PLEDGE AGREEMENT
This Pledge Agreement, dated ________________ 2004, is by and between
AMERICAN FIRE RETARDANT CORP, a Nevada corporation ("Pledgor") and ALFRED M.
-------
BAYER and DARLENE BAYER (referred to as both "Pledgees" and "Pledgeholders").
-------- -------------
A. Pledgor and Pledgees have entered into an Agreement for Purchase of
Stock of even date with this Agreement (the "Stock Purchase Agreement") whereby
------------------------
Pledgees have agreed to sell 765 shares of common stock (the "Stock") in
-----
ALCHEMCO, INC. (the "Corporation"), to Pledgor, WHICH CONSTITUTES ALL OF THE
----------- ----------------------------
OUTSTANDING COMMON STOCK OF THE CORPORATION.
- -------------------------------------------
B. As consideration under the Stock Purchase Agreement, Pledgor has agreed
to deliver to Pledgees on the closing date as specified in the Stock Purchase
Agreement (the "Closing Date") a Promissory Note in the amount of Three Million
------------
Dollars ($3,000,000) (the "Promissory Note").
---------------
C. The parties hereto desire to enter into this Agreement to secure the
payment of the obligations to Pledgees arising under the Promissory Note,
including any interest, charges, expenses, costs, or attorneys fees associated
with collection of amounts due under the Promissory Note (the "Obligations").
-----------
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties agree as follows:
I
TERMS AND CONDITIONS
1.1 PLEDGE. Pledgor assigns and pledges the Stock (the "Collateral")
----------
to Pledgees in order to secure the Obligations.
1.2 DEFAULT EVENT. An event of default under this Agreement ("Default
-------
Event") shall be deemed to have occurred upon:
- -----
(a) an event of default under the terms of the Promissory Note,
including the return of any check delivered at or prior to the Closing Date OR
--
AT ANY TIME SUBSEQUENT THERETO by Pledgor for insufficient funds;
- ----------------------------------
(b) if either Pledgor or the Corporation becomes a debtor subject
to a proceeding under any chapter of the Bankruptcy Act, or other federal or
state insolvency or bankruptcy act, which proceeding is not dismissed within
thirty (30) days; has appointed a receiver or trustee to take possession of all
or substantially all of its assets, which appointment is not terminated within
thirty (30) days; or makes a general assignment for the benefit of its
creditors, which assignment is not terminated within thirty (30) days; or
(c) the breach or violation of any covenant or agreement contained
in this Agreement which is not cured within thirty (30) days after written
notice is given to Pledgor (the "Cure Period").
Upon the occurrence of a Default Event, the Pledgeholder is directed to
deliver the Collateral to the Pledgees unless, within the Cure Period, (a)
Pledgeholder is prohibited by order of a court of competent jurisdiction from
delivering the Collateral, or (b) unless the Pledgeholder receives written
notice from Pledgor stating that Pledgor has commenced an action in court
prohibiting the delivery of the Collateral and a copy of the action is included
with the notice, and an order is obtained from a court of competent jurisdiction
prohibiting the delivery of the Collateral within sixty (60) days from the
effective date of that notice. Pledgees' rights with respect to the Collateral
are set forth in Article IV.
1.3 TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
first to occur of the following:
1
(a) The occurrence of a Default Event, in which case the Agreement
shall terminate upon satisfaction of the Pledgeholder's obligations set forth in
this Agreement; or
(b) The payment of all Obligations in full and delivery of the
Collateral to the Pledgor.
Pledgeholder shall hold the Collateral until the Agreement is terminated.
Except as provided in section 1.2, Pledgeholder shall redeliver the Collateral
to Pledgor upon termination of this Agreement.
In the event Pledgeholder receives conflicting notices from Pledgor and
Pledgees, Pledgeholder may, in Pledgeholder's discretion, refuse to deliver the
Collateral and may apply to a court of competent jurisdiction for a
determination of the rights of the parties regarding the Collateral.
1.4 DISPUTES CONCERNING DEFAULT EVENTS. In the event Pledgor is
notified of a Default Event by Pledgees, Pledgor shall continue making payments
under the Promissory Note. In lieu of paying Pledgees directly, Pledgor may, at
its option, make payments into an escrow account to be created by Pledgor at
International City Escrow in Long Beach, California for the purpose of holding
funds on deposit until final determination of whether a Default Event has in
fact occurred. Pledgor waives any rights of offset against amounts that it
owes under the Promissory Note or this Agreement.
1.5 IRREVOCABLE PROXY COUPLED WITH AN INTEREST. PLEDGOR AGREES TO SIGN
--- -------------------------------------------------------------------
AN IRREVOCABLEPROXY COUPLED WITH AN INTEREST IN THE FORM ATTACHED AS EXHIBIT A
- --------------------------------------------------------------------------------
(THE "PROXY"). PLEDGEHOLDER WILLRETAIN POSSESSION OF THE PROXY. IN THE EVENT
- --------------------------------------------------------------------------------
PLEDGEHOLDER IS NOTIFIED BY PLEDGEES OF THE OCCURRENCE OFA DEFAULT EVENT.
- --------------------------------------------------------------------------------
PLEDGEHOLDER IS AUTHORIZED TO DELIVER THE PROXY TO PLEDGEES.
- --------------------------------------------------------------------
II
DESIGNATION OF PLEDGEHOLDER
Pledgees and Pledgor hereby designate ALFRED M. BAYER ("Pledgeholder") to
------------
act as Pledgeholder under the terms of this Agreement. In the event ALFRED M.
BAYER for any reason fails to serve as Pledgeholder, DARLENE BAYER shall serve
as Pledgeholder or, if she fails to so serve, the Pledgeholder shall be
CHRISTINE DAVIES.
III
INSTRUCTIONS TO PLEDGEHOLDER
Pledgees and Pledgor hereby authorize and direct Pledgeholder as follows:
(1) To hold and dispose of the Collateral AND THE PROXY in
--------------
accordance with the terms of this Agreement, and
(2) To deliver the Collateral AND THE PROXY in accordance with
-------------
Article I.
IV
PLEDGEES' RIGHTS
Upon the occurrence of a Default Event, SUBJECT TO ANY RIGHTS TO CURE IN
--------------------------------
SECTIONS 1.2(b) AND(c), then Pledgees shall have the right to take possession of
- ----------------------
and sell or otherwise dispose of the Collateral AND TO EXERCISE VOTING RIGHTS
-----------------------------
UNDER THE PROXY.
- -----------------
In addition, Pledgees shall have all rights and remedies accorded under the
California Commercial Code. The remedies granted to Pledgees in this Agreement
are not exclusive and it is expressly understood
2
that any remedies granted to Pledgees pursuant to this Article are cumulative
and in addition to remedies now or hereafter permitted by law.
The parties agree that the Obligations are recourse obligations of Pledgor,
and Pledgees are not limited to the Collateral for satisfaction of the
Obligations upon the occurrence of a Default Event.
Any right conferred upon Pledgees by this Agreement may be exercised by
either of Pledgees acting alone or by Pledgees acting jointly.
3
V
INDEMNIFICATION OF PLEDGEHOLDER
Pledgees and Pledgor, in consideration of Pledgeholder consenting to act
hereunder, hereby agree that so long as Pledgeholder acts in accordance with
Article III, Pledgeholder shall in no event or circumstances be liable to them,
or any of them, for any actions or inaction of Pledgeholder. Pledgees and
Pledgor further agree that should Pledgeholder incur any liability to any other
person or entity as a result of his actions or inaction as Pledgeholder,
Pledgees and Pledgor, jointly and severally, shall indemnify Pledgeholder from
any such liability.
VI
COVENANTS
6.1 LIENS. Pledgor will not and will not allow Corporation to create,
incur, assume or permit to exist any lien upon or with respect to any property
or assets of any kind (tangible or intangible) of the Corporation whether now
owned or hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Corporation) or assign any right to receive income, or file or permit the filing
of any financing statement under the UCC as in effect in any applicable
jurisdiction or any other similar notice of lien under any similar recording or
notice statute; provided that the provisions of this Section 6.1 shall not
prevent the creation, incurrence, assumption or existence of the following (with
such liens described below being herein referred to as "Permitted liens"):
---------------
(a) liens (other than any liens imposed by ERISA or pursuant to
any environmental law) for taxes, assessments or governmental charges or
levies not yet due or being contested in good faith;
(b) liens imposed by law securing the charges, claims, demands or
levies of landlords, carriers, warehousemen, mechanics, carriers and other
like persons which were incurred in the ordinary course of business and
which (A) do not, individually or in the aggregate, materially detract from
the value of the property or assets of the Corporation or materially impair
the use thereof in the operation of the business of the Corporation or (B)
which are being contested in good faith by appropriate proceedings
diligently pursued, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to such lien;
(c) liens arising from judgments, decrees or attachments (or
securing of appeal bonds with respect thereto) in circumstances not
constituting an Event of Default under Section 1.2;
(d) liens (other than any liens imposed by ERISA or pursuant to
any environmental law) not securing debt incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security or to secure the
performance of tenders, statutory obligations, surety bonds (other than
appeal bonds), bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations incurred in the
ordinary course of business;
(e) liens existing on the Closing Date, in each case without
giving effect to any extensions or renewals thereof;
(f) liens arising from precautionary UCC financing statements
regarding operating leases permitted by this Agreement;
4
(g) licenses, sublicenses, leases or subleases granted to third
persons in the ordinary course of business not interfering in any material
respect with the business of the Corporation;
(h) any interest or title of a licensor, lessor or sublessor under
any lease permitted by this Agreement;
(i) liens created pursuant to one or more capital leases; provided
that (A) each such lien serves only to secure the payment of debt arising
under the related capital lease and (B) the lien encumbering the asset
giving rise to each such capital lease does not encumber any other asset of
the Corporation or its parent or any affiliate or subsidiary;
(j) any purchase money security interest on any capital asset of
the Corporation if such purchase money security interest attaches to such
capital asset concurrently with the acquisition thereof and if the debt
secured by such purchase money security interest does not exceed the lesser
of the cost or fair market value as of the time of acquisition of the asset
covered thereby; provided that no such purchase money security interest
shall extend to or cover any property or asset of the Corporation other
than the related asset; and
(k) any lien arising out of the refinancing, extension, renewal or
refunding of any debt of the Corporation secured by any lien permitted by
this Section; provided that such debt is not increased and is not secured
by any additional assets.
6.2 LIMITATION ON DEBT. Pledgor will not and will not allow the
Corporation to incur, create, assume or permit to exist any debt except:
(a) debt of the Corporation outstanding on the Closing Date,
without giving effect to any subsequent extension, renewal or refinancing
thereof;
(b) purchase money debt secured by liens permitted by this
Agreement;
(c) debt of the Corporation under (A) foreign currency exchange
agreements entered into to manage foreign currency exchange risks and not
for speculative purposes or (B) under raw materials hedging agreements
entered into by the Corporation in the ordinary course of business;
(d) capital lease obligations existing on the Closing Date, and
capital lease obligations incurred after the Closing Date, to the extent
permitted by this Agreement;
(e) debt of the Corporation representing a refinancing,
replacement or refunding of debt permitted by this Agreement; provided that
the aggregate principal amount of such debt outstanding or available and
the interest rate per annum payable by the Corporation with respect to such
debt will not be increased, and the weighted average remaining life to
maturity of such debt will not be decreased by reason of such refinancing,
replacement or refunding; and
(f) debt of the Corporation not otherwise permitted by this
Section incurred after the Closing Date in an aggregate principal amount
not to exceed $100,000 at any time outstanding; provided that (A) no
Default Event shall have occurred and be continuing immediately before and
immediately after giving effect to such incurrence, and (B) such debt is
unsecured,
6.3 CAPITAL EXPENDITURES. Pledgor will not and will not allow the
Corporation to make any new expenditures for fixed or capital assets (including,
without limitation, expenditures for maintenance
5
and repairs which should be capitalized in according with GAAP, including
capital lease obligations) other than in the ordinary course of business.
6.4 INVESTMENTS; LINE OF BUSINESS. Pledgor agrees that:
(a) The Corporation will not hold, make or acquire any investment
in any entity or business, except:
(i) the Corporation may invest in cash and cash equivalents;
(ii) the Corporation may acquire and hold receivables owing
to it, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(iii) the Corporation may acquire and own investments
(including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
and
(iv) deposits made in the ordinary course of business
consistent with past practices to secure the performance of leases
shall be permitted;
provided that the Corporation may not make any investment in margin stock.
--------
(b) The Corporation will not make any acquisition of assets other
than in the ordinary course of business.
(c) The Corporation will not enter into any joint venture or
partnership agreement or arrangement or any other agreement or arrangement
with any entity or other business involving the sharing of profits or joint
or coordinated purchasing or distribution.
(d) The Corporation will not establish, create or acquire any
subsidiary.
(e) The Corporation will not engage in any business other than the
business in which it is engaged as of the Closing Date and activities
directly related thereto and similar or related businesses.
6.5 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. Pledgor agrees that:
(a) The Corporation will not wind up, liquidate or dissolve its
affairs or consolidate or merge with or into any other entity;
(b) The Corporation shall not make any disposition of its assets
except:
(i) dispositions of inventory, or used, worn-out or surplus
equipment, in each case in the ordinary course of business of the
Corporation; and
(ii) the sale of equipment to the extent that such equipment
is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably
promptly applied to the purchase price of such replacement equipment.
6
6.6 DIVIDENDS. Pledgor agrees that the Corporation will not declare or
pay any Dividends. 1.1
6.7 TRANSACTIONS WITH AFFILIATES. Pledgor agrees that the Corporation
will not, directly or indirectly, pay any funds to or for the account of, make
any investment in, CONTRACT WITH, lease, sell, transfer or otherwise dispose of
-------------
any assets, tangible or intangible, to, or participate in, or effect any
transaction with, any parent or affiliate of the Corporation; PROVIDED, HOWEVER,
------------------
THAT THE CORPORATION MAY, PURSUANT TO THE DECISION OF ITS BOARD OF DIRECTORS,
- --------------------------------------------------------------------------------
TRANSFER TO ITS PARENT FUNDS NOT IN EXCESS OF ITSNET INCOME AFTER TAXES. "NET
- --------------------------------------------------------------------------------
INCOME AFTER TAXES" SHALL BE DETERMINED ON A QUARTERLY BASIS, BEGINNINGWITH THE
- --------------------------------------------------------------------------------
FOURTH QUARTER OF 2004. BY THE CORPORATION'S INDEPENDENT CERTIFIED PUBLIC
- --------------------------------------------------------------------------------
ACCOUNTANT IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. AT LEAST
- --------------------------------------------------------------------------------
FIFTEEN (15) DAYS PRIOR TO ANYPROPOSED CASH TRANSFER UNDER THIS SECTION.
- --------------------------------------------------------------------------------
SHAREHOLDERS SHALL BE PROVIDED WITH WRITTEN NOTICE OF ANY PROPOSED CASH TRANSFER
- --------------------------------------------------------------------------------
ALONG WITH THE CORPORATION'S FINANCIAL STATEMENT FOR THE QUARTERSUBSTANTIATING
- --------------------------------------------------------------------------------
THE NET INCOME AFTER TAXES FOR THE QUARTER, AS CERTIFIED BY THE CORPORATION'S
- --------------------------------------------------------------------------------
CERTIFIEDPUBLIC ACCOUNTANT.
- ---------------------------
6.8 AMENDMENTS OF ORGANIZATIONAL AND OTHER DOCUMENTS. Pledgor agrees
that the Corporation will not (i) amend, modify or supplement or consent to any
amendment, modification or supplement of its articles or certificate of
incorporation, its bylaws, or other applicable organizational documents or any
agreements entered into by it with respect to its capital stock or other equity
interests that is materially adverse to the Lenders or (ii) enter into any
amendment, modification or waiver that is adverse in any respect to the Pledgees
to any material contract as in effect on the Closing Date. The Corporation will
promptly provide the Pledgees with copies of all amendments to the foregoing
documents and instruments as in effect as of the Closing Date.
6.9 SALE LEASEBACKS. Pledgor agrees that the Corporation will not,
directly or indirectly, become or remain liable as lessee or as guarantor or
other surety with respect to any lease, whether an operating lease or a capital
lease, of any property (whether real or personal or mixed), whether now owned or
hereafter acquired, (i) which the Corporation has sold or transferred or is to
sell or transfer to a third person or (ii) which the Corporation intends to use
for substantially the same purpose as any other property which has been sold or
is to be sold or transferred by the Corporation to another person in connection
with such lease.
6.10 NO ADDITIONAL STOCK. PLEDGOR AGREES THAT THE CORPORATION WILL
------------------------------------------------------------------
NOT ISSUE ANYADDITIONAL CAPITAL STOCK, COMMON OR PREFERRED, ANY CONVERTIBLE
- --------------------------------------------------------------------------------
SECURITIES, ANY OPTIONS, OR OTHERWISETAKE ANY ACTION THAT WOULD HAVE THE EFFECT
- --------------------------------------------------------------------------------
OF DILUTING THE SHARES.
- --------------------------
6.11 TERMINATION OF CHRISTINE DAVIES. PLEDGOR AGREES THAT THE
---- -----------------------------------------------------------------
CORPORATION WILL NOTTERMINATE CHRISTINE DAVIES WITHOUT CAUSE OR PROVIDE GOOD
- --------------------------------------------------------------------------------
REASON FOR HER TO TERMINATEEMPLOYMENT WITH THE CORPORATION, THE TERMS "CAUSE"
- --------------------------------------------------------------------------------
AND "GOOD REASON" HAVING THE MEANINGSASCRIBED TO THEM UNDER THE EMPLOYMENT
- --------------------------------------------------------------------------------
AGREEMENT BETWEEN THE CORPORATION AND CHRISTINEDAVIES BEING SIGNED
- -------------------------------------------------------------------------
CONTEMPORANEOUSLY WITH THIS AGREEMENT.
- -----------------------------------------
6.12 DEBT OBLIGATIONS. PLEDGOR AGREES THAT CORPORATION WILL REMAIN
---- ------------------------------------------------------------------
CURRENT ON ALLCORPORATE DEBT OBLIGATIONS.
- ---------------------------------------------
6.13 CASH MANAGEMENT SUBJECT TO THE TERMS OF THIS AGREEMENT, THE
---- ------------------------------------------------------------------
CORPORATION'S CASHMANAGEMENT SHALL BE SUBJECT TO THE DISCRETION OF THE
- -------------------------------------------------------------------------------
CORPORATION'S BOARD OF DIRECTORS; PROVIDED,HOWEVER, THAT ALL CHECKS, PAYMENTS,
- --------------------------------------------------------------------------------
AND TRANSFERS SHALL REQUIRE THE JOINDER OF CHRISTINE DAVIESDURING THE TERM OF
- --------------------------------------------------------------------------------
THIS AGREEMENT.
- ----------------
6.14 INDEPENDENCE OF COVENANTS. All covenants contained herein shall be
----
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that such action or condition would
be permitted by an exception to, or otherwise be within the limitations of,
another covenant shall not avoid the occurrence of a Default Event if such
action is taken or condition exists.
7
VII
GENERAL PROVISIONS
7.1 ATTORNEYS' FEES. In the event of any controversy, claim or dispute
between the parties to this Agreement, arising out of or relating to this
Agreement or the breach of this Agreement, the prevailing party shall be
entitled to recover from the losing party reasonable expenses, attorneys' fees,
and costs.
7.2 NOTICES. All notices, requests, demands and other communications
called for or contemplated hereunder shall be in writing and shall be deemed to
have been duly given when mailed by United States certified or registered mail,
sent by facsimile message or by nationally recognized overnight delivery service
addressed to the parties below, their successors-in-interest, or their permitted
assignees at the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid. Any notice shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by overnight delivery or facsimile to, the address or facsimile
number set forth below, unless such address or facsimile number is changed by
notice to the other parties:
PLEDGEES/PLEDGEHOLDER:
Alfred M. Bayer
1479 Cottonwood Street
Ontario, CA 91761
Darlene Bayer
1479 Cottonwood Street
Ontario, CA 91761
With a copy (which shall not constitute Notice) to:
Beck & Christian
23041 Mill Creek Drive
Laguna Hills, CA 92653-1257
Attention: Gregory M. Beck
Facsimile: 949-380-1128
PLEDGOR: American Fire Retardant Corp.
9316 WHEATLANDS ROAD
SANTEE. CALIFORNIA 92071
Attn: ___________________________
7.3 ASSIGNMENT. This Agreement shall be binding on and shall inure to
the benefit of the parties, their respective heirs, legal representatives,
successor and assigns.
7.4 REMEDIES. None of the remedies provided for in this Agreement is
intended to be exclusive, and each party shall have all other remedies now or
hereafter existing at law or in equity or by statute or otherwise, and the
election of any one or more remedies shall not constitute a waiver of the right
to pursue other available remedies.
7.5 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without giving effect to
its conflicts of law principles. Pledgor agrees that any dispute or controversy
arising out of this Agreement shall be adjudicated in a court located in
California, and hereby submits to the exclusive jurisdiction of the courts of
the State of California located in Riverside County, California.
7.6 ENTIRE AGREEMENT. This Agreement and the documents specifically
referred to in this Agreement or required to be delivered pursuant to the terms
of this Agreement represent the entire
8
agreement of the parties hereto with respect to the subject matter hereof
superseding all prior agreements, understandings, discussions, negotiations and
commitments of any kind. This Agreement may not be amended or supplemented, nor
may any rights hereunder be waived, except in a writing signed by each of the
parties affected thereby.
7.7 SEVERABILITY. In the event that any provision or any part of any
provision of this Agreement is held to be illegal, invalid or unenforceable,
such illegality, invalidity or unenforceability shall not affect the validity or
enforceability of any other provision or part hereof.
7.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement in one or more
counterparts, which, taken together constitute one agreement.
PLEDGEES:
----------------------------------
ALFRED M. BAYER
----------------------------------
DARLENE BAYER
PLEDGOR:
AMERICAN FIRE RETARDANT CORP.,
A Nevada corporation
By:
-------------------------------
9