EXHIBIT 10.1
AMERICAN BODY ARMOR & EQUIPMENT, INC
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▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
August 16, 1996
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President/Manager
Key Bank of Wyoming
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▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Re: Defense Technology Corporation of America
Dear ▇▇. ▇▇▇▇▇▇▇:
In furtherance of our previous discussions, this letter
agreement will set forth our understanding with respect to the credit
facilities made available to Defense Technology Corporation of America, a
Wyoming corporation with a place of business located at ▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇ ("DTC"), by Key Bank of Wyoming, with an office at ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "Bank"), in the amounts of $3,000,000 (the
"$3,000,000 Facility") and $1,000,000 (the "$1,000,000 Facility"; and together
with the $3,000,000 Facility, the "Facilities"). The Facilities are secured by
a lien on substantially all the assets of DTC located in Casper, Wyoming, as
well as a mortgage on certain real property in Steamboat Springs, Colorado
owned by ▇▇▇▇▇▇ and/or ▇▇▇▇▇▇ ▇▇▇▇▇▇. In addition, ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
have personally guaranteed the Facilities.
Subject to the terms and conditions of this letter agreement:
(i) the obligation of American Body Armor & Equipment, Inc. ("ABA") to pay to
the Bank the Amount Due (as hereinafter defined) shall mature on September 30,
1997 (the "Maturity Date"), subject to the right of ABA, at its option, to
prepay all or a portion of the Amount Due at any time prior to the Maturity
Date without penalty or premium; (ii) this letter agreement shall become
enforceable in accordance with its terms upon its execution by the parties
hereto; and (iii) this letter agreement shall be of no further force or effect,
and shall terminate with no party hereto having any obligation or liability to
any other party hereto pursuant to the terms hereof in the event that (A) a
definitive purchase agreement for the purchase by ABA of certain assets of DTC
has not been executed on or before August 23, 1996, or (B) if such a definitive
purchase agreement has been executed on or before August 23, 1996, if the
closing of the transactions contemplated thereby (the "Closing") has not
occurred on or before September 30, 1996 (the "Termination Date").
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Key Bank of Wyoming
August 16, 1996
Page 2
As we have discussed, ABA and/or one of its affiliates is in
the process of negotiating the purchase of certain assets of DTC. In order for
ABA and/or one of its affiliates to consummate such purchase of DTC's assets,
the parties hereto agree as follows:
1. ABA shall deliver to the Bank at the Closing, as payment
in full of the $3,000,000 Facility and in complete satisfaction and discharge
thereof, a certificate registered in the Bank's name for that number of
unregistered shares of ABA Common Stock as will have a value, as determined by
the average closing price of ABA's Common Stock on the American Stock Exchange
for the ten consecutive trading day period ending two trading days prior to the
Closing date, of $2,650,000 (the "Amount Due"). Any amounts paid to the Bank on
account of the Amount Due, including the Initial Amount (as hereinafter
defined), shall result in a reduction of the then outstanding balance of the
Amount Due by a like amount. The Bank agrees that, upon the registration of
such shares of ABA Common Stock, as hereinafter provided, the Bank will agree
to the sale of such shares of ABA Common Stock, as hereinafter provided, and
that ABA shall control, in its sole discretion, the timing, manner and amount
of ABA Common Stock to be sold pursuant to this letter agreement; provided,
however, that ABA will ensure that (a) the Bank realizes net proceeds from such
sales (the "Net Sales Proceeds"), which, together with any advances from the
Deposit Account and the Initial Amount (each as hereinafter defined) will, in
the aggregate, equal the Amount Due, on or before September 30, 1997; (b) all
sales shall be arranged through UBS (as hereinafter defined) in accordance with
all applicable laws, rules, and regulations; and (c) none of the events
described in Section 13 hereinbelow has occurred. ABA shall not be considered
an agent of the Bank in effecting such sales. So long as the Bank is not in
default of its obligations hereunder, the Bank shall have all voting and
dividend rights with respect to such shares of ABA Common Stock. ABA hereby
agrees that it will indemnify the Bank against any and all capital gains taxes
that may be incurred by the Bank resulting from the sale of such shares of ABA
Common Stock.
2. On the Closing date, but no later than 11:00 A.M., Cheyenne, Wyoming
time on September 30, 1996, ABA shall advance to the Bank by wire transfer or in
good and immediately available funds $662,500 (the "Initial Amount"). Provided
none of the events described in Section 13 hereinbelow has occurred, ABA shall
thereafter be entitled to receive, before any Net Sales Proceeds are paid to the
Bank, an amount equal to the Initial Amount plus all
advances from the Deposit Account previously paid by ABA to the Bank and not so
recouped, and the Bank shall have provided Union Bank of Switzerland, New York
Branch
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Key Bank of Wyoming
August 16, 1996
Page 3
("UBS") with irrevocable written instructions to such effect. Upon the
occurrence of any of the events described in Section 13 hereinbelow, ABA shall
be entitled to receive any portion of the Initial Amount or advances from the
Deposit Account not previously recouped after the Bank has received any unpaid
balance of the Amount Due.
3. The shares of ABA's Common Stock issued to the Bank at the
Closing shall be delivered to UBS to be held by UBS in accordance with the
terms of a letter agreement to be entered into between UBS and the Bank,
substantially in the form of Exhibit A attached hereto (the "Instruction
Letter"), and the Bank shall provide irrevocable written instructions to UBS
that UBS is entitled to rely on the instructions of ABA in order that the sales
of the shares of ABA Common Stock and the remitting of the Net Sales Proceeds,
all as described in this letter agreement, are effected as set forth in the
Instruction Letter.
4. (a) ABA ensures that the Bank will receive the Amount Due,
either from the Net Sales Proceeds, the Initial Amount, the Deposit Account, or
some combination thereof. In order to secure ABA's obligations to the Bank
hereunder, on the Closing date but no later than 11:00 A.M. Cheyenne, Wyoming
time on September 30, 1996, ABA shall deposit with the Bank in Wyoming (the
"Deposit Account") by wire transfer or in good and immediately available funds
an amount equal to $1,987,500, which shall be invested by the Bank in 30-day
certificates of deposit of the Bank which will bear interest at a rate per
annum equal to the highest rate made available by the Bank to its customers for
similar deposits (the "CD Rate"), and shall be automatically renewable for
successive 30-day periods, subject to the provisions of this letter agreement.
(b) The Deposit Account will be held in the name of ABA and the
principal amount of the Deposit Account will be subject to a perfected security
interest and right of set-off in favor of the Bank. All interest earned on the
Deposit Account shall be for the sole benefit of ABA, shall be free and clear of
any such security interest, shall not be subject to any right of set-off in
favor of the Bank, and shall be paid to ABA upon the maturity of each
certificate of deposit which at any time comprises the Deposit Account;
provided, however, that upon payment in full of the Amount Due, the Bank may
retain any interest earned on the Deposit Account that has not been previously
paid to ABA in accordance with this Section 4(b) and apply it against the
Interest Equivalent Amount (as hereinafter defined) owed by ABA and DTC to the
Bank, pursuant to Paragraph 4(e) hereof.
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Key Bank of Wyoming
August 16, 1996
Page 4
(c) At the maturity of each certificate of deposit which at any time
comprises the Deposit Account, ABA shall be entitled to withdraw from the
Deposit Account an amount equal to any Net Sales Proceeds that have been
received by the Bank prior thereto; provided, however, (i) the Net Sales
Proceeds received by the Bank shall have been in good and immediately available
funds; (ii) the balance remaining in the Deposit Account after giving effect to
such withdrawal will not be less than the balance owing on the Amount Due; (iii)
ABA has given the Bank not less than two weeks written notice of such
withdrawal; and (iv) none of the events described in Section 13 has occurred.
(d) At no time shall the amount in the Deposit Account, excluding
interest, be less than the outstanding balance of the Amount Due at the time in
question.
(e) The Amount Due from time to time outstanding shall accrue an
effective annual rate of interest equal to two thirds of the sum of the CD Rate
plus 1% (the "Interest Equivalent Amount"). Each of ABA and DTC hereby agree to
pay to the Bank on the earlier of the Maturity Date or the date on which the
Amount Due has been paid in full one-half of the Interest Equivalent Amount.
5. ABA shall pay to the Bank the remaining balance of the Amount Due in
accordance with the following schedule, subject to adjustment as provided in
Section 8 hereof:
Date: Payment Amount:
----- ---------------
December 15, 1996 $300,000
January 31, 1997 300,000
April 30, 1997 350,000
July 31, 199 350,000
provided, however, that ABA shall have the right, at its option, to prepay all
or a portion of the Amount Due without penalty or premium at any time prior to
the Maturity Date. All Net Sales Proceeds received by the Bank shall be applied
as a prepayment against the next Payment Amount(s) due as herein above set
forth. ABA shall have the right to use funds in the Deposit Account to make the
payments described in this Section 5.
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Key Bank of Wyoming
August 16, 1996
Page 5
6. In the event that the aggregate of the Net Sales Proceeds,
the advances from the Deposit Account and the Initial Amount realized by the
Bank as of September 30, 1997 are less than $2,650,000, or upon the occurrence
of any of the events described in Section 13 hereinbelow, the Bank shall be
entitled to set-off from the Deposit Account (exclusive of any interest earned
thereon) an amount which, when added to the Net Sales Proceeds, the advances
from the Deposit Account and the Initial Amount received by the Bank for its
own account, will equal $2,650,000 plus the Interest Equivalent Amount owed by
ABA and DTC to the Bank, and the balance of such Deposit Account shall be
returned to ABA.
7. Upon receipt by the Bank in good and immediately available funds of
the Amount Due, plus the entire Interest Equivalent Amount, whether from the
Initial Amount, the Net Sales Proceeds, the Deposit Account, or any combination
thereof, UBS shall be instructed to deliver to ABA for cancellation any
remaining shares of ABA Common Stock held by UBS for the Bank.
8. (a) ABA hereby agrees to include the shares of ABA Common Stock to be
issued to the Bank pursuant to this letter agreement in a registration statement
on Form SB-2 or other appropriate form to be filed with the Securities and
Exchange Commission within 45 days of the closing of the transactions
contemplated hereby, and thereafter to use its best efforts to have such
registration statement declared effective as promptly as practicable. Such
registration statement shall describe the material terms of this letter
agreement and the proposed plan of distribution of the shares of ABA Common
Stock, and a copy thereof shall be provided to the Bank promptly upon filing
with the Securities and Exchange Commission.
(b) In the event that such registration statement has not been declared
effective by January 28, 1997, then the payment schedule described in Section 5
hereof shall be revised as follows:
Date: Payment Amount:
----- ---------------
January 31, 1997 $400,000
April 30, 1997 500,000
July 31, 1997 500,000
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Key Bank of Wyoming
August 16, 1996
Page 6
provided, however, that once such registration statement has been declared
effective, then all subsequent payments required pursuant to Section 5 hereof
shall thereafter revert to the amounts therefor as specified in Section 5
hereof.
9. In consideration of the issuance of the shares of ABA Common Stock to
the Bank, as of the Closing date the $3,000,000 Facility shall be deemed paid in
full, and completely satisfied and discharged, and the Bank hereby agrees to
cancel the promissory note evidencing the $3,000,000 Facility and deliver it to
DTC marked paid in full, and to release any and all liens on the assets of DTC
relating to the $3,000,000 Facility and the $1,000,000 Facility on the Closing
date; provided, however, the Bank shall not be required to release its security
interest on the Steamboat Springs, Colorado real property. The Bank agrees to
deliver UCC-3 termination statements, releases and any other instruments
necessary and proper in order to give effect to the intent and purposes of this
letter agreement. In addition, the Bank will release ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
from any personal guarantees relating to the $3,000,000 Facility upon Closing.
In further consideration of the transactions contemplated hereby, (a) the Bank
hereby releases and forever discharges ABA and its affiliates, officers,
directors, employees and agents, and their respective successors, assigns, heirs
and legal representatives (collectively, the "ABA Releasees") of and from any
and all actions or causes of action, suits, claims, charges, complaints,
damages, liabilities, expenses, losses, costs, agreements and promises
whatsoever at law or in equity which the Bank may now have or hereafter can,
shall or may have against the ABA Releasees arising out of or relating to the
Facilities, other than the obligations of ABA under this letter agreement; and
(b) ABA hereby releases and forever discharges the Bank and its affiliates,
officers, directors, employees and agents, and their respective successors,
assigns, heirs and legal representatives (collectively, the "Bank Releasees") of
and from any and all actions or causes of action, suits, claims, charges,
complaints, damages, liabilities, expenses, losses, costs, agreements and
promises whatsoever at law or in equity which ABA may now have or hereafter can,
shall or may have against the Bank Releasees arising out of or relating to the
Facilities, other than the obligations of the Bank under this letter agreement.
10. (a) ABA hereby agrees to indemnify and hold harmless the Bank from
any damage, liability, cost or expense incurred by the Bank in connection with
a breach by ABA of its obligations hereunder or the violation by ABA of any
applicable securities laws, rules or regulations relating to the sale of the
shares of ABA Common Stock in accordance with the terms hereof; provided,
however, that ABA shall have no obligation to indemnify the Bank with
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Key Bank of Wyoming
August 16, 1996
Page 7
respect to or in connection with the Bank's actions relating to any aspects of
administering, processing or otherwise handling the Facilities (including, but
not limited to, the violation of any laws, rules or regulations applicable to
the Bank) or to any other actions of the Bank which constitute gross negligence
or willful misconduct.
(b) The Bank hereby agrees to indemnify and hold harmless ABA from any
damage, liability, cost, or expense incurred by ABA in connection with a breach
by the Bank of its obligations hereunder or the violation by the Bank of any
laws, rules or regulations applicable to the Bank; provided, however, that the
Bank shall have no obligation to indemnify ABA with respect to or in connection
with ABA's actions relating to the sale of the shares of ABA Common Stock in
accordance with the terms hereof (including, but not limited to, the violation
of any laws, rules, or regulations applicable to ABA) or to any other actions
of ABA which constitute gross negligence of willful misconduct.
11. The parties acknowledge that the Bank, DTC and ▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇▇▇▇▇▇ are negotiating a settlement of the $1,000,000 Facility. The
closing of the transactions contemplated by this letter agreement shall take
place simultaneously with the Closing of the purchase of certain DTC assets by
ABA, and to the extent practicable the closing of the transactions between the
Bank, DTC and ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ relating to the settlement of the
$1,000,000 Facility. If for any reason the agreement between ABA and DTC for
the sale and purchase of such DTC assets is terminated, then this letter
agreement shall be null and void, with no further liability or obligation to
any party hereto. The Bank acknowledges that the settlement of the $1,000,000
Facility between the Bank, DTC and ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall not be a
condition to the closing of the transactions between ABA and Key Bank
contemplated by this letter agreement. DTC and ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇
acknowledge that ABA and DTC are negotiating the terms of a proposed agreement
pursuant to which certain DTC assets will be acquired by ABA. Each of DTC and
▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ hereby expressly acknowledge and agree that no such
agreement has been reached between DTC and ABA with respect to such asset sale
as of the date hereof, that the execution and delivery of this letter agreement
will not be construed as creating an obligation on any party hereto to reach
such an agreement with respect to such asset sale, and that such asset sale
agreement will be deemed reached when, and only when, a definitive asset
purchase agreement and attendant documents have been executed and delivered by
and among ABA, DTC, and ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇, and then only in accordance
with, and subject to the terms and conditions of, such asset purchase
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Key Bank of Wyoming
August 16, 1996
Page 8
agreement.
12. ABA hereby covenants to the Bank that ABA will comply with all laws,
rules and regulations applicable to ABA in connection with the performance by
ABA of its obligations hereunder. The Bank hereby covenants to ABA that the Bank
will comply with all laws, rules and regulations applicable to the Bank in
connection with the performance by the Bank of its obligations hereunder.
13. In the event that:
(a) a voluntary or involuntary proceeding in
bankruptcy or insolvency is filed by or
against ABA under any federal or state law,
and the same is not dismissed within 15
days of such filing; or
(b) a stop order is issued by the Securities
and Exchange Commission against ABA with
respect to the registration statement
herein described, or any enforcement
proceeding relating thereto is instituted
by the Securities and Exchange Commission,
the American Stock Exchange or the NASD,
and in each such case, the same is not
subsequently rescinded or dismissed within
30 days of the issuance or commencement
thereof; or
(c) there is a breach by ABA of any
representation, warranty, covenant or
agreement made by ABA in this letter
agreement, including, but not limited to,
the covenants contained in Sections 5 and 8
hereof, and the same is not cured within 10
business days after the Bank has provided
written notice to ABA of such breach;
then, in each such case, the entire remaining balance of the Amount Due to the
Bank by ABA at such time shall immediately become due and payable, and the Bank
shall have the right to (i) exercise its rights and remedies as a secured party
with respect to the Deposit Account, (ii) exercise its right of set-off against
the Deposit Account, and (iii) to the extent there remains anything owing on
the Amount Due after application of the remaining funds in the Deposit Account,
notify UBS of such default and outstanding balance owing on the Amount Due, and
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Key Bank of Wyoming
August 16, 1996
Page 9
instruct UBS to sell immediately so much of the remaining ABA Common Stock held
by it for the Bank as may be necessary to obtain Net Sales Proceeds sufficient
to pay such outstanding balance on the Amount Due plus the entire Interest
Equivalent Amount in full; provided, however, that the Bank hereby agrees that
it will give ABA three business days prior written notice before notifying UBS
of the occurrence of any such event. Any excess Net Sales Proceeds shall be
paid from the Bank's account to ABA.
14. Each of the parties hereto shall bear their own costs and expenses in
connection with the transactions contemplated hereby.
15. The parties acknowledge that time is of the essence, and
accordingly, in the event that this letter agreement is not fully executed
within two business days of the date hereof, the offer represented hereby shall
terminate, and no party shall have any obligation to any other party hereto.
16. The parties hereto acknowledge that this letter agreement has been
negotiated and executed, and is to be performed in, the State of Wyoming.
17. The Bank may assign its interest under this letter agreement to any
KeyCorp subsidiary with the written consent of ABA, which consent shall not be
unreasonably withheld or delayed; provided, however, that any such assignee
shall have a net worth equal to or greater than the net worth of the Bank. The
Bank shall notify ABA of the entity to which the assignment is
to be made (the "Assignee") and provide such information concerning it as ABA
may reasonably request. The Assignee shall agree in writing to assume all of
the Bank's duties and obligations under this letter agreement. In the event of
such assignment, the Deposit Account may continue to be maintained with the
Bank, but the rights of the Bank with respect thereto shall be transferred to
the Assignee. Upon consummation of such assignment, the Bank shall be released
from any further liability under this letter agreement.
18. In the event the definitive agreement referred to in paragraph 11
above is terminated for any reason, or ABA otherwise elects not to consummate
the acquisition of DTC's assets as contemplated therein, ABA shall immediately
give the Bank notice of such event. From the time of the execution of such
definitive agreement and prior to the Closing, ABA hereby represents and
warrants to the Bank that ABA will not manage or direct the business
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Key Bank of Wyoming
August 16, 1996
Page 10
operations of DTC.
19. This letter agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile signatures
shall be deemed acceptable and binding.
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Key Bank of Wyoming
August 16, 1996
Page 11
If the foregoing is in accordance with your understanding of the terms of
our agreement, please so indicate by signing a copy of this letter in the space
indicated below and returning a fully executed copy to us.
Very truly yours,
AMERICAN BODY ARMOR & EQUIPMENT, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Chairman of the Board
ABOVE AGREED TO AND ACCEPTED
ON AUGUST 16, 1996:
KEY BANK OF WYOMING
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
CEO
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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