ENVIRONMENTAL RESERVE ACCOUNT
AGREEMENT
THIS ENVIRONMENTAL
RESERVE ACCOUNT AGREEMENT (this “ Agreement ”),
dated as of December 7, 2010, is made by and among SMITH &
WESSON HOLDING CORPORATION (the “ Borrower
Representative ”), a Nevada corporation, SMITH &
WESSON CORP., a Delaware corporation, THOMPSON/CENTER ARMS COMPANY,
INC., a New Hampshire corporation, THOMPSON CENTER HOLDING
CORPORATION, a Delaware corporation, UNIVERSAL SAFETY RESPONSE,
INC., a Delaware corporation, FOX RIDGE OUTFITTERS, INC., a New
Hampshire corporation, K.W. THOMPSON TOOL COMPANY, INC., a New
Hampshire corporation, O.L. DEVELOPMENT, INC., a New Hampshire
corporation, BEAR LAKE HOLDINGS, INC., a Delaware corporation, and
SMITH & WESSON DISTRIBUTING, INC., a Delaware corporation
(collectively, the “ Borrowers ”) and TD BANK,
N.A., in its capacity as administrative agent for the Lenders
referenced below (in such capacity, and together with any successor
administrative agent, the “ Administrative Agent
”). Any references herein to the “Parties” shall
mean the Borrowers and the Administrative Agent.
WHEREAS, the
Borrowers are entering into an Amended and Restated Credit
Agreement of even date herewith (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the
“ Credit Agreement ”) with the Administrative
Agent and the lenders from time to time party thereto (“
Lenders ”), pursuant to which the Lenders have agreed,
subject to the terms and conditions set forth therein, to make
certain loans and other financial accommodations (collectively, the
Loans ”) to the Borrowers;
WHEREAS, certain
of the Borrowers are the owners of the real properties described in
Exhibit A (collectively, the “ Owned
Properties ”). Pursuant to the terms of the Credit
Agreement and the other Loan Documents, and in consideration of the
Lenders making the Loans to the Borrowers, each such Borrower has
granted a first mortgage, collateral assignment of leases and
rents, security agreement and fixture filing in favor of the
Administrative Agent which encumber the Owned
Properties;
WHEREAS, the
Borrowers and the Administrative Agent have entered into an Amended
and Restated Hazardous Materials Indemnity Agreement of even date
herewith (as the same may be amended, restated, supplemented or
otherwise modified from time to time, the “ Hazardous
Materials Indemnity Agreement ”), pursuant to which the
Borrowers have jointly and severally agreed to, among other things,
provide certain indemnification to the Administrative Agent and the
Secured Parties (as defined in the Credit Agreement) and to
perform, now and in the future, investigation, assessment and
remediation of environmental contamination on the Premises (as
defined in the Hazardous Materials Indemnity Agreement), including,
without limitation, on the Owned Properties.
WHEREAS,
Environmental Compliance Services, Inc. (“ ECS
”) prepared a Phase I Environmental Site Assessment report
dated October 15, 2010 for each Owned Property (collectively,
the “ Existing Reports ”), as described in
Exhibit B and incorporated herein by reference, which
identified various areas of environmental contamination on or at
each such Owned Property. ECS sent the Administrative Agent an
environmental review memorandum dated October 27, 2010 (the
“ Existing Memorandum ”), a copy of which is
attached hereto as Exhibit C and incorporated herein by
reference, which detailed the required additional investigation and
remediation activities to be completed with respect to each such
Owned Property to achieve appropriate regulatory
closure;
WHEREAS, the
Administrative Agent and the Lenders will not make Loans to the
Borrowers unless the Borrowers agree to guarantee financially the
cost and expense of completion of all Environmental Efforts (as
defined below); and
WHEREAS, as a
material inducement to the Administrative Agent to make the Loans,
the Borrowers have agreed to enter into this Agreement.
NOW THEREFORE, for
and in consideration of the Administrative Agent’s and the
Lenders’ extension of the Loans and the representations,
warranties and covenants contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties hereby agree as
follows:
(a) Except
as otherwise expressly defined herein or in the exhibits attached
hereto, all capitalized terms shall have the meanings ascribed to
them in the Credit Agreement.
(b) “
Environmental Contamination ” shall hereinafter be
defined as the discharge, dispersal, release or escape of any
solid, liquid, gaseous or thermal irritant or contamination,
including smoke, vapors, soot, fumes, acids, alkalis, toxic
chemicals, radon and waste materials into or upon land, or any
structure on land, the atmosphere or any watercourse or body of
water, including groundwater, in concentrations or amounts
exceeding maximum levels allowed by applicable Environmental Laws,
or by governmental or court order or directive, acting under the
authority granted by Environmental Laws, provided such conditions
are not naturally present in the environment in the concentration
or amounts discovered.
(c) “
Environmental Efforts ” shall hereinafter be defined
as all investigation and remediation activities to be completed in
accordance with the Existing Memorandum or to address additional
Environmental Contamination (“ Additional Environmental
Contamination ”) subsequently discovered by the Borrowers
or the Administrative Agent during the performance of this remedial
work or identified in any environmental report and review
memorandum subsequently received by the Administrative Agent,
including without any limitation, any environmental report
referenced in Paragraph 4 below.
2.
Environmental Investigation and Remediation. The
Borrowers shall, at its own cost and expense, and within a
reasonable timeframe after the Effective Date, undertake all
Environmental Efforts in accordance with applicable Environmental
Laws and the Hazardous Materials Indemnity Agreement.
3.
Establishment and Operation of Environmental Reserve
Account.
(a)
Reserve Funds. The Borrowers have caused the sum of $812,000
to be delivered to the Administrative Agent, which amount, combined
with funds that are currently available to the Borrowers in
existing escrow arrangements or otherwise, is agreed by the Parties
to be a reasonable estimate of the cost of the Environmental
Efforts recommended in the Existing Memorandum. The Borrowers agree
(i) that the amount may be increased at the Administrative
Agent’s reasonable discretion if Additional Environmental
Contamination is identified during the undertaking of the
Environmental Efforts or otherwise and (ii) upon notice from
the Administrative Agent requesting such increased
amount,
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