================================================================================
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): April 10, 1998
HEARTLAND TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
1-11956 36-1487580
- ------------------------------- -------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
547 WEST JACKSON BOULEVARD,
CHICAGO, ILLINOIS 60661
- -------------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
(312) 294-0497
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a)
On April 10, 1998, Heartland Technology, Inc. (the
"Registrant" or the "Company") entered into an Agreement and Plan of
Reorganization (the "Purchase Agreement"), by and among Solder Station-One,
Inc., a California corporation ("Solder Station"), Odilon Cardenas and Enedina
Cardenas (the stockholders of Solder Station, collectively referred to as the
"Founders"), the Company and SS Acquisition Corporation, a California
corporation and newly formed wholly owned subsidiary of the Company ("Merger
Sub").
Pursuant to the Purchase Agreement, Solder Station and Merger
Sub filed a Merger Agreement with the Secretary of State of the State of
California, whereupon Merger Sub merged with and into Solder Station (the
"Merger") and Solder Station (as the surviving corporation in the Merger) became
a wholly owned subsidiary of the Company, effective April 10, 1998.
Prior to the Merger, neither Solder Station nor the Founders
had any material relationship with the Company or any of its affiliates, any
director or officer of the Company, or any associate of any such director or
officer.
Pursuant to the Purchase Agreement and in consideration of the
Merger, the Company purchased from the Founders all of the shares of common
stock of Solder Station that were outstanding prior to the Merger for $7,460,000
(the "Aggregate Consideration"), excluding escrow fees of $5,310. The Aggregate
Consideration was determined as a result of arms-length negotiations and
consisted of the following: (i) cash in the amount of $5,185,000 (the "Cash
Consideration"); (ii) a promissory note made by Solder Station and Merger Sub,
in the aggregate principal amount of $1,700,000, payable in four semiannual
installments (the first three of which will be $400,000 and the last of which
will be $500,000) beginning eighteen months from the closing date of the
transaction (the "Closing Date"), with interest accruing at an annual rate of 8%
payable in arrears on the last day of each calendar quarter commencing on June
30, 1998, and guaranteed by the Company pursuant to a Continuing Guaranty
between Founders and the Company dated as of April 10, 1998 (the "Continuing
Guaranty"); (iii) a promissory note made by Solder Station and Merger Sub, in
the aggregate principal amount of $400,000, payable either one year from the
Closing Date or three years from the Closing Date if, and only if, Solder
Station meets certain operating income goals, and guaranteed by the Company
pursuant to
2
<PAGE>
the Continuing Guaranty; and (iv) a promissory note in the amount of $175,000
made by Solder Station and Merger Sub payable when and to the extent Solder
Station is able to collect on certain accounts receivables.
The source of $3,000,000 of the Cash Consideration was
financing obtained through a certain Loan and Security Agreement, dated April
10, 1998, by and between Solder Station, Merger Sub, and LaSalle National Bank
(the "Loan Agreement"). The Loan Agreement provides for revolving credit loans
in an aggregate principal amount not to exceed $1,500,000, an acquisition loan
in the principal amount of $900,000, and a term loan in the principal amount of
$1,200,000. The loans are secured by a lien on the assets of Solder Station and
a pledge of its stock. The loans are also guaranteed by the Company pursuant to
a Guaranty, dated as of April 10, 1998.
(b)
In connection with the Merger, the Company acquired Solder
Station's equipment used in providing finishing services for printed circuit
boards. Solder Station will continuing using such equipment in providing such
services.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial Statements of Business Acquired. It is impracticable to
provide the required financial statements for the business acquired by the
Registrant for the periods specified in Rule 3-05(b) with this Report at this
time. The Registrant will file such required financial statements for the
business acquired by the Registrant as soon as practicable, but not later than
60 days after the date on which this Report is required to be filed.
(b) Pro Forma Financial Information. It is impracticable to provide the
required pro forma financial information relative to the business acquired by
the Registrant pursuant to Article 11 of Regulation S-X. The Registrant will
file such required pro forma financial information relative to the business
acquired by the Registrant as soon as practicable, but not later than 60 days
after the date on which this Report is required to be filed.
3
<PAGE>
(c) Exhibits.
Exhibit No. Description
---------- -----------
2.1 Agreement and Plan of Reorganization, dated
as of April 10, 1998, by and among Solder
Station-One, Inc., Odilon Cardenas, Enedina
Cardenas, Heartland Technology, and SS
Acquisition Corporation. (filed herewith) +
99.1 Promissory Note, dated April 10, 1998, of
Solder Station-One, Inc. and SS Acquisition
Corporation, in the principal amount of
$1,700,000, and payable to Odilon Cardenas
and Enedina Cardenas. (filed herewith)
99.2 Promissory Note, dated April 10, 1998, of
Solder Station-One, Inc. and SS Acquisition
Corporation, in the principal amount of
$400,000, and payable to Odilon Cardenas and
Enedina Cardenas. (filed herewith)
99.3 Promissory Note, dated April 10, 1998, of
Solder Station-One, Inc. and SS Acquisition
Corporation, in the principal amount of
$175,000, and payable to Corporate Finance
Associates. (filed herewith)
99.4 Continuing Guaranty, dated as of April 10,
1998, by Heartland Technology, Inc. in favor
of Odilon Cardenas and Enedina Cardenas.
(filed herewith)
99.5 Loan and Security Agreement, dated as of
April 10, 1998, by and between Solder
Station-One, Inc., SS Acquisition
Corporation, and LaSalle National Bank.
(filed herewith)
99.6 Guaranty, dated as of April 10, 1998, from
Heartland Technology, Inc. to LaSalle
National Bank. (filed herewith)
- ------------------------
+ Certain schedules and similar attachments have been
omitted. The Registrant agrees to furnish
supplementally a copy of any omitted schedule or
attachment to the Commission upon request.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
Heartland Technology, Inc.
---------------------------
(Registrant)
Date: April 24, 1998 By: /s/ Leon F. Fiorentino
----------------------
Name: Leon F. Fiorentino
Title: Vice President
5
NYFS08...:\65\63765\0003\2286\8-K4198S.48C
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- ------------------------
2.1 Agreement and Plan of Reorganization, dated as of
April 10, 1998, by and among Solder Station-One,
Inc., Odilon Cardenas, Enedina Cardenas, Heartland
Technology, and SS Acquisition Corporation. (filed
herewith) +
99.1 Promissory Note, dated April 10, 1998, of Solder
Station-One, Inc. and SS Acquisition Corporation,
in the principal amount of $1,700,000, and payable
to Odilon Cardenas and Enedina Cardenas. (filed
herewith)
99.2 Promissory Note, dated April 10, 1998, of Solder
Station-One, Inc. and SS Acquisition Corporation,
in the principal amount of $400,000, and payable
to Odilon Cardenas and Enedina Cardenas. (filed
herewith)
99.3 Promissory Note, dated April 10, 1998, of Solder
Station-One, Inc. and SS Acquisition Corporation,
in the principal amount of $175,000, and payable
to Corporate Finance Associates. (filed herewith)
99.4 Continuing Guaranty, dated as of April 10, 1998,
by Heartland Technology, Inc. in favor of Odilon
Cardenas and Enedina Cardenas. (filed herewith)
99.5 Loan and Security Agreement, dated as of April 10,
1998, by and between Solder Station-One, Inc., SS
Acquisition Corporation, and LaSalle National
Bank. (filed herewith)
99.6 Guaranty, dated as of April 10, 1998, from
Heartland Technology, Inc. to LaSalle National
Bank. (filed herewith)
- ---------------------------
+ Certain schedules and similar attachments have been omitted.
The Registrant agrees to furnish supplementally a copy of any
omitted schedule or attachment to the Commission upon request.
6
EXHIBIT 2.1
SOLDER STATION-ONE, INC.
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SOLDER STATION-ONE, INC.,
THE FOUNDERS
AND
HEARTLAND TECHNOLOGY, INC.
<PAGE>
TABLE OF CONTENTS
RECITALS.................................................................... 1
AGREEMENTS.................................................................. 2
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION....................... 2
1.1 Definitions..................................... 2
1.2 Rules of Construction........................... 4
SECTION 2. GENERAL.................................................. 4
2.1 The Merger...................................... 4
2.2 Effective Time of the Merger.................... 4
2.3 Effect of Merger................................ 5
2.4 Charter and Bylaws of Surviving Corporation..... 5
2.5 Taking of Necessary Action...................... 5
SECTION 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS, EXCHANGE OF CERTIFICATES....... 5
3.1 Aggregate Consideration......................... 5
3.2 Effect on Capital Stock......................... 6
3.3 Payment of Aggregate Consideration.............. 6
3.4 Delivery of Shares. ........................... 6
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS........... 6
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE FOUNDERS............................................. 9
5.1 Organization, Qualifications and Corporate Power 10
5.2 Authorization of Agreements, Etc................ 11
5.3 Validity........................................ 11
5.4 Authorized Capital Stock........................ 11
5.5 Financial Statements............................ 12
5.6 No Undisclosed Liabilities...................... 13
5.7 Events Subsequent to the Date of the Balance
Sheet........................................... 13
5.8 Litigation; Compliance with Law................. 14
5.9 Intellectual Property and Proprietary Rights.... 14
5.10 Title to Properties and Related Matters......... 16
5.11 Leasehold Interests............................. 16
5.12 Insurance....................................... 16
5.13 Taxes........................................... 16
5.14 Other Agreements................................ 18
5.15 Accounts Receivable............................. 21
5.16 Inventory....................................... 21
i
<PAGE>
5.17 Orders, Commitments and Returns................. 21
5.18 Compliance With Law............................. 22
5.19 Trade Regulation................................ 22
5.20 Insider Transactions............................ 22
5.21 Employees, Independent Contractors and
Consultants..................................... 23
5.22 Governmental Authorization and Regulations...... 23
5.23 Corporate Minutes, Etc.......................... 23
5.24 Governmental Approvals.......................... 23
5.25 Brokers......................................... 23
5.26 Real Property................................... 23
5.27 Employee Benefit Plans.......................... 23
5.28 Environmental Matters........................... 24
5.29 Reliance........................................ 25
5.30 Disclosure...................................... 25
5.31 Professional Services........................... 25
SECTION 6. REPRESENTATIONS AND WARRANTIES OF HEARTLAND
AND NEWCO................................................ 26
SECTION 7. ADDITIONAL AGREEMENTS.................................... 28
7.1 Merger Agreement................................ 28
7.2 Founders Preservation of Goodwill, Release and
Confidentiality Agreement....................... 28
7.3 Employment Agreements........................... 28
7.4 Equipment....................................... 28
7.5 Real Estate..................................... 28
7.6 Escrow Agreements............................... 28
7.7 Consents and Approvals.......................... 28
7.8 Corporate Approvals............................. 28
7.9 Expenses........................................ 29
7.10 Confidentiality................................. 29
7.11 Conduct of Business............................. 29
7.12 Public Announcements............................ 31
7.13 Disclosure Supplements.......................... 32
7.14 No Other Bids................................... 32
7.15 Due Diligence Investigation..................... 32
7.16 Further Assurances and Cooperation.............. 32
7.17 Acknowledgement and Consent..................... 32
7.18 Reports......................................... 32
7.19 Compliance with Loan Documents.................. 33
7.20 No Agreements that Violate this Agreement....... 33
7.21 Ratification and Approval of ................... 33
7.22 Company 1997 Tax Returns and K-1................ 33
7.23 Closing Deliveries.............................. 33
7.24 Resignation..................................... 33
ii
<PAGE>
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES TO CLOSE.... 34
8.1 Conditions to Closing by All Parties............ 34
8.2 Conditions to Closing by Heartland and Newco.... 34
8.3 Conditions to Closing by the Founders........... 35
SECTION 9. CLOSING.................................................. 36
9.1 The Closing..................................... 36
9.2 Items/Documents Delivered and Exchanged at the
Closing......................................... 36
SECTION 10. POST CLOSING COVENANTS.......................... 37
10.1 Post-Closing Matters -- Possession of and Title
to the Shares................................... 37
10.2 Post-Closing Company Excess Expenses............ 38
10.3 Press Releases.................................. 38
10.4 Insurance....................................... 38
10.5 Payment of Sales, Use or Similar Taxes;
Prorations...................................... 38
SECTION 11. REMEDIES........................................ 38
11.1 Survival of Representations and Warranties...... 38
11.2 Indemnification Obligations of the Founders..... 39
11.3 Indemnification Obligations of Heartland........ 40
11.4 Indemnified Claims.............................. 40
11.5 Character, Effect and Payment of Indemnity
Payments........................................ 42
11.6 Equitable Relief................................ 42
11.7 Cumulative...................................... 42
11.8 Tax Matters..................................... 42
SECTION 12. TERMINATION..................................... 44
12.1 Termination..................................... 44
12.2 Procedure and Effect of Termination............. 45
SECTION 13. MISCELLANEOUS................................... 45
13.1 Binding Effect.................................. 45
13.2 Notices......................................... 45
13.3 Governing Law; Venue............................ 47
13.4 Assignability................................... 47
13.5 Counterparts.................................... 47
13.6 Amendments...................................... 47
13.7 Severability.................................... 47
13.8 Consents........................................ 47
13.9 Waiver.......................................... 47
13.10 Further Assurances.............................. 48
13.11 Attorneys' Fees................................. 48
13.12 Third Party Beneficiaries....................... 48
13.13 Titles and Subtitles............................ 48
13.14 Presumptions.................................... 48
iii
<PAGE>
13.15 Effect of Agreement............................. 48
13.16 Entire Agreement................................ 48
iv
<PAGE>
LIST OF EXHIBITS
EXHIBIT "A" - Merger Agreement................................A-1
EXHIBIT "B" - The Company Schedule............................B-1
EXHIBIT "C" - Form of Employment Agreement....................C-1
EXHIBIT "D" - Form of Founder Preservation of Goodwill, Release
and Confidentiality Agreement...................D-1
EXHIBIT "E" - List of Key Employees ..........................E-1
EXHIBIT "F" - Supplemental Real Estate Agreement..............F-1
EXHIBIT "G" - Form of Guaranty ...............................G-1
EXHIBIT "H" - Form of Note ...................................H-1
EXHIBIT "I" - Articles of Incorporation and Bylaws............I-1
EXHIBIT "J" - Agreement Regarding Payment of Existing
Creditors ......................................J-1
EXHIBIT "K" - Equipment Schedule .............................K-1
EXHIBIT "L" - Counsel Opinions ...............................L-1
EXHIBIT "M" - Form of Escrow Agreement .......................M-1
EXHIBIT "N" - Form of Bank Escrow Agreement ..................N-1
v
SVFS01...:\65\63765\0007\1884\AGR2108S.12E
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and entered
into as of April 10, 1998, by and among:
(i) (a) SOLDER STATION-ONE, INC., a California corporation, having its
principal place of business at 2231 West Cape Cod Way, Santa Ana,
California 92703 (the "Company");
(b) ODILON CARDENAS ("Mr. Cardenas"), an individual officer, director
and shareholder of the Company residing in California;
(c) ENEDINA CARDENAS ("Mrs. Cardenas") (and together with Mr. Cardenas
the "Founders"), an individual officer, director and shareholder of the
Company residing in California;
(ii) HEARTLAND TECHNOLOGY, INC. ("Heartland"), a Delaware corporation,
having a business address located at 547 West Jackson Boulevard, Suite
1510, Chicago, Illinois 60061; and
(iii) SS ACQUISITION CORPORATION ("Newco"), a California
corporation, and wholly-owned subsidiary of Heartland,
with reference to the following:
RECITALS
The following provisions form the basis for, and are hereby made a part of, this
Agreement:
A. The Company is engaged in the business of providing finishing services
for printed circuit boards.
B. The Company has authorized capital stock consisting of 1,000,000 shares
of common stock (the "Common Stock"), of which 127,786 shares will be
issued and outstanding immediately prior to the Closing (the "Shares").
The Founders own all issued and outstanding shares of Common Stock.
C. Heartland and Newco desire to acquire the Company, and the Company
desires to be acquired by Heartland and Newco through a merger of Newco
with and into the Company upon the terms and subject to the conditions
set forth in this Agreement.
<PAGE>
D. The Boards of Directors of Heartland, Newco and the Company have each
duly approved and adopted this Agreement and the Merger Agreement in
substantially the same form of Exhibit A attached hereto (the "Merger
Agreement").
E. This Agreement is intended to set forth all the terms and conditions
upon which the parties have agreed to effectuate the acquisition of the
Company by Newco and Heartland.
AGREEMENTS
In consideration of the mutual covenants, agreements, representations and
warranties and conditions contained herein, the parties hereby agree as follows:
SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION
1.1 DEFINITIONS. In addition to the capitalized terms defined elsewhere in this
Agreement, the following defined terms shall have the meanings ascribed to them
below for all purposes of this Agreement:
(i) "Affiliate" shall have the meaning set forth, as of the Closing, in
the rules and regulations promulgated by the Securities and Exchange Commission
pursuant to the Securities Act (as hereinafter defined);
(ii) "Aggregate Consideration" shall mean the aggregate amount paid to
the Founders for the Shares pursuant to Section hereof;
(iii) "Board" shall mean the Board of Directors of the Company;
(iv) "CGCL" shall mean the California General Corporation Law;
(v) "Closing" shall mean the date upon which the transactions
contemplated by this Agreement are consummated in accordance with Section
hereof;
(vi) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(vii) "Company Schedule" shall mean that schedule attached hereto as
Exhibit B setting forth the Company's and Founders' exceptions to, and
disclosures in connection with, their representations and warranties under
Sections or hereof as described therein and pursuant thereto;
(viii) "Contract" shall mean any written or oral agreement, commitment,
arrangement, instrument, license or restriction to which the Company is a party
or by which its assets or property is bound;
2
<PAGE>
(ix) "Employment Agreement" shall mean the employment agreements
between each Key Employee, on the one hand, and the Company on the other hand,
in the form attached hereto as Exhibit C to be executed and delivered at the
Closing pursuant to Section
hereof;
(x) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(xi) "Founder Preservation of Goodwill, Release and Confidentiality
Agreement" shall mean the Founder Preservation of Goodwill, Release and
Confidentiality Agreement between each Founder, on the one hand, and Heartland
and the Company on the other hand, in the form attached hereto as Exhibit D to
be executed and delivered by each Founder at the Closing pursuant to Section
hereof;
(xii) "GAAP" shall mean generally accepted accounting principles
consistently applied in accordance with past practice;
(xiii) "Key Employee" shall mean the employees listed on Exhibit E;
(xiv) "Loan Documents" shall mean the Loan and Security Agreement dated
as of April 10, 1998 between Solder Station-One, Inc. and SS Acquisition
Corporation as Borrower and LaSalle National Bank (the "Bank") as Bank (the
"Loan Agreement"), the Subordination Agreement dated as of April 10, 1998
between Borrower, Odilon Cardenas, Enedina Cardenas and the Bank (the "Bank
Subordination Agreement"), the Guaranty dated as of April 10, 1998 from
Heartland to Bank (the "Bank Guaranty"), the Pledge Agreement dated as of April
10, 1998 by and between Heartland and the Bank, and the Collateral Assignment of
Indemnities dated as of April 10, 1998 between Heartland, the Bank and Odilon
Cardenas and Enedina Cardenas.
(xv) "Lien" shall mean any lien, pledge, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever.
(xvi) "Party" or "Parties" shall mean the Company, the Founders,
Heartland and/or Newco, individually or collectively, as appropriate, for the
context used;
(xvii) "Person" shall mean an individual, a corporation, an
association, a partnership, a trust or estate, a government or any department or
agency thereof which is not a party hereto;
(xviii) "Securities Act" shall mean the Securities Act of 1933, as
amended;
(xix) "Supplemental Real Estate Agreement" shall mean the
Supplemental Real Estate Agreement between the Cardenas Family Trust and
Heartland in the form attached
3
<PAGE>
hereto as Exhibit F to be executed and delivered at the Closing pursuant to
Section hereof;
(xx) "Taxes" shall mean (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including, without
limitation, all net income, gross receipts, capital, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital stock, license,
withholding, payroll, employment, social security, unemployment, excise,
severance, stamp, occupation, property and estimated taxes, customs duties,
fees, assessments and charges of any kind whatsoever, (ii) all interest,
penalties, fines, additions to tax or additional amounts imposed by any taxing
authority in connection with any item described in clause (i), and (iii) any
transferee liability, or liability pursuant to or under any Contract, in respect
of any items described in clauses (i) and/or (ii).
(xxi) "Tax Return" shall mean all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect of
any Taxes; and
(xxii) "Transaction Documents" shall mean this Agreement and all other
documents expressly required to be executed on or prior to the Closing pursuant
hereto including, without limitation, the Merger Agreement, the Founder
Preservation of Goodwill, Release and Confidentiality Agreement, the Employment
Agreements, the Notes, the Guaranty, and the Supplemental Real Estate Agreement
and expressly excluding the Loan Documents.
1.2 RULES OF CONSTRUCTION. As used in this Agreement, neutral pronouns and any
variations thereof shall be deemed to include the feminine and masculine and all
terms used in the singular shall be deemed to include the plural, and vice
versa, as the context may require. The words "hereof," "herein" and "hereunder"
and other words of similar import refer to this Agreement as a whole, including
the Exhibits hereto, as the same may from time to time be amended or
supplemented and not to any subdivision contained in this Agreement. The word
"including" when used hereof is not intended to be exclusive and means
"including, without limitation". References hereof to "dollars," "U.S.$" and "$"
are to United States dollars. References hereof to section, subsection or
exhibit shall refer to the appropriate section, subsection or exhibit in or to
this Agreement.
SECTION 2. GENERAL
2.1 THE MERGER. In accordance with the provisions of this Agreement, the Merger
Agreement and the CGCL, Newco shall be merged with and into the Company (the
"Merger"), which at and after the Effective Time shall be, and is sometimes
herein referred to as, the "Surviving Corporation." Newco and the Company are
sometimes referred to as the "Constituent Corporations."
2.2 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this Agreement,
the Merger Agreement shall be executed and certified by each of the Constituent
Corporations and delivered to and filed with the Secretary of State of the State
of California at the Closing
4
<PAGE>
in the manner provided under the CGCL. The Merger shall become effective (the
"Effective Time") upon the filing and recording of the Merger Agreement by the
Secretary of State of the State of California in accordance with the CGCL.
2.3 Effect of Merger. At the Effective Time, the separate existence of Newco
shall cease and Newco shall be merged with and into the Company, and the
Company, as the Surviving Corporation, shall possess all of the rights,
privileges, powers and franchises as well of a public as of a private nature,
and be subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations as provided in Section 1107 of the CGCL.
2.4 Charter and Bylaws of Surviving Corporation. From and after the Effective
Time: (i) the Articles of Incorporation of the Surviving Corporation shall be
amended pursuant to the Merger Agreement; and (ii) the Merger shall have all the
effects provided by applicable law.
2.5 Taking of Necessary Action. Prior to the Effective Time, the Parties hereto
shall use their best efforts to do or cause to be done all such acts and things
as may be necessary or appropriate in order to effectuate the Merger as
expeditiously as reasonably practicable, in accordance with this Agreement, the
CGCL and other applicable law.
SECTION 3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS, EXCHANGE OF CERTIFICATES
3.1 Aggregate Consideration. Subject to the adjustments described in the next
sentence, the entire consideration payable by Newco with respect to the Shares
of the Company shall be Seven Million Two Hundred Sixty Thousand Dollars
($7,260,000) (the "Aggregate Consideration") payable in accordance with Section
. The Aggregate Consideration will be: (i) decreased by the amount equal to the
difference between Five Hundred Thousand Dollars ($500,000) minus the cash or
cash equivalent assets of the Company available as of the close of business of
the date of Closing; and (ii) increased by the amount equal to the difference
between the cash or cash equivalent assets of the Company available as of the
close of business of the date of Closing minus Five Hundred Thousand Dollars
($500,000) provided such increase shall not exceed Two Hundred Thousand Dollars
($200,000). In no event will the total Aggregate Consideration exceed Seven
Million Four Hundred Sixty Thousand Dollars ($7,460,000). If the Company incurs
any undisclosed liability outside the ordinary course of business since November
30, 1997, Heartland and Newco may request a further adjustment prior to the
Closing, and the Parties will negotiate in good faith appropriate adjustments to
be made to the Aggregate Consideration at the Closing without obligation on the
Founders' or the Company's part to agree to such adjustment or to proceed with
the Closing. Not later than the Closing, the Company shall deliver to Heartland
a statement (the "Closing Statement") setting forth the amounts of said cash
assets and liabilities, together with a certificate of an officer of the Company
certifying that the amounts set forth on the Closing Statement are accurate as
of the Closing in all material respects; provided that, any such inaccuracies
shall be reconciled to the actual amounts within ten (10) days after the
Closing. The Company may distribute to Founders any sums on or prior to Closing
so long as such distributions are reflected in the Closing Statement.
5
<PAGE>
3.2 EFFECT ON CAPITAL STOCK. At the Effective Time, subject and pursuant to the
terms and conditions of this Agreement and the Merger Agreement, by virtue of
the Merger, and without any action on the part of the Constituent Corporations
or the holders of the capital stock of the Constituent Corporations: (i) each
Share of the Company (excluding the Common Stock into which shares of Newco
shall have been converted by virtue of the Merger) shall be converted into and
evidence the right to receive a pro rata portion of the Aggregate Consideration;
and (ii) each share of Newco then issued and outstanding shall be converted into
and shall become one (1) share of Common Stock of the Surviving Corporation.
3.3 PAYMENT OF AGGREGATE CONSIDERATION. Upon execution of this Agreement, the
Aggregate Consideration for the Shares shall be paid by Heartland and Newco to
the Founder(s) pursuant to the terms of the Bank Escrow Agreement attached
hereto as Exhibit N (the "Bank Escrow Agreement") and the Escrow Agreement
attached hereto as Exhibit M (the "Escrow Agreement") (the Bank Escrow Agreement
and the Escrow Agreement are collectively referred to as the "Escrow
Agreements") as follows: (i) the Constituent Corporations shall make and
deliver, and Heartland shall execute and deliver a guaranty (the "Guaranty"),
set forth in Exhibit G, for, a promissory note of One Million Seven Hundred
Thousand Dollars ($1,700,000), the terms and conditions of which are set forth
in Exhibit H- 1 (the "Note"); (ii) the Constituent Corporations shall make and
deliver a promissory note of Four Hundred Thousand Dollars ($400,000), the terms
and conditions of which are set forth in Exhibit H-2; (iii) the Constituent
Corporations shall make and deliver a promissory note of One Hundred
Seventy-Five Thousand Dollars ($175,000) on behalf of the Founders payable to
Corporate Finance Associates as partial payment of the Transaction Expenses owed
to Corporate Finance Associates by the Founders, the terms and conditions of
which are set forth in Exhibit H-3 (the notes in Exhibits H-1, H-2 and H-3 are
collectively referred to as the "Notes"); and (iv) the difference between the
Aggregate Consideration and Two Million Two Hundred Seventy-Five Thousand
Dollars ($2,275,000), payable in cash after payment of any fees to be paid by
the Founders pursuant to Section for Transaction Expenses incurred prior to
Closing (including, but not limited to, legal fees incurred in connection with
the execution and consummation of this Agreement) ("Aggregate Cash
Consideration"). Payment of the Aggregate Cash Consideration will be made in
immediately available funds by wire transfers to a single bank account
designated in writing by the Founders not less than a reasonable time prior to
the Closing.
3.4 DELIVERY OF SHARES. Upon the execution of this Agreement, Founders shall
surrender and deliver the certificates evidencing the Shares endorsed in blank
in favor of Newco.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS
Each Founder represents and warrants, severally and not jointly, for himself or
herself, to Heartland and Newco, as set forth below, except as disclosed, in the
Company Schedule:
6
<PAGE>
(i) Founder is at least twenty-one (21) years of age and has the power,
authority, capacity, competence and legal right: (a) to execute and deliver the
Transaction Documents to which he/she is a Party; (b) to vote his/her interest
in the Shares in approving the Merger on the terms and conditions described
herein; and (c) to perform and observe the terms and provisions of the
Transaction Documents to which he/she is bound;
(ii) Founder is a resident of the State of California;
(iii) each Founder is the spouse of the other and each Founder has read
this Agreement and understands that Heartland and Newco shall acquire by the
Merger all of the Shares which his/her spouse owns including any community
property or other interest he/she might have in the Shares shall be surrendered
in return for payment of the Aggregate Consideration. Founder agrees that
his/her interest in the Shares which his/her spouse owns, including any
community property interest in such Shares, shall be irrevocably assigned,
transferred, conveyed and surrendered as part of the Merger pursuant to this
Agreement;
(iv) Founder: (a) is the record and beneficial owner of his/her
interest in the Shares; (b) holds such Shares free and clear of any and all
liens, pledges, encumbrances, charges, agreements or claims of any nature
whatsoever; (c) has not heretofore entered into any commitment for the sale of
his/her portion of the Shares or otherwise conveyed or encumbered his/her
interest (voting or otherwise) with respect thereto; and (d) by delivering
his/her Shares to Newco and the Company, Founder shall convey good and
marketable title to such Shares free and clear of any and all liens, pledges,
encumbrances, charges, agreements or claims of any nature except those created
as expressly provided under this Agreement and the Merger Agreement;
(v) Founder's execution and delivery of this Agreement and the other
Transaction Documents to which Founder is a Party, performance of his/her
obligations hereunder and thereunder, and the surrender and delivery of his/her
Shares will not: (a) violate any provision of law, any order of any court or
government agency, the Articles of Incorporation or the Bylaws of the Company or
any provision of any indenture, agreement or other instrument, including all
stock purchase agreements, shareholder agreements and registration rights
agreements, to which such Founder or any of his/her properties or assets are
bound; or (b) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever upon any of
the properties or assets of such Founder;
(vi) Founder's Shares: (a) have been duly authorized and validly issued
by the Company to such Founder; (b) consist of all issued and outstanding
capital stock of the Company; and (c) are fully paid and nonassessable shares of
Common Stock free and clear of all liens, charges, restrictions, claims and
encumbrances. The surrender and delivery of such Shares are not subject to any
preemptive right or any right of first refusal or other right in favor of any
Person that have not been waived or terminated as of the Closing;
7
<PAGE>
(vii) Founder has obtained from relevant government authorities,
regulatory agencies and other Persons any and all consents, permits, approvals
or authorizations required of Founder to consummate the Merger;
(viii) this Agreement and the other Transaction Documents to which
he/she is a Party have been duly executed and delivered and, in accordance with
the terms of this Agreement and the other Transaction Documents, constitute a
valid and binding obligation enforceable against him, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights and remedies generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(ix) Founder has no right, title or interest in or to the Company
Intellectual Property (as defined in Section hereof);
(x) subject to the accuracy of the representations and warranties of
Heartland and Newco set forth in Section hereof, no registration or filing with,
or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by Founder of this Agreement and the other
Transaction Documents, or the surrender and delivery of Founder's portion of the
Shares, other than filings pursuant to state securities laws (all of which
filings have been made by the Company or Founder on or prior to the Closing) in
connection with the Merger;
(xi) except as contemplated by this Agreement and except as set forth
in the Company Schedule, neither the Founder nor any Person authorized or
employed by Founder as agent, broker, dealer or otherwise has offered the Shares
for sale to, or solicited any offer to buy the Shares from, or otherwise
approached or negotiated with respect thereto with, any Person or Persons, and
neither the Founder nor any Person acting on Founder's behalf has taken or will
take any other action (including, without limitation, any offer, issuance or
sale of any security of the Company under circumstances which might require the
integration of such security with the Shares under the Securities Act or the
rules and regulations of the Securities Exchange Commission thereunder), in
either case so as to subject the offering, issuance or sale of the Shares to the
registration provisions of the Securities Act;
(xii) except with respect to Founder's obligation to pay a brokers fee
to Corporate Finance Associates, no broker, finder, investment banker or other
Person is entitled to any brokerage fee, finder's fee or other commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by Founder;
(xiii) Founder has had the opportunity to consult or has been
represented by his/her own legal counsel in connection with the negotiation and
execution of this Agreement and the other Transaction Documents. Founder is not
relying on any statements, representations or warranties provided by Heartland
and/or Newco or any of each of its employees, officers, agents or directors not
specifically set forth in this Agreement or the other Transaction
8
<PAGE>
Documents and neither Heartland nor Newco is making any representations,
warranties or agreements, whether actual or implied, not specifically set forth
herein or therein; and
(xiv) no statements by Founder contained in this Agreement, the other
Transaction Documents to which Founder is a Party or any written statement or
certificate furnished or to be furnished by such Founder to Heartland and/or
Newco pursuant hereto or in connection with the transactions contemplated hereby
(when read together) contains any untrue statement of a material fact or omits a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were made.
There is no fact which Founder has not disclosed to Heartland, Newco or their
counsel in writing and of which Founder is aware which materially and adversely
affects and could materially or adversely affect the business, financial
condition, operations, property or affairs of the Company or Heartland's
investment.
SECTION 5. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE FOUNDERS
(i) Subject to those exceptions and disclosures set forth in the
Company Schedule, the Company and each Founder, jointly and severally, hereby
makes the representations and warranties to Heartland and Newco set forth in
this Section . The Company Schedule shall make explicit reference to the whole
section (i.e., or ) of this Section as to which exception is taken and
disclosure made, which in each case shall constitute the sole section of this
Section as to which such exception or such disclosure shall apply and shall
include only those items which are set forth or incorporated by reference
therein when this Agreement is executed or in any bringdown supplements to the
Company Schedule delivered at the Closing that Heartland and Newco accept as an
exception or disclosure to the Company's representations and warranties pursuant
hereto by consummation of the Closing; provided that, notwithstanding the text
of this Section to the contrary, to the extent any disclosure requires the
production of copies of Contracts to Heartland and Newco which are already in
the possession of Heartland and Newco, the Company and the Founders shall only
be required to identify the Contract with sufficient specificity on the Company
Schedule in order to comply with the Company's and the Founders' obligations
hereunder.
(ii) No fact or circumstance disclosed to Heartland and Newco shall
constitute an exception to the following representations and warranties unless
such fact or circumstance is set forth in the Company Schedule as an exception
to the representations and warranties in this Section or has otherwise
previously been disclosed to Heartland and Newco in writing.
(iii) For purposes of this Section , "to the best of the Company's or
Founder's knowledge" or variations thereof (except where actual knowledge is
indicated) when used herein shall mean to the best knowledge of each of the
Founders and the other officers and directors of the Company and, when used in
this context, shall mean as to the facts or circumstances represented: (a)
actual knowledge of the Founders and the other officers and directors of the
Company; and (b) knowledge that the Founders or any other officer or inside
9
<PAGE>
director should have obtained from examining such books and records which such
officer or director would be expected to examine, including, without limitation,
the Company corporate minute books and stock ledgers, the financial statements
described in Section hereof and all material contracts to which the Company is a
Party; and (c) knowledge that the Founders or any other officer or inside
director should have from the exercise of a reasonable diligence in the conduct
of the business of the Company, considering all relevant facts and
circumstances.
5.1 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(i) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of California, is duly licensed
or qualified to transact business as a foreign corporation and is in good
standing in all jurisdictions in which the conduct of its business makes such
qualification necessary except where the failure to be so qualified will not
have a material adverse effect on the Company's business as presently conducted.
The Company has the corporate power and authority to own and hold its
properties, to carry on its business as now conducted, to execute, deliver and
perform this Agreement and the other Transaction Documents to which it is a
Party.
(ii) The Company Schedule sets forth each Person which it controls,
directly or indirectly, and any other Person of which the Company is the owner
of record (whether beneficial, direct or indirect) of any shares of capital
stock or securities convertible into capital stock or of any equity interest in
any partnership, joint venture or other non-corporate business enterprise and
except as expressly provided therein, the Company has no such relationships. The
Company has no subsidiaries. To the extent there are any disclosures provided in
the Company Schedule pursuant to this item "ii": (1) the Company Schedule
includes true and complete copies of any and all material formation and
organizational documents, investment, stock or asset purchase agreements,
Articles of Incorporation, Bylaws, shareholders agreements and the like related
thereto; and (2) the Company has no continuing obligations of a material nature
to any such Person of any type or nature whatsoever which are not specifically
identified in the Company Schedule.
(iii) The Company employs no employees residing outside of the State of
California. The Company Schedule includes a list of all current employees along
with their place of employment.
(iv) The Company Schedule provides as a disclosure a true and complete
listing of the locations of all sales offices and any other offices or
facilities of the Company. The Company Schedule contains a true and complete
list of all states in which the Company is duly qualified to transact business
as a foreign corporation.
(v) A true and complete copy of the Articles of Incorporation and the
Bylaws of the Company in effect prior to the date hereof and as to be in effect
as of the Closing are attached hereto as Exhibit I.
10
<PAGE>
5.2 AUTHORIZATION OF AGREEMENTS, ETC.
(i) The Company's execution and delivery of this Agreement and the
other Transaction Documents and Loan Documents to which it is a Party, and the
performance of its obligations hereunder and thereunder have been duly
authorized by all requisite corporate and shareholder action, as applicable, and
the performance of its obligations under the Transaction Documents will not
violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation or the Bylaws of the Company or any
provision of any indenture, agreement or other instrument to which the Company,
or any of its properties or assets are bound, which has not been waived or
terminated as of the Closing, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.
(ii) The Shares have been duly authorized and validly issued and
constitute all issued and outstanding capital stock of the Company.
(iii) As used in this Section , representations as to valid issuance
include representations that such issuance complies with all applicable state
and federal securities laws.
(iv) Without limiting the foregoing provisions of this Section , the
Shares are not subject to any limitations on transfer including, without
limitation, rights of first refusal and repurchase rights which have not been
waived or terminated as of the Closing other than restrictions pursuant to
federal and state securities laws.
5.3 VALIDITY. This Agreement and the other Transaction Documents to which the
Company is a Party, when executed and delivered by the Company, shall constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization or other laws affecting creditors'
rights and remedies generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.4 AUTHORIZED CAPITAL STOCK.
(i) As of the Closing, the authorized capital stock of the Company
shall consist solely of One Million (1,000,000) shares of Common Stock, of which
One Hundred Twenty- Seven Thousand Seven Hundred Eighty-Six (127,786) shares are
issued and outstanding. All of the outstanding securities of the Company
immediately prior to the Closing are duly authorized, validly issued, fully paid
and non-assessable.
(ii) There are no authorized shares of preferred stock or any capital
stock other than common stock.
11
<PAGE>
(iii) As of the Closing, each option or other right to purchase capital
stock of the Company, if any, that has not been exercised or converted into
shares of capital stock of the Company prior to the Closing will be cancelled.
(iv) Except for the Shares: (1) no Person owns of record or is known to
the Company to own beneficially any shares of capital stock of the Company; (2)
no subscription, warrant, option, convertible security, or other right
(contingent or other) to purchase or otherwise acquire equity securities of the
Company is authorized or outstanding; and (3) the Company has not committed to
issue shares, subscriptions, warrants, options, convertible securities, or other
such rights nor to distribute any evidence of indebtedness or any assets to
holders of any of its equity securities.
(v) Except as provided in the Articles of Incorporation of the Company,
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein, or pay
any dividend or make any other distribution in respect thereof, which has not
been terminated or waived as of the Closing.
(vi) Except as specifically set forth in this Agreement, there are no
voting trusts or agreements, shareholders' agreements, pledge agreements,
buy-sell agreements, rights of first refusal, preemptive rights or proxies
relating to any securities of the Company (whether or not the Company is a Party
thereto) which will not be terminated or waived as of the Closing.
5.5 FINANCIAL STATEMENTS.
(i) The Company has furnished to Heartland as a disclosure as part of
the Company Schedule, copies of the following financial statements: (a) audited
balance sheets of the Company as of December 31, 1995 and 1996, and an unaudited
balance sheet as of November 30, 1997; and (b) profit and loss statements for
the years then ended. All financial statements furnished to Heartland have been
certified as true and correct by the President and Chief Financial Officer of
the Company. The balance sheet of the Company as of November 30, 1997, is
hereinafter referred to as the "Balance Sheet."
(ii) All financial statements delivered pursuant to (i) above
(collectively, the "Financial Statements") are: (a) complete and in accord with
the books and records of the Company; and (b) fairly and accurately present the
financial position of the Company and results of operations of the Company as at
the dates and for the periods indicated. The Financial Statements have been
prepared in accordance with GAAP consistently applied, except: (a) as expressly
stated therein; and (b) to the extent the Financial Statements as of November
30, 1997 do not contain footnotes as required by GAAP and are subject to year
end adjustments which in the aggregate are not material and are consistent with
past practice. Except as and to the extent reflected or reserved against in the
Financial Statements, the Company does not have, as of the date of such
financial statements, any liabilities or obligations (absolute or contingent) of
a nature required in a financial statement or notes thereto
12
<PAGE>
prepared in accordance with GAAP. The reserves, if any, reflected on the Balance
Sheet are reasonable.
(iii) Since the date of the Balance Sheet and except with respect to
transactions contemplated in this Agreement including, but not limited to, legal
expenses incurred by the Company in connection with the negotiation and
consummation of this Agreement and the transactions contemplated thereby: (a)
there has been no material change in the assets, liabilities or financial
condition of the Company from the figures that were reflected in the Balance
Sheet except for changes in the ordinary course of business which in the
aggregate have not been materially adverse; and (b) none of the business,
financial condition, operations, property or affairs of the Company has been
materially and adversely affected by any occurrence or development, individually
or in the aggregate, whether or not insured against.
5.6 NO UNDISCLOSED LIABILITIES. The Company has no liabilities that are of any
nature absolute, accrued, contingent or otherwise ("Liabilities"), except: (a)
Liabilities fully reflected or reserved against on the Balance Sheet or in the
notes to the Financial Statements; (b) Liabilities incurred in the ordinary
course of business and consistent with past practice since the date of the
Balance Sheet; and (c) expenses incurred in connection with the negotiation and
consummation of this Agreement and the transactions contemplated thereby.
5.7 EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since the date of the
Balance Sheet and except as expressly contemplated in this Agreement, the
Company has not: (i) issued any shares of capital stock, debt instruments,
warrants, options or commitments relating to the authorized shares (whether
issued or unissued) of capital stock of the Company; (ii) suffered any material
adverse change in its financial condition or in the operation of its business;
(iii) borrowed any amount or incurred or become subject to any liability
(absolute, accrued or contingent), except current liabilities incurred and
liabilities under contracts entered into in the ordinary course of business;
(iv) discharged or satisfied any material lien or encumbrance or incurred or
paid any material obligation or liability (absolute, accrued or contingent)
other than current liabilities shown on the Balance Sheet or current liabilities
incurred after the date of the Balance Sheet and in the ordinary course of
business; (v) declared or made any payment or distribution to shareholders, or
purchased or redeemed any share of its capital stock or other security; (vi)
mortgaged, pledged or subjected to lien any of its material assets, tangible or
intangible, other than liens of current real property taxes not yet due and
payable and other liens which are not material; (vii) sold, assigned or
transferred any of its material tangible assets except in the ordinary course of
business, nor cancelled any debt or claim owed to the Company; (viii) sold,
assigned, transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service mark, copyright, trade secret or other
intangible asset; (ix) suffered any material loss of property, whether or not
covered by insurance, or waived any right of substantial value whether or not in
the ordinary course of business; (x) made any change in officer compensation
except in the ordinary course of business and consistent with past practice;
(xi) made any change in any method of accounting or accounting practice by the
Company; (xii) made any material change in the manner of business or operations
of the Company; (xiii) entered into any transaction except in the ordinary
course of business;
13
<PAGE>
(xiv) paid, loaned or advanced any amount to, or sold transferred or leased any
properties or assets to, or entered into any agreement or arrangement with any
of its affiliates, officers, directors or stockholders or any affiliate or
associate of any of the foregoing other than regular payments of salaries and
reimbursements of expenses in the ordinary course of business consistent with
past practices; (xv) entered into any commitment (contingent or otherwise) to do
any of the foregoing; or (xvi) agreed to take any action described in this
Section or outside of its ordinary course of business which would constitute a
breach of any of its representations contained in Section of this Agreement.
5.8 LITIGATION; COMPLIANCE WITH LAW. There is no: (i) action, suit, claim,
proceeding or investigation pending or, to the best of the Company's knowledge,
threatened against or directly affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign; (ii)
arbitration proceeding relating to the Company pending or to the best of the
Company's knowledge threatened; or (iii) governmental inquiry pending or, to the
best of the Company's knowledge, threatened against or directly affecting the
Company (including, without limitation, any inquiry as to the qualification of
the Company to hold or receive any license or permit). To the Company's actual
knowledge, there is no reasonable and valid basis for any of the foregoing. The
Company, to its best knowledge, is not currently exposed to any liability that
would be reasonably expected to be material and adverse to its business,
financial condition, operations, property or affairs. The Company is not in
default or violation of any order, writ, judgment, injunction or decree of any
court or of any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign which
default or violation would reasonably be expected to have a material adverse
effect on the business or properties of the Company. There is no action, suit,
claim or proceeding by the Company pending or currently threatened against
others. The Company has complied in all material respects with all laws, rules,
regulations and orders to the best of the Company's knowledge applicable to its
business, operations, properties, assets, products and services, and has all
necessary permits, licenses, approvals and authorizations required to conduct
its business as conducted. There is no existing law, rule, regulation or order,
and to the Company's actual knowledge there are no proposed laws, rules,
regulations or order, whether federal or state, which would prohibit or restrict
the Company in any material respect from, or otherwise materially adversely
affect the Company in, conducting its business in any jurisdiction in which it
is now conducting business.
5.9 INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
(i) The Company owns or holds sufficient right, title or interest in
and to all patents, copyrights, technology, software, know-how, processes, trade
secrets, trademarks, service marks and trade names (collectively, "Intellectual
Property") used in or necessary for the conduct of the Company's business as
presently conducted (the "Company Intellectual Property") free and clear of all
liens, claims and encumbrances that would prohibit or restrict the Company from
conducting its business as currently conducted. The foregoing representation as
it relates to Third Party Technology (as hereinafter defined) is limited to the
14
<PAGE>
Company's interest pursuant to Third Party Licenses (as hereinafter defined),
all of which are valid and enforceable and in full force and effect. The Company
Schedule contains an accurate and complete list and brief description of: (1)
all patents, trademarks (with separate listings of registered and unregistered
trademarks), tradenames, and registered copyrights, all applications for any of
the foregoing owned by or registered in the name of the Company; (2) all
Contracts relating thereto; (3) all Contracts with Persons relating to products
made, used, sold, marketed and/or distributed by the Company (the "Third Party
Licenses") relating to any Intellectual Property or technology that the Company
is licensed or otherwise authorized by such Persons to use, market, distribute
or incorporate into products or services marketed and distributed by the Company
to the extent, in each case, that the same is material to the conduct of the
business of the Company (such software, technology, know-how and processes being
hereafter collectively referred to as the "Third Party Technology"); and (4) all
Contracts pursuant to which the Company or any Founder agreed to restrictions on
the use or disclosure of any Company's or any Person's Intellectual Property, or
any restrictions from any conduct or business, materially relating to the nature
of the business conducted by the Company to the extent, in each case, that the
same is material to the conduct of the business of the Company. The transactions
expressly contemplated by this Agreement will not alter or impair any Company
Intellectual Property. No claims remain outstanding, are currently pending or,
to the best of the Company's knowledge, have been threatened or asserted against
the Company by any Person: (a) challenging the Company's use or distribution of
any products, software or Intellectual Property utilized by the Company in a
material fashion (including, without limitation, the Third Party Technology);
(b) challenging the validity or effectiveness of any license or agreement
relating thereto (including, without limitation, the Third Party Licenses); or
(c) challenging the scope, validity, enforceability, entitlement or the Company
ownership rights in the Company Intellectual Property. To the best of the
Company's knowledge, there is no valid basis for any claim of the type specified
in the immediately preceding sentence which would be reasonably expected to in
any material way adversely interfere with the continued exploitation by the
Company of any of its products or services. The use by the Company of any the
Company Intellectual Property and the conduct of the Company's business does not
infringe on the rights of, constitute misappropriation of, or unfair competition
with respect to any Intellectual Property or proprietary information or
intangible property right of any Person.
(ii) The Company Schedule contains an accurate description or copy of
each Contract pursuant to which any Person has the right to manufacture,
reproduce, distribute, market or exploit any products of the Company, any
adaptations, translations, or derivative works based on such products or any
portion thereof or any Company Intellectual Property embodied in any of the
foregoing.
(iii) Except for Third Party Technology and public domain technology,
all the Company Intellectual Property material to the business of the Company as
presently conducted, including designs, specifications, invention, source code,
object code, documentation, flow charts and diagrams were written, developed and
created solely and
15
<PAGE>
exclusively by employees and consultants of the Company without the material
assistance of any other Person.
(iv) To the best of the Company's knowledge, no employee or consultant
of the Company is in violation of any term of any employment or consulting
Contract to not disclose or assign any Company Intellectual Property or other
Contract relating to the nature of the business conducted by the Company.
5.10 TITLE TO PROPERTIES AND RELATED MATTERS. Without limiting the provisions of
Section hereof, the Company has good and marketable title to its properties and
assets reflected on the Balance Sheet or acquired by it since the date of the
Balance Sheet (other than properties and assets disposed of in the ordinary
course of business or as expressly contemplated by this Agreement since the date
of the Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims, restrictions and
other encumbrances, except for liens for current taxes not yet due and payable
and minor imperfections of title, if any, not material in nature or amount and
not materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations of the Company.
5.11 LEASEHOLD INTERESTS. Each agreement and lease to which the Company is a
Party or under which it is a lessee of any property, real or personal, is listed
in the Company Schedule and is a valid and subsisting agreement without any
material default of the Company thereunder and to the best knowledge of the
Company without any default thereunder of any other party thereto. No event has
occurred and is continuing which, with due notice or lapse of time or both,
would constitute a material default or event of default by the Company under any
such lease or agreement or, to the best knowledge of the Company, by any other
party thereto. The Company's possession of such property has not been disturbed
and no claim has been asserted against the Company adverse to its rights in such
leasehold interests.
5.12 INSURANCE. The Company Schedule lists all insurance policies maintained by
the Company along with types of coverage, the amounts of coverage and the
insurance carriers. To the best of the Company's knowledge, such amounts and
such coverage are reasonable against all risks usually insured against by
persons operating properties and businesses of a similar type, nature and size
to that of the Company in the localities where the Company's properties and
businesses are located. Such insurance is under valid and enforceable policies
issued by insurers of recognized responsibility and such policies will not in
any way be impaired, or terminate or lapse by reason of, this Agreement or the
transactions expressly contemplated herein. The Company has not done anything,
either by way of action or inaction, that invalidates such policies in whole or
in part.
5.13 TAXES.
(i) The Company has properly and timely elected under Section 1362 of
the Code, and, except as set forth on the Company Schedule, under each analogous
or similar provision
16
<PAGE>
of state or local law in each jurisdiction where the Company is required to file
a Tax Return, to be treated as an "S" corporation for the period commencing on
July 1, 1988, and the Company will be an "S" corporation up to and including the
day before the Closing Date.
(ii) All Tax Returns that were required to be filed by or on behalf of
the Company have been properly prepared and duly filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects. All amounts that are due from the Company with respect to
the periods covered by such Tax Returns (including interest and penalties) have
been fully paid, and reasonably adequate reserves or accruals for Taxes on the
Company have been provided for with respect to any period for which Tax Returns
have not yet been filed or for which Taxes are not yet due and owing.
(iii) The Company has complied in all material respects with all
applicable laws, rules and regulations relating to the payment and withholding
of Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and has paid over to the appropriate taxing authorities all
amounts required to be so withheld and paid over for all relevant periods under
all applicable laws.
(iv) Heartland has received complete copies of (i) all federal, state,
local and foreign, if any, Tax Returns of the Company relating to the last three
taxable periods of the Company (ii) any audit report issued within the last ten
years (or otherwise with respect to any audit or investigation in progress)
relating to Taxes due from or with respect to the Company, its income, assets or
operations. Except as set forth on the Company Schedule, all of the Tax Returns
filed by or on behalf of the Company has been examined by the relevant taxing
authority or the statute of limitations with respect to such Tax Returns has
expired.
(v) The Company Schedule lists all material types of Taxes paid and
material types of Tax Returns filed by or on behalf of the Company. Except as
set forth on the Company Schedule, no claim has been made by a taxing authority
in a jurisdiction where the Company does not file Tax Returns such that it is or
may be subject to taxation by that jurisdiction.
(vi) Except as set forth on the Company Schedule, all deficiencies
asserted or assessments made as a result of any examinations by the Internal
Revenue Service or any other taxing authority of the Tax Returns of or covering
or including the Company have been fully paid, and there are no other audits or
investigations by any taxing authority in progress, nor have the Founders, or
the Company received any notice from any taxing authority that it intends to
conduct such an audit or investigation. Except as set forth on the Company
Schedule, no deficiency, assessment, or claim has been asserted by a federal,
state, local or foreign taxing authority in any current or prior examination
which, by application of the same principles, could reasonably be expected to
result in a proposed deficiency for any subsequent taxable period.
17
<PAGE>
(vii) Except as set forth on the Company Schedule, neither the Company,
nor any other Person (including any of the Founders) on behalf of the Company
has (i) agreed to or is required to make any adjustments pursuant to Section
481(a) of the Code or any similar provision of state, local or foreign law by
reason of a change in accounting method initiated by the Company or has any
knowledge that the Internal Revenue Service has proposed any such adjustment or
change in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company or, (ii) executed or entered
into a closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law with
respect to the Company, (iii) extended the time within which to file any Tax
Return, which Tax Return has since not been filed or the assessment or
collection of Taxes, which Taxes have not since been paid or (iv) any power of
attorney with respect to any Tax matter currently in force.
(viii) No property owned by the Company (i) is property required to be
treated as being owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code or (iii) is "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code.
(ix) Neither Founder is a foreign person within the meaning of Section
1445 of the Code.
(x) Except as set forth on the Company Schedule, the Company is not a
party to any tax sharing or similar agreement or arrangement (whether or not
written).
(xi) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Company by reason of Section 280G of
the Code.
(xii) The Company is not a subject party to any private letter ruling
of the Internal Revenue Service or comparable rulings of other taxing
authorities.
(xiii) There are no Liens as a result of any unpaid Taxes upon any of
the assets of the Company.
(xiv) Except as set forth on the Company Schedule, the Company has no
election in effect for federal income tax purposes under Sections 108, 168, 338,
441, 463, 472, 1017, 1033 or 4977 of the Code.
5.14 OTHER AGREEMENTS.
(i) The Company is not a party to or otherwise bound by any Contract,
individually or in the aggregate, under which the obligations and benefits
contemplated by
18
<PAGE>
the parties thereto would be reasonably expected to materially adversely affect
the business, financial condition, operations, property or affairs of the
Company. The Company Schedule sets forth an accurate and complete list and brief
description, or copy in the form provided to Heartland of, or incorporates by
reference, all Contracts that are material to the business prospect, financial
condition, operations, property or affairs of the Company, that calls for fixed
and/or contingent payments or expenditures by or to the Company of more than
Twenty-Five Thousand Dollars ($25,000) per year ("Material Contract"). Without
limiting the foregoing and except where exceptions are indicated on the Company
Schedule, the Company is not a party to or otherwise bound by any:
(a) Contract that provides for the sale, licensing use or
distribution by the Company of any of its products or its Intellectual
Property except with respect to end-user agreements or licenses and not
otherwise disclosed pursuant to Section hereof;
(b) distributor, dealer, manufacturer's representative or
sales agency Material Contract which is not terminable on thirty (30)
days notice or less without cost or other liability to the Company
(except for contracts which, in the aggregate, are not material to the
business of the Company);
(c) Material Contract which entitles any customer to a rebate
or right of set-off, to return any product to the Company after
acceptance thereof or to delay the acceptance thereof, or which varies
in any material adverse respect from the Company's standard form
contracts;
(d) Contract with any third party (including, without
limitation, OEMs, distributors and customers), without limiting the
provisions of the Section hereof, granting rights to reproduce or
manufacture any Company product or Company Intellectual Property, any
exclusive rights of any kind with respect to any products of the
Company or the Company Intellectual Property including, without
limitation, territorial exclusivity or exclusivity with respect to
particular versions, implementations or translations of any products of
the Company;
(e) Material Contract (including, without limitation, porting
and development projects) of the Company that is currently expected to
result in any material loss (before allocation of overhead and
administrative costs) upon completion or performance thereof or
pursuant to which the Company has material ongoing obligations to
provide products, support, maintenance, upgrades or development
services that are not terminable upon thirty (30) days notice;
(f) Contract with officers, employees, agents, consultants,
advisors, salesmen, sales representatives, distributors or dealers that
are not cancelable by it on notice of not longer than thirty (30) days
and without liability, penalty or premium of any type including,
without limitation, severance or termination pay, except as required by
law;
19
<PAGE>
(g) Contract with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect to any
of its employees);
(h) Material Contract for the future purchase of fixed assets
or for the future purchase of materials, supplies or equipment in
excess of its normal operating requirements;
(i) Contract or indenture relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company;
(j) guaranty of any obligation for borrowed money or otherwise
other than those executed or endorsed in the ordinary course of
collection;
(k) Material Contract, or group of related Material Contracts
with the same party or any group of affiliated Persons, under which the
Company has advanced or agreed to advance money or has agreed to lease
any property as lessee or lessor;
(l) Contract under which it has limited or restricted its
right to compete with any Person in any respect, including the
exploitation of Intellectual Property, in any place in the world;
(m) Material Contract or group of related Material Contracts
with the same party which are continuing over a period of more than six
(6) months from the date or dates thereof (including renewals or
extensions optional with another party), which Contract or group of
Contracts is not terminable by the Company without penalty upon notice
of thirty (30) days or less, but excluding any contract or group of
contracts with a customer of the Company for the sale, lease or rental
of the Company's products or services if such contract or group of
contracts was entered into by the Company in the ordinary course of
business;
(n) The Company and to the best of the Company's knowledge,
each other Party thereto have in all material respects performed all
the material obligations required to be performed by them from January
1, 1994 to date under all Material Contracts of the type described
above, have received no notice of default and are not in material
default (with due notice or lapse of time or both) under any such
Contract now in effect to which the Company is a Party or by which it
or its property may be bound. The Company has no present expectation or
intention of not fully performing all its obligations under each such
Contract, and the Company has no actual knowledge of any breach or
anticipated breach by the other Party to any Contract to which the
Company is a Party;
(o) All Contracts to which the Company is a Party and by which
it is bound including, without limitation, Third Party Licenses are
valid, binding, in full force and effect and enforceable by the Company
in accordance with their respective
20
<PAGE>
terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other laws affecting creditors' rights
and remedies generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity
or at law). No such Contract contains any material liquidated damages
adverse to the Company. To the best of the Company's knowledge, no
Party to any such Contract intends to cancel, modify, amend or fail to
perform such Contract in any material respect;
(p) No product liability or warranty claims have been
communicated to, or, to the best of the Company's knowledge, threatened
against the Company nor is there to the Company's best knowledge a
specific situation, set of facts or occurrence that provides a basis
for such a claim. The Company is under no liability or obligation, and
no claim has been made and is pending, with respect to the return of
inventory or merchandise in the possession of wholesalers,
distributors, retailers, or other customers, except such liabilities,
obligations and claims as, in the aggregate, do not exceed Ten Thousand
Dollars ($10,000) or as are disclosed on the Balance Sheet, whichever
is greater. The Company has no outstanding loan or advance to any
person, nor is it party to any line of credit, stand-by financing,
revolving credit or other similar financing arrangement which would
permit the borrowing by the Company of any sum of money except those
reflected in the Financial Statements; and
(q) True and correct copies of each Contract listed on the
Company Schedule as an exception to any provision of this Section
(including all amendments thereto) are attached to the Company Schedule
as a disclosure.
5.15 ACCOUNTS RECEIVABLE. All accounts receivable of the Company, reflected on
the Balance Sheet, represent valid and genuine sales, leases, or licenses
actually made in the ordinary course of business, are, to the best of the
Company's knowledge, valid and binding obligations of the debtor, are not
subject to payment conditioned upon resale, are not contingent upon the
performance by the Company of any material obligation or contract, and are
collectible with reasonable collection efforts after billing at the full
recorded amounts net of reserves therefor on the Balance Sheet.
5.16 INVENTORY. The inventory of the Company as of the Balance Sheet Date
consists of a quality and quantity generally usable and marketable in the
ordinary course of business in all material respects and the values of material
items which are not standard quality, are obsolete or are otherwise unmarketable
have been written down on the Balance Sheet to their net realizable value or
adequate reserves have been provided therefor.
5.17 ORDERS, COMMITMENTS AND RETURNS. All accepted and unfilled orders entered
into by the Company for the sale, license, lease or other similar disposition by
the Company of merchandise, and all agreements, contracts, or commitments for
the purchase of supplies, were made in the ordinary course of the Company's
business. No outstanding purchase commitment of the Company is in excess of the
normal, ordinary and usual requirements of its business or was made at any price
(on both a per unit and aggregate basis) materially in
21
<PAGE>
excess of the current market price at the time made and no purchase commitment
or sale has terms and conditions materially more onerous to the Company than
those usual and customary in the industry, in each case to the Company's actual
knowledge, without inquiry.
5.18 COMPLIANCE WITH LAW. The Company is in compliance with all applicable laws,
regulations and executive orders of all jurisdictions where the Company is doing
business, except for those instances of noncompliance that in the aggregate will
not be reasonably expected to have a material adverse effect on its business,
operations or financial position as of the Closing. Neither the Company nor to
the best of the Company's knowledge has any of its employees, in their capacity
as employees, directly or indirectly paid or delivered any fee, commission or
other sum of money or item of property, however characterized, to any finder,
agent, government official or other party in the United States or any other
country, that was or is in violation of any federal, state, or local statute or
law or of any statute or law of any other country having jurisdiction. The
Company has not participated in any boycotts or other similar practices
affecting any of its customers. The Company has complied at all times with any
and all applicable federal, state and foreign laws, rules, regulations,
proclamations and orders relating to the importation or exportation of its
products or services applicable to the Company's business.
5.19 TRADE REGULATION. During the twelve (12) month period immediately preceding
the Closing, the Company has not terminated its relationship with or refused to
ship the Company's products to any dealer, distributor, OEM, third party
marketing entity or customer which had theretofore paid or been obligated to pay
the Company in excess of Ten Thousand Dollars ($10,000). No claims have been
communicated or threatened against the Company with respect to wrongful
termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other violation of any laws or regulations relating to anti-competitive
practices or unfair trade practices of any kind and no specific situation, set
of facts, or occurrence provides any basis for any such claim.
5.20 INSIDER TRANSACTIONS. No director or officer of the Company and no
immediate family members, actually known relatives or partners of any of them
has any right or pecuniary interest in: (i) any material equipment or other
property, real or personal, tangible or intangible, including, without
limitation, any Intellectual Property, used in connection with or pertaining to
the business of the Company; or (ii) any creditor, supplier, customer,
manufacturer, agent, representative, or distributor of Products or technology of
the Company; provided, however, that: (a) no such director or officer or other
Person shall be deemed to have such an interest solely by virtue of the
ownership of less than five percent (5%) of the outstanding stock or debt
securities of any privately or publicly-held company, the stock or debt
securities of which publicly-held Company are traded on a recognized stock
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System; and (b) no such director or officer or other Person shall be
deemed to have such an interest solely by virtue of the ownership by a
partnership in which he/she is a partner of less than five percent (5%) of the
outstanding voting stock or debt securities of any privately-held company.
22
<PAGE>
5.21 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS. The Company Schedule
lists and describes all currently effective consulting, independent contractor
and/or employment agreements and other material agreements concluded with
individual employees, independent contractors or consultants to which the
Company is a Party. True and correct copies of all such written agreements are
included in the Company Schedule or have previously been supplied to counsel for
Heartland. All salaries and wages paid by the Company are in compliance with
applicable federal, state and local laws. Also shown on the Company Schedule are
the names of all officers and any other employee persons whose annual rate of
compensation, including bonuses and other payments of any kind, is in excess of
Fifty Thousand Dollars ($50,000) and the names of all employees with a title of
"Director" of a department or above and the salaries for each such person. The
Company's aggregate vacation time accrued as of November 30, 1997 does not
exceed Fifty Thousand Dollars ($50,000). The Company has no existing written or
oral agreements (other than those that may be implied by law) to pay severance
pay to any of its employees.
5.22 GOVERNMENTAL AUTHORIZATION AND REGULATIONS. All material licenses,
franchises, permits and other governmental authorizations held by the Company
are valid and sufficient for the business presently carried on by the Company.
5.23 CORPORATE MINUTES, ETC. The corporate minute books, stock certificate
books, stock registers and other corporate records of the Company are complete
and accurate in all material respects, and the signatures appearing on all
documents contained therein are the true signatures of the persons purporting to
have signed the same. All actions reflected in such books and records were duly
and validly taken in compliance with the laws of the applicable jurisdiction.
5.24 GOVERNMENTAL APPROVALS. Subject to the accuracy of the representations and
warranties of Heartland set forth in Section hereof, no registration or filing
with, or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents.
5.25 BROKERS. Except with respect to Founders' obligation to pay a brokers fee
of Two Hundred Seventy-Five Thousand Dollars ($275,000) to Corporate Finance
Associates, no broker, finder, investment banker or other Person is entitled to
any brokerage fee, finder's fee or other commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by the
Company.
5.26 REAL PROPERTY. The Company does not own any real property.
5.27 EMPLOYEE BENEFIT PLANS. The Company has not at any time had any employment
benefit plans that are subject to ERISA, including, without limitation, stock
option, stock bonus, restricted stock, phantom stock, profit-sharing, bonus,
employee welfare benefit plans, profit-sharing, bonus, deferred compensation,
severance pay or similar plan or agreement.
23
<PAGE>
5.28 ENVIRONMENTAL MATTERS. Except as provided as an exception in the Company
Schedule:
(i) the Company has obtained all permits, licenses and other
authorizations that are required under or by Environmental Laws ("Environmental
Permits"). Such Environmental Permits are in full force and effect and the
Company is not aware of any required capital expenditures to maintain the
effectiveness of such Environmental Permits;
(ii) the Company, its operations and assets and any real property
owned, operated or leased by the Company have been and are in compliance in all
material respects with all Environmental Laws and all terms and conditions of
such permits, licenses and authorization required by such Environmental Laws;
(iii) the Company has not received notice of any past, present or
future events, conditions, circumstances, activities, practices, incidents,
actions or plans that are reasonably likely to interfere with or prevent
continued compliance, or that are reasonably likely to give rise to any
liability, or otherwise form the basis of any claim, action, suit, proceeding,
hearing or investigation, based on or related to Environmental Laws or the
processing, distribution, use, treatment, storage, disposal, transport or
handling of, Release or threatened Release of any Hazardous Substance from or
attributable to the Company;
(iv) the Company has not caused or permitted (except as set forth in
the immediately following sentence), nor does there exist to the best of the
Company's knowledge, any Release in any manner whatsoever, of any Hazardous
Substance on or from any of its properties or assets or on or from any property
or facility that it previously owned or leased except in compliance with
Environmental Laws. The Company has not caused nor knowingly permitted, nor does
there exist, to the best of the Company's knowledge, any such Release on or from
a facility owned or operated by third parties but with respect to which the
Company has or may be alleged to have liability. To the best of the Company's
knowledge, the Company does not operate any properties where Hazardous
Substances have been or are being used, stored or disposed of in other than
immaterial amounts, and in the ordinary course of recovery, processing and
transportation;
(v) the Company has delivered to Heartland a true and complete copy of
all environmental audits, evaluations, assessments, studies or tests relating to
the Company's business, assets and/or properties;
(vi) the Company has not at any time used any nickel at its facilities
located at 249 S. Paseo Sonrisa, Walnut, California 91789; and
(vii) for purposes of this Section, the following terms shall have the
following meanings:
24
<PAGE>
"Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching, or migration of, on, or into the indoor or outdoor
environment or into or out of any property.
"Environmental Law" means any federal, state, local, or
foreign law (including common law), statute, code, ordinance, rule, regulation
or other requirement relating to the environment, natural resources, or public
or employee health and safety and includes, but is not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
42 U.S.C. ss. 9601 et seq., the Hazardous Materials Transportation Act, 49
U.S.C. ss. 1801 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. ss. 6901 et seq., the Clean Water Act, 33 U.S.C. ss. 1251 et seq., the
Clean Air Act, 33 U.S.C. ss. 2601 et seq., the Toxic Substances Control Act, 15
U.S.C. ss. 2601 et seq., the Federal Insecticide, Fungicide, and Rodenticide
Act, 7 U.S.C. ss. 136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701
et seq., and the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq.,
as such laws have been amended or supplemented, and the regulations promulgated
pursuant thereto, and all analogous state or local statutes.
"Hazardous Material" means any substance, material or waste
which is regulated by any governmental authority, including, without limitation,
any material, substance or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "contaminant," "toxic waste" or "toxic substance"
under any provision of Environmental Law, which includes, but is not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls.
5.29 RELIANCE. The Company is not relying on any statements, representations or
warranties provided by Heartland, its affiliates or any of their employees,
officers, agents or directors not specifically set forth in this Agreement or
the other Transaction Documents and Heartland is not making any representations,
warranties or agreements, whether actual or implied, not specifically set forth
herein or therein.
5.30 DISCLOSURE. Neither this Agreement nor any of the other Transaction
Documents contain an untrue statement by the Company or Founders of a material
fact or omit a material fact necessary to make such statements contained herein
or therein not misleading. There is no fact actually known to the Founders or
the Company which the Company or any of the Founders has not disclosed to
Heartland and its counsel in writing which materially and adversely affects or
could reasonably be expected to materially and adversely affect the business,
financial condition, operations, property or affairs of the Company or
Heartland's investment.
5.31 PROFESSIONAL SERVICES. The Company Schedule lists all of the matters in
which Stradling Yocca Carlson & Rauth has represented, or provided any legal
services for, the Company.
25
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES
OF HEARTLAND AND NEWCO
Heartland and Newco jointly and severally represent and warrant to the Company
and each Founder that:
(i) the shares of Newco were issued to Heartland in compliance with all
federal and state securities laws, and it is understood that the shares of Newco
have not been registered under the Securities Act and bear a legend to such
effect, and Heartland is an "accredited investor" within the meaning of Rule 501
of the Securities Act, and did not acquire the shares of Newco for the purpose
of resale or distribution;
(ii) each of Heartland and Newco has no contract, arrangement or
understanding with any broker, finder, investment banker or other Person that is
entitled to any brokerage fee, finder's fee or other commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by Heartland or Newco;
(iii) each of Heartland and Newco is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and the State of California, respectively, it has the full right, power and
authority to own and hold its properties, to carry on its business as now
conducted, to execute, deliver and perform its obligations under this Agreement
and the other Transaction Documents to which it is a Party, and this Agreement
and the other Transaction Documents when executed and delivered by Heartland and
Newco will constitute the legal, valid and binding obligations of Heartland and
Newco, enforceable in accordance with their terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights and remedies generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(iv) each of Heartland's and Newco's execution and delivery of this
Agreement and the other Transaction Documents and Loan Documents to which
Heartland or Newco is a Party and the performance of Heartland's and Newco's
obligations hereunder and thereunder have been duly authorized by all requisite
corporate and shareholder action, as applicable, and the performance of their
obligations under the Transaction Documents will not violate any provision of
law, any order of any court or other agency of government, the Certificate of
Incorporation ("Certificate") or Bylaws of Heartland, or the Articles of
Incorporation or Bylaws of Newco or any provision of any material indenture,
agreement or other instrument to which Heartland or Newco is a party or any of
their material properties or assets are bound, except for such breaches,
defaults or violations which would not materially and adversely affect
Heartland's or Newco's ability to consummate the transactions contemplated
hereby (or to perform all of the obligations under any Transaction Documents on
the part of Heartland, Newco or (as of the Closing) the Company);
(v) the Company's execution of the Notes and the Agreement Regarding
Payment of Existing Creditors dated as of April 10, 1998 between Heartland,
Newco, Company and
26
<PAGE>
Founders (the "Creditors Agreement") as of the Closing has been authorized by
all necessary corporate action of Newco and/or Heartland, as applicable (and is
hereby authorized and ratified, effective on the Closing Date, by Heartland as
the Surviving Corporation's shareholder at such time). The Notes and the
Creditors Agreement, when executed and delivered as contemplated in this
Agreement, shall be the valid and binding obligations of the Company enforceable
against the Company in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights;
(vi) as of the Closing, the authorized capital stock of Newco shall
consist of One Thousand (1,000) shares of Common Stock, of which One Thousand
(1,000) shares are issued and outstanding. All of the outstanding shares of
Newco immediately prior to the Closing are duly authorized, validly issued,
fully paid and non-assessable and owned by Heartland. There are no authorized
shares of preferred stock or any capital stock other than common stock;
(vii) the disclosures regarding Heartland and its subsidiaries set
forth in the most recent Form 10-K and subsequent reports filed with the
Securities and Exchange Commission ("SEC Reports") are true and correct in all
material respects. No material adverse event has occurred subsequent to the
period reported in Heartland's SEC Reports that has a material adverse effect on
Heartland's ability to perform this Agreement and the Transaction Documents to
which it is a party. Newco will have conducted no business prior to the Closing
Date except as contemplated by the Transaction Documents, and will have incurred
no obligations or liabilities other than the Credit Agreement, in connection
with its incorporation or in connection with the Transaction Documents; and
(viii) neither this Agreement, nor any of the other Transaction
Documents contain an untrue statement by Heartland or Newco of a material fact
or omit a material fact necessary to make such statements contained herein or
therein not misleading. There is no fact actually known to Newco or Heartland
which Newco or Heartland has not disclosed to the Founders or Company and their
counsel in writing which materially and adversely affects or could reasonably be
expected to materially and adversely affect the business or financial condition,
operation, property or affairs of Heartland or Newco.
(ix) pursuant to the Loan Documents, LaSalle National Bank has fully
and effectively consented to the transactions contemplated by this Agreement,
including without limitation, the distribution by the Company to Founders on or
prior to the Closing Date of any amount of cash to the extent Company's cash at
such time is in excess of Five Hundred Thousand Dollars ($500,000) and the
payment to Founders of the Aggregate Consideration, all pursuant to the terms of
this Agreement.
27
<PAGE>
SECTION 7. ADDITIONAL AGREEMENTS
7.1 MERGER AGREEMENT. On or prior to the Closing, each of the Constituent
Corporations shall execute the Merger Agreement.
7.2 FOUNDERS PRESERVATION OF GOODWILL, RELEASE AND CONFIDENTIALITY AGREEMENT. On
or prior to the Closing, each Founder, the Company and Heartland shall execute
the appropriate Founders Preservation of Goodwill, Release and Confidentiality
Agreement.
7.3 EMPLOYMENT AGREEMENTS. On or prior to the Closing, each Key Employee and the
Company shall execute an Employment Agreement applicable for such Key Employee.
7.4 EQUIPMENT. The Company will purchase and install prior to the Closing or has
purchased and installed prior to the date hereof Five Hundred Thousand Dollars
($500,000) worth of new equipment that is identified in Exhibit K.
7.5 REAL ESTATE. On or prior to the Closing, the Trustees, on behalf of the
Cardenas Family Trust, and Heartland shall execute the Supplemental Real Estate
Agreement.
7.6 ESCROW AGREEMENTS. Concurrent with the execution of this Agreement, the
Parties shall execute the Escrow Agreements.
7.7 CONSENTS AND APPROVALS. At the Closing, the Company shall obtain and deliver
to Heartland and Newco any and all written consents and approvals required in
connection with the consummation by the Company and the Founders of this
Agreement and the other Transaction Documents and the transactions contemplated
herein and therein acceptable in form and content to Heartland and Newco in the
sole exercise of their discretion including, without limitation: (i) any and all
written consents or approvals from other Persons to contracts or agreements to
which the Company is a Party to the extent necessary to consummate the
transactions contemplated by this Agreement and the other Transaction Documents;
and (ii) any and all permits or approvals of any governmental body or agency
required for the lawful consummation of this Agreement and the other Transaction
Documents including, but not limited to, approval under the Hart-Scott Rodino
Act, if applicable (collectively, the "General Consents and Permits").
7.8 CORPORATE APPROVALS. On or prior to the Closing, the Company and the
Founders shall deliver to Heartland and Newco copies of the following documents:
(i) a certificate from the Secretary of State of the applicable
jurisdiction(s) dated as of a recent date as to the due incorporation,
qualification to do business and good standing of the Company and listing all
documents of the Company on file with said Secretary, and a tax clearance
certificate from the Franchise Tax Board certifying the payment of all franchise
taxes by the Company ("Certificate of Good Standing");
28
<PAGE>
(ii) a certificate of the Secretary or Assistant Secretary of the
Company dated as of the Closing and certifying: (a) that attached thereto is a
true and complete copy of the Articles of Incorporation and the Bylaws of the
Company as in effect on the date of such certification; (b) that attached
thereto is a true and complete copy of all resolutions adopted by the Board of
Directors or the shareholders of the Company authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents and that
all such resolutions are in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this Agreement and
the other Transaction Documents; (c) that the Articles of Incorporation and
Bylaws of the Company have not been amended since the date of its filing,
recording and/or certification, as the case may be; and (d) to the incumbency of
each officer of the Company executing this Agreement and the other Transaction
Documents and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause (ii)
(the "Officer Certificate"); and
(iii) such additional supporting documents and other information with
respect to the operations and affairs of the Company as Heartland or its counsel
reasonably may request.
7.9 EXPENSES. Except as specifically provided in this Agreement or the Company
Schedule to the contrary, each Party shall pay his/her or its own expenses
incurred (including, without limitations, the fees of counsel, consultants,
advisors and similar parties) on such Party's behalf in connection with the
negotiation and consummation of the transactions contemplated by this Agreement;
provided, however, that the Founders shall be responsible for any expenses
incurred by the Company and Founders relating directly and solely to the
consummation of the transactions contemplated by this Agreement including, but
not limited to: (i) expenses for legal services of Stradling Yocca Carlson &
Rauth in connection with the negotiation and execution of this Agreement and
Transaction Documents; and (ii) brokers fees for the services of Corporate
Finance Associates (collectively, the "Transaction Expenses"). Transaction
Expenses expressly exclude costs for regular employees of the Company payable in
the ordinary course of business such as payroll or overhead therefor, and
amounts payable for out of pocket fees for tax return preparation or for
accounting audits or for amounts incurred in ordinary business operations.
7.10 CONFIDENTIALITY. The Founders agree not to disclose to any third party the
terms of this Agreement and the other Transaction Documents except: (i) as
required by law; or (ii) to professional advisors who have a need to know and
are bound by a professional duty to maintain confidentiality; or (iii) in
connection with any legal or accounting proceedings arising out of this
Agreement; provided, however, that prior to any disclosure pursuant to (i) or
(iii) above (other than legal proceedings between the Parties hereto in
connection with a dispute under this Agreement or the other Transaction
Documents), such Founder shall inform Heartland, Newco and the Company of the
Founder's intent to disclose and such Founder shall assist Heartland and Newco
in limiting the extent of such disclosure.
7.11 CONDUCT OF BUSINESS. During the period from the date of this Agreement and
continuing until the Closing, the Company agrees that except as expressly
contemplated or
29
<PAGE>
permitted by this Agreement or to the extent that Heartland and Newco shall
otherwise consent in writing, the Company shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and other than actions taken in the ordinary course of
business, shall use all commercially reasonable efforts to: (i) preserve intact
its present business organization; (ii) keep available the services of its
present officers and employees material to it; and (iii) preserve its
relationships with material customers, suppliers and others having business
dealings with it, provided, however, that nothing in this Section shall require
the Company to deviate from its normal business practices or to offer any
additional compensation or incentives to employees, customers, suppliers or
others. Without limiting the generality of the foregoing, prior to the Closing,
and except as expressly contemplated or permitted by this Agreement, or required
by applicable law, the Company will not, and the Company will not, without the
prior written consent of Heartland and Newco:
(a) split, combine or reclassify any shares of its capital
stock, declare, pay or set aside for payment any dividend or other
distribution in respect of its capital stock, or directly or
indirectly, redeem, purchase or otherwise acquire any shares of its
capital stock;
(b) issue, sell, pledge, dispose of, encumber or deliver
(whether through the issuance or granting of any options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock
or any securities convertible into or exercisable or exchangeable for
shares of stock (other than issuance of Certificates in replacement of
lost Certificates);
(c) intentionally incur any liability or obligation (absolute,
accrued, contingent or otherwise) other than in the ordinary course of
business consistent with past practices or issue any debt securities
or, other than in the ordinary course consistent with past practices,
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other person;
(d) acquire or agree to acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other
business organization or division or significant assets thereof or
acquire, or agree to acquire, directly or indirectly, any equity
interest in any person or incur any capital expenditures other than the
capital expenditures expressly set forth in this Agreement;
(e) amend or modify its Articles of Incorporation or Bylaws;
(f) sell, lease, license, encumber or dispose of any of its
assets, other than in the ordinary course of business consistent with
past practices;
(g) amend or terminate any material contract or other
agreement, other than in the ordinary course of business consistent
with past practices;
30
<PAGE>
(h) make any change in financial or tax accounting methods,
principles or practices or make or revoke, or cause to be made or
revoked, any elections with respect to taxes, unless required by GAAP
or applicable law;
(i) extend credit in the sale of products, collection of
receivables or otherwise, other than in the ordinary course of business
consistent with past practices (provided that refraining from pursuing
collection of delinquent accounts shall not be deemed to be extending
credit);
(j) fail to maintain its books, accounts and records in the
usual, regular and ordinary manner on a basis consistent with prior
years;
(k) fail to use all commercially reasonable efforts to take,
or omit to use all commercially reasonable efforts to take, any action
where such failure or omission would cause (x) any representation or
warranty in Section 4 hereof (but excluding any representations or
warranties which specifically relate to an earlier date) to be untrue
or incorrect in any material respect as of the Closing or (y) any of
the conditions to the Closing set forth in Section 7 not being
satisfied;
(l) grant to any executive officer any increase in
compensation or in severance or termination pay, grant any severance or
termination pay, or enter into to any employment agreement with any
executive officer, except as may be required under employment or
termination agreements in effect on the date of this Agreement;
(m) enter into any agreement, including an agreement to
purchase or lease assets or operating supplies, which includes an
aggregate payment or commitment on the part of either Party of more
than One Hundred Fifty Thousand Dollars ($150,000) other than
agreements or arrangements entered into in the ordinary course of
business as currently conducted;
(n) make any changes or agree to make any changes to any
federal, state, local or foreign income or franchise tax returns filed
prior to the date hereof or file any amended federal, state, local or
foreign income or franchise tax returns; or
(o) agree, in writing or otherwise, to do any of the
foregoing.
7.12 PUBLIC ANNOUNCEMENTS. Heartland, Newco and the Company will consult with
each other and will mutually agree (the agreement of each Party not to be
unreasonably withheld) upon the content and timing of any press release or other
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation and agreement, except as may be required by
applicable law, provided, however, that Heartland, Newco and the Company will
give prior notice to each other Party of the content and timing of any such
press release or other public statement required by applicable law.
31
<PAGE>
7.13 DISCLOSURE SUPPLEMENTS. From time to time prior to the Closing Date, the
Company will supplement or amend the Company Schedule delivered in connection
herewith with respect to any matter which, if existing, occurring or known at
the date of this Agreement, would have been required to be set forth or
described in the Company Schedule or which is necessary to correct any
information in the Company Schedule which has been rendered inaccurate thereby.
Such supplement or amendment shall not be given effect in determining whether
the conditions set forth in Section 7 have been satisfied; provided, however,
that by consummating the transactions contemplated hereby, Heartland and Newco
waive any right or claim they may otherwise have or have had so long as the
Company has disclosed such event or fact to Heartland and Newco in writing.
7.14 NO OTHER BIDS. From and after the date hereof, the Company shall not, nor
shall the Company authorize or permit any officer, director or employee of or
any investment banker, attorney, accountant or other representative retained by
it to, solicit, initiate or encourage submission of any proposal or offer
(including by way of furnishing information) from any person which constitutes,
or may reasonably be expected to lead to, any Acquisition Proposal. As used in
this Agreement, "Acquisition Proposal" shall mean any proposal for a merger or
other business combination involving the Company or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of, the Company.
7.15 DUE DILIGENCE INVESTIGATION. Prior to the Closing, the Company will permit
Heartland and Newco and each of their consultants and professional advisors to
conduct and assist Heartland and its consultants and professional advisors in
the conduct of a full and complete investigation of the Company's business and
technology including, without limitation, a market and competitive products and
technology analysis and a review of the Company's books and records, contracts,
technology (including, without limitation, all of the source code for all of the
Company's software), intellectual property, inventory, equipment, technical
materials and customer records (the "Investigation"). The Investigation shall be
conducted during normal business hours upon terms and conditions mutually agreed
upon by Heartland, Newco and the Company.
7.16 FURTHER ASSURANCES AND COOPERATION. The Company and each Founder shall each
execute and deliver such instruments and take such other actions as the other
Parties may reasonably require in order to carry out the intent of this
Agreement and the other Transaction Documents and shall use reasonable efforts
to cause the Company's officers, employees, attorneys, agents, investment
bankers, accountants, and other authorized representatives to cooperate fully in
customary and reasonable respects with Heartland and Newco.
7.17 ACKNOWLEDGEMENT AND CONSENT. Each Party hereby consents to the transactions
contemplated by this Agreement, the Transaction Documents, or the Loan
Documents.
7.18 REPORTS. Heartland will cause the Company to provide Founders with all of
the financial reports, certificates of compliance or performance, calculation of
the Debt Service
32
<PAGE>
Coverage Ratio (as defined in the Loan Agreement) and notices of non-compliance
or default required to be provided by the Company to LaSalle National Bank under
the Loan Documents, as and when provided to LaSalle National Bank, until such
time as all obligations of Founders under the Subordination Agreement expressly
expire in accordance with its terms. At any time after such ratio has at any
measuring date exceeded 2.0 to 1, such reports shall thereafter be due no sooner
than quarterly until at any quarterly measuring date the ratio shall have been
less than 1.9 to 1.
7.19 COMPLIANCE WITH LOAN DOCUMENTS. Heartland shall fully comply with all
obligations, terms and provisions applicable to the Guarantor under the Loan
Agreement and the Bank Guaranty in accordance with their terms where the failure
to so comply would cause liability or loss to Founders. Heartland shall cause
the Company after the Closing to fully comply with all obligations, terms and
provisions applicable to the Borrower under the Loan Documents in accordance
with its terms, where the failure to so comply would cause liability or loss to
Founders.
7.20 NO AGREEMENTS THAT VIOLATE THIS AGREEMENT. Until the Notes and the
Creditors Agreement are paid in full, Heartland shall not, and shall cause the
Company not to, enter into any agreement which by its terms would prohibit any
payment under this Agreement, the Notes, the Guaranty or, the Creditors
Agreement.
7.21 RATIFICATION AND APPROVAL OF LOAN DOCUMENTS. Heartland, in its capacity as
sole shareholder of Newco, hereby ratifies and approves, Newco's execution,
delivery and performance of the Loan Documents.
7.22 COMPANY 1997 TAX RETURNS AND K-1. The Company, at its expense, shall file
its 1997 income tax returns and mail a Form K-1 to Founders, and Company shall
provide KPMG Peat Marwick and Founders with access to the Company's records
necessary for preparing the Company's short-year tax returns for the period
ended on the day before the Closing Date.
7.23 CLOSING DELIVERIES. Prior to the Closing: (i) Heartland shall deliver to
Founders (a) a franchise tax clearance certificate regarding Newco (if the
Merger is not consummated for any reason, Heartland will hold harmless the
Company from the assumption of tax liability of Newco by the Company); (b) the
Creditors Agreement in the form of Exhibit J; (c) the Guaranty in the form of
Exhibit G; and (d) any other agreements, documents, instruments or certificates
required to be delivered under this Agreement; and (ii) each Party shall execute
and deliver to the other Parties the Escrow Agreement.
7.24 RESIGNATION. On or prior to the Closing, Enedina Cardenas shall resign from
the Board of Directors of the Company.
33
<PAGE>
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES TO CLOSE
8.1 CONDITIONS TO CLOSING BY ALL PARTIES. The obligations of each Party hereto
to take any and all actions to deliver the documents and items described in
Section hereof as of the Closing is, at its option, subject to the satisfaction,
on or before the Closing, of the following conditions:
(i) no litigation by any regulatory body or private party is pending or
threatened in which: (a) an injunction is or may be sought against the
transactions contemplated hereby, or relief is or may be sought against any
Party hereto as a result of this Agreement; and (b) in the good faith judgment
of such Party (based upon the advice of its legal counsel), such regulatory body
or private party has a reasonable possibility of success and such relief would
have a material adverse effect on such Party or the transactions contemplated
hereby; and
(ii) no order shall have been entered, and not vacated, by a court or
administrative agency of competent jurisdiction, in any action or proceeding
which enjoins, restrains or prohibits execution of this Agreement or
consummation of the transaction contemplated herein.
8.2 CONDITIONS TO CLOSING BY HEARTLAND AND NEWCO. The obligations of Heartland
and Newco to take any and all actions to deliver the documents and items
described in Section hereof as of the Closing is, at their option, subject to
the satisfaction of the following conditions on or before the Closing:
(i) each of Heartland and Newco shall have completed the Investigation
to its satisfaction (to be determined by Heartland in the exercise of its sole
and absolute discretion), without discovering any facts or circumstances which
would make it inadvisable or impractical for Heartland and Newco to consummate
the transactions contemplated by this Agreement and the other Transaction
Documents;
(ii) Newco shall have obtained financing in the amount of Three Million
Dollars ($3,000,000), secured by, among other things, all or any portion of the
assets and accounts receivable of the Company, to pay towards the Aggregate
Consideration;
(iii) the representations and warranties contained in Sections and
hereof shall be true, complete and correct on and as of the Closing;
(iv) the Company and each Founder shall have performed and complied
with all agreements, obligations and conditions contained herein required to be
performed or complied with by it/him/her prior to or at the Closing and the
President of the Company and each Founder shall have certified to Heartland and
Newco in writing to such effect and to the further effect that all of the
conditions set forth in this Section have been satisfied (the "Company Closing
Certificate");
34
<PAGE>
(v) all corporate and other proceedings to be taken by the Company and
each Founder, if applicable, in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in form and
substance to Heartland and Newco and each of its counsel, and Heartland and
Newco and each of its counsel shall have received all such counterpart originals
or certified or other copies of such documents as they reasonably may request;
(vi) Heartland and Newco shall have received from counsel for the
Company and each Founder, an opinion dated as of the Closing, in form and scope
satisfactory to Heartland and Newco and their counsel, in form and content
similar to that attached hereto as Exhibit L (with respect to the Company and
the Founders, the "Company/Founder Counsel Opinion");
(vii) the Company and each Founder shall have delivered all items
required to be delivered pursuant to Section hereof; and
(viii) Heartland and Newco are satisfied with the Closing Statement to
be delivered by the Company pursuant to Section and with the undisclosed
liabilities, if any, pursuant to Section .
8.3 CONDITIONS TO CLOSING BY THE FOUNDERS. The obligations of each Founder to
take all the actions to deliver the documents and other items described in
Section hereof as of the Closing is, at its/his/her option, subject to the
satisfaction, on or before the Closing, of the following conditions:
(i) the representations and warranties contained in Section hereof with
respect to Heartland and Newco shall be true, complete and correct on and as of
the Closing;
(ii) Heartland and Newco shall have performed or complied with all
agreements, obligations and conditions contained herein required to be performed
or complied with by it prior to or at the Closing, and an officer of each
Heartland and Newco shall have certified to the Company and Founders in writing
to such effect and to the further effect that all conditions set forth in this
Section hereof have been satisfied (the "Heartland and Newco Closing
Certificate");
(iii) all corporate and other proceedings to be taken by Heartland and
Newco and each of its lenders in connection with the transactions contemplated
hereby and all documents incident thereto shall be satisfactory in form and
substance to the Company and Founders and their counsel, and they shall have
received all such counterpart originals or certified or other copies of such
documents as they reasonably request;
(iv) Heartland and Newco shall have delivered all items required to be
delivered pursuant to Section or Section hereof;
(v) the Company shall have received from in-house counsel and local
counsel for
35
<PAGE>
Heartland and Newco an opinion dated as of the Closing, in form and scope
satisfactory to the Company and their counsel, in form and content similar to
that attached hereto as Exhibit L (the "Heartland and Newco Counsel Opinions");
(vi) Founders and the Company shall each be satisfied that the
financing obtained by Heartland, Newco or the Company is on terms that are
acceptable to Founders; and
(vii) Heartland and Newco shall have delivered all items required to be
delivered pursuant to the Loan Documents and have done all things necessary
within their control to assure the Company's compliance with the Loan Documents,
assuming the Company's compliance with representations and warranties expressed
herein apart from the Loan Documents.
SECTION 9. CLOSING
9.1 THE CLOSING. Subject to the satisfaction of the conditions set forth in
Section hereof (or the waiver thereof by the Party entitled to waive that
condition), the closing of the Merger (the "Closing") shall take place at the
offices of the Stradling Yocca Carlson & Rauth P.C. located at 660 Newport
Center Drive, Suite 1600, Newport Beach, California 92660-6441 (or at such other
place or manner as the Parties may designate in writing) at 8:00 a.m. on April
10, 1998, or on such other date as the Parties hereto may designate in writing.
If Closing occurs, Heartland and Newco shall be deemed to accept the Founders
Schedule, the Company Schedule and bringdown certificates in full pursuant to
Sections and .
9.2 ITEMS/DOCUMENTS DELIVERED AND EXCHANGED AT THE CLOSING. At the Closing,
subject to the other terms and condition of this Agreement, the following items
and documents as well as any other appropriate items and documents specified
herein, properly executed, shall be delivered or have been delivered by and to
the appropriate Parties:
(i) The Company and each Founder or Key Employee, as the case may be,
shall deliver to Heartland and Newco and/or to each other, as the case may be,
as follows:
(a) an executed Preservation of Goodwill, Release and
Confidentiality Agreement pursuant to Section hereof;
(b) an executed Employment Agreement pursuant to Section
hereof;
(c) an executed Supplemental Real Estate Agreement pursuant
to Section hereof;
(d) the General Consents and Permits pursuant to Section
hereof, if applicable;
36
<PAGE>
(e) the Officer Certificate and Certificate of Good Standing
pursuant to Section hereof;
(f) the Closing Statement pursuant to Section ;
(g) the Company Closing Certificate pursuant to Section (iv);
(h) the Company/Founder Counsel Opinion pursuant to Section
(iv) hereof; and
(i) the Escrow Agreements pursuant to Section .
(ii) each Founder shall deliver to Heartland and Newco as follows:
(a) the stock certificates representing the Shares endorsed in
blank and/or accompanied by a separate stock assignment in favor of
Heartland and the Company; and
(b) his/her Company/Founder Counsel Opinion pursuant to
Section hereof, if applicable.
(iii) Heartland and/or Newco shall deliver to the Founders as follows:
(a) the Notes pursuant to Section hereof;
(b) the Guaranty pursuant to Section hereof;
(c) the Aggregate Cash Consideration pursuant to Section
hereof;
(d) Heartland and Newco Closing Certificate pursuant to
Section (ii) hereof;
(e) Heartland and Newco Counsel Opinion pursuant to Section
hereof;
(f) the Escrow Agreements pursuant to Section hereof; and
(g) the Creditors Agreement pursuant to Section hereof.
SECTION 10. POST CLOSING COVENANTS
10.1 POST-CLOSING MATTERS -- POSSESSION OF AND TITLE TO THE SHARES. At the
Closing and at any time or from time to time thereafter, each Founder shall, at
the request of Heartland, take any and all actions and execute and deliver any
and all documents as Heartland may
37
<PAGE>
reasonably request in order to: (i) consummate the merger; (ii) confirm and
perfect the title of Heartland in the outstanding stock of the Surviving
Corporation; and (iii) assist Heartland, at Heartland's expense, in exercising
all rights with respect thereto.
10.2 POST-CLOSING COMPANY EXCESS EXPENSES. Any Transaction Expenses incurred or
accrued by the Company prior to the Closing in connection with the execution and
consummation of the transactions contemplated hereby (except to the extent paid
by the Company and fully reflected on the Closing Statement consistent with
Sections or ) shall be the sole responsibility of the Founders and they shall
immediately pay the same in cash or other immediately available funds upon
demand by the Company, Heartland or Newco.
10.3 PRESS RELEASES. No Founder shall issue or cause the publication of any
press release or other public announcement with respect to the transactions
contemplated by this Agreement or the other Transaction Documents without the
consent of Heartland and Newco.
10.4 INSURANCE. Odilon Cardenas will obtain insurance coverage for a three (3)
year period for claims made after Closing relating to events occurring prior to
the Closing with respect to the Company. Such insurance will have similar terms
and conditions to the insurance coverage as of the Closing.
10.5 PAYMENT OF SALES, USE OR SIMILAR TAXES; PRORATIONS. All sales, use, or
transfer tax, or intangible, recordation, documentary stamp, charges, of any
nature whatsoever, applicable to or resulting from, the Merger contemplated by
this Agreement shall be borne by Newco and Heartland without reducing amounts
payable to Founders. All property taxes and special and general assessments
relating to any real property owned by the Company, if any, shall be prorated by
the Parties as of the Closing Date, and all such taxes and assessments
applicable to periods of time prior to the Closing Date shall be the sole
obligation, responsibility of the Founders, and shall be paid by the Founders.
All such taxes and assessments applicable to periods following the Closing Date
shall be the sole obligation, responsibility and expense of the Surviving
Corporation, with no claim thereto against Founders.
SECTION 11. REMEDIES
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Founders, the Company, Heartland and Newco contained in
Sections , , and hereof and/or in any other certificate delivered by such
Parties at or in connection with this Agreement or any other Transaction
Document (excluding certificates executed by the Company under the Loan
Documents) shall survive the Closing (without regard to any investigation made
by any other Parties) and continue in full force and effect until three (3)
years from the Closing; provided, however, that, the representations and
warranties in Section (Environmental Matters) shall survive Closing and continue
in full force and effect until five (5) years from the Closing, and the
representations and warranties in Sections (Founders Representations) excluding
subparagraph "xiv", (Organization,
38
<PAGE>
Qualifications and Corporate Power), (Authorization of Agreements, Etc.),
(Validity), (Authorized Capital Stock), (Taxes), (Compliance With Law),
(Governmental Authorization and Regulations), (Governmental Approvals),
(Brokers) and (Real Property) shall survive the Closing and continue in full
force and effect until the expiration of the applicable statute of limitations.
Notwithstanding the foregoing, any representation or warranty in respect of
which indemnity may be sought shall survive the time at which it would otherwise
terminate if notice given in good faith of the specific breach or inaccuracy
thereof giving rise to such indemnity may be sought, prior to such time. After
the Closing, the sole and exclusive remedy of any Party for any cause of action
for breach of any such representation or warranty or covenant set forth in
Sections ,
or or elsewhere in this Agreement or certificates or agreements designated
above shall be the indemnification provisions set forth in this Section .
11.2 INDEMNIFICATION OBLIGATIONS OF THE FOUNDERS.
(i) For purposes of this Agreement, the term "Claims" when used with
respect to a person or entity shall mean all claims, demands, losses, costs,
expenses, obligations, liabilities, actions, suits, damages, diminution in value
and deficiencies (net of any insurance proceeds actually received) including,
without limitation, interest and penalties, attorneys fees and costs and all
amounts paid in settlement of any claim, action or suit.
(ii) Each Founder, jointly and severally, agrees to indemnify and hold
Heartland, Newco and the Company, their respective affiliates and their
officers, directors and shareholders, as the case may be, harmless against and
in respect of any and all Claims which may be asserted against Heartland, Newco
or the Company or which Heartland, Newco or the Company shall incur or suffer
which arise out of: (a) the nonfulfillment of any material agreement, covenant
or obligation of such Founder to be performed under this Agreement or any other
Transaction Document to which such Founder is a Party; (b) the nonfulfillment of
any material agreement, covenant or obligation of the Company to be performed at
or prior to Closing under this Agreement; (c) the nonfulfillment of any material
agreement, covenant or obligation of the Co-Trustee of the Cardenas Family Trust
to be performed in connection with the Supplemental Real Estate Agreement; (d)
any breach of any representation or warranty pursuant to Section hereof made by
such Founder and pursuant to Section hereof made by the Founders and/or the
Company and contained herein or in any certificate required to be delivered by
the Company pursuant to Sections , and (excluding in all cases the Loan
Documents), or any other Transaction Document or in any certificate required to
be delivered by the Company pursuant thereto in any material respect (excluding
any and all certificates delivered in connection with or pursuant to the Loan
Documents); (e) any and all claims in respect of any and all Taxes of the
Company (excluding claims relating to sales taxes, real or personal property
taxes, and payroll taxes all of which are accrued but not delinquent as of the
day before the Closing) for all periods (or portions thereof) ending on or prior
to the day before the Closing Date, including a taxable year of the Company that
is deemed to close on the day before the Closing Date pursuant to Section
hereof; and (f) any damages or losses suffered by the Company resulting from any
and all claims of the Company against Stradling Yocca Carlson & Rauth that have
39
<PAGE>
been released by the Founders on behalf of the Company pursuant to the
Engagement Letter and Fee Agreement: Waiver of Conflict of Interest letter from
Nick E. Yocca to the Founders dated March 3, 1998. The Founders shall have no
indemnification liability unless and only to the extent that Claims aggregate
more than One Hundred Fifty Thousand Dollars ($150,000) (provided the foregoing
limitations of this Section shall not apply to Claims arising from Section
(Authorized Capital Stock), Section (Taxes), Section (e) ("Tax Indemnity") or
Section (Transaction Expenses)) and are aggregately less than the amount that
has been paid and delivered to Founders in cash as Aggregate Consideration, net
of all disgorgeable amounts subject to trusts for benefit of the creditors of
the Company.
11.3 INDEMNIFICATION OBLIGATIONS OF HEARTLAND. In connection with this Agreement
and as a condition thereto, Heartland and Newco agree to indemnify and hold each
Founder and their successors, assigns or affiliates harmless against and in
respect of any and all Claims which may be asserted against such Founder or such
Founder shall incur or suffer which arise out of or relate to: (i) the
nonfulfillment of any material agreement, covenant or obligation of Heartland or
Newco to be performed in connection with this Agreement or any other Transaction
Document to which Heartland or Newco is a Party; (ii) any breach of any
representation or warranty made by Heartland or Newco and contained herein or in
any certificate delivered pursuant hereto or any other Transaction Document or
in any certificate delivered pursuant thereto in any material respect; and (iii)
any act or omission of the Company or Heartland or its agents or representatives
after the Closing, except with respect to Claims after the Closing that were
caused by or arose out of: (a) any unlawful act or omission of any Founder prior
to Closing; (b) any lease between the Company and the Founders and/or the
Cardenas Family Trust; and (c) any breach of the Founders' representations,
warranties and covenants under this Agreement at any time, and/or the Company's
representations, warranties, or covenants to be performed by the Company prior
to the Closing under this Agreement.
11.4 INDEMNIFIED CLAIMS.
(i) Subject to the special procedures for third party claims set forth
in item "ii" listed below, whenever any Claim shall arise for indemnification
hereunder, the Party or Parties seeking indemnification (in each such case, the
"Indemnified Party") shall notify the Party or Parties from whom indemnification
is being sought (in each such case, the "Indemnifying Party") of such claim in
writing promptly and in no case later than thirty (30) days after such
Indemnified Party has actual knowledge of the facts constituting the basis for
such claim. Each Indemnified Party shall also so notify the Indemnifying Party
promptly and in no case later than fifteen (15) days after the commencement of
any legal proceedings with respect to any such Claim. The failure to so notify
the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to any Indemnified Party to the extent the
Indemnifying Party is not prejudiced as a proximate result of such failure. Such
notice shall specify all facts known to such Indemnified Party giving rise to
the indemnification sought and the amount or an estimate of the amount of the
obligation or liability arising therefrom. Such notice shall also include
photocopies of all relevant communications received from third party claimants
and their attorneys. The right of such
40
<PAGE>
Indemnified Party to indemnification hereunder and the estimated amount thereof,
as set forth in such notice, shall be deemed agreed to by the Indemnifying Party
unless, within sixty (60) days after such notice is given, such Indemnified
Party is notified in writing that the Indemnifying Party disputes the right to
indemnification as set forth or estimated in such notice, in which case the
Parties shall endeavor to settle and compromise the dispute within thirty (30)
additional days. In the event the Parties hereto are unable to agree after said
thirty (30) day period, the Parties shall be entitled to pursue litigation
pursuant to Section
hereof.
(ii) In case any action or any Claim is brought by a Person: (a) the
Indemnified Party against whom the Claim is brought shall provide prompt written
notice thereof to the Indemnifying Party obligated to indemnify such Claim; and
(b) the Indemnifying Party shall, upon the demand and at the option of the
Indemnified Party assume the defense thereof (at the expense of the Indemnifying
Party) within thirty (30) days or at least prior to the time a response is due
in such case, which ever occurs first, or, alternatively upon the demand and at
the option of the Indemnified Party, pay to such Party or Parties all costs and
expenses, including attorneys' fees, incurred by such Party or Paries in
defending itself or themselves, provided that the Indemnifying Party shall be
entitled to jointly control such proceedings or participate with and be advised
fully by the Indemnified Party, provided, however, that in any proceeding
relating to a Tax liability for which the Founders are obligated to indemnify
Heartland and Newco hereunder, Founders shall control such proceeding. If a
Party or Parties become obligated to assume the defense of any such Claims
pursuant to the foregoing sentence, then, the Indemnified Party entitled to be
indemnified shall be entitled to participate in said defense (at its or their
own expense). All Parties shall cooperate reasonably with each other in the
defense of any Claim brought by a third party, including making available all
records reasonably necessary to the defense of such Claim. The Indemnifying
Party shall be entitled to reasonable approval of the settlement of any Claim
with respect to which such Party may be liable hereunder.
(iii) In the event Heartland and/or Newco has a Claim against one or
more Founders, Heartland and/or Newco may pursue the Claim against any such
Founder or all such Founders as Heartland and/or Newco shall determine in the
sole exercise of its discretion. In such an event, the Indemnifying Party or
Indemnifying Parties selected by Heartland and/or Newco shall promptly notify
the other Founders of such Claim and each of such Founders against whom
Heartland and/or Newco has such a Claim shall be entitled to participate in any
defense of such Claim as an Indemnifying Party pursuant to the terms of "ii"
immediately above. Under no circumstances shall a Founder be entitled to
contribution or indemnification from the Company arising from any Claim
hereunder by Heartland and/or Newco.
41
<PAGE>
11.5 CHARACTER, EFFECT AND PAYMENT OF INDEMNITY PAYMENTS.
(i) All amounts paid pursuant to this Section by a Party or Parties
(other than the Company) to another Party or Parties (other than the Company)
(other than interest payments) shall be treated by such Parties as an adjustment
to the consideration paid with respect to the portion of this Agreement or the
other Transaction Documents to which such indemnification payment (or portion
thereof) relates. If, contrary to the intent of the Parties as expressed in this
Agreement, any payment made pursuant to this Section is treated as taxable
income of the recipient, then the payor shall indemnify and hold harmless the
recipient from any net liability for taxes attributable to the receipt of such
payment. In determining the net liability for taxes of the Indemnified Party,
the Parties agree to take into account the deductibility by the recipient or its
affiliates of the item which gave rise to the indemnity payment. For purposes of
this Section, the Indemnified Party will be considered to be liable for tax in
respect of any payment treated as taxable income and any related deductible
expense at the highest marginal tax rate then in effect for corporations or
individuals, as the case may be, in the jurisdictions so characterizing the
payment for the year such payment is considered to be earned by the Indemnified
Party.
(ii) Each amount determined to be payable by an Indemnifying Party to
an Indemnified Party under the terms hereof ("Indemnity") shall be paid in cash
to the Indemnified Party within forty-five (45) days after the date on which the
amount of such Indemnity and liability therefor is finally determined in
accordance with the terms hereof. Any notice for Indemnity provided in
accordance with Section hereof shall contain an itemization of the damages,
expenses, costs and liabilities comprising the Indemnity, certified to be true
and correct by the Indemnified Party or its legal representative.
11.6 EQUITABLE RELIEF. Each Party agrees that the breach of any of their
material obligations under this Agreement including, without limitation, the
applicable provisions of Sections , , , and hereof, may cause another Party
irreparable injury for which it would have not adequate remedy at law, and that
such other Party shall be entitled to specific performance or preliminary or
other injunctive relief in addition to any and all remedies it may otherwise be
entitled to at law or in equity.
11.7 CUMULATIVE. No remedy made available to Heartland or Founders hereunder by
and of the provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
11.8 TAX MATTERS.
(i) Each of the Founders, Heartland and Newco agree to treat any
indemnity payment made pursuant to this Section as an adjustment to the
Aggregate Consideration for federal, state, local and foreign income tax
purposes.
42
<PAGE>
(ii) For federal income tax purposes, the taxable year of the Company
shall end as of the close of the day immediately preceding the Closing Date and,
with respect to all other Taxes, the Founders, Heartland and Newco will, unless
prohibited by applicable law, close the taxable period of the Company as of the
close of the day immediately preceding the Closing Date. Neither the Founders,
nor Heartland, nor Newco shall take any position inconsistent with the preceding
sentence on any Tax Return. In any case where applicable law does not permit the
Company to close its taxable year on the day immediately preceding the Closing
Date or in any case in which a Tax is assessed with respect to a taxable period
which includes the day immediately preceding the Closing Date (but does not
begin or end on that day), then Taxes, if any, attributable to the taxable
period of the Company beginning before and ending after the day immediately
preceding the Closing Date shall be allocated (i) to the Founders for the period
up to and including the day immediately preceding the Closing Date, and (ii) to
Heartland for the period subsequent to the day immediately preceding the Closing
Date. Any allocation of income or deductions required to determine any Taxes
attributable to any period beginning before and ending after the day immediately
preceding the Closing Date shall be prepared by Heartland and shall be made by
means of a closing of the books and records of the Company as of the close of
the day immediately preceding the Closing Date, provided that exemptions,
allowances or deductions that are calculated on an annual basis (including, but
not limited to, depreciation and amortization deductions) shall be allocated
between the period ending on the day immediately preceding the Closing Date and
the period after the day immediately preceding the Closing Date in proportion to
the number of days in each such period. Heartland shall provide the Founders
with a schedule showing the proposed computation of the allocation at least
thirty (30) days prior to the due date for filing a Tax Return which includes
the day immediately preceding Closing Date. Founders shall be entitled to cash
equal to the amount of any refund or credit for pre-Closing periods and any such
amount shall be payable by Heartland to Founders, other than a refund resulting
from carry backs of any Tax Item from a Post-Closing Taxable Period to a Pre-
Closing Taxable Period (which refund shall be the property of the Company). The
Founders and their representatives shall have the right to review such schedule
and related books and records, and Heartland and Founders shall attempt in good
faith mutually to resolve any disagreements regarding the determination of such
allocation. Any amount owing from Founders or Heartland under this Section shall
be paid no later than five (5) days prior to the filing of the underlying Tax
Return.
The Parties agree that it is their mutual intention that, for federal
and state income tax purposes, the Founders' receipt of the Aggregate
Consideration and the Notes shall be reported as a sale of the Shares, which are
a capital asset, and that the Parties shall not take a position inconsistent
with the foregoing on any Tax Return, except to the extent required under
applicable law or by controlling legal precedent.
(iii) Heartland, Newco and the Founders agree to furnish or cause to be
furnished to each other, and each at their own expense, as promptly as
practicable, such information (including access to books and records) and
assistance, including making employees available on a mutually convenient basis
to provide additional information and explanations of any material provided,
relating to the Company as is reasonably necessary for the filing of any
43
<PAGE>
Tax Return, for the preparation for any audit, and for the prosecution or
defense of any claim, suit or proceeding relating to any adjustment or proposed
adjustment with respect to Taxes. Heartland or the Company shall retain in its
possession, and shall provide the Founders reasonable access to (including the
right to make copies of), such supporting books and records and any other
materials that the Founders may specify with respect to Tax matters relating to
any taxable period ending on or prior to the Closing Date until the relevant
statute of limitations has expired. After such time, Heartland may dispose of
such material, provided that prior to such disposition Heartland shall give the
Founders a reasonable opportunity to take possession of such materials.
SECTION 12. TERMINATION
12.1 TERMINATION. This Agreement may be terminated and the transactions hereby
contemplated may be abandoned at any time prior to the Closing:
(i) by mutual consent of the Founders, Company, and Heartland;
(ii) by either the Company or the Founders if there shall have been a
material breach by Heartland or Newco of any representation, warranty, covenant
or agreement of Heartland or Newco, respectively, set forth in this Agreement,
which breach shall not have been cured, in the case of a representation or
warranty, prior to the date on which the Company's conditions to Closing (other
than the accuracy of the representation and warranty in question) would be
satisfied or, in the case of a covenant or agreement, within five (5) business
days following receipt by Heartland or Newco, as applicable, of notice of such
breach;
(iii) by Heartland or Newco if there shall have been a material breach
by the Company or the Founders of any representation, warranty, covenant or
agreement of the foregoing set forth in this Agreement, which breach shall not
have been cured, in the case of a representation or warranty, prior to the date
on which Heartland's or Newco's conditions to Closing (other than the accuracy
of the representation and warranty in question) would be satisfied or, in the
case of a covenant or agreement, within five (5) business days following receipt
by the Company and Founders of notice of such breach; or
(iv) by either Heartland, Newco, the Company or the Founders:
(a) if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued an
order, decree or ruling or taken any other action (which order, decree
or ruling the Parties hereto shall use their best efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order,
decree, ruling or other action shall have become final and
nonappealable; or
44
<PAGE>
(b) if the Closing shall not have occurred on or before April
10, 1998; provided, however, that the right to terminate this Agreement
pursuant to this Section 11 shall not be available to any Party whose
material breach of this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date.
12.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination and
abandonment of this Agreement prior to the Closing Date, written notice thereof
shall forthwith be given to the other Parties to this Agreement and this
Agreement shall terminate, without further action by any of the Parties hereto.
If this Agreement is terminated prior to the Closing Date as provided herein:
(i) the Founders shall return and refund the Aggregate Consideration to
Newco and Heartland, and Newco shall return to the Founders the stock
certificates received pursuant to Section or following the Merger, shall assign
the stock of the Surviving Corporation to Founders.
(ii) upon request therefor, each Party will redeliver all documents,
work papers and other material of any other Party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof, to
the Party furnishing the same and the Parties will continue to be bound by the
provisions of Section and any nondisclosure or confidentiality agreement
previously entered into by them in accordance with their terms; and
(iii) no Party hereto shall have any liability or further obligation to
any other Party to this Agreement resulting from such termination except (i) the
provision of this Section
shall remain in full force and effect and (ii) no Party waives any claim or
right against a breaching Party to the extent that such termination results from
the material breach by a Party hereto of Sections (Brokers), (Confidentiality),
(Public Announcements) and/or (No Other Bids) of this Agreement.
SECTION 13. MISCELLANEOUS
13.1 BINDING EFFECT. All representations, covenants and agreements contained in
this Agreement by or on behalf of any of the Parties shall bind and inure to the
benefit of the respective successors and assigns of the Parties (including,
without limitation, transferees of any of the Shares) whether so expressed or
not.
13.2 NOTICES. All notices to be provided pursuant to this Agreement shall be
given in writing and shall be effective when either served by personal delivery
or upon receipt if sent via United States mail, return receipt requested,
postage prepaid, by facsimile transmission with confirmation in writing or
overnight courier service, in each case to the Party at the addresses listed
below:
45
<PAGE>
(i) if to the Company:
Solder Station-One, Inc.
2231 West Cape Cod Way
Santa Ana, California 92703
Attn: President
Fax: (312) 663-9397
(ii) if to Founders:
Odilon Cardenas
Fax: (714) 558-1393
Address to be provided in writing concurrently with the
execution of this Agreement.
with a copy to:
Stradling, Yocca, Carlson & Rauth P.C.
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Fax: (714) 725-4100
Attn: Nicholas J. Yocca
(iii) if to Heartland, Newco or the Surviving Corporation:
Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60061
Attn: Lawrence Adelson
Vice President, General Counsel
Fax: (312) 663-9397
with a copy to:
Weil, Gotshal & Manges LLP
2882 Sand Hill Road, Suite 280
Menlo Park, California 94025
Attn: Simeon Gold, Esq.
Patrick P. Nguyen, Esq.
Fax: (650) 854-3713
The address to which notice is to be given hereunder may be changed from time to
time by the Parties entitled to notice by notice given as provided herein.
46
<PAGE>
13.3 GOVERNING LAW; VENUE. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to any
principles of choice of law or conflicts of law. Each Party hereby irrevocably
consents and submits to the jurisdiction of the United States District Court for
the State of California or a state court of the State of California sitting in
Los Angeles County in any action or proceeding arising out of or relating to
this Agreement, the other Transaction Documents or the consummation of the
transactions contemplated herein and therein, and each Party hereby irrevocably
agrees that all claims in respect of any such action or proceeding may be heard
and determined in either such court. Each Party hereby irrevocably waives any
objection which such Party now or hereafter may have to the laying of venue for
any action or proceeding arising out of or relating to this Agreement on the
other Transaction Documents brought in the United States District Court for the
State of California or a state court of the State of California sitting in Los
Angeles County and any objection on the grounds that any such action or
proceeding in either of such courts has been brought in an inconvenient forum.
13.4 ASSIGNABILITY. No Founder shall assign, transfer or delegate any rights or
obligations under this Agreement, in whole or in part, without the written
consent of Heartland.
13.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. A facsimile copy of an executed
signature page shall be deemed an original.
13.6 AMENDMENTS. Except as otherwise provided herein, this Agreement may not be
amended or modified, and no provisions hereof may be waived, without the written
consent of: (i) Heartland; and (ii) the Company; provided, however: (1) that to
the extent any amendment, modification or waiver applies by its terms to a
Founder in any prejudicial manner, such Founder must also approve such
amendment, modification or waiver; and (2) that any Party may waive any of its
rights or other Parties' obligations hereunder as they apply exclusively to such
Party without obtaining the consent of any other Party.
13.7 SEVERABILITY. If any provision of this Agreement shall be held by a court
of competent jurisdiction to be contrary to law or public policy or otherwise
unenforceable: (i) the remaining provisions of this Agreement and any portions
thereof shall remain in full force and effect; (ii) the affected provision shall
be enforced to the fullest extent of the Parties' stated intent consistent with
the law and public policy; and (iii) the Parties shall negotiate, in good faith,
a substitute, valid and enforceable provision which most nearly reflects the
Parties' stated intention as set forth in such affected provision.
13.8 CONSENTS. Any consent or approval permitted under this Agreement may be
made by the Party entitled to give its consent or approval in its sole
discretion.
13.9 WAIVER. No delay or omission by either Party hereto to exercise any right
or power hereunder shall impair such right or power or be construed to be a
waiver thereof. A waiver by any of the Parties hereto of any of the covenants to
be performed by any other Party or
47
<PAGE>
any breach thereof shall not be effective except pursuant to a written
instrument signed by the Party or Parties warning compliance, and shall not be
construed to be a waiver of any succeeding breach thereof or of any other
covenant herein contained.
13.10 FURTHER ASSURANCES. The Parties agree to execute, acknowledge and deliver
all such further instruments, and to do all such other acts, as may be necessary
or appropriate in order to carry out the intent and purpose of this Agreement
and the other Transaction Documents.
13.11 ATTORNEYS' FEES. If any Party to this Agreement brings an action against
another Party to enforce its rights under this Agreement, the prevailing Party
shall be entitled to recover its costs and expenses, including, without
limitation, attorneys' fees and costs, incurred in connection with such action,
including any appeal of such action. In the event that a Party brings such an
action against more than one of the other Parties to this Agreement, any
attorneys' fees awarded against such other Parties shall be apportioned among
such other Parties as determined by the prevailing Party.
13.12 THIRD PARTY BENEFICIARIES. Except as otherwise provided herein, this
Agreement is not intended to confer a third party beneficiary status or right of
action upon any person or entity other than the Parties hereto in any manner
whatsoever.
13.13 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are
for convenience only and are not to be considered in construing or interpreting
any term or provision of this Agreement.
13.14 PRESUMPTIONS. In construing the terms of this Agreement, no presumption
shall operate in favor or against any Party as a result of its or its counsel's
role in drafting the terms and provisions hereof.
13.15 EFFECT OF AGREEMENT. The terms and provisions of this Agreement shall
supersede any and all inconsistent or conflicting provisions of the other
Transaction Documents.
13.16 ENTIRE AGREEMENT. This Agreement and the other Transaction Documents
constitute the sole and entire agreement of the Parties with respect to the
subject matter hereof and supersede all prior written or oral discussions or
agreements with respect thereto. The Loan Documents executed by or for the
Company shall not whatsoever narrow, amplify, enlarge or extend any obligation
under this Agreement of Founders or the Company.
IN WITNESS WHEREOF, the Company, the Founders and Heartland have executed this
Agreement as of the date first above written.
48
<PAGE>
"COMPANY" "HEARTLAND"
SOLDER STATION-ONE, INC., HEARTLAND TECHNOLOGY, INC.,
a California corporation a Delaware corporation
By: /s/ Odilon Cardenas By: /s/ Edwin Jacobson
Name: Odilon Cardenas Name: Edwin Jacobson
Title: President Title: President
"FOUNDERS" "NEWCO"
SS ACQUISITION CORPORATION,
/s/ Odilon Cardenas a California corporation
- ---------------------------------
Odilon Cardenas By: /s/ Edwin Jacobson
/s/ Enedina Cardenas Name: Edwin Jacobson
- ---------------------------------
Enedina Cardenas Title: President
49
EXHIBIT 99.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH NOTE UNDER SUCH ACT OR SUCH
LAWS, OR UNLESS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH ACT OR SUCH LAWS.
PROMISSORY NOTE
(this "Note")
U.S. $1,700,000.00 APRIL 10, 1998
FOR VALUE RECEIVED, SOLDER STATION-ONE, INC., a California corporation,
and SS ACQUISITION CORPORATION, a California corporation (collectively,
"Borrower"), each jointly and severally hereby promises to pay to the order of
ODILON CARDENAS AND ENEDINA CARDENAS ("Holders"), individuals residing in
California, the principal amount of U.S. One Million Seven Hundred Thousand
Dollars (U.S. $1,700,000.00) (the "Principal"), together with the interest on
all unpaid principal or other obligations hereunder, pursuant to the terms and
conditions hereof.
1. Payment of Principal. The Principal shall be due and payable semiannually in
four (4) installments, three (3) of which shall be Four Hundred Thousand Dollars
($400,000.00), and the last of which shall be Five Hundred Thousand Dollars
($500,000.00). The first installment shall be due and payable eighteen (18)
months from the Closing Date (as defined in the Agreement and Plan of
Reorganization dated as of April 10, 1998 among Solder Station-One, Inc.,
Holders, Heartland Technology, Inc. ("Heartland"), and SS Acquisition
Corporation (the "Purchase Agreement")), and each subsequent installment shall
be due and payable every six (6) months after the initial payment. Borrower may,
at any time and from time to time, without premium or penalty, prepay all or any
portion of the outstanding Principal provided that partial prepayments shall be
in the aggregate amount of not less than Five Thousand Dollars ($5,000.00) or
whole multiples in excess thereof.
2. Interest. Interest (computed on the basis of a 360-day year of twelve 30-day
months) shall accrue at the rate of eight percent (8%) per annum from the date
hereof. Accrued interest shall be paid on the last day of each calendar quarter
in arrears commencing on June 30, 1998.
3. Payment Methods. All payments of the Principal and interest hereunder shall
be payable in lawful money of the United States of America to Holders at the
location
<PAGE>
designated from time to time by Holders pursuant to Section 11 hereof in
immediately available funds by wire transfer to a bank account designated in
writing by Holders to Borrower on or within ten (10) days prior to the due date.
If any payment of Principal or interest on this Note shall become due on a
Saturday, Sunday or a bank or legal holiday, such payment shall be made on the
next succeeding business day.
4. Events of Defaults. The occurrence of any of the following shall constitute
an "Event of Default" under this Note:
(a) Borrower defaults in payment of any Principal or interest accrued
thereon, when due and payable pursuant to the terms hereof and such defaults
continue for a period thirty (30) days thereafter without cure; or
(b) Borrower, pursuant to the United States Bankruptcy Code or any
state or foreign bankruptcy or insolvency law: (1) commences a voluntary case,
consents to the entry of an order for relief against it in an involuntary case
or to the appointment of a trustee, receiver or custodian for all or
substantially all of its assets or makes a general assignment for the benefit of
its creditors; or (2) an involuntary case is commenced against Borrower in a
court of competent jurisdiction and such case is not dismissed within ninety
(90) days; or
(c) Borrower materially defaults in the performance of any other
covenant, term or provision of this Note, or any representation made in this
Note is or becomes untrue, and such default continues for a period of thirty
(30) days after receipt by Borrower of written notice from Holders without cure;
or
(d) Borrower fails to maintain a Debt Service Coverage Ratio (within
the meaning assigned to that term in the Loan and Security Agreement dated April
10, 1998 among LASALLE NATIONAL BANK and Borrower (the "Loan Agreement") of
greater than 1.35:1 or such greater ratio as may be required under any other
loan agreement of the Borrower in effect from time to time; provided that any
such failure causes Borrower's failure to make a payment under this Note when
such payment becomes due; or
(e) The declaration of an "Event of Default" (within the meaning
assigned to that term in the Loan Agreement) or an event of default under any
other loan agreement of the Borrower in effect from time to time, subject in
each case to any applicable grace period; provided that such an Event of Default
under the Loan Agreement or such event of default under such other loan
agreement causes Borrower's failure to make a payment under this Note when such
payment becomes due or causes such payment to be disgorged.
(f) Borrower or any creditor or any shareholder of Borrower, pursuant
to Chapter 5 of the California General Corporation Law or any statute
prohibiting distributions to shareholders or fraudulent conveyances, commences
an action against Holder; provided that if such action is commenced against
Holder by a creditor, it shall not constitute a default unless and until
Borrower shall have failed to defend such action or shall have not prevailed in
defending such action.
2
<PAGE>
(g) Borrower fails to perform any of its material obligations under the
Agreement Regarding Payment of Creditors dated April 10, 1998 among Borrower,
Heartland Technology, Inc., Solder Station-One, Inc., Odilon Cardenas and
Enedina A. Cardenas, and a creditor commences an action against Borrower in a
court of competent jurisdiction arising out of such Borrower's non-performance
and Heartland fails to cure such non-performance within ninety (90) days after
its receipt of written notice of such action; provided that such action shall
not constitute a default unless and until Borrower shall have failed to defend
such action or shall have not prevailed in defending such action.
5. Consequences of Default. Upon the occurrence of an Event of Default and such
Event of Default continues for thirty (30) days after Borrower's receipt of
written notice without cure, the entire amount then owing on this Note shall, at
the option of, and upon written notice from, Holders and, if not already due and
payable, become immediately due and payable. Upon the occurrence of an Event of
Default specified in Section 4(b), the entire amount then owing on this Note
shall become immediately due and payable without the necessity of any action by
Holders.
6. Nature of Note. This Note is an absolute and unconditional obligation of
Borrower made in connection with the Purchase Agreement. This Note is an
unsecured promissory note to be issued in favor of Holders by Borrower as
referred to in the Purchase Agreement. This Note is not subject to any
counterclaims, defenses, or offset now existing or hereafter arising based on
the Purchase Agreement or any Transaction Documents or otherwise.
7. Subordination. Holders acknowledge that this Note is subordinated to the Loan
Agreement pursuant to the Subordination Agreement dated April 10, 1998 among
LaSalle National Bank, Odilon Cardenas and Enedina Cardenas (the "Subordination
Agreement"). The parties hereto acknowledge that this Note is guaranteed
pursuant to the terms of the Guaranty dated as of April 10, 1998 between Holders
and Heartland (the "Guaranty"). Holders also acknowledge that the Guaranty is
subordinated to certain notes that Guarantor has made in favor of Peter
VanHeusden pursuant to the terms of the Guaranty.
8. Waiver. To the extent permitted by law, Borrower hereby waives demand,
presentment, protest and notice of non-payment is hereby waived by Borrower. No
waiver of any right or remedy shall be effective unless made in writing and
signed by the waiving party, nor shall a waiver on one or more occasions be
construed as a waiver of any such right or remedy or any other right or remedy
on any future occasion.
9. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to provisions
thereof regarding conflict of laws. Each party hereby consents and submits to
the personal jurisdiction of the United States and state courts of the State of
California, and expressly agrees that the venue for any action arising under
this Note shall be the appropriate United States federal court sitting within
the Central District of California and the state court sitting in Orange County.
Each party hereby irrevocably waives any objection which such party now or
hereafter may have to the laying of venue for any action or proceeding arising
out of or relating to this
3
<PAGE>
Note brought in the United States District Court for the Central District
sitting in Orange County or a state court of the State of California sitting in
Orange County and any objection on the grounds that any such action or
proceeding in either of such courts has been brought in an inconvenient forum.
The Borrower and Heartland agree that this Note is made, delivered and to be
performed in Orange County, California.
10. Assignment. Holders may not assign any of its rights hereunder without the
prior written consent of the Borrower. This Note shall be binding and inure to
the benefit of the Borrower, the Holder and their respective successors and
assigns.
11. Amendment and Modification. This Note shall not be amended or modified
without the prior written approval of the parties hereto.
12. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
13. Notice. Any notice or other communication (including payment) required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or upon receipt if deposited in the United
States mail for mailing by registered, certified or express mail with return
receipt requested, postage prepaid, or by an internationally recognized
overnight courier, to the addresses as follows:
Borrower: Solder Station-One, Inc.
2231 W. Cape Cod Way
Santa Ana, California 92703
Attn: Chief Executive Officer
with a copy to: Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60061
Attn: Lawrence Adelson,
Vice President & General Counsel
Holders: Odilon Cardenas
pursuant to written designation provided
upon execution hereof
with a copy to: Stradling, Yocca, Carlson & Rauth P.C.
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attn: Nicholas J. Yocca
4
<PAGE>
Each of the above addressees may change its address for purposes of this Section
by giving the other addressee notice in conformity with this paragraph of such
new address.
14. Covenants.
(a) Affirmative Covenants. So long as the Note shall be outstanding,
the Borrower shall, and will cause each subsidiary to, at all times in good
faith:
(i) assist in carrying out all those terms of the Note;
(ii) cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses and permits
from government agencies necessary for the conduct of its business except where
the failure to so maintain, preserve or renew would not have a material adverse
effect on its business or financial condition;
(iii) pay and discharge, when payable, all taxes, assessments
and governmental charges imposed upon its properties or upon the income or
profits therefrom (in each before the same become delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies which
if unpaid might by law become a lien upon any of its property and would have a
material adverse effect on its business and financial conditions, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves, determined in accordance with generally
accepted accounting principles, have been set aside on its books with respect
thereto;
(iv) comply with all applicable laws, rules and regulations of
all foreign and domestic governmental and regulatory authorities, the violation
of which would have a material adverse effect upon its businesses or financial
condition;
(v) continue in force, with good and responsible insurance
companies, adequate insurance covering risks of such types and in such amounts
as are customary for other companies engaged in similar lines of business, the
failure to so continue would have a material adverse effect on its business and
financial conditions;
(vi) maintain a system of accounting established and
administered in accordance with GAAP consistently followed, and set aside on its
books and cause each of its operating Subsidiaries to set aside on its books all
such proper reserves as shall be required by GAAP;
(vii) maintain a Debt Service Coverage Ratio (within the
meaning assigned to that term in the Loan Agreement) of not less than 1.35:1 or
such greater ratio as may be required under any other loan agreement of the
Borrower or a subsidiary in effect from time to time to the extent the failure
to so maintain causes Borrower to fail to make payments under this Note when
such payments become due;
5
<PAGE>
(viii) indemnify, defend and hold harmless Holders for any
claim, demand, obligation, loss, cost, expense, lien or judgment, arising from
the Subordination Agreement except to the extent that either Odilon Cardenas or
Enedina Cardenas' knowing and willful non-compliance with the Subordination
Agreement after specific notice and opportunity to cure within ninety (90) days;
and
(ix) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its business may be
properly conducted at all times, all to the extent consistent with ordinary past
practices.
(b) Negative Covenants. Until such time as all principal and interests
under the Note has been paid in full, the Borrower shall not, and will not
permit any subsidiary to, without the prior written consent of the Founder,
which consent will not be unreasonably withheld:
(i) transfer or otherwise convey in any transaction or series
of related transactions all or substantially all of its properties (or any
subsidiary if such conveyance would involve a substantial portion of the assets
of the subsidiary) and assets to any other person, or consolidate with or merge
into any other corporation or entity or permit any corporation or entity to
consolidate with or merge into it, except with or into a wholly-owned subsidiary
or where the successor corporation will immediately thereafter have a net worth
of at least the greater of Five Million Dollars ($5,000,000.00) or the net worth
of Borrower immediately prior to such transaction and expressly assumes the
obligations under this Note; and
(ii) enter into any agreement which prohibits Borrower from
making the payment of the Note.
Dated as of the date first written above.
SOLDER STATION-ONE, INC.,
a California corporation
By: /s/ Odilon Cardenas
Its: President
By:
Its:
6
<PAGE>
SS ACQUISITION CORPORATION
By: /s/ Edwin Jacobson
Its: President
By: /s/ Lawrence Adelson
Its: Vice President
ACCEPTED:
/s/ Odilon Cardenas
Odilon Cardenas
/s/ Enedina Cardenas
Enedina Cardenas
7
SVFS01...:\65\63765\0003\1266\NOTN227L.18K
EXHIBIT 99.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH NOTE UNDER SUCH ACT OR SUCH
LAWS, OR UNLESS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH ACT OR SUCH LAWS.
PROMISSORY NOTE
(this "Note")
U.S. $400,000.00 APRIL 10, 1998
FOR VALUE RECEIVED, SOLDER STATION-ONE, INC., a California corporation
(the "Company"), and SS ACQUISITION CORPORATION, a California corporation
(collectively, "Borrower"), each jointly and severally hereby promises to pay to
the order of ODILON CARDENAS AND ENEDINA CARDENAS ("Holders"), individuals
residing in California, the principal amount of U.S. Four Hundred Thousand
Dollars (U.S. $400,000.00) (the "Principal"), pursuant to the terms and
conditions hereof.
1. Payment of Principal. Subject to the terms and conditions hereof, the
Principal shall be due and payable if, and only if, on the date that is: (i) one
(1) year from the Closing Date (as defined in the Agreement and Plan of
Reorganization dated as of April 10, 1998 among Solder Station-One, Inc.,
Holders, Heartland Technology, Inc. ("Heartland"), and SS Acquisition
Corporation (the "Purchase Agreement")), the Surviving Corporation's (as that
term is defined in the Purchase Agreement) Operating Income (as defined below)
for calendar year 1998 is equal to or exceeds One Million Five Hundred Nine
Thousand Dollars ($1,509,000.00); or (ii) three (3) years from the Closing Date,
the Company's aggregate Operating Income for calendar years 1998, 1999 and 2000
is equal to or greater than Six Million Twenty-Eight Thousand Dollars
($6,028,000.00). If the Company's Operating Income in calendar year 1998 is less
than One Million Five Hundred Nine Thousand Dollars ($1,509,000.00) and the
Company's aggregate Operating Income for calendar years 1998, 1999 and 2000 is
less than Six Million Twenty-Eight Thousand Dollars ($6,028,000.00), then the
Principal shall not become due and payable and this Note shall automatically
terminate. Operating Income shall be calculated using the income and expense
items incurred by Borrower in the ordinary course of business, which for
illustration are the items included on the income statement attached hereto as
Exhibit A, and shall not include any items derived from or resulting from any
future acquisition of a separate business (but shall include items resulting
from acquisitions of equipment to enhance or expand Borrower's business), any
expenses incurred in connection with the Purchase Agreement and the
<PAGE>
transactions contemplated thereby, and any management or similar fees which
Heartland may charge to the Company. Borrower may, at any time and from time to
time, without premium or penalty, prepay all or any portion of the outstanding
Principal provided that partial prepayments shall be in the aggregate amount of
not less than Five Thousand Dollars ($5,000.00) or whole multiples in excess
thereof.
3. Payment Methods. All payments of the Principal hereunder shall be payable in
lawful money of the United States of America to Holders at the location
designated from time to time by Holders pursuant to Section 11 hereof in
immediately available funds by wire transfer to a bank account designated in
writing by Holders to Borrower on or within ten (10) days prior to the due date.
If any payment of Principal or interest on this Note shall become due on a
Saturday, Sunday or a bank or legal holiday, such payment shall be made on the
next succeeding business day.
4. Events of Defaults. To the extent that the conditions set forth in Sections
1(i) or 1(ii) are satisfied, the occurrence of any of the following shall
constitute an "Event of Default" under this Note:
(a) Borrower defaults in payment of any Principal or interest accrued
thereon, when due and payable pursuant to the terms hereof and such defaults
continue for a period thirty (30) days thereafter without cure; or
(b) Borrower, pursuant to the United States Bankruptcy Code or any
state or foreign bankruptcy or insolvency law: (1) commences a voluntary case,
consents to the entry of an order for relief against it in an involuntary case
or to the appointment of a trustee, receiver or custodian for all or
substantially all of its assets or makes a general assignment for the benefit of
its creditors; or (2) an involuntary case is commenced against Borrower in a
court of competent jurisdiction and such case is not dismissed within ninety
(90) days; or
(c) Borrower materially defaults in the performance of any other
covenant, term or provision of this Note, or any representation made in this
Note is or becomes untrue, and such default continues for a period of thirty
(30) days after receipt by Borrower of written notice from Holders without cure;
or
(d) Borrower fails to maintain a Debt Service Coverage Ratio (within
the meaning assigned to that term in the Loan and Security Agreement dated April
10, 1998 among LASALLE NATIONAL BANK and Borrower (the "Loan Agreement") of
greater than 1.35:1 or such greater ratio as may be required under any other
loan agreement of the Borrower in effect from time to time; provided that any
such failure causes Borrower's failure to make a payment under this Note when
such payment becomes due; or
(e) The declaration of an "Event of Default" (within the meaning
assigned to that term in the Loan Agreement) or an event of default under any
other loan agreement of the Borrower in effect from time to time, subject in
each case to any applicable grace period; provided that such an Event of Default
under the Loan Agreement or such event of default
2
<PAGE>
under such other loan agreement causes Borrower's failure to make a payment
under this Note when such payment becomes due or causes such payment to be
disgorged.
(f) Borrower or any creditor or any shareholder of Borrower, pursuant
to Chapter 5 of the California General Corporation Law or any statute
prohibiting distributions to shareholders or fraudulent conveyances, commences
an action against Holder; provided that if such action is commenced against
Holder by a creditor, it shall not constitute a default unless and until
Borrower shall have failed to defend such action or shall have not prevailed in
defending such action.
(g) Borrower fails to perform any of its material obligations under the
Agreement Regarding Payment of Creditors dated April 10, 1998 among Borrower,
Heartland Technology, Inc., Solder Station-One, Inc., Odilon Cardenas and
Enedina A. Cardenas, and a creditor commences an action against Borrower in a
court of competent jurisdiction arising out of such Borrower's non-performance
and Heartland and/or Borrower fails to cure such non-performance within ninety
(90) days after its receipt of written notice of such action; provided that such
action shall not constitute a default unless and until Borrower shall have
failed to defend such action or shall have not prevailed in defending such
action.
5. Consequences of Default. Upon the occurrence of an Event of Default and such
Event of Default continues for thirty (30) days after Borrower's receipt of
written notice without cure, the entire amount then owing on this Note shall, at
the option of, and upon written notice from, Holders and, if not already due and
payable, become immediately due and payable. Upon the occurrence of an Event of
Default specified in Section 4(b), the entire amount then owing on this Note
shall become immediately due and payable without the necessity of any action by
Holders.
6. Nature of Note. Other than the condition set forth in Section 1, this Note is
an absolute and unconditional obligation of Borrower made in connection with the
Purchase Agreement. This Note is an unsecured promissory note to be issued in
favor of Holders by Borrower as referred to in the Purchase Agreement. Except as
otherwise contemplated in this Note, this Note is not subject to any
counterclaims, defenses, or offset now existing or hereafter arising based on
the Purchase Agreement or any Transaction Documents or otherwise.
7. Subordination. Holders acknowledge that this Note is subordinated to the Loan
Agreement pursuant to the Subordination Agreement dated April 10, 1998 among
LaSalle National Bank, Odilon Cardenas and Enedina Cardenas (the "Subordination
Agreement"). The parties hereto acknowledge that this Note is guaranteed
pursuant to the terms of the Guaranty dated as of April 10, 1998 between Holders
and Heartland (the "Guaranty"). Holders also acknowledge that the Guaranty is
subordinated to certain notes that Guarantor has made in favor of Peter
VanHeusden pursuant to the terms of the Guaranty.
8. Waiver. To the extent permitted by law, Borrower hereby waives demand,
presentment, protest and notice of non-payment is hereby waived by Borrower. No
waiver
3
<PAGE>
of any right or remedy shall be effective unless made in writing and signed by
the waiving party, nor shall a waiver on one or more occasions be construed as a
waiver of any such right or remedy or any other right or remedy on any future
occasion.
9. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to provisions
thereof regarding conflict of laws. Each party hereby consents and submits to
the personal jurisdiction of the United States and state courts of the State of
California, and expressly agrees that the venue for any action arising under
this Note shall be the appropriate United States federal court sitting within
the Central District of California and the state court sitting in Orange County.
Each party hereby irrevocably waives any objection which such party now or
hereafter may have to the laying of venue for any action or proceeding arising
out of or relating to this Note brought in the United States District Court for
the Central District sitting in Orange County or a state court of the State of
California sitting in Orange County and any objection on the grounds that any
such action or proceeding in either of such courts has been brought in an
inconvenient forum. The Borrower and Heartland agree that this Note is made,
delivered and to be performed in Orange County, California.
10. Assignment. Holders may not assign any of its rights hereunder without the
prior written consent of the Borrower. This Note shall be binding and inure to
the benefit of the Borrower, the Holder and their respective successors and
assigns.
11. Amendment and Modification. This Note shall not be amended or modified
without the prior written approval of the parties hereto.
12. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
13. Notice. Any notice or other communication (including payment) required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or upon receipt if deposited in the United
States mail for mailing by registered, certified or express mail with return
receipt requested, postage prepaid, or by an internationally recognized
overnight courier, or by facsimile with confirmation by one of the foregoing
methods to the addresses as follows:
Borrower: Solder Station-One, Inc.
2231 W. Cape Cod Way
Santa Ana, California 92703
Attn: Chief Executive Officer
with a copy to: Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
4
<PAGE>
Chicago, Illinois 60061
Attn: Lawrence Adelson,
Vice President & General Counsel
Holders: Odilon Cardenas
pursuant to written designation provided
upon execution hereof
with a copy to: Stradling, Yocca, Carlson & Rauth P.C.
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660-6441
Attn: Nicholas J. Yocca
Each of the above addressees may change its address for purposes of this Section
by giving the other addressee notice in conformity with this paragraph of such
new address.
14. Covenants.
(a) Affirmative Covenants. So long as the Note shall be outstanding,
the Borrower shall, and will cause each subsidiary to, at all times in good
faith:
(i) assist in carrying out all those terms of the Note;
(ii) cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses and permits
from government agencies necessary for the conduct of its business except where
the failure to so maintain, preserve or renew would not have a material adverse
effect on its business or financial condition;
(iii) pay and discharge, when payable, all taxes, assessments
and governmental charges imposed upon its properties or upon the income or
profits therefrom (in each before the same become delinquent and before
penalties accrue thereon) and all claims for labor, materials or supplies which
if unpaid might by law become a lien upon any of its property and would have a
material adverse effect on its business and financial conditions, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves, determined in accordance with generally
accepted accounting principles, have been set aside on its books with respect
thereto;
(iv) comply with all applicable laws, rules and regulations of
all foreign and domestic governmental and regulatory authorities, the violation
of which would have a material adverse effect upon its businesses or financial
condition;
(v) continue in force, with good and responsible insurance
companies, adequate insurance covering risks of such types and in such amounts
as are customary for other companies engaged in similar lines of business, the
failure to so continue would have a material adverse effect on its business and
financial conditions;
5
<PAGE>
(vi) maintain a system of accounting established and
administered in accordance with GAAP consistently followed, and set aside on its
books and cause each of its operating Subsidiaries to set aside on its books all
such proper reserves as shall be required by GAAP;
(vii) maintain a Debt Service Coverage Ratio (within the
meaning assigned to that term in the Loan Agreement) of not less than 1.35:1 or
such greater ratio as may be required under any other loan agreement of the
Borrower or a subsidiary in effect from time to time to the extent the failure
to so maintain causes Borrower to fail to make payments under this Note when
such payments become due;
(viii) indemnify, defend and hold harmless Holders for any
claim, demand, obligation, loss, cost, expense, lien or judgment, arising from
the Subordination Agreement except to the extent that either Odilon Cardenas or
Enedina Cardenas' knowing and willful non-compliance with the Subordination
Agreement after specific notice and opportunity to cure within ninety (90) days;
and
(ix) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its business may be
properly conducted at all times, all to the extent consistent with ordinary past
practices.
(b) Negative Covenants. Until such time as all principal and interests
under the Note has been paid in full or this Note has been terminated, the
Borrower shall not, and will not permit any subsidiary to, without the prior
written consent of the Founder, which consent will not be unreasonably withheld:
(i) transfer or otherwise convey in any transaction or series
of related transactions all or substantially all of its properties (or any
subsidiary if such conveyance would involve a substantial portion of the assets
of the subsidiary) and assets to any other person, or consolidate with or merge
into any other corporation or entity or permit any corporation or entity to
consolidate with or merge into it, except with or into a wholly-owned subsidiary
or where the successor corporation will immediately thereafter have a net worth
of at least the greater of Five Million Dollars ($5,000,000.00) or the net worth
of Borrower immediately prior to such transaction and expressly assumes the
obligations under this Note; and
(ii) enter into any agreement which prohibits Borrower from
making the payment of the Note.
6
<PAGE>
Dated as of the date first written above.
SOLDER STATION-ONE, INC.,
a California corporation
By: /s/ Odilon Cardenas
Its: President
By:
Its:
SS ACQUISITION CORPORATION
By: /s/ Lawrence Adelson
Its: Vice President
By: /s/ Leon Fiorentino
Its: Vice President
ACCEPTED:
/s/ Odilon Cardenas
Odilon Cardenas
/s/ Enedina Cardenas
Enedina Cardenas
7
SVFS01...:\65\63765\0007\1884\NOT4068L.37A
EXHIBIT 99.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH NOTE UNDER SUCH ACT OR SUCH
LAWS, OR UNLESS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH ACT OR SUCH LAWS.
PROMISSORY NOTE
(this "Note")
U.S. $175,000.00 APRIL 10, 1998
FOR VALUE RECEIVED, SOLDER STATION-ONE, INC., a California corporation
(the "Company") and SS ACQUISITION CORPORATION, a California corporation
(collectively and each jointly and severally "Borrower"), hereby promises to pay
to the order of CORPORATE FINANCE ASSOCIATES ("Holder"), the principal amount of
U.S. One Hundred Seventy-Five Thousand Dollars (U.S. $175,000.00) (the
"Principal"), pursuant to the terms and conditions hereof.
1. Payment of Principal. The Principal shall be due and payable after the date
hereof solely if, when and to the extent the Company is able to collect the
accounts receivables listed in Schedule 1 attached hereto, less deductions for
collection costs, other than collection in the ordinary course of business. The
Borrow shall not be limited only to making collection efforts in the ordinary
course of business. For the first sixty (60) days after the date hereof,
payments due, if any, shall be made by Borrower on a weekly basis, and shall be
made thereafter on a bi-weekly basis.
2. Payment Methods. All payments of the Principal and interest hereunder shall
be payable in lawful money of the United States of America to Holder at the
location designated from time to time by Holder pursuant to Section 11 hereof in
immediately available funds by wire transfer to a bank account designated in
writing by Holder to Borrower on or within ten (10) days prior to the due date.
If any payment of Principal or interest on this Note shall become due on a
Saturday, Sunday or a bank or legal holiday, such payment shall be made on the
next succeeding business day.
3. Event of Defaults. An "Event of Default" under this Note shall occur upon
Borrower's default in payment of any Principal, when due and payable pursuant to
the terms hereof and such defaults continue for a period thirty (30) days
thereafter without cure.
<PAGE>
4. Consequences of Default. Upon the occurrence of an Event of Default and such
Event of Default continues for thirty (30) days after Borrower's receipt of
written notice without cure, the entire amount then owing on this Note shall, at
the option of, and upon written notice from, Holder and, if not already due and
payable, become immediately due and payable.
5. Nature of Note. This Note is made in connection with the Agreement and Plan
of Reorganization (the "Purchase Agreement") by and between Borrower, Holder,
Solder Station-One, Inc. and Heartland Technology, Inc. This Note is an
unsecured promissory note to be issued in favor of Holder by Borrower as
referred to in the Purchase Agreement. Other than the condition in Section 1,
this Note is an unconditional obligation of Borrower and is not subject to
setoff or counterclaim.
6. Subordination. Holder acknowledges that this Note is subordinated to the Loan
and Security Agreement dated April 10, 1998 among LaSalle National Bank and
Borrower pursuant to the Subordination Agreement dated April 10, 1998 among
LaSalle National Bank and Holder.
7. Waiver. To the extent permitted by law, Borrower hereby waives demand,
presentment, protest and notice of non-payment is hereby waived by Borrower. No
waiver of any right or remedy shall be effective unless made in writing and
signed by the waiving party, nor shall a waiver on one or more occasions be
construed as a waiver of any such right or remedy or any other right or remedy
on any future occasion.
8. Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California, without giving effect to provisions
thereof regarding conflict of laws. Each party hereby consents and submits to
the personal jurisdiction of the United States and state courts of the State of
California, and expressly agrees that the venue for any action arising under
this Note shall be the appropriate United States federal court sitting within
the Central District of California and the state court sitting in Orange County.
Each party hereby irrevocably waives any objection which such party now or
hereafter may have to the laying of venue for any action or proceeding arising
out of or relating to this Note brought in the United States District Court for
the Central District sitting in Orange County or a state court of the State of
California sitting in Orange County and any objection on the grounds that any
such action or proceeding in either of such courts has been brought in an
inconvenient forum. Borrower agrees that this Note is made, delivered and to be
performed in Orange County, California.
9. Assignment. Holder may not assign any of its rights hereunder without the
prior written consent of the Borrower. This Note shall be binding and inure to
the benefit of the Borrower, the Holder and their respective successors and
assigns.
10. Amendment and Modification. This Note shall not be amended or modified
without the prior written approval of the parties hereto.
2
<PAGE>
11. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Note shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note.
12. Notice. Any notice or other communication (including payment) required or
permitted hereunder shall be in writing and shall be deemed to have been given
upon delivery if personally delivered or upon receipt if deposited in the United
States mail for mailing by registered, certified or express mail with return
receipt requested, postage prepaid, or by an internationally recognized
overnight courier, or by facsimile with confirmation by one of the foregoing
methods to the addresses as follows:
Borrower: Solder Station-One, Inc.
2231 W. Cape Cod Way
Santa Ana, California 92703
Attn: Chief Executive Officer
with a copy to: Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60061
Attn: Lawrence Adelson,
Vice President & General Counsel
Holder: Corporate Finance Associates
22600-B Lambert Street - Suite 804
Lake Forest, CA 92630
Attn: Peter Heydenrych
Each of the above addressees may change its address for purposes of this Section
by giving the other addressee notice in conformity with this paragraph of such
new address.
3
<PAGE>
Dated as of the date first written above.
SOLDER STATION-ONE, INC.,
a California corporation
By: /s/ Odilon Cardenas
Its: President
By:
Its:
SS ACQUISITION CORPORATION
By: /s/ Lawrence Adelson
Its: Vice President
By: /s/ Leon Fiorentino
Its: Vice President
ACCEPTED:
CORPORATE FINANCE ASSOCIATES
By: /s/ Peter Heydenrych
Its:
4
SVFS01...:\65\63765\0007\1884\NOT4068R.11A
EXHIBIT 99.4
CONTINUING GUARANTY
-------------------
THIS CONTINUING GUARANTY (this "Guaranty"), dated as of April 10, 1998,
is made by Heartland Technology, Inc., a Delaware corporation ("Guarantor") in
favor of and for the benefit of Odilon Cardenas, an individual, and Enedina A.
Cardenas, an individual, and each of their respective assigns, successors, and
personal representatives, (each, individually or collectively, the "Lender" and,
in the event all or any part of the Obligations are transferred, endorsed, or
assigned by Lender to any Person or Persons, including, without limitation, any
Transferees, "Lender" shall be deemed to refer equally to such Person or
Persons.
RECITALS
--------
A. Odilon Cardenas, an individual, and Enedina A. Cardenas, an
individual, SS Acquisition Corp., a California corporation ("Borrower"), Solder
Station-One, Inc., a California corporation, and the Guarantor are parties to
that certain Agreement and Plan of Reorganization dated as of April 10, 1998 (as
it from time to time may be amended, restated, supplemented or otherwise
modified, the "Purchase Agreement"), pursuant to which Borrower shall deliver to
Lender, upon the terms and conditions set forth in the Purchase Agreement: (i)
Borrower's Promissory Notes dated April 10, 1998, in the aggregate original
principal amount of $2,100,000 (including all amendments, restatements,
supplements, modifications or extensions thereof, each herein called the
"Note"); and (ii) Borrower's Agreement Regarding Payment of Existing Creditors
dated April 10, 1998 (including all amendments, restatements, supplements,
modifications or extensions thereof, the "Agreement Regarding Payment of
Existing Creditors").
B. Guarantor has derived substantial direct and indirect economic
benefit from the transactions contemplated by the Purchase Agreement and the
Note, and Lender is willing to make such sale and transfer, but only upon the
condition, among others, that Guarantor will execute and deliver at the Closing
this Guaranty in favor of Lender.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and for other good and valuable considerations, the
receipt and adequacy of which are hereby acknowledged, it is agreed as follows:
1. DEFINITIONS; CERTAIN MATTERS OF CONSTRUCTION.
--------------------------------------------
For the purpose of this Guaranty, in addition to the
definitions elsewhere herein, the following terms shall have the respective
meanings set forth below:
"Bankruptcy Law" shall mean any federal, state or local law
providing for appointment of a receiver or trustee of the Borrower or its
liquidation or reorganization in the event of its insolvency, assignment for the
benefit of creditors, reorganization whether or not pursuant to bankruptcy laws,
or any other marshaling of the assets and liabilities of the Borrower.
"Charge" shall mean any Federal, state, county, city,
municipal, local, foreign or other governmental (including Pension Benefit
Guaranty Corporation or any Person succeeding to the functions thereof) tax at
the time due and payable, levy, assessment, charge, lien, claim or encumbrance
upon or relating to: (i) the Obligations or the Guaranty Obligations; (ii) the
employees, payroll, income or gross receipts of Guarantor; (iii) the ownership
or use of any of the assets of Guarantor; or (iv) any other aspect of the
business of Guarantor.
<PAGE>
"Guaranty Obligations" shall mean all liabilities and
obligations of Guarantor to Lender as set forth in this Guaranty, whether now
existing or hereafter arising.
"Guaranty Termination Date" shall mean the date on which all
Obligations with respect to the Note shall cease to be outstanding and the then
due and payable Obligations and Guaranty Obligations shall have been completely
satisfied and all Obligations in the nature of a performance obligation shall
have been performed.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien (including judgment liens,
liens of mechanics, suppliers and other Persons for the provision of goods or
services, and all other liens arising under statute, common law or judicial
interpretation), liens securing any Charge, claim (including reclamation
claims), security interest, easement or encumbrance, preference, priority or
other security agreement or other preferential arrangement of any kind or nature
whatsoever intended or having the effect of providing security for an obligation
(including, any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security interest
under the Uniform Commercial Code or comparable law of any jurisdiction).
"Obligations" shall mean all loans, advances, debts,
guarantees, liabilities, and obligations, for monetary amounts (whether or not
such amounts are liquidated or determinable) owing by Borrower to Lender, and
all covenants and duties regarding such amounts of any kind or nature, present
or future, contingent or liquidated, whether or not evidenced by any note,
agreement or other instrument, to the extent that the payment or performance of
all the foregoing is provided for or arises now or hereafter under the Note or
the Agreement to Pay Existing Creditors, including all interest, fees, charges,
expenses, reasonable attorneys' fees and any other sum chargeable to Borrower
under either.
"Person" shall mean any individual, trustee, sole
proprietorship, partnership, limited liability company or partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Subordination Agreement" shall mean the Lender's
Subordination Agreement with LaSalle National Bank dated April 10, 1998 among
Solder Station-One, Inc. and SS Acquisition Corporation as Borrower, Lender as
Creditor, and LaSalle National Bank as Bank.
"Taxes" shall mean any taxes, charges, assessments, and
penalties and interest thereon, other than any tax, charge or assessment based
on income of Lender.
2. THE GUARANTY
------------
2.1 Guaranty of the Obligations.
---------------------------
(a) In consideration of Lender's transactions
with Borrower or Guarantor pursuant to the Purchase Agreement and all other
2
<PAGE>
financial accommodations to or for the benefit of Borrower and Guarantor, and
for other valuable considerations, the receipt and adequacy of each of which
Guarantor hereby acknowledges, Guarantor hereby unconditionally, irrevocably,
guarantees to Lender and its successors, endorsees, transferees, and assigns,
the prompt payment (whether at stated maturity, by acceleration or otherwise)
and performance of the Obligations, whether now or hereafter existing, and
whether for principal, interest, fees, expenses, or otherwise, howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent or now or hereafter existing or due or to become due (including in
all cases all such amounts which would become due but for the operation of the
provisions of any Bankruptcy Law) with respect to the Obligations.
(b) This Guaranty constitutes a guaranty of
payment and performance when due and not of collection, and Guarantor
specifically agrees that it shall not be necessary or required that Lender or
any of its successors, endorsees, transferees, or assigns assert any claim or
demand or enforce any remedy whatsoever against Borrower or any other Person
before or as a condition to the obligations of Guarantor under this Guaranty.
2.2 Absolute Guaranty. The Guaranty Obligations shall remain
-----------------
in full force and effect without regard to, and shall not be impaired or
affected by, or be deemed to be satisfied by, nor shall Guarantor be exonerated,
discharged, or released (by virtue of the provisions of Sections 2809, 2819,
2845, 2848, 2849 or 2850 of the California Civil Code or any other law, rule,
arrangement or relationship) by, any of the following events:
(a) Lender's exercise or enforcement of, or
failure or delay in exercising or enforcing, legal proceedings to collect the
Obligations or the Guaranty Obligations or any power, right, or remedy with
respect to any of the Obligations or the Guaranty Obligations, including: (i)
any suspension of Lender's right to enforce, against Borrower or Guarantor, any
Obligations or any Guaranty Obligations; or (ii) any change in the time, manner,
or place of payment of, or in any other term of, any or all of the Obligation,
or any other amendment to, or waiver of, the Note or any other agreement or
instrument governing or evidencing any of the Obligations or the Guaranty
Obligations;
(b) any insolvency, bankruptcy, reorganization,
arrangement, adjustment, composition, assignment for the benefit of creditors,
appointment of a receiver or trustee for all or any part of Borrower's or
Guarantor's assets, liquidation, winding-up, or dissolution of Borrower or
Guarantor;
(c) any limitation, discharge, cessation, or
partial satisfaction of the Obligations or the Guaranty Obligations, whether by
operation of any statute, regulation or rule of law, or otherwise (but other
than full satisfaction by timely payment of all obligations guaranteed hereby)
regardless of the intervention or omission of Lender, or any invalidity,
voidability, unenforceability, or irregularity, or future change to or amendment
of, in whole or in part, the Note, this Guaranty, or any other document
evidencing any Obligations or Guaranty Obligations;
(d) any merger, acquisition, consolidation or
change in structure of Borrower, or Guarantor; or any sale, lease, transfer, or
other disposition of any or all of the assets or shares of Borrower or
Guarantor;
(e) any assignment or other transfer, in whole
or in part, of Lender's interest in and rights under the Note, including this
Guaranty, or of Lender's interest in the Obligations or the Guaranty
Obligations;
3
<PAGE>
(f) any claim, defense, counterclaim, or setoff
including, but not limited to, any defense or incapacity, disability, or lack of
corporate or other authority to execute any documents relating to the
Obligations or the Guaranty Obligations;
(g) any cancellation, renunciation, or surrender
of any security or instrument at any time evidencing the Obligations or the
Guaranty Obligations;
(h) Lender's vote, claim, distribution,
election, acceptance, action, or inaction in any bankruptcy or reorganization
case related to the Obligations or the Guaranty Obligations;
(i) any other action or circumstances that might
otherwise constitute a defense available to, or a legal or equitable discharge
of, any surety, guarantor or pledgor; or
(j) the fact that any of the Obligations or the
Guaranty Obligations may become due or payable in connection with or by reason
of any agreement or transaction that may be illegal, invalid, or unenforceable
in whole or in part, it being agreed by each Guarantor that the Guaranty
Obligations shall not be discharged until the Guaranty Termination Date (and
then after the Guaranty Termination Date, the Guaranty Obligations shall be
subject to reinstatement under Section 5).
2.3 Demand by Lender. In addition to the terms set forth in
----------------
Sections 2.1 and 2.2, and in no manner imposing any limitation on such terms,
but subject to the limitations referenced in Section 9, it is expressly
understood and agreed that, if any of the Obligations become immediately due and
payable, then Guarantor shall, upon demand in writing therefor by Lender to
Guarantor, immediately pay the Guaranty Obligations to Lender. Payment by
Guarantor shall be made to Lender to be credited and applied upon the
Obligations, in immediately available funds in lawful money of the United States
of America at 21702 Polynesian Lane, Huntington Beach, California 92646 or at
any other address or to any account designated by Lender that may be specified
in writing from time to time by Lender. Any payment received by Lender with
respect to the Obligations shall reduce the Guaranty Obligations by the amount
of such payment.
2.4 Guarantor Waivers. In addition to any other waivers
-----------------
contained herein, Guarantor waives and agrees as follows:
(a) The Guaranty Obligations are the immediate,
direct, primary, and absolute liabilities of Guarantor. Guarantor expressly
waives any right it may now or in the future have (pursuant to Sections 2845 and
2850 of the California Civil Code or any other law, rule, arrangement or
relationship) to require Lender to, and Lender shall not have any obligations
to, first pursue or enforce against Borrower, any of the properties or assets of
Borrower or any other security, guaranty, or pledge that may now or hereafter be
held by Lender for the Obligations or for the Guaranty Obligations, or to apply
such security, guaranty, or pledge to the Obligations or to the Guaranty
Obligations, or to pursue any other remedy in Lender's power that Guarantor may
or may not be able to pursue itself and that may lighten Guarantor's burden.
Guarantor agrees that any notice or directive given at any time to Lender that
is inconsistent with the waiver in the immediately preceding sentence shall be
null and void and may be ignored by Lender, and, in addition, may not be pleaded
or introduced as evidence in any litigation or other dispute resolution
procedure relating to this Guaranty for the reason that such pleading or
introduction would be at variance with the written terms of this Guaranty,
unless Lender has specifically agreed otherwise in writing. Guarantor shall
remain liable for the Guaranty Obligations, notwithstanding any judgment Lender
may obtain against Borrower or Guarantor, or any other Person, except to the
extent the Obligations have been paid in full and such payment can be retained
by Lender free of any obligation to any creditors of Borrower or Guarantor of
the kind described in Section 5.
4
<PAGE>
(b) Guarantor has entered into this Guaranty
based solely upon its independent knowledge of Borrower's financial condition
and Guarantor assumes full responsibility for obtaining any further information
with respect to such Person or the conduct of its business. Guarantor represents
that it is now, and during the term of this Guaranty will be, responsible for
ascertaining the financial condition of Borrower. Guarantor hereby waives any
duty on the part of Lender to disclose to Guarantor, and agrees that it is not
relying upon or expecting Lender to disclose to it, any fact known or hereafter
known by Lender relating to the operation or condition of Borrower or its
business or relating to the existence, liability, or financial condition of any
other Person. Guarantor knowingly accepts the full range of risk encompassed in
a contract of continuing guaranty, which risk includes the possibility that
Borrower may incur Obligations after Borrower's financial condition or its
ability to pay its debts as they mature has deteriorated.
(c) Lender shall be under no obligation to
marshal any assets in favor of Guarantor or in payment of any or all of the
Obligations or the Guaranty Obligations.
(d) Except as specifically provided in Section
2.3 or as otherwise provided for in this Guaranty or applicable law, Guarantor
waives, to the fullest extent permitted by applicable law: (i) presentment,
demand and protest, and notice of presentment, dishonor, intent to accelerate,
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of the Note, or any others notes, commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Lender on which Guarantor may in any way be
liable as a result of the Obligations, and hereby ratifies and confirms whatever
Lender may do in this regard; (ii) the benefit of all evaluation, appraisal and
exemption laws; (iii) notice of any extension, modification, renewal, or
amendment of any of the terms of the Note relating to the Obligations or the
Guaranty Obligations; (iv) notice of the occurrence of any default or event of
default with respect to the Obligations, the Guaranty Obligations or otherwise;
and (v) notice of any exercise or non-exercise by Lender of any right, power, or
remedy with respect to the Obligations or the Guaranty Obligations.
(e) Guarantor acknowledges that it has been
advised by counsel of its choice with respect to this Guaranty, the Note, the
Purchase Agreement and the transactions contemplated thereby.
(f) Guarantor agrees that until the Guaranty
Termination Date it shall have no right of subrogation, reimbursement, indemnity
or contribution, all of which Guarantor expressly waives.
(g) If Lender may, under applicable law, proceed
to realize its benefits under the Note, then Lender may, at its sole option,
determine which of its remedies or rights it may pursue without affecting any of
its rights and remedies under this Guaranty. If Lender bids at any foreclosure
or trustee's sale or at any public or private sale permitted by law, Lender may
bid all or less than the amount of the Obligations or the Guaranty Obligations
and the amount of such bid need not be paid by Lender but shall be credited and
applied as set forth in Section 7 unless such crediting is a violation under
applicable law or a breach by Lender of the Subordination Agreement. The amount
of the successful bid at any such sale, whether Lender or any other party
(including Guarantor) is the successful bidder, shall be deemed to be prima
facie evidence of the fair market value of the assets purchased and the amount
remaining after application of such bid amount in the manner set forth in
Section 7 shall be deemed to be prima facie evidence of the amount of the
Guaranty Obligations guaranteed under this Guaranty, notwithstanding that any
present or future law or court decision or ruling may have the effect of
reducing the amount of any deficiency claim to which Lender might otherwise be
entitled but for such bidding at any such sale.
5
<PAGE>
(h) Guarantor agrees and represents that the
Obligations and Guaranty Obligations are and shall be incurred by Borrower and
Guarantor for business and commercial purposes only. Guarantor agrees that any
claim of Lender against Guarantor arising out of this Guaranty arises out of the
conduct by Guarantor of its trade, business, or profession. Guarantor undertakes
all the risks encompassed in the Note as they may be now or are hereafter agreed
upon by the parties thereto. Guarantor agrees that prior to the Guaranty
Termination Date (and for any period of reinstatement of this Guaranty after the
Guaranty Termination Date pursuant to Section 5), Lender, in such manner and
upon such terms and at such time as it deems best, and with or without notice to
Guarantor, may subordinate or release any security for the Obligations or the
Guaranty Obligations, whenever such action is taken pursuant to the terms of the
Note.
(i) Guarantor waives and agrees that it shall
not at any time insist upon, plead, or in any manner whatever claim or take the
benefit or advantage of, any appraisal, valuation, stay, extension or redemption
laws, or exemption, whether now or at any time hereafter in force, which may
delay, prevent, or otherwise affect the performance by Guarantor of the Guaranty
Obligations or the enforcement by Lender of this Guaranty.
(j) A separate action or actions may be brought
and prosecuted by Lender against Guarantor whether or not an action is brought
against Borrower, or whether Borrower is joined in any such action or actions.
Without limiting the generality of the foregoing, Guarantor expressly waives the
benefit of any statute of limitations affecting the Obligations and expressly
agrees that the running of a period of limitation on, or Lender's delay or
omission in, any action by Lender against Borrower or for the enforcement of any
rights shall not exonerate or affect Guarantor's liability to pay and perform
the Guaranty Obligations.
2.5 Additional Waivers. Guarantor expressly acknowledges that:
------------------
(a) In addition to the waivers set forth in
Section 2.4, as solely between Guarantor and Lender and until the Obligations
have been paid in full and such payment can be retained by Lender free of any
obligation to any creditors of Borrower or Guarantor of the kind described in
Section 5, Guarantor also expressly, knowingly and intentionally waives and
relinquishes solely for the benefit of Lender any and all rights, defenses or
benefits Guarantor may have based upon an election of remedies by Lender which
in any manner impairs, affects, reduces, releases, destroys or extinguishes
Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower
or against any other Person or any security for the Guaranty Obligations by way
of subrogation, indemnity, contribution, reimbursement or otherwise. In
particular, Guarantor agrees that, until the Obligations have been paid in full
and such payment can be retained by Lender free of any obligation to any
creditors of Borrower or Guarantor of the kind described in Section 5, this
Guaranty will remain fully effective and Guarantor will be liable to Lender for
any Guaranty Obligations even if Lender enforces any Lien that secures the
Obligations by means of a nonjudicial foreclosure, trustee's sale or power of
sale foreclosure and the effect of such sale is to prevent Guarantor from taking
any action against Borrower to recover any amounts paid by Guarantor to Lender
under this Guaranty or otherwise limits or destroys Guarantor's right of
subrogation.
(b) Until all Obligations have been performed in
6
<PAGE>
full, Guarantor shall have no right to subrogation, and Guarantor expressly
waives solely for the benefit of Lender (i) any right (pursuant to Section 2848
of the California Civil Code or any other law, rule, arrangement or
relationship) to enforce any remedy which Lender now has or may hereafter have
against Borrower and (ii) any benefit of, and any right to participate in
(pursuant to Section 2849 of the California Civil Code or any other law, rule,
arrangement or relationship), any security that hereafter may be held by Lender.
Guarantor also agrees that this Guaranty will remain fully effective
and Guarantor will be liable to Lender for any Guaranty Obligations until the
Obligations have been paid in full and such payment can be retained by Lender
free of any obligation to any creditors of Borrower or Guarantor of the kind
described in Section 5, even if Lender sells real property by judicial
foreclosure action and Guarantor's rights against Borrower are limited by the
operation of law.
2.6 Waivers of Defenses. Guarantor waives solely for the
-------------------
benefit of Lender any defense based upon or arising by reason of: (a) any
disability or other defense of Borrower or any other Person; (b) the cessation
of liability or limitation from any cause whatsoever of the Obligations or any
portion thereof, other than payment in full; (c) any lack of authority of any
agent or other person acting or purporting to act on behalf of Borrower, or any
defect in the formation of Borrower; (d) the application by Borrower of the
proceeds of the Obligations for purposes other than the purposes represented to,
or intended or understood by, Lender or Guarantor; (e) any act or omission by
Lender that directly or indirectly results in or aids the discharge of Borrower
or any portion of the Obligations by operation of law or otherwise; or (f) any
modification of the Obligations in any form whatsoever, including the renewal,
extension, acceleration or other change in time for payment of the Obligations,
or other change in the terms of the Obligations or any part thereof, including
increase or decrease of the rate of interest thereon.
2.7 Benefits of Guaranty. The provisions of this Guaranty are
--------------------
for the benefit of Lender and its successors, transferees, endorsees and
assigns, and nothing herein shall impair, as between Borrower, Guarantor, and
Lender, the Obligations. No such transfer, endorsement, or assignment shall
increase or diminish any of the Guaranty Obligations hereunder. This Guaranty
binds Guarantor, and Guarantor may not assign, transfer or endorse this Guaranty
except to any entity resulting from the merger or consolidation with Guarantor
or any entity that acquires substantially all of Guarantor's assets relating to
the Guaranty, provided that this Guaranty is assumed in writing and the
purchaser or resulting entity has a net worth of at least the greater of $5
million or the net worth of Guarantor immediately prior to such transaction. If
all or any part of the Obligations are transferred, endorsed, or assigned by
Lender to any Person or Persons, any reference to "Lender" herein shall be
deemed to refer equally to such Person or Persons.
2.8 Continuing Guaranty. Guarantor agrees that (a) this is a
-------------------
continuing guaranty, (b) this Guaranty shall remain in full force and effect
until the Guaranty Termination Date (and may be reinstated after the Guaranty
Termination Date pursuant to Section 5), and (c) the Guaranty Obligations
hereunder shall extend to each and every extension or renewal, if any, of the
Obligations.
2.9 Subordination.
-------------
(a) Guarantor hereby agrees that, until the
Guaranty Termination Date (and for any period during which this Guaranty is
reinstated pursuant to Section 5), all obligations and all indebtedness of
Borrower to Guarantor, including any and all present and future indebtedness
7
<PAGE>
regardless of its nature or manner of origination now or hereafter to become due
and owing by Borrower to Guarantor (collectively, the "Subordinated
Indebtedness"), are hereby subordinated and postponed and shall be inferior, in
all respects, to the Guaranty Obligations.
(b) In no circumstance shall any Subordinated
Indebtedness be entitled to any collateral security; provided, that if any such
collateral security exists, Guarantor hereby agrees that any now existing or
hereafter arising Lien upon any of the assets of Borrower in favor of Guarantor,
whether created by contract, assignment, subrogation, reimbursement, indemnity,
operation of law, principles of equity or otherwise, shall be junior and
inferior to, and is hereby subordinated in priority to any now existing or
hereafter arising Liens in favor of Lender, regardless of the time, manner or
order of creation, attachment or perfection of the respective Liens.
(c) Guarantor hereby agrees that, except as
permitted by the Note or the Purchase Agreement, Guarantor shall not: (i)
assert, collect, accept payment on or enforce any of the Subordinated
Indebtedness or take collateral or other security to secure payment of the
Subordinated Indebtedness until the Guaranty Termination Date (and for any
period during which this Guaranty is reinstated pursuant to Section 5); (ii)
demand payment of, accelerate the maturity of, or declare a default or event of
default under the Subordinated Indebtedness until the Guaranty Termination Date
(and for any period during which this Guaranty is reinstated pursuant to Section
5); (iii) cause or permit Borrower to make or give, or receive or accept,
payment in any form (direct or indirect, including by transfer to an affiliate
or subsidiary of Borrower or Guarantor) on account of the Subordinated
Indebtedness, or make any transfers in respect of the Subordinated Indebtedness,
or give any collateral security for the Subordinated Indebtedness. Any payment,
transfer, or collateral security so made or given by Borrower and received or
accepted by Guarantor shall be held in trust by Guarantor for Lender, and
Guarantor shall immediately turn over, in kind, any such payment to Lender for
application in reduction of, or (in the case of property other than cash) as
security for, the Guaranty Obligations.
(d) Lender acknowledges that this Guaranty is
subordinated on and subject to the terms of the Subordination Agreement.
(e) Lender hereby agrees that when and to the
extent Guarantor commits a default under the two Promissory Notes made payable
by Guarantor to Peter VanHeusden dated May 30, 1997 in the aggregate principal
amount of Three Million Dollars ($3,000,000) plus interest now or hereafter
accruing thereon (the "Senior Notes") and Lender is notified in writing of the
existence of the default, and for such time as the default is continuing, Lender
subordinates any and all claims then or thereafter owing to it by Guarantor
under the Guaranty to any and all claims of Peter VanHeusden then owing under
the Senior Notes such that all events of default under the Senior Notes shall be
cured by Guarantor or waived by the holder of the Senior Notes before any
subsequent payment may be made on the Guaranty. Lender acknowledges that upon
and following written notice by Guarantor of any material default by Guarantor
that occurs after the date hereof as a result of non-payment under the Senior
Notes, any payment thereafter received by Lender from Guarantor pursuant to this
Guaranty will be held in trust for and remitted within a reasonable time to
Peter VanHeusden following such written notice. The subordinations effected, and
the rights created, hereby shall not be affected by (i) any amendment of or any
addition or supplement to any instrument, document or agreement relating to the
Senior Notes that does not accelerate their maturity or materially increase the
financial obligations thereunder, (ii) any exercise or non-exercise of any
right, power or remedy under or in respect of the Senior Notes or any
instrument, document or agreement relating thereto, and (iii) any waiver,
consent, release, indulgence, extension, renewal, modification, delay or other
action, inaction or omission in respect of the Senior Notes or any instrument,
document or agreement relating thereto, whether or not either Lender shall have
had notice or knowledge of any of the foregoing and regardless of whether Lender
shall have consented or objected thereto. Solder Station-One, Inc.'s business is
a "complementary business" as defined in the Senior Notes.
8
<PAGE>
2.10 No Setoff, Defense or Counterclaim. Guarantor represents,
----------------------------------
warrants and agrees that, as of the date of this Guaranty, the Guaranty
Obligations are not subject to any setoff or defense of any kind against Lender
or Borrower, and Guarantor specifically waives its right to assert any such
defense or right of setoff. Guarantor further agrees that the Guaranty
Obligations shall not be subject to any counterclaims, setoffs or defenses
against Lender or Borrower that may arise in the future. This Guaranty,
including without limitation this Section 2.10, shall not be deemed to be a
waiver by Guarantor or by or on behalf of Borrower of any term or provision in
the Purchase Agreement.
3. FURTHER ASSURANCES
------------------
Guarantor agrees that it will, at its expense, upon the
written request of Lender, from time to time, promptly execute and deliver to
Lender any additional instruments or documents reasonably considered necessary
by Lender to cause this Guaranty to be, become, or remain valid and effective in
accordance with its terms.
4. PAYMENTS FREE AND CLEAR OF TAXES
--------------------------------
Any and all payments by or on behalf of Guarantor shall be
made, in accordance with this Section 4, free and clear of and without deduction
for any and all present or future Taxes. If Guarantor is required by law to
deduct any Taxes from or in respect of any sum payable hereunder to Lender, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4), Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) Guarantor shall make such
deductions and (iii) Guarantor shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Upon
request by Lender, Guarantor shall furnish to Lender a receipt for any Taxes
paid by Guarantor pursuant to this Section 4 or, if no Taxes are payable with
respect to any payments required to be made by Guarantor hereunder, a
certificate from each appropriate taxing authority, if any. If Taxes are paid by
Lender as a result of payments under this Guaranty, Guarantor will, upon demand
of Lender, and whether or not such Taxes shall be correctly or legally asserted,
indemnify Lender for such payments, together with any interest, penalties, and
expenses in connection therewith plus interest thereon at such rate as agreed
between Lender and Guarantor.
5. REINSTATEMENT
-------------
This Guaranty shall remain in full force and effect and
continue to be effective, as the case may be, if at any time payment or
performance of the Obligations or the Guaranty Obligations, or any part thereof,
is, pursuant to the Subordination Agreement or applicable law, avoided,
rescinded or reduced in amount, or must otherwise be restored or returned by
Lender, or any other obligee of the Obligations or the Guaranty Obligations,
whether as a "voidable preference," "fraudulent conveyance," or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is avoided, rescinded, reduced, restored, or
returned, the Obligations or the Guaranty Obligations, as the case may be, shall
be reinstated and deemed reduced only by such amount paid and not so avoided,
rescinded, reduced, restored, or returned.
6. DEFAULTS AND REMEDIES
---------------------
9
<PAGE>
Upon the occurrence and during the continuance of an Event of
Default, as that term is defined in the Note, Lender may declare all of the
Guaranty Obligations, immediately and without demand, notice or legal process of
any kind, to be, and such Guaranty Obligations shall immediately become, due and
payable, and then, or at any subsequent time, Lender may exercise any or all of
its rights and remedies under this Guaranty, the Note or any applicable law, and
may, in addition make demand upon Guarantor for the payment of the Guaranty
Obligations.
7. APPLICATION OF PAYMENTS
-----------------------
Any payment made by Guarantor under this Guaranty shall be
applied by Lender first, to the satisfaction of Guarantor's indemnification
liabilities pursuant to Section 8, then to the payment of Obligations with
respect to accrued but unpaid interest on the Note, then to the payment of the
principal amount of the Note, and then to all other outstanding Obligations.
8. INDEMNIFICATION
---------------
Guarantor (i) shall indemnify and hold harmless Lender (an
"Indemnified Person") from and against any and all suits, actions, fines,
deficiencies, penalties, proceedings, claims, damages, losses, liabilities,
expenses and Taxes (including reasonable attorneys' fees and disbursements and
other out-of-pocket costs of investigations or defense, including those incurred
upon any appeal) (each, a "Claim") that may be instituted or asserted against or
incurred by such Indemnified Person (A) arising out of the Guaranty Obligations
or any action to enforce payment of the Guaranty Obligations, or (B) arising out
of the Subordination Agreement except to the extent of Lender's willful and
knowing non-compliance with the Subordination Agreement, and (ii) shall
reimburse each Indemnified Person, for any legal or other out-of-pocket expenses
incurred in connection with investigating, defending or participating in any
such Claim, whether commenced or threatened (whether or not any such Indemnified
Person is a party to any action or proceeding out of which any such expenses
arise); provided, that Guarantor shall not be liable for any indemnification to
such Indemnified Person to the extent that any such Claim results solely from an
Indemnified Person's gross negligence or willful misconduct, as determined by a
final judgment of a court of competent jurisdiction. NEITHER LENDER NOR ANY
OTHER INDEMNIFIED PERSON NOR GUARANTOR NOR BORROWER SHALL BE RESPONSIBLE OR
LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE NOTE
OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY. The
liabilities of Guarantor under this Section 8 shall survive the termination of
this Guaranty.
9. MISCELLANEOUS
-------------
9.1 Entire Agreement; Amendments. This Guaranty, together with
the Note and the Agreement Regarding Payment of Existing Creditors (a)
constitutes the entire agreement between the parties with respect to the subject
matter hereof, and (b) may not be amended or supplemented except by a writing
signed by Lender and Guarantor.
9.2 Section Titles. The section titles contained in this
Guaranty are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
10
<PAGE>
9.3 Severability. In the event that any one or more of the
provisions contained in this Guaranty shall be determined to be invalid,
illegal, or unenforceable in any respect for any reason, the validity, legality,
and enforceability of any such provision or provisions in every other respect,
and the remaining provisions of this Guaranty, shall not be in any way impaired.
9.4 Conflict of Terms. If any provision of this Guaranty is
inconsistent with any provision of the Note, the Purchase Agreement, or any
other document or agreement contemplated therein, the provisions of this
Guaranty shall govern and control.
9.5 Non-Waiver. None of the liabilities of Guarantor, and no
right or remedy of Lender under this Guaranty, shall be deemed to have been
suspended or waived by Lender, nor shall Lender be estopped from asserting any
such right or remedy, by Lender's conduct or oral statements, but any such
suspension or waiver of any such right or remedy by Lender must be in writing
and signed by Lender. Any suspension or waiver by Lender of any of its rights or
remedies under this Guaranty shall not suspend or waive any prior or subsequent
right or remedy, whether of the same or of a different type.
9.6 Guaranty Termination Date. This Guaranty is a continuing
Guaranty that shall remain in full force and effect until the Guaranty
Termination Date, at which time this Guaranty shall terminate and be of no
further force and effect, subject to the reinstatement provisions of Section 5.
9.7 Limitation of Liability. Neither Lender nor any of its
officers, directors, partners, employees, agents, or counsel shall be liable for
any action lawfully taken or omitted to be taken by it or them under or in
connection with this Guaranty.
9.8 Governing Law. In all respects, including all matters of
construction, validity and performance, this Guaranty and the obligations
arising hereunder shall be governed by, and construed and enforced in accordance
with, the laws of the State of California applicable to contracts made and
performed in such state, without regard to principles thereof regarding
conflicts of laws.
9.9 Successors and Assigns. All covenants and agreements in
this Guaranty by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties (the
"Transferee") hereto. Lender may assign any and all of its rights under this
Guaranty and the Note to any Transferee in connection with any assignment of all
or any portion of the Note and upon such assignment such Transferee shall be
entitled to all of the rights of Lender hereunder to the same extent as if such
Transferee were an original party hereof. Guarantor may not assign or transfer
its obligations under this Guaranty except as otherwise provided in Section 2.7
of this Guaranty.
9.10 Jurisdiction. Guarantor irrevocably consents and submits
to the jurisdiction of the United States District Court for the Central District
of California or a state court of the State of California sitting in Orange
County in any action or proceeding arising out of or in relation to this
Guaranty, and Guarantor irrevocably agrees that all claims in any such action
may be heard and determined in either such court. Guarantor irrevocably waives
any objection to the laying of venue in either such court and any objection on
the grounds that any such proceeding has been brought in an inconvenient forum,
and agrees and acknowledges that this Guaranty is made, delivered and to be
performed in Orange County, California.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Continuing Guaranty to be executed and delivered by its duly authorized officer
on the date first set forth above.
11
<PAGE>
GUARANTOR: HEARTLAND TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ Leon Fiorentino
Leon Fiorentino, Vice President
and Chief Financial Officer
By: /s/ Edwin Jacobson
Edwin Jacobson, President
ACCEPTED:
LENDER:
/s/ Odilon Cardenas
- --------------------------------
Odilon Cardenas
/s/ Enedina A. Cardenas
- --------------------------------
Enedina A. Cardenas
12
EXHIBIT 99.5
LOAN AND SECURITY AGREEMENT
Dated as of April 10, 1998
between
SOLDER STATION-ONE, INC.
AND SS ACQUISITION CORPORATION
as Borrower,
and
LASALLE NATIONAL BANK
as Bank
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which it is attached but
is inserted for convenience only.
1. DEFINITIONS AND TERMS......................................................1
1.1 Certain Definitions........................................1
1.2 Certain UCC and Accounting Terms..........................12
2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES.......................12
2.1 Revolving Credit Commitment...............................12
2.2 Acquisition Credit Commitment. ...........................13
2.3 Term Credit Commitment....................................13
2.4 Borrowing Procedures......................................13
2.5 All Loans to Constitute One Obligation....................13
2.6 Use of Proceeds...........................................13
3. LOANS: NOTES EVIDENCING LOANS............................................14
3.1 Revolving Note............................................14
3.2 Acquisition Note..........................................14
3.3 Term Note.................................................14
3.4 Recordation...............................................14
3.5 Loan Evidence.............................................14
4. LOANS: AMOUNTS; INTEREST; CHANGE IN CIRCUMSTANCES, ETC...................15
4.1 Interest Rates; Applicable Borrowing Amounts; Default Rate15
4.2 Computation of Interest...................................15
4.3 Conversion and Reborrowing of Loans; Interest Periods.....16
4.4 Change of Law.............................................16
4.5 Unavailability of Deposits or Inability to Ascertain the
LIBOR Rate or Adjusted LIBOR Rate.........................17
4.6 Yield Protection, Etc.....................................17
4.7 Funding Indemnity.........................................18
4.8 Discretion of Bank as to Manner of Funding................18
4.9 Interest Laws.............................................18
5. LOANS: GENERAL TERMS.....................................................19
5.1 Payments to Bank; Defaulting Bank.........................19
5.2 Automatic Debit...........................................19
5.3 Application of Payment....................................19
5.4 Conditions Precedent Events...............................19
5.5 Offset. .................................................20
5.6 Discretionary Disbursements...............................20
5.7 Credit Termination Date; Continuance of Obligations, Etc..20
5.8 Over-Advances.............................................20
5.9 Lock-Box and Blocked Account..............................20
5.10 Prepayments; Prepayment Penalty; Etc. ....................21
i
<PAGE>
5.11 Unused Portion Fee........................................22
6. LOANS: CONDITIONS TO LENDING.............................................22
6.1 Initial Loan Conditions Precedent.........................22
6.2 [Reserved]................................................24
7. COLLATERAL: GENERAL TERMS................................................24
7.1 Grant of Security Interest................................24
7.2 Perfection of Security Interests..........................25
7.3 Inspection of Collateral and Visitation Rights............25
7.4 First Lien and Locations of Collateral....................25
7.5 Constructive Trust........................................26
7.6 Application of Proceeds of Collateral.....................26
7.7 Third Party Collateral Claims.............................26
7.8 Additional Collateral.....................................26
7.9 No Custom or Waiver.......................................26
7.10 Special Collateral........................................27
8. COLLATERAL: ACCOUNTS RECEIVABLE..........................................27
8.1 Account Representations and Warranties....................27
8.2 Verification of Accounts Receivable.......................27
8.3 Account Restrictions......................................27
8.4 Enforcement of Right to Accounts Receivable...............28
8.5 Appointment as Attorney-in-Fact...........................28
9. COLLATERAL: INVENTORY....................................................28
9.1 Inventory Representations and Warranties..................28
9.2 Ordinary Course Sales.....................................29
10. COLLATERAL: EQUIPMENT...................................................29
10.1 Equipment Representations and Warranties..................29
10.2 Maintenance...............................................29
10.3 Evidence of Ownership.....................................29
11. REPRESENTATIONS AND WARRANTIES; COVENANTS;
INDEMNIFICATION; CONTINUING OBLIGATION...............................29
11.1 Representations and Warranties of Borrower................29
11.2 Affirmative Covenants.....................................35
11.3 Negative Covenants........................................40
11.4 Maintenance of Accounts...................................42
12. DEFAULT..................................................................42
12.1 Events of Default.........................................42
12.2 Cumulative Remedies.......................................43
12.3 Acceleration and Termination of Loans.....................43
12.4 Rights of Secured Creditor................................43
12.5 Assembly of Collateral; Injunctive Relief.................43
ii
<PAGE>
12.6 Notice of Collateral Disposition..........................44
12.7 Matters Regarding Sale of Collateral......................44
12.8 Replevin..................................................44
12.9 Application of Proceeds...................................44
13. GENERAL..................................................................45
13.1 Payment Application Date..................................45
13.2 Statement of Account......................................45
13.3 Manner of Application; Waiver of Setoff Prohibition.......45
13.4 Survival of Representations and Warranties................45
13.5 Integration; Amendment; Assignment........................45
13.6 No Waiver.................................................46
13.7 Severability..............................................46
13.8 Successors and Assigns....................................46
13.9 Conflict with Other Agreements............................46
13.10 No Impairment by Termination..............................46
13.11 Waivers...................................................46
13.12 Costs, Fees and Expenses Related to Agreement and
Other Agreements..........................................47
13.13 Environmental Indemnity...................................47
13.14 Release...................................................47
13.15 Governing Law.............................................47
13.16 Notices...................................................47
13.17 FORUM; VENUE; JURY TRIAL WAIVER...........................48
13.18 Other Costs, Fees and Expenses............................48
13.19 Revival...................................................49
13.20 Acknowledgments...........................................49
13.21 Section Headings..........................................49
13.22 Counterparts..............................................49
13.23 Effectiveness.............................................49
13.24 Representative............................................49
13.25 Reimbursement Among Each Borrower.........................49
13.26 Joint and Several Liability...............................50
13.27 Acknowledgements of Bank..................................50
iii
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the
10th day of April, 1998, by and between SOLDER STATION-ONE, INC., a California
corporation ("Solder Station"), and SS Acquisition Corporation, a California
corporation ("SSA") (together, Solder Station and SSA are referred to herein as
"Borrower"; all references to Borrower shall mean each of them, jointly and
severally, individually and collectively, and the successors and assigns of
each); and LASALLE NATIONAL BANK, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower desires to borrow funds and obtain other financial
accommodation from Bank; and
WHEREAS, pursuant to Borrower's request, Bank is willing to lend funds,
and extend such financial accommodations, to Borrower under the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements set forth herein, Borrower agrees to borrow from Bank, and Bank
agrees to lend to Borrower, subject to and upon the following terms and
conditions:
1. DEFINITIONS AND TERMS
1.1 Certain Definitions. The following words, terms and/or phrases
shall have the meanings set forth thereafter and such meanings shall be
applicable to the singular and plural form thereof, giving effect to the
numerical difference.
"Accounts Receivable" means all of Borrower's now existing or
hereafter arising or acquired Accounts, accounts receivable and other
rights to payment, however created, including without limitation any
right to payment for goods sold or leased or for services rendered,
whether arising out of the sale of Inventory or otherwise and whether
or not it has been earned by performance, and any and all notes,
drafts, acceptances, chattel paper, General Intangibles and other
obligations arising out of or representing a right to payment, however
created, including without limitation a right to payment for goods sold
or leased or for services rendered.
"Acquisition" means the acquisition of all of the issued and
outstanding shares of capital stock of Solder Station by Guarantor
pursuant to the Purchase Agreement and the merger of SSA with and into
Solder Station, with Solder Station emerging as the surviving entity.
"Acquisition Credit Commitment" shall have the meaning
assigned to such term in Paragraph 2.2 hereof.
"Acquisition Loan" means and includes the Loan made under the
Acquisition Credit Commitment, unless the context in which such term is
used shall otherwise require.
<PAGE>
"Acquisition Note" means that certain Acquisition Note of
even date herewith in the original principal amount of NINE HUNDRED
THOUSAND DOLLARS ($900,000), as the same may be amended, modified or
supplemented from time to time, and together with any renewals thereof
or exchanges or substitutes therefor, which principal amount shall
reduce from time to time in accordance herewith.
"Adjusted LIBOR Rate" means a rate per annum determined
pursuant to the following formula:
Adjusted LIBOR Rate = LIBOR
100% - Reserve Percentage
"Affiliate" means any Person (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is
under common control with any other Person, (b) that directly or
beneficially owns or holds 20% or more of any equity interest in any
other Person or (c) 20% or more of whose voting stock (or in the case
of a person that is not a corporation, 20% or more of any equity
interest) is owned directly or beneficially or held by any other
Person. For purposes of this definition and this Agreement, the term
"control" shall mean, directly or indirectly, the power to direct or
cause the direction of the management or policies of a Person, whether
through ownership interest or otherwise, including without limitation
the power to elect or appoint, directly or indirectly, a majority of
the members of its governing board or body.
"Assignment of Indemnities" means that certain Collateral
Assignment of Indemnities of even date herewith made by Guarantor in
favor of Bank, as the same may be amended, modified or supplemented
from time to time.
"Authorized Officer" means the President or Chief Financial
Officer of Borrower, or such other officer as shall be designated by
the Board of Directors of Borrower.
"Base Rate Loan" means a Loan bearing interest at the Base
Rate plus any applicable margin in addition thereto.
"Base Rate" or "Prime Rate"means the rate of interest
(expressed as a percentage per annum) most recently announced or
published publicly from time to time by Bank as its base or prime rate
of interest, which is not necessarily the lowest or most favorable rate
of interest charged by Bank on commercial loans at any one time. The
rate of interest shall change automatically and immediately as and when
the Base Rate shall change, without notice to Borrower, and any notice
to which it may be entitled is hereby waived, and any such change in
the Bank's Base Rate shall not affect any of the terms and conditions
of this Agreement, all of which shall remain in full force and effect.
"Borrower's Liabilities" means all obligations and
liabilities of Borrower in the aggregate to Bank (including, without
limitation, all debts, claims, reimbursement obligations and
indebtedness) whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and/or from time to time hereafter owing,
due or payable, however evidenced, created, incurred, acquired or owing
and however arising, whether under
2
<PAGE>
this Agreement or the Other Agreements, or by oral agreement or
operation of law or otherwise.
"Borrowing" means the incurrence or continuance of one type
of Loan (either a Base Rate Loan or a LIBOR Loan) under the Revolving
Credit Commitment from Bank on a given date (or resulting from
conversions on a given date), having in the case of LIBOR Loans
incurred or continued on a given date the same Interest Period.
"Business Day" means (i) for all purposes other than as
covered by clause (ii) below, any day on which Bank is open for the
transaction of commercial banking business in Chicago, Illinois other
than a Saturday or Sunday and (ii) with respect to all notices and
determinations in connection with, and payments of principal and
interest on, LIBOR Loans, any day which is a Business Day described in
clause (i) above and which is also a day for trading by and between
banks in United States dollar deposits in London, England.
"Capital Expenditures" means the cost of acquiring any fixed
assets, or any improvements, replacements, substitutions, accessions or
additions thereto or therefor, which have a useful life of more than
one (1) year, including without limitation, the cost of direct or
indirect acquisitions of such assets by way of purchase, capital lease
or otherwise.
"Change of Control" means Guarantor shall cease to
beneficially own, directly or indirectly, one hundred percent (100%) of
the Stock of Borrower (after giving effect to the consummation of the
Acquisition), on a fully diluted basis.
"Charges" means all national, federal, state, county, city,
municipal and/or other governmental (or any instrumentality, division,
agency, body or department thereof, including, without limitation, the
PBGC) taxes, levies, assessments, charges, liens, claims or
encumbrances upon and/or relating to Borrower's Liabilities, Borrower's
business, Borrower's ownership and/or use of the Collateral, income
and/or gross receipts.
"Closing Date" means April 10, 1998.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning assigned to such term in
Paragraph 7.1 hereof.
"Conversion Date" means the Business Day on which a Base Rate
Loan is converted to a LIBOR Loan.
"Debt Service Coverage Ratio" means, as of any date, the
ratio of (i) EBITDA to (ii) Fixed Charges.
"Default Rate" shall have the meaning assigned to such term
in Paragraph 4.1(c) hereof.
"Disclosure Schedule" means a schedule, in form and substance
satisfactory to Bank, as to Borrower (after giving effect to the
consummation of the Acquisition) which (i) has
3
<PAGE>
been certified as true and correct by an Authorized Officer of
Borrower, (ii) has been delivered to Bank prior to the date hereof,
(iii) describes, in reasonable detail, all exceptions to the
representations, warranties and covenants of Borrower herein, and (iv)
is clearly identified on its face as the Disclosure Schedule for
purposes hereof. Any reference herein to a "Schedule" shall be deemed
to refer to a part of the Disclosure Schedule.
"Early Termination Date" means the date, pursuant to
Paragraph 12.3, upon which, whether by notice or by right hereunder,
Bank's obligations to extend credit and issue letters of credit
hereunder are terminated.
"EBITDA" means, with respect to any fiscal period of
Borrower, Borrower's (a) net income for such period, plus (b) the
aggregate amounts deducted in determining such net income in respect of
(i) Interest Expense, (ii) income taxes, (iii) depreciation and (iv)
amortization minus (c) extraordinary gains, each determined on a
consolidated basis and in accordance with GAAP consistently applied.
"Eligible Accounts Receivable" means an Account Receivable
arising in the ordinary course of Borrower's business from the sale of
goods or rendition of services which Bank, in its reasonable credit
judgment, deems to be an Eligible Account Receivable. Without limiting
the generality of the foregoing, no Account Receivable shall be an
Eligible Account Receivable if: (i) it arises out of a sale made by
Borrower to a Subsidiary or an Affiliate of such Borrower or to a
Person controlled by an Affiliate of Borrower; or (ii) it is unpaid for
more than ninety (90) days after the original due date shown on the
invoice; or (iii) it arises from service charges or similar charges or
is subject to a debit memo(s), to the extent of any such service
charges or similar charge or debit memo(s); or (iv) fifty percent (50%)
or more of the Accounts Receivable, from the Obligor are not deemed
Eligible Accounts Receivable hereunder; or (v) the total unpaid
Accounts Receivable of the Obligor exceed twenty percent (20%) of the
net amount of all Accounts Receivable owing to Borrower, to the extent
of such excess; or (vi) any covenant, representation or warranty
contained in this Agreement with respect to such Account Receivable has
been breached; or (vii) the Obligor is also Borrower's creditor or
supplier, or the Obligor has disputed liability with respect to such
Account Receivable, or the Obligor has made any claim with respect to
any other Account Receivable due from such Obligor to Borrower, or the
Account Receivable otherwise is subject to any right of set-off by the
Obligor, all to the extent of such dispute, claim or asserted right of
set-off; or (viii) the Obligor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
made an assignment for the benefit of creditors, or a decree or order
for relief has been entered by a court having jurisdiction in the
premises in respect of the Obligor in an involuntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or
any other petition or other application for relief under the federal
bankruptcy laws has been filed against the Obligor and, in the event of
an involuntary case, such case is not vacated within sixty (60) days,
or if the Obligor has failed, suspended business, ceased to be solvent,
or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion of
its assets or affairs; or (ix) it arises from a sale to an Obligor
outside the United States or Canada (other than Quebec), unless the
sale is on letter of credit, credit insurance, guaranty or acceptance
terms, in each case acceptable to Bank in its reasonable discretion; or
(x) it arises from a sale to the Obligor on a bill-and-hold,
4
<PAGE>
guaranteed sale, sale-or-return, sale-on-approval, consignment or any
other repurchase or return basis; or (xi) Bank believes, in its
reasonable judgment, that collection of such Account Receivable is
insecure or that payment thereof is doubtful or will be delayed by
reason of the Obligor's financial condition; or (xii) the Obligor is
the United States of America or any department, agency or
instrumentality thereof, unless Borrower assigns its right to payment
of such Account Receivable to Bank, in form and substance satisfactory
to Bank, so as to comply with the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Sub-Section 203 et seq.); or (xiii) the Obligor is
located in the State of Louisiana, the State of New Jersey or the State
of Minnesota unless Borrower has filed a notice of business activities
report with the appropriate officials in such state for the then
current year; or (xiv) the Account Receivable is subject to a Lien
other than a Permitted Lien; or (xv) the goods giving rise to such
Account Receivable have not been shipped or delivered to or have been
rejected by the Obligor or the services giving rise to such Account
Receivable have not been performed by Borrower and accepted by the
Obligor or the Account Receivable otherwise does not represent a final
sale; or (xvi) the Account Receivable is evidenced by chattel paper or
an instrument of any kind, or has been reduced to judgment; or (xvii)
Borrower has made any agreement with the Obligor for any deduction
therefrom, except for discounts or allowances which are made in the
ordinary course of business for returns, rebates, cash discounts,
volume discounts, performance discounts, co-op advertising discounts,
price concession discounts, service charges or credit discounts or
allowances and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such Account
Receivable, to the extent of such deduction; or (xviii) after the
issuance of an invoice evidencing an Account Receivable, Borrower has
made an agreement with the Obligor to extend the time of payment
thereof; or (xix) the Account Receivable arises from a retail sale of
goods to a Person who is purchasing same primarily for personal, family
or household purposes.
"Eligible Inventory" means Inventory of Borrower (other than
packaging materials and supplies) which Bank, in the exercise of its
reasonable credit judgment, deems to be Eligible Inventory. Without
limiting the generality of the foregoing, no Inventory shall be
Eligible Inventory unless, in Bank's opinion, it (i) is raw materials
or finished goods that is, in Bank's opinion, readily marketable in its
current form or is raw materials or salable work-in-progress, (ii) is
in good, new and saleable condition, (iii) is not obsolete or
unmerchantable, (iv) meets all standards imposed by any governmental
agency or authority, (v) is at all times subject to Bank's duly
perfected, first priority security interest and no other Lien except a
Permitted Lien, (vi) is situated at a location in the United States or
Canada, and (vii) in the case of Inventory stored in a warehouse or
other facility owned by a Person other than Borrower, such Inventory is
subject to a bailee agreement acceptable in form and substance to Bank.
"Environmental Claim" means any notice of violation, claim,
demand, abatement order or other order or direction (conditional or
otherwise) by any governmental authority for any damage, including,
without limitation, personal injury (including sickness, disease or
death), tangible or intangible property damage, contribution,
indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, release of any Hazardous Material to
the environment, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or
based upon (i) the
5
<PAGE>
occurrence of a Release (whether sudden or non-sudden or accidental or
non-accidental) of, or exposure to, any Hazardous Material, in, into or
onto the environment at, in, by, from, onto or related to any Facility,
(ii) the generation, use, handling, transportation, storage, treatment
or disposal of Hazardous Materials in connection with the operation of
any Facility, or (iii) the violation, or alleged violation, of any
Environmental Laws or any Governmental Authorizations relating to
environmental matters in connection with the Facilities.
"Environmental Laws" means all statutes, ordinances, orders,
rules, regulations, plans, policies, or decrees and the like relating
to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost
recovery compensation, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials, (ii) the generation, use,
handling, transportation, storage, treatment or disposal of Hazardous
Materials or (iii) occupational safety and health, industrial hygiene,
land use or the protection of human, plant or animal health or welfare
related to Hazardous Materials, in any manner applicable to Borrower or
an Affiliate or any of their respective properties, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss.9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss.6901 et seq.), the Federal
Water Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air
Act (42 U.S.C. ss.7401 et seq.), the Toxic Substances Control Act (15
U.S.C. ss.2601 et seq.), the Occupational Safety and Health Act (29
U.S.C. ss.651 et seq.) and the Emergency Planning and Community
Right-To-Know Act (42 U.S.C. ss.11001 et seq.), each as amended or
supplemented, and any analogous present or future local, state and
federal statutes and regulations promulgated pursuant thereto, each as
in effect as of the date of determination.
"Equipment" shall have the meaning ascribed to it in the
Uniform Commercial Code, as then in effect in the State of Illinois.
"ERISA" means the Employee Retirement Income Security Act of
1974, as the same may be amended from time to time and, unless the
context otherwise requires, the regulations promulgated thereunder and
any successor statute.
"ERISA Affiliate" means each trade or business (whether or
not incorporated) which together with Borrower or an Affiliate would be
deemed to be a "single employer" within the meaning of Section 4001(b)
of ERISA or, where applicable, would be treated as a "single employer"
under Section 412(c)(11) of the Code.
"ERISA Termination Event" means (i) a "Reportable Event"
described in Section 4043 of ERISA (other than a "Reportable Event" not
subject to the provision for 30-day notice to the PBGC under such
regulations), (ii) the withdrawal of Borrower or any Affiliate from a
Plan during a plan year in which it was a "substantial employer," as
defined in Section 4001(a) of ERISA, including a cessation of
operations that is treated as a withdrawal by a "substantial employer"
under Section 4062(e) of ERISA, (iii) the filing of a notice of intent
to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, (iv) the institution of
proceedings to terminate a Plan by the PBGC,
6
<PAGE>
(v) any other event or condition which in the reasonable judgment of
Bank is likely to constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to any Plan, or
(vi) the partial or complete withdrawal of Borrower or any ERISA
Affiliate from a Multiemployer Plan.
"Event of Default" shall have the meaning assigned to such
term in Paragraph 12.1 hereof.
"Excess Interest" shall have the meaning assigned to such
term in Paragraph 4.9 hereof.
"Facilities" or "Facility" means any and all real property
(including, without limitation, all buildings, or other improvements
located thereon) now, hereafter or heretofore, owned, leased, operated
or used by Borrower, or any of its successors and assigns.
"Fixed Charges" means total Interest Expense, taxes (other
than income taxes), dividends, required principal payments on Funded
Debt and capital lease principal payments.
"Funded Debt" means, without duplication, (i) indebtedness
for borrowed money, (ii) obligations evidenced by bonds, debentures,
notes or other similar instruments, (iii) the face amount of all
letters of credit issued for the account of Borrower and, without
duplication, all drafts drawn thereunder, (iv) obligations to pay the
deferred purchase price of property or services, (v) obligations as
lessee under leases which have been or should be, in accordance with
GAAP, recorded as capital leases, (vi) obligations under direct or
indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, indebtedness or obligations of
other of the kinds referred to in clauses (i) through (v) above, (vii)
all net obligations under any interest rate swap agreements, any
interest rate cap agreement, any interest rate collar agreement or
other similar agreement or arrangement, and (viii) all obligations to
pay a specified purchase price for goods or services whether or not
delivered or accepted (i.e., take-or-pay and similar obligations).
"GAAP" means United States generally accepted accounting
principles, as in effect from time to time.
"General Intangibles" means all choses in action, causes of
action and all other intangible property of Borrower of every kind and
nature now owned or hereafter acquired by Borrower, including, without
limitation, corporate and other business records, deposit accounts,
inventions, designs, patents, patent and trademark registrations and
applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, deferred tax benefits,
tax refund claims, prepaid expenses, computer programs, covenants not
to compete, customer lists and mailing lists, contract rights,
indemnification rights, causes of action and any letters of credit,
guarantee claims, security interests or other security held by or
granted to Borrower.
7
<PAGE>
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or
from any federal, state or local governmental authority, agency or
court having jurisdiction over Borrower or any Facility.
"Guarantor" means Heartland Technology, Inc., a Delaware
corporation.
"Guaranty" means that certain Guaranty Agreement of even date
herewith made by Guarantor in favor of Bank, as the same may be
amended, restated or modified from time to time.
"Hazardous Materials" means (i) any chemical, material or
substance defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "infectious waste,"
"toxic substances" or any other formulations intended to define, list
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity,
reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of
similar import under any applicable Environmental Laws or publications
promulgated pursuant thereto, (ii) any oil, petroleum or petroleum
derived substance, (iii) any drilling fluids, produced waters and other
wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources, (iv) any flammable
substances or explosives, (v) any radioactive materials, (vi) asbestos
in any form (which is or could become friable), (vii) urea formaldehyde
foam insulation, (viii) electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million, (ix) pesticides or (x) any other
chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental authority or which may or
could pose a hazard to the health and safety of the owners, occupants
or any Persons in the vicinity of the Facilities.
.
"Interest Expense" means, for any period, the sum of all
interest in respect of Funded Debt of Borrower accrued or capitalized
during such period (whether or not actually paid during such period),
determined in accordance with GAAP.
"Interest Period" means with respect to LIBOR Loans, the
period used for the computation of interest commencing on the date the
relevant LIBOR Loan is initiated, effected by conversion or continued,
as the case may be, and concluding on the date one (1) month, two (2)
months, three (3) months or six (6) months thereafter, at Borrower's
option, with any subsequent Interest Period commencing on the last day
of the immediately preceding Interest Period and concluding one (1)
month, two (2) months, three (3) months or six (6) months thereafter,
at Borrower's option; provided, however, that no Interest Period for
any LIBOR Loan made under the Commitment may extend beyond the
applicable Maturity Date.
"Inventory" shall have the meaning ascribed to it in the
Uniform Commercial Code, as then in effect in the State of Illinois,
and shall include, without limitation, all goods held or being
processed for sale or lease including all materials, work-in-process,
finished goods, supplies and other goods customarily classified as
Inventory.
8
<PAGE>
"Liabilities" means, as of any date, the aggregate amount of
all liabilities of Borrower, in accordance with GAAP.
"LIBOR" means, for each Interest Period, the rate of interest
per annum as determined by Bank (rounded upward, if necessary, to the
nearest whole multiple of one-sixteenth of one percent (1/16th of 1%)
or such other integral multiple thereof at which interest rates for
LIBOR-based loans are commonly quoted to major banks in the interbank
eurodollar market) at which deposits of United States Dollars in
immediately available and freely transferable funds would be offered at
11:00 a.m., Chicago time, three (3) Business Days prior to the
commencement of such Interest Period by the principal offshore funding
office of Bank to major banks in the interbank eurodollar market upon
request by such major banks for a period equal to such Interest Period
and in an amount equal to the principal amount of the LIBOR Loan to be
outstanding from Bank during such Interest Period. Each determination
of LIBOR made by Bank in accordance with this paragraph shall be
conclusive and binding on Borrower except in the case of manifest
error.
"LIBOR Loan" means all or a portion of a Revolving Loan
bearing interest at the Adjusted LIBOR Rate plus the LIBOR Margin.
"LIBOR Margin" means two percent (2%).
"Lien" means, with respect to the Collateral, or any asset of
Borrower, any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof and the filing of or agreement to give any
financing statement under the Uniform Commercial Code in effect in any
jurisdiction).
"Loan" or "Loans" means and includes the Revolving Loans
issued under the Revolving Credit Commitment, including all LIBOR Loans
and all Base Rate Loans, the Acquisition Loan made under the
Acquisition Credit Commitment, and the Term Loan made under the Term
Credit Commitment, unless the context in which such term is used shall
otherwise require.
"Maturity Date" means (a) in the case of each of the
Revolving Credit Commitment and the Term Credit Commitment, April 30,
2001 and (b) in the case of the Acquisition Credit Commitment, April
30, 2003.
"Maximum Rate" shall have the meaning assigned to such term
in Paragraph 4.9 hereof.
"Multiemployer Plan" means a plan defined as such in Section
4001(a)(3) of ERISA to which contributions have been made by Borrower
or an ERISA Affiliate.
"Net Worth" means, as of any date of determination thereof,
the amount of all assets of Borrower as may be properly classified as
such less the amount of all unsubordinated Liabilities of Borrower, all
as determined in accordance with GAAP.
9
<PAGE>
"Notes" means, collectively, the Revolving Note, the
Acquisition Note and the Term Note.
"Obligor" means any Person who is and/or may become obligated
to Borrower under or on account of Accounts Receivable.
"Operating Income" means, for any period as to which such
calculation is measured, the sum of net earnings, Interest Expense,
taxes, depreciation and amortization of Borrower.
"Other Agreements" means all agreements, instruments and
documents, including, without limitation, guaranties, mortgages, deeds
of trust, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements
and all other written matter heretofore, now and/or from time to time
hereafter executed by and/or on behalf of Borrower and in favor of Bank
including, without limitation, the Notes, the Subordination Agreement,
the Stock Pledge Agreement, the Guaranty and the Assignment of
Indemnities.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Investments" shall have the meaning assigned to
such term in Paragraph 11.3(f) hereof.
"Permitted Liens" shall have the meaning assigned to such
term in Paragraph 11.3(a) hereof.
"Person" means and includes an individual, a partnership, a
joint venture, a corporation (whether or not for profit), a trust, an
unincorporated organization, a government or any department or agency
thereof or any other entity or organization.
"Plan" means, at any time, any single-employer plan, as
defined in Section 4001(a) and subject to Title IV of ERISA, which is
maintained, or at any time during the five calendar years preceding the
time in question was maintained, for employees of Borrower or a
Subsidiary.
"Purchase Agreement" means that certain Agreement and Plan of
Reorganization dated as of April 10, 1998 by and among Solder Station,
SSA, Odilon Cardenas, Enedina Cardenas and Guarantor.
"Release" means any release, spill, emission, leaking,
pumping, pouring, injection, escaping, deposit, disposal, discharge,
dumping, leaching, or migration of Hazardous Materials into the indoor
or outdoor environment (including, without limitation, the abandonment
or disposal of any barrels, containers or other closed receptacles
containing any Hazardous Materials), or into or out of any Facility.
"Reserve Percentage" means, for the purpose of computing the
Adjusted LIBOR Rate, the reserve requirement imposed by the Board of
Governors of the Federal Reserve
10
<PAGE>
System (or any successor) under Regulation D on Eurocurrency
liabilities (as such term is defined in Regulation D) for the
applicable Interest Period as of the first day of such Interest Period,
but subject to any amendments of such reserve requirement by such Board
or its successor, and taking into account any transitional adjustments
thereto becoming effective during such Interest Period. For purposes of
this definition, LIBOR Loans shall be deemed to be Eurocurrency
liabilities as defined in Regulation D without benefit of or credit for
prorations, exemptions or offsets under Regulation D.
"Revolving Credit Commitment" shall have the meaning assigned
to such term in Paragraph 2.1 hereof.
"Revolving Loans" means and includes all loans made under the
Revolving Credit Commitment, unless the context in which such term is
used shall otherwise require.
"Revolving Loan Borrowing Base" means, as at any date of
determination thereof, an amount equal to the lesser of (i) the amount
then available under the Revolving Credit Commitment and (ii) an amount
equal to the sum of (A) eighty-five percent (85%) of the net amount of
Eligible Accounts Receivable outstanding at such date and (B) the
lesser of Two Hundred Thousand Dollars ($200,000) and fifty percent
(50%) of the net amount of Eligible Inventory at such date.
"Revolving Note" means, that certain Revolving Note of even
date herewith in the original maximum principal amount available of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000), as the same may be
amended, modified or supplemented from time to time, and together with
any renewals thereof or exchanges or substitutes therefor.
"Stock" means all shares, interests, participation or other
equivalents, however designated, of or in a corporation or limited
liability company, whether or not voting, including but not limited to
common stock, warrants, preferred stock, convertible debentures, and
all agreements, instruments and documents convertible, in whole or in
part, into any one or more or all of the foregoing.
"Stock Pledge Agreement" means that certain Stock Pledge
Agreement of even date herewith made by Guarantor in favor of Bank, as
the same may be amended, modified or supplemented from time to time.
"Subordinated Debt" means, as of any date, the amount of
Funded Debt which is subordinated in right of payment to the Loans on
terms satisfactory to Bank in each particular case.
"Subordinated Notes" means, together, the Promissory Note
dated as of April 10, 1998 in the original principal amount of One
Million Seven Hundred Thousand Dollars ($1,700,000) in favor of Odilon
Cardenas and Enedina Cardenas due and payable by Borrower (after giving
effect to the consummation of the Acquisition), and (ii) the Promissory
Note dated as of April 10, 1998 in the original principal amount of
Four Hundred
11
<PAGE>
Thousand Dollars ($400,000) in favor of Odilon Cardenas and Enedina
Cardenas due and payable by Borrower (after giving effect to the
consummation of the Acquisition).
"Subordination Agreement" means that certain Subordination
Agreement of even date herewith among Borrower, Odilon Cardenas,
Enedina Cardenas and Bank as the same may be amended, modified or
supplemented from time to time, with respect to the Subordinated Notes.
"Subsidiary" means any corporation of which a Person owns,
directly or indirectly through one or more intermediaries, more than
fifty percent (50%) of the voting stock at the time of determination.
"Term Credit Commitment" shall have the meaning assigned to
such term in Paragraph 2.3 hereof.
"Term Loan" means and includes the Loan made under the Term
Credit Commitment, unless the context in which such term is used shall
otherwise require.
"Term Note" means that certain Term Note of even date
herewith in the original principal amount of ONE MILLION TWO HUNDRED
THOUSAND DOLLARS ($1,200,000), as the same may be amended, modified or
supplemented from time to time, and together with any renewals thereof
or exchanges or substitutes therefor.
"Termination Date" means the earliest to occur of (i) the
Maturity Date or (ii) the Early Termination Date.
1.2 Certain UCC and Accounting Terms. Except as otherwise defined in
this Agreement or the Other Agreements, all words, terms and/or phrases used
herein and therein shall be defined by the applicable definition therefor (if
any) in the Uniform Commercial Code as then in effect in the State of Illinois.
Notwithstanding the foregoing, any accounting terms used in this Agreement which
are not specifically defined herein shall have the meanings customarily given to
them in accordance with GAAP. All financing computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied.
2. LOANS: BANK'S COMMITMENTS AND BORROWING PROCEDURES
2.1 Revolving Credit Commitment. On the terms and subject to the
conditions set forth in this Agreement, Bank agrees to make revolving credit
available to Borrower from time to time prior to the Termination Date in the
form of Revolving Loans in such aggregate amounts as Borrower may from time to
time request but in no event exceeding the aggregate maximum principal amount
available at any time of One Million Five Hundred Thousand Dollars ($1,500,000)
(such agreement being herein called the "Revolving Credit Commitment");
provided, however, that in no event shall credit available pursuant to the
Revolving Credit Commitment at any one time exceed the Revolving Loan Borrowing
Base. The Revolving Credit Commitment shall be available to Borrower by means of
Revolving Loans (which may be either LIBOR Loans or Base Rate Loans, subject to
the terms of this Agreement), it being understood that Revolving Loans may be
repaid and
12
<PAGE>
used again during the period from the date hereof to and including the
applicable Termination Date, at which time the Revolving Credit Commitment shall
expire.
2.2 Acquisition Credit Commitment. On the terms and subject to the
conditions set forth in this Agreement, Bank agrees to make the Acquisition Loan
in the principal amount of NINE HUNDRED THOUSAND DOLLARS ($900,000) (such
agreement being herein called the "Acquisition Credit Commitment"). Amounts
borrowed in respect of the Acquisition Loan and repaid may not be reborrowed.
2.3 Term Credit Commitment. On the terms and subject to the conditions
set forth in this Agreement, Bank agrees to make the Term Loan in the principal
amount of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000) (such agreement
being herein called, the "Term Credit Commitment"). Amounts borrowed in respect
of the Term Loan and repaid may not be reborrowed.
2.4 Borrowing Procedures/Revolving Loans. (a) Whenever Borrower desires
to continue or incur Revolving Loans hereunder, Borrower shall give Bank at its
"Address for Notices" set forth on the signature page hereof, prior to 11:00
A.M. (Chicago time), at least three (3) Business Days' prior written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of LIBOR
Loans and at least one (1) Business Day's prior written notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Base Rate Loans under
the Revolving Credit Commitment to be made hereunder; provided, however, that
any Revolving Loans incurred on the Closing Date shall consist of Base Rate
Loans. Each such notice (each a "Notice of Borrowing") shall be irrevocable and
shall specify (i) the aggregate principal amount of the Revolving Loans to be
made pursuant to each Borrowing, (ii) the date of Borrowing (which shall be a
Business Day) and (iii) whether any respective Borrowing shall consist of Base
Rate Loans or LIBOR Loans and, if LIBOR Loans, the Interest Period to be
initially applicable thereto.
(b) Without in any way limiting the obligation of Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, Bank
may prior to receipt of written confirmation act without liability upon the
basis of such telephonic notice, believed by Bank in good faith to be from an
Authorized Officer of Borrower. In each such case, Borrower hereby waives the
right to dispute Bank's record of the terms of such telephonic notice.
2.5 All Loans to Constitute One Obligation. The Loans shall constitute
one general obligation of Borrower, and shall be secured by the security
interest in and Lien upon all of the Collateral, for Bank's benefit, and by all
other security interests, Liens, claims and encumbrances heretofore, now or at
any time or times hereafter granted by Borrower to Bank.
2.6 Use of Proceeds. Notwithstanding anything contained herein to the
contrary, Loans made available by Bank to Borrower, (a) in respect of the
Revolving Credit Commitment, must be drawn upon and used to pay a portion of the
costs of the Acquisition and for general working capital purposes only, (b) in
respect of the Acquisition Credit Commitment, must be used, to pay a portion of
the costs of the Acquisition and (c) in respect of the Term Loan Commitment,
must be used to pay a portion of the costs of the Acquisition. Prior to making
any such Loan, Bank has the right to require Borrower to provide Bank with
evidence, satisfactory to Bank, that such Loans will be used in accordance with
this Paragraph 2.6.
13
<PAGE>
3. LOANS: NOTES EVIDENCING LOANS
3.1 Revolving Note. The Revolving Loans made by Bank under the
Revolving Credit Commitment shall be evidenced by the Revolving Note
substantially in the form set forth in Exhibit A, with appropriate insertions,
dated the date hereof (or such other date prior thereto as shall be satisfactory
to Bank), payable to the order of Bank. The unpaid principal amount of the
Revolving Loan shall bear interest and be due and payable as provided in this
Agreement and the Revolving Note. Payments to be made by Borrower under the
Revolving Note shall be made at the time, in the amounts and upon the terms set
forth herein and therein.
3.2 Acquisition Note. The Acquisition Loan made by Bank under the
Acquisition Credit Commitment shall be evidenced by the Acquisition Note
substantially in the form set forth in Exhibit B, with appropriate insertions,
dated the date hereof, payable to the order of Bank. The unpaid principal amount
of the Acquisition Loan shall bear interest and be due and payable as provided
in this Agreement and the Acquisition Note. Payments to be made by Borrower
under the Acquisition Note shall be made at the time, in the amounts and upon
the terms set forth herein and therein.
3.3 Term Note. The Term Loan made by Bank under the Term Credit
Commitment shall be evidenced by the Term Note substantially in the form set
forth in Exhibit C, with appropriate insertions, dated the date hereof, payable
to the order of Bank. The unpaid principal amount of the Term Loan shall bear
interest and be due and payable as provided in this Agreement and the Term Note.
Payments to be made by Borrower under the Term Note shall be made at the time,
in the amounts and upon the terms set forth herein and therein.
3.4 Recordation. The type, date and amount of each Loan made by Bank,
the interest rate, and the date and amount of each repayment of principal
received by Bank shall be recorded by Bank in its records. The aggregate unpaid
principal amount so recorded shall be prima facie evidence of the principal
amount owing and unpaid on the Revolving Note, the Acquisition Note and the Term
Note, absent manifest error. The failure to so record any such amount or any
error in so recording any such amount shall not limit or otherwise affect the
obligations of Borrower hereunder or under the Notes to repay the principal
amount of the Loans together with all interest accrued thereon.
3.5 Loan Evidence. Loans made by Bank to Borrower pursuant to this
Agreement may or may not (at Bank's sole and absolute discretion) be evidenced
after the date hereof by notes or other instruments issued or made by Borrower
to Bank. Where such loans are not so evidenced, such loans shall be evidenced
solely by entries upon the ledgers, books, records and/or computer records of
Bank maintained for that purpose, which entries shall be rebuttably presumptive
evidence of such loans in the absence of manifest error.
14
<PAGE>
4. LOANS: AMOUNTS; INTEREST; CHANGE IN CIRCUMSTANCES, ETC.
4.1 Interest Rates; Applicable Borrowing Amounts; Default Rate.
(a) The unpaid principal amount of (i) each Revolving Loan
that is a Base Rate Loan shall bear interest from the date of such Revolving
Loan until maturity (whether by acceleration or otherwise) at a rate per annum
which shall at all times be the Base Rate in effect from time to time, (ii) the
Acquisition Loan shall bear interest from the date of such Acquisition Loan
until maturity (whether by acceleration or otherwise) at a rate per annum which
shall at all times be the Base Rate in effect from time to time plus one percent
(1%), and (iii) the Term Loan shall bear interest from the date of such Term
Loan until maturity (whether by acceleration or otherwise) at a rate per annum
which shall at all times be the Base Rate in effect from time to time plus one
and one-half percent (1.5%), in each case with such interest payable in
accordance with Paragraph 4.1(d) below.
(b) Each LIBOR Loan shall be in a minimum amount of $100,000
or such greater amount which is an integral multiple of $20,000 and shall bear
interest on the unpaid principal amount thereof from the date of such LIBOR Loan
until maturity (whether by acceleration or otherwise) at a rate per annum equal
to the sum of the LIBOR Margin plus the Adjusted LIBOR Rate, with such interest
payable in accordance with Paragraph 4.1(d) below. More than one LIBOR Loan may
be incurred on any Business Day; provided, that at no time shall there be
outstanding more than three (3) LIBOR Loans hereunder.
(c) If an Event of Default shall have occurred and be
continuing hereunder, all LIBOR Loans shall convert to Base Rate Loans and all
Loans shall bear interest from the date of such Event of Default, payable on
demand, at a rate per annum (the "Default Rate") equal to the sum of two percent
(2%) plus the interest rate then in effect.
(d) Interest on Loans shall accrue from and including the
date of any such Loan to but excluding the date of any repayment thereof and
shall be payable (i) in respect of each Revolving Loan that is a Base Rate Loan,
Acquisition Loan and Term Loan, monthly in arrears on the last Business Day of
each calendar month commencing April 30, 1998, (ii) in respect of each LIBOR
Loan, on the last day of each Interest Period applicable thereto and, in the
case of an Interest Period of more than one (1) month, on the last Business Day
of each calendar month commencing April 30, 1998, and (iii) in respect of each
Loan, on any prepayment or conversion (on the amount prepaid or converted), at
maturity (whether by acceleration or otherwise) and, after such maturity, on
demand.
(e) Bank, upon determining the interest rate for any
borrowing or reborrowing of LIBOR Loans for any Interest Period, shall promptly
notify Borrower thereof.
4.2 Computation of Interest. Interest on each Loan shall be computed
for the actual number of days elapsed on the basis of a 360-day year. The
interest rate applicable to each Revolving Loan that is a Base Rate Loan,
Acquisition Loan and Term Loan shall change simultaneously with each change in
the Base Rate.
15
<PAGE>
4.3 Conversion and Reborrowing of Loans; Interest Periods.
(a) Subject to the next following sentence, LIBOR Loans shall
mature and become due and payable on the last day of the Interest Period
applicable thereto. Following the end of an Interest Period, provided that no
Event of Default has occurred and is continuing, Borrower shall have the right,
subject to the terms and conditions of this Agreement, to reborrow through a new
LIBOR Loan in whole or in part, subject to Paragraph 4.1(b) above, any LIBOR
Loan from any current Interest Period into a subsequent Interest Period,
provided that Borrower shall give Bank notice of the reborrowing of any such
LIBOR Loan as provided in Paragraph 2.4 hereof; provided, that in the absence of
such notice, such LIBOR Loan shall be reborrowed hereunder as a Base Rate Loan.
(b) In the event that Borrower fails to give notice pursuant
to Paragraph 2.4 hereof to specify the Interest Period applicable to such
reborrowing, such Loan shall be reborrowed as a LIBOR Loan for a one (1) month
Interest Period; provided, if an Event of Default has occurred and is continuing
at the time any such LIBOR Loan is to be reborrowed hereunder, then such LIBOR
Loan shall be automatically reborrowed as a Base Rate Loan and interest shall
accrue thereafter at the Default Rate, unless the relevant LIBOR Loan is paid in
full on the last day of the then applicable Interest Period.
(c) Notwithstanding anything contained herein to the
contrary: (i) the initial Interest Period for any Borrowing of LIBOR Loans shall
commence on the date of such Borrowing (including the date of any conversion
from a Base Rate Loan) and each Interest Period occurring thereafter in respect
of such Borrowing shall commence on the day on which the next preceding Interest
Period expires; (ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of such
calendar month; (iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided if any Interest Period would otherwise expire
on a day which is not a Business Day, but is a day of the month after which no
further Business Day occurs in such month, such Interest Period shall expire on
the next preceding Business Day; (iv) no Interest Period shall extend beyond the
Maturity Date; and (v) no Interest Period may be elected at any time when an
Event of Default is then in existence.
4.4 Change of Law. Notwithstanding any other provisions of this
Agreement or the Notes, if at any time Bank shall determine in good faith that
any change in applicable law or regulation or in the interpretation thereof
makes it unlawful or impossible for Bank to continue to maintain any LIBOR Loan,
Bank shall promptly give notice thereof (together with an explanation of the
reasons therefor) to Borrower, and the obligation of Bank to effect by
conversion or continue such LIBOR Loan under this Agreement shall terminate
until it is no longer unlawful or impossible for Bank to effect by conversion or
maintain such LIBOR Loan. Upon the receipt of such notice, Borrower may elect to
either (i) pay or prepay, as the case may be, the outstanding principal amount
of any such LIBOR Loan, together with all interest accrued thereon and all other
amounts payable to Bank under this Agreement, or (ii) convert the principal
amount of such affected LIBOR Loan to a Base Rate Loan available hereunder,
subject to the terms and conditions of this Agreement.
16
<PAGE>
4.5 Unavailability of Deposits or Inability to Ascertain the LIBOR Rate
or Adjusted LIBOR Rate. Notwithstanding any other provision of this Agreement or
the Notes to the contrary, if prior to the commencement of any Interest Period
Bank shall determine in good faith (i) that deposits in the amount of any LIBOR
Loan scheduled to be outstanding are not available to Bank in the relevant
market or (ii) by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining the LIBOR rate or
Adjusted LIBOR Rate, then Bank shall promptly give notice thereof to Borrower,
and the obligation of Bank to make or effect by conversion or continue any such
LIBOR Loan in such amount and for such Interest Period shall terminate until
deposits in such amount and for the Interest Period selected by Borrower shall
again be readily available in the relevant market and adequate and reasonable
means exist for ascertaining the LIBOR rate or Adjusted LIBOR Rate, as the case
may be. Upon the giving of such notice, Borrower may elect to either (i) pay or
prepay, as the case may be, the outstanding principal amount of any such LIBOR
Loan, together with all interest accrued thereon and all other amounts payable
to Bank in respect of Revolving Loans under this Agreement or (ii) convert the
principal amount of such affected LIBOR Loan to a Base Rate Loan available
hereunder, subject to all the terms and conditions of this Agreement.
4.6 Yield Protection, Etc.
(a) Increased Costs. If (x) Regulation D of the Board of
Governors of the Federal Reserve System, or (y) the adoption of any applicable
law, treaty, rule, regulation or guideline, or any change therein, or any change
in the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank or its lending branch with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency,
(i) shall subject Bank, its lending branch or any
Loan to any tax, duty, change, stamp tax, fee, deduction, withholding
or other charge in respect of this Agreement, any Loan, the Notes or
the obligation of Bank to make or maintain any Loan, or shall change
the basis of taxation of payments to Bank of the principal of or
interest on any Loan or any other amounts due under this Agreement in
respect of any Loan or its obligation to make or maintain any Loan
(except for changes in the rate of tax on the overall net income of
Bank imposed by the federal, state or local jurisdiction in which
Bank's principal executive office or its lending branch is located);
(ii) shall impose, modify or deem applicable any
reserve (including, without limitation, any reserve imposed by the
Board of Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for the account
of, or credit extended by, Bank; or
(iii) shall impose on Bank any penalty with respect
to the foregoing or any other condition affecting this Agreement, any
Loan, the Notes or the obligation of Bank to make or maintain any Loan;
and the result of any of the foregoing is to increase the cost to (or to impose
a cost on) Bank of making or maintaining any Loan, or to reduce the amount of
any sum received or receivable by Bank under this Agreement or under the Notes
with respect thereto, then Bank shall notify Borrower after
17
<PAGE>
it receives final notice of any of the foregoing and, within forty-five (45)
days after demand by Bank (which demand shall be accompanied by a statement
setting forth the basis of such demand), Borrower shall pay directly to Bank,
such additional amount or amounts as will compensate Bank for such increased
cost or such reduction.
(b) Capital Adequacy. If, after the date hereof, either (i)
the introduction of or any change in or change in the interpretation of any law
or regulation or (ii) compliance by Bank with any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by Bank or any corporation controlling Bank and Bank determines that
the amount of such capital is increased solely by or solely based upon the
existence of Bank's commitment to lend hereunder and other commitments of this
type, then, upon demand by Bank, Borrower shall immediately pay to Bank, from
time to time as specified by Bank, additional amounts sufficient to compensate
Bank in the light of such circumstances, to the extent that Bank reasonably
determines such increase in capital to be allocable to the existence of Bank's
commitment to lend hereunder.
4.7 Funding Indemnity. In the event Bank shall incur any loss, cost or
expense (including, without limitation, any loss of profit and any loss, cost or
expense incurred by reason of the liquidation or re-employment of deposits or
other funds required by Bank to fund or maintain any LIBOR Loan or the relending
or reinvesting of such deposits or amounts paid or prepaid to Bank) as a result
of:
(a) any payment of a LIBOR Loan on a date other than the last
day of the then applicable Interest Period;
(b) any failure by Borrower to effect by conversion or
continue any LIBOR Loan on the date specified in the notice given pursuant to
Paragraph 2.4 hereof;
(c) any failure by Borrower to make any payment of principal
or interest when due on any LIBOR Loan, whether at stated maturity, by
acceleration or otherwise; or
(d) the occurrence of any Event of Default;
then, upon the demand by Bank, Borrower shall pay to Bank such amount as will
reimburse Bank for such loss, cost or expense. If Bank makes such a claim for
compensation under this Paragraph 4.7, Bank shall provide to Borrower a
certificate setting forth the amount of such loss, cost or expense in reasonable
detail.
4.8 Discretion of Bank as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary other than Paragraph 4.7, Bank shall
be entitled to fund and maintain its funding of all or any part of the LIBOR
Loans in any manner it sees fit.
4.9 Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the Other Agreements, Borrower shall not be
required to pay, and Bank shall not be permitted to collect, any amount of
interest in excess of the maximum amount of interest permitted by law ("Excess
Interest"). If any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this Agreement or in any of
the Other
18
<PAGE>
Agreements, then in such event: (a) the provisions of this Paragraph shall
govern and control; (b) Borrower shall not be obligated to pay any Excess
Interest; (c) any Excess Interest that Bank may have received and/or disbursed
to Bank hereunder shall be, at Bank's option, (i) applied as a credit against
the outstanding principal balance of Borrower's Liabilities or accrued and
unpaid interest (not to exceed the maximum amount permitted by law), (ii)
refunded to the payor thereof, or (iii) any combination of the foregoing; (d)
the interest rate(s) provided for herein shall be automatically reduced to the
maximum lawful rate allowed from time to time under applicable law (the "Maximum
Rate"), and this Agreement and the Other Agreements shall be deemed to have been
and shall be reformed and modified to reflect such reduction; and (e) Borrower
shall not have any action against Bank for any damages arising out of the
payment or collection of any Excess Interest. Notwithstanding the foregoing, if
for any period of time interest on any Borrower's Liabilities is calculated at
the Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Borrower's Liabilities shall remain at the Maximum Rate
until Bank shall have received the amount of interest which Bank would have
received during such period on such Borrower's Liabilities had the rate of
interest not been limited to the Maximum Rate during such period.
5. LOANS: GENERAL TERMS
5.1 Payments to Bank; Defaulting Bank. That portion of Borrower's
Liabilities consisting of: (a) principal payable on account of the Loans made by
Bank to Borrower pursuant to this Agreement shall be payable by Borrower to
Bank, (i) as provided in the Revolving Note in respect of the Revolving Loans,
(ii) as provided herein in the Acquisition Note in respect of the Acquisition
Loan, and (iii) as provided in the Term Note in respect of the Term Loan; (b)
costs, fees and expenses payable pursuant to this Agreement shall be payable by
Borrower to Bank on demand; (c) interest payable pursuant to this Agreement
shall be payable by Borrower to Bank, as provided in Paragraph 4.1; and (d) the
balance of Borrower's Liabilities, if any, shall be payable by Borrower to Bank
as and when provided in this Agreement or the Other Agreements.
5.2 Automatic Debit. In order to cause timely payment to be made to
Bank of all Borrower's Liabilities as and when due, Borrower hereby authorizes
and directs Bank to debit the amount of such Borrower's Liabilities to any
ordinary deposit account of Borrower at Bank (including, without limitation, by
increasing the principal balance due under the Revolving Loan).
5.3 Application of Payment. Subject to Paragraph 13.3 below and except
as otherwise specified herein, Borrower shall, at the time of making each
payment under this Agreement or any Note (whether by account debit or
otherwise), specify to Bank the Loan or other amounts payable by Borrower
hereunder to which such payment is to be applied (and in the event that it fails
to so specify, or if an Event of Default has occurred and is continuing, Bank
may allocate such payment in such manner as it may determine to be appropriate).
Notwithstanding the foregoing, all prepayments shall be applied to the amounts
due hereunder in the inverse order of their maturities.
5.4 Conditions Precedent Events. Each Loan made by Bank to Borrower at
the request of Borrower pursuant to this Agreement or the Other Agreements shall
in any event be subject to the following conditions precedent: (a) there shall
not then exist an Event of Default (as hereinafter defined) or any event or
condition which with notice, lapse of time and/or the making of such Loan would
constitute an Event of Default; (b) the representations and warranties of
Borrower (after
19
<PAGE>
giving effect to the consummation of the Acquisition) contained in this
Agreement shall be true and correct as of the date of such Loan with the same
effect as though made on such date; (c) all of the covenants and agreements of
Borrower in this Agreement, and all of the requirements of this Agreement with
respect to such Loan, shall have been complied with; and (d) there shall not
have occurred, since the date of this Agreement, any material adverse change in
the financial condition, results of operations or business of Borrower. Each
Borrowing by Borrower hereunder shall be deemed a representation and warranty by
Borrower that the foregoing conditions have been fulfilled as of the date of
such borrowing. Bank shall have received upon request a certificate signed by an
Authorized Officer of Borrower dated the date of such requested Loan certifying
satisfaction of the conditions specified in clauses (a)-(d) of this Paragraph
5.4.
5.5 Offset. Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim Bank may
otherwise have, Bank shall be entitled, at its option, to offset balances held
by it for account of Borrower at any of its offices, in United States Dollars or
in any other currency, against any principal of or interest on any of Bank's
Loans, or any other amount payable to such Bank hereunder, which is not paid
when due (regardless of whether such balances are then due to Borrower), in
which case it shall promptly notify Borrower thereof, provided that such Bank's
failure to give such notice shall not affect the validity thereof.
5.6 Discretionary Disbursements. Bank, in its sole and absolute
discretion, may immediately upon notice to Borrower, disburse any or all
proceeds of Loans made or available to Borrower pursuant to this Agreement
and/or the Other Agreements to pay any fees, costs, expenses or other amounts
required to be paid by Borrower hereunder and not so paid. All monies so
disbursed by Bank shall be a part of Borrower's Liabilities, payable by Borrower
on demand.
5.7 Credit Termination Date; Continuance of Obligations, Etc. This
Agreement, Bank's obligation to loan monies to Borrower, and Borrower's ability
to borrow monies from Bank shall be in effect until the Termination Date.
Notwithstanding the foregoing and until such date when Borrower's Liabilities
shall be paid in full, Borrower's obligations hereunder and under the Other
Agreements shall continue, interest shall continue to be paid in accordance with
the foregoing, Bank shall be entitled to retain its security interest in the
Collateral and Bank shall retain all of its rights and remedies under this
Agreement.
5.8 Over-Advances. If, at any time and for any reason, the aggregate
amount of Borrower's Liabilities in respect of Revolving Loans outstanding
hereunder exceeds the Revolving Credit Commitment (an "Over-Advance"), then upon
receipt of notice to Borrower by Bank, Borrower shall immediately pay to Bank,
the amount of such Over-Advance. If such Over-Advance remains outstanding for
more than one (1) Business Day after receipt of the aforesaid notice, until such
Over-Advance is so repaid to Bank, an Event of Default shall be deemed to have
occurred hereunder and the amount of such Over-Advance shall bear interest at
the applicable Default Rate.
5.9 Lock-Box and Blocked Account. Upon the occurrence of an Event of
Default, upon the written request of Bank, Borrower shall establish a lock box
and cash collateral depository account (collectively, the "Blocked Account") in
Borrower's name with Bank to which all Obligors shall directly remit all
payments on Accounts Receivable and Collateral and in which Borrower will
immediately deposit all payments made for services rendered or other payments
constituting proceeds of Collateral in the identical form in which such payment
was made, whether by cash or
20
<PAGE>
check. All payments made to the Blocked Account shall be the sole and exclusive
property of Bank and no persons shall have a right to setoff against the Blocked
Account. Bank will apply against Borrower's Liabilities two (2) Business Days
after the date of receipt, if received in the Blocked Account and by Bank's
commercial note teller prior to 2:00 p.m., Chicago time, all payments received
thereon, including cash, solvent credits, collections of Accounts Receivable,
proceeds of Collateral and any other amounts; provided that (a) Bank shall
charge back to Borrower any payments that may be required to be returned to the
entity making such payment and Borrower shall continue to pay interest on the
amount charged back from the date that such payment was applied against
Borrower's Liabilities; and (b) Bank shall have the exclusive right to determine
how, when and in what amounts application of such payments and such credits
shall be made on Borrower's Liabilities, and such determination shall be
conclusive upon Borrower.
5.10 Prepayments; Prepayment Penalty; Etc.
(a) Voluntary Prepayments -- Revolving Loans. Borrower shall
have the right to prepay Revolving Loans in whole or in part, without premium or
penalty, from time to time on the following terms and conditions: (i) the
Borrower shall give Bank, at its Address for Notices (on the signature page
hereof), written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay the Revolving Loans, the amount of such prepayment and (in
the case of LIBOR Loans) the specific Borrowing(s) pursuant to which made, which
notice shall be given by the Borrower at least one (1) Business Day prior to the
date of such prepayment with respect to Base Rate Loans and two (2) Business
Days prior to the date of such prepayment with respect to LIBOR Loans; (ii) each
partial prepayment of any Borrowing shall be in an aggregate principal amount of
at least $200,000 and, if greater in an integral multiple of $100,000; and (iii)
at the time of any prepayment of LIBOR Loans pursuant to this Paragraph 5.10(a)
on any date other than the last day of the Interest Period applicable thereto,
Borrower shall pay the amounts required pursuant to Paragraph 4.1(d) and
Paragraph 4.7.
(b) Voluntary Prepayments -- Acquisition Loan and Term Loan.
Borrower shall have the right at any time to prepay in full, but not in part,
either or both of the Acquisition Loan and the Term Loan on the following terms
and conditions: (i) Borrower shall give Bank, at its Address for Notices (on the
signature page hereof), written notice (or telephonic notice promptly confirmed
in writing) of its intent to prepay either or both of such Loans, the amount of
such prepayment and whether such Loan(s) being prepaid is the Acquisition Loan,
the Term Loan or both, which notice shall be given by Borrower at least thirty
(30) Business Days prior to the date of such prepayment. In view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Bank's lost
profits, an early termination fee shall be paid by Borrower on the amount of the
Acquisition Loan and/or Term Loan being prepaid (the "Early Termination Fee"),
which Early Termination Fee shall be equal to:
(i) if such termination occurs prior to the first
anniversary of the date hereof, an amount equal to three percent (3%)
of the principal amount of Loans being prepaid; or
(ii) if such termination occurs on or after the first
anniversary, but prior to the second anniversary of the date hereof, an
amount equal to two percent (2%) of the principal amount of Loans being
prepaid; or
21
<PAGE>
(iii) if such termination occurs on or after the
second anniversary, but prior to the third anniversary hereof, an
amount equal to one percent (1%) of the principal amount of Loans being
prepaid.
5.11 Unused Portion Fee. To compensate Bank for the cost of reserving
funds to be made available to Borrower under this Agreement, Borrower shall pay
to Bank, for the benefit of Bank, on the last day of each fiscal quarter an
unused revolving line fee (the "Unused Portion Fee") equal to the sum of the
daily amounts by which the maximum aggregate principal amount of the Revolving
Credit Commitment exceeds the actual principal amount of all Revolving Loans
made hereunder. The Unused Portion Fee is calculated for each applicable day of
such quarter in an amount equal to the excess of the maximum aggregate principal
amount of the Revolving Credit Commitment over the principal amount of all
outstanding advances under the Revolving Loans on such day, multiplied by
one-quarter of one percent (1/4%). All fees and charges imposed on Borrower
pursuant to this Agreement including, without limitation, the Unused Portion Fee
accrued through the date of termination, shall be nonrefundable to Borrower,
notwithstanding any prepayment and termination by Borrower of this Agreement.
5.12 Transaction Fee. On or prior to the Closing Date, Borrower shall
pay a fee of Thirty- One Thousand Five Hundred Dollars ($31,500) in the
aggregate (the "Transaction Fee") to Bank, which fee is comprised of Ten
Thousand Dollars ($10,000) in respect of the Revolving Credit Commitment,
Thirteen Thousand Dollars ($13,000) in respect of the Acquisition Credit
Commitment and Eight Thousand Five Hundred Dollars ($8,500) in respect of the
Term Credit Commitment.
6. LOANS: CONDITIONS TO LENDING
6.1 Initial Loan Conditions Precedent. In addition to those conditions
set forth in Paragraph 5.4 above with respect to all Loans and advances
hereunder, prior to or contemporaneously with the making of the initial advance
of funds, Bank's obligation to make any Loan is subject to the satisfaction of
the following conditions precedent:
(a) Fees and Expenses. Borrower shall have paid all fees owed
to Bank and reimbursed Bank for all expenses due and payable hereunder on or
before the date hereof including, but not limited to, the Transaction Fee and
counsel fees provided for in Paragraph 13.12 hereof.
(b) Documents. Bank shall have received the following
documents, in form and substance satisfactory to Bank, and all of the
transactions contemplated by each such document shall have been consummated or
each condition contemplated by each such document shall have been satisfied:
(i) Related Documents. Copies of this Agreement as
required by Bank and one copy of each of the Revolving Note, the
Acquisition Note and the Term Note payable to Bank conforming to the
requirements hereof duly executed by Borrower. The applicable Forms
UCC-1 and UCC-2 financing statements related to the Collateral (as
herein defined) shall have been filed in all jurisdictions that Bank
deems necessary or advisable.
22
<PAGE>
(ii) Legal Opinion. The legal opinion of Borrower's
internal counsel and internal counsel to Guarantor.
(iii) Officer's Certificate. A certificate executed
by the President of Solder Station, stating that (A) no default or
Event of Default has occurred and is continuing, (B) no material
adverse change in the financial condition or operations of the business
of such Borrower has occurred since December 31, 1997, and (C) each
condition precedent to the consummation of the Loans contemplated
hereby has been met or satisfied.
(iv) Insurance Policies. Certificates from Solder
Station's insurance carrier evidencing that all insurance policies and
coverage required by Paragraph 11.2(g) below is in effect, together
with a lender's loss payable endorsement.
(v) Constituent Documents. A copy of the Certificate
of Incorporation for each Borrower and Guarantor, certified by the
Secretary of State of each such entity's respective jurisdiction of
organization, and a copy of each such entity's Bylaws, certified by the
Secretary of each such entity, in each case together with all
amendments.
(vi) Good Standing Certificates. A Good Standing
Certificate (A) for each Borrower from the jurisdiction of organization
and each state in which each Borrower is required to be qualified to
transact business as a foreign corporation and (B) Guarantor from the
state of its organization and each state in which it is required to be
qualified to transact business as a foreign corporation.
(vii) Resolutions. Certified copies of resolutions of
the Board of Directors of each Borrower authorizing the execution and
delivery of and the consummation of the transactions contemplated by
the Acquisition, this Agreement and the Other Agreements and all other
documents or instruments to be executed and delivered in conjunction
herewith and therewith by each Borrower.
(viii) Incumbency Certificates. A certificate of the
Secretary of each Borrower certifying as to the names of the officer or
officers of such Borrower authorized to sign this Agreement and the
Other Agreements, in each case together with a sample of the true
signature of each such individual.
(ix) Landlord's Waiver. Landlord's Waiver, License
and Agreement executed by the landlord/lessor of the leased property of
each Borrower at 2201 W. Cape Cod Way, Santa Ana, CA; 2231 W. Cape Cod
Way, Santa Ana, CA; and 2221 W. Cape Cod Way, Santa Ana, CA.
(x) Pro-Forma Balance Sheet. Pro-Forma Balance Sheet
of Borrower, certified as true and correct by the Chief Financial
Officer of Borrower, reflecting the consummation of the Acquisition and
the transactions contemplated by this Agreement.
(xi) Stock Pledge Agreement. Stock Pledge Agreement
from Guarantor pledging to Bank 100% of the Stock of Borrower (after
giving effect to the consummation of the Acquisition).
23
<PAGE>
(xii) Guaranty. Guaranty from Guarantor for the
benefit of Bank.
(xiii) Subordination Agreement. Subordination
Agreement of even date herewith with respect to the Subordinated Note.
(xiv) Evidence of Consummation of Acquisition.
Certificate of an Authorized Officer of Borrower (after giving effect
to the consummation of the Acquisition) evidencing and certifying as to
the consummation of the Acquisition, in form and substance acceptable
to Bank, reflecting (i) the aggregate amount of the purchase price of
the Acquisition has not exceeded Seven Million Four Hundred Sixty
Thousand Dollars ($7,460,000); and (ii) the aggregate amount of
Subordinated Debt to Odilon Cardenas and Enedina Cardenas under the
Purchase Agreement plus the amount of equity capital of Borrower of at
least Three Million Six Hundred Thousand Dollars ($3,600,000), all of
which is subject to the Subordination Agreement, and attaching thereto
a Certificate of Merger certified by the Secretary of State of
California reflecting the consummation of the merger of SSA with and
into Solder Station, with Solder Station emerging as the surviving
corporation.
(xv) Purchase Agreement. A copy of the final Purchase
Agreement, together with all documents, amendments and schedules
thereto, certified as true and correct by an Authorized Officer of
Borrower (after giving effect to the consummation of the Acquisition).
(xvi) Collateral Assignment of Indemnities. A
Collateral Assignment of Indemnities in favor of Bank, with respect to
the assignment to Bank of the representations and warranties and all
proceeds of indemnification given to Guarantor under the Purchase
Agreement.
(xvii) Lockbox Agreement. Lockbox Agreement with
Bank.
(xviii) Other Documents. Such other documents as Bank
may reasonably request.
(c) Bank's Review. The Bank's review of and satisfaction with
the ownership, capital, corporate, organizational and legal structure of
Borrower, after giving effect to the Acquisition.
6.2 [Reserved].
7. COLLATERAL: GENERAL TERMS
7.1 Grant of Security Interest. To secure the prompt payment of
Borrower's Liabilities and the prompt, full and faithful performance by Borrower
of all of the provisions to be kept, observed or performed by Borrower, Borrower
hereby pledges, transfers, delivers, grants and assigns to Bank, and grants to
Bank a security interest in and to and a first lien on all of Borrower's
property of any kind or description, tangible or intangible, of whatever
description, whether now existing and/or owned and hereafter arising and/or
acquired, wherever located in the United States including,
24
<PAGE>
but not limited to, the following: (a) accounts (including, without limitation,
all of Borrower's Accounts Receivable), chattel paper, contract rights, letters
of credit, instruments and documents (sometimes hereinafter individually and
collectively referred to as "Accounts"), and all goods whose sale, lease or
other disposition by Borrower has given rise to Accounts and have been returned
to or repossessed or stopped in transit by Borrower; (b) Inventory; (c) goods
(other than Inventory), machinery, Equipment, vehicles and fixtures (hereinafter
individually and collectively referred to as "Equipment"); (d) General
Intangibles; (e) monies, reserves, deposits, deposit accounts and interest or
dividends thereon, securities, cash, cash equivalents and other property now or
at any time or times hereafter in the possession or under the control of Bank or
its bailee; (f) liens, guarantees and other rights and privileges pertaining to
any of the foregoing; (g) all books, records and computer records in any way
relating to the foregoing; (h) all other assets of Borrower whether real,
personal, tangible or intangible or mixed, now existing or hereafter acquired,
created, built or otherwise coming into being; (i) all accessions,
substitutions, renewals, improvements and replacements of and additions to the
foregoing; and (j) all products and proceeds of the foregoing including, without
limitation, proceeds of insurance policies insuring the same (all of the
foregoing personal property and real property is hereinafter sometimes
individually and sometimes collectively referred to as "Collateral"). Borrower
shall make appropriate entries upon its financial statements and books and
records disclosing Bank's security interest in the Collateral.
7.2 Perfection of Security Interests. Borrower shall execute and/or
deliver to Bank, at any time and from time to time hereafter at the request of
Bank, all agreements, instruments, financing statements, documents and other
written matter (sometimes hereinafter individually and collectively referred to
as "Supplemental Documentation") that Bank reasonably may request, in form and
substance acceptable to Bank, to perfect and maintain perfected the security
interest in the Collateral granted hereby and to consummate the transactions
contemplated in or by this Agreement and the Other Agreements. Borrower,
irrevocably, hereby makes, constitutes and appoints Bank (and all Persons
designated by Bank for that purpose) as Borrower's true and lawful attorney and
agent-in-fact to sign the name of Borrower on the Supplemental Documentation and
to deliver the Supplemental Documentation to such Persons as Bank may reasonably
elect. Borrower agrees that a carbon, photographic or photostatic copy or other
reproduction of this Agreement or of any financing statement shall be sufficient
as a financing statement.
7.3 Inspection of Collateral and Visitation Rights. Bank shall have the
right to inspect the Collateral and all related records (and the premises upon
which it is located), perform a field audit, visit and inspect the properties
and assets of Borrower and its Subsidiaries and verify the amount and condition
of or any other matter relating to the Collateral; provided, however, Bank shall
only have such inspection rights on one (1) occasion per calendar year prior to
an Event of Default. All costs, fees and expenses incurred by Bank or for which
Bank has become obligated, in connection with such inspection and/or
verification shall constitute part of Borrower's Liabilities, payable by
Borrower to Bank on demand.
7.4 First Lien and Locations of Collateral. Borrower warrants and
represents to and covenants with Bank (after giving effect to the Acquisition)
that: (a) as of the Closing Date, Bank's security interest in the Collateral is
now and at all times hereafter shall be perfected and have a first priority
other than Permitted Liens; (b) the offices and/or locations where Borrower
keeps the Collateral consisting of personal property and books and records
concerning the Collateral are at the locations specified on Schedule 7.4 and
Borrower shall not remove such books and records and/or
25
<PAGE>
the Collateral therefrom and shall not keep any of such books and records and/or
the Collateral at any other office or location without the prior written consent
of Bank; and (c) the addresses specified on Schedule 7.4 include and designate
Borrower's chief executive office, chief place of business and other offices and
places of business and are Borrower's sole offices and places of business.
Borrower, by written notice delivered to Bank at least thirty (30) days prior
thereto, shall advise Bank of Borrower's opening of any new office or place of
business or its closing of any existing office or place of business and any new
office or place of business shall be within the continental United States of
America. There are no liens on the Collateral other than the lien of Bank
pursuant hereto and Permitted Liens.
7.5 Constructive Trust. Borrower shall receive, as the sole and
exclusive property of Bank, and as trustee for Bank, all monies, checks, notes,
drafts and all other payment for and/or proceeds of Collateral which come into
the possession or under the control of Borrower (or any of its shareholders,
directors, officers, employees, representatives or those Persons acting for or
in concert with Borrower) and immediately upon receipt thereof, Borrower shall
remit the same (or cause the same to be remitted), in kind, to Bank.
7.6 Application of Proceeds of Collateral. Upon the occurrence and
during the continuance of an Event of Default, Bank, at time or times in its
sole and absolute discretion, may take control of, in any manner, and may
endorse Borrower's name, as appropriate, to any of the items of payment or
proceeds described in Paragraph 7.5 above and, pursuant to the provisions of
this Agreement, Bank may, in its sole and absolute discretion, apply the same to
and on account of Borrower's Liabilities. For the purposes of this Paragraph,
Borrower, irrevocably, hereby makes, constitutes and appoints Bank (and all
persons designated by Bank for that purpose) as such Borrower's true and lawful
attorney and agent-in-fact with power, without notice to Borrower, to take any
such actions.
7.7 Third Party Collateral Claims. Bank, in its sole and absolute
discretion, without waiving or releasing any Event of Default or obligation,
liability, or duty of Borrower under this Agreement or the Other Agreements, may
at any time or times hereafter, but shall be under no obligation to, pay,
acquire and/or accept an assignment of any security interest, lien, encumbrance,
or claim asserted by any Person against the Collateral. All sums paid by Bank,
in respect thereof and all costs, fees and expenses, including reasonable
attorney's fees, court costs, expenses and other charges relating thereto that
are incurred by Bank on account thereof shall be part of Borrower's Liabilities
payable by Borrower to Bank on demand.
7.8 Additional Collateral. Bank may, in its sole and absolute
discretion, retain as additional Collateral or release to Borrower, from time to
time, such portion of the monies, reserves and/or proceeds received by Bank with
respect to the Collateral as Bank may determine. All such monies, reserves,
proceeds and other property of Borrower in the possession of Bank at any time or
times hereafter are hereby pledged by Borrower to Bank as additional Collateral
hereunder and must be applied by Bank on account of Borrower's Liabilities.
7.9 No Custom or Waiver. No authorization given by Bank pursuant to
this Agreement or the Other Agreements to sell any specified portion of
Collateral or any items thereof, and no waiver by Bank in connection therewith
shall establish a custom or constitute a waiver of the
26
<PAGE>
limitation contained in this Agreement against such sales, with respect to any
portion of the Collateral or any item thereof not covered by said authorization.
7.10 Special Collateral. Immediately upon receipt by Borrower of that
portion of Collateral evidenced or secured by an agreement, letter of credit,
instrument and/or document, including, without limitation, promissory notes,
documents of title and warehouse receipts ("Special Collateral"), Borrower shall
mark the same to show that such Special Collateral is subject to a security
interest in favor of Bank, and shall deliver the original thereof to Bank,
together with appropriate endorsements, the documents required to draw
thereunder (as may be relevant to letters of credit) and/or other specific
evidence of assignment (in form and substance satisfactory to Bank).
8. COLLATERAL: ACCOUNTS RECEIVABLE
8.1 Account Representations and Warranties. Except as otherwise
disclosed by Borrower to Bank in writing, Borrower hereby warrants and
represents to Bank (after giving effect to the Acquisition) with respect to the
Accounts Receivable that: (a) they are genuine, in all respects what they
purport to be and are not evidenced by a judgment; (b) they represent
undisputed, bona fide transactions completed in accordance with the terms and
provisions contained in the invoices and other documents with respect thereto;
(c) the amounts thereof are actually and absolutely owing to Borrower and are
not contingent for any reason; (d) there are no material setoffs, counterclaims
or disputes existing or asserted with respect thereto and Borrower has not made
any agreement with any Obligor thereof for any deduction therefrom except a
regular discount allowed by Borrower in the ordinary course of its business for
prompt payment; (e) the services furnished and/or goods sold giving rise thereto
is not subject to any lien, claim, encumbrance or security interest except that
of Bank and Permitted Liens; and (f) Borrower has no knowledge of any fact or
circumstance which would impair the validity or collectibility thereof.
8.2 Verification of Accounts Receivable. Any of Bank's officers,
employees or representatives shall have the right, in Bank's name or in the name
of a nominee of Bank, to verify the validity, amount or any other matter
relating to any Accounts Receivable by mail, telephone, telegraph or otherwise.
All costs, fees and expenses relating thereto that are incurred by Bank (or for
which Bank becomes obligated) shall be part of Borrower's Liabilities payable by
Borrower to Bank on demand.
8.3 Account Restrictions. Unless Bank notifies Borrower in writing that
Bank suspends any one or more of the following requirements, Borrower shall: (a)
promptly upon Borrower's learning thereof, inform Bank in writing of any
material delay in Borrower's performance of any of its obligations to any
Obligor relating to Accounts Receivable in excess of $10,000 and of any
assertion of any claims, offsets or counterclaims by any Obligor relating to
Accounts Receivable in excess of $10,000 and of any allowances, credits and/or
other monies granted by Borrower to any Obligor which exceed $10,000 in value;
(b) not permit or agree to any material extension, compromise or settlement or
make any change or modification of any material kind or nature with respect to
any Accounts Receivable in excess of $10,000, including any of the terms
relating thereto; and (c) promptly upon Borrower's receipt or learning thereof,
furnish to and inform Bank of all material adverse information relating to the
financial condition of any Obligor on Accounts Receivable in excess of $10,000.
27
<PAGE>
8.4 Enforcement of Right to Accounts Receivable. Upon the occurrence of
an Event of Default, Bank shall have the right, at any time or times in its sole
and absolute discretion, without notice thereof to Borrower: (a) to notify any
or all Obligors that the Accounts Receivable and Collateral have been assigned
to Bank and that Bank has a security interest therein; (b) to direct such
Obligors to make all payments due from them to Borrower upon the Accounts
Receivable and Collateral directly to Bank; (c) to enforce payment of and
collect, by legal proceedings or otherwise, the Accounts Receivable and
Collateral in the name of Bank and Borrower; and (d) to take control, in any
manner, of any item of payment or proceeds referred to in Paragraph 7.5 above.
8.5 Appointment as Attorney-in-Fact. Borrower, irrevocably, hereby
designates, makes, constitutes and appoints Bank (and all Persons designated by
Bank), as Borrower's true and lawful attorney and agent-in-fact, with power,
without notice to Borrower and at such time or times hereafter as Bank, in its
sole and absolute discretion, may determine after the occurrence of an Event of
Default, in Borrower's or Bank's name: (a) to demand payment of the Accounts
Receivable and Collateral; (b) to enforce payment of the Accounts Receivable and
Collateral by legal proceedings or otherwise; (c) to exercise all of Borrower's
rights and remedies with respect to the collection of the Accounts Receivable
and Collateral; (d) to settle, adjust, compromise, extend or renew the Accounts
Receivable and Collateral; (e) to settle, adjust or compromise any legal
proceedings brought to collect the Accounts Receivable and Collateral; (f) to
sell or assign the Accounts Receivable and Collateral upon such terms, for such
amounts, and at such time or times as Bank deems advisable; (g) to discharge and
release the Accounts Receivable and Collateral; (h) to take control, in any
manner, of any item of payment or proceeds referred to in Paragraph 7.5 above;
(i) to prepare, file and sign Borrower's name on any Notice of Lien, Assignment,
Satisfaction of Lien or similar document in connection with the Accounts
Receivable and Collateral; (j) to prepare, file and sign Borrower's name on any
Proof of Claim in Bankruptcy or similar document against any Obligor; (k) to do
all acts and things necessary, in Bank's sole discretion, to fulfill Borrower's
obligations under this Agreement; (l) to endorse the name of Borrower upon any
of the items of payment or proceeds referred to in Paragraph 7.5 above and to
deposit the same to the account of Bank to and on account of Borrower's
Liabilities; (m) to endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts Receivable and Collateral; and (n) to sign
the name of Borrower to verifications of the Accounts Receivable and Collateral
and notices thereof to Obligors.
9. COLLATERAL: INVENTORY
9.1 Inventory Representations and Warranties. Borrower warrants and
represents to and covenants with Bank (after giving effect to the Acquisition)
that: (a) Inventory shall be kept only at the locations specified in Paragraph
7.4 hereof; (b) Borrower, at reasonable intervals upon the reasonable request of
Bank therefor, shall execute and deliver to Bank designations of Inventory
specifying Borrower's cost of Inventory and such other matters and information
relating to Inventory as Bank may reasonably request; (c) Borrower does now keep
and hereafter at all times shall keep correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, Borrower's cost
therefor and selling price thereof and the daily withdrawals therefrom and
additions thereto, all of which records shall be available to any of Bank's
officers, employees or Bank for inspection and copying thereof; and (d)
Inventory is not now and shall not at any time or times hereafter be stored with
a bailee, warehouseman or similar party without Bank's prior written consent
and, in such event, Borrower will concurrently therewith cause any such bailee,
28
<PAGE>
warehouseman or similar party to issue and deliver to Bank, in form and
substance acceptable to Bank, warehouse receipts therefor in Bank's name.
9.2 Ordinary Course Sales. Until an Event of Default, Borrower may
sell Inventory in the ordinary course of business.
10. COLLATERAL: EQUIPMENT
10.1 Equipment Representations and Warranties. Borrower hereby warrants
and represents to Bank (after giving effect to the Acquisition) with respect to
the Equipment that Borrower has good, indefeasible and merchantable title, free
and clear of all Liens, claims and encumbrances, to and ownership of the
Equipment used in its business except for Liens of Bank granted hereunder and
Permitted Liens, and that Equipment shall be kept and/or maintained solely at
the locations specified on Schedule 7.4.
10.2 Maintenance. Borrower shall keep and maintain the Equipment in
good operating condition and repair and shall make all necessary replacements
thereof and renewals thereto so that the value and operating efficiency thereof
shall at all times be maintained and preserved, except where the failure to so
maintain and preserve would not have a material adverse effect on the business,
financial condition or operations of Borrower. Borrower shall not permit any
material item of Equipment to become a fixture to real estate or accession to
other personal property.
10.3 Evidence of Ownership. Borrower, upon reasonable request by Bank,
shall deliver to Bank any and all evidence of ownership of, including, without
limitation, certificates of title to and applications for title to, any
Equipment.
11. REPRESENTATIONS AND WARRANTIES; COVENANTS;
INDEMNIFICATION; CONTINUING OBLIGATION
11.1 Representations and Warranties of Borrower. Borrower hereby
represents and warrants to Bank as of the Closing Date (after giving effect to
the consummation of the Acquisition) and with respect to subsections (a) through
(d) and subsections (f) through (dd) below, the date of disbursement of each
Loan or advance hereunder, as follows:
(a) Existence and Authority. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Borrower is duly qualified to do business and is
in good standing under the laws of each state in which the ownership of its
properties and the nature and extent of the activities transacted by it makes
such qualification necessary. Borrower has all requisite power and authority to
conduct its activities as presently conducted, to own its properties and to
perform its obligations under this Agreement.
(b) Authorization; No Conflict. The execution, delivery and
performance by Borrower of this Agreement and the Other Agreements to which it
is a party are within Borrower's organizational powers, have been duly
authorized by all necessary corporate action and do not contravene (i)
Borrower's Certificate or Articles of Incorporation or By-laws; or (ii) any law
or any contractual restriction binding on or affecting Borrower or its
properties, and do not result in or
29
<PAGE>
require the creation of any Lien (except as may be created under this Agreement
or the Other Agreements) upon or with respect to any of its properties.
(c) No Approval. No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by Borrower of
this Agreement or any Other Agreement to which Borrower is a party.
(d) Validity and Binding Nature. This Agreement is, and the
Other Agreements to which Borrower is a party when delivered hereunder will be,
legal, valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms.
(e) Financial Statements and Condition. The audited financial
statements and balance sheet (including the notes thereto) of Solder Station as
at December 31, 1997, and the related statements of income and equity and
statements of cash flows of Solder Station for the fiscal year then ended, are
complete and correct and fairly present the financial condition of Solder
Station as at such date and the results of the operations of Borrower for the
period ended on such date, in accordance with GAAP, and since December 31, 1997,
there has been no material adverse change in Solder Station's financial
condition, business, properties or operations. Except as set forth on Schedule
11.1(e) hereto, Borrower has not on the date hereof, nor will have on the date
of any Loan or advance made by Bank hereunder, any material contingent
obligations, long-term leases or material forward or long-term commitments,
which are not reflected in the financial statements (and the related notes
thereto).
(f) Litigation. There is no pending or, to the best knowledge
of Borrower, threatened action, suit, inquiry, investigation, or proceeding
affecting, directly or indirectly, Borrower before any court, governmental
agency or arbitrator, which, in any case, may (i) materially and adversely
affect the financial condition or operation of Borrower, (ii) which seeks to
restrain or would otherwise have a material adverse effect on the transactions
contemplated herein, or (iii) which would affect the validity or enforceability
of this Agreement or the Other Agreements.
(g) Securities Transaction. No proceeds of any Loan or
advance made by Bank to Borrower hereunder will be used to acquire any security
in any transaction which is subject to Section 13 or 14 of the Securities
Exchange Act of 1934, as amended.
(h) Regulation U. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System), and no proceeds of any Loan or advance made by Bank to Borrower
hereunder will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.
(i) ERISA Termination Event and Funding. No ERISA Termination
Event has occurred nor is expected to occur with respect to any Plan and all
Plans, to the extent governed by ERISA, meet the minimum funding standards of
Section 302 of ERISA.
(j) Withdrawal Liability and Reportable Events. Neither
Borrower nor any ERISA Affiliate has incurred, or expects to incur, any
withdrawal liability under Section 4201 of
30
<PAGE>
ERISA to any Multiemployer Plan. No Reportable Event (as defined in ERISA) has
occurred with respect to any Plan.
(k) Taxes. Borrower has filed all tax returns (Federal, state
and local) required to be filed and paid all taxes shown thereon to be due,
including interest and penalties, other than such taxes that Borrower is
contesting in good faith by appropriate legal proceedings and proper reserves
therefor have been established on the books of Borrower.
(l) Liens. There are no Liens upon or with respect to any of
the properties of Borrower or Collateral or any right to receive revenues of
Borrower or Collateral other than (i) Liens arising under this Agreement, and
(ii) Permitted Liens.
(m) Conflicts. Borrower is not a party to any indenture, loan
or credit agreement or any lease or other agreement or instrument (including
corporate charters) which is likely to have a material adverse effect on the
ability of Borrower to perform its obligations under this Agreement or the Other
Agreements or which would restrict or otherwise limit the incurring of the
Funded Debt represented by this Agreement and the Other Agreements.
(n) Environmental Matters. Except as disclosed on Schedule
11.1(n) and to the best of Borrower's knowledge after diligent inquiry:
(i) the operations of Borrower (including, without
limitation, all operations and conditions at or in the Facilities)
comply in all material respects with all Environmental Laws;
(ii) Borrower has obtained or has timely applied for
all Governmental Authorizations under Environmental Laws necessary to
its operations, if any, and all such Governmental Authorizations as
have been obtained are in good standing, and Borrower is in compliance
with all terms and conditions of such Governmental Authorizations;
(iii) Borrower has not received from any Person (A)
any notice or claim to the effect that it is or may be liable to any
Person as a result of the Release or threatened Release of any
Hazardous Materials or (B) any letter or request for information under
Section 104 of the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss.9604) or comparable state laws, and
none of the operations of Borrower is the subject of any federal or
state investigation evaluating whether any remedial action is needed to
respond to a Release or threatened Release of any Hazardous Materials
at any Facility or at any other location;
(iv) no operations of Borrower are the subject of any
investigation or judicial or administrative proceeding alleging the
violation of or liability under any Environmental Laws;
(v) except for Governmental Authorizations, neither
Borrower nor any of its Facilities or operations is the subject of any
outstanding written order or agreement with any governmental authority
or private party relating to (a) any Environmental Laws or (b) any
Environmental Claims;
31
<PAGE>
(vi) Borrower has no material contingent liability in
connection with any Release or threatened Release of any Hazardous
Materials;
(vii) neither Borrower nor any predecessors has filed
any notice under any Environmental Law indicating past or present
treatment, storage, disposal or Release of Hazardous Materials at any
Facility except in accordance with Environmental Laws, and Borrower's
operations do not involve the generation, transportation, treatment,
storage or disposal of hazardous waste, as defined under 40 C.F.R.
Parts 260-270 or any state equivalent;
(viii) no Hazardous Material exists on, under or
about any Facility in a manner that is reasonably likely to give rise
to an Environmental Claim and Borrower has not filed any notice or
report of a Release of any Hazardous Materials that is reasonably
likely to give rise to an Environmental Claim;
(ix) Borrower has not disposed of any Hazardous
Materials in a manner that is reasonably likely to give rise to an
Environmental Claim;
(x) no underground storage tanks or surface
impoundments are on or at any Facility; and
(xi) no lien in favor of any Person for (a) any
liability under any Environmental Laws or (b) damages arising from or
costs incurred by such Person in response to a Release or threatened
Release has been filed or has been attached to any Facility.
(o) Investment Company Act. Borrower is not an "investment
company" or a company "controlled by an "investment company," within the meaning
of the Investment Company Act of 1940, as amended.
(p) Compliance with Laws. Borrower is in compliance with all
laws, orders, regulations and ordinances of all federal, foreign, state and
local governmental authorities binding upon or affecting the business, operation
or assets of Borrower including, without limitation, zoning or other ordinances
relating to permissive non-conforming uses of property.
(q) Other Agreements. Borrower makes each of the
representations and warranties of Borrower contained in the Other Agreements to
which Borrower is a party operative and applicable for the benefit of Bank as if
the same were set forth at length herein.
(r) Millennium Compliance. The software owned and used by
Borrower shall be Millennium Compliant (as defined below). Any modification to
make the software Millennium Compliant, including date century recognition,
calculations which accommodate same century and multi-century formulas and date
values that reflect the century shall be made at no additional charge. As used
in this Agreement, "Millennium Compliant" shall mean the ability of the system
to provide the following functions:
32
<PAGE>
(i) consistently handle date information before,
during and after January 1, 2000, including but not limited to
accepting date input, providing date output, and performing
calculations on dates or portions of dates;
(ii) function accurately in accordance with the
specifications of such system and without interruption before, during
and after January 1, 2000 (including leap year computations), without
any change in operations associated with the advent of the new century;
(iii) respond to two-digit date input in a way that
resolves any ambiguity as to the century in a disclosed defined and
predetermined manner; and
(iv) store and provide output of date information in
ways that are unambiguous as to century.
(s) Subsidiaries. Except as disclosed on Schedule 11.1(s),
Borrower has no Subsidiaries.
(t) Intellectual Property. Borrower owns, is licensed under,
or otherwise has the rights to, all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted that are material to the
condition (financial or other), business or operations of Borrower
(collectively, "Intellectual Property") and all such Intellectual Property is
identified on Schedule 11.1(t) and fully protected and/or duly and properly
registered, filed or issued in the appropriate office and jurisdictions for such
registrations, filing or issuances. Except as disclosed in Schedule 11.1(t), no
material claim has been asserted by any Person with respect to the use of any
Intellectual Property, or challenging or questioning the validity or
effectiveness of any Intellectual Property. Except as disclosed in Schedule
11.1(t), the use of such Intellectual Property by Borrower does not infringe on
the rights of any Person.
(u) Labor. None of the employees of Borrower is subject to
any collective bargaining agreement, and there are no strikes, work stoppages,
election or decertification petitions or proceedings, unfair labor charges,
equal employment opportunity proceedings, wage payment or material unemployment
compensation proceedings, material workmen's compensation proceedings or other
material labor or employee-related controversies pending or threatened involving
Borrower and any of its employees, except for any of the foregoing which would
not in the aggregate have a material adverse effect on the financial condition,
results of operations or business of Borrower.
(v) Solvency. Borrower has capital sufficient to carry on its
business and transactions and all businesses and transactions in which it is
about to engage and is solvent and able to pay its debts as they mature and
Borrower owns property the fair saleable value of which is greater than the
amount required to pay the Liabilities of Borrower. No transfer of property is
being made and no Funded Debt is being incurred in connection with the
transactions contemplated by this Agreement with the intent to hinder, delay or
defraud either present or future creditors of Borrower.
(w) Title. Borrower has good, indefeasible and merchantable
title to and ownership of the Collateral, free and clear of all Liens, claims,
security interests and other
33
<PAGE>
encumbrances except for the Liens of Bank granted hereunder, Permitted Liens and
as otherwise described on Schedule 11.1(w).
(x) Corporate Names. Except as disclosed on Schedule 11.1(x),
Borrower has no assumed corporate names and is not doing business under any
other corporate name.
(y) Options. Except as set forth on Schedule 11.1(y) hereto,
no person, corporation, partnership, association or other entity has any option
to acquire ownership of the Collateral or any portion thereof.
(z) Credit Agreements. Schedule 11.1(z) hereto is a complete
and correct list, as of the date of this Agreement, of each credit agreement,
loan agreement, indenture, purchase agreement, guarantee or other arrangement
providing for or otherwise relating to any Funded Debt or any extension of
credit (or commitment for any extension of credit) to, or guarantee by,
Borrower, and the aggregate principal or face amount outstanding or which may
become outstanding under each such arrangement is correctly described in such
exhibit.
(aa) Debt. As of the date of this Agreement, Borrower has no
Funded Debt except for the permitted Funded Debt set forth in Schedule 11.3(e)
hereof.
(bb) Insurance. Schedule 11.1(bb) sets forth a complete and
accurate description of all policies of insurance that will be in effect as of
the Closing Date for Borrower. Borrower is adequately insured under such
policies, no notice of cancellation has been received with respect to such
policies and Borrower is in compliance with all conditions contained in such
policies.
(cc) Acquisition. The Acquisition (and the merger of SSA with
and into Solder Station as contemplated thereby) has been consummated in
accordance with the terms and conditions of the Purchase Agreement and all
applicable laws. The Acquisition was approved by all necessary action of the
parties to the Purchase Agreement. The Purchase Agreement and all documents,
instruments and related agreements delivered in connection therewith are in form
and substance the same as were delivered to Bank at the Closing Date and shall
not have been amended, modified, restated or altered in any respect.
(dd) Stock and Related Matters.
(i) The authorized capital stock of Borrower,
pursuant to Borrower's Articles or Certificate of Incorporation and
By-Laws, as of the Closing Date (after giving effect to the
consummation of the Acquisition) is described on Schedule 11.1(dd). As
of the Closing Date, no other shares of Borrower's Stock are
authorized, issued or outstanding. As of the Closing Date, the
ownership of Borrower's Stock is as set forth on Exhibit 11.1(dd). As
of the Closing Date, except as set forth on Exhibit 11.1(dd) hereto,
Borrower is not subject to any obligation, option, warrant, put or call
right (contingent or otherwise) to repurchase, issue, acquire or retire
any of its Stock. As of the Closing Date, all of the outstanding shares
of Stock of Borrower are validly issued, fully paid and non-assessable.
(ii) Borrower has not violated any applicable federal
or state securities laws in connection with the offer, sale or issuance
of its Stock. As of the Closing Date, there
34
<PAGE>
are no agreements between any parties with respect to the voting or
transfer of Borrower's Stock.
(ee) Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of Borrower to Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby (excluding projections referred to below in this Paragraph
and factual information superseded or replaced prior to the date hereof) is, and
all other factual information (taken as a whole) hereafter furnished by or on
behalf of Borrower to Bank will be, true and accurate in every material respect
on the date as of which such information is dated or certified, and Borrower has
not omitted and will not omit any material fact necessary to prevent such
information from being false or misleading.
11.2 Affirmative Covenants. At all times prior to the Termination Date
and thereafter for so long as any amounts are due or owing to Bank hereunder,
Borrower (after giving effect to the consummation of the Acquisition) hereby
covenants and agree that it will, unless Bank otherwise consents in writing:
(a) Existence, Etc. Do or cause to be done all things
necessary to preserve and maintain Borrower's existence in good standing.
(b) Compliance with Laws, Etc. Comply with all applicable
present and future laws, rules, ordinances, regulations and Governmental
Authorizations including, without limitation, laws, rules, ordinances,
regulations and Governmental Authorizations regarding the operation and
maintenance of Borrower's business.
(c) Payment of Taxes and Other Claims. Pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, all
material Charges levied or imposed upon Borrower or upon the income, profits or
property of Borrower, provided, however, that Borrower shall not be required to
pay or discharge or cause to be paid or discharged any such Charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings to the extent adequate reserves have been established on
the books of Borrower.
(d) Reporting Requirements. Maintain a system of accounting
in accordance with GAAP consistently applied with respect to all dealings or
transactions in relation to its business and activities, and Borrower shall
furnish to Bank:
(i) as soon as possible and in any event within ten
(10) days after the occurrence of an Event of Default or any event
which, with the giving of notice, lapse of time, or both, would
constitute an Event of Default, the statement of an Authorized Officer
of Borrower setting forth details of such Event of Default or event and
the action which Borrower has taken or proposes to take to cure the
same;
(ii) as soon as available and in any event on the
last Business Day of each week, (a) a duly completed and executed
borrowing base certificate, and (b) a detailed final balance of all
then existing Accounts Receivable with a declaration of contra
liabilities, in each case in form and substance acceptable to Bank and
certified as accurate by an Authorized Officer of Borrower;
35
<PAGE>
(iii) as soon as available and in any event within
twenty (20) days after the end of each month beginning with the month
ending March 31, 1998, an internally prepared balance sheet of Borrower
as at the end of such month and the related statements of net earnings
and stockholders' equity and statements of cash flows of Borrower for
such month and for the portion of the fiscal year ended at the end of
such month, setting forth in each case in comparative form the figures
for the corresponding month and the corresponding portion of the
previous fiscal year, all in reasonable detail and certified (subject
to normal year-end adjustments) as to fairness of presentation, in
accordance with GAAP, by the principal financial officer or manager as
applicable;
(iv) as soon as available and in any event within
ninety (90) days after the end of each fiscal year of Borrower, a
balance sheet and the related statements of net earnings and
stockholders' equity and statements of cash flows of Borrower as of the
end of such fiscal year, fairly and accurately presenting the financial
condition of Borrower as at such date and the results of operations of
Borrower for such fiscal year and setting forth in each case in
comparative form the corresponding figures for the corresponding period
of the preceding fiscal year, all in reasonable detail, prepared in
accordance with GAAP consistently applied, and audited by Ernst & Young
or such other independent certified public accountants acceptable to
Bank and accompanied by an unqualified opinion of such accountants;
(v) On a quarterly basis, concurrently with the
delivery of the financial statements referred to in sub-paragraph (iii)
above as at the end of each fiscal quarter, and the annual audited
financial statements referred to in sub-paragraph (iv) above, a
compliance certificate duly completed and executed by an Authorized
Officer of Borrower (A) stating that Borrower has observed and
performed all of its covenants and other agreements and satisfied every
condition contained in this Agreement, the Notes and all Other
Agreements to be observed, performed or satisfied by it and that such
officer has no knowledge of any Event of Default except as specified in
such certificate, (B) stating that, to the best of such individual's
knowledge, all such financial statements are complete and correct in
all respects and have been prepared in accordance with GAAP
consistently applied throughout the periods reflected therein, and (C)
showing calculations of compliance with the financial covenants set
forth in Paragraph 11.2(g) below;
(vi) promptly upon receipt and, in any event, within
thirty (30) days after receipt thereof, copies of all auditors' letters
to management and management's response thereto pertaining to the
balance sheet and related financial statements of Borrower and its
Subsidiaries;
(vii) (A) as soon as possible and in any event (i)
within thirty (30) days after Borrower or any ERISA Affiliate knows or
has reason to know that any ERISA Termination Event described in clause
(i) of the definition of ERISA Termination Event with respect to any
Plan has occurred and (ii) within ten (10) days after Borrower or any
ERISA Affiliate knows or has reason to know that any other ERISA
Termination Event with respect to any Plan has occurred, a statement of
the Chief Financial Officer (or designee) of Borrower describing such
ERISA Termination Event and the action, if any, which Borrower, or any
such ERISA Affiliate, proposes to take with respect thereto;
36
<PAGE>
(B) promptly and in any event within fifteen
(15) Business Days after receipt thereof by Borrower or any ERISA
Affiliate from the PBGC, copies of each notice received of the PBGC's
intention to terminate any Plan or to have a trustee appointed to
administer any Plan; and
(C) promptly and in any event within fifteen
(15) Business Days after receipt thereof by Borrower or any ERISA
Affiliate from a Multiemployer Plan sponsor, a copy of each notice
received concerning the imposition or amount of withdrawal liability
which has been assessed pursuant to Section 4202 of ERISA;
(viii) within fifteen (15) Business Days after notice
to Borrower of the commencement thereof, notice, in writing, of any
action, suit, arbitration or other proceeding instituted, commenced or
threatened against or affecting Borrower with an amount in controversy
in excess of $100,000;
(ix) at Bank's request, Borrower's federal, state and
local tax returns as soon as said returns are completed in the form
said returns will be filed with the Internal Revenue Service and any
state or local department of revenue or taxing authority; and
(x) such other information respecting the condition
or operations, financial or otherwise, of Borrower as Bank may from
time to time reasonably request.
(e) Environmental Disclosure and Inspection.
(i) Exercise due diligence in order to comply with
all Environmental Laws and promptly take any and all necessary remedial
action in connection with the presence, storage, use, disposal,
transportation, Release or threatened Release of any Hazardous
Materials on, under or about any Facility in order to comply with all
applicable Environmental Laws and Governmental Authorizations.
(ii) Permit Bank, from time to time and in its sole
and absolute discretion, to retain, at Bank's expense (or, after the
assertion of an Environmental Claim, at Borrower's expense), an
independent professional consultant to review any report relating to
Hazardous Materials prepared by or for Borrower and at reasonable times
and subject to reasonable conditions to conduct its own investigation
of any Facility currently owned, leased, operated or used by Borrower
and Borrower agrees to use its best efforts to obtain permission for
Bank's professional consultant to conduct its own investigation of any
Facility previously owned, leased, operated or used by Borrower.
Borrower hereby grants to Bank, its representatives, employees,
consultants, and contractors the right to enter into or on to, at
reasonable times, the Facilities currently owned, leased, operated or
used by Borrower to perform such tests on such property as are
reasonably necessary to conduct such a review and/or investigation;
provided, that, upon request of Borrower, Bank shall promptly provide
Borrower with a copy of any consultant's report prepared in connection
with this paragraph.
(iii) Promptly advise Bank in writing and in
reasonable detail of (i) any Release of any Hazardous Materials
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws, (ii) any and
37
<PAGE>
all written communications with respect to Environmental Claims or any
Release of Hazardous Material required to be reported to any federal,
state or local governmental or regulatory agency, (iii) any remedial
action taken by Borrower or any other Person in response to (A) any
Hazardous Material on, under or about any Facility, the existence of
which is reasonably likely to give rise to an Environmental Claim, or
(B) any Environmental Claim that could have a material adverse effect
on Borrower, (iv) Borrower's discovery of any occurrence or condition
on any real property adjoining or in the vicinity of any Facility that
could be reasonably expected to cause such Facility or any part thereof
to be subject to any restrictions on the ownership, occupancy,
transferability or use there of under any Environmental Laws, and (v)
any request for information from any governmental agency indicating
that such agency has initiated an investigation as to whether Borrower
may be potentially responsible for a Release or threatened Release of
Hazardous Materials.
(iv) Promptly notify Bank of (i) any acquisition of
stock, assets, or property outside of the ordinary course of business
by Borrower that reasonably could be expected to expose Borrower to, or
result in, Environmental Claims that could have a material adverse
effect or that could be expected to have a material adverse effect on
any Governmental Authorization then held by Borrower, and (ii) any
proposed action outside of the normal course of business to be taken by
Borrower or any Affiliate to commence industrial or other operations
that could subject Borrower to additional laws, rules or regulation,
including, without limitation, laws, rules and regulations requiring
additional environmental permits or licenses.
(f) Financial Covenants. Maintain the following
financial covenants:
(i) Maintain a Net Worth (measured as of the end of
each calendar year) of not less than One Million Five Hundred Thousand
Dollars ($1,500,000), determined in accordance with GAAP, which amount
shall increase by Three Hundred Seventy-Five Thousand Dollars
($375,000) on January 1, 1999 and Five Hundred Thousand Dollars
($500,000) as of January 1 of each year commencing January 1, 2000.
(ii) Maintain a Debt Service Coverage Ratio of not
less than 1.35:1, determined in accordance with GAAP; provided,
however, that in the event Borrower fails to maintain a Debt Service
Coverage Ratio of not less than 1.35:1, it shall not be deemed a breach
of this covenant if, and only if, immediately upon the occurrence of
such failure, Borrower immediately ceases making any payments in
respect of the Subordinated Note, whether in respect of principal,
interest or otherwise, in accordance with the Subordination Agreement.
Notwithstanding the foregoing, this covenant shall be breached in any
event (and an Event of Default shall be deemed to have occurred) if
Borrower fails to maintain a Debt Service Coverage Ratio of not less
than 1.25:1. Such Debt Service Coverage Ratio shall be measured at the
end of each calendar quarter on a rolling four (4) quarter basis taking
into account the immediately preceding four (4) quarters, except that
for the first three (3) full fiscal quarters after the Closing Date,
Debt Service Coverage Ratio shall be measured at the end of each
calendar quarter for the calendar quarter then ended.
38
<PAGE>
(iii) Maintain EBITDA of not less than One Million
Five Hundred Thousand Dollars ($1,500,000), measured at the end of each
calendar quarter on a rolling four (4) quarter basis taking into
account the immediately preceding four (4) quarters.
(iv) Cause Guarantor to maintain a Tangible Net Worth
of Guarantor, at all times, at a level equal to or greater than
Seventeen Million Dollars ($17,000,000).
(g) Insurance.
(i) At its sole cost and expense, keep and maintain
business interruption insurance and public liability and property
damage insurance relating to its business and properties and their
ownership and use of the Collateral (the "Insurance Coverage"). All
such policies of insurance shall be in form and with insurers
recognized as adequate by prudent business persons and all such
policies shall be in amounts no less than such policies set forth on
Schedule 11.1(bb) or as otherwise may be reasonably satisfactory to
Bank. Borrower shall deliver to Bank the original (or certified) copy
of each policy of insurance, or a certificate of insurance, and
evidence of payment of all premiums for each such policy on or prior to
the date of this Agreement. Such policies shall: (A) contain a lender's
loss payable clause naming Bank as loss payee and additional insured as
its interest may appear; (B) be accompanied by a lender's loss payable
clause endorsement, executed by the applicable insurer, in form and
substance acceptable to Bank; and (C) provide that the insurance
companies will give Bank at least thirty (30) days written notice
before any such policy or policies of insurance shall be altered or
canceled.
(ii) In the event Borrower at any time or times
hereafter shall fail to obtain or maintain any of the policies of
insurance required above, provide evidence of Insurance Coverage as
required by this Agreement or to pay any premium in whole or in part
relating thereto, then Bank after giving five (5) days' prior notice to
Borrower, without waiving or releasing any obligation or Event of
Default by Borrower hereunder, may at any time or times thereafter (but
shall be under no obligation to) obtain and maintain such policies of
insurance and pay such premium and take any other action with respect
thereto which Bank deems advisable to protect Bank's interests in the
Collateral. All sums so disbursed by Bank, including reasonable
attorneys fees, court costs, expenses and other charges relating
thereto, shall be part of Borrower's Liabilities, payable by Borrower
to Bank on demand. Borrower authorizes Bank, in Bank's sole discretion,
to cause such sums to be paid by making an advance in the amount
thereof to Borrower under the Revolving Credit Commitment and paying
the proceeds thereof to Bank. Such insurance may, but need not, protect
Borrower's interests, and Bank shall be under no obligation to so
protect Borrower's interests. The Insurance Coverage that Bank
purchases on behalf of Borrower may not pay any claim that Borrower
makes or any claim that is made against Borrower in connection with the
Collateral. Borrower may later cancel any Insurance Coverage purchased
by Bank, but only after providing Bank with evidence that Insurance
Coverage has been obtained as provided for in this Agreement. In the
event Bank purchases all or any portion of the Insurance Coverage for
the Collateral or as otherwise required hereunder, Borrower will be
responsible for all costs and expenses of such Insurance Coverage,
including, but not limited to, interest and any other charges imposed
by Bank in connection with the purchase of the Insurance Coverage,
until the effective date of the cancellation or expiration of the
Insurance
39
<PAGE>
Coverage. The costs and expenses of any Insurance Coverage purchased by
Bank shall be added to Borrower's Obligations. Borrower acknowledges
that the cost of the Insurance Coverage purchased by Bank pursuant
hereto may be more than the cost of insurance Borrower may be able to
obtain on their own. Borrower shall deliver to Bank, in kind, all
instruments representing proceeds of insurance received by Borrower.
Bank may apply any insurance proceeds received at any time to the cost
of repairs to or replacement of any portion of the Collateral and/or,
at Bank's option, to payment of or as security for any of the
Obligations, whether or not due, in any order or manner as Bank
determines.
(h) Leases. Maintain and comply with all leases covering the
Collateral used by Borrower, including, without limitation, the leases related
to any leased property, in accordance with their terms so as to prevent any
default thereunder which may result in the exercise or enforcement of any
landlord's or other lien against Borrower.
(i) Union Contracts. Provide Bank with copies of all executed
collective bargaining agreements or other union contracts, if any, in effect as
of the date hereof and all additions, modifications or amendments thereto and
shall provide Bank with evidence of the renewal of any such agreements or
contracts prior to their expiration.
11.3 Negative Covenants. At all times prior to the Termination Date and
thereafter for so long as any amount is due or owing to Bank hereunder, unless
Bank shall otherwise consent in writing, Borrower (after giving effect to the
consummation of the Acquisition) shall not:
(a) Liens, Etc. Create or suffer to exist, any Lien, other
charge or encumbrance, or any other type of preferential arrangement, upon or
with respect to any of its Collateral and properties, whether now owned or
hereafter acquired, or assign any right to receive income, in each case to
secure or provide for the payment of any Debt of any Person, except for (i) the
Liens of Bank arising under this Agreement and (ii) the permitted Liens set
forth on Schedule 11.3(a) ("Permitted Liens").
(b) Maintain Existence, Merger, Etc. (i) dissolve or
liquidate or amend or modify its Articles or Certificate of Incorporation; or
(ii) convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) any Collateral or assets (whether now owned or
hereafter acquired) to any Person (other than sales of Inventory in the ordinary
course of business); or (iii) together with one or more Affiliates convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of the assets of Borrower and
such Affiliates (whether now owned or hereafter acquired) to any Person; or (iv)
purchase, lease or otherwise acquire all or substantially all of the assets or
properties of, or acquire any capital stock, equity interests, debt or other
securities of any Person, or enter into any joint venture or become a partner in
any partnership; or (v) engage in any transaction out of the ordinary course of
business; or (vi) merge or consolidate with any Person; provided, however, that
SSA and Solder Station may consummate the Acquisition and the other transactions
contemplated by the Purchase Agreement, pursuant to and in strict accordance
with the Purchase Agreement;
(c) Sale and Lease-Back. Enter into any arrangement with any
Person or to which such Person is a party providing for the leasing by Borrower
or any Affiliate of any principal asset which has been or is to be sold or
transferred by Borrower or such Affiliate to such Person or
40
<PAGE>
to any other Person to whom funds have been or are to be advanced by such Person
on the security of such property or rental obligations of Borrower or such
Affiliate, other than sales or transfers between Borrower and any Affiliate or a
lease for a temporary period not to exceed twelve (12) months.
(d) Change in Control. Permit any Change in Control to occur.
(e) Funded Debt. Incur, create, assume, become or be liable
in any manner with respect to or permit to exist, any Funded Debt, except for
the permitted Funded Debt set forth on Schedule 11.3(e).
(f) Investments or Loans. Make or permit to exist investments
or loans in or to any other Person, except for (i) salaries and reasonable
advances of money to its employees in payment of reasonable expenses incurred by
such employees in the ordinary course of business or (ii) investments in
certificates of deposits of a banking institution having a net worth in excess
of $100,000,000 or in securities of the United States of America or commercial
paper with a P1 rating (or equivalent rating from a nationally recognized rating
agency) (all of the foregoing maturing within one year) ("Permitted
Investments").
(g) Guaranties. Guaranty, endorse or otherwise in any way
directly, indirectly or contingently become liable for the obligations or
liabilities of any other Person, except endorsements of negotiable instruments
for collection in the ordinary course of business.
(h) Stock and Dividends. Redeem, retire, purchase or
otherwise acquire, directly or indirectly, any Stock of Borrower or other
evidence of ownership interest, or declare or pay dividends or distributions
upon any Stock of Borrower or make any distribution of Borrower's property or
assets.
(i) Transactions with Affiliates or Insiders. Enter into, or
be a party to, any transaction with any Affiliate, stockholder or member of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower's business and upon fair and reasonable terms which are
fully disclosed to Bank and are no less favorable to Borrower than would obtain
in a comparable arm's length transaction with a Person not an Affiliate,
stockholder or member of Borrower, as applicable.
(j) Capital Structure and Line of Business. Make any change
in its capital structure or engage in any line of business materially different
from that previously engaged in by Borrower.
(k) Prepayment or Modification of Debt. Make any prepayments
of Funded Debt (except as permitted or required hereunder) or enter into or
modify any agreement pursuant to which the terms of payment of any Funded Debt
are amended or modified.
(l) Subordinated Debt. Make any payments whatsoever on or
with respect to Subordinated Debt, except that Borrower may make payments under
the Subordinated Notes to the extent expressly permitted by the Subordination
Agreement.
41
<PAGE>
(m) Inter-Company Transfers. Make any loans, transfers or
advances of funds to, or borrow any funds from, any Affiliate of Borrower;
provided, however, that prior to the occurrence of an Event of Default, Borrower
may engage in any such inter-company transfers with Affiliates having an
aggregate amount outstanding (whether in one transaction or a series of
transactions) of no more than Three Hundred Thousand Dollars ($300,000).
11.4 Maintenance of Accounts. Borrower agrees to maintain its primary
operational accounts with Bank and shall maintain an average balance of
collected, available funds in a non-interest bearing demand deposit account with
Bank (the "Operating Account") in an amount at least equal to that amount
required to compensate Bank for its services in maintaining such account.
Borrower acknowledges that Bank will charge Borrower standard service charges in
effect from time to time for various services performed by Bank in connection
with any aspect of the relationship between Borrower and Bank, and Borrower
hereby agrees that if such service charges exceed the credit to Borrower arising
from earnings attributable to funds on deposit with Bank in the applicable
Operating Account, such service charge deficiency shall be deducted by Bank from
Borrower's Operating Account, monthly, in arrears, within ten (10) days
following the end of each month. Bank may cause interest and other amounts
payable on the obligations of Borrower to Bank hereunder to be paid by making a
direct charge to the applicable Operating Account in accordance with the terms
hereof.
12. DEFAULT
12.1 Events of Default. The occurrence of any one of the following
events shall constitute a default ("Event of Default") by Borrower under this
Agreement: (a) if Borrower (i) fails or neglects to perform, keep or observe any
covenant or agreement contained in Paragraph 11.2(b), (e), (h) or (i) or
Paragraph 11.3(c) and Borrower shall fail to cure such failure or neglect within
thirty (30) days of Borrower's actual notice thereof or (ii) fails or neglects
to perform, keep or observe any covenant or agreement contained in this
Agreement or in the Other Agreements (other than is set forth in clause (i) of
this sub-paragraph) which is required to be performed, kept or observed by
Borrower; (b) if any representation or warranty made by Borrower herein or in
any Other Agreement is breached or is false or misleading in any material
respect on the date as of which the facts therein set forth are stated or
certified; (c) if Borrower fails to pay Borrower's Liabilities when due and
payable or declared due and payable; (d) if any of the Collateral is attached,
seized, subjected to a writ or distress warrant or is levied upon, or comes
within the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors and the same is not terminated or dismissed within twenty
(20) days thereafter; (e) if a petition under any section or chapter of the
Bankruptcy Reform Act of 1978, as amended, or any similar law or regulation
shall be filed by Borrower or if Borrower shall make an assignment for the
benefit of its creditors or if any case or proceeding is filed by Borrower for
its dissolution or liquidation; (f) if Borrower is enjoined, restrained or in
any way prevented by court order from conducting all or any material part of its
business affairs or if a petition under any section or chapter of the Bankruptcy
Reform Act of 1978, as amended, or any similar law or regulation is filed
against Borrower or if any case or proceeding is filed against Borrower for its
dissolution or liquidation and such injunction, restraint or petition is not
dismissed or stayed within ninety (90) days after the entry or filing thereof;
(g) if an application is made by Borrower for the appointment of a receiver,
trustee or custodian for any of Borrower's assets; (h) if an application is made
by any Person other than Borrower for the appointment of a receiver, trustee or
custodian for the Collateral of Borrower and the same is not dismissed within
thirty (30) days
42
<PAGE>
after the application therefor; (i) if a notice of lien, levy, or assessment is
filed of record with respect to all or any of the Collateral by the United
States or any department, agency or instrumentality thereof or by any state,
county, municipal or other governmental agency, including without limitation the
PBGC, or if any taxes or debts owing at any time or times thereafter to any one
of them becomes a lien or encumbrance upon any of the Collateral and the same is
not released within thirty (30) days after the same becomes a lien or
encumbrance; (j) if Borrower becomes insolvent or is unable generally to pay its
debts as they become due; (k) if Borrower is in default in the payment of Funded
Debt in an amount in excess of $250,000; (l) the appointment of a conservator
for all or any portion of the Collateral; (m) the occurrence of a material
breach, default or event of default under any agreement, instrument and/or
document executed and delivered by any Person to Bank pursuant to which such
Person has guaranteed to Bank the payment or collection of Borrower's
Liabilities and/or has granted to Bank a security interest or lien in and to
some or all of such Person's real and/or personal property to secure the payment
of Borrower's Liabilities after the expiration of all applicable grace or cure
periods; (n) the occurrence of a material breach, a default or an event of
default by Borrower under any of the Other Agreements after the expiration of
all applicable grace or cure periods; or (o) any guaranty of Borrower's
Liabilities shall be terminated, curtailed or restricted in scope without Bank's
consent.
12.2 Cumulative Remedies. All of Bank's rights and remedies under this
Agreement and the Other Agreements are cumulative and non-exclusive.
12.3 Acceleration and Termination of Loans. Upon the occurrence and
during the continuance of an Event of Default, (a) upon notice by Bank to
Borrower, Borrower's Liabilities shall be immediately due and payable, unless
there shall have occurred an Event of Default under subparagraphs 12.1(d), (e),
(f), (g), (h), (i), or (j), in which case Borrower's Liabilities shall
automatically become due and payable without notice or demand, and (b) without
notice by Bank to or demand by Bank of Borrower, Bank shall have no further
obligation to and may then forthwith cease advancing monies and extending credit
to or for the benefit of Borrower under this Agreement and the Other Agreements.
12.4 Rights of Secured Creditor. Upon an Event of Default, Bank, in its
sole and absolute discretion, may: (a) exercise any one or more of the rights
and remedies accruing to a secured party under the Uniform Commercial Code of
the relevant state or states and any other applicable law upon default by a
debtor; (b) enter, with or without process of law and without breach of the
peace, any premises where the Collateral or the books and records of Borrower
related thereto is or may be located, and without charge or liability to Bank
therefor seize and remove the Collateral (and copies of Borrower's books and
records in any way relating to the Collateral) from said premises and/or remain
upon said premises and use the same (together with said books and records) for
the purpose of collecting, preparing and disposing of the Collateral, and
Borrower hereby grants Bank a security interest in said books and records for
the purpose above stated; and (c) sell or otherwise dispose of the Collateral at
public or private sale for cash or credit, provided, however, that Borrower
shall be credited with the net proceeds of such sale only when such proceeds are
actually received by Bank pursuant to Paragraph 13.1 hereof.
12.5 Assembly of Collateral; Injunctive Relief. Upon an Event of
Default, Borrower, immediately upon demand by Bank, shall assemble the
Collateral and make it available to Bank at a place or places to be designated
by Bank which is reasonably convenient to Bank and Borrower.
43
<PAGE>
Borrower recognizes that in the event Borrower fails to perform, observe or
discharge any of its obligations or liabilities under this Agreement or the
Other Agreements, no remedy of law will provide adequate relief to Bank, and
agree that Bank shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages or the posting
of bond, surety or other security.
12.6 Notice of Collateral Disposition. Any notice required to be given
by Bank of a sale, lease or other disposition of the Collateral or any other
intended action by Bank, deposited in the United States mail, postage prepaid
and duly addressed to Borrower at its principal place of business specified on
the signature page to this Agreement not less than ten (10) days prior to such
proposed action, shall constitute commercially reasonable and fair notice to
Borrower thereof.
12.7 Matters Regarding Sale of Collateral. Upon an Event of Default,
Borrower agrees that Bank may, if Bank deems it reasonable, postpone or adjourn
any such sale of the Collateral from time to time by an announcement at the time
and place of sale or by announcement at the time and place of such postponed or
adjourned sale, without being required to give a new notice of sale. Borrower
agrees that Bank has no obligation to preserve rights against prior parties to
the Collateral. Further, Borrower waives and releases any cause of action and
claim against Bank as a result of Bank's possession, collection or sale of the
Collateral, any liability or penalty for failure of Bank to comply with any
requirement imposed on Bank relating to notice of sale, holding of sale, or
reporting of sale of the Collateral, and any right of redemption from such sale;
provided, however, nothing in this Paragraph shall be deemed a waiver of any
cause of action or claim against Bank as a result of Bank's failure to dispose
of the Collateral in a commercially reasonable manner.
12.8 Replevin. In the event Bank seeks possession of the Collateral
through replevin or other court process, Borrower hereby irrevocably waives: (a)
any bond, surety or security required as an incident to such possession, and (b)
any demand for possession of the Collateral prior to commencement of any suit or
action to recover possession thereof.
12.9 Application of Proceeds. Except as otherwise herein expressly
provided, the proceeds of any collection, sale or other realization of all or
any part of the Collateral pursuant hereto, and any other cash of Borrower at
the time held by Bank hereunder, shall be applied by Bank:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including out-of-pocket costs
and expenses of Bank and the fees and expenses of its representatives
and counsel, and all expenses incurred and advances made by Bank in
connection therewith;
Next, to the payment in full of Borrower's Liabilities; and
Finally, to the payment to Borrower, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Paragraph, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any amount
44
<PAGE>
received under any reorganization, liquidation or adjustment of debt of Borrower
or any issuer of or obligor on any of the Collateral.
13. GENERAL
13.1 Payment Application Date. Any check, draft, or similar item of
payment by or for the account of Borrower delivered to Bank on account of
Borrower's Liabilities shall be applied by Bank on account of Borrower's
Liabilities on the date final settlement thereof is reflected by irrevocable
credit to Bank.
13.2 Statement of Account. Each statement of account by Bank delivered
to Borrower relating to Borrower's Liabilities shall be presumed correct and
accurate, absent manifest error, and shall constitute an account stated between
Borrower and Bank unless, within ninety (90) days after Borrower's receipt of
said statement, Borrower delivers to Bank, by registered or certified mail
addressed to Bank at its Address for Notices specified on the signature pages
hereto, written objection thereto specifying the error or errors, if any,
contained in any such statement.
13.3 Manner of Application; Waiver of Setoff Prohibition. During the
existence of an Event of Default, Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
Bank on account of Borrower's Liabilities and Borrower agrees that Bank shall
have the right, in its absolute and sole discretion, to apply and re-apply any
and all such payments in such manner as Bank may deem advisable, notwithstanding
any entry by Bank upon any of its books and records. Borrower further waives any
right under or benefit of any law that would restrict or limit the right or
ability of Bank to obtain payment of Borrower's Liabilities, including any law
that would restrict or limit Bank in the exercise of its right to appropriate
any indebtedness owing from Bank to Borrower and any deposits or other property
of Borrower in the possession or control of Bank and apply the same toward or
setoff the same against the payment of Borrower's Liabilities.
13.4 Survival of Representations and Warranties. Borrower covenants,
warrants and represents to Bank that all representations and warranties of
Borrower contained in this Agreement and the Other Agreements shall be true at
the time of Borrower's execution of this Agreement and the Other Agreements and
shall survive the execution, delivery and acceptance thereof by the parties
thereto and the closing of the transactions described therein or related
thereto.
13.5 Integration; Amendment; Assignment.
(a) This Agreement and the Other Agreements constitute the
entire agreement and understanding between the parties relating to the subject
matter hereof and supersede all prior agreements, whether oral or written. This
Agreement and the Other Agreements may not be modified, altered or amended
except by an agreement in writing signed by Borrower and Bank, and no provision
of this Agreement may be waived except with the written consent of Bank.
(b) Borrower may not sell, assign or transfer this Agreement,
or the Other Agreements or any portion thereof, including without limitation
Borrower's rights, titles, interests, remedies, powers and/or duties hereunder
or thereunder without the prior written consent of Bank.
45
<PAGE>
(c) Bank may assign or sell or agree to sell to one or more
other Persons a participation in all or any part of any Loan held by it or Loans
made or to be made by it.
13.6 No Waiver. Bank's failure at any time or times hereafter to
require strict performance by Borrower of any provision of this Agreement shall
not waive, affect or diminish any right of Bank thereafter to demand strict
compliance and performance therewith. Any suspension or waiver by Bank of an
Event of Default by Borrower under this Agreement or the Other Agreements shall
not suspend, waive or affect any other Event of Default by Borrower under this
Agreement or the Other Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants or representations of Borrower
contained in this Agreement or the Other Agreements and no Event of Default by
Borrower under this Agreement or the Other Agreements shall be deemed to have
been suspended or waived by Bank unless such suspension or waiver is by an
instrument in writing by Bank specifying such suspension or waiver and given
pursuant to the requirements of Paragraph 13.5 hereof.
13.7 Severability. If any provision of this Agreement or the Other
Agreements or the application thereof to any Person or circumstance is held
invalid or unenforceable, the remainder of this Agreement and the Other
Agreements and the application of such provision to other Persons or
circumstances will not be affected thereby and the provisions of this Agreement
and the Other Agreements shall be severable in any such instance.
13.8 Successors and Assigns. This Agreement and the Other Agreements
shall be binding upon and inure to the benefit of the respective successors and
assigns of Borrower and Bank. This provision, however, shall not be deemed to
modify Paragraph 13.5 hereof.
13.9 Conflict with Other Agreements. The provisions of the Other
Agreements are incorporated in this Agreement by this reference thereto. Except
as otherwise provided in the Other Agreements by specific reference to the
applicable provision of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in the Other
Agreements, the provision contained in this Agreement shall govern and control.
13.10 No Impairment by Termination. Except to the extent provided to
the contrary in this Agreement and in the Other Agreements, no termination or
cancellation (regardless of cause or procedure) of this Agreement or the Other
Agreements shall in any way affect or impair the powers, obligations, duties,
rights and liabilities of Borrower or Bank in any way or respect relating to (a)
any transaction or event occurring prior to such termination or cancellation,
(b) the Collateral and/or (c) any of the undertakings, agreements, covenants,
warranties and representations of Borrower contained in this Agreement or the
Other Agreements. All such undertakings, agreements, covenants, warranties and
representations shall survive such termination or cancellation.
13.11 Waivers. Except as otherwise specifically provided in this
Agreement, Borrower waives any and all notice or demand which Borrower might be
entitled to receive with respect to this Agreement or the Other Agreements by
virtue of any applicable statute or law and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by
46
<PAGE>
Bank on which Borrower may in any way be liable and hereby ratify and confirm
whatever Bank may do in this regard.
13.12 Costs, Fees and Expenses Related to Agreement and Other
Agreements. In accordance with this Agreement on or prior to the date hereof and
thereafter upon demand by Bank therefor, Borrower shall pay or reimburse Bank
for all costs, fees and expenses incurred by Bank, or for which Bank becomes
obligated, in connection with the negotiation, preparation and consummation of
this Agreement and the Other Agreements, including but not limited to,
attorneys' fees, costs and expenses; search fees, costs and expenses; and all
taxes payable in connection with this Agreement or the Other Agreements. That
portion of Borrower's Liabilities consisting of costs, expenses or advances to
be reimbursed by Borrower to Bank pursuant to this Agreement or the Other
Agreements which are not paid on or prior to the date hereof shall be payable by
Borrower to Bank on demand.
13.13 Environmental Indemnity. Borrower agrees to indemnify and save
Bank, its officers, directors, employees and representatives, harmless of, from
and against any liability, loss, damage or expense (including reasonable
attorneys' fees) to which Bank or any of such persons may become subject,
arising from or based upon (a) any violation, or claim of violation, by Borrower
of any laws, regulations or ordinances relating to Hazardous Materials, or (b)
any Hazardous Materials located or disposed of on or released or transported
from any property owned, leased or operated by Borrower, or any claim of any of
the foregoing.
13.14 Release. Borrower releases Bank from any and all causes of
action, claims or rights which Borrower may now or hereafter have for, or which
may arise from, any loss or damage caused by or resulting from: (a) any failure
of Bank to protect, enforce or collect in whole or in part any of the
Collateral; (b) Bank's notification to any Obligor of Bank's security interest
in the Accounts and the Collateral; (c) Bank's directing any Obligor to pay any
sums owing to Borrower directly to Bank in accordance with the terms thereof;
and (d) any other act or omission to act on the part of Bank, its officers,
representatives or employees, except in each instance for willful misconduct and
gross negligence.
13.15 Governing Law. This Agreement and the Other Agreements are
submitted by Borrower to Bank (for Bank's acceptance or rejection thereof) at
Bank's principal place of business as an offer by Borrower to borrow monies from
Bank now and from time to time hereafter and shall not be binding upon Bank or
become effective until and unless accepted by Bank, in writing, at Bank's place
of business. If so accepted by Bank, this Agreement and the Other Agreements
shall be deemed to have been made at Bank's principal place of business. This
Agreement and the Other Agreements shall be governed and controlled by the laws
of the State of Illinois as to interpretation, enforcement, validity,
construction, effect, choice of law, and in all other respects including, but
not limited to, the legality of the interest rate and other charges.
13.16 Notices. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given to
any party or parties (a) upon delivery to the address of the party or parties as
specified in the "Address for Notices" below such party or parties' name on the
signature pages hereof if delivered in person or by courier or if sent by
certified or registered mail (return receipt requested), or (b) upon dispatch if
transmitted by telecopy or other means of facsimile transmission, in any case to
the party or parties at the telecopy
47
<PAGE>
numbers specified on the same, or to such other address or telecopy number as
any party may hereafter designate by written notice in the aforesaid manner.
13.17 FORUM; VENUE; JURY TRIAL WAIVER. TO INDUCE BANK TO ACCEPT THIS
AGREEMENT AND THE OTHER AGREEMENTS, BORROWER, IRREVOCABLY AGREES THAT, SUBJECT
TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY,
MANNER, OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR THE
OTHER AGREEMENTS SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN CHICAGO,
ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE.
BORROWER HEREBY IRREVOCABLY APPOINTS AND DESIGNATES LAWRENCE S. ADELSON, WHOSE
ADDRESS IS C/O HEARTLAND TECHNOLOGY, INC., 547 WEST JACKSON BOULEVARD, SUITE
1510, CHICAGO, ILLINOIS 60601 OR ANY OTHER PERSON HAVING AND MAINTAINING A PLACE
OF BUSINESS IN SUCH STATE, WHOM BORROWER MAY FROM TIME TO TIME HEREAFTER
DESIGNATE (HAVING GIVEN FIVE (5) DAYS' WRITTEN NOTICE THEREOF TO BANK) AS
BORROWER'S TRUE AND LAWFUL ATTORNEY AND DULY AUTHORIZED AGENT FOR ACCEPTANCE OF
SERVICE OF LEGAL PROCESS. BORROWER AGREES THAT THE FOREGOING SHALL NOT BE DEEMED
THE EXCLUSIVE METHOD OF SERVICE OF LEGAL PROCESS HEREUNDER. BORROWER AGREES THAT
SERVICE OF SUCH PROCESS UPON SUCH PERSON SHALL CONSTITUTE PERSONAL SERVICE OF
SUCH PROCESS UPON BORROWER. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK
IN ACCORDANCE WITH THIS PARAGRAPH. BORROWER HEREBY IRREVOCABLY WAIVES THE RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH BORROWER IS A PARTY.
13.18 Other Costs, Fees and Expenses. If at any time or times hereafter
Bank: (a) employs counsel for advice or other representation (i) with respect to
this Agreement or the Other Agreements, (ii) to represent Bank in any
litigation, contest, dispute, suit or proceeding or to commence, defend, or
intervene or to take any other action in or with respect to any litigation,
contest, dispute, suit, or proceeding (whether instituted by Bank, Borrower, or
any other Person) in any way or respect relating to this Agreement, the Other
Agreements or Borrower's affairs, or (iii) to enforce any rights of Bank against
Borrower or any other person that may be obligated to Bank by virtue of this
Agreement or the Other Agreements; (b) takes any action to protect, collect,
sell, liquidate, or otherwise dispose of any of the Collateral; and/or (c)
attempts to or enforces any of Bank's rights or remedies under the Agreement or
the Other Agreements, the reasonable costs and expenses incurred by Bank in any
manner or way with respect to the foregoing, shall be part of Borrower's
Liabilities, payable by Borrower to Bank on demand. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees include: (i)
attorneys' fees, costs and expenses; (ii) accountants' fees, costs and expenses;
(iii) court costs and expenses; (iv) court reporter fees, costs and expenses;
(v) long distance telephone charges; (vi) telegram charges; (vii) expenses for
travel, lodging and food; and (viii) costs and expenses incurred with respect to
exercise or enforcement of Bank's rights in or against Accounts Receivable
and/or any Obligor, including expenses incurred in fulfilling, in whole or in
part, any order of any Obligor from which an Account Receivable has arisen or
will arise.
48
<PAGE>
13.19 Revival. To the extent that Bank receives any payment on account
of Borrower's Liabilities, or any proceeds of Collateral are applied on account
of Borrower's Liabilities and any such payment(s) and/or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, subordinated and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment(s) and/or proceeds
received, Borrower's Liabilities or part thereof intended to be satisfied shall
be revived and continue in full force and effect, as if such payment(s) and/or
proceeds had not been received by Bank and applied on account of Borrower's
Liabilities.
13.20 Acknowledgments. Borrower acknowledges that (i) it has been
advised by counsel of its choice with respect to this Agreement and the
transactions contemplated hereby, (ii) each of the waivers set forth herein was
knowingly and voluntarily made; and (iii) the obligations of Bank hereunder,
including the obligation to advance and lend funds to Borrower in accordance
herewith, shall be strictly construed and shall be expressly subject to
Borrower's compliance in all respects with the terms and conditions herein set
forth.
13.21 Section Headings. Section headings used in this Agreement are for
convenience only and shall not effect the construction or interpretation of this
Agreement.
13.22 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.
13.23 Effectiveness. This Agreement shall become effective upon the
execution and deliver to Bank of counterparts of this Agreement by Borrower and
Bank.
13.24 Representative. Notwithstanding anything contained in this
Agreement to the contrary, Borrower hereby appoints Solder Station (the
"Representative") to act as the sole and exclusive representative under this
Agreement for all purposes, including, without limitation, to receive funds
advanced hereunder, to receive notices and other communications from Bank
hereunder, to make requests for advances of funds hereunder and to amend this
Agreement. Bank shall have (i) no obligation to communicate with any Borrower
other than the Representative concerning this Agreement or any other matter
related to the Borrower's Liabilities and (ii) no responsibility with respect to
the allocation among Borrower of the funds advanced hereunder.
13.25 Reimbursement Among Each Borrower. To the extent that any
Borrower shall be required to pay a portion of the Borrower's Liabilities which
shall exceed the amount of loans, advances or other extensions of credit
received by any such Borrower and all interest, costs, fees and expenses
attributable to such loans, advances or other extensions of credit, then such
Borrower shall be reimbursed by the other Borrower for the amount of such excess
pro rata, based on their respective receipt of such loans, advances and
extensions of credit. This Section 13.25 is intended only to define the relative
rights of each Borrower among each Borrower and nothing set forth in this
Section 13.25 is intended to or shall impair the obligations of each Borrower,
jointly and severally, to pay the Borrower's Liabilities to Bank as and when the
same shall become due and payable in accordance with the terms hereof.
49
<PAGE>
13.26 Joint and Several Liability. The liability of each Borrower under
this Agreement and the other agreements, documents or instruments delivered in
connection herewith in general shall be joint and several, and each reference
herein to Borrower shall be deemed to refer to each such Borrower. In
furtherance and not in limitation of Bank's rights and remedies hereunder or at
law, Bank may proceed under this Agreement and the other agreements, documents
or instruments delivered in connection herewith against any one or each Borrower
in its absolute and sole discretion for any of the Borrower's Liabilities.
13.27 Acknowledgements of Bank. Notwithstanding anything to the
contrary contained herein, Bank acknowledges and consents to the following
transactions in connection with the Acquisition: (a) pursuant to and as
permitted by the Purchase Agreement, the distribution by Solder Station to its
shareholders, prior to the Closing Date, of any amount of cash to the extent
Solder Station's cash at such time was in excess of Five Hundred Thousand
Dollars ($500,000); and (b) the receipt by the shareholders of Solder Station of
the cash consideration and Subordinated Note pursuant to and in accordance with
the Purchase Agreement.
[SIGNATURES ON NEXT PAGE]
50
<PAGE>
IN WITNESS WHEREOF, this Loan and Security Agreement has been duly
executed as of the day and year specified at the beginning hereof.
SS ACQUISITION CORPORATION SOLDER STATION-ONE, INC.
By: /s/ Leon Fiorentino By: /s/ Odilon Cardenas
Its: Vice President Its: President
Address for Notices to Borrower:
c/o Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60661
Telecopier No.: (312) 663-9397
Telephone No.: (312) 294-0471
Attention: Lawrence S. Adelson
With a copy to:
Gary S. Saipe, Esq.
Counsel
Heartland Technology, Inc.
547 West Jackson Boulevard
Suite 1510
Chicago, Illinois 60661
Telecopier No.: (312) 663-9397
Telephone No.: (312) 294-0485
LASALLE NATIONAL BANK
By: /s/ Charles Schroeder
Its: Vice President
Address for Notices:
135 South LaSalle Street
Chicago, Illinois 60603
Telecopier No.:(312) 904-4364
Telephone No.: (312) 904-5415
Attention: Charles E. Schroeder, Jr.
Vice President
51
<PAGE>
With a copy to:
Michael A. Nemeroff, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street - Suite 2600
Chicago, Illinois 60601
Telecopier No.:(312) 609-5005
Telephone No.: (312) 609-7858
52
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Revolving Note
Exhibit B Form of Acquisition Note
Exhibit C Form of Term Note
<PAGE>
EXHIBIT A
to
Loan and Security Agreement
REVOLVING NOTE
$1,500,000 Chicago, Illinois
April 10, 1998
FOR VALUE RECEIVED, on or before April 10, 2001 (or, if such day is not
a Business Day, on the next following Business Day), the undersigned, SOLDER
STATION-ONE, INC., a California corporation and SS Acquisition Corporation, a
California corporation, (together the "Borrower"; all references to Borrower
shall mean each of them jointly and severally individually and collectively, and
the successors and assigns of each), promise to pay to the order of LASALLE
NATIONAL BANK, a national banking association (together with its successors and
assigns, called the "Bank"), the maximum principal sum of One Million Five
Hundred Thousand Dollars and 00/100 DOLLARS ($1,500,000) or, if less, the
aggregate unpaid principal amount of all Revolving Loans made by Bank to the
Borrower pursuant to that certain Loan and Security Agreement of even date
herewith between the Borrower and Bank (herein, as the same may be amended,
modified or supplemented from time to time, called the "Loan Agreement") as
shown in the Bank's records.
The Borrower further promises to pay to the order of Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Loan Agreement. Accrued
interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at the
Bank's principal office at 135 South LaSalle Street, Chicago, Illinois, 60603,
or at such other place as may be designated by Bank to the Borrower in writing.
This Note is the Revolving Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Loan
Agreement. The Loan Agreement, to which reference is hereby made, sets forth
said terms and provisions, including, but not limited to, those under which this
Note may be paid prior to its due date or may have its due date accelerated.
Terms used but not otherwise defined herein are used herein as defined in the
Loan Agreement. This Note is secured by the personal property described in and
pursuant to the Loan Agreement and various Other Agreements referred to therein,
and reference is made thereto for a statement of terms and provisions of such
Collateral security, a description of Collateral and the rights of Bank in
respect thereof.
A-1
<PAGE>
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including attorneys' fees and expenses, incurred by the holder of this
Note in seeking to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the Borrower and its successors and assigns,
and shall inure to the benefit of Bank and its successors and assigns. This Note
is made under and governed by the laws of the State of Illinois without regard
to conflict of laws principles.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the day
and year first above written.
SS ACQUISITION CORPORATION, a SOLDER STATION-ONE, INC., a California
California corporation corporation
By: By:
Its: Its:
Borrower's Address:
c/o Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60661
A-2
<PAGE>
EXHIBIT B
to
Loan and Security Agreement
ACQUISITION NOTE
$900,000 Chicago, Illinois
April 10, 1998
FOR VALUE RECEIVED, the undersigned, SOLDER STATION-ONE, INC., a
California corporation, and SS Acquisition Corporation, a California corporation
(together the "Borrower"; all references to Borrower shall mean each of them
jointly and severally individually and collectively, and the successors and
assigns of each), promise to pay to the order of LASALLE NATIONAL BANK, a
national banking association (herein, together with its successors and assigns,
called the "Bank"), the principal sum of Nine Hundred Thousand and 00/100
DOLLARS ($900,000), payable in monthly installments on the last Business Day of
each month, commencing April 30, 1998, in the amount of Fifteen Thousand Dollars
($15,000) each through the last Business Day of March, 2003, plus interest as
described below, with a final payment of the entire principal balance
outstanding, plus accrued and unpaid interest, due on April 30, 2003. This Note
is made pursuant to that certain Loan and Security Agreement of even date
herewith between the Borrower and Bank (herein, as the same may be amended,
modified or supplemented from time to time, called the "Loan Agreement").
The Borrower further promises to pay to the order of Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Loan Agreement. Accrued
interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at the
Bank's principal office at 135 South LaSalle Street, Chicago, Illinois, 60603,
or at such other place as may be designated by Bank to the Borrower in writing.
This Note is the Acquisition Note referred to in, evidences
indebtedness incurred under, and is subject to the terms and provisions of, the
Loan Agreement. The Loan Agreement, to which reference is hereby made, sets
forth said terms and provisions, including, but not limited to, those under
which this Note may or must be paid prior to its due date or may have its due
date accelerated. Terms used but not otherwise defined herein are used herein as
defined in the Loan Agreement. This Note is secured by the personal property
described in and pursuant to the Loan Agreement and various Other Agreements
referred to therein, and reference is made thereto for a statement of terms and
provisions of such Collateral security, a description of Collateral and the
rights of Bank in respect thereof.
B-1
<PAGE>
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including attorneys' fees and expenses, incurred by the holder of this
Note in seeking to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the Borrower and its successors and assigns,
and shall inure to the benefit of Bank and its successors and assigns. This Note
is made under and governed by the laws of the State of Illinois without regard
to conflict of laws principles.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the day
and year first above written.
SS ACQUISITION CORPORATION, a SOLDER STATION-ONE, INC., a
California corporation California corporation
By: By:
Its: Its:
Borrower's Address:
c/o Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60661
B-2
<PAGE>
EXHIBIT C
to
Loan and Security Agreement
TERM NOTE
$1,200,000 Chicago, Illinois
April 10, 1998
FOR VALUE RECEIVED, the undersigned, SOLDER STATION-ONE, INC., a
California corporation, and SS Acquisition Corporation, a California corporation
(together, the "Borrower"; all references to Borrower shall mean each of them
jointly and severally individually and collectively, and the successors and
assigns of each); promise to pay to the order of LASALLE NATIONAL BANK, a
national banking association (herein, together with its successors and assigns,
called the "Bank"), the principal sum of ONE MILLION TWO HUNDRED THOUSAND
DOLLARS ($1,200,000), payable in monthly installments on the last Business Day
of each month, commencing April 30, 1998, in the amount of Thirty Three Thousand
Three Hundred Thirty Three Dollars ($33,333) each through the last Business Day
of March, 2001, plus interest as described below, with a final payment of the
entire principal balance outstanding, plus accrued and unpaid interest, due on
April 30, 2001. This Note is made pursuant to that certain Loan and Security
Agreement of even date herewith between the Borrower and Bank (herein, as the
same may be amended, modified or supplemented from time to time, called the
"Loan Agreement").
The Borrower further promises to pay to the order of Bank interest on
the aggregate unpaid principal amount hereof from time to time outstanding from
the date hereof until paid in full at such rates and at such times as shall be
determined in accordance with the provisions of the Loan Agreement. Accrued
interest shall be payable on the dates specified in the Loan Agreement.
Payments of both principal and interest are to be made in the lawful
money of the United States of America in immediately available funds at Bank's
principal office at 135 South LaSalle Street, Chicago, Illinois 60603, or at
such other place as may be designated by Bank to the Borrower in writing.
This Note is the Term Note referred to in, evidences indebtedness
incurred under, and is subject to the terms and provisions of, the Loan
Agreement. The Loan Agreement, to which reference is hereby made, sets forth
said terms and provisions, including those under which this Note may or must be
paid prior to its due date or may have its due date accelerated. Terms used but
not otherwise defined herein are used herein as defined in the Loan Agreement.
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement hereinabove referred to, the Borrower further
agrees, subject only to any limitation imposed by applicable law, to pay all
expenses, including attorneys' fees and expenses, incurred by
C-1
<PAGE>
the holder of this Note in seeking to collect any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers or otherwise,
severally waive presentment, demand, protest and notice of dishonor in
connection with this Note.
This Note is binding upon the Borrower and its successors and assigns,
and shall inure to the benefit of Bank and its successors and assigns. This Note
is made under and governed by the laws of the State of Illinois without regard
to conflict of laws principles.
SS ACQUISITION CORPORATION, a SOLDER STATION-ONE, INC., a
California corporation California corporation
By: By:
Its: Its:
Borrower's Address:
c/o Heartland Technology, Inc.
547 West Jackson Boulevard, Suite 1510
Chicago, Illinois 60661
C-2
<PAGE>
DISCLOSURE SCHEDULE
TO THE
LOAN AND SECURITY AGREEMENT
DATED AS OF APRIL 10, 1998
BETWEEN
SOLDER STATION-ONE, INC.
and
SS ACQUISITION CORPORATION
as Borrower,
and
LASALLE NATIONAL BANK
as Bank
April 10, 1998
C-3
<PAGE>
LIST OF DISCLOSURE SCHEDULES
Schedule 7.4 Locations
Schedule 11.1(e) Certain Other Obligations
Schedule 11.1(n) Environmental Matters
Schedule 11.1(s) Subsidiaries
Schedule 11.1(t) Intellectual Property
Schedule 11.1(w) Title
Schedule 11.1(x) Names
Schedule 11.1(y) Collateral Options
Schedule 11.1(z) Credit Agreements
Schedule 11.1(bb) Insurance
Schedule 11.1(dd) Stock
Schedule 11.3(a) Permitted Liens
Schedule 11.3(e) Permitted Debt
C-4
<PAGE>
CERTIFICATION
I, ___________________, the __________________ of Solder Station-One,
Inc., and I, the _________ of SS Acquisition Corporation hereby certify that the
Disclosure Schedules attached hereto have been delivered to LaSalle National
Bank in connection with that certain Loan and Security Agreement of even date
herewith among Solder Station-One, Inc., SS Acquisition Corporation and such
bank, and the information contained thereon is true and correct.
Dated: April 10, 1998
SOLDER STATION-ONE, INC.
By:
Its:
SS ACQUISITION CORPORATION
By:
Its:
C-5
EXHIBIT 99.6
GUARANTY
THIS GUARANTY (this "Guaranty") dated as of this 10th day of April,
1998 from HEARTLAND TECHNOLOGY, INC., a Delaware corporation ("Guarantor"),
whose address is 547 W. Jackson Boulevard, Suite 1510, Chicago, Illinois 60661,
to LASALLE NATIONAL BANK, a national banking association (the "Bank"), whose
main office is located at 135 South LaSalle Street, Chicago, Illinois 60603.
W I T N E S S E T H:
WHEREAS, Bank has agreed to extend loans, credit and other financial
accommodations to Solder Station-One, Inc., a California corporation, and SS
Acquisition Corporation, a California corporation ( together, the "Borrower";
all references to Borrower shall mean each of them jointly and severally,
individually and collectively, and the successors and assigns of each), pursuant
to that certain Loan and Security Agreement of even date herewith, as may be
amended, supplemented or restated from time to time (collectively, the "Loan
Agreement"), as evidenced by (i) that certain Acquisition Note of even date
herewith in the original principal amount of NINE HUNDRED THOUSAND DOLLARS
($900,000), (ii) that certain Revolving Note of even date herewith in the
original maximum amount available of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000) and (iii) that certain Term Note of even date herewith in the
original principal amount of ONE MILLION TWO HUNDRED THOUSAND DOLLARS
($1,200,000), all made payable by Borrower to Bank (collectively, the "Notes")
subject to, among other things, the condition that Guarantor execute and deliver
this Guaranty to Bank;
WHEREAS, Guarantor is the ultimate parent corporation of, and owns
shares representing, one hundred percent (100%) of the issued and outstanding
shares of the common capital stock of Borrower, after giving effect to the
consummation of the Acquisition (as defined in the Loan Agreement);
WHEREAS, as the parent company of Borrower, Guarantor will receive
substantial financial benefits as a result of the business activities of
Borrower, which business activities could not be conducted without the financial
accommodations from the Bank as evidenced in part by the Notes; and
WHEREAS, to induce the Bank to provide financial accommodations to
Borrower, which the Bank is unwilling to do without, among other things, the
Guarantor's agreement to guaranty the Obligations (as defined below) pursuant to
this Guaranty, Guarantor has agreed to execute and deliver this Guaranty to
Bank.
<PAGE>
FOR VALUE RECEIVED, and in consideration of the above premises, the
agreements herein contained, and other good and valuable consideration, the
Guarantor hereby agrees, as follows:
1. Guaranty.
(a) Guarantor hereby unconditionally and irrevocably
guarantees to Bank the full and prompt payment of the Obligations, when and as
the same shall become due, whether at the stated maturity thereof, by
acceleration or otherwise. The obligations of Guarantor hereunder shall arise
absolutely and unconditionally upon the execution and delivery by Borrower of
the Notes.
(b) This Guaranty and the obligations of Guarantor hereunder
shall be absolute and unconditional irrespective of any other agreement or
instrument to which Guarantor is a party and shall remain in full force and
effect until the entire principal of and interest on the Obligations guaranteed
hereby shall have been paid notwithstanding, without limitation, the cessation
to do business as a going concern, the liquidation or the dissolution, of
Guarantor. This Guaranty shall constitute a guaranty of payment and not of
collection. The Obligations guaranteed hereby and payment hereunder shall not be
subject to rescission or repayment pursuant to any bankruptcy, insolvency,
arrangement, reorganization, rehabilitation, moratorium, receivership or similar
proceeding involving or affecting Borrower. Such Obligations and this Guaranty
shall not be affected, modified or impaired upon the happening from time to time
of any event, including without limitation any one or more of the following,
whether or not such event shall occur with notice to, or the consent of,
Guarantor:
(i) the waiver, surrender, compromise, extension of
time for payment or other performance, unenforceability, settlement,
discharge, amendment, modification, subordination, release or
termination of the Notes or any or all of the Obligations guaranteed
hereby, other than a discharge, release or termination thereof by the
full and timely payment of all of the Obligations guaranteed hereby;
(ii) any failure, omission, delay or lack of
diligence on the part of the Bank in the enforcement, assertion or
exercise of any right, power or remedy conferred on the Bank in the
Notes, the Loan Agreement, the Other Agreements (as defined in the Loan
Agreement) or this Guaranty (collectively, the "Loan Documents");
(iii) voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of
the assets and liabilities, marshalling of assets and liabilities,
receivership, insolvency, assignment for the benefit of creditors,
bankruptcy, reorganization, rehabilitation, arrangement, adjustment,
composition or other similar proceedings of or affecting Borrower or
the Guarantor, or any of the properties of any of them, or any
allegation or contest of the validity of any of the Loan Documents in
any proceeding; or
<PAGE>
(iv) the exchange, substitution, surrender, release
or impairment of all or any security or other guaranty for the payment,
performance or observation of any of the Obligations guaranteed hereby.
No payments by Guarantor pursuant to the provisions hereof to Bank shall entitle
Guarantor to any payment out of any property or assets held by or pledged to
Bank under or pursuant to the Notes, the Loan Agreement, the Other Agreements or
otherwise, except after payment in full of all Obligations guaranteed hereby.
(c) Guarantor waives notice of the making of loans or advances
under the Notes and notice from Bank of acceptance and reliance on this
Guaranty. Guarantor also waives any right it may have to (i) require Bank to
proceed against Borrower under the Notes, the Loan Agreement, the Other
Agreements or otherwise, (ii) require Bank to proceed against or exhaust any
security conveyed or granted by Borrower, Guarantor or any other person, firm or
corporation, or (iii) require Bank to pursue any other remedy available to or
otherwise within the power of Bank.
(d) Guarantor hereby agrees to make all payments at any time
due and payable under this Guaranty directly to Bank to be applied as determined
by Bank as payment of Obligations guaranteed hereby. No setoff, counterclaim,
reduction or diminution of any Obligation or any defense of any kind of nature
(other than full and timely payment by Guarantor of its Obligations hereunder)
which Guarantor may have or assert against Bank shall be available hereunder to
Guarantor against Bank.
(e) Guarantor agrees to deliver to Bank (i) as soon as
available and in any event within thirty (30) days after the end of each
calendar quarter beginning with the quarter ending March 31, 1998, an internally
prepared balance sheet of Guarantor as at the end of such quarter and the
related statements of net earnings and stockholders' equity and statements of
cash flows of Guarantor for such quarter and for the portion of the fiscal year
ended at the end of such quarter, set forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
previous fiscal year, all in reasonable detail and certified (subject to normal
year-end adjustments) as to fairness of presentation, in accordance with GAAP,
by the principal financial officer or manager as applicable, and (ii) as soon as
available and in any event within ninety (90) days after the end of each fiscal
year of Guarantor, a balance sheet and the related statements of net earnings
and stockholders' equity and statements of cash flows of Guarantor as of the end
of such fiscal year, fairly and accurately presenting the financial condition of
Guarantor as at such date and the results of operations of Guarantor for such
fiscal year and setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP consistently applied, and
audited by Ernst & Young or such other independent certified public accountants
acceptable to Bank and accompanied by an unqualified opinion of such
accountants;
<PAGE>
(f) Guarantor agrees to pay all costs, legal expenses, and
reasonable attorneys' and paralegals' fees of every kind, paid or incurred by
Bank in endeavoring to collect the Obligations or any part thereof, or in
enforcing its rights with respect to the Collateral (as defined in Loan
Agreement), or in enforcing this Guaranty, or in defending against any defense,
counterclaim, setoff or crossclaim based on any act of commission or omission by
Bank with respect to the Obligations, Collateral or any claim for repayment for
any amount received by Bank in payment of the Obligations, or any part thereof,
whether received by Borrower, Guarantor or otherwise, promptly on demand of
Bank.
2. Obligations. The obligations secured by this Guaranty (the
"Obligations") are the following:
(a) The indebtedness (including principal and interest) of
Borrower to the Bank pursuant to the Loan Agreement and evidenced by the Notes
and any and all extensions, renewals, modifications, supplements or refinancings
thereof.
(b) Any of Borrowers' Liabilities (as defined in the Loan
Agreement), other indebtedness, obligation, or liability of Borrower to Bank,
whether direct or indirect, joint or several, absolute or contingent, now or
hereafter existing pursuant to the Loan Agreement or the Other Agreements while
this Guaranty is in effect, however created and however evidenced.
(c) In the event of any proceeding to enforce the collection
of the Obligations, or any of them, after default, the reasonable expenses of
collecting or enforcing payment of the Obligations, including but not limited to
reasonable attorneys' fees and court costs related to any of the foregoing.
(d) If interest on any portion of the indebtedness of Borrower
to Bank ceases to accrue by operation of law by reason of the commencement of a
bankruptcy or insolvency proceeding, the Obligations shall include such interest
as would have accrued on any such portion of such indebtedness if such
proceeding had not commenced at the Default Rate (as defined in the Loan
Agreement).
3. Security Interest. To secure timely payment of the Obligations and
performance in full of the other obligations related thereto, Guarantor hereby
grants to the Bank a continuing lien upon and security interest in and to all
right, title and interest of Guarantor in all personal and real property,
whether now owned or existing or hereafter acquired or arising, including the
following:
(a) all of Guarantor's accounts, including, without
limitation, all of the Guarantor's accounts receivable arising out of the sale
or lease of inventory or other goods or out of the rendering of services,
whether or not specifically assigned to the Bank;
(b) all of Guarantor's inventory, including, without
limitation, all of Borrower's goods held for sale or lease or being processed
for sale or lease, including all materials, work-in-process, finished goods,
supplies and other goods customarily classified as inventory, including
inventory at any time in the possession of any bailee;
<PAGE>
(c) all of Guarantor's goods, machinery, equipment, vehicles
and fixtures in addition to those specified in (a) and (b) above, wherever
located;
(d) all of Guarantor's cash, negotiable instruments, documents
of title, chattel paper, general intangibles, securities, leases, contract
rights, books and records, certificates of deposit, deposit accounts, cash
equivalents, interest or dividends on any of the foregoing, insurance claims,
patents, trademarks, good will and other property of whatever description,
wherever now or hereafter located, and now or hereafter in transit to or in the
possession or control of or assigned to or owned or held by Bank; and
(e) without limitation of the foregoing, all substitutions,
renewals, improvements and replacements of, and additions and accessories to,
the foregoing, and all products and proceeds of the foregoing, including,
without limitation, all of the proceeds in any form of Guarantor's accounts and
inventory, whether specifically assigned to Bank or not.
The terms used herein to identify the assets described above shall have
the respective meanings assigned to such terms as of the date hereof in the
Illinois Uniform Commercial Code.
If in the reasonable judgment of Bank said security or any additions
thereto or substitutes therefor or any part thereof, shall have depreciated in
value, or if Borrower shall have failed or refused to make full and prompt
payments, when due, of any Obligations of Borrower, the payment of which is
guaranteed hereunder, after the expiration of all cure and grace periods, the
Bank, at its option, shall have full power at any time and from time to time to
sell, assign and deliver the whole of said property and all additions thereto
and substitutes therefor, or any part of said property, additions and
substitutes at any public or private sale, and without advertising the same and
without notice to Guarantor, and with the right of the Bank to be a purchaser at
any such sale or sales, and in the event of any sale or purchase hereunder no
matter by or to whom made, all notice thereof, and any and all equity or right
of redemption, whether before or after sale hereunder is hereby expressly
waived; and, after deducting all legal and other costs and expenses, including
reasonable attorneys' fees, from the proceeds of such sale or sales, to apply
the remainder on any Obligations of Borrower, or of Guarantor covered hereby
whether due or not, as the Bank shall deem proper, and return the surplus, if
any, to Guarantor.
4. Representations, Warranties and Promises. Guarantor represents,
warrants and promises as follows:
(a) Guarantor is a duly organized and validly existing
corporation in good standing under the laws of the State of Delaware and has and
will continue to have all requisite power and authority to enter into, deliver
and be bound by this Guaranty and has duly executed and delivered this Guaranty.
<PAGE>
(b) The execution and delivery by Guarantor of this Guaranty,
Guarantor's performance of all of its obligations hereunder and consummation of
the transactions contemplated hereby do not conflict with or violate any
applicable law or any ruling, judgment or order of any court or other
governmental authority, and do not and will not conflict with or result in or
constitute any breach or default under or result in the creation or imposition
of any lien, charge or encumbrance under any agreement, indenture or undertaking
to which Guarantor is a party or by which Guarantor or any of its property is
bound.
(c) There is no action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court or other governmental
authority, pending or, to the knowledge of Guarantor, threatened against or
affecting Guarantor or any of its property, which has, or would have, a material
adverse effect upon the financial condition of Guarantor.
(d) No approval, consent or authorization of any governmental
authority is required in connection with Guarantor's entering into or performing
its obligations under this Guaranty.
(e) This Guaranty constitutes the legal, valid and binding
obligation of Guarantor, enforceable against Guarantor in accordance with its
terms.
5. Events of Default. The occurrence of any one or more of the
following events shall constitute and be defined as an "Event of Default"
hereunder:
(a) Any failure by Guarantor to observe or perform any
covenant, agreement, or condition under, contained in or referred to in this
Guaranty in accordance with the terms hereof, after any cure or grace period has
expired.
(b) Any failure of a representation or warranty of Guarantor
contained or referred to in this Guaranty to be true and correct as of the date
hereof in all material respects.
(c) Any material misrepresentation made by Guarantor in this
Guaranty or in any document furnished by Guarantor to Bank in connection with
this Guaranty.
(d) An "Event of Default" under the Loan Agreement shall have
occurred.
(e) The cessation to do business as a going concern, the
liquidation or the dissolution, of Guarantor.
(f) The appointment of a receiver for any part of the property
of Guarantor, the making by Guarantor of any assignment for the benefit of
creditors or any composition of creditors or the initiation by or against
Guarantor of any proceeding under the Code or any state insolvency law and such
proceeding is not dismissed within thirty (30) days after the commencement
thereof.
<PAGE>
6. Rights of Parties Upon Default. Upon the occurrence of an Event of
Default hereunder, all Obligations shall, at the election of Bank, become
immediately due and payable, without notice to Guarantor, together with interest
thereon as provided in the instruments representing such Obligations and, in
addition, Bank shall have all the rights and remedies provided under the Notes,
the Loan Agreement, the Other Agreements, other provisions hereof and any other
applicable law. No remedy of Bank herein is intended to be exclusive of any
other available remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this
Guaranty or now or hereafter existing at law or in equity or under any other
agreement. Bank, in its sole discretion, shall have the right to proceed first
and directly against Guarantor under this Guaranty without proceeding against
Borrower or any other person or any property, without exhausting any other
remedies which it may have and without resorting to any other security held by
or otherwise available to Bank. Each and every Event of Default shall give rise
to a separate cause of action hereunder, and separate suits may be brought
hereunder as each cause of action arises, but it shall not be necessary for Bank
to sue on each and every cause. No delay or omission to exercise any right or
power accruing upon any Event of Default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right or power may be
exercised from time to time and as often as may be deemed expedient. No course
of dealing between Guarantor and Bank nor any delay in exercising any rights
hereunder or under the Notes, the Loan Agreement or the Other Agreements shall
operate as a waiver of any rights of Bank. In the event any provision contained
in this Guaranty should be breached by Guarantor and thereafter duly waived by
Bank such waiver shall be limited to the particular breach so waived and shall
not be deemed to waive any other breach hereunder. No waiver, amendment, release
or modification of this Guaranty shall be established by conduct, custom or
course of dealing, but solely by an instrument in writing duly executed by the
parties thereto. In the event any payment by Borrower to Bank is held to be a
preference under the bankruptcy laws, or if for any other reason Bank is
required to refund such payment or pay the amount thereof to any other person,
firm or corporation, such payment by Borrower to Bank shall not constitute a
release of Guarantor from any liability respecting payment of the Obligations
guaranteed hereby, and Guarantor agrees to pay such amount to Bank upon demand.
7. Waiver.
(a) Waiver by Bank of any Event of Default hereunder, or of
any breach of the provisions of this Guaranty by Guarantor, shall not constitute
a waiver of any other Event of Default or breach, nor of the same Event of
Default or breach on a future occasion. No delay or omission on the part of Bank
in the exercise of any right or remedy hereunder shall operate as a waiver of
such right or remedy, nor shall the exercise of any right or remedy preclude
later or further exercise thereof. All rights or remedies of Bank on account of
the Collateral or on account of any of the Obligations, whether arising under
this Guaranty or otherwise, shall be cumulative and non-exclusive of each other,
and may be exercised by Bank at such times and in such order as Bank may
determine.
<PAGE>
(b) Guarantor hereby waives presentment, demand, diligence,
protest and notice of dishonor and protest and any other notice with respect to
any and all of the Obligations and waives acceptance of this Guaranty by Bank
and waives notice of and consent to and agrees that its obligations hereunder
and Bank's rights hereunder shall not be affected by one or more extensions or
renewals or modifications of any of the Obligations or the exercise of any and
all rights, powers, options, privileges and authorities granted to Bank by law
or by the terms of any instruments evidencing such obligations or otherwise. No
waiver or modification or amendment to the terms of this Guaranty shall be
effective as against Bank unless the same is in writing and signed by Bank.
8. GUARANTOR WAIVES THE BENEFIT OF ANY LAW THAT WOULD OTHERWISE
RESTRICT OR LIMIT BANK IN THE EXERCISE OF ITS RIGHTS, WHICH ARE HEREBY
ACKNOWLEDGED, TO APPROPRIATE WITHOUT NOTICE, AT ANY TIME HEREAFTER, ANY
INDEBTEDNESS MATURED OR UNMATURED, OWING FROM BANK TO GUARANTOR AFTER EXPIRATION
OF ALL CURE PERIODS. BANK MAY, FROM TIME TO TIME, WITHOUT DEMAND OR NOTICE OF
ANY KIND, APPROPRIATE AND APPLY TOWARD THE PAYMENT OF SUCH OF THE OBLIGATIONS,
AND IN SUCH ORDER OF APPLICATION AS THE BANK MAY, FROM TIME TO TIME, ELECT ANY
AND ALL SUCH BALANCES, CREDITS, DEPOSITS, ACCOUNTS, MONEYS, CASH EQUIVALENTS AND
OTHER ASSETS, IN THE NAME OF GUARANTOR, THEN OR THEREAFTER WITH BANK. GUARANTOR
HEREBY ASSIGNS AND TRANSFERS TO BANK ANY AND ALL CASH, NEGOTIABLE INSTRUMENTS,
DOCUMENTS OF TITLE, CHATTEL PAPER, SECURITIES, CERTIFICATES OF DEPOSIT, DEPOSIT
ACCOUNTS, OTHER CASH EQUIVALENTS AND OTHER ASSETS OF GUARANTOR, IN THE
POSSESSION OR CONTROL OF BANK FOR ANY PURPOSE.
9. GUARANTOR WAIVES THE FILING OF A CLAIM WITH A COURT IN THE EVENT OF
RECEIVERSHIP OR BANKRUPTCY OF BORROWER, AND WAIVES EVERY DEFENSE, CAUSE OF
ACTION, COUNTERCLAIM OR SETOFF WHICH GUARANTOR MAY NOW HAVE OR HEREAFTER MAY
HAVE TO ANY ACTION BY BANK IN ENFORCING THIS GUARANTY, INCLUDING, WITHOUT
LIMITATION, EVERY DEFENSE, COUNTERCLAIM OR SETOFF WHICH GUARANTOR MAY NOW HAVE,
OR HEREAFTER MAY HAVE, AGAINST BORROWER OR ANY OTHER PARTY LIABLE TO BANK IN ANY
MANNER. GUARANTOR RATIFIES AND CONFIRMS WHATEVER BANK MAY DO PURSUANT TO THE
TERMS HEREOF AND WITH RESPECT TO ANY COLLATERAL FOR THE OBLIGATIONS, AND AGREES
THAT BANK SHALL NOT BE LIABLE FOR ANY ERROR IN JUDGMENT OR MISTAKES OF FACT OR
LAW. GUARANTOR HEREBY AGREES THAT IT MAY BE JOINED AS A PARTY DEFENDANT IN ANY
LEGAL PROCEEDING (INCLUDING, BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING)
INSTITUTED BY BANK AGAINST BORROWER. GUARANTOR AND BANK IRREVOCABLY WAIVE THE
RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUCH LEGAL PROCEEDING IN WHICH
GUARANTOR AND BANK ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT
TO BANK GRANTING BORROWER ANY FINANCIAL ACCOMMODATIONS AND ACCEPTING THIS
GUARANTY.
<PAGE>
10. Repayment Claim. Should a claim be made upon Bank at any time for
repayment of any amount received by Bank in payment of the Obligations, or any
part thereof, whether received from Borrower, Guarantor pursuant hereto, or
otherwise from Borrower, or received by Bank as the proceeds of collateral, by
reason of: (1) any judgment, decree or order of any court or administrative body
having jurisdiction over Bank or any of its property, or (2) any settlement or
compromise of any such repayment claim effected by Bank, in its sole discretion,
with the claimant (including Borrower), Guarantor shall remain liable to Bank
for the amount so repaid to the same extent as if such amount had never
originally been received by Bank, notwithstanding any termination hereof or the
cancellation of any of the Notes or other instruments evidencing any of the
Obligations.
TO INDUCE BANK TO GRANT FINANCIAL ACCOMMODATIONS TO BORROWER, GUARANTOR
IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT
OR IN CONSEQUENCE OF THIS GUARANTY, SHALL BE INSTITUTED AND LITIGATED ONLY IN
COURTS HAVING SITUS IN THE CITY OF CHICAGO, ILLINOIS, AND GUARANTOR HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
LOCATED AND HAVING ITS SITUS IN SAID CITY, AND WAIVES ANY OBJECTION BASED ON
FORUM NONCONVENIENS, AND GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS, AND CONSENT THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO GUARANTOR AT THE ADDRESS INDICATED
IN THE INTRODUCTORY PARAGRAPH ABOVE OR IN BANK'S RECORDS IN THE MANNER PROVIDED
BY APPLICABLE STATUTE, LAW, RULE OF COURT OR OTHERWISE. FURTHERMORE, GUARANTOR
WAIVES ALL NOTICES AND DEMANDS IN CONNECTION WITH THE ENFORCEMENT OF BANK'S
RIGHTS HEREUNDER, AND HEREBY CONSENTS TO, AND WAIVES NOTICE OF THE RELEASE WITH
OR WITHOUT CONSIDERATION OF BORROWER OR ANY OTHER PERSON RESPONSIBLE FOR PAYMENT
OF THE OBLIGATIONS, OR OF ANY COLLATERAL THEREFOR.
11. Governing Law. This Guaranty shall be governed by and construed in
accordance with the internal laws of the State of Illinois.
12. Duration. This Guaranty shall remain and continue in effect
(notwithstanding the nonexistence at any time of any obligations of Borrower to
Bank) until: (i) Guarantor shall have received written notice of termination of
this Guaranty by Bank, (ii) all Obligations have been fully paid and (iii) all
commitments of Bank to lend money to Borrower have terminated.
13. Successors and Assigns. This Guaranty shall be binding upon
Guarantor, and upon its successors and assigns.
14. Integration. This Guaranty constitutes the entire agreement and
understanding between the Guarantor and the Bank with respect to the subject
matter hereof and supersedes all prior agreements, whether oral or written.
* * *
<PAGE>
SIGNED AND DELIVERED as of the date first above written.
Guarantor:
HEARTLAND TECHNOLOGY, INC.
By: /s/ Leon Fiorentino
Its: Vice President
ACCEPTED AND AGREED as of the date first above written.
LASALLE NATIONAL BANK
By: /s/ Charles Schroeder
Its: Vice President
