Indemnification Agreement
This Agreement is entered into effective the 13th day of March, 2000 by
and between ▇▇▇▇▇ ▇. ▇▇▇▇, a resident of North Logan, Utah (hereinafter
"Shareholder"), and NACO INDUSTRIES INC., a Utah corporation with principal
offices in Logan, Utah (hereinafter "NACO").
WHEREAS, since the time of its formation years ago, Shareholder has
been a principal officer, director and shareholder of NACO, working successfully
toward its growth and expansion in the manufacture and national marketing of pvc
pipe fittings; and
WHEREAS, during the course of NACO's growth and expansion, the
corporation has employed many people at various levels of the organization,
including Shareholder's son ▇▇▇ ▇▇▇▇; and
WHEREAS, during the summer and fall of 1998, ▇▇▇ ▇▇▇▇ desired to leave
the employment of NACO and begin his own business operations in the area of
manufacturing and marketing of plastic composites, while at the same time NACO
desired to expand its operations into the manufacture and/or marketing of
plastic composites, which NACO intended to do through a wholly owned subsidiary
known as NACO COPOSITES, INC., each party hoping to profit through business
transactions with each other, as well as with third parties; and
WHEREAS, in November of 1998 ▇▇▇ ▇▇▇▇ established a Utah limited
liability company known as RIMSHOT, L.C., in which he is believed to have been
the sole owner and member, for the purposes set forth above (hereinafter
"Rimshot"); and
WHEREAS, after having obtained some initial contract work and in
anticipation of substantial financing for which ▇▇▇ ▇▇▇▇ indicated that he had
applied and with respect to which he was optimistic about receiving, NACO
provided financial accommodations to Rimshot and ▇▇▇ ▇▇▇▇ by (1) entering into
two leases, one dated September 24, 1998 for a term of 60 Months, and the other
dated November 25, 1998, for a term of 36 Months, for certain equipment, which
equipment was to be used by Rimshot, in the approximate total principal amount
of $135,000.00 (hereinafter the "Rimshot Equipment Leases"), and (2) by issuing
NACO purchase orders and making payments to third party vendors or other
creditors of Rimshot, in the approximate amount of $311,231.02 (hereinafter the
"Rimshot Creditor Payments"), all with the hope and expectation that ▇▇▇ ▇▇▇▇
and Rimshot would soon obtain sufficient financing to repay NACO and hold NACO
harmless from further expense or obligation regarding such accommodations; and,
WHEREAS, perhaps due to a misunderstanding but in any event apparently
without the knowledge of NACO, when ▇▇▇ ▇▇▇▇ entered into a written lease
agreement dated September 4, 1998, for a building located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇, with ▇▇▇▇▇▇ INVESTMENTS, a Utah limited partnership, as
Lessor, for the business operations of Rimshot, ▇▇▇ ▇▇▇▇ executed such lease
agreement (hereinafter the "Rimshot Building Lease") in the name of NACO
COMPOSITES, INC., as Tenant; and
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WHEREAS, at the urging and insistence of NACO's lenders, NACO
COMPOSITES, INC. was merged up into NACO in 1999; and
WHEREAS, although ▇▇▇ ▇▇▇▇ is still manufacturing and doing business
through Rimshot, he has not yet been able to obtain the desired financing
necessary to repay NACO for the Rimshot Creditor Payments, or for rentals paid
by NACO under the Rimshot Equipment Leases; and
WHEREAS, although ▇▇▇ ▇▇▇▇ and Rimshot are making rental payments for
the Rimshot Building Lease, it is likely that Rimshot is in arrears in such
payments, and the lease is written to continue through September of this year,
at the rate of $2,000.00 rental per month, for which rents the landlord may seek
recourse against NACO in the event of Rimshot's default, inasmuch as NACO
COMPOSITES, INC. is shown under the lease as the tenant, and it has now been
merged into NACO, with NACO becoming responsible for whatever liabilities NACO
COMPOSITES, INC. had, as a result of such merger; and
WHEREAS, NACO is now a publicly held corporation, in which Shareholder
is the principal shareholder, and the independent auditors for NACO are
suggesting that on the basis of the foregoing facts, it may be necessary to
write down the NACO assets relating to Rimshot (such as the equipment leased by
NACO, and the receivable from Rimshot for the Rimshot Creditor Payments), with
the resulting charge against equity in the financial statements for NACO, unless
this matter can otherwise be resolved to protect the position of NACO; and
WHEREAS, Shareholder does not wish to see NACO shareholders adversely
affected by the ▇▇▇ ▇▇▇▇ and Rimshot transactions involving NACO, particularly
since these transactions involve Shareholder's son and Shareholder was serving
as an officer and director of NACO at the time when these transactions occurred,
and accordingly Shareholder has agreed to indemnify and hold NACO harmless from
liability, expense, and obligations pertaining to the Rimshot Equipment Leases,
the Rimshot Creditor Payments, and the Rimshot Building Lease, as set forth in
this agreement; and
WHEREAS, NACO desires to obtain such indemnity from Shareholder, and
hopes to avoid the charge against equity on its financial statements which it
might otherwise have to accept, but for such indemnity;
IT IS THEREFOR AGREED AS FOLLOWS:
1. Indemnification: In exchange for good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, Shareholder agrees,
pursuant to the terms set forth herein, to indemnify and hold NACO harmless from
any and all expense or obligation incurred as a result of the Rimshot Equipment
Leases and the Rimshot Building Lease, and by reimbursement to further indemnify
and hold NACO harmless from all amounts paid by NACO as and for the Rimshot
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Creditor Payments. A copy of the Rimshot Equipment Leases is attached hereto as
Exhibits "A" and "B", and a copy of the Rimshot Building Lease is attached
hereto as Exhibit "C", and a detail sheet reflecting the Rimshot Creditor
Payments is attached hereto as Exhibit "D", all of which Exhibits are
incorporated by this reference as though fully set forth herein.
2. Payments by Shareholder: Shareholder is presently the sole
shareholder of PVC, Inc., a Utah corporation with principal offices in Logan,
Utah (hereinafter "PVC"), which corporation is the owner of much of the land,
buildings and equipment leased by NACO for use in its business. Shareholder is
presently in the process of seeking to refinance the debt within PVC, Inc.,
based upon its asset values, in order to obtain funds which can be made
available to Shareholder and assist in repayments to NACO in fulfillment of
Shareholder's indemnity hereunder. Shareholder shall continue to diligently
pursue such financing through PVC, Inc., which funds may be used in part, at
least, to acquire additional needed equipment for lease to NACO, thereby
generating additional rentals which may be used to reimburse NACO under
Shareholder's indemnity. Accordingly, the parties hereto agree upon the
following payment schedule by Shareholder, in meeting his obligation of
indemnity hereunder:
a. Assumption of Prospective Leasehold Obligations: Beginning March 15,
2000, Shareholder shall assume and perform all obligations of the
Lessee under the Rimshot Equipment Leases and the Rimshot Building
Lease, making sure that NACO is not called upon to make any further
such payments. Shareholder shall attempt to obtain the Lessors'
approvals for his assumption and substitution as the Lessee under such
leases, but in any event, Shareholder shall see that such payments are
made, even if the rents must be paid by Shareholder as a Sublessee to
NACO, with NACO then making payment to the Lessor(s).
b. Rimshot Creditor Payments: Shareholder shall reimburse NACO for the
Rimshot Creditor Payments by making payments of TWO THOUSAND FIVE
HUNDRED DOLLARS ($2,500.00) per month, commencing on October 1, 2000,
and continuing on the same day of each month thereafter, without
interest, for a period of one (1) year, with additional such monthly
payments of principal, without interest, thereafter until paid;
provided, however, that:
1. Shareholder shall attempt to increase these monthly
payments upon obtaining the PVC financing to the sum of SIX
THOUSAND DOLLARS ($6,000.00) per month; however, if
Shareholder is unable to increase the monthly payments by the
end of the first year of such payments, to equal at least the
sum of FIVE THOUSAND DOLLARS ($5,000.00) per month, the then
remaining balance of the Rimshot Creditor Payments shall
thereafter bear interest at the Applicable Federal Rate
designated at such time for federal tax purposes; and
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2. Shareholder shall reimburse to NACO the entire balance of
the Rimshot Creditor Payments, with payments as set forth in
this Paragraph 2.b., subject to Shareholder's right to prepay
all or part at any time without penalty, and subject to the
addition of interest after the first year as set forth in
Paragraph 2.b.1. above.
3. Naco's Assignment of Interest to Shareholder: In exchange for
Shareholder's indemnity as set forth herein, NACO hereby assigns to Shareholder,
with recourse, its entire right, title and interest in and to the Rimshot
Equipment Leases, the Rimshot Building Lease, and the account or note receivable
from Rimshot for the Rimshot Creditor Payments.
4. Mutual Release: In consideration of the terms set forth herein, and
contingent upon the timely performance thereof, Shareholder expressly releases
NACO, and NACO expressly releases Shareholder and all other members of its Board
of Directors and Officers, from any further claim, obligation or liability of
any kind, known or unknown, arising from or in connection with the Rimshot
Equipment Leases, the Rimshot Creditor Payments and the Rimshot Building Lease.
5. Enforcement: If any legal action or any arbitration or other
proceeding is brought for the enforcement of this agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorney's fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
6. Corporate Authorization: The party executing this Agreement on
behalf of NACO represents and warrants that the Board of Directors of NACO has
duly authorized and approved the execution and delivery of this agreement and
all corporate action necessary or proper to fulfill the obligations of NACO to
be performed under this agreement.
7. Effect of Headings: The subject headings of the paragraphs of this
agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
8. Entire Agreement; Modification; Waiver: This agreement constitutes
the entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement, modification,
or amendment of this agreement shall be binding unless executed in writing by
all the parties. No waiver of any of the provisions of this agreement shall be
deemed, or shall constitute, a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
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9. Parties in Interest: Nothing in this agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
agreement, nor shall any provisions give any third persons any right of
subrogation or action over against any party to this agreement.
10. Assignment: This agreement shall be binding on, and shall inure to
the benefit of, the parties to it and their respective heirs, legal
representatives, successors, and assigns; provided, however, that neither party
hereunder may assign their rights or delegate their duties hereunder without the
express prior written consent of the other party.
11. Governing Law: This agreement shall be construed in accordance
with, and governed by, the laws of the State of Utah, and in the event of a
dispute hereunder, the parties hereto consent to jurisdiction and venue in Cache
County, State of Utah.
12. Further Assurances: The parties mutually acknowledge their intent
to accomplish the assumption of the various Rimshot liabilities by Shareholder
and reimbursement and indemnity of NACO pursuant to the terms set forth herein.
Each party agrees to take whatever steps or further assurances, including the
execution of documents, are reasonably necessary in order to accomplish this
objective.
13. Pledge of PVC Lease Receivables: In consideration of the terms of
this agreement, Shareholder shall, as the sole shareholder, officer and director
of PVC, cause PVC to convey to NACO a security interest in all of the PVC lease
receivables from NACO, whether from real or personal property leases, which
security interest shall remain effective during the period in which there remain
balances unpaid hereunder with respect to the Rimshot Equipment Leases, Rimshot
Building Lease, or the Rimshot Creditor Payments. Upon the expiration of the
initial term of the present lease of real property from PVC to NACO, if such
lease is not renewed by NACO pursuant to its option therein contained,
Shareholder shall at such time pledge additional collateral, which may include
Shareholder's stock in PVC and/or NACO, of sufficient value to at least equal
the remaining balance owed by Shareholder hereunder at such time.
IN WITNESS WHEREOF, the parties hereto have set their hands, effective
the date and year first set forth above.
NACO INDURSTRIES, INC.
By:/s/▇▇▇▇▇▇ ▇. ▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇
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