, federal banking laws, and other applicable laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers. The Company agrees that any such private sales may be at prices
and other terms less favorable to the seller than if sold at public sales and
that such private sales shall not by reason thereof be deemed not to have been
made in a commercially reasonable manner. The Bank shall be under no obligation
to delay a sale of any of
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<PAGE> 6
the Stock for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act,
or such other federal banking or other applicable laws, even if the issuer would
agree to do so. Subject to the foregoing, the Bank agrees that any sale of the
Stock shall be made in a commercially reasonable manner, and the Company agrees
to use its best efforts to cause the issuer or issuers of the Stock contemplated
to be sold, to execute and deliver, and cause the directors and officers of such
issuer to execute and deliver, all at the Company's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things as may be necessary or, in the reasonable opinion of the Bank, advisable
to exempt such Stock from registration under the provisions of the Securities
Act, and to make all amendments to such instruments and documents which, in the
opinion of the Bank, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Company further
agrees to use its best efforts to cause such issuer or issuers to comply with
the provisions of the securities or "Blue Sky" laws of any jurisdiction which
the Bank shall designate and, if required, to cause such issuer or issuers to
make available to its security holders, as soon as practicable, an earnings
statement (which need not be audited) which will satisfy the provisions of
Section 11(a) of the Securities Act.
(e) The Company further agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make any sales of any portion
or all of the Stock pursuant to this Section 7 valid and binding and in
compliance with any and all applicable laws (including, without limitation, the
Securities Act, the Securities Exchange Act of 1934, as amended, the rules and
regulations of the Securities and Exchange Commission applicable thereto and all
applicable state securities or "Blue Sky" laws), regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at the Company's expense. The Company further agrees
that a breach of any of the covenants contained in this Section 7 will cause
irreparable injury to the Bank, that the Bank has no adequate remedy at law in
respect of such breach and, as a consequence, agrees that each and every
covenant contained in this Section 7 shall be specifically enforceable against
the Company and the Company hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants.
Section 8. Marshalling. The Bank shall not be required to marshal any
present or future security for (including but not limited to this Agreement and
the Stock Collateral), or other assurances of payment of, the Obligations or any
of them, or to resort to such security or other assurances of payment in any
particular order. All of the Bank's rights hereunder and in respect of such
security and other assurances of payment shall be cumulative and in addition
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<PAGE> 7
to all other rights, however existing or arising. To the extent that it lawfully
may, the Company hereby agrees that it will not invoke any law relating to the
marshalling of collateral that might cause delay in or impede the enforcement of
the Bank's rights under this Agreement or under any other instrument evidencing
any of the Obligations or under which any of the Obligations is outstanding or
by which any of the Obligations is secured or payment thereof is otherwise
assured, and to the extent that it lawfully may the Company hereby irrevocably
waives the benefits of all such laws.
Section 9. Company's Obligations Not Affected. The obligations of the
Company hereunder shall remain in full force and effect without regard to, and
shall not be impaired by (a) any exercise or nonexercise, or any waiver, by the
Bank of any right, remedy, power or privilege under or in respect of any of the
Obligations or any security thereof (including this Agreement); (b) any
amendment to or modification of the Credit Agreement, the Notes, the other Loan
Documents or any of the Obligations; (c) any amendment to or modification of any
instrument (other than this Agreement) securing any of the Obligations; or (d)
the taking of additional security for, or any other assurances of payment of,
any of the Obligations or the release or discharge or termination of any
security or other assurances of payment or performance for any of the
Obligations; whether or not the Company shall have notice or knowledge of any of
the foregoing.
Section 10. Transfer, Etc., by Company. Without the prior written
consent of the Bank, the Company will not sell, assign, transfer or otherwise
dispose of, grant any option with respect to, or pledge or grant any security
interest in or otherwise encumber or restrict any of the Stock Collateral or any
interest therein, except for the pledge thereof and security interest therein
provided for in this Agreement.
Section 11. Further Assurances. The Company will do all such acts, and
will furnish to the Bank all such financing statements, certificates, legal
opinions and other documents and will obtain all such governmental consents and
corporate approvals and will do or cause to be done all such other things as the
Bank may reasonably request from time to time in order to give full effect to
this Agreement and to secure the rights of the Bank hereunder, all without any
cost or expense to the Bank. If the Bank so elects, a photocopy of this
Agreement may at any time and from time to time be filed by the Bank as a
financing statement in any recording office in any jurisdiction.
Section 12. Bank's Exoneration. Under no circumstances shall the Bank
be deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Stock Collateral of any nature or kind or any matter or
proceedings arising out of or relating thereto, other than (a) to exercise
reasonable care in the physical custody of the Stock Collateral and (b) after a
Default or an Event of Default shall have occurred and be con-
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<PAGE> 8
tinuing to act in a commercially reasonable manner. The Bank shall not be
required to take any action of any kind to collect, preserve or protect its or
the Company's rights in the Stock Collateral or against other parties thereto.
The Bank's prior recourse to any part or all of the Stock Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of any of the Obligations.
Section 13. No Waiver, Etc.. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated except by a written instrument
expressly referring to this Agreement and to the provisions so modified or
limited, and executed by the party to be charged. No act, failure or delay by
the Bank shall constitute a waiver of its rights and remedies hereunder or
otherwise. No single or partial waiver by the Bank of any default or right or
remedy that it may have shall operate as a waiver of any other default, right or
remedy or of the same default, right or remedy on a future occasion. The Company
hereby waives presentment, notice of dishonor and protest of all instruments,
included in or evidencing any of the Obligations or the Stock Collateral, and
any and all other notices and demands whatsoever (except as expressly provided
herein or in the Credit Agreement).
Section 14. Notices, Etc. All notices, requests and other
communications hereunder shall be made in the manner set forth in Section 12.1
of the Credit Agreement.
Section 15. Termination. Upon final payment and performance in full of
the Obligations, this Agreement shall terminate and the Bank shall, at the
Company's request and expense, return such Stock Collateral in the possession or
control of the Bank as has not theretofore been disposed of pursuant to the
provisions hereof, together with any moneys and other property at the time held
by the Bank hereunder.
Section 16. Default Interest. Until paid, all amounts due and payable
by the Company hereunder shall be a debt secured by the Stock Collateral and all
other Collateral and shall bear, whether before or after judgment, interest at
the default rate of interest set forth in the Credit Agreement.
Section 17. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS
INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. THE
COMPANY AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT MAY BE
BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT
SITTING THEREIN AND CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURT AND
TO SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE COMPANY BY MAIL AT
THE ADDRESS SPECIFIED IN SECTION 12.1 OF THE LOAN AGREEMENT. THE COMPANY HEREBY
WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.
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<PAGE> 9
Section 18. Waiver of Jury Trial. THE BANK AND THE COMPANY AND ITS
SUBSIDIARIES AGREE THAT NONE OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE BANK AND THE COMPANY AND ITS SUBSIDIARIES, AND THESE
PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE COMPANY
AND ITS SUBSIDIARIES HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
Section 19. Miscellaneous. The headings of each section of this
Agreement are for convenience only and shall not define or limit the provisions
thereof. This Agreement and all rights and obligations hereunder shall be
binding upon the Company and its respective successors and assigns, and shall
inure to the benefit of the Bank and its successors and assigns. If any term of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity of all other terms hereof shall be in no way affected thereby, and this
Agreement shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. The Company acknowledges
receipt of a copy of this Agreement.
IN WITNESS WHEREOF, intending to be legally bound, the Company and the
Bank have caused this Agreement to be executed as of the date first above
written.
WATSON GENERAL CORPORATION
By:___________________________
Title:________________________
BANKBOSTON, N.A.
By:___________________________
Title:________________________
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<PAGE> 10
The undersigned Subsidiaries hereby join in the above Agreement for the
sole purpose of consenting to and being bound by the provisions of Sections
4(a), 6 and 7 thereof, the undersigned hereby agreeing to cooperate fully and
in good faith with the Bank and the Company in carrying out such provisions.
ADVANCED TANK CERTIFICATION, INC.
By:___________________________
Title:________________________
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<PAGE> 11
ANNEX A
None of the issuers has any authorized, issued or outstanding shares of
its capital stock of any class or any commitments to issue any shares of its
capital stock of any class or any securities convertible into or exchangeable
for any shares of its capital stock of any class except as otherwise stated in
this Annex A.
<TABLE>
<CAPTION>
Number of Number of
Record Class of Authorized Issued Number of Par or
Issuer Owner Shares Shares Shares Outstanding Shares Liquidation Value
------ ----- ------ ------ ------ ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Advance Tank Watson General Common 10, 112.1 10, 112.1 No Par
Certification, Inc. Corporation
</TABLE>
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<PAGE> 1
EXHIBIT 10.5
BANKBOSTON, N.A.
SECURITY AGREEMENT
AGREEMENT made this 16th day of December, 1997 by
WATSON GENERAL CORPORATION
-------------------------------------------------------------
NAME
12265 WEST BAYAUD AVENUE, SUITE 110, LAKEWOOD, COLORADO 80228
-------------------------------------------------------------
STREET AND NUMBER CITY STATE ZIP CODE
(the "Debtor") in favor of BANKBOSTON, N.A., a national banking association with
its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Secured
Party").
For value received, the receipt of which is hereby acknowledged,
including, without limitation, enabling the Debtor to obtain credit or other
financial accommodations from the Secured Party, the Debtor hereby agrees as
follows:
Section 1. Definitions. (a) All Capitalized terms used herein and not
otherwise defined shall have the meaning herein as in the Loan Agreement.
(b) All capitalized terms used herein or in any certificate, report or other
document delivered pursuant hereto shall have the meanings assigned to them
below (unless otherwise defined). Except as otherwise defined, terms defined in
the Uniform Commercial Code shall have the meanings set forth therein.
ACCOUNTS. All rights of the Debtor to payment for goods sold or leased
or for services rendered, all sums of money or other proceeds due or becoming
due thereon, all instruments pertaining thereto, all guarantees and security
therefor, and the Debtor's rights pertaining to and interest in such goods,
including the right of stoppage in transit, replevin or reclamation; all chattel
paper; all amounts due from affiliates of the Debtor; all insurance proceeds;
all other rights and claims to the payment of money, under contracts or
otherwise; and all other property constituting "accounts" as such term is
defined in the Uniform Commercial Code.
COLLATERAL. See Section 2.
ENCUMBRANCE. Any mortgage, pledge, security interest, lien or other
charge or encumbrance of any kind or nature upon or with respect to any
property.
EQUIPMENT. All machinery, equipment and fixtures, office furniture,
furnishings and trade fixtures, specialty tools and parts, motor vehicles and
materials handling equipment of the Debtor, together with the Debtor's interest
in, and right to, any
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<PAGE> 2
and all manuals, computer programs, data bases and other materials relating to
the use, operation or structure of any of the foregoing; and all other property
constituting "equipment" as such term is defined in the Uniform Commercial Code.
EVENT OF DEFAULT. Has the meaning set forth in the Loan Agreement.
GENERAL INTANGIBLES. All rights with respect to trademarks, service
marks, trade names, trade styles, patents, copyrights, mask works, trade-secrets
information, other proprietary rights and rights to prevent others from doing
acts that constitute unfair competition with the Debtor or misappropriation of
its property, including without limitation any sums (net of expenses) that the
Debtor may receive arising out of any claim for infringement of its rights in
any of the foregoing, and all rights of the Debtor under contracts to enjoy
performance by others or to be entitled to enjoy rights granted by others,
including without limitation any licenses; all tax refunds; all rights, title
and interest of the Debtor in and to all documents, books, records and other
information (on whatever medium recorded, and including without limitation
computer programs, tapes, discs, punch cards, data processing software and
related property and rights) maintained by the Debtor that reflect the conduct
of the Debtor's business, such as financial records, marketing and sales
records, research and development records, and design, engineering and
manufacturing records; all rights under service bureau service contracts; all
computer data and the concepts and ideas on which said data is based; all
developmental ideas and concepts, papers, plans, schematics, drawings,
blueprints, sketches and documents; all data bases; all customer lists; and all
other property constituting "general intangibles" as such term is defined in the
Uniform Commercial Code.
INVENTORY. All goods, merchandise and other personal property
(including warehouse receipts and other negotiable and non-negotiable documents
of title covering any such property) of the Debtor that are held for sale, lease
or other disposition, or for display or demonstration, or leased or consigned,
or that are raw materials, piece goods, work-in-process or materials used or
consumed or to be used or consumed in the Debtor's business, whether in transit
or in the possession of the Debtor or another, including without limitation all
goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and goods located on the premises of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents or other
third parties; all proprietary rights, patents, plans, drawings, diagrams,
schematics, assembly and display materials relating to any of the foregoing; and
all other property constituting "inventory" as such term is defined in the
Uniform Commercial Code.
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<PAGE> 3
LOAN AGREEMENT. That certain Term Loan and Acquisition Line Agreement
of even date by and between the Debtor and the Secured Party, as the same may be
modified, amended, supplemented or restated.
OBLIGATIONS. Has the meaning set forth in the Loan Agreement.
OFFICER'S CERTIFICATE. A certificate signed by a responsible officer of
the Debtor in the form attached hereto and delivered concurrently herewith.
SECURITIES. All of the securities and instruments of the Debtor,
including without limitation all Investment Property (as defined in the Uniform
Commercial Code), stocks, bonds, Treasury bills, certificates of deposit and
mutual or money market fund shares; and all sums due or to become due on any of
the foregoing, and all securities, instruments or other property purchased or
acquired as a result of the investment and reinvestment thereof as hereinafter
provided, but excluding in any event all stock and securities of Toxguard
Systems, Inc., Toxguard Fluid Technologies, Inc., and those Persons described in
Schedule 6.2 to the Loan Agreement.
STOCK PLEDGE AGREEMENT. That certain Stock Pledge Agreement of even
date by and between the Debtor and the Secured Party, as the same may be
modified, supplemented or restated.
UNIFORM COMMERCIAL CODE. The Uniform Commercial Code as in effect in
The Commonwealth of Massachusetts.
Section 2. Grant. To secure the payment and performance of the
Obligations, the Debtor hereby assigns and pledges to the Secured Party all of
its rights, title and interest in, and grants to the Secured Party a continuing
security interest in, all personal property of the Debtor, including, without
limitation, all Accounts, Equipment, General Intangibles, Inventory and
Securities, whether now owned or existing or hereafter arising or acquired,
together with all goods, instruments, documents of title, policies and
certificates of insurance, securities, chattel paper, deposit accounts, cash or
other property owned by the Debtor or in which the Debtor has an interest that
are now or may hereafter be in the possession, custody or control of the Secured
Party or its participants or assigns for any purpose; any and all additions,
substitutions, replacements and accessions thereto; and all proceeds and
products of any of the foregoing (collectively, the "Collateral").
Section 3. Representations, Warranties and Covenants. The Debtor makes
the following representations and warranties, and agrees to the following
covenants, each of which representations, warranties and covenants shall be
continuing and in force so long as this Agreement is in effect:
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<PAGE> 4
(1) NAME; DEBTOR/COLLATERAL LOCATION; CHANGES.
(1) The name of the Debtor set forth on the first page hereof
is the true and correct legal name of the Debtor, and except as
otherwise disclosed to the Secured Party in the Officer's Certificate,
the Debtor has not done business as or used any other name.
(2) The address of the Debtor set forth on the first page
hereof is the Debtor's chief executive office and the place where its
business records are kept. Except as disclosed on the Officer's
Certificate, all tangible Collateral other than Securities is located
at such chief executive office.
(3) The Debtor will not change its name, identity or
organizational structure or chief executive office or place where its
business records are kept, or move any tangible Collateral (other than
Securities) to a location other than those set forth in the Officer's
Certificate, unless the Debtor shall have given the Secured Party at
least 30 days' prior written notice thereof and shall have delivered to
the Secured Party such new Uniform Commercial Code financing statements
or other documentation as may be necessary or required by the Secured
Party to ensure the continued perfection and priority of the security
interests granted by this Agreement.
(2) ORGANIZATION; GOOD STANDING. The Debtor is duly organized, validly
existing and in good standing under the laws of the state of its organization
and duly qualified and in good standing in every other state in which the nature
of its business or properties requires such qualification, except where the
failure to so qualify would not have a material adverse effect upon the Debtor,
its business, assets, or financial condition.
(3) AUTHORIZATION OF AGREEMENT; NO CONSENTS; NO CONFLICTS. The
execution, delivery and performance of this Agreement has been duly authorized
by all necessary action, corporate or otherwise, and do not and will not (i)
require any consent or approval of the stockholders of the Debtor, which has not
been previously obtained; (ii) contravene the terms of the charter, by-laws or
other organizational papers of the Debtor; (iii) violate any applicable law,
rule or regulation of any governmental agency; (iv) contravene any provision of
any agreement, instrument, order or undertaking binding on the Debtor or by
which any of its properties are bound or affected; (v) other than as
contemplated hereby, result in or require the imposition of any Encumbrance on
any of the properties of the Debtor; or (vi) other than filings required by the
Uniform Commercial Code, require the approval or consent of, or filing or
registration with, any governmental or other agency or authority, or any other
party, which consent or approval has not been previously obtained.
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<PAGE> 5
(4) OWNERSHIP OF COLLATERAL; ABSENCE OF LIENS AND RESTRICTIONS. The
Debtor is, and in the case of property acquired after the date hereof, will be,
the sole legal and equitable owner of the Collateral, holding good and
marketable title to the same free and clear of all Encumbrances except for the
security interests granted hereunder or permitted pursuant to Section 7.4 of the
Loan Agreement, and has good right and legal authority to assign, deliver, and
create a security interest in the Collateral in the manner herein contemplated.
The Collateral is genuine and is what it is purported to be. The Collateral is
not subject to any restriction that would prohibit or restrict the assignment,
delivery or creation of the security interests contemplated hereunder.
(5) FIRST PRIORITY SECURITY INTEREST. This Agreement, together with the
filing of Uniform Commercial Code financing statements in the appropriate
offices for the locations of Collateral listed in the Officer's Certificate,
create a valid and continuing first lien on and perfected security interest in
the Collateral (except for property located in the United States in which a
security interest may not be perfected by filing under the Uniform Commercial
Code), prior to all other Encumbrances, and is enforceable as such against
creditors of the Debtor, any owner of the real property where any of the
Collateral is located, any purchaser of such real property and any present or
future creditor obtaining a lien on such real property. Other than as disclosed
in the Officer's Certificate, no financing statement under the Uniform
Commercial Code of any state or other instrument evidencing a lien that names
the Debtor as debtor is on file in any jurisdiction and the Debtor has not
signed any such document or any agreement authorizing the filing of any such
financing statement or instrument.
(6) SALES AND FURTHER ENCUMBRANCES. The Debtor will not sell, grant,
assign or transfer any interest in, or permit to exist any Encumbrance on, any
of the Collateral other than in favor of the Secured Party or its affiliates
except for (i) sales of Inventory or grants of licenses and other rights in the
ordinary course of the Debtor's business for cash or on open account and on
terms of payment ordinarily extended to its customers; (ii) so long as no Event
of Default hereunder has occurred and is continuing, dispositions of Equipment
that has become worn out or obsolete or that has been replaced by other
Equipment; or (iii) as otherwise permitted by the Secured Party in writing. The
Debtor shall defend its title to and the Secured Party's interest in the
Collateral against all claims and take any action necessary to remove any
Encumbrances other than those permitted hereunder and defend the right, title
and interest of the Secured Party in and to any of the Debtor's rights in the
Collateral.
(7) VALIDITY OF ACCOUNTS. Each Account constituting Collateral is and
shall be a valid, legal and binding obligation of
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<PAGE> 6
the party purported to be obligated thereon, enforceable in accordance with its
terms and free of material setoffs, defenses or counterclaims.
(8) FIXTURE CONFLICTS; REQUIRED WAIVERS. The Debtor intends, to the
extent not inconsistent with applicable law, that the Collateral shall remain
personal property of the Debtor and shall not be deemed to be a fixture
irrespective of the manner of its attachment to any real estate. The Debtor will
deliver to the Secured Party such disclaimer, waiver, or other document as the
Secured Party may request, executed by each person having an interest in such
real estate.
(9) INSPECTION; VERIFICATION OF ACCOUNTS. The Debtor will at all
reasonable times allow the Secured Party to examine, inspect or make extracts
from or copies of the Debtor's books and records, inspect the Collateral and
arrange for verification of Accounts constituting Collateral directly with the
Debtor's accountants, the account debtors or by other methods.
(10) ACCOUNTS: COLLECTION AND DELIVERY OF PROCEEDS. The Debtor will
diligently collect all of its Accounts constituting Collateral until the Secured
Party exercises its rights to collect the Accounts pursuant to this Agreement.
The Debtor shall, at the request of the Secured Party, notify account debtors of
the security interest of the Secured Party in any Account and that payment
thereof is to be made directly to the Secured Party. Upon request of the Secured
Party, any proceeds of Accounts or Inventory constituting Collateral received by
the Debtor, whether in the form of cash, checks, notes or other instruments,
shall be held in trust for the Secured Party and the Debtor shall deliver said
proceeds daily to the Secured Party, without commingling, in the identical form
received (properly endorsed or assigned where required to enable the Secured
Party to collect same).
(11) EQUIPMENT AND INVENTORY: INSURANCE. The Debtor will keep the
Collateral insured at all times by insurance in such form and amounts as may be
satisfactory to the Secured Party, and in any event (without specific request by
the Secured Party) will insure the Collateral against physical hazard insurance
on an "all risks" basis, including fire, theft, and, in the case of motor
vehicles, collision. Such insurance shall be with insurance companies
satisfactory to the Secured Party and shall be payable to the Secured Party as
an additional insured and the Debtor, as their respective interests may appear.
Such insurance shall provide for not less than 30 days' notice of cancellation,
change in form or non-renewal to the Secured Party, and shall insure the
interest of the Secured Party regardless of any breach or violation by the
Debtor or any other person of the warranties, declarations or covenants
contained in such policies. The Debtor shall insure the Collateral in amounts
sufficient to prevent the application of any co-insurance provisions. The Debtor
shall evidence its compliance with the foregoing by delivering a certificate
with respect to each
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policy concurrently with the execution hereof, annually thereafter, and from
time to time upon the request of the Secured Party.
(12) EQUIPMENT AND INVENTORY: MAINTENANCE AND USE, PAYMENT OF TAXES.
The Debtor will keep the Collateral in good order and repair, will not use the
same in violation of law or any policy of insurance thereon, and will pay
promptly when due all taxes and assessments on the Collateral or on its use or
operation.
(13) GENERAL INTANGIBLES: REGISTRATION, MAINTENANCE OF COPIES. The
Debtor will apply for, and pursue diligently applications for, registration of
its ownership of the General Intangibles constituting Collateral and for which
registration is appropriate, and will use such other measures as are appropriate
to preserve its rights in its other General Intangibles constituting Collateral.
The Debtor will, at the request of the Secured Party, retain off-site current
copies of all materials created by or furnished to the Debtor on which is
recorded then-current information about any computer programs or data bases that
the Debtor has developed or otherwise has the right to use from time to time.
Such materials include, without limitation, magnetic or other computer media on
which object, source or other code is recorded or that are documentation of
those computer programs or data bases, in the nature of listing printouts,
narrative descriptions, flow diagrams and similar things. The Debtor will, at
the request of the Secured Party, deliver a set of such copies to the Secured
Party for safekeeping and retention or transfer in the event of foreclosure.
(14) SECURITIES: VOTING, DIVIDENDS, CERTIFICATES, OPTIONS, ETC. Until
the occurrence of a Default or an Event of Default hereunder, the Debtor shall
retain the right to vote any of the Securities constituting Collateral in a
manner not inconsistent with the terms of this Agreement. If the Debtor, as
registered holder of such Securities, receives (i) any dividend or other
distribution in cash or other property in connection with the liquidation or
dissolution of the issuer of such Securities, or in connection with the
redemption or payment of such Securities, or (ii) any stock certificate, option
or right, or other distribution, whether as an addition to, in substitution of,
or in exchange for, such Securities, or otherwise, the Debtor agrees to accept
same in trust for the Secured Party and to deliver same forthwith to the Secured
Party or its designee, in the exact form received, with the Debtor's endorsement
or reassignment when necessary, to be held by the Secured Party as Collateral.
(15) SECURITIES: DELIVERY OR REGISTRATION. Upon request of the Secured
Party, the Debtor will (i) deliver all of its Securities constituting Collateral
and represented by certificates, including without limitation all stock of its
subsidiaries, to the Secured Party to hold pursuant to the terms of this
Agreement, and (ii) register in the name of the Secured Party or its designee
any uncertificated Security constituting Collateral or the Secured
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<PAGE> 8
Party's security interest therein on the books maintained by or on behalf of the
issuer thereof or the depository therefor.
(16) FURTHER ASSURANCES. Upon the written request of the Secured Party,
and at the sole expense of the Debtor, the Debtor will promptly execute and
deliver such further instruments and documents and take such further actions as
the Secured Party may reasonably deem desirable to obtain the full benefits of
this Agreement and of the rights and powers herein granted, including, without
limitation, filing of any financing statement under the Uniform Commercial Code,
execution of assignments of General Intangibles, delivery of appropriate stock
or bond powers, transfer of Collateral (other than Inventory, Accounts and
Equipment) to the Secured Party's possession. The Debtor authorizes the Secured
Party to file any such financing statement without the signature of the Debtor
to the extent permitted by applicable law, and to file a copy of this Agreement
in lieu of a financing statement. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note
or other instrument, such note or instrument shall be immediately delivered to
the Secured Party, duly endorsed in a manner satisfactory to it.
(17) CONFLICTS. This Agreement is supplemental to the Stock Pledge
Agreement, and in the event of an inconsistency between this Agreement and the
Stock Pledge Agreement with respect to the Securities, the provisions of the
Stock Pledge Agreement shall govern.
Section 4. Notices and Reports Pertaining to Collateral. The Debtor
will, with respect to the Collateral:
(1) promptly furnish to the Secured Party, from time to time
upon request, reports in form and detail satisfactory to the Secured
Party;
(2) promptly notify the Secured Party of any Encumbrance
asserted against the Collateral, including any attachment, levy,
execution or other legal process levied against any of the Collateral,
and of any information received by the Debtor relating to the
Collateral, including the Accounts, the account debtors, or other
persons obligated in connection therewith, that may in any way
adversely affect the value of the Collateral or the rights and remedies
of the Secured Party with respect thereto;
(3) promptly notify the Secured Party when it obtains
knowledge of actual or imminent bankruptcy or other insolvency
proceeding of any account debtor or issuer of Securities;
(4) deliver to the Secured Party, as the Secured Party may
from time to time request, delivery receipts, customers' purchase
orders, shipping instructions, bills of lading and any other evidence
of shipping arrangements;
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<PAGE> 9
(5) concurrently with the reports required to be furnished
under subsection (a), and immediately if material in amount, notify the
Secured Party of any return or adjustment, rejection, repossession, or
loss or damage of or to merchandise represented by Accounts or
constituting Inventory and of any credit, adjustment or dispute arising
in connection with the goods or services represented by Accounts or
constituting Inventory; and
(6) promptly after the application by the Debtor for
registration of any General Intangibles, as contemplated in Section
3.13, notify the Secured Party thereof.
The Debtor authorizes the Secured Party to destroy all invoices, delivery
receipts, reports and other types of documents and records submitted to the
Secured Party in connection with the transactions contemplated herein at any
time subsequent to 12 months from the time such items are delivered to the
Secured Party.
Section 5. Secured Party's Rights with respect to Collateral. The
Secured Party may, at its option and at any time, whether or not the Obligations
are due, without notice or demand on the Debtor, take the following actions with
respect to the Collateral:
(1) with respect to any Accounts (i) notify account debtors of
the security interest of the Secured Party in such Accounts and that
payment thereof is to be made directly to the Secured Party; (ii)
demand, collect, and receipt for any amounts relating thereto, as the
Secured Party may determine; (iii) commence and prosecute any actions
in any court for the purposes of collecting any such Accounts and
enforcing any other rights in respect thereof; (iv) defend, settle or
compromise any action brought and, in connection therewith, give such
discharges or releases as the Secured Party may deem appropriate; (v)
receive, open and dispose of mail addressed to the Debtor and endorse
checks, notes, drafts, acceptances, money orders, bills of lading,
warehouse receipts or other instruments or documents evidencing
payment, shipment or storage of the goods giving rise to such Accounts
or securing or relating to such Accounts, on behalf of and in the name
of the Debtor; and (vi) sell, assign, transfer, make any agreement in
respect of, or otherwise deal with or exercise rights in respect of,
any such Accounts or the goods or services which have given rise
thereto, as fully and completely as though the Secured Party were the
absolute owner thereof for all purposes;
(2) with respect to any Equipment and Inventory (i) make,
adjust and settle claims under any insurance policy related thereto and
place and pay for appropriate insurance thereon; (ii) discharge taxes
and other Encumbrances at any
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<PAGE> 10
time levied or placed thereon; (iii) make repairs or provide
maintenance with respect thereto; and (iv) pay any necessary filing
fees and any taxes arising as a consequence of any such filing. The
Secured Party shall have no obligation to make any such expenditures
nor shall the making thereof relieve the Debtor of its obligation to
make such expenditures; and
(3) with respect to any Securities (i) transfer them at any
time to itself, or to its nominee, and receive the income thereon and
hold the same as Collateral hereunder or apply it to any matured
Obligations; and (ii) demand, sue for, collect or make any compromise
or settlement it deems desirable.
Except as otherwise provided herein, the Secured Party shall have no duty as to
the collection or protection of the Collateral nor as to the preservation of any
rights pertaining thereto, beyond the safe custody of any Collateral in its
possession.
Section 6. Set-off Rights. Regardless of the adequacy of any Collateral
or any other means of obtaining repayment for any Obligations, any deposits,
balances or other sums credited by or due from the Secured Party or any of its
affiliates to the Debtor may at any time and from time to time after the
occurrence of an Event of Default, without notice to the Debtor or compliance
with any other condition precedent now or hereafter implied by statute, rule of
law, or otherwise (all of which are hereby expressly waived by the Debtor) may
be set off, appropriated, and applied by the Secured Party against any
Obligations in such manner as the Secured Party in its sole discretion may
determine.
Section 7. Secured Party's Rights and Remedies.
(1) So long as any Event of Default shall have occurred and is
continuing:
(1) the Secured Party may, at its option, without notice or
demand, cause all of the Obligations to become immediately due
and payable and take immediate possession of the Collateral,
and for that purpose the Secured Party may, so far as the
Debtor can give authority therefor, enter upon any premises on
which any of the Collateral is situated and remove the same
therefrom or remain on such premises and in possession of such
Collateral for purposes of conducting a sale or enforcing the
rights of the Secured Party;
(2) the Debtor will, upon demand, assemble the Collateral and
make it available to the Secured Party at a place and time
designated by the Secured Party that is reasonably convenient
to both parties;
(3) the Secured Party may collect and receive all income and
proceeds in respect of the Collateral and
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<PAGE> 11
exercise all rights of the Debtor with respect thereto,
including without limitation the right to exercise all voting
and corporate rights at any meeting of the shareholders of the
issuer of any Securities and to exercise any and all rights of
conversion, exchange, subscription or any other rights,
privileges or options pertaining to any Securities as if the
Secured Party were the absolute owner thereof, including the
right to exchange, at its discretion, any and all of any
Securities upon the merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof,
all without liability except to account for property actually
received (but the Secured Party shall have no duty to exercise
any of the aforesaid rights, privileges or options and shall
not be responsible for any failure to do so or delay in so
doing);
(4) the Secured Party may sell, lease or otherwise dispose of
the Collateral at a public or private sale, with or without
having the Collateral at the place of sale, and upon such
terms and in such manner as the Secured Party may determine,
and the Secured Party may purchase any Collateral at any such
sale. Unless the Collateral threatens to decline rapidly in
value or is of the type customarily sold on a recognized
market, the Secured Party shall send to the Debtor prior
written notice (which, if given within five days of any sale,
shall be deemed to be reasonable) of the time and place of any
public sale of the Collateral or of the time after which any
private sale or other disposition thereof is to be made. The
Debtor agrees that upon any such sale the Collateral shall be
held by the purchaser free from all claims or rights of every
kind and nature, including any equity of redemption or similar
rights, and all such equity of redemption and similar rights
are hereby expressly waived and released by the Debtor. In the
event any consent, approval or authorization of any
governmental agency is necessary to effectuate any such sale,
the Debtor shall execute all applications or other instruments
as may be required; and
(5) in any jurisdiction where the enforcement of its rights
hereunder is sought, the Secured Party shall have, in addition
to all other rights and remedies, the rights and remedies of a
secured party under the Uniform Commercial Code.
(2) Prior to any disposition of Collateral pursuant to this
Agreement the Secured Party may, at its option, cause any of the
Collateral to be repaired or reconditioned (but not upgraded unless
mutually agreed) in such manner and to such extent as to make it
saleable.
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<PAGE> 12
(3) The Secured Party is hereby granted a license or other
right to use, without charge, the Debtor's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, relating to
the Collateral, in completing production of, advertising for sale and
selling any Collateral; and the Debtor's rights under all licenses and
all franchise agreements shall inure to the Secured Party's benefit.
(4) The Debtor recognizes that the Secured Party may be unable
to effect a public sale of all or a part of the Securities by reason of
certain prohibitions contained in the Securities Act of 1933 (as
amended from time to time, the "Securities Act") or the securities laws
of various states (the "Blue Sky Laws"), but may be compelled to resort
to one or more private sales to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire the Securities
for their own account, for investment and not with a view to the
distribution or resale thereof. The Debtor acknowledges that private
sales so made may be at prices and upon other terms less favorable to
the seller than if the Securities were sold at public sales. The Debtor
agrees that the Secured Party has no obligation to delay sale of any of
the Securities for the period of time necessary to permit the
Securities to be registered for public sale under the Securities Act or
the Blue Sky Laws, and that private sales made under the foregoing
circumstances shall be deemed to have been made in a commercially
reasonable manner.
(5) The Secured Party shall be entitled to retain and to apply
the proceeds of any disposition of the Collateral, first, to its
reasonable expenses of retaking, holding, protecting and maintaining,
and preparing for disposition and disposing of, the Collateral,
including attorneys' fees and other legal expenses incurred by it in
connection therewith; and second, to the payment of the Obligations in
such order of priority as the Secured Party shall determine. Any
surplus remaining after such application shall be paid to the Debtor or
to whomever may be legally entitled thereto, provided that in no event
shall the Debtor be credited with any part of the proceeds of the
disposition of the Collateral until such proceeds shall have been
received in cash by the Secured Party. The Debtor shall remain liable
for any deficiency.
Section 8. Waivers. The Debtor waives presentment, demand, notice,
protest, notice of acceptance of this Agreement, notice of any loans made,
credit or other extensions granted, collateral received or delivered or any
other action taken in reliance hereon and all other demands and notices of any
description, except for such demands and notices as are expressly required to be
provided to the Debtor under this Agreement or any other document evidencing the
Obligations. With respect to both
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<PAGE> 13
the Obligations and the Collateral, the Debtor assents to any extension or
postponement of the time of payment or any other forgiveness or indulgence, to
any substitution, exchange or release of Collateral, to the addition or release
of any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromise or adjustment of any
thereof, all in such manner and at such time or times as the Secured Party may
deem advisable. The Secured Party may exercise its rights with respect to the
Collateral without resorting, or regard, to other collateral or sources of
reimbursement for Obligations. The Secured Party shall not be deemed to have
waived any of its rights with respect to the Obligations or the Collateral
unless such waiver is in writing and signed by the Secured Party. No delay or
omission on the part of the Secured Party in exercising any right shall operate
as a waiver of such right or any other right. A waiver on any one occasion shall
not bar or waive the exercise of any right on any future occasion. All rights
and remedies of the Secured Party in the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, are cumulative and not
exclusive of any remedies provided by law or any other agreement, and may be
exercised separately or concurrently.
Section 9. Expenses. The Debtor shall, on demand, pay or reimburse the
Secured Party for all reasonable expenses (including attorneys' fees of outside
counsel or allocation costs of in-house counsel) incurred or paid by the Secured
Party in connection with the preparation, negotiation and closing, and the
administration or enforcement, of this Agreement, its on-site periodic
examinations of the Collateral and any other amounts permitted to be expended by
the Secured Party hereunder, including without limitation such expenses as are
incurred to preserve the value of the Collateral and the validity, perfection,
priority and value of any security interest created hereby, the collection, sale
or other disposition of any of the Collateral or the exercise by the Secured
Party of any of the rights conferred upon it hereunder. The obligation to pay
any such amount shall be an additional Obligation secured hereby and each such
amount shall bear interest from the time of demand at the rate per annum equal
to the default rate as set forth in the Loan Agreement.
Section 10. Notices. Any demand upon or notice to the Debtor that the
Secured Party may give shall be given in accordance with the provisions of
Section 12.1 of the Loan Agreement.
Section 11. Successors and Assigns. This Agreement shall be binding
upon the Debtor, its successors and assigns, and shall inure to the benefit of
and be enforceable by the Secured Party and its successors and assigns. Without
limiting the generality of the foregoing sentence, the Secured Party may assign
or otherwise transfer any agreement or any note held by it evidencing, securing
or otherwise executed in connection with the Obligations, or sell participations
in any interest therein, to any other person or entity, and such other person or
entity shall thereupon become
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<PAGE> 14
vested, to the extent set forth in the agreement evidencing such assignment,
transfer or participation, with all the rights in respect thereof granted to the
Secured Party herein.
Section 12. General. This Agreement may not be amended or modified
except by a writing signed by the Debtor and the Secured Party, nor may the
Debtor assign any of its rights hereunder. This Agreement and the terms,
covenants and conditions hereof shall be construed in accordance with, and
governed by, the laws of The Commonwealth of Massachusetts (without giving
effect to any conflicts of law provisions contained therein). In the event that
any Collateral or any deposit or other sum due from or credited by the Secured
Party is held or stands in the name of the Debtor and another or others jointly,
the Secured Party may deal with the same for all purposes as if it belonged to
or stood in the name of the Debtor alone.
Section 13. Section Headings. Section headings are for convenience of
reference only and are not a part of this Agreement.
Section 14. JURY WAIVER. THE SECURED PARTY (BY ITS ACCEPTANCE HEREOF)
AND THE DEBTOR AGREE THAT NEITHER OF THEM, NOR ANY ASSIGNEE OR SUCCESSOR SHALL
(A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER
ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS,
ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM,
OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE SECURED PARTY AND THE DEBTOR, AND THESE PROVISIONS
SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE SECURED PARTY NOR THE DEBTOR HAS
AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH
WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, the Debtor has caused this Agreement to be duly
executed as an instrument under seal as of the date first written above.
WITNESS: DEBTOR: Watson General
Corporation
Name:_________________________ By:___________________________
Print/Type Full Name Title:
Address:_____________________
_____________________
_____________________
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<PAGE> 15
OFFICER'S CERTIFICATE
TO
SECURITY AGREEMENT
dated December ___, 1997
of Watson General Corporation
The undersigned, the _____________________________ of Watson General
Corporation, a California corporation (the "Debtor"), hereby certifies, with
reference to a certain Security Agreement dated December 16, 1997 (terms defined
in such Security Agreement having the same meanings herein as specified
therein), between the Debtor and BankBoston, N.A. (the "Bank"), to the Bank as
follows:
1. NAMES.
(a) The exact corporate name of the Debtor as it appears on its
organizational documents and its taxpayer identification number is as follows:
(b) The following is a list of all other names (including trade names
or similar appellations) used by the Debtor, or any other business or
organization to which the Debtor became the successor by merger, consolidation,
acquisition, change in form, nature or jurisdiction of organization or
otherwise, now or at any previous time:
2. LOCATIONS.
(a) The chief executive office of the Debtor is located at the
following address:
MAILING ADDRESS COUNTY STATE ZIP CODE
(b) The following are is a list of all other locations in the United
States of America in which the Debtor maintains any books or records relating to
any of the Collateral consisting of Accounts, chattel paper, General Intangibles
or mobile goods:
Currently:
STREET AND NUMBER COUNTY STATE ZIP CODE
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<PAGE> 16
Within the last four months, if different:
STREET AND NUMBER COUNTY STATE ZIP CODE
(c) The following are all the other places of business of the Debtor in
the United States of America:
Currently:
STREET AND NUMBER COUNTY STATE ZIP CODE
Within the last four months, if different:
STREET AND NUMBER COUNTY STATE ZIP CODE
(d) The following are all the other locations in the United States of
America where any of the Collateral (other than Securities and any deposit
accounts) is located:
Currently:
STREET AND NUMBER COUNTY STATE ZIP CODE
Within the last four months, if different:
STREET AND NUMBER COUNTY STATE ZIP CODE
(e) The following are the names and addresses of all persons or
entities other than the Debtor, such as lessees, consignees, warehousemen or
purchasers of chattel paper, that have possession or are intended to have
possession of any of the Collateral consisting of chattel paper, Inventory or
Equipment:
Currently:
STREET AND NUMBER COUNTY STATE ZIP CODE
Within the last four months, if different:
STREET AND NUMBER COUNTY STATE ZIP CODE
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<PAGE> 17
3. FIXTURES. Set forth below is the information required by UCC
ss.9-402(5) of each state in which any of the Collateral consisting of fixtures
are or are to be located and the name and address of each real estate recording
office where a mortgage on the real estate on which such fixtures are or are to
be located would be recorded:
4. OTHER UCC FILINGS. Financing statements in favor of secured parties
other than the Bank have been filed in the Uniform Commercial Code filing
offices in the jurisdictions and real estate recording offices identified below:
FILING FILING SECURED
NO. DATE OFFICE PARTY COLLATERAL
IN WITNESS WHEREOF, I have hereunto signed this Certificate on December
16, 1997.
DEBTOR: WATSON GENERAL CORPORATION
By______________________________
Title:
<PAGE> 1
EXHIBIT 10.6
INTERCREDITOR AND SUBORDINATION AGREEMENT
INTERCREDITOR AND SUBORDINATION AGREEMENT made as of this 16th day of
December, 1997 by and between
BankBoston, N.A., a national banking association organized under the
laws of the United States of America, with a principal place of business at One
Hundred Federal Street, Boston, Massachusetts (hereinafter, the "Bank"); and
Sagaponack Partners, L.P., a Delaware limited partnership, with a
principal place of business at 645 Fifth Avenue, New York, New York 10022
(hereinafter "SPLP"); and
Sagaponack International Partners, L.P., a Cayman Islands limited
partnership, with a principal place of business at 645 Fifth Avenue, New York,
New York 10022 (hereinafter, "SIP")
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H
I. Definitions
All capitalized terms used in this Agreement shall have the meanings
assigned to them below:
Agreement. This Intercreditor and Subordination Agreement, including
the Exhibits hereto, as the same may be modified, amended, restated or
supplemented from time to time.
Assets. All assets of the Borrower, of whatever nature, real, personal
and mixed, whether now owned or hereafter acquired, including without
limitation, all real estate, accounts, inventory, equipment, investment property
(including, capital stock of the Borrower's subsidiaries), and general
intangibles.
Bank. See Preamble hereto.
Bank Loan Documents. Those instruments, documents, and agreements
described on Exhibit A annexed hereto and incorporated by reference herein,
together with all amendments, modifications, restatements and supplements
thereto.
Bank Priority Obligations. All liabilities, debts and obligations of
the Borrower to the Bank, each of every kind,
<PAGE> 2
nature and description, now existing and hereafter arising under the Bank Loan
Documents.
Borrower. Watson General Corporation, a California corporation.
Default. Any event or condition which is, or solely with the passage of
time or giving of notice or both, would constitute an Event of Default.
Enforcement. The making of demand for payment or acceleration of the
Bank Priority Obligations or the Subordinated Creditor Obligations, as
applicable, or the commencement of the exercise of any of the rights and
remedies against the Borrower upon the occurrence of any Event of Default.
Enforcement Notice. A written notice delivered upon the occurrence of
an Event of Default specifying the relevant Event of Default and notifying the
recipient of the sender's intention to commence Enforcement.
Event of Default. Any event or condition which constitutes an event of
default under the Bank Loan Documents and/or the Subordinated Creditor Loan
Documents, as applicable.
SIP. See Preamble hereto.
SPLP. See Preamble hereto.
Subordinated Creditors. Collectively, SPLP and SIP.
Subordinated Creditor Loan Documents. Those instruments, documents, and
agreements described on Exhibit B annexed hereto and incorporated by reference
herein, together with all amendments, modifications, restatements and
supplements thereto.
Subordinated Creditor Obligations. All liabilities, debts and
obligations of the Borrower to the Subordinated Creditors, each of every kind,
nature and description, now existing and hereafter arising under the
Subordinated Creditor Loan Documents.
Subsidiary Security Agreements. The security agreements executed in
favor of the Subordinated Creditors by Watson Systems, Inc., Toxguard Fluid
Technologies, Inc. and Toxguard Systems, Inc.
II. Priority of Liens
2
<PAGE> 3
2.1 Priority of Liens. Notwithstanding the date, manner or order of
perfection of the mortgage and security interests granted to the Bank or the
Subordinated Creditors, and notwithstanding any provisions of any applicable
law, the priorities of the liens of the Bank and the Subordinated Creditors in
and to the Assets shall be as follows:
First, the Bank to the extent of the Bank Priority
Obligations.
Second, the Subordinated Creditors to the extent of the
Subordinated Creditor Obligations.
2.2 Survival of Priorities. The priorities established hereunder apply
only as among the Bank, the Subordinated Creditors and the Borrower and to the
extent that any other person is entitled to either a priority over the Bank
and/or the Subordinated Creditors or obtains a final determination that the
claim or lien of the Bank or the Subordinated Creditors is invalid, unperfected
or unenforceable, then (and only to such extent) this Agreement shall be null
and void. Notwithstanding the foregoing, the Bank and the Subordinated Creditors
each agree that neither of them shall challenge, contest or seek to avoid the
claims of the other or liens of the other in the Assets.
III. Subordination.
3.1 Unless and until the within Agreement is terminated by written
notice from the Bank, the Subordinated Creditors and the Borrower hereby agree
with the Bank that the Subordinated Creditor Obligations and that all collateral
for the Subordinated Creditor Obligations are and shall be subject and
subordinate to the Bank Priority Obligations and to the rights, remedies,
powers, privileges, and discretions of the Bank in and to the Assets.
3.2 Unless and until the within Agreement is terminated by written
notice from the Bank, the Subordinated Creditors shall not
(1) except as provided in Section 3.4 hereof, demand, accept, or
receive from the Borrower or any of its subsidiaries any
payment of principal, interest, or other value on account of
the Subordinated Creditor Obligations; or
3
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(2) set off, contra, or otherwise apply, all or any part of the
the Subordinated Creditor Obligations towards satisfaction of
any obligation of the Subordinated Creditor to the Borrower;
or
(3) exercise any of the Subordinated Creditor's rights, remedies,
powers, privileges, and discretions with respect to or in any
way affecting the Assets.
3.3 Unless and until the within Agreement is terminated by written
notice from the Bank, the Borrower shall not, and shall not cause its
subsidiaries to
(a) except as provided in Section 3.4 hereof, make any payment of
principal or interest or give any value to the Subordinated Creditor on
account of the Subordinated Creditor Obligations; or
(b) set off, contra, or otherwise apply, all or any part of any
obligation of the Subordinated Creditors to the Borrower towards
satisfaction of the Subordinated Creditor Obligations; or
(c) execute, give, or deliver any evidence of, or collateral for the
Subordinated Creditor Obligations.
3.4 Notwithstanding anything to the contrary herein contained, the
Subordinated Creditors may receive, and the Borrower may make, payments of
interest on the Subordinated Creditor Obligations at the non-default rate of
interest set forth in the Subordinated Creditor Loan Documents, provided that
(a) no Event of Default then exists under the Bank Loan Documents or would arise
as a result of, or after giving effect to, the making of such payment to the
Subordinated Creditors, and (b) any payment to the Subordinated Creditors shall
be made no more frequently than annually and no earlier than the date upon which
the Bank receives a principal payment on account of Consolidated Excess Cash
Flow, as required by the Bank Loan Documents, and (c) the aggregate of all
payments made to the Subordinated Creditors in any fiscal year of the Borrower
shall not exceed twenty-five percent (25%) of Consolidated Excess Cash Flow (as
defined in the Bank Loan Documents) of the Borrower for its immediately
preceding fiscal year.
3.5 (a) The Subordinated Creditors hereby designates the Bank as and
for the attorney-in-fact of the Subordinated Creditors upon the commencement of
any bankruptcy or insolvency
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proceeding by or against the Borrower, to exercise any and all rights, remedies,
powers, privileges, and discretions of the Subordinated Creditors with respect
to the Subordinated Creditor Obligations and/or the Assets. Without limiting the
generality of the foregoing, the Bank shall have the right and power to:
(i) prosecute, defend, compromise, settle, or release any action
relating to the the Subordinated Creditor Obligations or the
Assets; and
(ii) file a proof of claim or similar pleading in, participate
and vote in the place and stead of the Subordinated Creditors in,
and receive any dividend or distribution on account of, any
bankruptcy or insolvency proceeding of the Borrower.
(b) All of the powers of attorney set forth in this Agreement
shall not be affected by any disability or incapacity suffered by either of the
Subordinated Creditors and shall survive same. All powers conferred on the Bank
by this Agreement, being coupled with an interest, shall be irrevocable until
this Agreement is terminated as provided herein.
(c) The Bank shall not be obligated to do any of the acts or to
exercise any of the powers authorized herein, but if the Bank elects to do any
such act or to exercise any of such powers, it shall not be accountable for more
than it receives as a result of such exercise of power. The Bank shall not be
liable for any act or omission to act pursuant to this Agreement except for the
Bank's actual willful misconduct and bad faith.
3.6 The Bank shall have no duty as to the collection or protection of
the Subordinated Creditor Obligations, the Assets or any income or distribution
thereon, and shall have no duty as to the preservation of any rights pertaining
thereto, including, without limitation, any rights against prior parties.
3.7 In the event that the Subordinated Creditor receives any payments on
account of the Subordinated Creditor Obligations, including, without limitation,
under the Subsidiary Security Agreements, except as provided in Section 3.4
hereof, the Subordinated Creditors shall promptly pay the Bank the amount
thereof for application to the Bank Priority Obligations.
3.8 The proceeds (if any) received by the Bank on account of the
Subordinated Creditor Obligations pursuant to this Agreement shall be applied
towards the Bank Priority Obligations in such order and manner as the Bank
determines in its sole
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discretion. Any such proceeds received by the Bank in excess of the amounts
necessary to satisfy the Bank Priority Obligations shall be paid to the
Subordinated Creditors.
3.9 The Subordinated Creditors
(4) waive notice of non-payment, presentment, demand, notice, and
protest with respect to the Bank Priority Obligations;
(5) waive notice of the acceptance of this agreement by the Bank;
(6) assent to any extension, renewal, indulgence or waiver,
permitted the Borrower and/or any other person liable or
obligated to the Bank for or on the Bank Priority Obligations;
(7) authorize the Bank to alter, amend, cancel, waive, or modify
any term or condition of the Bank Priority Obligations and of
the obligations of any other person liable or obligated to the
Bank for or on the Bank Priority Obligations, without notice
to, or consent from, the Subordinated Creditors;
(8) agree that no compromise, settlement, or release by the Bank
of the Bank Priority Obligations or of the obligations of any
such other person and no release of any collateral securing
the Bank Priority Obligations, and/or securing the obligations
of any such other person shall affect the obligations of the
Subordinated Creditors hereunder.
3.10 The subordination effected hereby shall not be affected by any
fraudulent, illegal, or improper act by the Borrower, the Subordinated
Creditors, or any person liable or obligated to the Bank for or on the Bank
Priority Obligations, nor by any release, discharge or invalidation, by
operation of law or otherwise, of the Bank Priority Obligations or by the legal
incapacity of the Borrower, the Subordinated Creditors, or any other person
liable or obligated to the Bank for or on the Bank Priority Obligations. All
interest and costs of collection with respect to the Bank Priority Obligations
for which the Borrower has agreed to be liable shall continue to accrue and
shall continue to be Bank Priority Obligations for purposes of the subordination
effected hereby notwithstanding any stay to the enforcement thereof against the
Borrower or disallowance therefor against the Borrower. In the event that the
Bank is obligated to disgorge
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any payments received from the Borrower on account of the Bank Priority
Obligations, or on account of the Subordinated Creditor Obligations under this
Agreement pursuant to an order of any court of competent jurisdiction, the
within Agreement and Subordination effected hereby shall be reinstated as if
such payments had never been made to the Bank.
IV. Enforcement Actions
4.1 Permitted Senior Debt. The Subordinated Creditors acknowledge that
notwithstanding anything to the contrary contained in the Subordinated Creditor
Loan Documents, the Bank Priority Obligations constitute "Permitted Senior Debt"
for purposes of the Subordinated Creditor Loan Documents, and the liens granted
to the Bank shall constitute permitted liens thereunder.
4.2 Default Notices. The Bank and the Subordinated Creditor shall each
give the other copies of all notices provided to the Borrower of the occurrence
of a Default or an Event of Default, in each case concurrently with the giving
of such notice to the Borrower; provided however, that the failure of any party
to give such notice shall not affect the rights of the parties established in
this Agreement or the validity of the notice.
4.3 Commencement of Enforcement. The Bank agrees not to commence
Enforcement until an Enforcement Notice has been furnished to the other.
Notwithstanding the foregoing, the Bank may take reasonable and immediate steps
to preserve the value of the Assets, without prior notice to the Subordinated
Creditors if, in the judgment of the Bank, immediate action is required.
4.4 Enforcement Action By Bank. The Bank may undertake Enforcement as to
any of the Assets in such order as the Bank in its sole discretion determines
and without prior consent of the Subordinated Creditors. Any proceeds realized
from any Enforcement undertaken by the Bank shall be applied in accordance with
the priorities set forth in Section 2.1. If the Bank requests, the Subordinated
Creditors shall release any lien or security interest which it has in the Assets
being foreclosed by the Bank in order to convey good record and marketable title
to the purchaser at foreclosure, free and clear of the Subordinated Creditors'
lien.
4.5 Enforcement Action by the Subordinated Creditors. Without the prior
written consent of the Bank, the Subordinated Creditors may not commence
Enforcement or exercise any rights and
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remedies upon default against the Borrower until all Bank Priority Obligations
have been paid irrevocably in full.
V. Insurance.
The net proceeds of all insurance on the Assets shall be
distributed in accordance with provisions of Section 2.1 hereof. The Bank shall
have the sole and exclusive right, as against the Subordinated Creditors, to
adjust the settlement of each insurance policy in the event of any loss and the
Subordinated Creditors shall execute all such documents as may be necessary in
connection with the settlement of any such claims.
VI. Miscellaneous.
6.1 Notices. All notices hereunder shall be effective upon receipt and
shall be writing and sent by either certified mail, return receipt requested, by
hand delivery, by a recognized national overnight courier, or by telecopier as
follows:
(a) If to the Bank: BankBoston, N.A.
One Hundred Federal Street
Boston, Massachusetts 02110
Attention: Diversified Finance
Telecopier: (617) 434-4929
(b) If to the Subordinated Creditors:
Sagaponack Partners, L.P.
645 Fifth Avenue
New York, New York 10022
Attention: Mr. Marc Weisman
Telecopier: (212) 355-5056
or to such other address or person as any of the parties hereto may designate in
writing to the other parties. Notice shall be deemed received (i) three business
days after the same is deposited in the United States Post Office box postage
prepaid; (ii) one business day after the same is deposited with a recognized
courier service for overnight mail delivery; (iii) on the same day of personal
delivery, or (iv) on the same business day if transmitted by facsimile
transmission (with receipt by the addressee confirmed) if transmitted by 3:00
p.m. on a business day, otherwise on the following business day after sending,
in each case properly addressed to the Bank or the Subordinated Creditors, as
applicable.
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6.2 No benefit to third-parties. The terms and provisions of this
Agreement shall be for the sole benefit of the Bank and the Subordinated
Creditors and their respective successors and assigns and no other person, firm,
entity, or corporation shall have any right, benefit for priority or interest
under or because of this Agreement. In that regard, if any party shall enforce
its rights or remedies in violation of the terms of this Agreement, the Borrower
shall not use such violation as a defense to any action by any such party under
the Bank Loan Documents and/or the Subordinated Creditor Loan Documents, nor
assert such violation as a counterclaim or basis for set off against such party.
6.3 Additional Assurances. The Bank and the Subordinated Creditors shall
execute such further instruments, documents, and agreements as may be reasonably
requested by the other to more fully vest, perfect and protect the rights and
interests of the parties hereto.
6.4 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties.
6.5 Governing Law. This Agreement shall be governed by the Laws of the
Commonwealth of Massachusetts.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original hereof and all of
which together shall be deemed a single instrument.
6.7 Costs of Enforcement. In the event of any dispute between the
parties under this Agreement, the prevailing party shall be entitled to collect
all costs and expenses, including attorneys' fees from the other.
6.8 Incorporation of Discussions. The within Agreement incorporates all
discussions and negotiations amongst and between the Borrower, the Subordinated
Creditors, and the Bank concerning the subordination effected hereby. No such
discussions or negotiations shall limit, modify, or otherwise affect the
provisions hereof. No provisions hereof may be altered, amended, waived,
canceled, or modified, except by a written instrument executed, sealed, and
acknowledged by a duly authorized officer of the Bank.
6.9 Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Bank hereunder (hereinafter,
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the "BANK'S RIGHTS AND REMEDIES") shall be cumulative and not exclusive of any
rights or remedies which it would otherwise have. No delay or omission by the
Bank in exercising or enforcing any of the Bank's Rights and Remedies shall
operate as, or constitute, a waiver thereof. No waiver by the Bank of any of the
Bank's Rights and Remedies or of any default or remedy under any other agreement
with the Borrower or the Subordinated Creditor shall operate as a waiver of any
other default hereunder or thereunder. No exercise of the Bank's Rights and
Remedies and no other agreement or transaction, of whatever nature, entered into
between the Bank and the Subordinated Creditor and/or between the Bank and the
Borrower at any time shall preclude any other or further exercise of the Bank's
Rights and Remedies. No waiver by the Bank of any of the Banks' Rights and
Remedies on any one occasion shall be deemed a continuing waiver. All of the
Bank's Rights and Remedies and all of the Bank's rights, remedies, powers,
privileges, and discretions under any other agreement with the Subordinated
Creditors and/or the Borrower shall be cumulative, and not alternative or
exclusive, and may be exercised by the Bank at such time or times and in such
order of preference as the Bank in its sole discretion may determine.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and its seal to be hereto affixed as of the date first above written.
BANKBOSTON, N.A.
By:_____________________________________
Name:
Title:
SAGAPONACK PARTNERS, L.P.
By:_____________________________________
Name:
Title:
SAGAPONACK INTERNATIONAL PARTNERS, L.P.
By:_____________________________________
Name:
Title:
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ACKNOWLEDGMENT OF BORROWER
The undersigned, Borrower, hereby acknowledges and agrees to the terms
set forth in the foregoing Intercreditor and Subordination Agreement.
WATSON GENERAL CORPORATION
By:_______________________
Name: ____________________
Title: ___________________
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