▇▇▇▇▇▇ Technologies, Inc. and subsidiaries
Form 10-QSB of March 31, 1999
Exhibit 10: Contract of Sale for Environmental Support Solutions
CONTRACT OF SALE
THIS AGREEMENT is made March 19,1999 between Environmental Support
Solutions, Inc. ("ESS"), ▇▇▇▇▇▇ Holdings, Inc. ("Seller") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
("Purchaser").
WHEREAS, the Seller owns and controls all of the issued and outstanding
capital stock of ESS; and
WHEREAS, the parties have determined to proceed with a transaction by which
ESS will redeem some of outstanding stock owned and held by Seller, and
Purchaser will acquire some of the remaining outstanding capital stock of ESS
from Seller;
NOW THEREFORE, in consideration of the mutual covenants and provisions
contained herein, and for other good and valuable consideration, receipt of
which is hereby acknowledged, IT IS AGREED AS FOLLOWS:
1. Repurchase of Capital Stock: ESS shall repurchase at Closing (the
"Repurchase") Two Thousand Six Hundred Sixty Six (2,666) shares of no par common
stock of ESS from Seller (the "Repurchase Shares")for the following
consideration (collectively, the "Repurchase Consideration"):
a. Promissory Note and Security Agreement made payable to the Seller, in the
principal amount of $380,000, on the forms annexed hereto as Exhibits "A"
and "B" to be executed and delivered to Seller at Closing; and
b. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall execute the Guaranty of Payment on the form annexed
hereto as Exhibit "C" to be executed and delivered to Seller at Closing.
Upon a purchase of the Repurchase Shares, ESS shall cancel all certificates
for and retire all of the Repurchase Shares which will be restored to the
treasury of ESS as authorized and unissued shares.
2. Sale of Capital Stock: Seller hereby agrees to sell and deliver to Purchaser
at Closing, and Purchaser agrees to purchase One Thousand (1,000) shares of no
par value common stock of ESS (the "Purchaser Shares") for One Hundred Thousand
Dollars ($100,000) (the "Purchase Consideration") payable at Closing. Seller
hereby warrants that the Purchaser Shares represent Seventy Five Percent (75%)
of the remaining issued and outstanding shares of the capital stock of ESS after
the Repurchase.
3. Closing: The closing of the sale shall take place on or about March 19, 1999,
and shall take place at a place and time to be agreed upon by the parties (the
"Closing").
4. Seller' Representations and Warranties: The Seller makes the following
representations and warranties to Purchaser, which representations and
warranties shall be true at the time of closing as though such representations
and warranties were made at closing:
a. ESS is, and will be on the closing date, a corporation duly organized,
validly existing, and in
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good standing under the laws of the State of Arizona. Copies of ESS'
Certificate of Incorporation, and any and all amendments thereof to date,
certified by the Corporation's Secretary, and of ESS' By-laws as amended to
date, certified by the Secretary of ESS, have been delivered to Purchaser,
and are true, complete and correct as of the date of this Agreement. To the
best of Seller's knowledge, there is no state, other than Arizona, where
the character of the properties owned by ESS, or the nature of the business
transacted by ESS, require that ESS be licensed and authorized or qualified
as a foreign corporation
b. ESS has no subsidiaries.
c. The aggregate number of shares that ESS is authorized to issue is 100,000
common shares, of which 4,000 shares are issued and presently outstanding,
and 25,000 shares of Series A Preferred Stock of which no shares have been
issued or are currently outstanding. All such issued shares have been
validly issued and are fully paid and non-assessable. ESS has no
outstanding subscriptions, contracts, options, warrants, or other
obligations to issue, sell, or otherwise dispose of, or to purchase, redeem
or otherwise acquire any of its shares.
d. Seller now has, and at the Closing will have, valid and marketable title to
the shares of stock to be sold by such Seller, free and clear of any lien,
claim, security interest or other encumbrance, including, without
limitation, any restriction on transfer, and has full right, power and
authority to enter into this agreement, and there are no other shares, or
class of shares of ESS owned or claimed by any person or entity other than
Seller. No change will be made in the authorized corporate shares of ESS.
e. Seller now has, and at the Closing will have, upon delivery of any payment
for each share of stock, full right, power and authority, and any approval
required by law to sell, transfer, assign and deliver the stock being sold
by such Seller hereunder, and Purchaser will acquire valid and marketable
title to all of the stock being sold by such Seller, free and clear of any
liens, encumbrances, equities claims, restrictions or transfer or other
defects whatsoever.
f. Seller has full power and authority to execute and deliver this agreement
and to perform the obligations of the Seller hereunder; and this agreement
is a legally binding obligation of the Seller in accordance with its terms.
g. The performance of this agreement and the consummation of the transactions
contemplated hereby will not result (i) in a breach or violation by such
Seller of any of the terms or provisions of, or constitute a default by
such Seller under, (A) any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Seller is a party or by which such
Seller or any of his properties is bound, or (B) any judgment of any court
or government agency or body applicable to such Seller or any of his
properties, or (C) to the best of such Seller's knowledge, any statute,
decree, order, rule or regulation of any court or governmental agency or
body applicable to such Seller or any of his properties or (ii) to the best
of such Seller's knowledge, in the creation of a lien.
h. All necessary federal and state tax returns have been timely filed as
required by applicable law, and all taxes shown thereon have been paid when
due.
i. To the best of Seller's knowledge, ESS has good and marketable title to all
of its properties
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and assets, real and personal, including but not limited to all computer
software and programs, and other products and any patents, trademarks
and/or copyrights relating thereto or to any product or service provided by
ESS, subject to no mortgage, pledge, lien, encumbrance, security interest,
or charge.
j. ESS will not, on the closing date, be in default in the payment of any of
its obligations.
k. ESS has complied with all applicable federal and state laws relating to the
employment of labor, including the provisions relating to wages, hours,
collective bargaining, and the payment of social security taxes, and is not
liable for any arrears of wages, or any tax or penalties, for failure to
comply with any of the foregoing.
l. To the best of Seller's knowledge, ESS is, and at Closing will be, in
compliance with all laws, statutes, regulations, rules and other
requirements of any governmental authority applicable to it for which
non-compliance could have a material adverse affect on ESS or its business.
ESS has, and shall have on the date of Closing, all licenses, permits,
certificates and certifications required by any and all local and state
governments and governmental departments having jurisdiction over the
business of ESS. There is presently no proceeding pending or the best of
ESS's knowledge threatened with respect to the revocation or limitation of
any of its material licenses.
m. To the best of Seller's knowledge, based in part upon the information
provided by Purchaser, the unaudited financial statements of ESS on the
date of Closing shall accurately show all liabilities and assets owned and
controlled by ESS (excluding cash and marketable securities which shall be
retained by Seller), tangible or intangible, including without limitation,
accounts receivable, prepaid expenses, and inventories, together with any
licenses, patents, trademarks, trade names, service marks and copyrights
used in connection therewith, and all contract rights of ESS as of the date
of Closing. Seller represents, to the best of Seller's knowledge, that as
of the date of Closing, the liabilities of ESS will not be greater by more
than $25,000, and the total assets will not be less than, the amounts shown
on the balance sheet (the "Balance Sheet"). To the best of Seller's
knowledge, the financial statements are true, accurate and complete in all
material respects and fairly present the information in accordance with
generally accepted accounting practices as of the date thereof, and, to the
best of Sellers' knowledge, fairly present the financial condition of ESS
as of the date thereof, and there have been no significant material or
adverse changes in the financial condition since the date of that balance
sheet. The foregoing financial statements do not include footnote
disclosures that would be required for full conformity with generally
accepted accounting practices.
n. Except for the claims of Mach II, to the best of Seller's knowledge, there
is no litigation or proceeding pending, or to Sellers' knowledge threatened
which Purchaser has no knowledge, against or relating to ESS, its
properties, or business, nor does the Seller know or have reasonable
grounds to know of any basis for any such action or of any governmental
investigation relative to ESS, its properties, or business. ▇▇▇▇▇▇ agrees
that ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ will represent Purchaser at no cost in the
arbitration hearing with Mach II.
o. Seller represents and warrants that the transfer of its shares will not
constitute a prohibited assignment or transfer of any of ESS' licenses,
leases, notes or contracts, and that all of the foregoing will remain in
full force and effect without acceleration as a result of this
21
transaction.
p. Seller represents that it is fully aware of Purchaser's position as the
current President of ESS and as a Director of Seller, and Seller hereby
waives any and all claims and causes of action against Purchaser for any
breach of fiduciary duty related to pursuing or executing the transaction
set forth in this Agreement.
5. Conduct of Business Pending Closing: The Seller covenants that, pending the
closing:
a. The business of ESS will be conducted in the ordinary course;
b. ESS shall not sell, transfer, assign, encumber or place a lien on any of
the assets, including patents, trademarks, copyrights and other
intellectual property, other than in the ordinary course of business;
c. No change will be made in the Certificate of Incorporation or the By-laws
of ESS, or in the authorized corporate shares of ESS, without the prior
written consent of Purchaser, except as may be necessary to implement and
accomplish the terms of this agreement;
d. No dividend or other distribution or payment will be declared or made in
respect of the shares of ESS, and ESS will not directly or indirectly
redeem, purchase, or otherwise acquire any of such shares.
e. ESS will keep all of its inventory and other property fully insured against
any loss, either by fire, other casualty, or theft, and shall maintain all
existing commercial liability insurance policies, commercial automobile
policies, and any other insurance policies insuring the assets, operations,
employees, officers and business of ESS. If prior to the closing date the
inventory or property of ESS at all or any of its facilities is totally or
substantially damaged by reason of fire or other casualty, or is lost by
reason of theft, Purchaser may, at its sole option, elect to terminate this
agreement and all moneys previously deposited by Purchaser with the Seller
shall be refunded to Purchaser and all parties shall be released from any
further liability. If Purchaser elects to proceed with this sale despite
such damage or loss, Purchaser shall receive the proceeds of any insurance
paid by reason of such damage or loss.
f. ESS shall not default on any contract, lease or other obligation, and all
debts and taxes will be paid as they become due.
g. ESS shall maintain all licenses, permits, authorizations and certifications
from all applicable state, federal and local governments, and all standard
industry certifications.
6. Purchaser's Representations and Warranties: Purchaser represents, covenants
and warrants to Seller as follows as of the date hereof and as of the Closing:
a. ▇▇▇▇▇▇▇▇▇ is currently a director and is the President of ESS and is fully
familiar with the business, operations and financial condition of ESS and,
except as expressly stated in this Agreement, is not relying on any
statement or representation by Seller as to ESS's financial condition,
assets, liabilities, claims, contractual obligations, past financial
performance or the
22
viability of ESS's business or business opportunities.
b. At or prior to Closing, ▇▇▇▇▇▇▇▇▇ shall execute and deliver his resignation
as Vice President and as director of ▇▇▇▇▇▇ Technologies, Inc., and shall
deliver a written waiver of the "golden parachute" provisions of Paragraph
10 of Purchaser's Employment Agreement, dated April 23, 1996 with regard to
this transaction.
c. There are no claims, demands, suits, proceedings or litigation of any kind
pending or to the knowledge of Purchaser threatened toward Purchaser, and
there are no unreleased or unsatisfied judgments, decrees or orders of any
court or governmental authority, which involve or affect the ability of
Purchaser to enter into, or to perform all obligations and covenants
contained in, this agreement.
7. Assignment: This agreement may not be assigned by either party without the
express written agreement of the other party, except that Seller shall have the
absolute right to assign this contract to any parent or subsidiary corporation
heretofore or hereafter created.
8. Conditions Precedent: All obligations of Purchaser under this agreement
including each of the following conditions are, at its option, subject to the
fulfillment, prior to or at the Closing:
a. The Seller' representations and warranties contained in this agreement
shall be true at the time of closing as though such representations and
warranties were made at closing; and
b. At Closing, ▇▇▇▇▇▇'s representatives shall execute and deliver their
resignations as directors and officers of ESS.
c. At the Closing or at a time mutually agreed upon by Seller and Purchaser,
Seller shall deliver the certificates for the Purchaser Shares to Purchaser
free and clear of all encumbrances, duly endorsed in negotiable form, with
all Arizona required transfer stamps attached, if any, together with such
other documents reasonably necessary to complete the sale, and Seller shall
deliver the certificates for the Repurchase Shares to ESS free and clear of
all encumbrances, duly endorsed in negotiable form, with all Arizona
required transfer stamps attached, if any, together with such other
documents reasonably necessary to complete the Repurchase. Provided,
however, Purchaser and ESS shall hold the Purchaser Shares and the
Repurchase Shares in trust for the benefit of Seller until Seller receives
the balance of the Purchase Consideration and the Repurchase Consideration.
d. Seller agrees that the options for shares of stock in ▇▇▇▇▇▇ Technologies,
Inc. ("Options") granted to Purchaser, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇ (collectively, "Option Holders") shall survive the Closing and shall
vest according to the original terms governing the Options as if the Option
Holders remained employed by ▇▇▇▇▇▇ Technologies, Inc. For informational
purposes only, Seller acknowledges that Purchaser has been granted a total
of 60,000 Options and ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ have been
granted 5,000 Options each.
9. Indemnification: Seller shall indemnify, defend and hold harmless Purchaser,
at all times after the date of this agreement, and after the closing, against
and in respect of:
a. Any liabilities of ESS of any nature, which Seller has knowledge of and
Purchaser has no
23
knowledge, whether accrued, absolute, contingent or otherwise, existing at
Closing, to the extent not reflected or reserved against in full in ESS's
balance sheet dated March 19, 1999, including without limitation, any tax
liabilities to the extent not so reflected or reserved against, accrued in
respect to, or measured by ESS's income for any period prior to, or arising
out of transactions into, or any state of facts existing, prior to Closing;
b. To the extent provided by the Seller's By-laws and as permitted by
applicable law, all actions, suits, proceedings, demands, assessments,
judgments, costs, and expenses asserted against Purchaser related to
Purchaser's position or as a former director of Seller, including
reasonable attorneys fees;
c. Any damage or deficiency resulting from any misrepresentation, breach of
warranty, or nonfulfillment of any agreement, or from any misrepresentation
in or commission from any certificate or other instrument furnished or to
be furnished to Purchaser hereunder; and
d. All other actions, suits, proceedings, demands, assessments, judgments,
costs, and expenses incident to any of the foregoing, including reasonable
attorneys fees.
10. Brokers: The parties represent and warrant to each other that they have not
retained or otherwise dealt with any broker or other intermediary to whom any
fees or payments are due on account of the transaction, and each agree to
indemnify and hold the other harmless on account of any such fees that may be
incurred.
11. Right of Redemption: From the date of Closing until September 30, 1999, ESS
shall have the right to redeem up to one hundred (100) of Seller's remaining
shares of no par value common stock of ESS at a price of $526.95 per share for
the purpose of issuing said shares to current ESS employees. Until March 31,
2000, ESS shall have the right to redeem some or all of Seller's remaining 334
(or so many of the shares that have not already been redeemed by ESS) shares of
no par value common stock of ESS (the "Remaining Shares") for $720.00 per share
or $240,480 (if all 334 shares are redeemed at $720 per share) for all of the
Remaining Shares (the "Redemption Consideration").
After the Closing, the Remaining Shares will be evidenced by a stock
certificate ("Certificate") which shall bear a legend stating that the Remaining
Shares are subject to a right of redemption until March 31, 2000.
12. Survival of Representations: All representations and warranties and
agreements shall survive the Closing and any examination or investigation at any
time made by Purchaser.
13. Entire Agreement: This agreement constitutes the entire agreement between
the parties. Any representation, warranty, or covenant made by Seller that is
not set forth in this agreement is not binding upon Seller.
14. Binding on Assigns: This agreement shall be binding upon and inure to the
benefit of the respective legal representatives, successors, heirs and assigns
of the parties.
15. Notices: All notice, requests, demands, and other communications hereunder
shall be in writing, and shall be deemed to have been duly given if delivered or
mailed first class, postage prepaid to the respective parties at the following
addresses:
24
A. To Purchaser: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Environmental Support Solutions, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Bonn, Luscher, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
B. To Sellers: c/▇ ▇▇▇▇▇▇ Technologies, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
16. Construction: This agreement shall be construed in accordance with the laws
of the State of Arizona.
17. Waiver: Any waiver by either party of any breach of any term or condition of
this agreement shall not be deemed a waiver of any other breach of such term or
condition, nor shall the failure of either party to enforce such provision
constitute a waiver of such provision or of any other provision, nor shall such
action be deemed a waiver or release of any other party for any claims arising
out of or connected with this agreement.
18. Board of Directors: For so long as Seller owns any of the common stock of
ESS, Purchaser and Seller agree that Seller shall have the right to nominate and
elect one (1) director to the ESS board of directors at any time that the number
of directors of ESS exceeds two (2).
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF the parties have duly executed this agreement on the
date first written above.
ENVIRONMENTAL SUPPORT SOLUTIONS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
------------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
----------------------------
Title: Executive Vice President
----------------------------------
26
EXHIBIT A
NON-NEGOTIABLE PROMISSORY NOTE
$380,000.00 March 19, 1999
Environmental Support Solutions, Inc., ▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Maker") promises to pay to ▇▇▇▇▇▇ HOLIDNGS, INC., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (the "Payee"), the principal sum of
Three Hundred Eighty Thousand and 00/100 ($380,000.00) Dollars on or before
March 1, 2006(the "Maturity Date").
1. The entire principal amount under this Note shall bear interest at an
annual rate of six (6.00%) percent. Payments under this Note shall be made as
follows:
a. No payments are required under this Note during the period from March
19, 1999 through December 28, 1999, and all interest on the principal
amount shall accrue during the period and will be added to the
principal amount as of December 28, 1999.
b. The entire principal amount will be repaid in Seventy-Two (72) equal
monthly payments of principal and interest, each payment being due on
the 1st day of each month commencing on January 1, 2000 except that
the first payment shall be due on December 28, 1999 instead of January
1, 2000.
c. The entire remaining unpaid principal, any interest and any other
amounts which may be due under this Note will be paid on or before
December 1, 2005.
The Maker shall pay a late charge, equal to five (5%) of any overdue
payment, in the event that the Payee has not received the full amount of any
monthly payment by the end of fifteen (15) calendar days after the date it is
due. All or any part of the unpaid principal amount of this indebtedness may be
prepaid at any time without penalty.
All payments, including any prepayment, shall be applied first to interest
and any other charges which may be due under this Note before being applied to
principal. Payments shall be made to the Payee at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other address as the Payee may
designate.
2. The Payee may declare the full amount of this Note, to be immediately
due and payable upon the Maker's default. The following shall constitute
default:
a. The Maker's failure to make any payment due under this Note on the
date it is due which default has not been cured within thirty (30)
days after the receipt of written notice from the Payee. However, if
the default is of a type that can not reasonably be cured within
thirty (30) days, and Maker is diligently working to cure said
default, then Maker shall have a reasonable time thereafter to cure
said default;
b. The Maker's failure to keep and perform all promises, agreements,
conditions and provisions of this Note;
c. The Maker's default under Security Agreement executed simultaneously
herewith and granted by the Maker to the Payee as additional security
for the promises made in this Note, which default is not cured within
the time period specified in the Security Agreement.
d. The Maker makes a general assignment for the benefit of creditors, or
files a voluntary petition in bankruptcy, or a petition for
reorganization under the
27
bankruptcy laws, or if an involuntary petition in bankruptcy is filed
against any obligor and not dismissed within sixty (60) days; of if a
receiver or trustee is appointed for all or any part of the property
and assets of any obligor.
Upon such default, in addition to the unpaid principal amount of this
indebtedness, the Maker will be liable to the Payee for interest at the rate of
twelve (12%) per cent per annum from the date of such default, together with all
expenses incurred by the Payee in connection with such default or the collection
of this indebtedness including, without limitation, the Payee's reasonable
attorneys' fees.
3. Upon default in the making of any of the payments due under this Note,
the Payee does not have to present this Note, demand payment or protest.
4. Delay or failure on the part of the Payee to assert any right or take
any action hereunder will not be deemed a waiver thereof or a waiver of any
default by the Maker.
5. This Note shall be governed and construed in accordance with the laws of
the State of Arizona.
Environmental Support Solutions, Inc.
By __________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
28
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and entered into as of this
19th day of March, 1999 by and among ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), ▇▇▇▇▇▇
Holdings, Inc., a Nevada corporation ("Secured Party"), and Environmental
Support Solutions, Inc., an Arizona corporation (the "Company").
RECITALS
WHEREAS, pursuant to the terms of that certain Contract of Sale (the
"Contract") of even date herewith by and among Company, ▇▇▇▇▇▇▇ and Secured
Party, ▇▇▇▇▇▇▇ has purchased from Secured Party One Thousand (1,000) shares of
common stock in the Company and such capital stock has been reissued in the name
of ▇▇▇▇▇▇▇ (the "Stock"); and
WHEREAS, Company has repurchased from Secured Party, Two Thousand Six
Hundred Sixty Six (2,666) shares of the common stock in the Company and such
stock has been retired and returned to the treasury of the Company. In
consideration therefore, Company has agreed in the Contract to make payments to
the Secured Party pursuant to a promissory note in the amount of Three Hundred
Eighty Thousand Dollars ($380,000.00) (the "Note") under the Contract; and
WHEREAS, ▇▇▇▇▇▇▇ has agreed to grant to Secured Party a security interest
in and to the Stock as security for the payment of the Note;
WHEREAS, ▇▇▇▇▇▇▇ has executed a personal guarantee for Company's
obligations under the Note in consideration of the Contract, the Note and this
Security Agreement; and
WHEREAS, the Secured Party would not have entered into the Contract but for
the execution of this Agreement by the ▇▇▇▇▇▇▇.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions herein contained, the parties hereto hereby agree as
follows:
1. Recitals. The foregoing recitals are incorporated herein as a part of
this Agreement.
2. Security. ▇▇▇▇▇▇▇ delivers, and grants to Secured Party a security
interest in the Stock represented by Certificate No.__of Environmental Support
Solutions, Inc. (the "Certificate") together with all Stock Rights and any other
shares in the Company issued at any time to ▇▇▇▇▇▇▇ and the proceeds thereof.
The Certificate, along with a stock power duly executed in blank by ▇▇▇▇▇▇▇ (the
"Stock Power"), shall be delivered to Secured Party following the execution of
this Agreement for the benefit of Secured Party. The Certificate, Stock Rights,
additional stock, and the Stock Power shall individually and collectively be
referred to as the "Collateral".
3. Obligations Secured. ▇▇▇▇▇▇▇ grants to Secured Party a security interest
in the Stock to secure the performance of all of Company's obligations under the
Note and the Contract.
29
4. Secured Party. Secured Party shall hold all Collateral as security upon
the terms and conditions herein and shall not encumber or dispose of the
Collateral or an interest therein, except in accordance with the provision
hereof.
5. Voting Rights; Ownership. So long as Company has not been notified by
Secured Party in writing that it is in default of the Note or the Contract,
▇▇▇▇▇▇▇ shall retain all incidents of ownership in the Collateral, and ▇▇▇▇▇▇▇
shall have the right to vote the Collateral without restriction except as to
those restrictions herein contained. Neither the Collateral, nor any interest
therein, nor the bulk of assets of the Company, may be (i) sold, consigned,
pledged, hypothecated or conveyed other than in the ordinary course of business
or to secure a working capital loan not to exceed $150,000 or (ii) subordinated
to any sale, consignment or conveyance, without the advance written consent of
the Secured Party. Notwithstanding anything to the contrary herein, Company
shall have the right to issue additional shares of stock in the Company to a
third party investor in an arms length transaction.
Company and ▇▇▇▇▇▇▇ jointly covenant and agree that the Stock and other
Collateral shall not be voted to permit the issuance of additional shares of
stock in the Company, to merge the Company with any other entity, to engage in
any corporate reorganization of the Company, to liquidate the Company or to take
any other action which would dilute in any manner the interest in Company which
is represented by the Collateral without the written consent of Secured Party.
Notwithstanding the foregoing, the Company shall have the right to issue and
sell additional shares of stock in the Company to an unrelated and unaffiliated
third-party investor in an arms length transaction that will not result in any
change in ownership of the Company, as that term in defined in paragraph "8 (e)"
below.
6. Dividends. So long as Company is not in default of the Note, the
Contract, or this Agreement, all cash dividends, distributions and payments of
every nature with respect to the Collateral (a "Dividend") shall be paid to
▇▇▇▇▇▇▇. No Dividend shall be paid at any time, or accepted by ▇▇▇▇▇▇▇, if the
payment would cause Company to be in default of any obligation to which it is a
party or would render Company insolvent or unable to conduct its business as
theretofore conducted or would cause the Company to have less than $150,000 in
cash in the Company for working capital.
7. Adjustments. ▇▇▇▇▇▇▇ and the Company agree that no additional shares,
warrants, options, or rights to stock in the Company shall be issued to ▇▇▇▇▇▇▇
without Secured Party's prior written consent. In the event of any stock
issuance, stock split, stock dividend or issuance of rights, warrants or options
relating to the Stock or other Collateral (collectively and individually "Stock
Rights") during the term of this Agreement, said Stock Rights and any and all
new shares or other securities of the Company acquired by ▇▇▇▇▇▇▇ thereby or
upon exercise of such rights shall be delivered to Secured Party by the Company
and ▇▇▇▇▇▇▇ to be held as Collateral in the same manner as the shares originally
secured by this Agreement. In the event the Company effects a share
classification or readjustment, any additional or substituted shares issued to
or in the name of ▇▇▇▇▇▇▇ shall be delivered to Secured Party by Company to be
held as Collateral in the same manner and for the same purposes as the Stock
originally secured by this agreement.
8. Default. The following shall constitute a default under this agreement:
(a) The default of Company in any of the obligations of the Note, which
default has not been cured within thirty (30) days after the receipt
of written notice from the Secured Party.
30
However, if the default is of a type that can not reasonably be cured
within thirty (30) days, and Company is diligently working to cure
said default, then Company shall have a reasonable time thereafter to
cure said default;
(b) Any material representation, warranty or statement of fact made by
▇▇▇▇▇▇▇ or Company to Secured Party shall, when made or deemed made,
prove inaccurate or materially misleading;
(c) Any judgment or judgments aggregating in excess of $75,000 or any
injunction or attachment is obtained against ▇▇▇▇▇▇▇ or Company which
remains unstayed for a period of twenty (20) days or is enforced;
(d) Any change in the president and chief executive officer or any change
in the controlling ownership of the Company. For purposes of this
provision, a change in ownership or control occurs: (i) when any
person is or becomes the beneficial owner, directly or indirectly, of
50% or more of the combined voting power of the Company's then
outstanding voting securities, or such lesser amount as is sufficient
to obtain controlling interest in the Company or (ii) the sale,
transfer and/or assignment of a substantial portion of the assets of
the Company;
(e) Any petition or application for any relief under the bankruptcy laws
of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or
hereafter in effect (whether at law or in equity) is filed by ▇▇▇▇▇▇▇
or by Company, or is filed against Borrower or against ESS and is not
dismissed within thirty (30) days of filing;
(f) The indictment of Company or ▇▇▇▇▇▇▇ under any criminal statute, or
commencement of criminal or civil proceedings against Company or
▇▇▇▇▇▇▇ or any guarantor, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of
the property of Company or ▇▇▇▇▇▇▇;
(g) The default of Company or ▇▇▇▇▇▇▇ in any of their obligations under
the Contract or this Security Agreement, which default has not been
cured within thirty (30) days after the receipt of written notice from
the Secured Party. However, if the default is of a type that can not
reasonably be cured within thirty (30) days, and Company is diligently
working to cure said default, then Company shall have a reasonable
time thereafter to cure said default.
Secured Party shall notify ▇▇▇▇▇▇▇ in writing of any default hereunder. In
the event Company or ▇▇▇▇▇▇▇ do not cure any such default within thirty (30)
days after receipt of written notice ( if the default is of a type that can not
reasonably be cured within thirty (30) days and Company is diligently working to
cure said default, Company shall have a reasonable time thereafter to cure said
default), the Secured Party shall be deemed to be the owner of the Collateral
or, in Secured Party's sole discretion, Secured Party may elect to seek its
remedies under the Note. If Secured Party elects to seek its remedies under the
Note, the Collateral shall be voted Sixty Percent (60%) by Secured Party and
Forty Percent (40%) by Debtor until such time as either:
i. Secured Party is paid in full under the Note, in which event this
Security Agreement shall be terminated and the Collateral returned to
Debtor; or
ii. The Collateral is accepted by Secured Party as payment in full
satisfaction of the obligation of Debtor to Secured Party under the
Note.
31
Notwithstanding anything to the contrary in this Agreement, if the Company
disputes whether it is in default, Company shall have the right to demand
binding arbitration (in accordance with the terms of the Contract) as to the
issue of default only, and Secured Party's right to vote the Collateral shall be
stayed until the decision of the arbitrator is issued. Pending the arbitrator's
decision, no action will be taken by Company which would require a vote of
Company's shareholders under the Company's bylaws. If the arbitrator's decision
is not issued within 60 days following Company's demand for arbitration, Secured
Party shall have the right to vote the Collateral unless and until the
arbitrator issues a decision in favor of Company. Notwithstanding the foregoing,
if the arbitrator's decision is not issued within 30 days following Company's
demand for arbitration, Company may seek any and all available legal remedies,
and the issuance of any court order related thereto shall automatically cause
Company's demand for arbitration to become null and void.
If the default by Company remains uncured within the thirty (30) day time
period set forth above and Secured Party elects to retake the Collateral, in
such event ▇▇▇▇▇▇▇ hereby grants Secured Party an irrevocable power coupled with
an interest, for Secured Party's sole use and benefit, to exercise at any time
and from time to time any and all powers with respect to all or any of the
Collateral that ▇▇▇▇▇▇▇ could have exercised including, without limitation, the
power to vote, sell, transfer, assign or otherwise deal in or with the
Collateral, as fully and effectively as if Secured Party was the absolute owners
thereof.
Secured Party shall be under no obligation or duty to exercise any of the
powers hereby conferred upon it and shall be without liability for any failure
to act in connection with the collection of, or the preservation of any rights
under, any of the Collateral. Secured Party shall also have the right, at its
option, to accept the Collateral as payment in satisfaction of the liquidated
obligations of Company to Secured Party under the Note. In this latter event,
the Collateral shall be deemed liquidated damages.
The parties acknowledge that if Company breaches its obligations under the
Note, or defaults under this agreement it will cause serious and substantial
damages to the Secured Party and it will be difficult, if not impossible, to
prove the amount of the damages. Retention of the Collateral by Secured Party,
along with the retention of any prior monies paid to Secured Party under the
Contract and Note, and Secured Party's election to accept the same in
satisfaction of the liquidated obligations of Company to Secured Party, is
agreed to be liquidated damages and not a penalty.
9. Notices. Any notice or demand with respect to any party hereto shall be
given by personal delivery, a recognized national next-day delivery service, by
certified mail return receipt requested, or by facsimile, addressed to the
parties at the following addresses:
To Secured Party: ▇▇▇▇▇▇ Holdings, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
32
To ▇▇▇▇▇▇▇: Environmental Support Solutions, Inc.
▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to: Bonn, Luscher, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
or at such other addresses as any party hereto may give by written notice to the
other. Notices shall be deemed to have been received (i) as of the date of
delivery to the recipient in the case of personal delivery; (ii) one day after
delivery to a national next-day delivery service company; (iii) three days after
mailing; or (iv) as of the date of acknowledged receipt by telecopier
transmission.
10. Construction and Successors. Except as otherwise provided herein and in
the Contract, or this Agreement:
(a) covers the entire understanding of the parties hereto, superseding
all prior agreements or understandings relating to any of the subject
matters hereof, and no modification or amendment of its terms and
conditions shall be effective unless in writing and signed by the parties
or their respective duly authorized agents;
(b) inures to the benefit of, and is binding upon, the successors,
assigns, distributees and personal representatives of the parties hereto;
(c) shall not be interpreted by reference to any if the titles or
headings to the paragraphs of this Agreement, which have been inserted for
convenience purposes only and are not deemed a part hereof;
(d) may be executed in one or more counterparts, all of which together
shall be deemed to constitute one and the same instrument;
(e) shall be construed by the actual gender and/or number of person,
persons, entity and/or entities referenced herein, regardless of the gender
and/or number used in such reference; and
(f) shall be fully enforceable and effective as to the partied hereto
as to its remaining provisions in the event any provision is held to be
invalid, illegal or unenforceable.
33
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
▇▇▇▇▇▇ Holdings, Inc. (Secured Party)
By _______________________________________________
Its _____________________________________________
__________________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Environmental Support Solutions, Inc. (Company)
By _______________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President
34
EXHIBIT C
GUARANTY OF PAYMENT
TO ▇▇▇▇▇▇ HOLDINGS, INC.
The undersigned Guarantor hereby acknowledges that ▇▇▇▇▇▇ Holdings, Inc.
("▇▇▇▇▇▇") would not have entered into the Contract of Sale, Promissory Note and
Security Agreement dated March 19, 1999, unless Guarantor guaranteed the
performance of Environmental Support Solutions ("ESS") under the Non-Negotiable
Promissory Note. The undersigned Guarantor also requested ▇▇▇▇▇▇ to enter into
the Contract of Sale, Promissory Note and Security Agreement, and Guarantor
acknowledges that he has a substantial interest in ensuring compliance by ESS of
its obligations under the Promissory Note and , therefore enters into this
Guaranty of Payment.
The undersigned Guarantor does hereby personally guarantee to ▇▇▇▇▇▇, the
full and timely payment of all sums and amounts due and owing to ▇▇▇▇▇▇ under
that certain Promissory Note dated March 19, 1999 (the "Note") from ESS made
payable to ▇▇▇▇▇▇. ▇▇▇▇▇▇ may enforce this Guaranty against Guarantor directly
to the fullest extent permitted by applicable law, without requiring ▇▇▇▇▇▇ to
exercise, enforce or exhaust any rights or remedy against ESS, provided that
▇▇▇▇▇▇ may not enforce this Guaranty against Guarantor until thirty (30)
business days following written demand received by Guarantor and ESS of a
default under the Note.
This Guaranty shall remain in full force and effect against Guarantor until
the debt evidenced by the Note due and owing to ▇▇▇▇▇▇ has been fully paid or
satisfied. The obligations of Guarantor hereunder shall remain in full force and
effect without regard to, and shall not be released, discharged or in any way
impaired by any amendment or modification of or supplement to the Note or any
extension of time which may be granted for payment or performance of any of
obligations under the Note or related documents.
Any notice required under this Guaranty shall be made in accordance with
the provisions set forth in that certain Security Agreement, dated March 19,
1999, by and between Guarantor, ESS and ▇▇▇▇▇▇.
35
This Guaranty shall be construed in accordance with the laws of the State
of Arizona, excluding its choice of law provisions, and the laws of the United
States of America.
__________________________________ Date: __________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
STATE OF ARIZONA )
)
County of Maricopa )
On March 19, 1999, before me personally came ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, to me known,
and known by me to be the individual described in the foregoing Guaranty of
Payment, and duly acknowledged to me that he executed the same.
________________________________________
Notary Public
My Commission Expires
__________________________________
38
