<PAGE>
As Filed With the Securities and Exchange Commission on August 20, 1998
Registration No. 333-57329
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act Of 1933
---------------
COLORADO GREENHOUSE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0182 84-1363625
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
6811 Weld County Road 31
Fort Lupton, Colorado 80621
(303) 857-4050
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
James R. Rinella
Chief Executive Officer
6811 Weld County Road 31
Fort Lupton, Colorado 80621
(303) 857-4050
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
William R. Roberts Richard C. Tilghman, Jr.
Holme Roberts & Owen LLP Piper & Marbury L.L.P.
1401 Pearl Street, Suite 400 36 South Charles Street
Boulder, Colorado 80302 Baltimore, Maryland 21201
(303) 444-5955 (410) 539-2530
---------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement becomes+
+effective. This prospectus shall not constitute an offer to sell or the +
+solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Dated August 20, 1998
5,000,000 Shares
[LOGO OF COLORADO GREENHOUSE HOLDINGS,INC. APPEARS HERE]
COLORADO GREENHOUSE HOLDINGS, INC.
Common Stock
--------------
Of the 5,000,000 shares of Common Stock offered hereby, 3,500,000 shares are
being sold by Colorado Greenhouse Holdings, Inc. (the "Company") and 1,500,000
shares are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Stockholders. Prior to this offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made to list the Common Stock on the Nasdaq
National Market/sm/ under the symbol "CGHI."
--------------
The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 10.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================
Underwriting
Price to Discounts and Proceeds to Proceeds to Selling
Public Commissions Company/(1)/ Stockholders
================================================================================
Per Share..... $ $ $ $
Total/(2)/.... $ $ $ $
================================================================================
(1) Before deducting estimated expenses of $550,000, all of which will be paid
by the Company.
(2) Certain Selling Stockholders have granted the Underwriters a 30-day option
to purchase up to an additional 750,000 shares of Common Stock, solely to
cover over-allotments, if any. If this option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Selling Stockholders will be $______, $______ and $______, respectively.
See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters, as stated
herein, subject to prior sale, when, as and if delivered to and accepted by
them, and subject to their right to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, New York, New York on or about , 1998.
BT. Alex Brown Hambrecht & Quist
The date of this prospectus is ____ __, 1998.
<PAGE>
ARTWORK
"Colorado Greenhouse Quality Hydroponic Produce," together with the circular
sunrise over snowcapped mountains design and "Colorado Greenhouse" are
registered trademarks of the Company. See "Business--Company Trademarks."
* * *
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and with quarterly reports containing unaudited
financial information for each of the first three quarters of each year.
* * *
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. References to the Company refers to Colorado
Greenhouse Holdings, Inc., its consolidated subsidiaries and its predecessors.
See "--Company History and Recent Developments." Unless otherwise indicated, all
statements made in this Prospectus assume (i) exercise of all outstanding
warrants to purchase preferred stock and conversion of all of the Company's
outstanding preferred stock into shares of Common Stock and (ii) no exercise of
the Underwriters' over-allotment option.
The Company
Colorado Greenhouse is the largest U.S.-based producer and marketer of high-
quality greenhouse tomatoes. The Company's branded superpremium tomatoes are
characterized by their excellent flavor, rich red color and consistent blemish-
free appearance. The Company currently operates six hydroponic (grown without
soil) greenhouses covering approximately 111 production acres in Colorado and
New Mexico and is constructing a seventh 20-acre hydroponic greenhouse in New
Mexico. The Company plans to construct six additional 20-acre hydroponic
greenhouses over the next three years. The Company's production sold was
approximately 247,000 pounds per acre for the six months ended June 30, 1998,
which represents an approximately 29% increase from the same period in 1996.
The Company also has increased its acreage by approximately 56% and increased
its net sales by approximately 77% over the same period. In May 1998, the
Company acquired an approximately 25% equity interest in an affiliated group of
Mexican greenhouse companies ("Greenver") and obtained the exclusive right to
market in the United States, Canada and Europe all export-quality tomatoes from
Greenver's approximately 175 acres of non-hydroponic greenhouses in Mexico, half
of which are currently under construction and expected to be in production by
November 1998. The Company anticipates that Greenver will provide it with up to
18 million pounds of tomatoes during Greenver's November 1998 through April 1999
growing season.
The Company's production and distribution capabilities enable it to provide
its customers with a consistent, year-round supply of superpremium branded
tomatoes. The Company currently markets most of its tomatoes in ten states,
primarily to major supermarket chains, including Albertson's, Ingles, King
Soopers, Kroger, Lucky's, Meijer and Safeway, with the majority of sales
concentrated in California, Colorado, Michigan, North Carolina, Ohio, Tennessee
and Texas. The Company recently completed an extensive market and consumer
study and, based upon its findings, plans to launch a marketing campaign for its
newly developed consumer brand in September 1998, emphasizing the consistent
year-round quality and superior taste of its tomatoes. A key component of the
Company's growth strategy is to market its tomatoes in selected new domestic
markets and establish relationships with additional major supermarket chains.
Industry sources estimate that greenhouse tomatoes accounted for only
approximately 8% of the approximately 5.4 billion pound ($1.8 billion) U.S.
fresh tomato market in 1997. Historically, U.S. fresh tomato consumption has
decreased dramatically during the winter months due to the lack of a consistent
supply of quality tomatoes. There is substantial year-round consumer demand,
however, for higher quality, fresh, superpremium food products, including
tomatoes. Accordingly, industry sources estimate that greenhouse tomatoes' share
of the U.S. fresh tomato market will increase significantly over the next five
years. The Company believes that its ability to offer a consistent, high-
quality superpremium tomato on a year-round basis and its greenhouse expansion
plans will permit it to lead this growth opportunity.
Company Strengths
The Company's key competitive strengths include:
. Consistent Quality Superpremium Tomatoes on a Year-Round Basis. The
Company has established a reputation as a consistent supplier of high
quality, branded superpremium tomatoes. The Company's greenhouse
locations in Colorado and New Mexico are characterized by an optimal
combination of direct sunlight and moderate summertime temperatures,
which provide it with the ability to grow high-quality tomatoes on a
year-round basis. Commencing in November 1998, the Company will begin
marketing Greenver's tomatoes. This
3
<PAGE>
will provide the Company with a greater supply of tomatoes from
November through April, when domestic supply is generally at its
lowest and prices are typically at their highest.
. Direct Relationships with Major Supermarket Chains. The Company
sells directly to several of the nation's largest supermarket chains,
including Albertson's, Ingles, King Soopers, Kroger, Lucky's, Meijer
and Safeway. These direct relationships enable the Company to: (i)
retain control over the distribution process; (ii) establish a "non-
commodity" consumer branding approach to marketing; (iii)
differentiate itself through superior customer service; and (iv)
improve margins by eliminating unnecessary middlemen.
. Technical Expertise. The Company's advanced growing techniques
enable it to produce consistently high-quality tomatoes on a year-
round basis. The Company's greenhouses are managed by teams of senior
growers, principally recruited from European countries, with expertise
in the latest greenhouse and hydroponic technology. These senior
growers train junior growers to assure that the Company will have the
expertise necessary for its planned expansion. Forty of the Company's
production acres have been constructed, and 20 acres are being
constructed, using a state-of-the-art model designed to enhance
growing conditions and improve production yield. The Company also
has installed an integrated management information system, which
allows it to monitor closely all aspects of the plant production,
packaging and selling process.
Growth Strategy
The Company's objective is to strengthen its position as the largest U.S.-
based producer and marketer of high quality greenhouse tomatoes and to increase
sales. Key elements of the Company's strategy to achieve this goal include:
. Aggressively Develop Consumer Brand Identity. To capitalize on the
regional success of the Company's branding strategy, in September
1998, the Company plans to introduce a marketing campaign targeting
additional domestic markets with its newly developed consumer brand.
This campaign will include both trade and consumer advertising and
point-of-sale promotions emphasizing the consistent year-round
availability and superior taste of the Company's tomatoes. The
Company believes that its branding strategy also may facilitate its
future introduction of other superpremium greenhouse produce.
. Expand Production Capacity. The Company's strategy is to expand
production capacity to meet the increased consumer demand for
consistent, high-quality tomatoes on a year-round basis. The Company
is currently constructing a 20-acre hydroponic greenhouse facility in
New Mexico and plans to construct six additional 20-acre hydroponic
greenhouses over the next three years at sites that provide optimal
micro-climatic conditions of sunlight and temperature. The Greenver
marketing arrangement will provide the Company with a greater supply
of tomatoes from November through April, when domestic supply is
generally at its lowest and prices are typically at their highest.
. Broaden Retail Distribution. Most major retailers seek a primary
supplier for each produce category that is capable of delivering both
uniform quality and consistent year-round supply. The Company
believes that by offering retailers and consumers a high quality
product with a consistent year-round supply, it can become the primary
year-round tomato supplier of choice for many major supermarket
chains. The Company's variety of product sizes and grades and
customized packaging capabilities also provide significant flexibility
to retail chains when offering tomato products to consumers. The
Company's expertise in conducting marketing programs can assist these
retailers in developing consumer awareness and brand loyalty.
See "Risk Factors - Risks Related to Growth Strategy."
Company History and Recent Developments
Organizational History. The Company's business arose from the need for
developers of cogeneration electric power plants to obtain secondary users
("heat hosts") of heat generated by the power plants. In the 1980's, the
developers of four Colorado cogeneration plants (two in Brush and one each in
Fort Lupton and Rifle) selected greenhouses as heat hosts because Colorado's
micro-climatic conditions are favorable to greenhouse production. Tomatoes were
chosen as the crop for these greenhouses based on their revenue producing
potential. Prior to January 1,1994, the greenhouses at
4
<PAGE>
the Brush #1, Brush #2 and Fort Lupton #1 power plants were operated separately
under the supervision of a common management committee. On January 1, 1994, the
Company's predecessor, Colorado Greenhouse, LLC (the "LLC"), began to operate
the Brush #1, Brush #2 and Fort Lupton #1 greenhouses, and Rifle was added on
January 1, 1996. Integrating these operations allowed the Company to market more
efficiently its products, reduce production costs and coordinate growing
schedules. Construction of the Estancia and Fort Lupton #2 greenhouses was
completed by the Company in August 1997 and January 1998, respectively. The
Estancia and Fort Lupton #2 greenhouses are not part of a cogeneration project.
1997 Production Problems. During 1997, the Company experienced mechanical
problems, pest and disease infestations and a flood that significantly reduced
production during parts of the year in three of the Company's greenhouses. In
the Brush #1 greenhouse, a root disease reduced tomato production by
approximately 18.9% during the first and second quarters of 1997. This was
followed in the third quarter by an invasion of thrips (an insect) through the
greenhouse's unscreened ventilation system, which carried a virus from adjacent
agricultural field crops. This virus reduced plant populations as well as
tomato volumes and size, resulting in a decline in the Company's average sales
price per pound. During the third quarter of 1997, Brush #2 was also affected
negatively by the same root disease that affected Brush #1 and was infested with
a large population of whiteflies. This led to the Company's decision to pull
out its entire existing crop at Brush #2 and disinfect the greenhouse at the
beginning of the fourth quarter of 1997. At the end of the first quarter of
1997, the Fort Lupton #1 greenhouse experienced a mechanical failure in its
irrigation system, followed by a flood at the end of July that required the
Company to pull out the entire crop to avoid an outbreak of root rot common in
water damaged crops. As a result of all of these problems, the Company
experienced approximately a 13% decline in total production sold in 1997
compared to 1996, despite the addition of production from the 20-acre Estancia
greenhouse in October 1997. The Company believes it has remedied the problems
that lead to mechanical malfunctions and has used the experiences to update its
existing greenhouses and better design future greenhouses. The Company hired a
new senior management team that has implemented various initiatives and quality
control measures to reduce the likelihood of similar problems occurring in the
future and obtained improved insurance coverage. See "Risk Factors--Risk of
Loss to Crop from Pests or Mechanical Failures" and "Business--Greenhouse
Production--Quality Control Programs."
1998 Weather Event. In May 1998, the Company's Brush #1 and Brush #2
greenhouses were damaged by a hail storm coupled with severe winds. The Brush
#2 greenhouse suffered significant damage to its glass and related crop as a
result of the hail, and the Company decided to pull out the entire crop. The
hail also punctured some of the plastic at the Brush #1 greenhouse although most
of the crop in Brush #1 was salvaged. As a result of the hail storm, the
Company expects to lose a total of approximately $4.5 million in net sales
during the second and third quarters of 1998. For the six months ended June 30,
1998, the Company has recorded a receivable for an insurance advance of $2.0
million related to property and business interruption coverage, of which $1.6
million has been recognized on the Company's statement of operations, offset by
the recognition of a $1.7 million loss from hail damage, resulting in a $0.1
million charge to operations. The Company has filed insurance claims for
property and business interruption damages incurred in the hail storm totaling
$3.1 million less deductibles of $50,000. With the processing of these claims,
additional proceeds may be available subject to the final determination of the
insurance company. See "Risk Factors--Risk of Catastrophic Loss of Crop and
Property Damage."
Greenver Transaction. In May 1998, the Company acquired a 25% equity interest
in Greenver for $4.0 million (the "Greenver Transaction"). Greenver has 88
acres of non-hydroponic greenhouses under production in Baja, Mexico, which
produce tomatoes and some sweet peppers. The proceeds of the Company's
investment in Greenver are being used by Greenver to construct an additional 87
acres of non-hydroponic greenhouse facilities, which are expected to be in
production by November 1998. As part of the Greenver Transaction, the Company
obtained the exclusive right to market in the United States, Canada and Europe
all export-quality tomatoes produced by Greenver, for which the Company will
receive a 10% commission. The Company estimates that the Greenver Transaction
will provide it with up to 18 million pounds of tomatoes during Greenver's
November 1998 through April 1999 growing season, the time of year when domestic
supply is generally at its lowest and prices are typically at their highest.
Although Greenver's tomatoes are of comparable quality to the Company's
tomatoes, the Company will provide Greenver with technical assistance to
increase Greenver's production yield and the Company intends to introduce
hydroponic growing techniques to at least some of Greenver's facilities. As a
result of its equity interest, the Company is entitled to 25% of all dividends,
if any, distributed by Greenver.
5
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May 1998 Private Placement. In May 1998, the Company completed the sale of
$6.0 million of its Series C Convertible Preferred Stock at $5.50 per share.
The proceeds were used to fund the Greenver Transaction and a portion of the
construction costs of the Company's new greenhouse in Grants, New Mexico. The
Series C Convertible Preferred Stock was offered by the Company in two tranches
solely to its existing preferred stockholders or their related parties on a pro
rata basis. The Company entered into a Registration Rights Agreement with the
Series C Convertible Preferred Stock purchasers, whereby the Company agreed to
register the Common Stock issued upon conversion of the Series C Convertible
Preferred Stock in certain circumstances, at the Company's expense. See
"Certain Transactions and Relationships--Sale of Series C Convertible Preferred
Stock" and "Description of Capital Stock--Registration Rights." Upon the closing
of this offering, the Series C Convertible Preferred Stock will be converted
into Common Stock on a one share for one share basis.
---------------
The Company was incorporated in Delaware in 1996. The Company's principal
executive offices are located at 6811 Weld County Road 31, Fort Lupton, Colorado
80237, and its telephone number is (303) 857-4050.
6
<PAGE>
The Offering
Common Stock offered by the Company....3,500,000 shares
Common Stock offered by the Selling
Stockholders...........................1,500,000 shares
Common Stock to be outstanding
after this offering....................13,998,361 shares (1)(2)
Use of proceeds........................To repay indebtedness, to fund a portion
of construction costs for two or three
greenhouses and for working capital.
Proposed Nasdaq National Market/sm/
Symbol.................................CGHI
Risk Factors...........................The Common Stock offered hereby involves
a high degree of risk. See "Risk
Factors."
- --------------------
(1) Assuming an initial public offering price of $10.00 per share, the Series B
Preferred Stock will convert automatically into 3,185,216 shares of Common
Stock. If the initial public offering price is higher than $10.00, the
Series B Preferred Stock will convert automatically into a fewer number of
shares of Common Stock. For example, if the initial public offering price
is $11.00 per share, the Series B Preferred Stock will convert automatically
into 3,030,680 shares of Common Stock. Each share of the Company's Series A
Preferred Stock, issued in January 1997, and Series C Preferred Stock,
issued in May 1998, will convert automatically into one share of Common
Stock upon consummation of this offering.
(2) Excludes 1,026,691 shares of Common Stock issuable upon the exercise of
currently outstanding options at a weighted average exercise price per share
of $2.65. See "Management--Stock Option Plan."
7
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Summary Financial and Operating Data
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
----------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(Dollars and shares in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Net sales....................... $ -- $13,938 $20,135 $27,407 $24,944 $13,298 $23,549
Cost of goods sold.............. -- 9,961 15,431 19,293 22,257 11,507 15,982
------ ------- ------- ------- ------- ------- -------
Gross profit.................... -- 3,977 4,704 8,114 2,687 1,791 7,567
Operating expenses (2).......... 156 2,207 2,502 4,434 4,609 2,255 2,990
------ ------- ------- ------- ------- ------- -------
Operating income (loss)......... (156) 1,770 2,202 3,680 (1,922) (464) 4,577
Interest and other income
(expense), net................. 54 (33) 329 63 193 261 (290)
------ ------- ------- ------- ------- ------- -------
Income (loss) before
income tax provision........... (102) 1,737 2,531 3,743 (1,729) (203) 4,287
Provision (benefit) for
income taxes................... -- -- -- -- (653) (76) 1,651
------ ------- ------- ------- ------- ------- -------
Net income (loss)............... (102) 1,737 2,531 3,743 (1,076) (127) 2,636
Accretion of preferred
stock.......................... -- -- -- -- -- -- (152)
------ ------- ------- ------- ------- ------- -------
Net income available to
common stockholders............ (102) 1,737 2,531 3,743 (1,076) (127) 2,484
Pro forma tax provision
(benefit) (3).................. (39) 659 962 1,422 -- -- --
------ ------- ------- ------- ------- ------- -------
Pro forma net income
(loss) (3)..................... $ (63) $ 1,078 $ 1,569 $ 2,321 $(1,076) $ (127) $ 2,484
====== ======= ======= ======= ======= ======= =======
Historical diluted
earnings (loss) per share...... $(0.02) $ 0.28 $ 0.41 $ 0.59 $ (0.11) $ (0.01) $ 0.24
Diluted weighted average
shares outstanding............. 6,200 6,200 6,200 6,356 9,261 9,448 10,158
Pro forma diluted
earnings (loss) per share...... $(0.01) $ 0.17 $ 0.25 $ 0.37 $ (0.11) $ (0.01) $ 0.24
Pro forma diluted weighted
average shares outstanding..... 6,200 6,200 6,200 6,356 10,160 9,511 11,545
Operating Data:
Greenhouses in operation
(at end of period)............ -- 3 3 4 5 4 6
Acres in production
(at end of period)............. -- 53 53 71 91 71 111
Total pounds of product sold
(in thousands)................ -- 17,417 24,371 30,018 26,167 13,550 25,795
Average yield sold per acre
(in thousands of pounds)(4).... -- 329 460 423 350 191 247
Average sale price per pound.... -- $ 0.80 $ 0.83 $ 0.91 $ 0.95 $ 0.98 $ 0.91
<CAPTION>
June 30, 1998
-------------------------
As
Actual Adjusted(5)
---------- ------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......................................................................... $ 4,375 $22,213
Working capital.................................................................................... 6,261 25,940
Total assets....................................................................................... 50,629 68,467
Long-term debt, including current maturities....................................................... 14,992 290
Mandatorily redeemable convertible securities..................................................... 19,852 --
Stockholders' equity............................................................................... 8,561 59,863
</TABLE>
- -------------------
(1) The Company was organized in 1993 to operate three greenhouses and incurred
marketing expenses in anticipation of these operations. Effective January
1, 1994, the Company began to operate three greenhouses (Brush #1, Brush #2
and Fort Lupton #1). Effective January 1, 1996, the Company began to
operate a fourth greenhouse (Rifle). In October 1997, the Company began
production from its fifth greenhouse (Estancia), and in March 1998, the
Company began production from its sixth greenhouse (Fort Lupton #2).
(2) Operating expenses for 1997 have been reduced to reflect insurance proceeds
of $802,000 from the flood in July 1997 at Fort Lupton #1. Operating
expenses for the six months ended June 30, 1998, include a loss of
$1,700,000 resulting from the hail storm in May 1998 at Brush #1 and Brush
#2 and have been reduced to reflect insurance proceeds of $1,608,000.
8
<PAGE>
(3) Prior to January 1997, the Company was operated as a limited liability
company and was not subject to federal or state income taxes. As a result,
the provision (benefit) for income taxes and net income (loss) for the
years 1993 to 1996 are presented on a pro forma basis as if the Company were
subject to federal and state corporate income taxes, assuming an effective
tax rate of 38%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction."
(4) Average yield sold per acre on an annual basis is calculated by dividing the
total number of pounds sold by the total number of acres in production.
Average yield sold per acre for 1997 is a weighted average of 76 acres based
on the increase of total acres in production during the year as a result of
the Estancia greenhouse, which began production in October 1997. Management
believes that average yield per acre sold is an important measure of
greenhouse productivity.
(5) Adjusted to give effect to the sale of the 3,500,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price
of $10.00 per share), application of a portion of the net proceeds to reduce
outstanding indebtedness, the cashless exercise of a warrant to purchase
9,743 shares of Series B Convertible Preferred Stock (at an assumed initial
public offering price of $10.00 per share) and the automatic conversion of
all outstanding shares of preferred stock to Common Stock and See "Use of
Proceeds" and "Description of Capital Stock--Warrants."
9
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. Prospective
investors should consider carefully, in addition to the other information set
forth in this Prospectus, the following risk factors before purchasing the
shares of Common Stock offered hereby.
Limited Operating History
Prior to 1994, the greenhouses at the Brush #1, Brush #2, and Fort Lupton #1
sites were operated separately under the supervision of a common management
committee. On January 1, 1994, the Company began to operate the Brush #1, Brush
#2 and Fort Lupton #1 greenhouses, and Rifle was added on January 1, 1996. Two
additional greenhouses were constructed by the Company in August 1997 and
January 1998, respectively. Accordingly, the Company has only a limited
operating history upon which prospective investors can evaluate the Company's
business and prospects.
Risk of Catastrophic Loss of Crop and Property Damage
As in any agricultural business, there is an unquantifiable risk of a weather-
related catastrophe that causes substantial damage to, or total failure of, the
Company's or Greenver's crop at one or more greenhouses and severely damages or
destroys the greenhouse or greenhouses. Potential catastrophes include floods,
tornadoes, hail storms, severe wind and rain or in the case of Greenver,
hurricanes. The Company's greenhouses in Brush and Fort Lupton, Colorado are
located in areas that have a high frequency of severe weather, particularly hail
storms and tornadoes. The Fort Lupton #1 greenhouse crop was destroyed by a
flash flood in July 1997. The Brush #1 and #2 greenhouses were damaged by a
hail storm in May 1998. This forced the Company to pull out the entire crop
from the Brush #2 greenhouse, and although much of the crop in the Brush #1
greenhouse has been salvaged, there was some damage to the crop that may result
in a decrease in production. It is likely that one or more of the Company's
greenhouses and crops will suffer damage from weather in the future. Because
the Company currently operates only a few greenhouses, any damage to a
greenhouse and resulting lost tomato production is likely to have a greater
adverse effect on the Company's production and results of operations than if the
Company operated more greenhouses. Furthermore, the Company has two greenhouses
each in Brush and Fort Lupton, which increases the likelihood that a weather-
related catastrophe in either of these two locations will more adversely affect
the Company than if its greenhouses were more geographically dispersed. See
"Business--Facilities."
The Company has obtained insurance intended to cover property damage, crop
loss and consequential losses (such as lost profits) caused by weather events.
The Company cannot predict, however, whether this insurance coverage will be
sufficient to cover all of the Company's weather-related losses. The Company's
insurance coverage in 1997 was not sufficient to cover all of its losses from
the flood at the Fort Lupton #1 greenhouse and, as a result, the Company
obtained new insurance policies in December 1997, which are intended to provide
better coverage for consequential losses. The Company has filed claims for
damages sustained during the May 1998 hail storm at its facilities in Brush and
although no final determination on these claims has been made by the Company's
insurance carrier, to date, the Company has received a $2.0 million advance on
these claims. Under the terms of its current insurance coverage, for business
interruption and property damage the Company's policy limits of $33.0 million
are limited to $5.0 million per occurrence. The Company cannot predict whether
it will be able to obtain adequate insurance coverage in the future at
acceptable premium costs and deductible amounts. See "Business--Risk
Management; Insurance; Legal Proceedings."
Risk of Loss to Crop from Pests or Mechanical Failures
Plant diseases, such as root rot, or pest infestations, such as whiteflies,
can destroy all or a significant portion of the Company's or Greenver's tomato
plants in a greenhouse and could eliminate or significantly reduce production
from that greenhouse until the Company or Greenver is able to disinfect the
greenhouse and grow replacement tomato plants. The Company does not carry
insurance for crop damage from disease or pest infestations and does not believe
it can obtain this type of coverage. See "Business--Risk Management; Insurance;
Legal Proceedings." The Company has experienced crop disease and pest
infestations in the past.
In 1997, the Company experienced root disease originating from soil-born
contaminants in the Company's nursery operations in its Brush #1 greenhouse,
which resulted in an approximately 18.9% reduction in that greenhouse's tomato
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production over the first and second quarters of 1997. This was followed in the
third quarter by an invasion of thrips (an insect) through the greenhouse's
unscreened ventilation system, which carried a virus from adjacent agricultural
field crops. This virus reduced plant populations as well as tomato volumes and
size, resulting in a decline in the Company's average sales price per pound.
During the third quarter of 1997, Brush #2 was also affected negatively by the
same root disease that affected Brush #1 and was infested with a large
population of whiteflies. This led to the Company's decision to pull out its
entire existing crop at Brush #2 and disinfect the greenhouse at the beginning
of the fourth quarter of 1997. Also during 1997, the Company's Fort Lupton #1
greenhouse experienced a mechanical failure in its irrigation system in the
first quarter, which, in conjunction with the flood experienced in July 1997,
destroyed a portion of the tomato crop in the greenhouse. The Company's
management decided to pull out the entire crop to avoid an outbreak of root rot
common in water damaged crops. There can be no assurance that the Company or
Greenver will not suffer loss to its tomato crop at one or more of its
greenhouses as a result of disease, pest infestation or mechanical failures.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Greenhouse Production--Steps Taken to Combat 1997
Production Problems."
Construction Risks
The Company plans to construct six new hydroponic greenhouse facilities over
the next three years in addition to the 20-acre facility in Grants, New Mexico
currently under construction. Construction of greenhouses requires skilled
construction personnel. There can be no assurance that the Company will be able
to locate the required personnel or that construction of the greenhouses will be
completed within the Company's anticipated time frame or budget. Construction
projects are subject to cost overruns and delays not within the control of the
Company or its subcontractors, such as those caused by acts of governmental
entities, financing delays or bad weather. Delays can also arise from design
changes and material equipment shortages or delays in delivery. The Company's
inability to construct the Grants, New Mexico greenhouse or any future
greenhouse in a timely fashion and within the projected construction budget
could have a material adverse effect on the Company's anticipated financial
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
Perishable Crop
The Company's and Greenver's tomatoes are subject to all the risks of any
perishable food, including spoilage. Tomatoes generally are salable for
approximately 10 to 14 days after harvesting. The Company and Greenver must
transport many of its tomatoes long distances from its greenhouses to its pack
houses and then to its customers from its pack houses or its cross-docking
facility near San Diego (used for Greenver's tomatoes). Accordingly, any delay
in shipment of the Company's or Greenver's tomatoes could result in the loss of
the shipment due to spoilage. See "Business--Customers and Product
Distribution."
Inherent Seasonality in Supply of Tomatoes
The Company's business is seasonal, and its quarterly results of operations
reflect trends resulting from seasonal variations in production yields and
prevailing prices for tomatoes. Price fluctuations and tomato availability have
a direct effect on the Company's financial results. Typically, in the winter
months, the reduced supply of tomatoes (due primarily to the lack of field-grown
tomatoes) results in higher market prices. Through the spring and summer
months, the supply of field-grown tomatoes increases, resulting in lower market
prices. As a result, the Company historically has experienced lower total
revenues but higher profit margins in the first and second quarters. Although
the Company's production in the first quarter is lower due to fewer hours of
direct sunlight, prevailing prices are higher, and in the second quarter, the
Company's production increases although prevailing prices are lower.
Thereafter, although revenues increase, profits typically have declined in the
third quarter as the Company experiences planned decreases in production to
coincide with expected lower market price periods. In the fourth quarter,
revenues increase and profits typically have increased also as the Company's
production remains steady but higher market prices return. Greenver produces
tomatoes in its Mexican greenhouses only from November through May. As a result
of the Greenver marketing agreement commencing in the fall of 1998, the
Company's supply of tomatoes during these months should increase significantly
from 1997 and prior years' supplies during the same months. Accordingly, the
Company expects that its revenues and profitability will continue to be subject
to large seasonal variations, and the Company's results of operations for any
particular quarter are not expected to be indicative of results for subsequent
quarters or the full year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality; Quarterly Results."
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Lack of Control over Tomato Prices and Fixed Operating Costs
The Company's profitability is dependent upon the price at which it is able to
sell its and Greenver's tomatoes. The Company has virtually no control over the
price at which it is able to sell tomatoes because tomato prices move in
response to market supply. The greater supply of tomatoes in the summer months
as a result of the harvesting of field-grown tomatoes pushes prices downward.
Conversely, the reduced supply of tomatoes in the winter months pushes tomato
prices upward. To the extent prevailing market prices for tomatoes are lower
than anticipated by the Company, the Company's profitability will be negatively
affected. Variations in the Company's production of tomatoes also will have a
significant effect on the Company's profitability due to the fact that many of
the Company's operating costs are fixed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality;
Quarterly Results."
Dependence on Sufficient Water and Heat for Crops
The Company's crops must be irrigated regularly to maintain plant growth and
optimal tomato production. The Company obtains water for irrigation for each of
its greenhouses either from one or more wells or the municipal water supply and
has only limited ability to store and recirculate water for its irrigation
systems. As a result, any interruption in the water supply lasting longer than
a few days to a particular greenhouse is likely to result in a decline in the
Company's tomato production at that greenhouse. The Company experienced a
mechanical failure in the irrigation system at one of its greenhouses in 1997
and could experience another failure in the future, which, if not quickly
repaired, also could result in a decrease in tomato production. During the
colder months, the Company's greenhouses must be heated to maintain adequate
temperature levels to protect the tomato plants. The Company normally heats
four of its greenhouses with hot water from neighboring electric cogeneration
facilities. The Company also has backup boilers at each facility. The
cogeneration facilities' inability to provide the greenhouses with adequate hot
water, whether as a result of an event within or beyond the cogeneration
facilities' control, coupled with a failure of the greenhouse's backup heating
system, also is likely to result in a decrease in the Company's tomato
production. See "Business--Greenhouse Production."
Availability of Labor
The maintenance of the Company's tomato crops and harvesting of tomatoes is
labor intensive. Industry participants, including the Company, experience high
turnover rates among hourly workers. Some of the Company's employees do not
work 40 hour weeks or leave the Company's employment without notice, forcing the
Company to hire and train additional employees to maintain and harvest its
tomato plants. To the extent the Company experiences higher turnover rates, it
will encounter higher than expected recruiting, training and other employment
costs. Immigrants comprise a large portion of the Company's workforce. Any
change to existing U.S. immigration policy that restricts the ability of
immigrant workers to obtain employment in the United States is likely to
contribute to a shortage of available labor and increase the Company's operating
costs. Immigration laws require the Company to confirm the legal status of its
immigrant labor force. From time to time, the Company may unknowingly employ
illegal immigrants. The Company, as a significant employer of immigrant
laborers, is subject to periodic, random searches by the Immigration and
Naturalization Service ("INS"). If the INS finds illegally employed immigrants,
the Company would suffer the loss of a portion of its labor force and could be
subject to fines, some of which could be substantial in amount. See "Business--
Employees and Training" and "Business--Government Regulation."
Sensitivity to Price Increases in Raw Materials
In 1997, raw material costs accounted for approximately 27.4% of the Company's
cost of goods sold. Increases in the cost of raw materials essential to the
Company's operations, particularly tomato plant seedlings, bees, rockwool,
carbon dioxide, fertilizer, insecticides and packaging materials, would increase
the Company's costs of production, which the Company may be unable to recoup
through higher prices for its tomatoes. A scarcity of these raw materials could
require the Company to curtail production, which also would have a material
adverse effect on the Company's results of operations. The Company generally
does not enter into agreements for the supply of any raw materials for longer
than one year. The Company currently obtains its tomato plant seedlings from a
single source. Loss of this source could result in a decrease in the Company's
tomato production during the time in which this supplier is being replaced. See
"Business--Greenhouse Production--Raw Materials Used in Production."
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Risks Related to Greenver Investment; Risks Inherent in Foreign Investment
The Company has invested $4.0 million in Greenver. The Company's strategy is
to use production from Greenver's facilities to offer a more consistent supply
of tomatoes for the Company's U.S. customers from November through April. The
Company anticipates that approximately one-third of its winter production will
come from Greenver's facilities. Greenver's failure to meet these production
expectations will have a material adverse effect on the Company's projected
results of operations. Greenver's facilities currently are not growing tomatoes
hydroponically. As a result, there can be no assurance the tomatoes grown at
the Greenver greenhouses will not suffer from soil-born contaminants that could
effect their quality. Within the next 18 months, the Company intends to assist
Greenver in converting a portion of its facilities to hydroponic production.
There can be no assurance that the Company will be able to implement
successfully these hydroponic systems or that, once implemented, Greenver will
be able to continue to produce tomatoes of superpremium quality. Any failure by
Greenver to produce the quality of tomatoes anticipated by the Company could
have a material adverse effect on the Company's projected results of operations.
As part of its arrangement with Greenver, the Company will receive 25% of all
distributions made by Greenver to its stockholders. There can be no assurance,
however, that Greenver will be profitable or that it actually will make cash
distributions of its profits, if any, in the future. See "Business--Greenver
Transaction and Marketing Agreement."
The Company may be affected by economic, political and social conditions in
Mexico. Mexico has experienced political, economic and social uncertainty in
recent years, including an economic crisis characterized by exchange rate
instability and peso devaluation, increased inflation, high domestic interest
rates, negative economic growth, reduced consumer purchasing power and high
unemployment. Under its current leadership, the Mexican government has been
pursuing economic reform policies, including the encouragement of foreign trade
and investment and an exchange rate policy of free market flotation. No
assurance can be given, however, that the Mexican government will continue to
pursue these policies, that these policies will be successful if pursued or that
these policies will not be significantly altered. A decline in the Mexican
economy, political or social problems or a reversal of Mexico's foreign
investment policy is likely to have an adverse effect on the market price of the
Common Stock and may adversely affect the Company's results of operations and
financial condition.
While the Company transacts business with Greenver in U.S. dollars and sales
of Greenver's tomatoes are made in U.S. dollars, all of Greenver's production
and related expenses are denominated in pesos. Accordingly, inflation in Mexico
may lead to higher wages and salaries for the Greenver's employees in Mexico and
increase the cost of the raw materials used in the production of Greenver's
products, which would adversely affect Greenver's profitability and the level of
distributions, if any, to the Company based on its equity ownership in Greenver.
Risks inherent in foreign operations include nationalization, war, terrorism
and other political risks and risks of increases in foreign taxes or U.S. tax
treatment of foreign taxes paid and the imposition of foreign government
royalties and fees.
Loss of Greenhouse Leases; Dependence on Cogeneration Facility Contracts
The Company currently leases four of its greenhouses, Rifle, Brush #1, Brush
#2 and Fort Lupton #1, which account in the aggregate for 71 of the 111 acres
the Company currently has under production. The Company also leases the land on
which the Grants greenhouse is being constructed. Each of the Company's four
leased greenhouses is operated pursuant to an Operating and Management Agreement
that has a term coincidental with the term of the underlying greenhouse lease.
The remaining terms of these greenhouse leases are four, six, 11 and 21 years
for the Rifle, Brush #1, Brush #2 and Fort Lupton #1 greenhouses, respectively.
The remaining term of the land site lease for Grants is 60 years. There can be
no assurance that these leases can be renewed at rents and other terms that are
as favorable to the Company as the existing terms. The failure by the Company
to renew these leases, or the renewal of these leases on less favorable terms to
the Company, could force the Company to seek new greenhouse facilities and could
have a material adverse effect on the Company.
The Company's four leased greenhouses serve as collateral for the lenders to
the cogeneration power plants next to which they are located. For three of
these greenhouses, Brush #1, Brush #2 and Rifle, an event of default by the
borrower could result in the lender's foreclosing on these facilities and
canceling the Operating and Management Agreement, notwithstanding the fact that
the greenhouse lease, and related Operating and Management Agreement, are
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not in default. Any foreclosure and cancellation of the Operating and Management
Agreement is likely to result in a loss of the Company's right to operate the
related greenhouse, which would adversely affect the Company's results of
operations and projected growth. See "Business--Facilities."
Reliance on Growers
The Company's hydroponic operations require the skill of senior growers who
monitor the progress of the crops, as well as incidents of infestation or root
disease. These senior growers must be experts in hydroponic and greenhouse
growing techniques. The Company's failure to attract and retain an adequate
number of skilled growers is likely to effect adversely the quality and
production of its tomatoes and, therefore, its results of operations. Further,
only one of the Company's six senior growers is a U.S. citizen. As a result, if
senior growers have difficulty retaining visas or obtaining U.S. citizenship,
the Company would be forced to recruit replacement growers, most likely in
Europe. See "Business--Employees and Training."
Substantial Competition
The market for the Company's tomatoes is highly competitive and subject to
rapid change. The Company competes in the tomato market both with other
hydroponic greenhouse tomato producers and with commercial producers of field-
grown tomatoes, both gas green (in which the tomatoes are picked green and
colored via ethylene gas during shipping) and vine ripened. During 1997, field-
grown tomatoes accounted for approximately 92% of total U.S. fresh tomato
production, while hydroponic greenhouse tomatoes, both domestic and imported,
accounted for the remaining approximately 8%. Most field-grown tomatoes are sold
at wholesale at approximately one-half the price of the Company's greenhouse
grown tomatoes. During the local growing season, typically late summer, the
Company also competes with home- and locally-grown tomatoes. Field-grown tomato
competitors include numerous local and regional growers as well as a number of
major grower-shippers in the United States and Mexico, including DiMare (Florida
and California), Gargiulo (Florida and California), R&B Packing (Mexico) and
Meyers (Mexico). These major grower-shippers ship substantially more tomatoes
than the Company, have longer standing relationships with various retailers and
wholesalers and have greater financial resources than the Company. The Company's
competition in the hydroponic greenhouse tomato market comes from various
domestic and foreign hydroponic greenhouse tomato producers and cooperatives,
including domestic producers Eurofresh (with greenhouses in Arizona), Village
Farms (with greenhouses in New York, Pennsylvania, Texas, and Virginia) and BC
Hothouse (with greenhouses in California). The Company estimates that worldwide,
hydroponic greenhouse tomatoes currently originate from approximately 700 acres
in the United States (including the approximately 111 acres owned by the
Company), approximately 900 acres in Canada and an estimated aggregate of more
than 5,000 acres in Belgium, France, Israel, Morocco, The Netherlands and Spain.
Some portion of the foreign produced hydroponic tomatoes are sold in the United
States. Most of these sources produce high-quality tomatoes superior in taste,
texture and appearance to most field-grown tomatoes and generally comparable in
quality to the Company's tomatoes. The Company cannot predict if or when these
competitors or others may construct additional greenhouses and whether any
additional greenhouses will be constructed in the regions in which the Company
currently competes. There can be no assurance that the Company can maintain its
competitive position against current and potential competitors, especially those
with financial, marketing, personnel and other resources greater than the
Company's. See "Business--Competition."
Customer Concentration
During 1997, 79.0% of the Company's net sales were to its ten largest
customers. In particular, sales to Safeway, Meijer and King Soopers represented
23.5%, 15.3% and 14.0% of the Company's total net sales, respectively. The
Company expects that a small number of large supermarket chains will continue to
account for a substantial portion of its net sales for the foreseeable future.
There can be no assurance that the Company's principal customers will continue
to purchase products from the Company at current levels, if at all. The
Company's loss of even one of these large customers due to production
shortfalls, quality concerns or otherwise is likely to adversely affect the
Company's results of operations and could affect the Company's planned growth.
Consistent with industry practice, the Company does not operate under long-term
supply contracts with any of its customers. The loss of, or a significant
reduction in orders from, any one of these large customers, losses arising from
disputes between the Company and any one of these large customers regarding
shipments, fees, tomato condition or related matters, or the Company's inability
to collect accounts receivable
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from any major retail customer could have a material adverse effect on the
Company. See "Business--Customers and Product Distribution."
Government Regulation
The manufacture, processing, packaging, storage, distribution and labeling of
food products are subject to extensive federal, state and foreign laws and
regulations. In the United States, the Company's business is subject to
regulation by the Food and Drug Administration ("FDA"), the United States
Department of Agriculture ("USDA") and various state and local agricultural and
public health authorities. The FDA and USDA regulators charged with enforcing
these laws and regulations have broad powers to protect public health, including
the power to inspect produce and the Company's facilities, to order the shut
down of a facility or the suspension of delivery of the Company's produce, as
well as the power to impose substantial fines. The Company also is subject to
various federal and state regulations relating to workplace safety and worker
health, including the Fair Labor Standards Act, Occupational Safety and Health
Act and laws and regulations governing such matters as minimum wages, overtime
and working conditions. The Company is subject to various federal, state and
local environmental regulations.
The Company may become subject to additional laws or regulations administered
by the FDA, the USDA or other federal, state, foreign or local regulatory
authorities, the repeal of laws or regulations or more stringent interpretations
of current laws or regulations. The Company cannot predict the nature of any
new laws, regulations or interpretations, or what effect they might have on its
business. Changes in these laws could require the reconfiguration of the
Company's production, processing and transportation methods or increased
compliance costs, and could require the Company to make significant capital
expenditures or incur higher operating costs. Any failure by the Company to
comply with applicable laws and regulations could subject the Company to civil
penalties, including fines, injunctions, greenhouse or pack house closings,
recalls or seizures, as well as potential criminal sanctions, any of which could
have a material adverse effect on the Company. See "Business--Government
Regulation."
Risks Related to Growth Strategy
The Company is planning substantial growth in its production capabilities over
the next several years, which will place greater demands on its operating,
administrative and financial resources. Future growth will depend on a number
of factors, including the timely construction of additional greenhouses, the
Company's ability to maintain the quality of the tomatoes it produces and the
recruitment and retention of qualified personnel. Sustaining profitable growth
will also require the implementation of enhancements to the Company's operating
and financial systems and will require additional management, operating and
financial personnel. There can be no assurance that the Company will be able to
manage its expanding operations effectively or that it will be able to implement
its growth plan, and any failure to do so is likely to have a materially adverse
effect on the Company's business, results of operations and financial condition.
See "Business--Growth Strategy."
Dependence on Key Personnel; Short Operating History Under Current Management
The Company's continued success will depend largely on the skills and
abilities of its officers, key employees and directors. Specifically, the
Company is highly dependent upon its Chief Executive Officer, James R. Rinella,
its Executive Vice President of Production, Matthew B. Cook, its Vice President
of Finance, Alan R. Fine and its Director of Agricultural Production, Ludo van
Boxem. The loss of any one of these persons could have a material adverse
effect on the Company. In addition, Mr. Rinella and Mr. Fine both joined the
Company in the fall of 1997. Accordingly, the Company has only a limited
history of operation under its current management team upon which investors may
evaluate its performance. There can be no assurance that the Company's new
management team will be able to achieve or sustain revenue growth or
profitability. See "Management."
The Company's success depends also on its ability to attract, retain and
motivate highly qualified growers and marketing, sales and other management
personnel. Failure to continue to attract and retain a sufficient number of
these personnel could have a material adverse effect on the Company's results of
operations and planned growth. There is intense competition for qualified
personnel and there can be no assurance that the Company will be able to attract
and retain the qualified personnel necessary for the successful operation of its
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Employees and Training."
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Control by Existing Stockholders
Upon completion of this offering, the Company's officers, directors and
existing principal stockholders will beneficially own an aggregate of
approximately 50% of the outstanding shares of Common Stock. If these persons
were to act together, they would be able to elect all of the Company's directors
and determine the outcome of all corporate actions requiring approval by the
stockholders, thus controlling the business affairs and policies of the Company.
This control could have the effect of delaying or preventing a change in control
of the Company and consequently, may adversely affect the market price of the
Common Stock. See "Principal Stockholders."
No Prior Market; Determination of Offering Price; Volatility of Stock Price
Prior to this offering, there has been no public market for the Common Stock.
Although application has been made to list the Common Stock on the Nasdaq
National Market/sm/, there can be no assurance that an active trading market
will develop or be sustained, and no assurance that the price at which the
Common Stock may trade in the public market after this offering will exceed the
initial public offering price. The initial public offering price will be
determined by negotiations between the Company and the Representatives of the
Underwriters. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in the Company's operating results, material
announcements by the Company, governmental regulatory action, general conditions
in the fresh produce industry or other events or factors, many of which are
beyond the control of the Company. In addition, the Company's future operating
results may be below the expectations of securities analysts and investors. In
such event, the price of the Common Stock would likely decline, possibly
substantially.
Shares Eligible for Future Sale
Upon consummation of this offering, the Company will have outstanding
13,998,361 shares of Common Stock. Of these shares, the 5,000,000 shares sold
in this offering will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in SEC Rule 144. All of the remaining 8,998,361 shares of Common Stock
are "restricted securities" within the meaning of Rule 144 and may be sold in
the public market only if registered or if sold under an exemption from
registration under the Securities Act, including the exemption provided by Rule
144. Approximately 7,918,032 shares of these restricted securities have been
held for more than one year and will be immediately saleable under Rule 144,
subject to the Underwriters' lock-up and the volume limitations imposed by Rule
144. In addition, some of the Company's existing stockholders have the right to
require the Company to register their Common Stock from time to time. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale."
Sales of substantial amounts of the Common Stock in the public market, or the
perception that such sales could occur, may adversely affect the market price of
the Common Stock and could impair the Company's future ability to raise capital
through an offering of its equity securities. The Company is unable to predict
the effect, if any, that future sales of Common Stock or the availability of
Common Stock for sale may have on the market price of the Common Stock
prevailing from time to time.
Certain Anti-Takeover Provisions
Certain provisions of Delaware law and the Company's Amended and Restated
Certificate of Incorporation (the "Charter") and Amended and Restated Bylaws
(the "Bylaws") may have the effect of delaying, deterring or preventing a future
takeover or change in control of the Company unless such takeover or change in
control is approved by the Company's Board of Directors. These provisions also
may render the removal of directors and management more difficult and could
limit the price that investors might be willing to pay in the future for shares
of the Company's Common Stock. These provisions of Delaware law and the
Company's Charter and Bylaws may also have the effect of discouraging or
preventing certain types of transactions involving an actual or threatened
change of control of the Company (including unsolicited takeover attempts), even
though such a transaction may offer the Company's stockholders the opportunity
to sell their stock at a price above the prevailing market price. See
"Description of Capital Stock--Anti-Takeover Provisions."
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Immediate and Substantial Dilution
Purchasers of Common Stock in this offering will experience immediate and
substantial dilution of $5.72 in the net tangible book value per share of the
Common Stock. See "Dilution."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $32.0 million (assuming an initial public
offering price of $10.00 per share), after deducting underwriting discounts and
commissions and estimated offering expenses. The Company intends to use the net
proceeds as follows: (i) approximately $15.0 million to repay a portion of its
existing indebtedness (including prepayment penalties of approximately
$550,000); (ii) approximately $10.0 million to finance a portion of the cost of
construction of two or three of the six planned 20-acre hydroponic greenhouse
facilities; and (iii) the balance for working capital to support the Company's
marketing agreement with Greenver and its planned growth.
The indebtedness to be repaid was incurred under a (i) a $15.0 million term
loan (the "Term Loan") and (ii) a $7.5 million construction loan (the "Grants
Loan"), all with the Colorado Springs Production Credit Association ("Farm
Credit"). The proceeds of the Term Loan were used for the construction of the
Estancia and Fort Lupton #2 greenhouses, and the proceeds of the Grants Loan are
being used for the construction of the Grants greenhouse. The Term Loan has an
interest rate of 8.19% per annum and matures in May 2007, and the Grants Loan
bears interest at the prime rate plus 0.5% and matures upon completion of
construction. At June 1, 1998, the prime rate was 8.5%.
The Company currently intends to construct up to six additional 20-acre
hydroponic greenhouse facilities, two of which are expected to be adjacent to
the existing, or under construction, facilities in Estancia and Grants, New
Mexico. The Company estimates that the current cost to construct a 20-acre
hydroponic greenhouse facility is approximately $13.0 million and the cost to
construct two adjacent 20-acre hydroponic greenhouse facilities is approximately
$25.0 million. The Company believes a substantial portion of these costs can be
financed by those commercial lenders with which the Company has had preliminary
discussions. The Company currently anticipates that construction of at least
two of these facilities will commence by mid-1999. See "Business--Facilities."
Pending application of the net proceeds as described above, the Company will
invest them in short-term interest bearing, investment grade securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock although during
1996, the Company paid distributions of approximately $1.7 million to cover the
LLC's members' tax obligations. The Company currently intends to retain
earnings, if any, to finance the growth and development of its business and does
not anticipate paying cash dividends in the foreseeable future. In addition,
the Company's credit facilities with Farm Credit currently prohibit the payment
of cash dividends. Any payments of cash dividends in the future, if permitted
by the Company's credit facilities, will be at the discretion of the Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, cash flows from operations, current
and anticipated cash needs and expansion plans, income tax laws then in effect
and requirements of Delaware law.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998, (i) on an actual basis and (ii) as adjusted for the cashless exercise
of a warrant for 9,743 shares of Series B Convertible Preferred Stock (the
"Warrant") upon consummation of this offering (at an assumed initial offering
price of $10.00 per share), the automatic conversion of all outstanding shares
of preferred stock to Common Stock and the sale by the Company of the 3,500,000
shares of Common Stock offered by it hereby (at an assumed initial public
offering price of $10.00 per share) and the application of a portion of the
estimated net proceeds of this offering to repay indebtedness as described in
"Use of Proceeds." The table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of June 30, 1998
---------------------------
As
Actual Adjusted
------------ ------------
(In thousands)
<S> <C> <C>
Long-term debt, including current maturities....... $14,992 $ 290
------- -------
Mandatorily Redeemable Securities:
Series B Convertible Preferred Stock ($.001
par value); 1,894,000 and no shares
authorized; 1,875,000 and no shares issued
and outstanding (1).............................. $13,939 $ --
Series C Convertible Preferred Stock ($.001
par value); 1,275,000 and no shares
authorized; 1,091,000 and 0 shares issued
and outstanding.................................. 5,873 --
Warrant; exercisable for 18,500 shares of
Series B Convertible Preferred Stock............. 40 --
------- -------
Total Mandatorily Redeemable Securities........ $19,852 $ --
======= =======
Stockholders' equity:
Series A Convertible Preferred Stock ($.001
par value); 6,200,000 and no shares
authorized; 6,200,000 and no shares issued
and outstanding................................... $ 6 $ --
Common Stock ($.001 par value); 55,000,000
shares authorized, 53,000 and 14,029,000
shares issued; 22,000 and 13,998,000 shares
outstanding (2)................................... -- 14
Treasury Stock; 31,000 shares of Common Stock..... (130) (130)
Additional paid-in capital........................ 1,335 53,179
Retained earnings................................. 7,350 6,800
------- -------
Total stockholders' equity...................... 8,561 59,863
------- -------
Total capitalization........................... $43,405 $60,153
======= =======
</TABLE>
- ------------------
(1) Assuming an initial public offering price of $10.00 per share, the Series B
Preferred Stock will convert automatically into 3,185,216 shares of Common
Stock. If the initial public offering price is higher than $10.00, the
Series B Preferred Stock will convert automatically into a fewer number of
shares of Common Stock. For example, if the initial public offering price
is $11.00 per share, the Series B Preferred Stock will convert automatically
into 3,030,680 shares of Common Stock.
(2) Excludes 1,026,691 shares of Common Stock issuable upon the exercise of
currently outstanding options at a weighted average exercise price per share
of $2.65. See "Management--Stock Option Plan."
19
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1998, as adjusted
for the conversion of all outstanding preferred stock and the cashless exercise
of the Warrant, was approximately $28.4 million or $2.71 per share. Net
tangible book value per share is determined by subtracting the Company's total
liabilities from its total tangible assets and dividing the remainder by the
number of shares of Common Stock outstanding assuming the conversion of all
outstanding preferred stock and the Warrant. After giving further effect to the
sale by the Company of 3,500,000 shares of Common Stock in this offering (at an
assumed initial public offering price of $10.00 per share) and application of
the estimated net proceeds therefrom, the net tangible book value of the Company
as of June 30, 1998 would have been $59.9 million or $4.28 per share. This
represents an immediate increase in net tangible book value of $1.57 per share
to existing stockholders and an immediate dilution in net tangible book value of
$5.72 per share to purchasers of Common Stock in this offering. The following
table illustrates this dilution in net tangible book value per share to new
investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................. $10.00
Net tangible book value per share..................$2.71
Increase per share attributable to new investors... 1.57
-----
Net tangible book value per share after offering......... $ 4.28
------
Dilution per share purchased by new investors............ $ 5.72
======
</TABLE>
The following table sets forth as of June 30, 1998, as adjusted for conversion
of all outstanding preferred stock and exercise of the Warrant, the number of
shares of Common Stock purchased from the Company, the total cash paid to the
Company and the average price paid per share by existing stockholders and by the
purchasers of the shares offered by the Company hereby (at an assumed initial
public offering price of $10.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------- -------------------------- Average Price
Number Percent Amount Percent per Share
---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).. 10,498,361 75.0% $21,039,000 37.5% $ 2.00
New investors.............. 3,500,000 25.0 35,000,000 62.5 10.00
---------- ----- ----------- -----
Total......... 13,998,361 100.0% $56,039,000 100.0%
========== ===== =========== =====
</TABLE>
- -------------------
(1) Assuming an initial public offering price of $10.00 per share, the Series B
Preferred Stock will convert automatically into 3,185,216 shares of Common
Stock. If the initial public offering price is higher than $10.00, the
Series B Preferred Stock will convert automatically into a fewer number of
shares of Common Stock. For example, if the initial public offering price
is $11.00 per share, the Series B Preferred Stock will convert automatically
into 3,030,680 shares of Common Stock.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial data for the years ended
December 31, 1994 through 1997, and as of December 31, 1994 through 1997, have
been derived from the Company's consolidated financial statements, which have
been audited by Arthur Andersen LLP, independent public accountants. The
following selected financial data for the year ended December 31, 1993, and for
the six month periods ended June 30, 1997 and 1998, and as of December 31, 1993,
June 30, 1997 and 1998, have been derived from the Company's unaudited financial
statements that, in the opinion of management, reflect all adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
financial data for such periods and as of such dates. The data set forth below
are qualified by reference to and should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Results of operations for the six months
ended June 30, 1998, are not necessarily indicative of results that may be
expected for the full year.
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(Dollars and shares in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Net sales............................. $ -- $13,938 $20,135 $27,407 $24,944 $13,298 $23,549
Cost of goods sold.................... -- 9,961 15,431 19,293 22,257 11,507 15,982
------ ------- ------- ------- ------- ------- -------
Gross profit.......................... -- 3,977 4,704 8,114 2,687 1,791 7,567
Operating expenses(2)................. 156 2,207 2,502 4,434 4,609 2,255 2,990
------ ------- ------- ------- ------- ------- -------
Operating income (loss)............... (156) 1,770 2,202 3,680 (1,922) (464) 4,577
Interest and other income
(expense), net....................... 54 (33) 329 63 193 261 (290)
------ ------- ------- ------- ------- ------- -------
Income (loss) before income tax
provision............................ (102) 1,737 2,531 3,743 (1,729) (203) 4,287
Provision (benefit) for income
taxes................................ -- -- -- -- (653) (76) 1,651
------ ------- ------- ------- ------- ------- -------
Net income (loss)..................... (102) 1,737 2,531 3,743 (1,076) (127) 2,636
Accretion of preferred stock.......... -- -- -- -- -- -- (152)
------ ------- ------- ------- ------- ------- -------
Net income available to common
stockholders......................... (102) 1,737 2,531 3,743 (1,076) (127) 2,484
Pro forma tax provision
(benefit) (3)........................ (39) 659 962 1,422 -- -- --
------ ------- ------- ------- ------- ------- -------
Pro forma net income (loss) (3)....... $ (63) $ 1,078 $ 1,569 $ 2,321 $(1,076) $ (127) $ 2,484
====== ======= ======= ======= ======= ======= =======
Historical basic earnings (loss)
per share............................ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $219.78
Historical diluted earnings (loss)
per share............................ $(0.02) $ 0.28 $ 0.41 $ 0.59 $ (0.11) $ (0.01) $ 0.24
Basic weighted average shares
outstanding.......................... -- -- -- -- -- -- 11
Diluted weighted average shares
outstanding.......................... 6,200 6,200 6,200 6,356 9,261 9,448 10,158
Pro forma basic earnings (loss)
per share............................ $(0.01) $ 0.17 $ 0.25 $ 0.37 $ (0.11) $ (0.01) $ 0.25
Pro forma diluted earnings (loss)
per share............................ $(0.01) $ 0.17 $ 0.25 $ 0.37 $ (0.11) $ (0.01) $ 0.24
Pro forma basic weighted average
shares outstanding................... 6,200 6,200 6,200 6,200 9,733 9,082 11,134
Pro forma diluted weighted
average shares outstanding........... 6,200 6,200 6,200 6,356 10,160 9,511 11,545
Operating Data:
Number of greenhouses operated
(at end of period)................... -- 3 3 4 5 4 6
Acres in production
(at end of period)................... -- 53 53 71 91 71 111
Total pounds of product sold
(in thousands)....................... -- 17,417 24,371 30,018 26,167 13,550 25,795
Average yield sold per acre
(in thousands of pounds) (4)......... -- 329 460 423 350 191 247
Average sale price per pound.......... -- $ 0.80 $ 0.83 $ 0.91 $ 0.95 $ 0.98 $ 0.91
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
At December 31, At June 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (5).................. $ (426) $ 2,106 $ 2,736 $ 2,237 $ 3,034 $ 5,031 $ 6,261
Total assets......................... 451 5,883 8,532 9,966 37,869 28,295 50,629
Long-term debt, including
current maturities.................. -- -- -- -- 10,972 1,156 14,992
Mandatorily redeemable
convertible securities............. -- -- -- -- 13,829 13,681 19,852
Stockholders' equity (deficit)...... (102) 1,636 4,168 6,945 6,127 6,812 8,561
</TABLE>
- -----------------
(1) The Company was organized in 1993 to operate three greenhouses and
incurred marketing expenses in anticipation of these operations. Effective
January 1, 1994, the Company began to operate three greenhouses (Brush #1,
Brush #2 and Fort Lupton #1). Effective January 1, 1996, the Company began
to operate a fourth greenhouse (Rifle). During October 1997, the Company
began production from its fifth greenhouse (Estancia), and in March 1998,
the Company began production from its sixth greenhouse (Fort Lupton #2).
(2) Operating expenses for 1997 have been reduced to reflect insurance proceeds
of $802,000 from the flood in July 1997 at Fort Lupton #1. Operating
expenses for the six months ended June 30, 1998, include a loss of
$1,700,000 resulting from the hail storm in May 1998 at Brush #1 and Brush
#2 and have been reduced to reflect insurance proceeds of $1,608,000.
(3) Prior to January 1997, the Company was operated as a limited liability
company and was not subject to federal or state income taxes. As a result,
the provision (benefit) for income taxes and net income (loss) for the years
1993 to 1996 are presented on a pro forma basis as if the Company were
subject to federal and state corporate income taxes, assuming an effective
tax rate of 38%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Introduction."
(4) Average yield sold per acre on a annual basis is calculated by dividing the
total number of pounds sold by the total number of acres in production.
Average yield sold per acre for 1997 is a weighted average of 76 acres based
on the increase of total acres in production during the year as a result of
the Estancia greenhouse, which began production in October 1997. Management
believes that average yield per acre sold is an important measure of
greenhouse productivity.
(5) Working capital as of June 30, 1997, includes the net proceeds from the
issuance of the Series B Convertible Preferred Stock, less amounts expended
through that date.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
Introduction
The Company currently operates six hydroponic greenhouses covering
approximately 111 production acres in Colorado and New Mexico and is
constructing a seventh 20-acre hydroponic greenhouse in New Mexico. The Company
plans to construct six additional 20-acre hydroponic greenhouses over the next
three years. The Company's production sold was approximately 247,000 pounds per
acre for the six months ended June 30, 1998, which represents an approximately
29% increase from the same period in 1996. The Company also has increased its
acreage by approximately 56% and increased its net sales by approximately 77%
over the same period. In May 1998, the Company acquired the exclusive right to
market in the United States, Canada and Europe all export-quality tomatoes from
Greenver's approximately 175 acres of non-hydroponic greenhouses in Mexico, half
of which are currently under construction and expected to be in production by
November 1998. The Company anticipates that Greenver will provide it with up to
18 million pounds of tomatoes during Greenver's November 1998 through April 1999
growing season.
The Company's tomatoes are sold directly to both national supermarket chains
and regional wholesalers. Sales are recognized at the time of shipment and are
presented net of approved credits and allowances. Cost of goods sold consists
of direct and indirect costs. Direct costs are recorded at the time related
revenues are recognized while indirect costs are recorded systematically over
the year. The principal components of direct costs are greenhouse, pack house
and related management payroll, growing expenses, packing materials and freight
costs. Throughout the year, greenhouse payroll remains relatively stable
because the crops require constant inspection and maintenance. Indirect costs
include rent and depreciation expense associated with the greenhouses and pack
houses.
Operating expenses consist primarily of payroll expense for administrative
personnel, stock-based compensation, marketing and promotional program costs,
insurance expenses, professional fees and other administrative costs. In 1996,
the Company granted stock options at an exercise price of $0.74 per share, which
resulted in stock-based compensation. This stock-based compensation, determined
as the excess of the fair market value of the stock over the stock option's
exercise price, is being expensed over the vesting period of the option. The
Company incurred $715,000 and $540,000 of stock-based compensation expense in
1996 and 1997, respectively. Any stock-based compensation expense for periods
after 1997 is not expected to be material.
The Company will account for its 25% equity investment in Greenver using the
equity method of accounting. The Company and Greenver have agreed to make an
annual determination regarding the amount, if any, of distributions to
Greenver's shareholders. Any distributions are expected to be made in the third
quarter of each year. The Company expects Greenver to distribute all profits
remaining after funding Greenver's reserve account to an agreed amount. The
marketing agreement for the sale of Greenver's tomatoes will generate net
commission income to the Company, consisting of the Company's 10% commission
less marketing expenses associated with the sale of Greenver's tomatoes.
Effective January 1, 1997, the Company became a C Corporation for federal and
state income tax purposes. Prior thereto, the Company was a limited liability
company ("LLC") and, therefore, did not pay corporate or state income taxes.
The pro forma provision for income taxes for years prior to 1997 assumes the
Company was subject to federal and state income taxes applicable to C
Corporations and has been calculated using an effective rate of 38%.
During 1997, the Company experienced mechanical problems, pest and disease
infestations and a flood that significantly reduced production during parts of
the year in three of the Company's greenhouses. In the Brush #1 greenhouse, a
root disease reduced tomato production by approximately 18.9% during the first
and second quarters of 1997. This was followed in the third quarter by an
invasion of thrips (an insect) through the greenhouse's unscreened ventilation
system, which carried a virus from adjacent agricultural field crops. This
virus reduced plant populations as well as tomato volumes and size, resulting in
a decline in the Company's average sales price per pound. During the third
quarter of 1997, Brush #2 was also affected negatively by the same root disease
that affected Brush #1 and was infested with a large population of whiteflies.
This led to the Company's decision to pull out its entire existing crop at Brush
#2
23
<PAGE>
and disinfect the greenhouse at the beginning of the fourth quarter of 1997.
At the end of the first quarter of 1997, the Fort Lupton #1 greenhouse
experienced a mechanical failure in its irrigation system, followed by a flood
at the end of July that required the Company to pull out the entire crop to
avoid an outbreak of root rot common in water damaged crops. As a result of all
of these problems, the Company experienced approximately a 13% decline in total
production sold in 1997 compared to 1996, despite the addition of production
from the 20-acre Estancia greenhouse in October 1997.
The Company believes it has remedied the problems that lead to mechanical
malfunctions and has used the experiences to update its existing greenhouses and
better design future greenhouses. The Company hired a new senior management
team that has implemented various initiatives and quality control measures to
reduce the likelihood of similar problems occurring in the future and obtained
improved insurance coverage. The Company had direct damage insurance covering
both property damage to its greenhouses and lost profits and was able to recover
$802,000 as a result of the damage from the flood. This recovery represented
approximately one-half of the lost sales that resulted from the flood, which
subsequently caused management to obtain new insurance coverage. Management
believes that its new insurance policy will more adequately protect it in the
event of a catastrophic loss, such as the May 1998 hail storm described below.
As a result of the 1997 production problems, the Company generated a net
operating loss ("NOL") carry forward for both federal and state income tax
reporting purposes of approximately $2.3 million. The Company expects that a
majority, if not all, of the NOL will be used in 1998. Accordingly, the Company
recorded an income tax benefit of approximately $653,000 during 1997. The
Company expects to recognize income tax expense for financial reporting purposes
at an effective rate of approximately 38%.
The Company maintains business interruption insurance and property damage
policies with aggregate limits of coverage of $33 million, limited to $5.0
million per occurrence. The Company has received an advance of $2.0 million for
its claims from the hail damage incurred at the Brush #1 and Brush #2
greenhouses to fund the cost of cleanup, building repair, miscellaneous fixed
expenses and re-establishing the crop. Due to the nature of the business
interruption claims, final settlement will not be possible until such time as
the Company has returned to normal operations, which is anticipated to be by
December 1, 1998. See "Risk Factors--Risk of Catastrophic Loss of Crop and
Other Property Damage."
Results of Operations
The following table sets forth for the periods indicated, statement of
operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
---------------------------------------
Six Months
Ended
Year Ended December 31, June 30,
----------------------- --------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold......... 76.6 70.4 89.2 86.5 67.9
----- ----- ----- ----- -----
Gross profit............... 23.4 29.6 10.8 13.5 32.1
Operating expenses (1)..... 12.4 16.2 18.5 17.0 12.7
----- ----- ----- ----- -----
Operating income (loss).... 11.0 13.4 (7.7) (3.5) 19.4
Interest and other income
(expense), net............ 1.6 0.2 0.8 2.0 (1.2)
----- ----- ----- ----- -----
Income (loss) before
income tax provision...... 12.6 13.6 (6.9) (1.5) 18.2
Provision (benefit) for
income taxes (2).......... 4.8 5.2 (2.6) (0.6) 7.0
----- ----- ----- ----- -----
Net income (loss)(2)....... 7.8% 8.4% (4.3)% (0.9)% 11.2%
===== ===== ===== ===== =====
</TABLE>
- --------------------
24
<PAGE>
(1) Operating expenses for 1997 have been reduced to reflect insurance proceeds
of $802,000 from the flood in July 1997 at Fort Lupton #1. Operating
expenses for the six months ended June 30, 1998, include a loss of
$1,700,000 resulting from the hail storm in May 1998 at Brush #1 and Brush
#2 and have been reduced to reflect insurance proceeds of $1,608,000.
(2) Prior to January 1997, the Company was operated as a limited liability
company and was not subject to federal or state income taxes. As a result,
the net income (loss) for the years 1995 to 1996 are presented on a pro
forma basis as if the Company were subject to federal and state corporate
income taxes, assuming an effective tax rate of 38%.
Six Months Ended June 30, 1998 and 1997
Net Sales. Net sales increased by $10.2 million, or 77.1%, to $23.5 million
on sales of 25.8 million pounds of tomatoes for the six months ended June 30,
1998, compared to net sales of $13.3 million on sales of 13.6 million pounds of
tomatoes for the same period in 1997. These increases were due primarily to the
addition of the 20-acre Estancia greenhouse, which came into production in
October 1997, and the 20-acre Fort Lupton #2 greenhouse, which came into
production in March 1998. In addition, the Company increased its production
yield by approximately 29.3% to 247,000 pounds per acre in the first half of
1998 from 191,000 pounds per acre in the comparable period of 1997. This
increase in yield was attributable to management's increased focus on production
and to changes in production methods in response to the production problems
experienced at the Fort Lupton #1 greenhouse in 1997. Higher production in 1998
was partially offset by a lower sale price per pound as prevailing market prices
during the first quarter of 1997 were higher than in 1998 due to adverse weather
conditions that impaired the field-grown tomato supply in early 1997. As a
result, the Company realized a $0.98 average sale price per pound of tomatoes
during the first half of 1997, compared to $0.91 for the comparable period in
1998.
Gross Profit. The Company's gross profit for the six months ended June 30,
1998 was $7.6 million, or 32.1% of net sales, compared to $1.8 million, or 13.5%
of net sales, for the six months ended June 30, 1997. This dollar increase in
gross profit was due to the increase in total pounds of tomatoes sold, resulting
from the additional 40 acres of greenhouse facilities and the increase in yield
per acre, despite the lower average sale price per pound. The 1997 production
problems and higher than expected greenhouse labor costs resulted in a lower
than expected gross profit in the first half of 1997. Greenhouse labor costs in
the first half of 1997 were higher than normal as a result of training expenses
for additional greenhouse personnel to staff the Estancia greenhouse in October
1997. The Company expects that it will continue to incur higher than normal
greenhouse labor costs as a result of training expenses for additional
greenhouse personnel in those quarters in which it adds additional greenhouse
facilities.
Operating Expenses. During the six months ended June 30, 1998, operating
expenses were $3.0 million, or 12.7% of net sales, compared to $2.3 million, or
17.0% of net sales, for the six months ended June 30, 1997. The components of
the dollar increase were: (i) a $0.5 million increase in general and
administrative expenses due to the additions to senior management, higher
incentive bonus accruals and higher professional fees; and (ii) a $0.2 million
increase in sales and marketing expenses due to the Company's new marketing
program that will begin in the fall of 1998. The 77.1% increase in net sales
during the first half of 1998 caused the substantial decline in operating
expenses as a percentage of net sales. Management expects that operating
expenses may increase during the next several years as the Company implements
its consumer branding strategy, implements the Greenver marketing agreement and
becomes a public company.
Operating Income (Loss). The Company generated operating income of $4.6
million, or 19.4% of net sales, for the six months ended June 30, 1998,
compared to operating loss of $0.5 million, or (3.5%) of net sales, for the
comparable period in 1997. This improvement resulted from the 77.1% increase in
net sales and the higher gross margin in the first half of 1998.
Interest and Other Income (Expense), Net. The Company incurred interest and
other expense of $0.3 million for the six months ended June 30, 1998, compared
to interest and other income of $0.2 million for the six months ended June 30,
1997. This increase was due to interest expense on debt incurred to finance
construction of the Estancia and Fort Lupton #2 greenhouses.
Net Income (Loss). The Company generated net income of $2.6 million, or 11.2%
of net sales, for the six months ended June 30, 1998, compared to a net loss of
$0.1 million, or (0.9%) of net sales, for the comparable period in 1997. The
Company's provision for income taxes was $1.7 million and ($0.1) million for the
six months ended June 30, 1998 and 1997, respectively, representing an effective
tax rate of 38% in both periods.
25
<PAGE>
1997 Compared to 1996
Net Sales. Net sales decreased by $2.5 million, or 9.1%, to $24.9 million on
sales of 26.2 million pounds of tomatoes in 1997, compared to net sales of $27.4
million on sales of 30.0 million pounds of tomatoes in 1996. This decrease in
net sales was due to production shortfalls that resulted from the problems
experienced by the Company at three of its greenhouses at various times during
1997, partially offset by the addition of production at the Estancia greenhouse
in October 1997. The Company realized a 4.4% increase in the average sale
price per pound of tomatoes to $0.95 in 1997 from $0.91 in 1996.
Gross Profit. The Company's gross profit for 1997 was $2.7 million, or 10.8%
of net sales, compared to $8.1 million, or 29.6% of net sales, in 1996. The
dollar decrease resulted from the mechanical problems, pest and disease
infestation and flood that significantly reduced production and the number of
pounds sold in 1997. The decline in the gross profit margin was attributable to
the fact that a significant portion of greenhouse operating expenses are fixed.
Operating Expenses. During 1997, operating expenses were $4.6 million, or
18.5% of net sales, compared to $4.4 million, or 16.2% of net sales, in 1996.
The principal components of the dollar increase were: (i) a $0.4 million
increase in administrative payroll and related expenses, (ii) a $0.4 million
increase in computer-related expenses and (iii) a $0.2 million increase in
travel expenses. These increases were partially offset by the $0.8 million
insurance recovery from the flood at Fort Lupton #1.
Operating Income (Loss). The Company generated an operating loss of $1.9
million for 1997, compared to operating income of $3.7 million, or 13.4% of net
sales, for 1996. The difference was attributable to the factors discussed
above.
Net Income (Loss). The Company recognized a net loss of $1.1 million for
1997, compared to net income of $2.3 million, or 8.4% of net sales, for 1996,
presented on a pro forma basis to reflect pro forma income taxes calculated at
an effective tax rate of 38%.
1996 Compared to 1995
Net Sales. Net sales increased by $7.3 million, or 36.3%, to $27.4 million on
sales of 30.0 million pounds of tomatoes for 1996, compared to net sales of
$20.1 million on sales of 24.4 million pounds of tomatoes for 1995. Of this
increase in net sales, approximately two-thirds was attributable to the addition
of the Rifle greenhouse on January 1, 1996, and approximately one-third was
attributable to a 9.6% increase in the average sale price per pound of tomatoes
to $0.91 in 1996 from $0.83 in 1995.
Gross Profit. The Company's gross profit for 1996 was $8.1 million, or 29.6%
of net sales, compared to $4.7 million, or 23.4% of net sales, for 1995. This
dollar increase was attributable primarily to the increase in production from
the addition of the Rifle greenhouse, as well as the $0.08 per pound increase in
the average sales price for 1996. The improvement in the gross profit margin was
primarily attributable to the fact that a significant portion of greenhouse
operating expenses are fixed.
Operating Expenses. During 1996, operating expenses were $4.4 million, or
16.2% of net sales, compared to $2.5 million, or 12.4% of net sales, for 1995.
The principal components of the dollar increase were: (i) $1.2 million of higher
payroll and related costs (including stock-based compensation of $0.7 million),
(ii) $0.2 million of Rifle greenhouse expenses, and (iii) a $0.2 million
increase of professional fees and insurance costs.
Operating Income (Loss). The Company generated operating income of $3.7
million, or 13.4% of net sales, for 1996, compared to $2.2 million, or 11.0% of
net sales, for 1995. These increases were the result of the increased
production and higher margins discussed above.
Net Income (Loss). The Company generated pro forma net income of $2.3
million, or 8.4% of net sales, in 1996, compared to $1.6 million, or 7.8% of
net sales, for 1995. These amounts have been presented on a pro forma basis to
reflect income taxes calculated at an effective tax rate of 38%.
26
<PAGE>
Liquidity and Capital Resources
The Company's working capital was $3.0 million and $6.3 million at December
31, 1997 and June 30, 1998, respectively. The Company's primary sources of
liquidity have been cash flows from operations, a $1.5 million revolving credit
facility with Farm Credit and the occasional sale of preferred stock. Primary
uses of cash have been greenhouse operations and construction of the Estancia,
Fort Lupton #2 and Grants greenhouses. The following table sets forth a summary
of the Company's cash flows for the periods presented:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
---------------------------------- ------------------
1995 1996 1997 1997 1998
----------- --------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating activities.. $2,675 $ 1,264 $ (382) $ 3,707 $ 1,497
Net cash provided by (used in) investing activities.. (590) (1,032) (23,592) (11,462) (8,092)
Net cash provided by (used in) financing activities.. (157) (1,748) 24,507 14,353 8,915
------ ------- -------- -------- -------
Net increase (decrease) in cash and cash equivalents. $1,928 $(1,516) $ 533 $ 6,598 $ 2,320
====== ======= ======== ======== =======
</TABLE>
The $2.2 million decrease in net cash flows from operations from the six
months ended June 30, 1997, to the six months ended June 30, 1998, was due
primarily to a $3.0 million decrease in construction payables and the
recognition of a $2.0 million insurance receivable related to the hail loss,
offset by a $2.8 million increase in operating income. The $1.7 million
decrease in net cash flows from operations from 1996 to 1997 was due primarily
to the production problems previously discussed, the start-up of two new
greenhouses and an increase in trade and other receivables, partially offset by
an increase in construction payables. The $1.4 million decrease in net cash
flows from operations from 1995 to 1996 was due primarily to the required
funding of rent reserves equal to one year's rent at three of the Company's four
leased greenhouses.
The $3.4 million decrease in net cash flows used in investing activities from
the six months ended June 30, 1998, to the six months ended June 30, 1997, was
attributable to a $4.0 million investment in Greenver and $4.1 million of
greenhouse construction related to the completion of the Estancia and Fort
Lupton #2 greenhouses in 1998, compared to $11.4 million of greenhouse
construction in 1997. The $22.6 million increase in net cash used in investing
activities from 1996 to 1997 was attributable to $21.8 million for the
construction of the two greenhouses and the balance for the acquisition of a new
computer system. These capital expenditures were financed by $13.5 million of
net proceeds from the sale of Series B Convertible Preferred Stock in January
1997 and $11.0 million in construction financing from Farm Credit.
The $5.4 million decrease in net cash flows provided by financing activities
from the six months ended June 30, 1998, to the six months ended June 30, 1997,
was primarily attributable to $5.9 million of net proceeds from the sale of
Series C Convertible Preferred Stock in May 1998 and $4.0 million of proceeds
drawn against construction loans in 1998, compared to $13.5 million of net
proceeds from the sale of Series B Convertible Preferred Stock in January 1997
and $0.8 million of construction loan advances in 1997. The $26.3 million
increase in net cash flows provided by financing activities from 1996 to 1997
was primarily attributable to the $13.5 million of net proceeds from the sale of
the Series B Convertible Preferred Stock and the $11.0 million of construction
financing from Farm Credit in 1997, compared to the $1.7 million distribution
made by the Company to cover the LLC members' income tax obligations on the
Company's taxable income in 1996.
In January 1997, the Company and Farm Credit entered into a Master Loan
Agreement ("MLA") that included a $15.0 million construction loan to finance
construction of the Estancia and Fort Lupton #2 greenhouses and a working
capital revolving line of credit of up to $1.5 million that bears interest at a
variable rate equal to 0.25% below the prime rate. Borrowings under the MLA are
secured by substantially all of the Company's assets. This construction loan
was converted to a term loan in May 1998, bearing interest at 8.19% per annum
and payable in 104 equal monthly payments that resulted in a loan balance of
$14.7 million as of June 30, 1998. At December 31, 1997, the balance on the
construction loan was approximately $11.1 million.
Under the Greenver marketing agreement, the Company must reimburse Greenver
weekly for Greenver's production and transportation costs for tomatoes the
Company received during the previous week. In addition, the Company must
27
<PAGE>
remit to Greenver monthly the amount of sales of Greenver tomatoes, less costs
incurred during the month by the Company, the Company's sales commissions and
any transportation costs incurred by the Company from San Diego to its
customers. The Company anticipates that this will require additional working
capital because the Company's customers typically do not pay sales invoices in
less than 30 days. This additional working capital requirement of up to $6.0
million will be funded from the net proceeds from this offering. The Company
believes that cash flow from the operations of its greenhouses will be higher in
1998 than 1997 because of the addition of two new greenhouses, barring any other
adverse weather events or production problems.
The Company plans to construct up to six new 20-acre greenhouses over the next
three years, in addition to the Grants greenhouse currently under construction.
The Company expects to finance partially the construction of these greenhouses
from the net proceeds of this offering and any cash flow from operations.
Additional construction financing will be required, however, for each new
greenhouse. Farm Credit has provided construction financing of up to $7.5
million, or 60%, of the anticipated cost of constructing the Grants greenhouse,
estimated at $12.5 million. The Company has not obtained financing commitments
for the other six greenhouses but believes that several sources of debt
financing will be available on acceptable terms. If the Company were unable to
obtain debt financing on satisfactory terms, it might be forced to delay the
construction of one or more of the six planned greenhouses.
Seasonality; Quarterly Results
The Company's business is seasonal, and its quarterly results of operations
reflect trends resulting from seasonal variations in production yields and
prevailing prices for tomatoes. Price fluctuations and tomato availability have
a direct effect on the Company's financial results. Typically, in the winter
months, the reduced supply of tomatoes (due primarily to the lack of field-grown
tomatoes) results in higher market prices. Through the spring and summer
months, the supply of field-grown tomatoes increases, resulting in lower market
prices. As a result, the Company historically has experienced higher profits in
the first and second quarters. Although the Company's production in the first
quarter is lower due to fewer hours of direct sunlight, prevailing prices are
higher, and in the second quarter, the Company's production increases although
prevailing prices are lower. Thereafter, profits typically have declined in the
third quarter as the Company experiences planned decreases in production to
coincide with expected lower market price periods. In the fourth quarter,
profits typically have increased as the Company's production remains steady but
higher market prices return. Greenver produces tomatoes in its Mexican
greenhouses only from November through May. As a result of the Greenver
marketing agreement commencing in the fall of 1998, the Company's supply of
tomatoes during these months should increase significantly from 1997 and prior
years' supplies during the same months. Accordingly, the Company expects that
its profitability will continue to be subject to large seasonal variations, and
the Company's results of operations for any particular quarter are not expected
to be indicative of results for subsequent quarters or the full year.
The following table sets forth financial and operating data for the Company
for the quarters indicated:
28
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------
1996 1997(1)
------------------------------------------- ------------------------------------------
Statement of Operations Data: Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------- ------- -------- ------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $4,943 $ 8,154 $4,936 $9,374 $5,809 $7,489 $ 5,083 $6,563
Gross profit (1)................ 1,773 2,331 1,410 2,600 1,601 190 (619) 1,515
Operating expenses (2).......... 859 1,135 1,297 1,143 1,094 1,161 1,239 1,115
Operating income (loss)......... 914 1,196 113 1,457 507 (971) (1,858) 400
Net income (loss) (3)........... 580 164 342 1,235 345 (472) (1,128) 179
Accretion of preferred stock.... -- -- -- -- -- -- -- --
Net income available to
common stockholders............ $ 580 $ 164 $ 342 $1,235 $ 345 $ (472) $(1,128) $ 179
Operating Data:
Number of greenhouses
operated (at end of period).... 4 4 4 4 4 4 4 5
Acres in production (at
end of period)................. 71 71 71 71 71 71 71 91
Total pounds sold (in thousands) 4,499 11,011 7,821 6,687 4,228 9,322 6,593 6,024
Average yield sold per
acre (in thousands of pounds).. 63 155 110 94 60 131 93 66
Average sale price per pound.... $1.10 $0.74 $0.63 $1.40 $1.37 $0.80 $0.77 $1.09
<CAPTION>
-------------------
1998
-------------------
Statement of Operations Data: Mar. 31 June 30
------- -------
<S> <C> <C>
Net sales....................... $10,070 $13,479
Gross profit (1)................ 4,399 3,168
Operating expenses (2).......... 1,517 1,473
Operating income (loss)......... 2,882 1,695
Net income (loss) (3)........... 1,702 934
Accretion of preferred stock.... (75) (77)
Net income available to
common stockholders............ $ 1,627 $ 857
Operating Data:
Number of greenhouses
operated (at end of period).... 6 6
Acres in production (at
end of period)................. 111 111
Total pounds sold (in thousands). 8,312 17,483
Average yield sold per
acre (in thousands of pounds).. 75 158
Average sale price per pound.... $1.21 $0.77
</TABLE>
- ---------------------
(1) Gross profit in the quarter ended June 30, 1997, was significantly impacted
by a root disease in the Brush #1 greenhouse that reduced tomato production
by approximately 18.9%. Gross profit in the quarter ended September 30,
1997, was significantly impacted by a flood in July 1997 that destroyed
production at Fort Lupton #1 and a root disease at Brush #2.
(2) Operating expenses for the quarter ended September 30, 1997 have been
reduced to reflect insurance proceeds of $802,000 from the flood in July
1997 at Fort Lupton #1. Operating expenses for the quarter ended June 30,
1998, include a loss of $1.7 million resulting from the hail storm in May
1998 at the Brush #2 greenhouse, offset by the attributable portion ($1.6
million) of the $2.0 million advance on insurance proceeds received by the
Company. See "--Introduction."
(3) Prior to January 1997, the Company was operated as a limited liability
company and was not subject to federal or state income taxes. As a result,
the net income (loss) for the years 1993 to 1996 are presented on a pro
forma basis as if the Company were subject to federal and state corporate
income taxes, assuming an effective tax rate of 38%. See "--Introduction."
Year 2000 Compliance
Although the Company has not completed its testing, it believes that its
software and hardware systems can be made year 2000 compliant at minimal cost so
that they will recognize data fields beyond 1999. As of June 30, 1998, the
Company has spent approximately $20,000 on its Year 2000 compliance issues and
expects to spend at least an additional $10,000 in completing its Year 2000
compliance issues. All of these Year 2000 compliance expenses will be paid from
the Company's working capital reserves. The Company does not believe that the
cost of Year 2000 compliance for its own hardware and software systems is
material. The Company expects that it will be Year 2000 compliant by the end of
1998.
The Company also is in the process of determining whether its major suppliers,
service providers and customers are, or will be, year 2000 compliant in a timely
fashion. If the Company's major suppliers, service providers and customers do
not become Year 2000 compliant in a timely fashion, the Company is not certain
of the impact, if any, that this may have on its future financial condition or
results of operations. The Company has not completed a contingency plan with
respect to its major suppliers, service providers and customers that are not
Year 2000 compliant. The Company intends to develop a contingency plan by the
middle of 1999 if it determines that some of its major suppliers, service
providers and customers will not become Year 2000 compliant in a timely fashion.
29
<PAGE>
BUSINESS
Overview
Colorado Greenhouse is the largest U.S.-based producer and marketer of high-
quality greenhouse tomatoes. The Company's branded superpremium tomatoes are
characterized by their excellent flavor, rich red color and consistent blemish-
free appearance. The Company currently operates six hydroponic greenhouses
covering approximately 111 production acres in Colorado and New Mexico and is
constructing a seventh 20-acre hydroponic greenhouse in New Mexico. The Company
plans to construct six additional 20-acre hydroponic greenhouses over the next
three years. The Company's production sold was approximately 247,000 pounds per
acre for the six months ended June 30, 1998, which represents an approximately
29% increase from the same period in 1996. The Company also has increased its
acreage by approximately 56% and increased its net sales by approximately 77%
over the same period. In May 1998, the Company acquired an approximately 25%
equity interest in Greenver and obtained the exclusive right to market in the
United States, Canada and Europe all export-quality tomatoes from Greenver's
approximately 175 acres of non-hydroponic greenhouses in Mexico, half of which
are currently under construction and expected to be in production by November
1998. The Company anticipates that Greenver will provide it with up to 18
million pounds of tomatoes during Greenver's November 1998 through April 1999
growing season.
The Company's production and distribution capabilities enable it to provide
its customers with a consistent, year-round supply of superpremium branded
tomatoes. The Company currently markets most of its tomatoes in ten states,
primarily to major supermarket chains, including Albertson's, Ingles, King
Soopers, Kroger, Lucky's, Meijer and Safeway, with the majority of sales
concentrated in California, Colorado, Michigan, North Carolina, Ohio, Tennessee
and Texas. The Company recently completed an extensive market and consumer
study and, based upon its findings, plans to launch a marketing campaign for its
newly developed consumer brand in September 1998, emphasizing the consistent
year-round quality and superior taste of its tomatoes. A key component of the
Company's growth strategy is to market its tomatoes in selected new domestic
markets and establish relationships with additional major supermarket chains.
The Company is organized as a holding company and owns all of the outstanding
capital stock of (i) CG Member, Inc., the entity that indirectly operates the
Brush #1, Brush #2, Fort Lupton #1 and Rifle greenhouses, which are the
greenhouses held by the LLC, (ii) Colorado Greenhouse, Inc., the entity that
operates the Estancia and Fort Lupton #2 greenhouses and will operate the Grants
greenhouse upon completion of construction and (iii) CGH Sales, Inc., the entity
that will perform the Company's obligations under the Marketing Agreements
entered into in connection with the Greenver transaction. See "Prospectus
Summary--Company History and Recent Developments--Organizational History" and
"Certain Transactions and Relationships."
Tomato Industry Overview and Consumer Trends
According to a United States Department of Agriculture report, U.S.
consumption of fresh tomatoes was approximately 19 pounds per person in 1997, or
a total of approximately 5.4 billion pounds. At an average wholesale price of
$0.33 per pound, the total U.S. fresh tomato market exceeded $1.8 billion at
wholesale. In 1997, field-grown tomatoes accounted for approximately 92% of
total U.S. tomato market. The Company believes that a majority of these
tomatoes were "gas green tomatoes" (i.e., picked green and colored via ethylene
gas treatment during shipping), while the remainder were "vine ripe" (i.e., at
least partially ripened in the field before picking). Greenhouse production,
both domestic and imported and hydroponic and non-hydroponic, accounted for the
remaining approximately 8% of the total U.S. tomato market in 1997.
Field-grown tomatoes, particularly gas greens, often exhibit poor taste,
texture and appearance and vary widely in quality. In addition, as unbranded
commodity products, most tomatoes offer no basis for building consumer awareness
or loyalty. Supermarket chains also typically experience an unpredictable
supply of tomatoes from a fragmented group of wholesalers and brokers and a lack
of merchandising and promotional support.
Field tomato growers, particularly in California and Mexico, have attempted to
address the quality gap in recent years by partially ripening tomatoes on the
vine before picking. The Company believes that although these vine ripe
tomatoes are often superior to gas green products, they still suffer from
substantial inconsistency in quality and supply. Greenhouse producers have
generally succeeded in supplying a better tasting tomato to the market, but to
date are
30
<PAGE>
producing in relatively small quantities with limited distribution. In addition,
most hydroponic tomato greenhouses, many of which are located outside the United
States, operate only nine months of the year primarily due to either too few
hours of direct sunlight in the winter or too high daytime temperatures in the
summer.
According to a produce industry trade journal, chain supermarkets account for
approximately 62% of all grocery store sales and tomatoes are one of the top
five items in sales volume in grocery store produce departments. According to
industry sources, consumers would purchase tomatoes more often if they were of
higher quality.
Supermarket produce departments, similar to most other departments,
increasingly have adopted category management with the goal of maximizing
overall profitability for the department based on a better understanding of
sales patterns and margins by individual items. This has encouraged produce
managers to ally themselves with suppliers capable of offering both high
quality, year-round supply or produce and branded products, where possible, to
build consumer loyalty, command premium prices on a consistent basis and be
tracked by the supermarket's scanning and inventory systems.
The past two decades have witnessed widespread growth in consumer demand for
higher quality foods. This trend has resulted in the emergence of natural,
minimally-processed and preservative-free alternatives in most major food
categories, the growth of the specialty and natural foods retail sector and the
emergence of higher priced, superpremium segments in many categories, including
juice, beer, ice cream and coffee. In the produce sector, this trend has
resulted in a demand for increased freshness, better taste and more variety and
has led to consumer demand for high-quality branded produce, such as packaged
salads and pre-cut vegetables. As a result, the Company believes that the
potential market for superpremium branded tomatoes is very broad because
substantial numbers of consumers are willing to pay a premium over the price of
field-grown tomatoes, especially in the winter months, for the improved taste,
appearance, consistency and quality of greenhouse tomatoes.
Company Strengths
The Company believes that it is uniquely positioned to address the quality and
supply issues of both consumers and the retail trade with a superpremium branded
tomato developed through an integrated hydroponic greenhouse production model
that yields a consistent high quality product with a year-round supply. The
Company's key competitive strengths include:
Consistent Quality Superpremium Tomatoes on a Year-Round Basis. The Company
has established a reputation as a consistent supplier of high quality, branded
superpremium tomatoes. The Company's greenhouse locations in Colorado and New
Mexico are characterized by an optimal combination of direct sunlight and
moderate summertime temperatures, which provide it with the ability to grow
high-quality tomatoes on a year-round basis. Commencing in November 1998, the
Company will begin marketing Greenver's tomatoes. This will provide the Company
with a greater supply of tomatoes from November through April, when domestic
supply is generally at its lowest and prices are typically at their highest.
Direct Relationships with Major Supermarket Chains. The Company sells
directly to several of the nation's largest supermarket chains, including
Albertson's, Ingles, King Soopers, Kroger, Lucky's, Meijer and Safeway. These
direct relationships enable the Company to: (i) retain control over the
distribution process; (ii) establish a "non-commodity" consumer branding
approach to marketing; (iii) differentiate itself through superior customer
service; and (iv) improve margins by eliminating unnecessary middlemen.
Technical Expertise. The Company's advanced growing techniques enable it to
produce consistently high-quality tomatoes on a year-round basis. The Company's
greenhouses are managed by teams of senior growers, principally recruited from
European countries, with expertise in the latest greenhouse and hydroponic
technology. These senior growers train junior growers to assure that the
Company will have the expertise necessary for its planned expansion. Forty of
the Company's production acres have been constructed, and 20 acres are being
constructed, using a state-of-the-art model designed to enhance growing
conditions and improve production yield. The Company also has installed an
integrated management information system, which allows it to monitor closely all
aspects of the plant production, packaging and selling process.
31
<PAGE>
Growth Strategy
The Company's objective is to strengthen its position as the largest U.S.-
based producer and marketer of high quality greenhouse tomatoes and to increase
sales. Key elements of the Company's strategy to achieve this goal include:
Aggressively Develop Consumer Brand Identity. To capitalize on the regional
success of the Company's branding strategy, in September 1998, the Company plans
to introduce a marketing campaign targeting additional domestic markets with its
newly developed consumer brand. This campaign will include both trade and
consumer advertising and point-of-sale promotions emphasizing the consistent
year-round availability and superior taste of the Company's tomatoes. The
Company believes that its branding strategy also may facilitate its future
introduction of other superpremium greenhouse produce.
Expand Production Capacity. The Company's strategy is to expand production
capacity to meet the increased consumer demand for consistent, high-quality
tomatoes on a year-round basis. The Company is currently constructing a 20-acre
hydroponic greenhouse facility in New Mexico and plans to construct six
additional 20-acre hydroponic greenhouses over the next three years at sites
that provide optimal micro-climatic conditions of sunlight and temperature. The
Greenver marketing arrangement will provide the Company with a greater supply of
tomatoes from November through April, when domestic supply is generally at its
lowest and prices are typically at their highest.
Broaden Retail Distribution. Most major retailers seek a primary supplier for
each produce category that is capable of delivering both uniform quality and
consistent year-round supply. The Company believes that by offering retailers
and consumers a high quality product with a consistent year-round supply, it can
become the primary year-round tomato supplier of choice for many major
supermarket chains. The Company's variety of product sizes and grades and
customized packaging capabilities also provide significant flexibility to retail
chains when offering tomato products to consumers. The Company's expertise in
conducting marketing programs can assist these retailers in developing consumer
awareness and brand loyalty. See "--Marketing and Sales."
Products
The Company's current product line consists of traditional beefsteak tomatoes
of both the Truss and Bliss varieties and Tradero vine-cluster tomatoes. These
tomatoes are distinguished by their superior taste over most field-grown
tomatoes, and their appearance, texture and nutritional value. The Company
believes that by using greenhouse technology to regulate and enhance
environmental conditions, it achieves consistent quality tomatoes and minimizes
production seasonality. Currently, the Company's tomatoes are sold in display
pack singles, consumer pre-packs and on-the-vine packages.
Superpremium display pack singles. The Company hand selects its largest
superpremium beefsteak tomatoes, sorts them into three sizes, Large,
ExtraLarge and MaxiXLarge, and ships them to supermarket customers in
specially packaged black display trays for individual sale. Each tray weighs
15 pounds and contains between 18 and 45 tomatoes, depending on their size.
To increase consumer brand awareness, each tomato is labeled with the
Company's name and logo.
Consumer pre-pack. The Company packages its smaller superpremium tomatoes in
groups of three, four or six. The Company's pre-packs feature a distinctive
consumer package, which can be customized to meet the requirements of
individual supermarket customers.
On-the-vine. The Company's Vine Cluster Gourmet Tomatoes are of the Tradero
variety and consist of at least three blemish-free tomatoes attached to the
vine and packaged in a mesh bag. The Company ships the mesh bags of on-the-
vine tomatoes in trays that weigh 11 pounds. The Company generally is able to
price this product at a 30% premium to its other superpremium tomatoes.
Standard grade display pack singles. Most of the Company's standard grade
tomatoes are USDA #1 quality or better, but less than the Company's
superpremium grade. These tomatoes are shipped to customers in specially
packaged 15 pound white display trays for individual sale. The Company also
ships a small number of USDA #2 quality tomatoes, which are of a lesser
quality than USDA #1 but are sold by some retail chains.
32
<PAGE>
The Company grades all of its tomatoes as either superpremium or standard
grade based on its own specifications. The Company defines superpremium tomatoes
as those that are free from all scars, cuts, bruises, blotchy ripening and
translucent or soft conditions, are round with a smooth shoulder, have no flat
spots or indentations, have a well formed, smooth blossom end with an
indentation of no more that 1/16", with the calyx (the stem) still in place and
with no more than minor "russeting" (the micro cracking of the skin around the
calyx). Standard tomatoes are those tomatoes that vary from the superpremium
specifications for the calyx, scarring, blemishes and russeting. The Company
permits only a small number of tomatoes with these minor defects per tray of
standard tomatoes. Because a tomato's color identifies its level of development
and ripeness, both superpremium and standard tomatoes are sorted based on color
so that all tomatoes from the same box will ripen uniformly.
The following table sets forth information concerning the Company's products
during the first quarters of 1997 and 1998.
<TABLE>
<CAPTION>
Percentage of Total Sales Avg. Wholesale Price Per Pound
------------------------- ------------------------------
Six Months Ended June 30, Six Months Ended June 30,
------------------------- -------------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Superpremium display pack singles....... 57.0% 64.5% $ 1.02 $ 1.00
Pre-pack................................ 17.4 9.7 .87 0.98
On-the-vine............................. 13.0 7.2 1.20 1.31
Standard grade display pack singles:
USDA #1 or better..................... 7.3 13.1 1.01 0.72
USDA #2............................... 5.3 5.5 0.65 0.54
----- -----
Total/average wholesale price (1)... 100.0% 100.0% $ 0.98 $ 0.96
===== =====
</TABLE>
(1) Prevailing market prices for tomatoes are highly seasonal, and typically are
at their highest levels in the first quarter. Accordingly, the Company's
results of operations for any particular quarter are not expected to be
indicative of results for subsequent quarters or the full year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality; Quarterly Results."
Marketing and Sales
The Company markets most of its tomatoes directly to its supermarket chain
customers. These direct relationships enable the Company to retain control over
the distribution process, establish a "non-commodity" consumer branding approach
to marketing, differentiate itself through superior customer service and improve
margins by eliminating unnecessary middlemen. The Company's marketing strategy
has been to create awareness of the Company's tomatoes by supermarket chains on
a regional basis and thereby gain shelf space. The Company actively
participates in trade shows and advertises in various trade publications to
reach supermarket chains. In marketing to potential supermarket customers, the
Company emphasizes its high-quality tomatoes and consistent supply, with the
objective of becoming that customer's primary year-round tomato supplier of
choice. The Company also offers its customers consumer awareness programs, such
as in-store product demonstrations, media advertising and cooperative
promotional programs.
When a supermarket chain first decides to carry the Company's products, the
Company develops a marketing program with the supermarket chain. The marketing
program sets forth the amount and type of the Company's products the supermarket
chain will carry and provides for various forms of marketing support by the
Company in that customer's market including assistance with point-of-sale
presentation such as arranging for in-store demonstrations and providing
recipes, sale promotion assistance and print and media advertising support.
After the marketing program is in place, each week a Company sales
representative quotes the customer prices for the following week and ensures the
customer's marketing program is satisfied on a weekly basis. This permits the
customer to keep the freshest tomatoes in stock and gives sufficient lead time
to enable the Company to fill orders. The sales staff works closely with the
Company's production group to help anticipate and accommodate customer
requirements. Each tomato or consumer package is labeled with a Price Look Up
("PLU") sticker to facilitate category management by the customer.
The Company maintains a sales and marketing staff of six employees at its Fort
Lupton, Colorado headquarters. The Company expects to add several regional sales
offices over the next two years, including one in California in connection with
marketing Greenver's produce. When Greenver's tomatoes first become available
in November 1998, the Company intends to include them into its standard
marketing activities.
33
<PAGE>
Brand Development
To strengthen its position as the leading U.S.-based producer and marketer of
superpremium greenhouse tomatoes, the Company will concentrate on promoting
brand recognition and loyalty among consumers by introducing a marketing
campaign in the fall of 1998. This campaign will target additional markets and
focus on the Company's newly developed consumer brand. The campaign will
include both trade and consumer advertising and point-of-sale promotions
emphasizing the consistent year-round availability and superior taste of the
Company's tomatoes. The Company intends also to provide point-of-sale materials
such as product literature and recipes to help consumers distinguish its product
from unbranded tomatoes, as well as discount coupons. The Company believes that
its branding strategy also may facilitate its future introduction of other
superpremium greenhouse products.
Customers and Product Distribution
The Company's principal customers are ten major supermarket chains, which
collectively accounted for approximately 79.0% of the Company's net sales in
1997. The Company's remaining customers are selected regional wholesalers and
brokers who purchase in truckload quantities and distribute to natural food
stores, smaller grocery chains and independent grocers.
The Company's retail and wholesale customers are concentrated in Colorado,
California, Michigan, North Carolina, Ohio, Tennessee and Texas. The Company's
leading supermarket chain customers are Safeway (in Colorado), Meijer (in
Michigan), King Soopers (in Colorado), Kroger (in Ohio and Texas), Albertson's
(in California and Colorado), Ingles (in North Carolina and Tennessee) and
Lucky's (in California). During 1997, sales to Safeway, Meijer and King Soopers
represented 23.5%, 15.3% and 14.0% of the Company's total net sales,
respectively. No other customer accounted for more than 6.2% of the Company's
total net sales in 1997. Because a high concentration of the Company's sales
are to a relatively few customers, the loss of one or more major customers could
have a material adverse effect on the Company's results of operations.
The Company arranges for the delivery of all of its products to its customers
by truck. The Company owns three and leases two other temperature controlled
tractor-trailers, which it uses for delivery of its products within Colorado.
The Company contracts on a per load basis with independent trucking companies
for deliveries outside Colorado. The Company will take delivery of Greenver's
produce at a third party cross-docking facility in or near San Diego,
California, from which the produce will be delivered to the Company's customers
by independent trucking companies.
34
<PAGE>
Greenhouse Production
Current Greenhouse Production. The following table sets forth information
regarding the Company's existing greenhouses.
<TABLE>
<CAPTION>
Year Constructed Acreage Greenhouse Type
---------------- ------- ---------------
Colorado
<S> <C> <C> <C>
Rifle(1)................... 1986 13.5 Plastic
Brush #1(1)................ 1990 18.0 Plastic
Brush #2(1)................ 1993 19.7 Glass
Fort Lupton #1 (1)......... 1993 20.0 Glass
Fort Lupton #2 (2)......... 1998 20.0 Glass
New Mexico
Estancia (3)............... 1997 20.0 Glass
Grants (4)................. 1998 20.0 Glass
-----
Total................... 131.2
=====
</TABLE>
- -----------------
(1) These greenhouses are currently leased by the Company. See "--Facilities."
(2) The Fort Lupton #2 greenhouse was completed in January 1998 and began
production in March 1998.
(3) The Estancia greenhouse was completed in August 1997 and began production in
October 1997.
(4) This greenhouse, which is currently under construction, is expected to be
completed by November 1998.
Site Selection Criteria. The Company selects sites for new greenhouse
facilities based on their optimal micro-climatic conditions of sunlight and
temperature, sufficient water supply and a low cost supply of natural gas for
heating. All of the Company's greenhouses are located in Colorado and New Mexico
because these states provide over 250 days of sunshine per year, including ample
sunlight during the winter months, and a moderate summertime high temperature
that permits production during the summer months and reduces greenhouse cooling
costs. As a result, the Company is able to produce tomatoes on a year-round
basis, unlike greenhouses located in areas where the summer months are very hot
or the winter months do not have sufficient sunlight.
Design Features of the Company's Greenhouse Model. The Company's greenhouse
model has been developed and refined over a number of years through the
experience learned in each successive facility. The first of the Company's
greenhouses that was constructed, Rifle, is only approximately 13.5 acres in
size, is constructed of plastic overlaying a steel truss structure and contains
a non-direct forced air heating system. Brush #1 is an 18.0 acre plastic
facility, and Brush #2 is a 19.7 acre glass facility. The Company's three other
greenhouses are 20-acre units, constructed of glass, which has better light
transmission characteristics than plastic, and use direct radiation heating
techniques through hot water pipes directly below the growing canopy. This
permits the Company to control better the amount of heat necessary for optimal
plant growth. The Company's newer greenhouses, Estancia, Fort Lupton #2 and the
Grants greenhouse currently under construction, use an improved glass design in
which there are fewer steel trusses to block the light, a roof that is
approximately three feet higher to allow for more heat retention and glass that
is positioned to permit better light transmission.
The Company believes that its model 20-acre facility provides it with the
optimal balance between the economies of scale that come with a large facility
and a facility of manageable size. Starting with the Fort Lupton greenhouses,
the Company has constructed two adjacent unitized 20-acre facilities, thus
increasing the economies of scale by permitting shared greenhouse supply areas,
boiler and pump houses, as well as combined packing facilities, while at the
same time retaining the manageability that comes with a 20-acre facility. The
Company has designed both the Estancia facility and the Grants facility to
permit the construction of adjacent 20-acre facilities, and all future
facilities are expected to use this unitized 20-acre facility model.
Integrated Hydroponic Greenhouse Production Model. All of the Company's
greenhouses use the Company's integrated hydroponic production model.
Hydroponics is the cultivation of plants in liquid nutrient solutions. The
Company's plants are cultivated in rockwool, a porous substrate material made
from volcanic-based rock, which provides significantly more control over the
root environment and allows the Company to manage better the balance of
nutrients required for healthy plant cultivation. This closely monitored
environment allows tomatoes to receive the benefits from sunlight, with the
additional advantage of computer-controlled temperature and humidity required
for strong, healthy
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plants. Hydroponic production also minimizes the variables that cause
inconsistency in product and yield and isolates the plants from soil-born pests
and diseases.
The development cycle of a tomato plant is approximately three months from
seed to the first harvest of fruit. Thereafter, the Company's plants usually
yield tomatoes for a period of four to five months. Propagation, the tomatoes'
nursery stage, begins at a separate third-party greenhouse. After approximately
six weeks at the propagation center and approximately three or four days prior
to the appearance of the first flowers, the plants are shipped to the Company's
greenhouses.
Upon arrival at the greenhouse, plants are placed in their permanent location
on rockwool mats. Most greenhouse environments result in downtime of
approximately three months between the final harvest of the old crop and the
first harvest of the new crop. To ensure continuous year-round production of
tomatoes without wasting greenhouse space, the Company places young plants
adjacent to mature tomato plants nearing the end of their production. This
process, called "interplanting," uses techniques refined by the Company. As a
result, the Company's first harvest from the new plants usually occurs within
one to three weeks after the prior crop's final harvest.
Each plant is isolated initially from the rockwool mats using a styrofoam tray
in order to prevent the roots from penetrating the mats prematurely. An
individual dripper hose is inserted into each rockwool block, and the plants are
attached to strings to maintain upward growth of the vines. At the same time,
bumble bees are introduced into the newly planted areas for pollination
purposes. Hives, which contain nectar for the bees, are placed on shelves at
the end of the greenhouse rows. Two weeks after introduction to the greenhouse,
the styrofoam trays are removed and the dripper hoses are run through the blocks
into the mat itself, allowing each plant's root system to spread throughout the
mat.
Regular plant maintenance includes clipping and pruning, adding truss
supports, cluster pruning to maintain the desired number of tomatoes per truss
and regular "deleafing," a process in which leaves are removed from the bottom
of the plants as they grow taller to direct the energy upward toward the
producing part of the plants. As the plants grow, they are periodically lowered
by unwinding string from reels attached above each vine to keep the top of the
plants at the optimum height for plant growth and to provide easier access to
the producing part of the vines. As a result of the Company's production
process, only about 5% of the tomatoes grown by the Company are discarded.
These discarded tomatoes are either sold to local farmers as animal feed or
thrown away.
The Company's computer system monitors every aspect of the plant's life,
including acidity and salt solution percentages. The climate in the greenhouse
is also precisely controlled for temperature, CO\\2\\ content and humidity. The
greenhouses have a daytime growing temperature of between 70 and 80 degrees
Fahrenheit and a humidity level of 70%. At night, the temperature is dropped to
between 55 and 60 degrees Fahrenheit. During the summer months, the greenhouses
are ventilated by interior or exterior evaporative cooling. In cooler months,
hot water is circulated throughout the greenhouse through pipes between each row
of plants. These pipes also serve as rails for the picking carts. The Company
obtains the heat for the Brush #1, Brush #2, Fort Lupton #1 and Rifle
greenhouses from the adjacent cogeneration plants and has backup boilers in the
event of a shut-down of the power plants. Stand-alone boilers employing natural
gas are used to provide hot water at the Fort Lupton #2 greenhouse and the New
Mexico facilities. The air quality of each greenhouse also is constantly
monitored and, when necessary, CO\\2\\ is released into the greenhouse
environment because CO\\2 \\is essential for plant growth. In the stand-alone
facilities, CO\\2\\ is obtained from the water heating process, and in the
cogeneration greenhouses, the Company purchases CO\\2\\. The Company also
monitors the outside environment, including temperature, solar radiation, wind
speed and wind direction, to help gauge the heating requirements of the
greenhouse and the amount of sunlight each greenhouse receives.
Harvesting and Packing. Ripe tomatoes are picked by hand and placed onto
carts. The distance to market determines at what stage of ripeness tomatoes
will be harvested. Each individual harvester enters information about the
number of trays of tomatoes picked in each row into a key pad linked to the
Company's computer. The trays are loaded onto pallets and transported to a
sorting, packing and shipping facility (the "pack houses"). The Company
currently has pack houses at Brush and Fort Lupton. The Brush pack house
handles most of the tomatoes from the two Brush greenhouses. The Fort Lupton
pack house packs the remaining tomatoes from Brush, as well as the tomatoes from
the Estancia, Rifle and the two Fort Lupton greenhouses. The Company has
constructed a pack house at its Estancia greenhouse and intends to commence
operation of this pack house upon completion of the Grants greenhouse. The
Estancia pack house will pack all of the Company's tomatoes grown in New Mexico.
36
<PAGE>
After being washed and dried, the tomatoes are hand sorted according to size.
About 80% of the tomatoes produced by the Company are in the MaxiXLarge or
ExtraLarge categories, and all superpremium tomatoes of these sizes are packed
by hand into 15 pound, single-layer trays according to color stage or ripeness
and size. Each superpremium tomato is labeled with the PLU sticker, and each
tray is marked with a code indicating the site where the product was grown and
the date of packing. Approximately 11% of the Company's tomatoes are standard
grade display pack singles, which are packed by hand into 15 pound trays. All
remaining tomatoes not sold as display pack singles are sent by conveyor belt to
a pre-pack system where they are packaged into three, four or six-count retail
packs. The Company's on-the-vine tomatoes are packaged in net bags of three to
five tomatoes with the vine still attached and shipped in 11 pound trays. After
packing, the tomatoes are loaded onto trucks for shipment.
Quality Control Programs. Managing the health of the Company's tomato plants
is critical to maintaining the required production levels. Following the
Company's pest and disease related production problems in 1997, the Company
instituted a number of quality control monitoring systems to provide an early
warning against pest and disease problems. The growers in each greenhouse
complete a "cultural table" regarding the condition of the plants on a weekly
basis. The cultural table is based on evaluations of sample plants throughout
each greenhouse and measures plant development, including the number and width
of the leaves, the number of flowers per plant, the diameter of the plant stem,
the number of tomatoes per stem and the size development of the tomatoes.
Sample leaves are sent to laboratories weekly for leaf analysis to determine the
nutrient content and identify any deficiencies. Any suspect plants are also
leaf sampled for disease identification. These data give the Company's senior
growers information that should indicate early deficiencies in the plant
production cycle and the opportunity to compare the current crop to historical
data from previous crops.
The Company also monitors the rooting environment of its plants by testing
water quality on a daily basis and determines the quantity of water used by
measuring the volume of water for each row of plants and the volume of water
that drains off each row. Irrigation drainage water is also monitored to
determine the plant's chemical and nutrient intake, is then sterilized by ultra-
violet light, with any necessary nutrients added, and is recirculated to the
plants, thereby conserving valuable materials and water. By monitoring
irrigation water, senior growers can determine whether each row of plants is
receiving and utilizing the proper volume of water and nutrients.
The Company instituted a number of safeguards against pests following the 1997
production problems. These include pest trap monitoring cards throughout the
greenhouses that allow employees to count the number and variety of insects in
each facility, as well as visual crop monitoring for pests. The Company
utilizes a biological pest control management system, whereby plant-friendly
predator insects who feed upon the unwanted pests are used to control common
greenhouse insects. As a result, some level of harmful pests, such as
whiteflies, will be found in the greenhouses in order to feed the beneficial
pest population. In addition, pollination is performed by bumble bees that
require an insect friendly environment. If it is determined that biological
controls are not adequate to maintain the health of the plants, chemicals may be
applied to maintain the proper balance between these beneficial and harmful
pests. Because of the bees, however, the use of deleterious chemicals must be
minimal.
The Company believes that these quality control programs will provide it with
sufficient early warning signs to enable it to react to most production threats
in a timely fashion, thereby minimizing the risk of a recurrence of the problems
that the Company experienced in 1997. There can be no assurance, however, that
these programs will be sufficient to control all possible disease or pest
problems.
Steps Taken to Combat 1997 Production Problems. During 1997, the Company
experienced mechanical problems, pest and disease infestations and a flood that
significantly reduced production during parts of the year in three of the
Company's greenhouses. In the Brush #1 greenhouse, a root disease reduced
tomato production by approximately 18.9% during the first and second quarters of
1997. This was followed in the third quarter by an invasion of thrips (an
insect) through the greenhouse's unscreened ventilation system, which carried a
virus from adjacent agricultural field crops. This virus reduced plant
populations as well as tomato volumes and size, resulting in a decline in the
Company's average sales price per pound. During the third quarter of 1997,
Brush #2 was also affected negatively by the same root disease that affected
Brush #1 and was infested with a large population of whiteflies. This led to
the Company's decision to pull out its entire existing crop at Brush #2 and
disinfect the greenhouse at the beginning of the fourth quarter of 1997. At the
end of the first quarter of 1997, the Fort Lupton #1 greenhouse experienced a
mechanical failure in its irrigation system, followed by a flood at the end of
July that required the Company to pull out the entire crop to avoid an outbreak
of root rot common in water damaged crops. As a result of all of these
problems, the Company experienced
37
<PAGE>
approximately a 13% decline in total production sold in 1997 compared to 1996,
despite the addition of production from the 20-acre Estancia greenhouse in
October 1997.
Following the production shortfalls of 1997, a complete review of the
Company's management structure, experience, operating procedures and expertise
was undertaken and significant changes were made. The Company believes it has
remedied the problems that lead to mechanical malfunctions and has used the
experiences to update its existing greenhouses and better design future
greenhouses. The Company hired a new senior management team that implemented
various initiatives and quality control measures to reduce the likelihood of
similar problems occurring in the future and obtained improved insurance
coverage. The Company has direct damage insurance covering both property damage
to its greenhouses and lost profits and was able to recover $802,000 as a result
of the damage from the flood. This recovery represented approximately one-half
of the lost sales that resulted from the flood, which subsequently caused
management to obtain new insurance coverage. Management believes that its new
insurance policy will more adequately protect it in the event of a catastrophic
loss. In addition, because the Company had two of its four greenhouses out of
production during the fourth quarter of 1997 due to various pest and mechanical
problems, the Company was able to modify its packing operations to consolidate
pack houses. To effect this consolidation, the pack house at Fort Lupton was
enlarged and new flow-through racking was installed to permit the packing of
tomatoes from the Fort Lupton #2 greenhouse as well as some of tomatoes from the
Brush greenhouses.
Raw Materials Used in Production. The Company obtains the raw materials
necessary for the production of its tomatoes, including rockwool, tomato
seedlings, CO\\2\\, bees, fertilizer, insecticides and packaging materials from
various suppliers. These suppliers include Grodania A/S (rockwool), Cherry
Creek Growers, Inc. (tomato plant seedlings), Praxair, Inc. (CO\\2\\), Koppert
Biological Systems, Inc. (bumble bees), Van Waters and Rogers, Inc. (fertilizer
and insecticide) and Willamette Industries, Inc. (packaging materials).
Whenever possible, the Company enters into annual agreements for these raw
materials that set the price for the year and then orders materials on an as
needed basis. The Company currently obtains its seedlings from a single source.
Loss of this source could result in a decrease in the Company's tomato
production until this supplier can be replaced. With respect to its other raw
material suppliers, the Company believes that its relationship with these
suppliers generally is good. If the Company were to lose any one or more of
these raw material suppliers, the Company could contract for its raw materials
with several other suppliers on terms the Company believes would be comparable.
Greenver Transaction and Marketing Agreement
In May 1998, the Company acquired a 25% equity interest in Greenver for $4.0
million. Greenver has 88 acres of non-hydroponic greenhouses under production
in Baja, Mexico, growing tomatoes and some sweet peppers. The proceeds of the
Company's investment in Greenver are being used by Greenver to construct an
additional 87 acres of non-hydroponic greenhouse facilities, which are expected
to commence production by November 1998. Although Greenver's tomatoes are of
comparable quality to the Company's tomatoes, the Company will provide Greenver
with technical assistance to increase Greenver's production yield and the
Company intends to introduce hydroponic growing techniques to at least some of
Greenver's facilities. As a result of its equity interest, the Company is
entitled to 25% of all dividends, if any, distributed by Greenver.
As part of the Greenver Transaction, the Company entered into an exclusive
marketing agreement (the "Marketing Agreement"), whereby the Company obtained
the exclusive right, but not the obligation, to market in the United States,
Canada and Europe all export-quality tomatoes produced by Greenver, for which
the Company will receive a 10% commission on total sales revenue less
transportation costs from San Diego to the point of destination. The Company
intends to exercise this right for all of Greenver's produce that is of a
quality and grade consistent with the Company's domestic tomatoes. The Company
intends to have a representative present at Greenver's facilities to select the
products to be sold under the Marketing Agreement. The agreement prohibits
Greenver from selling its export-quality products in the United States, Canada
or Europe except through the Company. Because of the favorable growing
conditions during the winter months in Baja, Mexico, as well as improved growing
techniques the Company is introducing to the Greenver facilities, the Company
anticipates that the Greenver Transaction will provide it with up to 18 million
pounds of tomatoes during the November 1998 through April 1999 growing season, a
time of year in which production from the Company's existing facilities
declines. During these months, the Company has historically received the highest
prices for its tomatoes.
Under the Marketing Agreement, the Company will never take title to the
produce but has the right to determine the manner and terms of sales, so long as
the price is not less than the Company receives for tomatoes of equivalent
quality
38
<PAGE>
grown by the Company. The agreement has a term of ten years, subject to
termination by Greenver at the end of five years if certain criteria related to
the Company's marketing of Greenver's tomatoes have not been met. If the
agreement is then terminated, the Company has the option (i) to require the
other Greenver shareholders to repurchase the Company's equity in Greenver for
the higher of market value at the time of repurchase or $4.0 million, or (ii)
the right to acquire a 50% equity interest in any company formed by Greenver to
market its products in the United States, Canada or Europe.
Under the Marketing Agreement, the Company must reimburse Greenver weekly for
Greenver's production and transportation costs for tomatoes the Company received
in the previous week. In addition, the Company must remit to Greenver monthly
the amount of sales of Greenver tomatoes less costs previously borne by the
Company, the Company's sales commission and any transportation costs from San
Diego incurred by the Company. The Company is responsible for all advertising,
marketing and promotion expenses and the third party cross-docking facility
fees, and bears the risk of uncollectible accounts receivable. All products
sold under the Marketing Agreement will be packaged in cartons and labels
approved by the Company and will be marketed with the Company's tomatoes. The
Company has not yet determined whether it will market Greenver's tomatoes under
its own trademarks. Greenver will warrant to the Company all products sold
under the Marketing Agreement to be in good and marketable condition and
harvested, handled, packed and shipped in accordance with standards set by the
Company and U.S. regulatory agencies.
Research and Development
The Company is engaged in ongoing testing at its Brush, Fort Lupton and Rifle
greenhouses of various varieties of tomatoes to determine if they could improve
the Company's production yields. The Company tests these tomato varieties for
their maturation period, resistance to disease, the size and quality of the
tomatoes and the tomatoes' shelf life, taste and adaptability to seasonal
changes in light. The Company's growers conduct these tests initially as
varietal trials, where a few plants of several different varieties are placed
throughout a greenhouse and observed. If a new variety shows promising
characteristics, the Company conducts a commercial trial where the new variety
is planted on a larger scale, with performance results compared to the Company's
existing tomato varieties. To date, the Company has selected two of these new
varieties of tomatoes for regular production on a seasonal basis, a Grace
variety for winter production and an as yet unnamed variety for summer
production. To date, the Company's research and development expenditures have
not been material.
The Company currently devotes a total of approximately 10 acres at its Brush,
Fort Lupton and Rifle greenhouses to research and development. The Company and
Greenver have also begun testing other superpremium produce at Greenver's
facilities in Mexico. There are, however, a limited number of vegetables that
can be grown economically in the greenhouse environment.
Management Information System
The Company operates an integrated management information system with real-
time software that connects its corporate facility with its greenhouses through
a wide area network, augmented by a local area network at each greenhouse. This
system enables the Company to monitor every aspect of its operations, including
tomato plant production and forecasting, employee productivity, inventory
management and customer information. The Company has installed computer hookups
at various locations throughout each greenhouse that allow the greenhouse
employees to enter information about the maintenance and harvesting activities
for a particular row of tomatoes. This allows the Company to monitor the output
of each individual worker and the crop, as well as the workers in the pack
houses. The system also provides the Company with daily inventory control
information, such as the number of pounds of tomatoes harvested. With these
data, the Company is able to update its eight week production forecasts on a
weekly basis so that its sales staff knows how much inventory will become
available. The management information system also provides the Company with the
number of pounds of tomatoes that have been packaged and palletized for
shipping, which allows the Company to compile a daily shipping schedule to track
when each box was packed and the age of the Company's inventory, thus limiting
product spoilage. During 1999, the Company expects to implement an electronic
data interchange system for use with its supermarket customers.
All of the Company's accounting information and information regarding
materials usage and purchase orders are included in the system, as well as all
information about the Company's sales orders. The Company is then able to
prepare and track customer information regarding the amount and type of tomatoes
purchased on a weekly and monthly basis.
39
<PAGE>
The Company believes that its management information system has allowed it to
increase productivity and efficiency by providing management with the essential
information in a concise format. The Company believes that its management
information system has sufficient expansion capacity for the Company's planned
growth for at least the next two to three years.
Competition
The Company believes that the principal competitive factors affecting its
market include product consistency, quality and price, effectiveness of sales
and marketing efforts and company reputation. The Company competes in the
tomato market both with other hydroponic greenhouse tomato producers and with
commercial producers of field-grown tomatoes, both gas green (in which the
tomatoes are picked green and colored via ethylene gas during shipping) and vine
ripened. Field-grown tomatoes originate primarily from Florida, California or
Mexico, depending on the season. During 1997, field-grown tomatoes accounted
for approximately 92% of total U.S. fresh tomato production, while hydroponic
greenhouse tomatoes, both domestic and imported, accounted for the remaining
approximately 8%. Most field-grown tomatoes are sold at wholesale at
approximately one-half the price of the Company's greenhouse grown tomatoes.
During the local growing season, typically late summer, the Company also
competes with home- and locally-grown tomatoes. The Company competes with
field-grown tomatoes on the basis of overall quality, including taste, texture
and appearance, brand recognition and point-of-sale presentation. Field-grown
tomato competitors include numerous local and regional growers as well as a
number of major grower-shippers in the United States and Mexico, including
DiMare (Florida and California), Gargiulo (Florida and California), R&B Packing
(Mexico) and Meyers (Mexico). These major grower-shippers ship substantially
more tomatoes than the Company, have longer standing relationships with various
retailers and wholesalers and have greater financial resources than the Company.
The Company's competition in the hydroponic greenhouse tomato market comes
from various domestic and foreign hydroponic greenhouse tomato producers and
cooperatives, including domestic producers Eurofresh (with greenhouses in
Arizona), Village Farms (with greenhouses in New York, Pennsylvania, Texas and
Virginia) and BC Hothouse (with greenhouses in California). The Company
estimates that worldwide, hydroponic greenhouse tomatoes currently originate
from approximately 700 acres in the United States (including the approximately
111 acres owned by the Company), approximately 900 acres in Canada and an
estimated aggregate of more than 5,000 acres in Belgium, France, Israel,
Morocco, The Netherlands and Spain. Some portion of the foreign produced
hydroponic tomatoes are sold in the United States. Most of these sources produce
high-quality tomatoes superior in taste, texture and appearance to most field-
grown tomatoes and generally comparable in quality to the Company's
tomatoes.
Facilities
The Company owns the Estancia and Fort Lupton #2 greenhouses and will own the
facility but not the land under the Grants greenhouse. The Company operates the
Brush #1, Brush #2, Fort Lupton #1 and Rifle greenhouses pursuant to Operating
and Management Agreements, which are functionally equivalent to subleases. Each
of these four leased greenhouses was constructed as part of a cogeneration power
plant that is a "Qualifying Facility" under the terms of the Public Utility
Regulatory Policy Act of 1978. Each of these cogeneration facilities was
financed using a "project financing" structure that utilizes one single-purpose
entity to own the power plant and another to act as lessee of the greenhouse
from the first entity. Each greenhouse lessee in turn acts as sublessor to the
Company under an Operating and Management Agreement.
The Estancia, Fort Lupton #2 and Grants greenhouses are located on parcels of
160, 26.72 and 70 acres, respectively. The Company's four leased greenhouses
cover an aggregate of approximately 71 acres, and each is operated as part of a
cogeneration project, with the greenhouses using the surplus heat from the power
plants to heat the water used to heat the greenhouses. The Company's owned
greenhouses, Estancia and Fort Lupton #2, are, and all future facilities,
including the Grants greenhouse currently under construction, are expected to
be, stand-alone facilities with their own natural gas-fired boilers for heat
generation. Non-cogeneration greenhouses typically have higher costs to
generate heat but lower CO\\2\\ costs because the CO\\2\\ can be extracted from
the combustion process that generates the heat.
The remaining terms of the Operating and Management Agreements are four, six,
11 and 21 years for the Rifle, Brush #1, Brush #2 and Fort Lupton #1
greenhouses, respectively. Annual rent incurred during 1997 was $500,000 for
Rifle, $853,099 for Brush #1, $1,042,191 for Brush #2 and $1,033,802 for Fort
Lupton #1. The Company is required to maintain rent reserves with the owners of
the greenhouses (which are in turn pledged by the owners to their lenders)
40
<PAGE>
of one year's rent for the Fort Lupton #1 and Brush #2 greenhouses and one-half
year's rent for the Brush #1 greenhouse. Of the leased facilities, the Company
has to pay for its heat requirements only for Fort Lupton #1, which totaled
approximately $154,000 in 1997.
The Company currently has pack houses at Brush and Fort Lupton. The Brush
pack house handles most of the tomatoes from the two Brush greenhouses. The
Fort Lupton pack house packs the remaining tomatoes from Brush, as well as the
tomatoes from the Estancia, Rifle and the two Fort Lupton greenhouses. The
Company has constructed a pack house at its Estancia greenhouse and intends to
commence operation of this pack house upon completion of the Grants greenhouse.
The Estancia pack house will pack all of the Company's tomatoes grown in New
Mexico.
In May 1998, the Company commenced construction of the 20-acre greenhouse
facility in Grants, New Mexico on a site leased from the City of Grants pursuant
to a 60-year ground lease (the "Grants Lease"). Construction is expected to be
completed by November 1998. The Company's equity portion of the construction
cost is expected to be approximately $5.0 million, with the remaining cost
financed under a construction loan with Farm Credit, which will be converted to
a 10-year term loan upon completion of construction. The Grants Lease requires
that in lieu of rent, the Company must employ approximately 60 full-time people
from the twelfth through the sixtieth month and approximately 110 people
thereafter. The Company anticipates that it will be able to meet the 60
employee requirement with the proposed 20-acre facility and the 110 employee
requirement with an additional 20-acre greenhouse facility expected to be
constructed and in operation prior to the sixtieth month.
The Company intends to use a portion of the net proceeds of this offering to
fund some or all of the cost of constructing up to six additional 20-acre
greenhouse facilities, one of which is expected to be adjacent to the greenhouse
in Estancia and a second adjacent to the greenhouse in Grants. The Company
currently anticipates that construction of two of these facilities will commence
by mid-1999. These locations have been chosen because of the high number of
sunny days, particularly during the winter months, and the relatively high
elevation, which provides cooler summer temperatures, both of which are
climatological factors beneficial to greenhouse tomato production. The Company
believes that these sites have access to sufficient quantities of water and
natural gas for the new facilities. These facilities, and all future facilities,
are expected to incorporate the Company's unitized 20-acre integrated hydroponic
greenhouse production model. No sites have been selected for the remaining four
facilities, but the Company will select only those sites that provide micro-
climatic conditions of sunlight and temperature similar to those of its existing
greenhouses.
Employees and Training
As of May 31, 1998, the Company had 563 employees, all of whom were full time,
including 474 in growing and packaging, six in marketing and sales and 83 in
administration. Each 20-acre greenhouse requires approximately 60 production
and pack house employees. The Company believes its relationship with its
employees is good. None of its work force is currently unionized.
Each 20-acre greenhouse is operated under the direction of a senior grower,
assisted by two junior growers, each responsible for a 10-acre section, and two
assistant growers, each responsible for five acres. As the junior and assistant
growers gain experience, they are given responsibility over more acreage. All
senior growers participate in a weekly conference call to discuss production
issues at the greenhouses, and meet once a month to walk through a different
greenhouse. The Company believes that these meetings provide a quality check on
each greenhouse's operation as the senior growers provide critiques of the
greenhouse being reviewed. The Company's team of senior, junior and assistant
growers is intended to provide the Company with a sufficient number of qualified
growers to staff properly the planned additional greenhouses, as well as to
assure that each greenhouse's plants receive the necessary inspection on a
regular basis. To date, turnover among the Company's growers has not been
significant. In 1997, the Company began to grant stock options to its senior
growers as an added incentive.
All other greenhouse and pack house employees are trained by the Company. To
date, the Company has been able to employ a sufficient number of people to staff
its operations. While there is some seasonal fluctuation in the Company's
employment levels for its non-administrative positions, the Company offers year
round employment to most of its agricultural workers. The Company believes that
this, coupled with an average starting wage of $6.00 per hour, gives it an
advantage in attracting and retaining capable and loyal agricultural workers.
41
<PAGE>
Risk Management; Insurance; Legal Proceedings
The Company is subject to various risks in operating its business, including
catastrophes such as floods, tornadoes, hail storms, severe winds or rain or
other adverse weather events, as well as other risks related to its production,
such as the loss of water or heat to the greenhouses or a mechanical failure in
the heating, ventilation or irrigation system. To mitigate against these risks,
the Company has direct property damage and business interruption insurance
coverage. The Company's prior insurance policy only covered a loss that resulted
from direct damage to the tomato plants and did not cover indirect damage or
consequential losses. Because the flood that occurred in 1997 at Ft. Lupton #1
was not deemed to have directly damaged all of the plants, the loss of the
plants was not totally covered and none of the Company's consequential losses
were covered. In December 1997, the Company obtained new insurance policies
covering both direct and indirect damage to the tomato plants and consequential
losses. The deductibles for this policy vary between $5,000 and $50,000 per
incident. The Company also maintains insurance including workers compensation,
accidental product contamination and product tampering, third-party damage,
liability and bodily injury coverage.
The Company is also subject to uninsured risks related to plant diseases and
pest infestations. See "Risk Factors--Risk of Loss to Crop from Pests or
Mechanical Failures." To protect against a number of production risks, the
Company has established early warning systems to alert it to the possibility of
events that could result in a loss of production. The early warning systems
include a 24-hour electronic monitoring system of the temperature, humidity,
CO\\2\\ and water quality in each greenhouse, with alarms for growers and
maintenance personnel in their homes that sound whenever one of these factors
reaches a critical level, pest trap cards that permit the Company to monitor the
number and type of pests that circulate throughout the greenhouse and weekly
leaf analysis to test for viral or bacterial contamination of the tomato plants.
To protect against a loss of heat or water to a greenhouse, the Company has
backup systems at each greenhouse that can utilize either natural gas or diesel
fuel, as well as short term water storage capabilities.
The Company currently is not a party to any material legal proceedings, nor is
it currently aware of any threatened material legal proceedings. From time to
time, the Company may become involved in litigation relating to claims arising
out of its operations in the normal course of its business.
Government Regulation
The manufacture, processing, packaging, storage, distribution and labeling of
food products are subject to extensive federal, state and foreign laws and
regulations. In the United States, the Company's business is subject to
regulation by the Food and Drug Administration ("FDA"), the United States
Department of Agriculture ("USDA") and various state and local agricultural and
public health authorities. Under the Federal Food, Drug and Cosmetic Act,
administered by the FDA, the Company is subject to a comprehensive regulatory
scheme governing labeling, packaging and food safety. This includes regulations
concerning the packaging process, quality assurance programs and claims of
health benefits of food products. In addition, the FDA enforces the Public
Health Services Act, which authorizes regulatory activity necessary to prevent
the introduction, transmission or spread of communicable diseases. The FDA and
USDA regulators charged with enforcing these laws and regulations have broad
powers to protect public health, including the power to inspect produce and the
Company's facilities, to order the shut down of a facility or the suspension of
delivery of the Company's produce, as well as the power to impose substantial
fines.
The U. S. Immigration and Naturalization Service ("INS") conducts periodic,
random inspections of the Company's greenhouses to ensure that all immigrant
employees have proper documentation. The Company attempts to confirm the legal
status of all applicants as part of its normal hiring procedures. The INS has
the power to impose substantial fines on the Company if it finds any
undocumented employees and require the Company to discharge such employees, in
which case the Company would suffer the loss of a portion of its labor force.
The Company also is subject to various federal and state regulations relating to
workplace safety and worker health, including the Fair Labor Standards Act,
Occupational Safety and Health Act and laws and regulations governing such
matters as minimum wages, overtime and working conditions.
The Company is subject to various federal, state and local environmental
regulations. These include the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended; the Resource Conservation
and Recovery Act, as amended; the Federal Water Pollution Control Act; the Clean
Air Act; the Hazardous Materials Transportation Act; the Toxic Substances
Control Act; and their state and local counterparts and equivalents.
42
<PAGE>
Most of the Company's greenhouses discharge wastewater effluent into municipal
waste treatment facilities, in some cases at levels that may require the Company
to pay wastewater surcharges to municipal water treatment authorities. Some of
these authorities have the contractual right to require the Company to limit the
level of discharges, construct pretreatment facilities or take other action to
reduce effluent discharges in the future. The Company and its operations are
also subject to state and local regulation through such measures as zoning,
water quality standards emissions, and building codes.
The Company also is subject to Canadian labeling laws for products sold in
British Columbia, Ontario and Quebec. The Greenver produce to be marketed by the
Company is subject to Mexican public health and environmental laws and
regulations.
The Company may become subject to additional laws or regulations administered
by the FDA, the USDA or other federal, state, foreign or local regulatory
authorities, the repeal of laws or regulations or more stringent interpretations
of current laws or regulations. The Company cannot predict the nature of any
new laws, regulations or interpretations, or what effect they might have on its
business. Changes in these laws could require the reconfiguration of the
Company's production, processing and transportation methods or increased
compliance costs, and could require the Company to make significant capital
expenditures or incur higher operating costs. Any failure by the Company to
comply with applicable laws and regulations could subject the Company to civil
penalties, including fines, injunctions, greenhouse or pack house closings,
recalls or seizures, as well as potential criminal sanctions, any of which could
have a material adverse effect on the Company.
The Company has never received notice of alleged violation of any of these
laws or regulations. To date, the Company's regulatory compliance costs have
not been significant although there can be no assurance that the Company will
not experience significant compliance costs in the future.
Company Trademarks
The Company or the LLC has used the trademark consisting of the words
"Colorado Greenhouse Quality Hydroponic Produce," together with the circular
sunrise over snowcapped mountains design (the "Design Mark") and the trademark
"Colorado Greenhouse" (collectively, the "Marks") to identify its produce since
at least September 1993, each of which has been registered in the United States.
The Marks are placed directly on produce as well as on packaging and promotional
materials. The Company has also filed a Canadian trademark application covering
the "Colorado Greenhouse" trademark in Canada.
In connection with the Company's new marketing campaign scheduled to begin in
September 1998, the Company has designed new trademarks for its products. The
Company has filed an intent to use trademark application for these new marks in
the United States.
43
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of the Company are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James R. Rinella 64 Chief Executive Officer, President
and Director
Matthew B. Cook 46 Executive Vice President of Production
Alan R. Fine 44 Vice President of Finance, Secretary
and Treasurer
Ludo van Boxem 36 Director of Agricultural Production
R.C. Mercure, Jr. 67 Chairman of the Board
Charles A. Hurth, Jr. 62 Director
Craig H. Sakin 38 Director
Edward J. Wetherbee 39 Director
</TABLE>
James R. Rinella has served as the Company's Chief Executive Officer since
October 1997 and has been a director and the President of the Company since May
1998. From 1992 to 1997, Mr. Rinella was President of James Rinella &
Associates, an agri-business consulting company, providing consulting services
to several U.S. based agri-businesses and assisting with projects to export
produce from the Middle East to Europe. From 1986 to 1992, Mr. Rinella served
as President, Chief Operating Officer and a director of Sun World International,
a large privately-owned grower, packer and marketer of fresh fruits and
vegetables located in California.
Matthew B. Cook became the Company's Executive Vice President of Production
in October 1997. He served as the Company's General Manager from 1993 to 1995
and as its Chief Operating Officer from 1995 to October 1997. Mr. Cook also
served as a director of the Company from its inception until September 1997.
Prior to joining the Company, Mr. Cook served in a variety of operations
management positions in the United States and England, including three years as
General Manager of Eurofresh Van Heyningen Brothers, a hydroponic greenhouse
producer of tomatoes in Pennsylvania, and two years as General Manager for Van
Heyningen Brothers, U.K., one of England's largest producers of hydroponic
greenhouse tomatoes.
Alan R. Fine has served as the Company's Vice President of Finance, Secretary
and Treasurer since October 1997. Prior to joining the Company as a consultant
in August 1997, Mr. Fine was the Chief Financial Officer of Gold Coast Beverage
Distributors, one of the largest beer distributors in the United States, from
1994 to 1997. During 1994, Mr. Fine worked for a small public accounting firm,
and from 1990 to 1993, Mr. Fine was a controller at American Potomac
Distributing Company. Mr. Fine is a Certified Public Accountant.
Ludo van Boxem has served as the Company's Director of Agricultural Production
since October 1997. From 1988 until joining the Company, Mr. van Boxem served
as the director of his own consulting firm, providing consulting services to the
Company and to other greenhouse companies growing hydroponic tomatoes in
Belgium, France and The Netherlands.
R.C. Mercure, Jr., Ph.D., has served as Chairman of the Board since May 1998
and has been a director of the Company since its inception. Since January 1996,
Dr. Mercure has been Chairman and Chief Executive Officer of CDM Optics, Inc.,
an optical image processing technology company. From 1988 to 1996, Dr. Mercure
was a Professor of Engineering Management at the University of Colorado at
Boulder. During that time, he was the Managing Director of the University of
Colorado at Boulder's Optoelectronic Computing Systems Center (a National
Science Foundation
44
<PAGE>
engineering research center) (from 1988 to 1993), a Director of its Masters in
Engineering Management Program (from 1988 to 1996) and Director of Technology
Transfer of the University of Colorado System (from 1991 to 1993). From 1957 to
1980, he held various positions at Ball Corporation, a manufacturer of
containers and an aerospace technology company, including Vice President,
Corporate Development, Group Vice President, CEO of Tally Corporation (a Ball
affiliate) and President of Ball Brothers Research Corporation. He is currently
a Director of Applied Magnetics Corporation and Ball Corporation.
Charles A. Hurth, Jr. has been a director of the Company since September 1997.
Mr. Hurth is of counsel to the law firm of Hurth Yeager & Sisk and until 1987,
was a partner in that firm. Since 1995, Mr. Hurth has been the President of
Northeast Consortium for Engineering Education, Inc., a consortium of colleges
and universities. From 1988 until its sale in 1996, Mr. Hurth was the
controlling stockholder and a member of the board of directors of Financial
Holdings, Inc., a bank holding company.
Craig H. Sakin has been a director of the Company since January 1997. Since
1995, Mr. Sakin has been a Managing Director of Catterton-Simon Partners, Inc.,
a private equity investment firm that specializes in investments in consumer
product and service companies and that led the purchase of the Series B
Convertible Preferred Stock from the Company in January 1997. From 1992 to
1996, Mr. Sakin served as Chairman of Gold Coast Beverage Distributors, one of
the largest beer distributors in the United States. Mr. Sakin brings senior
level operating experience to the Company, specifically in the area of
operational turnarounds, as well as over ten years in merchant banking and
investment banking. Mr. Sakin also serves on the boards of directors of several
private companies.
Edward J. Wetherbee has been a director of the Company since its inception.
From November 1996 until October 1997, Mr. Wetherbee served as the Company's
Chief Executive Officer and until May 1998, served as the Company's Chairman of
the Board. From 1988 until 1998, he served as a member of the Management
Committee of Brush Greenhouse Partners ("BGP"), the entity that entered into the
Brush #1 greenhouse Operating and Management Agreement with the Company, was a
former member of the LLC prior to January 1, 1997 and stockholder of the
Company. From 1992 until 1998, Mr. Wetherbee also served as one of the managers
of Brush Greenhouse Partners II, LLC ("BGPII"), which is also a former member of
the LLC and stockholder of the Company. From 1984 to 1998, Mr. Wetherbee
served in various capacities at Colorado Venture Management, a seed-stage
venture capital firm, most recently as its Executive Vice President.
Board Committees
The Board of Directors has a Compensation Committee, the current members of
which are Messrs. Hurth, Mercure and Sakin, and an Audit Committee, the current
members of which are Messrs. Wetherbee and Sakin. The Compensation Committee
reviews and makes recommendations to the Board regarding the Company's
compensation policies and all forms of compensation to be provided to executive
officers and directors of the Company. The Compensation Committee also reviews
bonus and stock compensation arrangements for all other employees of the Company
and administers the Company's 1996 Stock Option Plan. The Audit Committee
reviews and monitors the Company's financial reporting and its external audits.
The Audit Committee also consults with management and the Company's independent
auditors and recommends the appointment of the Company's independent auditors.
Compensation of Directors
In January 1998, each member of the Company's Board of Directors was granted
non-qualified stock options to purchase 10,000 shares of Common Stock for past
services rendered to the Company. These options were fully vested at the time
of grant, expire seven years from the date of grant and have an exercise price
of $4.25 per share. Commencing in September 1998, each director will be paid
$16,000 per year, plus an additional $1,000 for each meeting of the Board of
Directors attended, and each director of the Company serving at the time of each
annual meeting of the Board of Directors, beginning with the 1999 annual
meeting, will be granted a fully vested non-qualified stock option to purchase
10,000 shares of Common Stock at its then market value.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
Messrs. Hurth, Mercure and Sakin. No interlocking relationship exists between
any member of the Company's Board of Directors or the Compensation
45
<PAGE>
Committee and any member of the board of directors or compensation committee of
any other company, and no such interlocking relationship has existed in the
past.
Executive Compensation
The following table sets forth the 1997 compensation for the Company's current
and former chief executive officer and the two other highest compensated
executive officers (the "Named Executive Officers"). No other employee earned
more than $100,000 in compensation from the Company in 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Awards(1)
-------------
Annual Compensation
------------------- Securities All Other
Underlying Compen-
Name and Principal Position Salary Bonus Options(#) sation(2)
- --------------------------- ---------- ------- ------------- ------------
<S> <C> <C> <C> <C>
James R. Rinella(3)............................... $ 38,462 $ -- 250,000 $17,657
Chief Executive Officer, President and Director
Edward J. Wetherbee(4)............................ 120,000 -- -- 2,031
Director
Matthew B. Cook................................... 120,000 15,000 -- 9,512
Executive Vice President of Production
Alan R. Fine(5)................................... 46,269 -- 100,000 13,500
Vice President of Finance,
Secretary and Treasurer
</TABLE>
- --------------------
(1) Consist of options to purchase shares of Common Stock granted under the
Company's 1996 Stock Option Plan.
(2) Consists of: (i) reimbursement paid to Mr. Rinella for moving expenses and
an automobile allowance, (ii) matching employer contributions under the
Company's Employee 401(k) Plan for Mr. Wetherbee, (iii) matching employer
contributions under the Company's Employee 401(k) Plan and an automobile
allowance for Mr. Cook, and (iv) reimbursement paid to Mr. Fine for moving
expenses.
(3) Mr. Rinella became the Chief Executive Officer of the Company on October 20,
1997 at an initial base salary of $200,000.
(4) Mr. Wetherbee resigned as the Company's Chief Executive Officer on October
20, 1997 and is no longer an employee of the Company.
(5) Mr. Fine served as a consultant to the Company from August 1997 to September
1997 and became an officer and employee of the Company on October 1, 1997 at
an initial base salary of $105,000, which was increased to $125,000 on
January 12, 1998.
The following table sets forth information concerning options to purchase
shares of the Company's Common Stock granted to the Named Executive Officers
during the year ended December 31, 1997. No executive officer exercised any
options during 1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------ Potential Realized Value at
Number of Assumed Annual Rates of
Securities Percentage of Stock Price Appreciation
Underlying Total Options Exercise For Option Term(2)
Options Granted to Price Expiration ---------------------------
Name Granted (#) Employees Per Share Date 5% 10%
---- ----------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James R. Rinella (1)... 250,000 51.0% $4.25 10/31/04 $432,500 $1,007,500
Alan R. Fine (1)....... 100,000 20.4% $4.25 9/31/04 173,000 403,000
</TABLE>
- --------------------
(1) Of Mr. Rinella's 250,000 options, 94,116 are incentive options and 155,884
are non-qualified options. All of Mr. Fine's 100,000 options are incentive
options. All of Messrs. Rinella's and Fine's stock options become
exercisable upon consummation of this offering.
(2) The 5% and 10% assumed rates of appreciation are prescribed by the rules and
regulations of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the future trading prices of its
Common Stock. There can be no assurance that any of the values reflected in
this table will be achieved.
46
<PAGE>
Aggregated Options Exercised in
Last Fiscal Year and Option Values
The following table sets forth information with respect to the Named Executive
Officers concerning unexercised options held as of December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Options Value of Unexercised
at Fiscal Year-End (#) In-the-Money Options (1)
------------------------------ --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
James R. Rinella............ 23,529 226,471 $ 135,292 $1,302,208
Alan R. Fine................ 23,529 76,471 135,292 439,708
Matthew B. Cook............. 101,363 101,362 938,621 938,612
Edward J. Wetherbee......... 212,725 -- 1,934,734 --
</TABLE>
- -----------------------
(1) Represents the difference between the fair market value of the shares of
Common Stock as of the date hereof (based on an assumed initial public
offering price of $10.00) and the exercise price of the options ($4.25 for
Messrs. Rinella and Fine and 10,000 of Mr Wetherbee's options and $0.74 for
Mr. Cook and the remainder of Mr. Wetherbee's options).
Agreements with Executive Officers
The Company has a five-year employment agreement with Mr. Rinella that expires
on December 31, 2002. Under his employment agreement, Mr. Rinella receives an
initial base salary of $200,000, subject to periodic reviews for potential
salary increases, and is eligible for an annual bonus of up to 50% of his base
salary if the Company achieves milestones to be established annually by the
Compensation Committee. Mr. Rinella also receives an annual automobile
allowance. Mr. Rinella's employment agreement also contains a non-competition
clause for a period of 18 months following termination of employment. If Mr.
Rinella is terminated prior to the expiration of his employment agreement, other
than for cause, including termination as a result of a change in control of the
Company, or in the event of his disability, Mr. Rinella is entitled to one
year's annual salary, payable in 12 equal monthly payments.
The Company has an employment agreement with Mr. Cook, with automatic one-
year renewal periods unless either the Company or Mr. Cook provides notice of
non-renewal at least 90 days prior to the end of the term or any renewal
thereof. Mr. Cook's agreement was renewed automatically for 1998. Mr. Cook's
agreement provides for an initial base salary of $120,000, which was increased
to $135,000 on January 12, 1998, and is subject to periodic adjustments. Mr.
Cook also receives an annual vehicle allowance. If Mr. Cook's agreement is
terminated by the Company without cause, Mr. Cook is entitled to a lump-sum
severance payment equal to his then annual salary. Mr. Cook's employment
agreement also contains a non-competition clause for a period of 18 months
following termination of employment.
The Company has a one-year employment agreement with Mr. Fine that expires on
September 30, 1998, with automatic one-year renewal periods unless either the
Company or Mr. Fine provides notice of non-renewal at least 60 days prior to the
end of the term or any renewal thereof. Mr. Fine's employment agreement
provides for an initial base salary of $105,000, which was increased to $125,000
on January 12, 1998, and is subject to periodic adjustments. He is eligible for
annual bonuses of up to 30% of his base salary if the Company achieves
milestones to be established annually by the Compensation Committee. If Mr.
Fine's employment agreement is terminated by the Company without cause, he is
entitled to a lump-sum severance payment equal to his then annual salary. Mr.
Fine's employment agreement also contains a non-competition clause for a period
of 18 months following termination of employment.
The Company entered into a Separation Agreement and Release with Mr. Wetherbee
upon his resignation as Chief Executive Officer in October 1997, under which Mr.
Wetherbee continued to receive his annual salary and continued to participate in
the Company's 401(k) program until the end of 1997. Mr. Wetherbee's unvested
stock options also vested immediately. Under his agreement, Mr. Wetherbee
received a severance payment of $120,000, paid as a $40,000 lump sum payment on
January 2, 1998 and the balance in 12 equal monthly installments.
Stock Option Plan
The Company's Board of Directors and stockholders adopted the 1996 Stock
Option Plan, effective November 19, 1996. The Stock Option Plan permits the
grant of non-qualified options ("NQOs") and incentive stock options ("ISOs") to
employees, directors and consultants of the Company or any affiliated companies.
The plan expires on November 1,
47
<PAGE>
2006. A total of 1,580,135 shares of Common Stock have been reserved for awards
under the plan, and as of May 31, 1998, options to purchase 1,117,495 shares
have been granted, 1,026,691 shares of which remain outstanding. Options
covering 52,794 shares of Common Stock have been exercised at a price per share
of $0.74. The Stock Option Plan is administered by the Compensation Committee of
the Board of Directors (the "Committee"). The Committee has the discretion to
determine the employees and consultants to whom options may be granted under the
Stock Option Plan and the manner in which such options will vest. The maximum
number of shares subject to one or more awards that can be granted during the
term of the Stock Option Plan to any employee, consultant or director is 450,000
shares of Common Stock, and ISOs may be granted only to employees. ISOs must
have an exercise price equal to the fair market value of the Common Stock on the
date of grant (110% in the case of an ISO granted to an employee who owns Common
Stock having more than 10% of the total voting power of the Company). Options
granted under the Stock Option Plan are not transferable other than by will or
by the laws of descent and distribution.
Upon (i) the reorganization (other than a bankruptcy reorganization), merger
or consolidation of the Company (except where the Company is the continuing
company and there is no change in the terms of the outstanding shares of Common
Stock), (ii) the sale of all or substantially all of the assets of the Company
(except where the Company continues as a holding company of an entity that
conducts the business formerly conducted by the Company), or (iii) the
dissolution or liquidation of the Company, all outstanding options will
terminate automatically when the event occurs if the Company gives the option
holders 30 days' prior written notice of the event. Notice is not required for
a merger or consolidation or for a sale if the Company, the successor or the
purchaser makes adequate provision for assumption of all outstanding options or
the substitution of new options on terms comparable to the outstanding options.
The Committee may, in its sole discretion, accelerate the vesting of any option,
in whole or in part, under the foregoing circumstances.
Limitation of Liability and Indemnification Matters
The Company's Amended and Restated Certificate of Incorporation (the
"Charter") and Amended and Restated Bylaws (the "Bylaws") provide for the
indemnification of the Company's directors and officers to the fullest extent
permitted by Delaware law. The Company's Charter also eliminates to the fullest
extent permitted by Delaware law, liability of a director to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director. As
a result of this provision, the Company and its stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The LLC was organized in 1993 to take over operations of the Brush #1, Brush
#2 and Fort Lupton #1 greenhouses. Effective January 1, 1996, the LLC assumed
operation of the Rifle greenhouse. The LLC has entered into Operating and
Management Agreements with the following entities (with the respective
greenhouse indicated): BGP (Brush #1), BGPII (Brush #2), Rocky Mountain Produce
LLC (Fort Lupton #1) and Wolf Creek Rifle LLC (Rifle).
Effective January 1, 1997, the Company and the LLC effected a reorganization,
by which the membership interests in the LLC held by BGP and BGPII were
exchanged for a total of 6,200,000 shares of the Company's Series A Preferred
Stock. Colorado Power Partners ("CPP") and Brush Cogeneration Partners ("BCP")
own the Brush #1 and Brush #2 power projects and are under common control with
entities that own and control the related greenhouse lessee. Cogen Technology,
Inc. ("CTI") owns controlling interests in CPP and BCP. American Atlas #1 L.P.
("AA#1"), an entity that has substantially the same equity ownership as CTI, is
the operator of the Rifle power plant, the sublessor of the Rifle greenhouse,
and controls Wolf Creek Rifle LLC. The Company incurred rent expense for the
Brush #1 greenhouse of $853,099 in 1995, $853,094 in 1996 and $853,099 for 1997.
The Company incurred rent expense for the Brush #2 greenhouse of $853,099 in
1995, $900,378 in 1996 and $1,042,191 in 1997. The Company incurred rent
expense for the Rifle greenhouse of $500,000 in 1996 and $500,000 in 1997.
The following persons are involved in the management of these entities or the
parties involved in the development of the power projects: R.C. Mercure, Jr. is
a limited partner of AA#1, owns 6.91% of the outstanding capital stock of CTI
and is the Company's Chairman of the Board. Charles A. Hurth, Jr. is a limited
partner of AA#1, owns 4.24% of the outstanding capital stock of CTI and is a
director of the Company. Edward J. Wetherbee owns 0.17% of the
48
<PAGE>
outstanding capital stock of CTI and is a director of the Company. Each of these
persons also is a beneficial owner of shares of the Company's Series A Preferred
Stock as a result of the reorganization of the LLC and the Company. See
"Principal Stockholders."
Sale of Series B Convertible Preferred Stock
In January 1997, the Company completed the $15 million sale of its Series B
Convertible Preferred Stock at $8.00 per share to Catterton-Simon Partners III,
L.P. (875,000 shares), BCI Growth IV, L.P. (875,000 shares), Catterton-CGH
Partners, L.L.C. (31,250 shares) and H&Q Colorado Greenhouse Investors, LLC
(93,750 shares), an affiliate of one of the Representatives of the Underwriters
(together, the "Purchasers"). Craig H. Sakin, a director of the Company, is a
manager of the entity that is the general partner of Catterton-Simon Partners
III, L.P. and is the manager of the entity that is the managing member of
Catterton-CGH Partners, LLC. In connection with the sale of the Series B
Convertible Preferred Stock, the Company and the Purchasers entered into a
Registration Rights Agreement, whereby the Company agreed to register the Common
Stock issued upon conversion of the Series B Convertible Preferred Stock in
certain circumstances, at the Company's expense. See "Description Of Capital
Stock--Registration Rights." Initially, the Series B Convertible Preferred
Stock was convertible into Common Stock on a one share for one share basis. In
September 1997, the conversion rate of the Series B Convertible Preferred Stock
was reduced to 1.88235 shares of Common Stock for each Series B share, or an
effective conversion price of $4.25 per share. This reduction was part of a
negotiated agreement with the Series B stockholders as a result of the Company's
production problems in 1997. Based on the terms of the Series B Preferred
Stock, the conversion rate will increase to approximately 1.69 shares of Common
Stock for each Series B share, based on an assumed initial public offering price
of $10.00 per share. If the initial public offering price is higher than
$10.00, the Series B Preferred Stock will convert automatically into a fewer
number of shares of Common Stock. For example, if the initial public offering
price is $11.00 per share, the Series B Preferred Stock will convert
automatically into 3,030,680 shares of Common Stock.
Sale of Series C Convertible Preferred Stock
In May 1998, the Company completed the sale of $6.0 million of its Series C
Convertible Preferred Stock at $5.50 per share. The Series C Convertible
Preferred Stock was offered by the Company in two tranches solely to its
existing preferred stockholders or their related parties on a pro rata basis.
Messrs. Mercure (29,471 shares), Hurth (20,754 shares) and Wetherbee (5,658
shares), all directors of the Company, were among the existing stockholders who
purchased shares of the Series C Convertible Preferred Stock. The Company also
sold 5,891 shares of Series C Convertible Preferred Stock to Mr. Rinella
although he was not a stockholder at the time. The Company entered into a
Registration Rights Agreement with the Series C Convertible Preferred Stock
purchasers, whereby the Company agreed to register the Common Stock issued upon
conversion of the Series C Convertible Preferred Stock in certain circumstances,
at the Company's expense. See "Description of Capital Stock--Registration
Rights." The Series C Convertible Preferred Stock converts into Common Stock on
a one share for one share basis, subject to adjustment for stock splits, stock
dividends, recapitalizations, dilutive issuances and similar matters.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of the Company's Common Stock as of May 31, 1998, assuming conversion of all
outstanding preferred stock to Common Stock upon consummation of this offering
and as adjusted to reflect the sale of the Common Stock offered hereby and the
accelerated vesting of some options, for (i) each director and each Named
Executive Officer of the Company, (ii) all directors and Named Executive
Officers of the Company as a group, (iii) each person known by the Company to
own beneficially 5% or more of the outstanding shares of Common Stock and (iv)
each Selling Stockholder. All beneficial ownership is sole and direct unless
otherwise indicated.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior to Offering After Offering (2)
-------------------- Number of Shares ----------------------
Name of Beneficial Owner (1) Number Percent Being Offered (2) Number Percent
- ---------------------------- --------- --------- ----------------- --------- -------
<S> <C> <C> <C> <C> <C>
James R. Rinella (3)............ 255,891 2.2% -- 255,891 1.7%
Matthew B. Cook................. 152,043 1.3 -- 152,043 1.0
Alan R. Fine (4)................ 100,000 * -- 100,000 *
R.C. Mercure, Jr................ 71,196 * -- 71,196 *
Charles A. Hurth, Jr............ 53,830 * -- 53,830 *
Craig H. Sakin (5).............. 1,738,916 15.2 450,000 1,288,916 8.6
Edward J. Wetherbee............. 260,879 2.3 -- 260,879 1.7
All directors and Named
Executive Officers as a
group (7 persons).............. 903,839 7.9 -- 903,839 6.0
Cogen Technology, Inc. (6)...... 3,686,877 32.2 370,262 3,316,615 22.2
Catterton (7)................... 1,728,916 15.1 450,000 1,278,916 8.5
BCI Growth IV, L.P. (8)......... 1,669,297 14.6 450,000 1,219,297 8.1
Vernon J. Twombly (9)........... 1,191,293 10.4 107,232 1,084,061 7.2
Robert and Sally Hunt (10)...... 361,997 3.2 32,304 329,693 2.2
Nicholas G. Muller, Inc......... 157,384 1.4 15,806 141,578 *
Gregory L. Twombly, Inc......... 155,639 1.4 13,889 141,750 *
George W. Holbrook, Jr. (11).... 148,491 1.3 14,912 133,579 *
Eric Jacobson................... 64,915 * 6,519 58,396 *
Paul F. Glenn (12)............. 60,125 * 6,039 54,086 *
Barbara A. Brenton.............. 42,474 * 3,790 38,684 *
Marian Jacobson................. 40,370 * 4,054 36,316 *
Ronald D. Bloomer............... 40,158 * 4,033 36,125 *
Louis J. DellaCava (13)......... 39,789 * 3,996 35,793 *
Marian H. Kent.................. 37,982 * 3,814 34,168 *
Elizabeth A. Bower.............. 24,320 * 2,442 21,878 *
James R. McGoogan (14).......... 23,875 * 2,398 21,477 *
Thomas P. Brock................. 16,667 * 1,674 14,993 *
Edwin H. Morgens................ 16,021 * 1,609 14,412 *
Boyd R. and Eva J. West......... 15,959 * 1,424 14,535 *
J. Allen Mactier................ 10,515 * 1,056 9,459 *
NJ Hackstock Cogen, Inc......... 7,750 * 778 6,972 *
M.E.C. Dean..................... 6,543 * 657 5,886 *
Jana Jacobson and John Frenz.... 3,884 * 390 3,494 *
Joyce A. Edwards................ 3,690 * 371 3,319 *
T. Kim and Brian J. Kenney...... 3,369 * 338 3,031 *
C.A. Carroll.................... 3,272 * 329 2,943 *
</TABLE>
- ---------------------
* Less than 1%
(1) The address for Messrs. Rinella, Cook, Fine, Mercure, Hurth, Sakin and
Wetherbee is c/o Colorado Greenhouse Holdings, Inc., 6811 Weld County Road
#31, Fort Lupton, Colorado 80621. The addresses of the other beneficial
owners of 5% or more of the Company's outstanding Common Stock are as
follows: Cogen Technology, Inc., 4845 Pearl East Circle, Boulder, Colorado
80302; Catterton-Simon Partners III, L.P. and Catterton-CGH Partners,
L.L.C., c/o Catterton Partners, Inc., 9 Greenwich Office Park, Greenwich,
Connecticut 06830; BCI Growth IV, L.P. , c/o BCI Advisors, Inc.,
Glenpointe Center West, Teaneck, New Jersey 07666; and Vernon J. Twombly,
Inc. and Twombly, LLC, 642 Sinclair Road, Snowmass Village, Colorado 81615.
(2) Certain of the Selling Stockholders have granted the Underwriters an over-
allotment option. If this option is exercised in full, the following
persons or entities will sell the following additional amounts of Common
Stock in this offering: Cogen Technology, Inc. (464,029 shares),Vernon J.
50
<PAGE>
Twombly, Inc. (134,388 shares), Robert and Sally Hunt. (40,381 shares, of
which 36,309 shares of Common Stock are being offered by MWH, Inc. and
4,072 shares of Common Stock are being offered by The Mitchell-Hunt Trust),
Nicholas G. Muller, Inc. (19,808 shares), Gregory L. Twombly, Inc. (17,361
shares), George W. Holbrook, Jr. (18,543 shares, of which 9,347 shares of
Common Stock are being offered by George W. Holbrook, Jr., 5,387 shares of
Common Stock are being offered by Holbrook & Company, 3,809 shares of
Common Stock are being offered by Holbrook Partners and 146 shares of
Common Stock are being offered by Brush Flower & Power Corporation), Eric
Jacobson (8,170 shares), Paul F. Glenn (7,576 shares, of which 4,877 shares
of Common Stock are being offered by Paul F. Glenn and 2,690 shares of
Common Stock are being offered by The Paul F. Glenn Revocable Trust),
Barbara A. Brenton (4,738 shares), Marian Jacobson (5,081 shares), Ronald
D. Bloomer (5,054 shares), Marian H. Kent (4,780 shares), Elizabeth A.
Bower (3,061 shares), James R. McGoogan (3,005 shares, of which 2,859
shares are being offered by James R. McGoogan and 146 shares of Common
Stock are being offered by Brush Flower & Power Corporation), Thomas P.
Brock (2,098 shares), Edwin H. Morgens (2,016 shares), J. Allan Mactier
(1,323 shares), NJ Hackstock Cogen, Inc. (975 shares), M.E.C. Dean (823
shares), Louis J. DellaCava (5,008 shares, of which 519 shares of Common
Stock are being offered by Mr. DellaCava and 4,489 shares of Common Stock
are being offered by L.J.D. Enterprises Profit Sharing P&T), Jana Jacobson
and John Frenz (489 shares), Joyce A. Edwards (464 shares), T. Kim and
Brian J. Kenney (424 shares) and C.A. Carroll (412 shares). The numbers of
shares and percents in the table above assume no exercise of the
(3) Underwriters' over-allotment option. Consists of 250,000 shares of
Common Stock issuable upon exercise of options that become exercisable upon
consummation of this offering and 5,891 shares owned by Mr. Rinella.
(4) Consists of 100,000 shares of Common Stock issuable upon exercise of
options that become exercisable upon consummation of this offering.
(5) Includes 1,669,297 shares of Common Stock held by Catterton-Simon Partners
III, L.P. and Catterton-CGH Partners, L.L.C. Mr. Sakin is an officer of the
general partners of these entities. He disclaims beneficial ownership of
all the shares held by such entities.
(6) Cogen Technology, Inc.'s ("CTI") board of directors has voting power and
investment power over these shares. The following individuals are members
of CTI's board of directors: Julie Boston, William E. Coleman, A. Kit
Jackson and Eric Jacobson. These directors also individually own shares of
Common Stock. The directors disclaim beneficial ownership of all of the
shares held by CTI.
(7) Represents 1,669,297 shares of Common Stock owned by Catterton-Simon
Partners III, L.P. and 59,619 shares of Common Stock owned by Catterton-CGH
Partners, L.L.C. (together, "Catterton"). Catterton-Simon Partners III,
L.P. is selling 434,475 shares in the offering and Catterton-CGH Partners,
L.L.C. is selling 15,525 shares in the offering. Catterton-Simon Managing
Partner III, L.L.C. is the general partner of Catterton-Simon Partners III,
L.P. and Catterton Partners Management Company, L.L.C. is the managing
member of Catterton-CGH Partners, L.L.C. Catterton-Simon Managing Partner
III, L.L.C. and Catterton Partners Management Company, L.L.C. disclaim
beneficial ownership of all of the shares held by Catterton.
(8) The managing members of Glenpointe Associates LLC, the general partner of
BCI Growth IV, L.P. ("BCI"), have voting power and investment power over
these shares. The managing members are Steve Eley, Hoyt Goodrich, Bart
Goodwin, Matt Gormly, Mark Hastings, Ted Horton, Don Remey and Peter
Wilde. The managing members disclaim beneficial ownership of the shares
held by BCI.
(9) Includes 1,067,764 shares and 123,529 shares of Common Stock owned by
Vernon J. Twombly, Inc. and Twombly LLC, respectively. Mr. Twombly is the
Chief Executive Officer and sole shareholder of Vernon J. Twombly, Inc. and
the Manager and sole member of Twombly LLC. Only Vernon J. Twombly, Inc. is
offering shares of Common Stock for sale in this offering.
(10) Represents 325,500 shares of Common Stock owned by MWH, Inc. and 36,497
shares of Common Stock owned by The Mitchell-Hunt Trust. The Mitchell-Hunt
Trust owns 100% of the capital stock of MWH, Inc. Robert and Sally Hunt
are the settlors, co-trustees and lifetime beneficiaries of The Mitchell-
Hunt Trust and the officers and directors of MWH, Inc.
(11) Represents 74,263 shares of Common Stock owned by George W. Holbrook, Jr.,
42,802 shares of Common Stock owned by Holbrook & Company, of which Mr.
Holbrook is the general partner, 30,264 shares of Common Stock owned by
Holbrook Partners, of which Mr. Holbrook is the general partner and 1,162
shares of Common Stock owned by Brush Flower & Power Corporation, of which
Mr. Holbrook owns 50% of the outstanding capital stock.
(12) Represents 38,750 shares of Common Stock owned by Paul F. Glenn and 21,375
shares of Common Stock owned by The Paul F. Glenn Revocable Trust, of which
Mr. Glenn is the trustee.
(13) Represents 4,126 shares of Common Stock owned by Louis J. DellaCava and
35,663 shares of Common Stock owned by LJD Enterprises Profit Sharing P&T,
of which Mr. DellaCava is the trustee.
(14) Represents 22,713 shares of Common Stock owned by James R. McGoogan and
1,162 shares of Common Stock owned by Brush Flower & Power Corporation, of
which Mr. McGoogan owns 50% of the outstanding capital stock.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the Company
will consist of 55,000,000 shares of Common Stock, par value $.001 per share,
and 3,000,000 shares of preferred stock, par value of $.001 per share. The
preferred stock may be designated as one or more separate series by the
Company's Board of Directors. The following summary of various provisions of
the Common Stock and preferred stock do not purport to be complete and are
subject to, and qualified by, the provisions of the Company's Certificate of
Incorporation.
Common Stock
Immediately prior to the consummation of this offering, there will be
10,498,361 shares of Common Stock outstanding, including 10,476,126 shares of as
a result of the automatic conversion of the Series A Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock and exercise
of the Warrant by Hambrecht & Quist, LLC ("H&Q"), one of the Representatives of
the Underwriters. There are also outstanding options to purchase 1,026,691
shares of Common Stock at a weighted average exercise price of $2.65 per share.
The holders of the Common Stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Cumulative
voting is not permitted in the election of directors. Subject to any
preferences that may be applicable to any then outstanding series of preferred
stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of legally available funds. In the
event of a liquidation, dissolution or winding up of the Company, holders of the
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or
sinking fund provisions applicable to the Common Stock. All shares of Common
Stock, when issued, are fully paid and non-assessable.
Preferred Stock
Upon completion of this offering, the Board of Directors will be authorized,
subject to limitations prescribed by law, without any further stockholder
approval, to issue from time to time up to 3,000,000 shares of preferred stock
in one or more series and to fix or alter the designations, rights, powers,
preferences, and any qualifications, limitations, or restrictions on the shares
of each such series thereof, including the consideration to be received
therefor, dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption (including sinking fund provisions), redemption price or
prices, liquidation preferences and the number of shares constituting any series
or designation of such series. The availability of preferred stock may have the
effect of delaying, deferring or preventing a change of control of the Company.
The Board of Directors has no present intention to issue any preferred stock.
Warrants
In connection with services rendered in the placement of the Company's Series
B Convertible Preferred Stock, on January 21, 1997, the Company issued to H&Q
the Warrant for the purchase of 18,500 shares of the Series B Convertible
Preferred Stock. The Warrant has an exercise price of $8.00 per share. The
Warrant contains an automatic exercise provision triggered upon completion of
this offering and a net issue election, pursuant to which H&Q will be issued
9,743 shares of Series B Preferred Stock without any cash payment, based on an
assumed initial public offering price of $10.00. The Series B Convertible
Preferred Stock will be converted automatically into 16,466 shares of Common
Stock at 1.69 shares of Common Stock for each Series B share, based upon an
assumed initial public offering price of $10.00 per share.
Registration Rights
Holders of 7,840,041 shares of Common Stock (the "Registrable Securities") and
their permitted transferees have registration rights as a result of agreements
entered into by the Company in connection with the issuance of the Series A
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock.
The Series A Registration Rights Agreement grants certain holders of Series A
Preferred Stock (and the Common Stock issued upon conversion) demand and piggy
back registration rights. Subject to the rights of the holders of the
52
<PAGE>
Series B Convertible Preferred Stock to override any demand registration request
by the holders of the Series A Preferred Stock and certain minimums, the Series
A Registration Rights Agreement provides that holders representing at least 30%
of the issued and outstanding registrable securities as defined in the Series A
Registration Rights Agreement may initiate a demand registration on Form S-1,
and holders representing at least 20% of the outstanding shares of Series A
registrable securities may initiate a demand registration on Form S-3. In
addition, holders of the Series A Preferred Stock have the right to piggyback
their shares onto any registered offering of Common Stock, subject to customary
underwriter cutbacks and a cutback in the event the holders of Series B
Convertible Preferred Stock also elect to include shares in such offering.
The Series B Registration Rights Agreement grants certain holders of Series B
Convertible Preferred Stock (and the Common Stock issued upon conversion) demand
and piggyback registration rights, the ability to override any demand
registration request by the holders of the Series A Preferred Stock and a
priority over the Series A Preferred Stock in a piggyback registration in the
event of underwriter cutback. Subject to offering amount thresholds, the Series
B Registration Rights Agreement provides that holders representing at least 30%
of the outstanding shares of Series B Convertible Preferred Stock may initiate a
demand registration on Form S-1 and holders representing at least 25% of the
outstanding shares of Series B Convertible Preferred Stock may initiate an
demand registration on Form S-3. In addition, holders of the Series B
Convertible Preferred Stock have the right to piggyback onto any registered
offering of Common Stock, subject to customary underwriter cutback.
The Series C Registration Rights Agreement grants the holders of Series C
Convertible Preferred Stock (and the Common Stock issued upon conversion)
piggyback registration rights. The Series C Convertible Preferred Stock
piggyback registration rights are subject to customary underwriter cutback and
the priority rights of the holders of the Series B Convertible Preferred Stock.
Anti-Takeover Provisions
General. Various provisions of the Delaware General Corporation Law ("DGCL")
and the Company's Charter and Bylaws could have the effect of delaying,
deterring or preventing a future takeover or change in control of the Company
unless the takeover or change in control is approved by the Company's Board of
Directors, even though such a transaction may offer the Company's stockholders
the opportunity to sell their stock at a price above the prevailing market
price. These provisions also may render the removal of directors and management
more difficult.
Charter and Bylaws. Upon consummation of the offering, the Company's Charter
provides that all stockholder action must be effected at a duly called meeting
and not by written consent in lieu of a meeting. The Charter and Bylaws also
provide that special meetings of the stockholders may be called only by the
Secretary at the direction of the Board of Directors and that directors may only
be removed for cause. Any amendment of these provisions will require the
affirmative vote of at least 66 2/3% of the Company's outstanding voting stock.
DGCL. Section 203 of the DGCL ("Section 203") prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporations's outstanding voting stock) from engaging in a "business
combination" with a publicly-held Delaware corporation for a period of three
years following the date such person became an interested stockholder, unless:
(i) before such person became an interested stockholder, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding those shares held by directors who are also officers or by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors and authorized at a meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to various
exceptions, any transaction that results in the issuance or transfer by the
corporation of any of its stock to the interested stockholder; (iv) any
transaction involving the
53
<PAGE>
corporation that has the effect of increasing the proportionate shares of stock
of any class or series of the corporation beneficially owned by the interested
stockholder; or (v) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
Transfer Agent and Registrar
The Company has selected American Securities Transfer & Trust as the transfer
agent and registrar of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock,
and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of Common Stock will have on the market price of
the Common Stock. Sales of substantial amounts of such shares in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities.
Upon consummation of this offering, the Company will have outstanding
13,998,361 shares of Common Stock. Of these shares, the 5,000,000 shares sold
in this offering will be freely tradable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in SEC Rule 144. All of the remaining 8,998,361 shares of Common Stock
are "restricted securities" within the meaning of Rule 144 and may be sold in
the public market only if registered or if sold under an exemption from
registration under the Securities Act, including the exemption provided by Rule
144. Approximately 7,918,032 shares of these restricted securities have been
held for more than one year and will be immediately saleable under Rule 144,
subject to the Underwriters' lock-up and the volume limitations imposed by Rule
144.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted securities for at least one year (including the holding period
of any prior owner except an Affiliate) is entitled to sell in any three-month
period a number of shares that does not exceed the greater of (i) 1% of the
number of shares of Common Stock then outstanding (approximately 139,998 shares
immediately after this offering); or (ii) the average weekly trading volume of
the Common Stock on the Nasdaq National Market/sm/ during the four calendar
weeks immediately preceding. Sales under Rule 144 are also subject to
requirements relating to manner of sale, notice and availability of current
public information about the Company. Under Rule 144(k), a person (or persons
whose shares are aggregated) who has not been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144. In general, under Rule 701, any employee,
consultant or advisor of the Company who purchases shares from the Company
pursuant to Rule 701 in connection with a compensatory stock or option plan or
other written agreement is eligible to resell, unless contractually restricted,
such shares 90 days after the effective date of this offering in reliance on
Rule 144, but without compliance with certain restrictions, including the
holding period, contained in Rule 144.
All of the Company's officers, directors, option holders and various
stockholders, who own in the aggregate ________ shares of Common Stock, have
agreed with the Underwriters that they will not offer for sale, sell or
otherwise dispose of any shares of Common Stock owned by them and will not
exercise any registration rights to which they are entitled for 180 days from
the date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated.
The Company intends to file a registration statement on Form S-8 under
the Securities Act covering shares of Common Stock reserved for issuance under
the 1996 Stock Option Plan. See "Management--Stock Option Plan." The Company
expects to file this registration statement as soon as practicable after the
effective date of this offering. Accordingly, shares registered under such
registration statement will, subject to Rule 144 volume limitations applicable
to affiliates of the Company, be available for sale in the open market, unless
such shares are subject to vesting requirements under the 1996 Stock Option Plan
or the lock-up agreements described above. As of May 31, 1998, options to
purchase 1,026,691 shares of Common Stock remain outstanding under the 1996
Stock Option Plan.
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives BT
Alex. Brown Incorporated and Hambrecht & Quist LLC (the "Representatives"), have
severally agreed to purchase from the Company and the Selling Shareholders the
following respective number of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
Underwriters Number of Shares
- ------------ ----------------
BT Alex. Brown Incorporated..................................
Hambrecht & Quist LLC........................................
----------------
Total................................................. 5,000,000
================
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to various conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby if any such shares are
purchased.
The Company and the Selling Stockholder have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $___ per share. The Underwriters may allow, and such dealers
may re-allow, a concession not in excess of $____ per share to certain other
dealers. After commencement of the initial public offering, the offering price
and other selling terms may be changed by the Representatives.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 750,000 additional shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise the
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by each of them in the above table bears to 5,000,000, and
these Selling Stockholders will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise the option only
to cover over-allotments made in connection with the sale of Common Stock
offered hereby. If purchased, the Underwriters will offer such additional
shares on the same terms and those on which the 5,000,000 shares are being
offered.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters, the Selling Stockholders and the Company regarding
certain civil liabilities, including liabilities under the Securities Act.
To facilitate the offering of the Common Stock, the Underwriters may engage in
activities that stabilize, maintain or otherwise affect the market price for the
Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Sock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
such shares distributed by that Underwriter or dealer.
55
<PAGE>
The Company has agreed that it will not issue any shares of Common Stock or
options, rights or warrants to acquire Common Stock for a period of 180 days
after the date of this Prospectus, without the prior written consent of BT Alex.
Brown Incorporated, except for shares issued (i) in connection with acquisitions
and (ii) pursuant to the exercise of options granted under the Stock Option
Plan. All of the Company's officers, directors, option holders and various
stockholders, who own in the aggregate ________ shares of Common Stock, have
agreed with the Underwriters that they will not offer for sale, sell or
otherwise dispose of any shares of Common Stock owned by them and will not
exercise their demand registration rights for 180 days from the date of this
Prospectus without the prior written consent of BT Alex. Brown Incorporated.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Hambrecht & Quist LLC, one of the Representatives of the Underwriters, served
as the placement agent for the Company in the sale of its Series B Convertible
Preferred Stock. In connection with this role, Hambrecht & Quist LLC was paid a
placement fee of $897,500 and was issued the Warrant on January 21, 1997 for the
purchase of up to 18,500 shares of the Series B Convertible Preferred Stock for
$8.00 per share. The Warrant contains an automatic exercise provision triggered
upon completion of this offering and a net issue election, pursuant to which
Hambrecht & Quist LLC will be issued 16,466 shares of Common Stock, assuming an
initial public offering price of $10.00 per share. An affiliate of Hambrecht &
Quist LLC, H&Q Colorado Greenhouse Investors, LLC, purchased 93,750 shares of
Series B Convertible Preferred Stock in January 1997 and 20,416 shares of Series
C Convertible Preferred Stock in the May 1998 Private Placement, which will
automatically convert into 158,438 and 20,416 shares of Common Stock,
respectively, upon consummation of this offering (assuming an initial public
offering price of $10.00 per share).
Prior to this offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in such negotiations are prevailing market
conditions, the results of operations of the Company in recent periods, the
capital structure of the Company, the market capitalizations and stages of
development of other companies which the Company and the Representatives believe
to be comparable to the Company, estimates of the business potential of the
Company, the present state of the Company's development and other factors deemed
relevant by the Company and the Representatives.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Holme Roberts & Owen LLP, Boulder, Colorado. Certain legal matters
related to this offering will be passed upon for the Underwriters by Piper &
Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The Company's financial statements as of December 31, 1996 and 1997, and for
the years ended December 31, 1995, 1996 and 1997 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-1
(together with all exhibits, schedules and amendments relating thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, filed as part of the Registration
Statement, does not contain all the information contained in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
Registration Statement accurately describe the
56
<PAGE>
material provisions of such document and are qualified in their entirety by
reference to such exhibits for complete statements of their provisions. All of
these documents may be inspected without charge at the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies can
also be obtained from the Public Reference Section of the Commission at
prescribed rates. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
Prior to filing the Registration Statement of which this Prospectus is a part,
the Company was not subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon
effectiveness of the Registration Statement, the Company will become subject to
the informational and periodic reporting requirements of the Exchange Act, and
in accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the Public
Reference Section of the Commission.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COLORADO GREENHOUSE HOLDINGS, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997,
and June 30, 1998 (unaudited and pro forma) F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997, and for the six months ended
June 30, 1997 and 1998 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997, and for the six months ended
June 30, 1998 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997, and for the six months ended
June 30, 1997 and 1998 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colorado Greenhouse Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of COLORADO
GREENHOUSE HOLDINGS, INC. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Colorado Greenhouse
Holdings, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 27, 1998.
F-2
<PAGE>
COLORADO GREENHOUSE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
December 31, June 30, June 30,
--------------------
ASSETS 1996 1997 1998 1998
------ -------- -------- -------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,522 $ 2,055 $ 4,375 $ 4,375
Accounts receivable, net of allowance of $237, $101, $483
and $483, respectively 1,661 2,508 3,106 3,106
Other receivables 67 956 2,111 2,111
Inventories 1,455 3,927 3,841 3,841
Deferred taxes, current (Note 8) -- 947 946 946
Other current assets 373 148 603 603
-------- -------- -------- --------
Total current assets 5,078 10,541 14,982 14,982
PROPERTY AND EQUIPMENT, net (Note 3) 2,136 25,024 28,661 28,661
DEPOSITS AND PREPAID RENT (Note 4) 2,655 1,882 2,591 2,591
INVESTMENT IN GREENVER (Note 14) -- -- 4,000 4,000
OTHER ASSETS, net (Note 5) 97 422 395 395
-------- -------- -------- --------
Total assets $ 9,966 $ 37,869 $ 50,629 $ 50,629
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of credit $ -- $ 500 $ -- $ --
Long-term debt, current (Note 6) -- 972 1,841 1,841
Obligation under capital leases, current 133 155 122 122
Accounts payable 789 3,994 3,014 3,014
Accrued rent 857 984 857 857
Other accrued expenses 1,062 902 2,396 2,396
Income taxes payable -- -- 491 491
-------- -------- -------- --------
Total current liabilities 2,841 7,507 8,721 8,721
LONG-TERM DEBT (Note 6) -- 10,000 13,151 13,151
CAPITAL LEASE OBLIGATION, non-current 180 112 50 50
DEFERRED TAXES, non-current (Note 8) -- 294 294 294
-------- -------- -------- --------
Total liabilities 3,021 17,913 22,216 22,216
-------- -------- -------- --------
COMMITMENTS (Notes 4, 7, 10 and 11)
MANDATORILY REDEEMABLE SERIES B CONVERTIBLE PREFERRED
STOCK; $.001 par value; 0, 1,894, 1,894 and 0 shares authorized,
0, 1,875, 1,875 and 0 shares issued and outstanding; $8 per share
redemption price -- 13,789 13,939 --
MANDATORILY REDEEMABLE SERIES C CONVERTIBLE PREFERRED
STOCK; $.001 par value; 0, 0, 1,275 and 0 shares authorized,
0, 0, 1,091 and 0 shares issued and outstanding; $5.50 per share
redemption price -- -- 5,873 --
WARRANT; convertible into 18.5 shares of mandatorily redeemable
Series B convertible preferred stock -- 40 40 --
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock; $.001 par value; 6,200,
6,200, 6,200 and 0 shares authorized, issued and outstanding;
liquidation preference of $18,600 6 6 6 --
Common stock, $.001 par value; 11,400 shares authorized;
0, 0, 53 and 10,529 shares issued; 0, 0, 22 and 10,498 shares
outstanding -- -- -- 11
Treasury stock, 0, 0, 31 and 31 shares of common stock at cost -- -- (130) (130)
Additional paid-in capital 715 1,255 1,335 21,182
Retained earnings 6,224 4,866 7,350 7,350
-------- -------- -------- --------
Total stockholders' equity 6,945 6,127 8,561 28,413
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 9,966 $ 37,869 $ 50,629 $ 50,629
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
COLORADO GREENHOUSE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
----------------------------------------- -------------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 20,135 $ 27,407 $ 24,944 $ 13,298 $ 23,549
COST OF GOODS SOLD 15,431 19,293 22,257 11,507 15,982
-------- -------- -------- -------- --------
GROSS PROFIT 4,704 8,114 2,687 1,791 7,567
-------- -------- -------- -------- --------
OPERATING EXPENSES:
General and administrative 1,681 3,604 4,511 1,797 2,142
Sales and marketing 821 830 900 458 756
Loss from hail damage (Note 14) - - - - 1,700
Insurance proceeds (Notes 9 and 14) - - (802) - (1,608)
-------- -------- -------- -------- --------
2,502 4,434 4,609 2,255 2,990
-------- -------- -------- -------- --------
Income (loss) from operations 2,202 3,680 (1,922) (464) 4,577
-------- -------- -------- -------- --------
OTHER (INCOME) EXPENSE:
Interest expense 10 71 137 17 457
Interest income and other (339) (134) (330) (278) (167)
-------- -------- -------- -------- --------
(329) (63) (193) (261) 290
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 2,531 3,743 (1,729) (203) 4,287
INCOME TAX (BENEFIT) EXPENSE (Note 8) - - (653) (76) 1,651
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 2,531 $ 3,743 $ (1,076) $ (127) 2,636
======== ======== ======== ======== ========
ACCRETION OF PREFERRED STOCK (152)
--------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ 2,484
========
PRO FORMA INFORMATION:
Income tax expense (unaudited) $ 962 $ 1,422
-------- --------
Pro forma net income (unaudited) $ 1,569 $ 2,321
======== ========
PER SHARE INFORMATION:
Basic earnings per share $ - $ - $ - $ - $ 219.78
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ 0.41 $ 0.59 $ (0.11) $ (0.01) $ 0.24
======== ======== ======== ======== ========
PRO FORMA PER SHARE INFORMATION:
Basic earnings (loss) per share $ 0.25 $ 0.37 $ (0.11) $ (0.01) $ 0.25
======== ======== ======== ======== ========
Diluted earnings (loss) per share $ 0.25 $ 0.37 $ (0.11) $ (0.01) $ 0.24
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COLORADO GREENHOUSE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Series A Preferred Common Stock Treasury Stock
--------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 6,200 $6 - $ - - $ -
Net income - - - - - -
----- -- -- --- ---- ------
Balances at December 31, 1995 6,200 6 - - - -
Stock-based compensation - - - - - -
Distributions - - - - - -
Net income - - - - - -
----- -- -- --- ---- ------
Balances at December 31, 1996 6,200 6 - - - -
Accretion of Series B preferred stock - - - - - -
Stock-based compensation - - - - - -
Net loss - - - - - -
----- -- -- --- ---- ------
Balances at December 31, 1997 6,200 6 - - - -
Unaudited:
Accretion of Series B and Series C preferred stock - - - - - -
Exercise of options to purchase common stock
for cash at $0.74 per share - - 53 - - -
Repurchase of common stock to be held in treasury
for cash at $4.25 per share - - - - (31) (130)
Stock-based compensation - - - - - -
Net income - - - - - -
----- -- -- --- ---- ------
Balances at June 30, 1998 (unaudited) 6,200 $6 53 $ - (31) $ (130)
===== == == === ==== ======
<CAPTION>
Additional
Paid-in Retained
Capital Earnings Total
------------ ----------- ----------
<S> <C> <C> <C>
Balances at December 31, 1994 $ - $ 1,630 $ 1,636
Net income - 2,531 2,531
------ ------ ------
Balances at December 31, 1995 - 4,161 4,167
Stock-based compensation 715 - 715
Distributions - (1,680) (1,680)
Net income - 3,743 3,743
------ ------ ------
Balances at December 31, 1996 715 6,224 6,945
Accretion of Series B preferred stock - (282) (282)
Stock-based compensation 540 - 540
Net loss - (1,076) (1,076)
------ ------ ------
Balances at December 31, 1997 1,255 4,866 6,127
Unaudited:
Accretion of Series B and Series C preferred stock - (152) (152)
Exercise of options to purchase common stock
for cash at $0.74 per share 39 - 39
Repurchase of common stock to be held in treasury
for cash at $4.25 per share - - (130)
Stock-based compensation 41 - 41
Net income - 2,636 2,636
------ ------ ------
Balances at June 30, 1998 (unaudited) $1,335 $7,350 $8,561
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COLORADO GREENHOUSE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,531 $ 3,743 $(1,076) $ (127) $ 2,636
Adjustments to reconcile net income (loss) to
net cash flow from operating activities:
Depreciation and amortization 230 338 805 215 772
Allowance for doubtful accounts - 139 (136) 42 382
Stock-based compensation expense - 715 540 166 41
Income tax benefit - - (653) (76) -
Changes in operating assets and liabilities-
Accounts receivable 329 678 (711) (714) (980)
Other receivables - (39) (889) (4) (1,155)
Inventories 9 (452) (2,472) 476 86
Other current assets 58 (332) 265 269 (454)
Deposits, prepaid rent and other assets (757) (1,897) 773 21 (709)
Accounts payable 387 (718) 3,205 3,683 (980)
Accrued expenses (112) (911) (33) (244) 1,367
Income taxes payable - - - - 491
------- ------- ------- ------ -------
Net cash flow from operating
activities 2,675 1,264 (382) 3,707 1,497
------- ------- ------- ------ -------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (590) (1,032) (23,593) (11,462) (4,092)
Investment in Greenver - - - - (4,000)
------- ------- ------- ------ -------
Net cash flow from investing
activities (590) (1,032) (23,593) (11,462) (8,092)
------- ------- ------- ------ -------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from sale of Series B preferred stock - - 13,507 13,507 -
Net proceeds from sale of Series C preferred stock - - - - 5,871
Proceeds from options exercised - - - - 39
Payment to repurchase common stock - - - - (130)
Proceeds from line of credit - 1,586 500 500 -
Proceeds from long-term debt - - 10,972 792 4,018
Repayment of line of credit - (1,586) - - (500)
Deferred financing costs - - (425) (425) -
Payments on capital leases (157) (68) (46) (21) (95)
Payments on long-term debt - - - - (288)
Distributions to stockholders - (1,680) - - -
------- ------- ------- ------ -------
Net cash flow from financing
activities (157) (1,748) 24,508 14,353 8,915
------- ------- ------- ------ -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,928 (1,516) 533 6,598 2,320
CASH AND CASH EQUIVALENTS,
beginning of period 1,110 3,038 1,522 1,522 2,055
------- ------- ------- ------ -------
CASH AND CASH EQUIVALENTS, end of period $ 3,038 $ 1,522 $ 2,055 $ 8,120 $ 4,375
======= ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURES:
Interest paid, net of amounts capitalized $ 10 $ 45 $ 62 $ 17 $ 464
======= ======= ======= ====== =======
Income taxes paid $ - $ - $ - $ - $ 530
======= ======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
COLORADO GREENHOUSE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BUSINESS
-------------------------
Colorado Greenhouse Holdings, Inc. (the "Company") is a Delaware holding company
incorporated in 1996. Effective January 1, 1997, Colorado Greenhouse, LLC
("LLC"), a Colorado limited liability company, underwent a reorganization and,
together with the formation of Colorado Greenhouse, Inc. ("INC"), became
wholly-owned subsidiaries of the Company, for the purpose of operating and
managing greenhouse facilities utilizing environment enhancing greenhouses to
produce premium tomatoes for sale to national supermarket chain stores. To
facilitate the reorganization, the members of LLC exchanged their ownership
interests for 6,200,000 shares of the Company's Series A Preferred Stock. The
financial statements reflect the reorganization as if it had occurred at the
inception of LLC.
As of December 31, 1997, the Company owns one and leases four greenhouses in
Colorado, consisting of approximately 91 acres, including one 20-acre
greenhouse, which was constructed in 1997 and began production in 1998. In
addition, the Company owns and operates a 20-acre greenhouse in New Mexico,
which was constructed and began production in 1997.
On January 21, 1997, the Company sold 1,875,000 shares of Series B Preferred
Stock for a total of $15,000,000 in a private equity transaction to outside
investors, to fund in part, the construction of two greenhouses owned by INC.
The Company also incurred syndication costs of $1,493,000, which have been
netted against the proceeds of the Series B Preferred Stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
For purposes of these consolidated financial statements, the Company considers
all highly-liquid investments with original maturities of three months or less
to be cash equivalents. The carrying amount approximates fair value because of
the short maturities of those instruments.
F-7
<PAGE>
Inventories
-----------
Inventories are stated at the lower of FIFO cost (first-in, first-out) or
market. All direct and allocated indirect costs incurred in connection with the
production of the crop are capitalized to inventory. Direct and allocated
indirect costs include among other things, propagation costs, utilities, labor,
property taxes and equipment maintenance. Inventories consist of the following
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
--------------------
1996 1997 1998
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Raw materials $ 382 $ 942 $ 936
Crop inventory 979 2,957 2,853
Finished goods 94 28 52
------ ------ ------
Total $1,455 $3,927 $3,841
====== ====== ======
</TABLE>
Property and Equipment
----------------------
Property and equipment are recorded at cost, including construction period
interest and other costs incurred on self-constructed assets. Property and
equipment and accumulated depreciation are relieved upon retirement or sale and
the gain or loss is recorded as income or expense. Major betterments and
renewals are capitalized while replacements, maintenance and repairs which do
not improve or extend the lives of the respective assets are charged to expense
as incurred. All property and equipment are depreciated on the straight-line
method over their estimated useful lives ranging from 3 to 25 years (see Note
3). Depreciation expense was $182,000, $290,000 and $705,000 for the years ended
December 31, 1995, 1996 and 1997, respectively, and is included in cost of goods
sold in the accompanying consolidated statements of operations. Capitalized
interest for the year ended December 31, 1997, was $305,000 with no such amounts
capitalized in 1995 and 1996.
Computer Software
-----------------
The Company has adopted Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which
provides guidance on when costs related to software developed or obtained for
internal use should be capitalized or expensed. SOP 98-1 divides the development
of internal-use computer software into three stages: (1) the preliminary project
stage, during which conceptual formulation and evaluation of alternatives takes
place, (2) the application development stage, during which design, coding,
installation and testing takes place, and (3) the operations stage, during which
training and maintenance takes place. Costs incurred during the preliminary
project stage and the operations stage are expensed by the Company as incurred.
Costs incurred during the application development stage are capitalized. Process
reengineering activities are also expensed as incurred.
During the year ended December 31, 1997, the Company capitalized approximately
$1.1 million related to the design, coding, installation and testing of computer
software developed for internal
F-8
<PAGE>
use. These amounts are included in computer equipment (Note 3) and are amortized
using the straight-line method over 5 years. The Company evaluates impairment of
the computer software in accordance with Statement of Financial Accounting
Standards No. 121, as explained below. No impairment expense has been recognized
during the year ended December 31, 1997.
Other Assets
------------
Other assets represent organizational costs and deferred financing costs, net of
amortization (Note 5). Organizational costs are being amortized over five years
on a straight-line basis. Deferred financing costs, which consist of commitment
and legal fees incurred in connection with financing arrangements to fund
greenhouse construction are being amortized over eight years. Amortization
expense for the years ended December 31, 1995, 1996 and 1997, was $48,000,
$48,000 and $100,000, respectively. For the year ended December 31, 1997,
$53,000 of amortization is included in interest expense.
Pervasiveness of Estimates
--------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Advertising
-----------
The Company expenses advertising costs as they are incurred. Advertising costs
were approximately $438,000, $416,000 and $290,000 for the years ended December
31, 1995, 1996 and 1997, respectively, and is included in sales and marketing
expense in the accompanying consolidated statements of operations.
Asset Impairment
----------------
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company reviews its assets for impairment whenever events
of changes in circumstances indicate that the carrying value of an asset may not
be recoverable. For assets which are held and used in operations, the asset
would be impaired if the undiscounted future cash flows related to the asset did
not exceed the net book value.
Significant Customers and Concentration of Credit Risk
------------------------------------------------------
The Company had three customers in 1995 which accounted for approximately 13%,
11% and 10% of the Company's revenues and two customers in 1996 which accounted
for approximately 19% and 16% of the Company's revenues. The Company had three
customers in 1997 which accounted for approximately 24%, 15% and 14% of the
Company's revenues.
F-9
<PAGE>
The trade receivables potentially subject the Company to a high concentration of
credit risk. The Company currently markets its tomatoes in ten states, primarily
to major supermarket chains. The majority of the Company's sales are
concentrated in California, Colorado, Michigan, Ohio, Tennessee and Texas. The
Company establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information.
Income Taxes
------------
Deferred taxes are provided on the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Earnings per Share
------------------
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," by retroactively restating per share amounts for all
periods presented. "Basic earnings (loss) per share" is determined by dividing
net income (loss), or net income available to common stockholders, when
applicable, by the weighted average number of common shares outstanding during
each period. "Diluted earnings (loss) per share" includes the effects of
potentially issuable common stock, but only if dilutive (i.e., a loss per share
is never reduced). The treasury stock method, using the average price of the
Company's common stock for the period, is applied to determine dilution from
options and warrants. The if-converted method is used for convertible
securities. A potentially dilutive warrant convertible into 18,500 shares of
mandatorily redeemable Series B Preferred Stock was excluded from the
calculation of diluted earnings per share because its effect is antidilutive.
A reconciliation of the numerator and denominators used in computing per share
amounts is as follows:
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
--------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ---------- ----------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
NUMERATOR FOR BASIC AND DILUTED
PER SHARE INFORMATION:
Net income (loss) $ 2,531,000 $3,743,000 $(1,076,000) $ (127,000) $ 2,728,000
=========== ========== =========== ==========
Accretion of Preferred Stock (152,000)
-----------
Net income available to common
stockholders $ 2,576,000
===========
DENOMINATOR FOR BASIC
PER SHARE INFORMATION:
Weighted average common shares
outstanding - - - - 11,302
=========== ========== =========== ========== ===========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
Six Months
Year Ended December 31, Ended June 30,
----------------------------------------- -------------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
DENOMINATOR FOR DILUTED
PER SHARE INFORMATION:
Series A Convertible Preferred Stock 6,200,000 6,200,000 6,200,000 6,200,000 6,200,000
Mandatorily Redeemable Series B
Convertible Preferred Stock - - 2,995,120 2,818,612 3,168,750
Mandatorily Redeemable Series C
Convertible Preferred Stock - - - - 367,655
Weighted average common shares
outstanding - - - - 11,302
Options issued to directors, officers
and employees - 156,174 426,810 429,772 410,336
--------- --------- --------- --------- ----------
6,200,000 6,356,174 9,621,930 9,448,384 10,158,043
========= ========= ========= ========= ==========
</TABLE>
New Accounting Pronouncements
-----------------------------
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 requires that all items recognized as comprehensive income be
reported in the financial statements. Comprehensive income items include
unrealized holding gains/losses on securities classified as available for sale,
foreign currency translation adjustments and minimum pension liability
adjustments which will be shown as an increase or decrease to net income or loss
to arrive at comprehensive income. The Company adopted SFAS 130 in the first
quarter of 1998, however, the Company did not have any transactions which would
require additional disclosure under SFAS 130.
The FASB has also issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluation of segment performance and deciding how to allocate
resources to segments. The Company adopted SFAS 131 in the first quarter of
1998, however, the Company does not separate operating results internally by
segment.
In addition, the FASB issued Statement of Financial Accounting Standards No.
132, "Employers' Disclosure About Pension and Other Postretirement Benefits"
("SFAS 132"). SFAS 132 revises disclosure requirements for pension and other
postretirement benefits. The Company does not currently have any postretirement
benefit plans and, therefore, this new standard will not have an impact on the
Company's financial statements.
The FASB also issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet at fair value. Under SFAS 133, accounting for
changes in fair value of a derivative depends on its intended use and
designation. The Company is currently assessing the effect of this new standard.
F-11
<PAGE>
The American Institute of Certified Public Accountants has issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP
98-5 requires that all non-governmental entities expense the costs of start-up
activities, including organization costs, as those costs are incurred, and is
effective for fiscal years beginning after December 15, 1998. The Company has
reviewed the provisions of SOP 98-5 and does not believe adoption of this
standard will have a material effect upon its results of operations, financial
position or cash flows.
Unaudited Pro Forma Earnings Per Share
--------------------------------------
The Company's historical capital structure is not indicative of its prospective
structure due to the automatic conversion of all shares of convertible preferred
stock and outstanding warrant into common stock concurrent with the closing of
the Company's anticipated initial public offering ("IPO").
Pro forma earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period assuming the conversion of
convertible preferred stock issued into common stock as of the date of issuance.
In a prospectus covering the sale of common shares, whenever the proceeds of the
sale are to be used to retire long-term debt, disclosure of pro forma earnings
per share is required. Accordingly, the Company has assumed the sale of an
adequate number of shares of common stock such that the proceeds therefrom
retire all long-term debt and excluded interest expense on the retired debt from
net income (loss).
Unaudited Pro Forma Information
-------------------------------
Upon closing of the Company's IPO, all of the outstanding shares of Series A, B
and C Preferred Stock, including the warrant convertible into Series B Preferred
Stock, will be automatically converted into shares of common stock (see Notes 7,
13 and 14 for conversion terms). The unaudited pro forma consolidated balance
sheet as of June 30, 1998, reflects the conversion of approximately 9,176,000
shares of Preferred Stock into approximately 10,476,000 shares of common stock.
Pro forma basic (loss) earnings per share for the year ended December 31, 1997,
and for the six months ended June 30, 1998, giving effect to the conversion of
all outstanding shares of Preferred Stock into shares of common stock, are
$(0.12) and $0.26, respectively. Pro forma diluted (loss) earnings per share for
the year ended December 31, 1997, and for the six months ended June 30, 1998,
are $(0.12) and $0.25, respectively.
The unaudited pro forma information on the accompanying consolidated statements
of operations for the years ended December 31, 1995 and 1996, is presented for
the purpose of showing the impact on net income had the Company been a taxable
entity in those years at an effective tax rate of 38%.
Unaudited Interim Financial Statements
--------------------------------------
The financial statements as of June 30, 1998, and for the six months ended June
30, 1997 and 1998, are unaudited and include all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the results for such interim periods.
F-12
<PAGE>
Due to the seasonal nature of the operations of the Company, the results of
operations for the six months ended June 30, 1998, are not necessarily
indicative of the results to be expected for the entire year.
Reclassifications
-----------------
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
(3) PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Useful December 31,
Lives --------------------- June 30,
(in years) 1996 1997 1998
---------- -------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Land and improvements $ - $ 880 $ 1,165
Buildings and improvements 25 461 10,972 22,986
Machinery and equipment 3-7 1,539 3,281 4,536
Furniture and fixtures 5-7 25 104 115
Computer equipment 5-7 659 1,436 1,567
Construction in progress - 9,604 290
----- ------ ------
2,684 26,277 30,659
Less accumulated depreciation (548) (1,253) (1,998)
----- ------ ------
Total $ 2,136 $ 25,024 $ 28,661
===== ====== ======
</TABLE>
Included in machinery and equipment and computer equipment above is equipment
held under capital lease with net book values of $89,000 and $206,000,
respectively, at December 31, 1997. Amortization expense related to this
equipment was $18,000, $18,000 and $54,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
(4) DEPOSITS AND PREPAID RENT
-------------------------
Under operation and management agreements ("O&M") at its greenhouses (Note 10),
LLC is required to pay primary fees, essentially rent, on a quarterly basis.
Terms of the O&M agreements grant LLC the right to defer quarterly payments if a
cash deficiency is projected in the following quarter and correspondingly
require LLC to maintain refundable deposits with the lessors in escrow accounts
to fund such deferrals totaling approximately $2,314,000. As a result of a flood
(Note 9) in July 1997, LLC elected to defer third quarter 1997 rent payments and
the lessors exercised their rights to withdraw the appropriate funds from the
escrow accounts creating an obligation on the Company to replenish these
accounts. At December 31, 1996 and 1997, and June 30, 1998, the deposits were
approximately $2,314,000, $1,583,000 and $2,314,000, respectively.
F-13
<PAGE>
In addition, under one of the O&M agreements, the Company has prepaid rent in
the amount of $427,000, which is being amortized over the life of the lease on a
straight-line basis. The unamortized amount of the prepaid rent as of December
31, 1996 and 1997, was $341,000 and $299,000, respectively.
(5) OTHER ASSETS
------------
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
------------------
1996 1997 1998
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Organization costs $ 239 $ 239 $ 239
Deferred financing costs - 425 425
---- ---- ----
239 664 664
Less accumulated amortization (142) (242) (269)
---- ---- ----
Total $ 97 $ 422 $ 395
==== ==== ====
</TABLE>
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following as of December 31, 1997 (in thousands):
Construction loan payable to Farm Credit Services;
interest accrues at Prime; converts to a term note
on May 1, 1998, principal payable in equal monthly
installments plus interest through April 2006;
secured by substantially all real and personal
property of the Company. $10,972
Less current portion (972)
------
Long-term debt, net of current portion $10,000
======
F-14
<PAGE>
At December 31, 1997, the aggregate amounts of long-term debt principal
repayments are as follows (in thousands):
Year ending December 31-
1998 $ 972
1999 1,667
2000 1,667
2001 1,667
2002 1,667
Thereafter 3,332
------
Total $10,972
======
Effective January 24, 1997, INC executed a master loan agreement with Colorado
Springs Credit Association, a federally chartered association of the Farm Credit
System, to secure construction loans totaling $15,000,000, and a working capital
line with a cap of $1,500,000. Proceeds derived from the line of credit have
been made available to LLC by a loan supplement executed of even date. Advances
under the line of credit bear interest at the prime rate less .25% (8.25% at
December 31, 1997) and are secured by eligible accounts receivable and
inventories, as defined. As of December 31, 1997, proceeds drawn against the
line of credit were $500,000.
The commitment for the construction loans had an expiration date of September
30, 1997. As a result of construction delays, the Company had requested and Farm
Credit Services has approved extensions to move the expiration date to May 31,
1998. Effective May 1, 1998, the loans will be converted to a term note with 108
equal principal payments plus interest. Under the terms of the master loan, the
Company may elect to be charged interest (at a variable rate) at the average
prime lending rate published in the Wall Street Journal or at a fixed rate equal
to the U.S. Treasury Rate plus 2.5%. Under the Treasury Rate Option, individual
amounts may be fixed for periods ranging from one year to maturity with the
minimum amount that may be fixed at any one time for a single period of
$1,000,000.
As part of the master loan agreement, the construction loan and line of credit
are cross-collateralized by substantially all of the assets of the Company and
its subsidiaries. Additionally, the Company must meet certain financial
covenants, including a minimum debt service ratio, current ratio and net worth
as well as other negative covenants. As of December 31, 1997, the Company was
not in compliance with the minimum debt service ratio and the capital
expenditure limitations. Noncompliance with the minimum debt service ratio was
waived until March 31, 1998, at which point the Company was in compliance.
Noncompliance with the capital expenditure limitations has been waived until
December 31, 1998, at which point the Company expects to be in compliance.
The carrying value of the Company's long-term debt approximates fair value due
to the variable nature of the interest rates.
F-15
<PAGE>
(7) CAPITAL STOCK
-------------
Series B Preferred Stock
------------------------
The Company has 1,875,000 shares outstanding of its Series B Preferred Stock
with a liquidation preference of $8 per share. The Series B Preferred Stock is
convertible into shares of common stock, at the option of the holders, at a
conversion ratio of 1.33 to 1.88 shares of common per each share of Series B
Preferred Stock, based upon future operating results. However, the Series B
Preferred Stock will convert automatically upon the closing of an IPO, assuming
the aggregate proceeds and per-share amounts exceed certain thresholds. The
holders of the Series B Preferred Stock have the option to require the Company
to redeem, at $8 per share, up to 50% of the outstanding shares, or $7,500,000,
in January 2002 and the remaining 50%, or $7,500,000, in January 2003.
Series A Preferred Stock
------------------------
The Company has 6,200,000 shares of Series A Preferred Stock outstanding with a
liquidation preference of $3 per share. The Series A Preferred Stock is
convertible into shares of common stock, at the options of the holders, on a
one-for-one basis. The Series A Preferred Stock will convert automatically upon
the closing of an IPO, assuming the aggregate proceeds and per-share amounts
exceed certain thresholds.
(8) INCOME TAXES
------------
The Company files a consolidated return for both Federal and State income taxes.
Prior to 1997, the Company was a Limited Liability Company and, as such, the
taxable income or loss passed through to the individual members. Effective
January 1, 1997, the Company became a C corporation due to the reorganization
discussed in Note 1. As a result, the cumulative effect of the Company's
temporary differences were recorded on January 1, 1997, and the corresponding
income tax benefit was not material. The income tax benefit for the year ended
December 31, 1997, consists of the following (in thousands):
Current income tax benefit:
Federal $(727)
State (112)
----
(839)
----
Deferred income tax expense:
Federal 169
State 17
----
186
----
Total income tax benefit $(653)
====
F-16
<PAGE>
A reconciliation of the statutory U.S. income tax rates and the effective tax
rates follows (dollars in thousands):
<TABLE>
<S> <C> <C>
Tax benefit computed using Federal statutory tax rate $(588) 34.00%
State income taxes, net of Federal tax benefit (63) 3.62%
Other (2) 0.11%
---- -----
Total income tax benefit $(653) 37.73%
==== =====
</TABLE>
The tax effects of significant temporary differences representing deferred tax
assets and liabilities as of December 31, 1997, are as follows (in thousands):
Current Non-Current
--------- -------------
Deferred income tax assets:
Vacation accrual $ 32 $ -
Capitalized inventory costs 19 -
Other accruals 37 -
Accounts receivable allowance 23 -
Operating loss carryforward 839 -
Stock-based compensation expense - 468
--- ---
950 468
--- ---
Deferred income tax liabilities:
Other expenses 4 -
Deprecation and amortization - 488
Prepaid rent and deposits - 274
--- ---
4 762
--- ---
Net deferred income tax assets (liabilities) $946 $(294)
=== ====
As of December 31, 1997, the Company has a net operating loss carryforward of
approximately $2,249,000 which will expire in 2012.
(9) FLOOD LOSS
----------
In July 1997, the Company experienced a flash flood that destroyed the crop at
the Company's 20-acre greenhouse at Ft. Lupton. The estimated economic loss was
2,000,000 and included the expense to replace the crop and the loss of income
related thereto. Subsequently, an insurance claim was filed and, in January
1998, insurance proceeds, net of deductibles, were recovered in the amount of
$802,000, which is reflected in other receivables in the consolidated balance
sheet as of December 31, 1997.
F-17
<PAGE>
(10) COMMITMENTS
-----------
The Company has four greenhouses which are located adjacent to electrical
cogeneration facilities, (three owned by related parties) for which it has
entered into separate O&M agreements. The related party O&M agreements were
effective January 1, 1994, and expire at various dates through 2019; the
remaining O&M agreement was effective January 1, 1996, with an expiration date
in 2002. During the term of these agreements, LLC is required to pay to each
facility a primary fee for rent. Primary fees for the years ended December 31,
1995, 1996 and 1997 were approximately $2,740,000, $3,287,000 and $3,429,000,
respectively, and are included in cost of goods sold in the accompanying
consolidated statements of operations. The annual primary fees shall not exceed
the greater of 100% of the LLC's net sales, as defined in the O&M agreements, or
$3,429,000.
The Company will pay future primary fees to the greenhouse facilities, not to
exceed the following amounts (in thousands):
Related
Parties Other Total
--------- --------- ----------
Year ending December 31-
1998 $ 2,929 $ 500 $ 3,429
1999 2,929 500 3,429
2000 2,929 500 3,429
2001 2,929 500 3,429
2002 2,929 500 3,429
Thereafter 27,429 - 27,429
------ ----- ------
Total $42,074 $2,500 $44,574
====== ===== ======
(11) LEASES
------
The Company has several non-cancelable operating equipment leases which expire
at varying dates through September 2006. Many of these leases require
supplemental payments based on utilization rates. Total monthly payments under
these leases aggregate to $14,000.
The Company funds the purchase of various equipment through capital leases. The
corresponding monthly leases have payments aggregating $16,000 and expire at
varying dates through March 2000.
F-18
<PAGE>
Future minimum lease payments as of December 31, 1997, are as follows (in
thousands):
Capital Operating Total
--------- ----------- ------
Year ending December 31,
1998 $168 $233 $401
1999 107 192 299
2000 6 84 90
2001 - 45 45
2002 - 37 37
Thereafter - 41 41
--- ---- ---
Total 281 $632 $913
==== ===
Less imputed interest (14)
---
Present value of net minimum
lease payment $267
===
(12) EMPLOYEE BENEFIT PLAN
---------------------
The Company provides a defined contribution profit sharing plan for its
employees. The Company matches employee contributions by a predetermined
percentage of the contributions, as approved by the Board of Directors.
Contributions relating to the plan were approximately $15,000, $25,000 and
$41,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
(13) STOCK OPTIONS AND WARRANT
-------------------------
Stock Option Plan
-----------------
The Company has a stock option plan (the "Plan") to which it allocated a reserve
of common stock not to exceed 1,580,135 shares. As of December 31, 1996 and
1997, the Company had granted options totaling 557,495 and 1,009,485 shares,
respectively, representing 5.61% and 9.67%, respectively, ownership interest in
the Company on a pro forma basis.
F-19
<PAGE>
A summary of stock options granted under the Plan is as follows:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------
Weighted
Officers and Employees Average
Directors and Others Exercise Price
------------- ----------- ---------------
<S> <C> <C> <C>
Balances, December 31, 1995 - - $ -
Granted 405,450 152,045 $0.74
------- ------- ----
Balances, December 31, 1996 405,450 152,045 $0.74
------- ------- ----
Granted 350,000 140,000 $4.25
Canceled - (38,010) $0.74
------- ------- ----
Balances, December 31, 1997 755,450 254,035 $2.44
------- ------- ----
Granted (unaudited) 70,000 - $4.25
Exercised (unaudited) - (52,794) $0.74
------- ------- ----
Balances, June 30, 1998
(unaudited) 825,450 201,241 $2.65
======= ======= ====
Exercisable at December 31, 1996 185,838 38,012 $0.74
======= ======= ====
Exercisable at December 31, 1997 351,145 135,361 $1.42
======= ======= ====
Exercisable at June 30, 1998
(unaudited) 471,827 95,237 $1.75
======= ======= ====
</TABLE>
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
----------------------------------------------------------------
SFAS 123, "Accounting for Stock-Based Compensation," defines a fair value based
method of accounting for employee stock options or similar equity instruments.
However, SFAS 123 allows the continued measurement of compensation cost for such
plans using the intrinsic value based method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
provided that pro forma disclosures are made of net income or loss, assuming the
fair value based method of SFAS 123 has been applied. The Company has elected to
account for its stock-based compensation under APB 25, recognizing $715,000 and
$540,000, in 1996 and 1997, respectively. Accordingly, for purposes of the pro
forma disclosures presented below, the Company has computed the fair values of
all options granted during 1996 and 1997, using the Black-Scholes pricing model
and the following weighted average assumptions.
F-20
<PAGE>
Year Ended Year Ended
December 31, December 31,
1996 1997
----------------- -----------------
Risk-free interest rate 6.47% 5.70%
Dividend rate 0% 0%
Expected volatility 37% 37%
Expected life 2.64 years 3 years
To estimate expected lives of options for this valuation, it was assumed options
will be exercised within one year of becoming fully vested. All options are
initially assumed to vest. Cumulative compensation cost recognized in pro forma
net income or loss with respect to options that are forfeited prior to vesting
is adjusted as a reduction of pro forma compensation expense in the period of
forfeiture. Because the Company's common stock is not yet publicly traded, the
expected market volatility was estimated using the estimated average volatility
of two publicly held companies which the Company believes to be similar with
respect to the markets in which they compete. Actual volatility of the Company's
stock may vary. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of the options granted.
Using these assumptions, the fair value of the stock options granted in 1996 and
1997 was approximately $1,449,000 and $658,000, respectively, or approximately
$2.60 and $1.34, respectively, per common share, which would be amortized as
compensation expense over the vesting period of the options. Had compensation
costs been determined consistent with SFAS 123, utilizing the assumptions
detailed above, the Company's net income (loss) would have been the following on
a pro forma basis (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1997
------------ ------------
<S> <C> <C>
Net income (loss):
As reported $3,743 $(1,076)
===== =======
Pro forma $3,878 $(1,056)
===== =======
Basic earnings per share:
As reported $ - $ -
===== =======
Pro forma $ - $ -
===== =======
Diluted earnings (loss) per share:
As reported $ 0.59 $ (0.12)
===== =======
Pro forma $ 0.61 $ (0.11)
===== =======
</TABLE>
F-21
<PAGE>
The weighted average exercise prices and weighted average estimated fair values
(as calculated under SFAS 123) of options granted during the years ended
December 31, 1996 and 1997, and the six months ended June 30, 1998, were as
follows.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996 1997
---------------------------------- -----------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Number of Estimated Exercise Number of Estimated Exercise
Options Fair Value Price Options Fair Value Price
--------- ---------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Exercise price less
than estimated
fair value 557,495 $3.23 $0.74 - $ - $ -
Exercise price equal to
estimated fair value- - - - 490,000 4.25 4.25
------- ----- ----- ------- ----- -----
557,495 $3.23 $0.74 490,000 $4.25 $4.25
======= ===== ===== ======= ===== =====
<CAPTION>
Six Months Ended June 30, 1998
--------------------------------------
(unaudited)
Weighted Weighted
Average Average
Number of Estimated Exercise
Options Fair Value Price
--------- ----------- ---------
<S> <C> <C> <C>
Exercise price less
than estimated
fair value - $ - $ -
Exercise price equal to
estimated fair value- 70,000 4.25 4.25
------ ----- -----
70,000 $4.25 $4.25
====== ===== =====
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ----------------------------
Number of Weighted Number of
Options Average Weighted Options Weighted
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1997 Life in Years Price 1997 Price
--------------- -------------- ------------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.74 519,485 8.61 $0.74 392,782 $0.74
$4.25 490,000 9.77 $4.25 93,725 $4.25
</TABLE>
Warrant
-------
In January 1997, in connection with the issuance of the Series B Preferred
Stock, the Company issued a warrant that entitles the holder to purchase 18,500
shares of Series B Preferred Stock of the Company at $8 per share. The warrant
automatically exercises prior to the sale of the Company or an IPO or
immediately prior to expiration, January 31, 2002. The estimated fair market
value of the warrant was recorded and determined using the Black-Scholes pricing
model.
(14) EVENTS SUBSEQUENT TO DATE OF INDEPENDENT
----------------------------------------
PUBLIC ACCOUNTANTS REPORT (UNAUDITED)
-------------------------------------
During May 1998, the Company issued approximately 1,091,000 shares of
mandatorily redeemable Series C Preferred Stock predominantly to existing Series
A and B Preferred Stock shareholders for $6,000,000. The Series C Preferred
Stock has a liquidation preference of $5.50 per share and is convertible into
shares of common stock, at the option of the holders, on a one-for-one basis.
The Series C Preferred Stock will convert automatically upon closing of an IPO,
assuming the aggregate proceeds and per-share amounts exceed certain thresholds.
The holders of the Series C Preferred Stock have the option to require the
Company to redeem, at $5.50 per share, up to 50% of the outstanding shares, or
$3,000,000, in January 2004 and the remaining 50%, or $3,000,000, in January
2005.
F-22
<PAGE>
During May 1998, the Company acquired a 25% equity interest in a group of
Mexican greenhouse companies ("Greenver") for $4,000,000 cash. Greenver
currently has 88 acres of non-hydroponic greenhouses in Baja, Mexico, primarily
growing tomatoes. The Company also received exclusive rights to market all of
the produce form Greenver and earn a 10% sales commission upon sale. The Company
must remit to Greenver monthly the amount of sales of Greenver tomatoes, less
commissions to the Company, and anticipates that this will require additional
working capital because the Company's customers typically do not pay sales
invoices in less than thirty days. The Company will account for its investment
in Greenver using the equity method of accounting.
During May 1998, the Company experienced hail damage to its two greenhouses in
Brush, Colorado. The resultant effect was to remove the entire crop at one
greenhouse and a decrease in production volumes at the second greenhouse with
replacement of glass and plastic where needed. For the period ended June 30,
1998, the Company recorded a loss from the hail damage of approximately
$1,700,000. A majority of this loss resulted from property replacement costs of
approximately $750,000 and inventory losses of approximately $625,000. During
June 1998, the Company was notified that its insurance carrier would advance $2
million in partial settlement of the estimated losses and the Company was paid
in early July 1998. For the period ended June 30, 1998, the Company has
recognized insurance proceeds of $1,608,000. The remaining $392,000 will be
recognized over the remaining estimated period of "interruption." The Company
also anticipates that it will receive additional settlement amounts relative to
business interruption from the insurance company, but cannot estimated those
amounts at this time.
F-23
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering covered by this Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or any underwriter. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any of the securities offered hereby
to any person or by anyone in any jurisdiction in which it is unlawful to make
such offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
---------------------------
TABLE OF CONTENTS
Page
Prospectus Summary..................................................... 3
Risk Factors........................................................... 10
Use of Proceeds........................................................ 18
Dividend Policy........................................................ 18
Capitalization......................................................... 19
Dilution............................................................... 20
Selected Consolidated Financial and Operating Data..................... 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 23
Business............................................................... 30
Management............................................................. 44
Certain Transactions and Relationships................................. 48
Principal Stockholders................................................. 50
Description of Capital Stock........................................... 52
Shares Eligible for Future Sale........................................ 54
Underwriting........................................................... 55
Legal Matters.......................................................... 56
Experts................................................................ 56
Available Information.................................................. 56
Index to Financial Statements.......................................... F-1
---------------------------
Until _________________, 1998, (25 days after the date hereof), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This requirement is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
5,000,000 SHARES
[logo]
COLORADO GREENHOUSE
HOLDINGS, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
BT ALEX. BROWN
Hambrecht & Quist
________________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee, are estimated:
Securities and Exchange Commission registration fee ........ $ 20,355
NASD fees.................................................... *
Printing and engraving expenses.............................. *
Accounting fees.............................................. *
Legal fees and expenses .................................... *
Miscellaneous ............................................... *
------
Total .............................................. $ *
======
- --------------
* To be completed by amendment.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 Underwriting Agreement*
3.1 Restated Certificate of Incorporation of the Issuer**
3.2 Bylaws of the Issuer**
4.1 Form of Stock Certificate for Common Stock*
4.2 Form of Amended and Restated Certificate of Incorporation of the
Issuer, to be effective upon closing of the offering.*
4.3 Form of Amended and Restated Bylaws of the Issuer, to be effective
upon closing of the offering.*
5.1 Opinion of Holme Roberts & Owen LLP
10.1 Greenhouse Lease dated June 8, 1989, between Colorado Power Partners
("CPP") and Brush Greenhouse Partners ("BGP")
10.2 Amendment to Greenhouse Lease Agreement dated December 29, 1994,
between CPP and BGP**
10.3 Second Amendment to Greenhouse Lease Agreement dated December 29,
1994, between CPP and BGP**
10.4 Greenhouse Operation and Management Agreement dated December 29,
1994, between Colorado Greenhouse, LLC ("LLC") and BGP**
10.5 First Amendment to Operation and Management Agreement dated April
30, 1996, between LLC and BGP**
II-1
<PAGE>
10.6 Second Amendment to Operation and Management Agreement dated
September 1996, between LLC and BGP**
10.7 Amended and Restated Cogeneration Greenhouse Lease dated June 1,
1992, between Brush Cogeneration Partners ("BCP") and Brush
Greenhouse Partners II, LLC ("BGP II")**
10.8 Amendment to Amended and Restated Cogeneration Greenhouse Lease
dated December 29, 1994, between BCP and BGP II**
10.9 First Amendment to Amended and Restated Cogeneration and Greenhouse
Lease Agreement dated May 1996, between BCP and BGP II**
10.10 Greenhouse Operation and Management Agreement dated December 29,
1994, between LLC and BGP II**
10.11 First Amendment to Operation and Management Agreement dated
September 1996, between LLC and BGP II**
10.12 Thermal Supply Lease Agreement dated March 22, 1993, between
Thermo Cogeneration Partnership ("Thermo") and Rocky Mountain
Produce, LLC ("RMP")
10.13 Supplemental Agreement and Consent to Assignment dated April 7,
1993, between Thermo and RMP
10.14 Amendment No. 1 to Thermal Supply Lease Agreement dated December 29,
1994, between Thermo and RMP**
10.15 Amendment No. 2 to Thermal Supply Lease Agreement dated February
28, 1995, between Thermo and RMP**
10.16 Amendment No. 3 to Thermal Supply Lease Agreement dated February
28, 1995, between Thermo and RMP**
10.17 Greenhouse Operation and Management Agreement dated December 29,
1994, between LLC and RMP**
10.18 First Amendment to Operation and Management Agreement dated
September 1996, between LLC and RMP**
10.19 Service Supply Agreement dated June 10, 1997, between Colorado
Greenhouse, Inc. and Thermo**
10.20 Greenhouse Lease dated April 15, 1993, between American Atlas #1,
Ltd. and Wolf Creek Rifle, LLC**
10.21 Greenhouse Operation and Management Agreement dated July 31, 1996,
between LLC and Wolf Creek Rifle, LLC**
10.22 Subscription Agreement dated May 12, 1998, between Colorado
Greenhouse Holdings, Inc. ("CGHI"), Greenver, S.A. de C.V.
("Greenver"), Invernaderos La Pequena Joya, S.A. de C.V.
("Invernaderos"), certain individual shareholders, and Grupo Batiz
CGH, S.A. de C.V. ("Grupo")**
10.23 Shareholders Agreement dated May 12, 1998 between Grupo, Greenver
and Invernaderos**
10.24 Marketing Agreement dated May 12, 1998, between CGH Sales, Inc.
("Sales") and Greenver**
10.25 Marketing Agreement dated May 12, 1998, between Sales and
Invernaderos
10.26 Lease and Project Participation Agreement dated May 14, 1998,
between the City of Grants, a New Mexico municipal corporation, and
Colorado Greenhouse, Inc. ("CGI")
II-2
<PAGE>
10.27 Master Loan Agreement dated January 24, 1997, between Colorado
Springs Production Credit Association ("Farm Credit") and CGI
10.28 Colorado Greenhouse LLC Loan Supplement dated January 24, 1997,
between Farm Credit and CGI
10.29 Construction Loan Supplement dated January 24, 1997, between Farm
Credit and CGI
10.30 Secured Continuing Guarantee of Payment dated January 24, 1997, by
CGI for the benefit of Farm Credit
10.31 Pledge Agreement dated January 24, 1997, by CGHI for the benefit of
Farm Credit
10.32 Pledge Agreement dated January 24, 1997, by CG Member, Inc. for the
benefit of Farm Credit
10.33 Line of Credit Agreement dated January 24, 1997, between CTI and LLC
10.34 Stock Purchase Agreement dated January 21, 1997, between CGHI,
Catterton-Simon Partners III, LP, BCI Growth IV, LP, and other
Co-Investors**
10.35 Amendment to Stock Purchase Agreement dated September 29, 1997,
between CGHI, Catterton-Simon Partners III, LP, BCI Growth IV, LP,
H&Q Colorado Greenhouse Investors, L.P., and Catterton-CGH Partners,
LLC**
10.36 CGHI Series B Registration Rights Agreement dated January 21, 1997,
between CGHI and certain holders of the Series B Convertible
Preferred Stock**
10.37 CGHI Series A Registration Rights Agreement dated January 21, 1997,
between CGHI and certain holders of the Series A Preferred Stock**
10.38 CGHI Series C Registration Rights Agreement dated May 8, 1998,
between CGHI and certain holders of the Series C Convertible
Preferred Stock**
10.39 Colorado Greenhouse, Inc. 1996 Stock Option Plan dated November 19,
1996**
10.40 CGHI Stock Option Certificate dated October 15, 1997, granted to
James R. Rinella**
10.41 CGHI Stock Option Certificate dated October 15, 1997, granted to
James R. Rinella**
10.42 CGHI Stock Option Certificate dated September 15, 1997, granted to
Alan Fine**
10.43 CGHI Stock Option Certificate dated November 19, 1996, granted to Ed
Wetherbee**
10.44 CGHI Stock Option Certificate dated November 19, 1996, granted to
Matthew Cook**
10.45 CGHI Stock Option Certificate dated September 15, 1997, granted to
Ludo Van Boxem**
10.46 Second Amendment to 1996 Stock Option Plan dated _____, 1998*
10.47 Severance and Noncompete Agreement dated December 31, 1996, between
CGHI and Matthew Brian Cook**
10.48 Employment Agreement dated September 1997, between CGHI and Alan
Fine**
10.49 Employment Agreement dated October 15, 1997, between CGHI and James
R. Rinella**
10.50 Separation Agreement and Release dated October 20, 1997, between
CGHI and Ed Wetherbee**
21.1 List of Subsidiaries**
23.1 Consent of Independent Public Accountants - Arthur Andersen LLP**
II-3
<PAGE>
23.2 The consent of Holme Roberts & Owen LLP will be included in Exhibit
5.1.
24.1 Powers of Attorney**
27.1 Financial Data Schedule**
- --------------
* To be filed by amendment.
** Previously filed.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment of the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by a final adjudication of such
issue.
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boulder, State of Colorado, on this 20th day of
August, 1998.
COLORADO GREENHOUSE HOLDINGS, INC.,
A DELAWARE CORPORATION
By: /s/ James R. Rinella
------------------------------------------
James R. Rinella, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title/Position Held
Signature With the Registrant Date
--------- ------------------- ----
<S> <C> <C>
* Chairman of the Board August 20, 1998
- ---------------------------------------
R.C. Mercure, Jr.
/s/ James R. Rinella Chief Executive Officer, August 20,1998
- --------------------------------------- President and Director
James R. Rinella
* Vice President of Finance August 20, 1998
- --------------------------------------- (acting chief financial officer
Alan R. Fine and chief accounting officer)
* Director August 20, 1998
- ---------------------------------------
Charles A. Hurth, Jr.
* Director August 20, 1998
- ---------------------------------------
Craig H. Sakin
* Director August 20, 1998
- ---------------------------------------
Edward J. Wetherbee
*By: /s/ James R. Rinella
-----------------------------------
James R. Rinella, attorney-in-fact
</TABLE>
II-5
<PAGE>
Exhibit 5.1
[LETTERHEAD OF HOLME ROBERTS & OWEN, LLP APPEARS HERE]
August ___, 1998
Board of Directors
Colorado Greenhouse Holdings, Inc.
6811 Weld County Road #31
Fort Lupton, Colorado 80621
Re: Colorado Greenhouse Holdings, Inc.
Registration Statement on Form S-1 (File No. 333-57329)
Gentlemen:
As counsel for Colorado Greenhouse Holdings, Inc., a Delaware corporation (the
"Company"), we have examined the above-referenced Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Registration Statement"),
that the Company is filing with respect to the registration of 5,750,000 shares
(the "Shares") of its Common Stock, including 2,250,000 shares of its Common
Stock to be issued concurrently with the offering upon conversion of outstanding
shares of the Company's preferred stock (the "Preferred Stock").
We have also examined the Company's Certificate of Incorporation, as amended,
By-laws and the record of its corporate proceedings and have made such other
investigation as we have deemed necessary in order to express the opinion set
forth below.
Based on such investigation, it is our opinion that the Shares have been, or
upon conversion of the Preferred Stock pursuant to the terms thereof will be,
duly and legally issued and fully paid and non-assessable.
We hereby consent to all references to us in the Registration Statement and all
amendments to the Registration Statement. We further consent to the use of this
opinion as an exhibit to the Registration Statement. We express no opinion as
to any matters not expressly set forth herein.
HOLME ROBERTS & OWEN LLP
By: /s/ Garth B. Jensen
----------------------------
Garth B. Jensen, Partner
<PAGE>
EXHIBIT 10.1
GREENHOUSE LEASE AGREEMENT
THIS GREENHOUSE LEASE AGREEMENT, dated as of this 8th day of June,
1989, is between COLORADO POWER PARTNERS, a Colorado general partnership
("Landlord") and BRUSH GREENHOUSE PARTNERS, a Colorado general partnership
("Tenant").
RECITALS
--------
A. Landlord is the owner of the real property described on Exhibit A
attached, hereto (the "Project Property"). Landlord is constructing a net 50
megawatt cogeneration facility on the Project Property, consisting of an
electrical generating facility (the "Power Plant"), an approximately 18-acre
greenhouse facility, an adjacent packing facility and certain related
facilities.
B. Tenant has entered into a Greenhouse Management Agreement, dated
March 16, 1989 , as amended pursuant to an Amendment to Greenhouse Management
Agreement, dated June 8, 1989, with Spring Gardens, Inc. pursuant to which
Tenant will retain Spring Gardens, Inc. as a consultant to assist in the
construction and operation of the greenhouse facility and CPP Engineers and
Constructors will retain Spring Gardens, Inc. as a consultant to assist in
connection with the construction of the greenhouse facility and packing
facility.
C. Landlord and Tenant desire to enter into this Lease in order for
Tenant to lease the greenhouse and packing facility from Landlord and to provide
for the purchase by Tenant of the thermal output of Landlord's electrical
generating facilities for use in heating the greenhouse.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereby covenant and agree as follows:
1. Premises. (a) Landlord hereby leases to Tenant and Tenant leases
--------
from Landlord a portion of the Project Property, consisting of that certain real
property depicted on the Plot Plan attached hereto as Exhibit A, and all
structures, buildings and all appurtenances, hereditaments, and easements
thereon, including the greenhouse and packing facility to be constructed
thereon (collectively, the "Premises").
(b) In addition, Landlord hereby grants Tenant a nonexclusive
easement for the Term of this Lease for the use
<PAGE>
of the auxiliary equipment the Project building located on Property and depicted
on the Plot Plan attached hereto as Exhibit B (the "Auxiliary Building") for the
purpose of access to and repair, maintenance and replacement of the emergency
boilers, the fertilizer/irrigation system and any other equipment under the
control of Tenant relating to the operation of the Premises and located in the
Auxiliary Building.
(c) The Premises shall consist of an approximately 18-acre
greenhouse facility and an approximately 12,000 square feet packing facility
(which facility will include packing, storage and office facilities). It is the
parties' intention that the Premises consist of the greenhouse and the packing
facility to be constructed on the Project Property approximately in the location
depicted on Exhibit A attached hereto and that this Lease and the definition of
"Premises" herein shall cover all such facilities, even if not constructed in
the exact location depicted on Exhibit A attached hereto. It is also the
parties' intention that the easement to use the Auxiliary Building granted
pursuant to paragraph 1(b) above cover such building even if not constructed in
the exact location depicted on Exhibit B attached hereto. At such time as the
greenhouse facility, packing facility and Auxiliary Building have been
constructed Landlord and Tenant shall enter into an amendment to this Lease
incorporating the description of the greenhouse and packing facility set forth
on such survey as the description of the Premises and the description of the
auxiliary building set forth on such survey as the description of the Auxiliary
Building.
(d) Landlord warrants that so long as Tenant is not in default
hereunder, Tenant shall have peaceful and quiet use and possession of the
Premises, subject to any mortgage and all matters of record or other agreements
to which this Lease is or hereafter may be subordinated.
2. Term. The term (the "Term") of this Lease shall commence on the date
----
specified by Landlord in a written notice from Landlord to Tenant (the date
which Landlord specifies the Term of the Lease is to commence is referred to
herein as the "Commencement Date"). The Commencement Date specified by Landlord
in such notice must be on or before July 1, 1992. Landlord may terminate this
Lease in the event of default as defined hereinafter. The Term of the Lease
shall expire(unless earlier terminated as provided elsewhere herein) upon the
earlier of (i) at the election of Landlord with the consent of Lender (as
hereinafter defined) , the expiration or termination of the Category Number 4A
On-System Power Purchase
-2-
<PAGE>
Agreement, dated August 29, 1988, between Landlord and Public Service Company of
Colorado (the "Power Purchase Agreement") (relating to Landlord's Power Plant
adjacent to the Premises); (ii) the fifteenth anniversary of the Commencement
Date, (iii) the data mutually agreed to in writing by the Landlord and Tenant,
with the consent of Lender, or (iv) at the option of The Prudential Insurance
Company of America, Pruco Life Insurance Company, their successors or assigns or
the holder(s) of any mortgage, deed of trust, assignment of rent or similar
instrument encumbering the Premises (collectively, "Lender") , upon the
acceleration by any Lender of the entire amount of any debt of Landlord to such
Lender secured in whole or in part by the Premises.
3. Termination. This Lease shall terminate as provided in paragraph
-----------
2(ii) above without the necessity of any notice from either Landlord or Tenant
to terminate the same. This Lease shall terminate as provided in paragraph 2(i)
or (iv) above ten days after receipt by Tenant of written notice from the
Landlord (with respect to paragraph 2(i)) or Lender (with respect to paragraph
2(iv)). To the extent permitted by law, Tenant hereby waives notice to vacate or
quit the Premises except as expressly provided above and agrees that Landlord
shall be entitled to the benefit of all provisions of the law respecting summary
recovery of possession of the Premises from Tenant holding over to the same
extent as if statutory notice had been given.
4. Holding Over. If Tenant shall be in possession of the Premises at
------------
the end of the Term, with consent or permission of Landlord and Lender, the
tenancy under this Lease shall become month-to-month upon all of the terms and
conditions contained in this Lease and such tenancy shall be terminable by
either party upon thirty (30) days' notice to the other party. If Tenant shall
be in possession of the Premises at the end of the Term without the consent or
permission of the Landlord and Lender, Tenant shall pay rent in an amount equal
to twice the rental due pursuant to paragraph 6 below for the time that Tenant
holds over. Payment of such amount by Tenant or receipt of such amount by
Landlord shall not be construed as consent by Landlord to Tenant's holding over.
5. Use. Tenant agrees to promptly plant the first crop as soon as is
---
reasonably practicable at a time mutually agreed upon by the parties. Use of the
Premises shall be, exclusively for the growing, processing, packaging and
marketing of tomatoes and other greenhouse products and related uses incident
thereto. Tenant agrees to use no less than 90% of the usable growing space in
the Premises for the
-3-
<PAGE>
growing of tomatoes. Tenant may use the remaining 10% of the usable growing
space in the Premises for growing such other crops as Tenant desires. Tenant may
not use more than 10% of the usable growing space in the Premises for growing
any crop other than tomatoes without the prior written consent of Landlord and
Lender. Landlord and Lender shall not unreasonably withhold their consent to
such growing of other crops provided that Tenant establishes to Landlord's and
Lender's reasonable satisfaction that such crops are as economically viable as
tomatoes under the projections presented as part of the Application (as defined
in paragraph (a) (i) (below) and that the growing of such crops will not violate
Landlords/ FERC Order (as defined in paragraph 22 below) . Notwithstanding the
foregoing, in the event that Landlord determines that Tenant's growing of any
crops other than tomatoes in any way jeopardizes Landlord's FERC Order, Tenant
shall immediately cease growing such crops.
6. Rental.
-------
a. Rental Amount. Tenant shall pay during the Term of this Lease as
--------------
rent for the Premises, without any prior demand, setoff, counterclaim, deduction
or abatement whatsoever, the sum Eight Hundred Sixty Five Thousand Two Hundred
Dollars ($865,200) per year, payable in equal monthly installments of Seventy
Two Thousand One Hundred Dollars ($72,100) each, which installments shall
commence on the Commencement Date, and shall be due and payable in advance on
the first day of each end every month thereafter during the entire Term of this
Lease, unless Tenant elects to defer up to the first four monthly installments
of rent as provided in paragraph 6(b) below.
b. Deferral of Rent. Tenant may, at Tenant's option, defer payment
----------------
of up to but not more than the first four monthly installments of rent due under
this Lease as set forth below. In lieu of payment of any such monthly
installment of rent, Tenant shall provide Landlord with a notice of its
intention to defer payment of such monthly installment of rent. The total amount
of monthly rent deferred in accordance with this subparagraph (b) is referred
,to herein as the "Deferred Rental Amount." The number of months that payment of
rental is deferred in accordance with this subparagraph (b) is referred to
herein as the "Deferral Period." The Deferred Rental Amount plus interest
thereon (at the rate equal to the greater of (i) two percent (2%) per annum
above the rate interest publicly announced or published from time to time by
Morgan Guaranty Trust Company of New York as its "prime rate" or (ii) ten
percent (10%) per annum) shall be payable in equal monthly installments
-4-
<PAGE>
commencing on the first day of the month following the Deferral Period. If the
Deferral Period is one or two months, plus interest shall be payable in the
Deferred Rental Amount nine equal monthly installments. If the Deferral Period
is three or four months, the Deferred Rental Amount plus interest shall be
vavable in 18 equal monthly installments. Tenant may, at Tenant's option, prepay
all or any part of the Deferred Rental Amount at any time, on the condition the
amount of any such pre-payment, must be at least $25,000.
c. Payment of Rental. Tenant shall pay all rental when due and
-----------------
payable, without any setoff, counterclaim, abatement, deduction or prior demand
therefor whatsoever except for gas deductions as expressly provided in paragraph
7(b)(i) below. In addition, any rental (other than the Deferred Rental Amount.
to the extent that it is not yet due and payable) which is not paid within ten
days after the same is due shall bear interest, at the default rate of eighteen
percent (18%) per annum from the first day due until paid. Unless otherwise
directed in writing by Landlord and consented to by Lender, payment of rent
shall be made to Central Bank Denver, National Association for deposit in the
Revenue Account (as such term is defined in the Deposit and Disbursement
Agreement between Landlord, Lender and Central Bank Denver, National
Association). The payment of rent and all other sums due hereunder is
independent of each and every other covenant and agreement contained in this
Lease.
d. Limitation on Distributions. Tenant agrees that prior to
---------------------------
making any distributions of profits or other sums to the partners of Tenant
pursuant to Tenant's partnership agreement, Tenant shall have deposited and
there shall then be on deposit in an escrow account for the benefit of Landlord
an amount equal to one year's rental under this Lease. Such account shall be
maintained in the name of Colorado Power Partners/Brush Greenhouse Partners at
Central Bank Denver, National Association or such other financial institution as
may be designated by Landlord and reasonably acceptable to Lender; and Tenant,
Landlord and Central Bank or such other financial institution designated by
Landlord and reasonably acceptable to the Lender, shall enter into an escrow
agreement acceptable to Landlord and Lender providing that in the event Tenant
fails to make any payment of rent hereunder, Landlord shall be entitled to
withdraw from such escrow account by transferring from such account to the
Revenue Account all amounts necessary to pay any rent and any other sums that
Tenant fails to pay hereunder. Tenant shall have no obligation to establish such
account unless and until Tenant desires to make a distribution of profit or
other sums to the partners of Tenant.
-5-
<PAGE>
e. Payment for Additional Heat. It is the parties' intention that
---------------------------
Landlord provide only the amount of thermal energy set forth in paragraph
7(a)(i) below. If (i) the Landlord is operating the Power Plant in excess of the
Base Operating Level (as defined below and determined on a monthly basis) solely
for the purpose of supplying additional thermal energy to the greenhouse in
excess of the Thermal Requirement (as defined below and determined on a monthly
basis) or (ii) Lender reasonably determines that Landlord is operating the Power
Plant in excess of the Base Operating level (determined on a monthly basis)
solely for the purpose of supplying additional thermal energy to the greenhouse
in excess of the Thermal Requirement (determined on a monthly basis), then
Tenant shall pay Landlord as additional rent an amount equal to Landlord's
cumulative marginal cost of operating the Power Plant above the Base Operating
Level, less the cumulative marginal revenue generated from operating the Power
Plant above the Base Operating Level, as reasonably determined by Landlord and
reasonably approved by Lender, directly attributable to providing such
additional thermal energy in excess of the Thermal Requirement for such month.
Base Operating Level means the Power Plant, thermal energy and electrical energy
output rate (determined on a monthly basis) set forth on Table 2a. to the
Application (as defined below) , a copy of which Table is attached hereto as
Exhibit C, as such level may be adjusted upward from time to time by the
Landlord, due to increased requirements of Public Service Company of Colorado
under the Power Purchase Agreement, such adjustment to be with the consent of
Lender.
7. Net Lease.
---------
a. It is the intention of the parties to this Lease that all rents
reserved herein during the Term shall be a net return to Landlord and all
expenses or charges with respect to the Premises including, by way of example,
irrigation water, maintenance, landscaping, repairs remodeling or alteration of
the building, structures or improvements, utilities, and the like shall be borne
by Tenant and not Landlord, except as follows:
(i) As part of the rental being paid by Tenant to Landlord
hereunder, Tenant is purchasing thermal heat from the power plant in
such quantities as may be available to operate Tenant's greenhouse
operations in accordance with the parameters set forth in that certain
Application for a Certification of Qualifying Status as a Cogeneration
Facility (the "Application") submitted by Landlord to the
-6-
<PAGE>
Federal Energy Regulatory Commission ("FERC"), Docket No. QF89-7-000. Table 2a
attached to the Application (a copy of which Table is attached hereto as Exhibit
C) sets forth the amount of greenhouse heat required on a monthly basis. The
amount of greenhouse heat required set forth in Table 2a is referred to herein
as the "Thermal Requirement." For purposes of this Section 7 (a) (i) , the
Thermal Requirement shall be determined on a weekly basis by dividing the
monthly amount set forth on Table 2a by 4.33. If the Landlord fails on a weekly
basis to provide thermal energy in an amount equal to 80% of the Thermal
Requirement for such week, and Tenant is reasonably required to operate the
emergency boilers in order to heat the greenhouse, Landlord shall reimburse
Tenant for the actual cost to Tenant of natural gas required to operate the
emergency boiler to provide thermal energy in an amount equal to the difference
between 80% of the Thermal Requirement for such week and the actual output of
thermal energy from the power plant during such week. In no event shall, such
reimbursement from Landlord to Tenant in any month, exceed $25,000 even if the
actual gas cost incurred by Tenant exceeds that amount. At all times when
Landlord is providing thermal heat from the power plant in an amount equal to
80% of the Thermal Requirement, Landlord will not be liable for any gas cost
incurred by Tenant even if 80% of the Thermal Requirement does not provide
adequate thermal heat for the greenhouse;
(ii) Landlord shall provide, at no cost to Tenant, domestic water for
employees of Tenant situated on the Premises in amounts no greater than those
customarily used in similar greenhouse operations. As set forth in paragraph 13
below, Landlord shall not be required to and shall not provide any water to
Tenant for irrigating the greenhouse crops;
(iii) Pursuant to paragraph 13 below, Tenant is responsible for
arranging for and paying the cost of all electrical and similar utility service
to the Premises. However, Landlord shall use reasonable efforts to provide
Tenant emergency backup electrical power service utilizing electricity produced
from the power plant except that Landlord shall have no
-7-
<PAGE>
obligation to provide any such service if it would jeopardize its ability to
meet its obligation to supply power pursuant to the Power Purchase Agreement or
any replacement or successor agreement or to meet its own internal demand.
Landlord is agreeing to attempt to provide such emergency backup electrical
power to Tenant as an accommodation to Tenant and if Landlord is unable for any
reason to provide such emergency backup service to Tenant, Tenant agrees to hold
Landlord harmless from any and all claims, demands, costs, liabilities or
damages of any nature whatsoever arising out of Landlord's failure to provide
such emergency backup electrical service for any reason. In the event that
Landlord provides emergency backup electrical service to Tenant, Tenant shall,
immediately upon demand, pay Landlord an amount equal to the amount that Tenant
would have paid it's primary provider of electrical service for such amount of
electrical power;
(iv) Landlord shall be responsible for maintenance (but not the
cost) of "All Risk" casualty insurance with respect to the Premises, which
insurance may be carried at the discretion of Landlord in such amounts and with
such companies as Landlord shall determine, on the condition that Tenant shall
within 15 days after written notice from Landlord reimburse Landlord for the
cost of such insurance attributable to the Premises. Tenant shall be solely
responsible for insurance an the contents and operations of the greenhouse; and
(v) Landlord shall, on arrangements satisfactory to Landlord, permit
Tenant to use the irrigation well located on the Project Property for irrigation
of the greenhouse crops. Tenant agrees to release and hold Landlord harmless
from and against any and all claims, demands, liabilities or damages of any
nature whatsoever arising out of (A) Tenant's use of such well, (B) Landlord's
failure to make such well available for Tenant's use if Landlord is prohibited
from doing so by any federal, state or local governmental determination or law,
ordinance, rule or regulation or (C) the failure of such well to supply adequate
quantities of water to irrigate greenhouse crops.
-8-
<PAGE>
8. Taxes. Tenant shall pay in each tax year during the Term all real
-----
estate taxes, ad valorem taxes and assessments, general and special, including
taxes levied against the buildings or structures comprising part of the Premises
assessed by the taxing authorities. In the event that the Premises is taxed as a
part of the Project Property, Landlord shall make a fair and equitable
apportionment of the total taxes among the remainder of the Project Property and
the Premises. Landlord shall advise Tenant, in writing, of the amount of the
taxes reasonably apportioned to the Premises and Tenant shall tender such amount
to Landlord within 15 days of receipt of written request from Landlord. In
addition, Tenant shall be responsible for all taxes payable to the appropriate
taxing authorities for any sales, excise or other tax (not including real
property tax) levied, imposed or assessed in the State of Colorado or any other
political subdivision thereof or other taxing authority for Tenant's crops,
inventory, furniture, trade fixtures, improvements installed by Tenant or by
Landlord on behalf of Tenant and any other property of Tenant. Tenant shall,
upon request of Landlord, provide proof of payment of such taxes to Landlord
annually by providing a receipt marked "paid" for the taxes assessed, and any
failure to pay such taxes when due shall be considered a default under this
Lease.
9. Maintenance, Repairs and Alterations.
------------------------------------
(a) Except as provided in Section 7 above, Tenant shall be responsible for all
costs of operating and maintaining the premises and (i) all equipment and
facilities used in connection with the Premises, (ii) the emergency boilers,
(iii) the fertilizer and irrigation system, (iv) all other equipment under the
control of Tenant relating to the operation of the Premises and located in the
Auxiliary Building (v) all piping used exclusively for the discharge of heat
from the thermal storage system (any piping used jointly for the charge and
discharge of heat from the thermal storage system shall be maintained by
Landlord), (v) the irrigation well located on the Project Property, (vi) the
irrigation water storage tank located on the Project Property and (vi) pumps,
piping and similar facilities associated with the irrigation well and the
transporting of water from the irrigation well to the Premises (collectively,
the "Related Facilities") during the Term and Tenant hereby agrees to operate
and maintain the Premises and the Related Facilities in good condition,
reasonable wear and tear excepted, and to operate the Premises and the Related
Facilities in accordance with this Agreement and accepted industry standards
throughout the Term, of this Lease. Landlord shall maintain the Auxiliary
Building.
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<PAGE>
(b) All repairs to the Premises and the Related Facilities during the
Term or any installations of equipment or facilities therein are to be made by
Tenant at its expense. Without limiting the generality of the foregoing, Tenant
shall keep all improvements comprising a part of the Premises and the Related
Facilities in good repair and shall promptly replace the same when damaged,
together with all electrical, plumbing and other mechanical installations
thereon. Tenant will make any and all replacements from time to time required
for the Premises and the Related Facilities at its expense including, by way of
example, the roofs on all improvements comprising a part of the Premises. Tenant
shall not make any repairs to the Premises and the Related Facilities in excess
of $25,000 (other than emergency repairs to protect the Premises and the Related
Facilities) unless and until Tenant shall have caused the plans and
specifications therefor to have been reviewed by Landlord and shall have
obtained Landlord's written approval thereof and shall have obtained the
reasonable consent of Lender. If approval is granted, Tenant shall cause the
work described in such plans and specifications to be performed, at its expense,
promotly, efficiently, competently and in a good and work like manner by duly
qualified or licensed persons or entities. All such work shall comply with all
applicable codes, rules, regulations and ordinances.
(c) Tenant will surrender the Premises and the Related Facilities at
the expiration of the Term or at such other time as it may vacate the Premises
in as good condition as when received, excepting depreciation caused by ordinary
wear and tear.
(d) Tenant will repair promptly, at its expense, any damage to the
Premises and the Related Facilities regardless of fault or by whom such damage
shall be caused, unless caused by Landlord or any agents, employees or
contractors in the exclusive employment of Landlord (and not the joint
employment of Landlord and Tenant).
10. Alterations bv Tenant. Tenant shall not make any alterations,
---------------------
renovations, improvements or other installations in or about any part of the
Premises in excess of $25,000 unless and until Tenant shall cause plans and
specifications therefor to have been reviewed by Landlord and shall have
obtained Landlord's written approval thereof and the reasonable consent, of
Lender. If approval is granted, Tenant shall cause the work described in such
plans and specifications to be performed, at its expense, promptly, efficiently,
competently and in a good and workmanlike manner by duly qualified or licensed
persons or entities. All such
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<PAGE>
work shall comply with all applicable codes, rules, regulations and ordinances.
Ordinary and customary repairs and replacements in and on the Premises or to the
Related Facilities shall be promptly undertaken and promptly completed and need
not have Landlord's prior approval, unless such repairs or replacements
materially decrease the value or usefulness of the Premises, the Related
Facilities or the Project Property.
11. Mechanics' Liens. The Landlord's title is and always shall be
----------------
paramount to the title of the Tenant and nothing in this Lease shall empower the
Tenant to do any act which can, shall or may encumber the title of the Landlord.
No work performed by Tenant pursuant to this Lease, whether in the nature of
erection, construction, alteration or repair shall be deemed to be made for the
immediate use and benefit of Landlord so that no mechanics, or other liens shall
be allowed against the Premises or the estate of Landlord by reason of any
consent given by Landlord to Tenant, to improve, alter or repair the Premises.
Tenant shall pay promptly all persons furnishing labor and/or materials with
respect to any work performed by Tenant or its contractors on or about the
Premises. If any mechanics' or other liens shall at any time be filed against
the Premises by reason of work, labor, services or materials performed or
furnished, or alleged to have been performed or furnished, to Tenant or to
anyone holding the Premises through or under Tenant, Tenant shall forthwith
cause the same to be discharged of record or bonded to the satisfaction of
Landlord and Lender.
12. Operations. (a) Subject to the limitations set forth in paragraph
----------
5 above, the Premises shall be used by Tenant exclusively for the growing and
marketing of greenhouse fruits and vegetables, using the thermal heat available
from, the power plant. It is agreed and understood that it is Landlord's
paramount concern that continuous production of greenhouse fruits and vegetables
be undertaken so as to continuously qualify the Landlord's cogeneration facility
for the cogeneration benefits pursuant to Landlord's FERC order, as the same may
be amended from time to time. Tenant shall continuously operate the greenhouse
facilities for the production of fruits and vegetables, and any failure to have
crops in place, and under production for a period in excess of forty-five (45)
days shall be considered an event of default under this Lease. Tenant warrants
that it will promptly pay, all of its bills, including labor costs, and any
judgments, liens, or the like which may threaten Tenant's performance of its
obligations under this Lease or the continued operation and maintenance of the
Premises or the status of the cogeneration facility as a qualifying facility
under
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Landlord's FERC Order. Any failure by Tenant to promptly pay such bills,
judgments, liens or like charges shall be considered a default by Tenant under
this Lease. Landlord may pay any such claims upon ten (10) days' notice to
Tenant, and any claims paid by Landlord on behalf of Tenant will become
immediately due and owing to Landlord and Landlord may collect such sums paid
together with interest at the default interest, rate of eighteen percent (18%)
per annum.
(b) Tenant shall, at all times, keep the Premises in a neat and
orderly condition. Specifically by way of example and not by way of limitation,
Tenant shall keep any garbage, trash, rubbish, refuse, disassembled equipment or
vehicles out of public view within containers or structures and shall provide
for the timely removal of any such garbage, trash, rubbish, refuse, disassembled
equipment or vehicles from the site at Tenant's expense.
13. Utilities. Except as set forth in paragraph 7 above with respect to
---------
thermal water from the Power Plant and certain domestic water for use in the
Premises, Tenant shall be responsible for providing and paying for all utilities
of any nature whatsoever used in connection with the Premises, including but
not limited to the following:
(a) Tenant shall pay for all costs associated with irrigation water
required in connection with the operation of the Premises including all costs
and expenses required in connection with the maintenance, repair or operation of
the well 1ocated on the Project Property and the treatment of the water produced
by such well.
(b) Tenant shall pay the cost of wastewater discharge to the City of
Brush from the Premises. Landlord does not currently intend to separately meter
Tenant's discharge of wastewater from the Premises. Accordingly, Landlord shall
reasonably apportion the total charges imposed by the City of Brush for the
discharge of wastewater from the Premises and the Project Property between
Landlord and Tenant based upon the amount of wastewater discharged to the City
of Brush by each party.
(c) Tenant shall be responsible for arranging for and paying for all
electrical service to the Premises.
14. Indemnity and Insurance.
------------------------
a. Indemnity by Tenant. To the extent permitted by law, Tenant
------------------
shall and does hereby agree to
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indemnify Landlord, Lender and R.W. Beck and Associates (the "Independent
Engineer") and the officers, directors, employees, representatives, invitees and
agents of each (collectively, the "Indemnified Parties") and save the
Indemnified Parties harmless and, at the Indemnified Parties' option, defend the
Indemnified Parties from and against any and all claims, actions, damages,
liabilities and expenses including attorneys' fees or professional fees and
expenses, in connection with the loss of life, personal injury and/or damage to
property and any other claim arising from and out of the occupancy or use by
Tenant of the Premises or the Related Facilities occasioned wholly or in part by
any act or omission of Tenant, its officers, agents, directors, employees or
invitees.
b. Tenant Insurance. At all times after the Commencement Date, Tenant
----------------
will carry and maintain, at its expense:
(i) public liability insurance including insurance against assumed or
contractual liability under this Lease, in such amounts as Landlord may
reasonably request;
(ii) all-risk casualty insurance covering all of Tenant's personal
property on the Premises including all leasehold improvements installed in the
Premises by or on behalf of Tenant in such amounts as Landlord may reasonably
request;
(iii) if and to the extent required by law, worker's compensation or
similar insurance in form and amounts required by law; and
(iv) such other insurance as Landlord may require, including but not
limited to insurance that Landlord is required to provide pursuant to the terms
of the Construction and Term Loan Agreement between Landlord and Lender.
c. Insurance Provisions: The company or companies writing such
--------------------
insurance, as well as the form of such insurance shall at all times be subject
to Landlord's and Lender's approval. Public liability and all-risk casualty
insurance policies evidencing such insurance shall name Landlord or its designee
and Lender as additional insured, and shall contain such other provisions and
endorsements as Landlord may request.
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<PAGE>
15. Performance by Landlord. If Tenant shall fail to perform any of its
-----------------------
obligations under this Lease, Landlord may perform the same and the cost of same
shall be charged to Tenant and Tenant agrees, upon five (5) days' written
notice, to pay Landlord promptly the cost thereof with default interest at the
rate of eighteen percent (18%) per annum until paid.
16. Condemnation. (a) If the whole or any part of the Premises shall be
------------
taken under the power of eminent domain, this Lease shall terminate as to the
part so taken on the date Tenant is required to yield possession thereof to the
condemning authority. Landlord may, but shall have no obligation to make such
repairs and alterations as may be necessary in order to restore the part not
taken to useful condition. If Landlord elects to make such repairs, this Lease
shall remain in full force and effect and Landlord shall make an equitable
adjustment in the rent to reflect the reduction, if any, in Tenant's ability to
utilize the Premises for greenhouse operations resulting from such taking. If
the aforementioned taking renders the remainder of the Premises unsuitable for
the permitted use and Landlord does not elect to make repairs necessary to
restore the part not taken to useful condition, either party may terminate this
Lease as of the date when Tenant is required to yield possession by giving
notice to that effect within thirty (30) days after such date nd this Lease
shall terminate upon receipt of such notice. In the event that Tenant remains in
possession of the Premises after such taking, Tenant shall continue to pay rent
through the date of termination of this Lease.
(b) All compensation awarded for any taking of the Premises or any
interest therein shall belong to and be the property of Landlord, Tenant hereby
assigns to Landlord all rights with respect thereto; provided, however, nothing
contained herein shall prevent Tenant from applying for reimbursement from the
condemning authority (if permitted by law) for moving expenses, or the expense
of removal of Tenant's trade fixtures, or loss of Tenant's business goodwill,
but only if such action shall not reduce the amount of the award or other
compensation otherwise recoverable from the condemning authority by Landlord.
17. Assignments and Subletting; Landlord's Consent Required. Tenant
-------------------------------------------------------
shall not assign, transfer or encumber this Lease in whole or in part or sublet
all of any part of the Premises without first obtaining the consent of Landlord
and Lender, which consent shall be in the sole and absolute discretion of
Landlord and Lender.
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<PAGE>
18. Default.
--------
a. Event of Default Defined. Any one or more of the following events
-------------------------
shall constitute an event of default:
(i) the sale of Tenant's interest in the Premises under attachment,
execution or similar legal process or, if Tenant is adjudicated a bankrupt or
insolvent and such adjudication is not vacated within ten days;
(ii) the filing of a voluntary or involuntary bankruptcy or
insolvency petition of Tenant or any guarantor, or the reorganization of Tenant
or any such guarantor, or any arrangement by Tenant or any such guarantor with
its creditors, whether pursuant to the federal Bankruptcy Act or any similar
federal or state proceedings, unless such petition is filed by a party other
than Tenant or any such guarantor and is withdrawn or dismissed within 30 days
after the date of filing;
(iii) admission in writing by Tenant or any such guarantor of its
inability to pay its debts when due;
(iv) the appointment of a receiver or trustee for the business or
property of Tenant or any such guarantor, unless such appointment shall be
vacated within ten days of its entry;
(v) the making by Tenant or any such guarantor of an assignment for
the benefit of its creditors, or in any other manner Tenant's interests in this
Lease shall pass to another by interests operation of law;
(vi) failure of Tenant to pay any rental or any other sum of money
within ten days after the same is due hereunder;
(vii) failure by Tenant to observe or perform any of the covenants in
respect of assignment and subletting;
(viii) failure by Tenant to cure forthwith, immediately after the
earlier of actual knowledge by Tenant or receipt of notice from Landlord, any
hazardous condition which
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<PAGE>
Tenant has created in violation of law or of this Lease;
(ix) default by Tenant in the performance or observance of any other
covenant or agreement of this Lease (other than a default involving the
payment of money or as listed above in paragraph 13(i) through (viii)),
which default is not cured within 30 days after the giving of notice
thereof by Landlord, unless such default is of such a nature that it
cannot be cured within such 30-day period, in which case no event of
default shall occur so long as Tenant shall promptly commence the curing
of the default within such 30-day period and shall thereafter diligently
prosecute the curing of same but in no event shall such 30-day period be
extended for more than a total of 90 days; and
(x) the vacating or abandonment of the Premises by Tenant at any time
during the term of this Lease, which vacation or abandonment shall
include, but not be limited to, the failure to have planted crops in
place for the production of vegetables for a period greater than forty-
five (45) consecutive days in any calendar year.
(b) Remedies. Upon the occurrence and continuance of an event of
--------
default, Landlord, without notice to Tenant in any instance (except where
expressly provided for below or by applicable law) shall have any one or more of
the following rights in addition to all other rights and remedies provided
elsewhere herein or at law or in equity;
(i) perform, on behalf and at the expense of Tenant, any obligation of
Tenant under this Lease which Tenant has failed to perform and of which
Landlord shall have given Tenant notice, the cost of which performance
by Landlord, together with interest thereon at the defau1t rate from the
date of such expenditures, shall be deemed additional rental and shall
be payable by Tenant to Landlord upon demand;
(ii) elect to terminate this Lease and the tenancy created hereby by
giving notice of such election to Tenant, and re-enter the Premises, by
summary proceedings or otherwise, and remove Tenant and all other
persons and property from the Premises, and store such
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<PAGE>
property in a public warehouse or elsewhere at the cost of and for the
account of Tenant without resort to legal process and without Landlord
being deemed guilty of trespass or becoming liable for any loss or
damage occasioned thereby;
(iii) after giving notice to Tenant, elect to terminate Tenant's right
of possession and immediately repossess the Premises by legal
proceedings, force or otherwise, without terminating this Lease and re-
enter the Premises, by summary proceedings or otherwise, and remove
Tenant and all other persons and property from the Premises, and store
such property in a public warehouse or elsewhere at the cost of and for
the account of Tenant without resort to legal process and without
Landlord being deemed guilty of trespass or becoming liable for any loss
or damage occasioned thereby;
(iv) elect to take over the management and operation of the
greenhouse facility using the trade fixtures and equipment of Tenant
which Tenant has used in operation of the greenhouse as owned by
Landlord in its own right, and continue the operation of the greenhouse
in it's own right or through some additional party, which operation may
be done without legal liability or obligation to Tenant. If this
provision of default is invoked, Landlord shall have the right to
inspect and copy all of the Tenant's record's relating to the operation
of the greenhouse including, without limitation, all customer lists and
marketing plans relating to the greenhouse and ancillary facilities and
the Related Facilities; or
(v) exercise any other legal or equitable right or remedy which it may
have.
Any costs and expenses incurred by Landlord (including, without
limitation, reasonable attorneys' fees) in enforcing any of its rights or
remedies under this Lease shall be deemed to be additional rental and shall be
repaid to Landlord by Tenant upon demand.
19. Damages. If this Lease is terminated by Landlord pursuant to the
--------
default provisions of this Lease, Tenant nevertheless shall remain liable for
any rental and any other additional sums or damages which may be due or for
which
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Tenant is liable, or in respect of which Tenant has agreed to indemnify Landlord
under any of the provisions of this Lease or sustained by Landlord prior to
such termination, and all reasonable costs, fees and expenses including, but not
limited to, reasonable attorneys' fees, costs and expenses incurred by Landlord
in pursuit of its remedies hereunder, or in renting the Premises to others from
time to time (all such rental, other sums, damages, costs, fees and expenses
being referred to herein collectively as "Termination Damages"). In addition to
Termination Damages and all other damage remedies available to Landlord under
any applicable law, Tenant agrees that, at the election of Landlord, Landlord
shall be entitled to either of the following damage remedies:
a. An amount equal to the rental which, but for termination of this
Lease, would have become due during the remainder of the Term, less the amount
of rental, if any, which Landlord shall receive during such period from others
to whom the Premises may be rented, which such damages shall be computed and
payable in monthly installments, in advance, on the first day of each calendar
month following termination of the Lease and continuing until the date on which
the Term would have expired but for such termination; any suit or action brought
to collect any such damages for any month shall not in manner prejudice the
right of Landlord to collect any similar damages for any subsequent month by a
similar proceeding; or
b. An amount equal to the present value (as of the date of such
termination and discounted at the rate of 10% per annum) of rental which, but
for termination of this Lease, would have become due during the remainder of the
Term, less the fair rental value of the Premises for the remainder of the Term
(discounted at the same rate) as determined by an independent real estate
appraiser named by Landlord (the cost of which appraiser shall be borne equally
by Landlord and Tenant), in which case such damages shall be payable to Landlord
in one lump sum on demand and shall bear interest at the default rate of
eighteen percent (18%) per annum until paid.
20. Subordination and Attornment. (a) Tenant agrees that its rights
----------------------------
under this Lease are and shall remain subject and subordinate to the operation
and effect of that certain Construction Loan and Term Loan Deed of Trust,
Security Agreement and Assignment of Rents and that certain Assignment of Rents
and Leases, both given by Landlord for the benefit of Lender, dated as of June
6, 1989, and to any other mortgage, indenture, deed of trust or other
encumbrance, together with any conditions, renewals, extensions, modifications,
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<PAGE>
consolidations or replacements thereof, now or hereinafter affecting or placed,
charged or enforced against all or any portion of the Premises. This clause
shall be self-operative and no further instruments or subordination shall be
required in order to effectuate it. Nevertheless, Tenant shall execute,
acknowledge and deliver to Landlord at any time and from time to time, upon
demand oil Landlord, such documents as may be requested by Landlord or such
mortgagee or trustee to confirm or effectuate any subordination hereunder.
(b) Tenant agrees that if Lender obtains title to the Premises, or if
Lender notifies the Tenant that Landlord is in default thereunder, Tenant will
pay to Lender or Lender's designees all rent subsequently payable heraunder.
Further, Tenant agrees that in the event Lender obtains title to the Premises,
Tenant will, upon request of any such party, automatically become the Tenant of
and attorn to such successor in interest without changing the terms and
provisions of the Lease.
21. Notices.
--------
Sending of Notices. (a) Any notice, request, demand, approval or
------------------
consent given or required to be given under this Lease shall be in writing and
shall be deemed to have been given on the third day following the day on which
the same shall have been mailed bv United States registered or certified mail,
return receipt requested, with all postage charged prepaid, addressed, if
intended for Landlord, to Colorado Power Partners at 303 East 17th Avenue, Suite
1070, Denver, Colorado 80203, if intended for Tenant, to Tenant at Brush
Greenhouse Partners, 303 East 17th Avenue, Suite 1070, Denver, Colorado 80203,
or if intended for Lender at c/o Prudential Power Funding Associates, Four
Gateway Center, 100 Mulberry Street, l4th Floor, Newark, New Jersey 07102,
Attention: Project Management Group.
(b) Either party may, at any time, change its address for the above
purposes by sending notice to the other party stating the change and setting
forth the new address.
22. FERC Requirement Compliance. Tenant, by the execution hereof,
----------------------------
covenants and agrees that the annual useful thermal output available from the
power plant provided by Landlord will be used by Tenant to heat the greenhouse
facility, and that Tenant shall use its best efforts to comply with the terms of
the annual thermal usage and output requirements required under that certain
Order Granting Application for Certification as a Qualifying Cogeneration
Facility ("FERC Order") issued May 8, 1989, by the Federal
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<PAGE>
Energy Regulatory Commission of the United States of America, Docket No. QF89-7-
000, and in compliance with the description of greenhouse operations contained
in the Application, a copy of which has previously been furnished to Tenant. In
the event the FERC Order is amended, Tenant agrees to comply with all requests
of Landlord to assure compliance with the FERC requirements relating to
greenhouse operations set forth in such amended FERC Order and any application
made by Landlord in connection therewith. Landlord shall have the right to
monitor Tenant's compliance with the FERC requirements described herein.
23. Miscellaneous.
-------------
a. Estoppel Certificates. At any time and from time to time, within
---------------------
ten (10) days after Landlord or any mortgagee shall request the same, Tenant
will execute, acknowledge and deliver to Landlord and to such mortgagee or such
other party as may be designated by Landlord an estoppel certificate and consent
to collateral assignment in the form furnished with respect to the matters
relating to this Lease or the status of performance of obligations of the
parties hereunder as may be reasonably requested by landlord or such mortgagee.
If Tenant fails to provide such certificate within ten days after request by
Landlord therefor, Tenant shall be deemed to have approved the contents of any
such certificate submitted to Tenant by Landlord or such mortgagee and Landlord
is hereby authorized to so certify.
b. Inspections and Access by Landlord. Tenant will permit Landlord,
----------------------------------
its agents, employees and contractors and lender and Independent Engineer to
enter all parts of the Premises during Tenant's business hours to inspect the
same and to enable Landlord to enforce or carry out any provision of this Lease
including, without limitation, any access necessary for the making of any
repairs which are Landlord's obligation hereunder.
C. Right of Access by Tenant. Tenant shall have the right to use areas
-------------------------
reasonably designated by the Landlord for ingress and egress to the Premises and
for loading and unloading operations directly related to the Premises. Tenant
shall be responsible for and agrees to immediately repair any such damage and
indemnify and hold the, Indemnified Parties harmless from any damage resulting
from Tenant's use of such areas and to hold the Indemnified Parties harmless,
from any and all claims of any nature whatsoever arising out of Tenant's use of
such areas.
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<PAGE>
d. Remedies Cumulative. No reference to any specific right or remedy
-------------------
shall preclude Landlord from exercising any other right or from having any other
remedy or from maintaining any action to which it may otherwise be entitled at
law or in equity. No failure by Landlord to insist upon the strict performance
of any agreement, term, covenant or condition hereof, or to exercise any right
or remedy consequent upon a breach thereof, and no acceptance of full or
partial rent during the continuance of any such breach, shall constitute a
waiver of any such breach, agreement, term covenant or condition. No waiver by
Landlord of any breach by Tenant under this Lease shall affect or alter this
Lease in any way whatsoever.
e. Successors and Assigns. This Lease and the covenant and conditions
----------------------
herein contained shall inure to the benefit of and by binding upon Tenant, its
successors and assigns, and shall be binding upon Tenant, its successors and
assigns and shall inure to the benefit of Tenant and only such assigns of Tenant
to whom the assignment of this Lease by Tenant has been consented to in writing
by Landlord and Lender. Upon the sale or other transfer by Landlord of its
interest in the Premises, and assumption of possession of the Premises by the
assignee, only the assignee shall be responsible for all Landlord's obligations
under this Lease occurring thereafter. The Lender shall not be deemed such a
purchaser, successor or assignee hereunder.
f. Compliance with Laws and Regulations. Tenant, at its sole cost and
------------------------------------
expense, shall comply with, shall operate and maintain the Premises and Related
Facilities in compliance with and shall cause the Premises and the Related
Facilities to comply with (i) all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations and ordinances and any
permits affecting any part of the Premises or the Related Facilities, or the use
thereof, including, but not limited to, those which require the making of any
structural, unforeseen or extraordinary changes, whether or not any such
statues, laws, rules, orders, regulations or ordinances which may be hereunder
enacted involve a change of policy on the part of the governmental body enacting
the same, those relating to disposal of any hazardous waste generated by the
Premises or the Related Facilities and the obtaining of any permits required for
a small quantity waste generator or otherwise, and (ii) all rules, orders and
regulations of the National Board of Fire Underwriters, Landlord's casualty
insurer(s) and other applicable insurance rating organizations or other bodies
exercising similar functions in connection with the
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prevention of fire or the correction of hazardous conditions which apply to the
Premises or the Related Facilities.
g. No Joint Venture. Any intention to create a joint venture or
----------------
partnership relation between the parties hereto is hereby expressly disclaimed.
h. No Modification. This writing is intended by the parties as a final
---------------
expression of their agreement and as a complete and exclusive statement of the
terms thereof. No representations, understandings, or agreements have been made
or relied upon in the making of this Lease other than those specifically set
forth herein. This Lease can be modified only by a writing signed by the party
against whom, the modification is enforceable.
i. Severability. If any portion of any term or provision of this Lease,
------------
or the application thereof to any person or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be a valid and be enforced to the fullest
extent permitted by law.
j. Applicable Law. This Lease and the rights and obligations of the
--------------
parties hereunder shall be construed in accordance with the laws of the State of
Colorado.
k. Waiver of-Jury Trial. Landlord and Tenant hereby mutually waive any
--------------------
and all rights (only pertaining to Landlord and Tenant with regard to this
Lease) which either may have to request a jury trial in any proceeding at law or
in equity in any court of competent jurisdiction.
l. Non-recourse. Notwithstanding anything to the contrary contained in
------------
this Lease, in the event of any claim, demand, cause of action or judgment
against Landlord, Tenant shall have no recourse against any of the general of
Landlord (or any of the partners of such general partners) or against any of the
assets of any of the general partners of Landlord (or any of the partners of
such general partners), except to the extent that such assets are also assets of
Landlord.
m. Representations of Tenant. Tenant represents and warrants to Landlord
-------------------------
that this Lease constitutes the valid and binding obligation of Tenant and each
and every partner of Tenant. The execution and delivery
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of this Lease has been duly authorized by all necessary action Tenant and the
person executing this Lease on behalf of Tenant is duly authorized and has all
necessary power and authority to act on behalf of Tenant.
n. Delivery and Possession. If the Landlord shall be unable to give
-----------------------
possession of the Premises to Tenant on the date of the Commencement Date for
any reason, Landlord not be subject to any liability for failure to give
possession to Tenant. Under such circumstances the rent reserved and covenanted
to be paid herein shall not commence until the Premises are available for
occupancy, and no such failure to give possession on the date of commencement of
the Term shall affect the validitv of this Lease or the obligations of the
Tenant hereunder, nor shall the same be construed to extend the Term. The
Premises shall not be deemed to be unready or unavailable for Tenant's
possession or occupancy or incomplete if only minor or insubstantial details of
construction, decoration or mechanical adjustments remain to be done in the
Premises or any part thereof, or if the delay in the availability of the
Premises for occupancy shall be due to special work, changes, alterations or
additions required or made by Tenant in the layout or finish of the Premises or
any part thereof, or shall be caused in whole or in part by tenant through the
delay of Tenant in submitting plans, supplying information, approving plans,
specifications estimates, giving authorizations or otherwise, or shall be reused
in whole or in part by delay or default on the part of Tenant. In the event of
any dispute as to whether the Premises are ready for Tenant's occupancy, the
decision of Landlord's architect shall be final and binding on the parties.
o. Lender Protection. Tenant agrees to give any Lender by registered or
-----------------
certified mail, a copy of any notice or claim of default served upon the
Landlord by Tenant, provided that prior to such notice Tenant has been notified
in writing (by way of service on Tenant of a copy of an assignment of Landlord's
interests in leases, or otherwise) of the address of such Lender. Tenant further
agrees that if Landlord shall have failed to cure such default within twenty
(20) days after such notice to Landlord (or if such default cannot be cured or
corrected within that time, then such additional time as may be necessary if
Landlord has commenced within such twenty (20) days and is diligently pursuing
the remedies or steps necessary to cure or correct such default) then any Lender
shall have an additional thirty (30) days within which to cure or correct such
default (or if such default cannot be cured or corrected within that time, then
-23-
<PAGE>
Such additional time as may be necessary if such Lender has commenced within
such thirty (30) days and is diligently pursuing the remedies or steps necessary
to cure or correct such default, including the time necessary to cure or correct
such default).
IN WITNESS WHEREOF, the parties hereto intending to be legally bound
hereby have executed this Lease as of the day and year first above written.
LANDLORD:
COLORADO POWER PARTNERS
By: /s/ Nicholas G. Muller
---------------------------
Nicholas G. Muller
Management Committee Member
TENANT:
BRUSH GREENHOUSE PARTNERS
By: /s/ Edward J. Wetherbee
---------------------------
Edward J. Wetherbee
Management Committee Member
-24-
<PAGE>
EXHIBIT A TO
GREENHOUSE LEASE
[DRAWING OF PLOT PLAN]
<PAGE>
EXHIBIT B TO
GREENHOUSE LEASE
[DRAWING OF PLOT PLAN]
<PAGE>
EXHIBIT C TO
Greenhouse Lease
TABLE 2a
PHASE 1 POWER PLANT/GREENHOUSE OPERATION
MONTHLY SUMMARY
----------------------------------------
BTO/FT SQ/ GREENHOUSE
DEG DAY SIZE (ACRES)
- ---------- ------------
35 18
<TABLE>
<CAPTION>
NET PLANT THERM ENERGY TOTAL
GREENHOUSE OPERATING HOURS OUTPUT (IN MW) FROM WHB ELECTRICAL ENERGY ENERGY
HEATING HEAT REQ'D ------------------ ------------------ -------- ------------------ INPUT
MONTH DEG DAYS (BTU*E-8) ON-PEAK OFF-PEAK ON-PEAK OFF-PEAK (BTU*E-9) (MWH) (BTU*E-9) (BTU*E)
- ----- -------- ---------- ------- -------- ------- -------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JAN 1283 35.2 294 170 50 37 37.0 20990 72 192
FEB 969 26.6 280 160 50 36 27.9 19760 67 181
MAR 874 24.0 308 180 35 35 25.2 17080 58 154
APR 516 14.2 294 0 34 0 14.9 9996 34 90
MAY 224 8.1 294 0 33 0 8.5 9702 33 87
JUN 47 1.2 294 0 50 0 X.4 14700 50 135
JUL 0 0.0 294 0 50 0 0.0 14700 50 135
AUG 6 0.2 308 0 50 0 0.2 15400 53 142
SEP 140 3.8 280 0 33 0 4.0 9240 32 83
OCT 438 12.0 308 0 34 0 12.6 10472 36 94
NOV 867 23.8 280 180 38 35 25.0 15400 63 139
DEC 1156 31.7 294 170 50 38 33.3 20820 71 190
-------- ------- ------- -------- --------- ------ --------- ----
6520 178.9 3528 840 187.9 178260 608 1622
thermal requirement thermal energy and electrical
energy output rate
</TABLE>
<PAGE>
EXHIBIT 10.12
THERMAL SUPPLY LEASE AGREEMENT
(Contains Option to Purchase)
THIS is a THERMAL SUPPLY LEASE AGREEMENT (Agreement), made to be
effective as of March 22, 1993 by and between THERMO COGENERATION PARTNERSHIP, a
Colorado partnership with an office at 5340 Dahlia Street, Commerce City,
Colorado 80022 ("Thermo"), and ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY,
a Colorado limited liability company with an office at 303 East Seventeenth
Avenue, Suite 1070, Denver, Colorado 80203 ("Rocky Mountain"), under the
following circumstances:
A. Thermo owns certain real property located at Fort Lupton,
Colorado (the "Project Site") on which Rocky Mountain desires to construct,
equip for production, and operate a commercial greenhouse.
B. Rocky Mountain also desires Thermo to supply Rocky Mountain's
requirements for thermal energy for production of agricultural crops at the
Facility.
C. Thermo intends to construct and operate on the Project Site a
cogeneration plant (the "Plant") which will produce available thermal energy to
supply the Facility's requirements, and desires to supply thermal energy to
Rocky Mountain.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained in this Agreement. Thermo and Rocky Mountain
hereby agree as follows.
DEFINITIONS
-----------
The following capitalized terms have the meanings provided in this
preliminary section, or as elsewhere defined in this Agreement. Failure to
enumerate in this section any capitalized term elsewhere defined in this
Agreement shall not limit the general applicability of such term elsewhere
defined. In the event, of any variation, definition of the same term between
this Agreement and the Construction Contract (hereinafter defined), the
definition of such term in this Agreement shall prevail except for purposes of
the Construction Contract, in which case the definition therein shall prevail.
(i) "Additional Rent" means any and all sums (whether or not
specifically called "Additional Rent") other than Base Rent, Thermal Payments,
and the Option Purchase Price, which Rocky Mountain is or becomes obligated to
pay to Thermo, or on behalf of Thermo with respect to the Leased Premises under
this Agreement.
(ii) "Affiliate" means a person, company, or other entity directly or
indirectly effectively controlled by, controlling, or under common control with
the affiliated
<PAGE>
entity. For the purposes of this definition, control means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of another entity, whether through the ownership of
voting securities, by contract, or otherwise.
(iii) "Available Net Cash" shall have the meaning given to such term
in paragraph 4.5.
(iv) "Base Rent" means the rent payable by Rocky Mountain to Thermo
pursuant to paragraph 4.1.
(v) "BTU" means British thermal unit, which is the amount of heat
needed to raise the temperature of one pound of water one degree Fahrenheit, at
or near 39.2 degrees Fahrenheit.
(vi) "Calculation Period" means any of four (4) designated three (3)
month periods during each year, and being specifically December through February
March through May, June through August, and September through November.
(vii) "Commencement Date" has the meaning given to such term in
paragraph 3.2.
(viii) "Commencement Date Notice" means the Notice to be provided by
Thermo to Rocky Mountain pursuant to paragraph 3.2, which shall designate the
Commencement Date.
(ix) "Completion Date" shall have the meaning given to such term in
paragraph 6.4.
(x) "Construction Contract" means the Standard Form of Agreement
between Owner and Contractor (AIA Document A111) together with General
Conditions of the Contract for Construction (AIA Document A201) and the various
other "Contract Documents" therein enumerated, to be entered into between Rocky
Mountain as Contractor, and Thermo as "Owner," in substantially the form
attached as Exhibit G.
(xi) "Construction Plans" means drawings and specifications for the
construction or alteration of the Facility, which depict and describe the work
shown thereon in sufficient detail for a competent general contractor to
construct the Facility or the alteration without preparing or obtaining
additional plans and specifications (other than customary field work orders and
shop drawings).
(xii) "Contractor" means Rocky Mountain, acting as Contractor under
the Construction Contract.
(xiii) "Contract Sum" means the total amount to be paid by Thermo to
Rocky Mountain, acting as Contractor under the Construction Contract, to be
finally determined pursuant to the Construction Contract.
(xiv) "Damages" means any and all expenses, losses, costs, claims,
liability or damages incurred by a contracting party as a proximate result of an
event or
-2-
<PAGE>
occurrence causing loss or damage to the damaged party, including without
limitation attorneys' fees and other costs of defending or prosecuting a claim
resulting reasonable directly from such event or occurrence; provided, however,
that all incidental, consequential, or special damages (such as, for example and
without limitation, lost profits and lost opportunities) are expressly excluded
from such term.
(xv) "Date of Commercial Operation" (initial) means the first date
that the Plant or a portion thereof shall be entitled to accrue capacity
payments from the purchaser of energy and capacity pursuant to an on-system
power purchase agreement with a public utility.
(xvi) "Default" means any of the defaults by Rocky Mountain
described in paragraph 13.1.
(xvii) "Effective Date" shall have the meaning given to such term in
paragraph 1.1.
(xviii) "Environmental Law(s)" means all existing or future federal,
state, local, and foreign laws, statutes, ordinances, rules, regulations,
administrative orders, and final decisions of judicial bodies or administrative
agencies (to the extent the issuing governmental authority has jurisdiction
over the project), including without limitation any common law theory of
liability, in any case relating to regulation or control of pollution, or to
protection of human health or the environment from or with respect to Materials
of Environmental Concern. A further elaboration of this definition is contained
in paragraph 6.2 of the Supplemental Agreement.
(xix) "Facility" means all improvements to real property and all
fixtures and tangible personal property of any nature to be constructed,
installed, and furnished by the Contractor under the Construction Contract, and
to be leased by Thermo to Rocky Mountain pursuant to this Agreement, plus such
additions or alterations as may be made thereto from time to time in compliance
with this Agreement.
(xx) "Financial Closing" means the date that Thermo secures and
becomes entitled to draw financing anticipated to be sufficient to construct and
start up the Plant and to pay the Contract Sum under the Construction Contract.
(xxi) "Force Majeure" shall have the meaning given to such term in
paragraph 7.7.
(xxii) "Greenhouse Affiliate" means an Affiliate of Rocky Mountain
which is then engaged in the commercial production and sale of agricultural
products from greenhouse facilities which utilize thermal energy generated from
cogeneration plants as their primary source of thermal energy.
(xxiii) "Greenhouse Rent Reserve Account" shall have the meaning
given to such term in paragraph 4.7.
(xxiv) "Land" means that certain real property consisting of
approximately 35.001 acres and being a portion of the Project Site, to be
leased by Thermo to Rocky Mountain pursuant to this Agreement. The Land is
particularly described in part I of
-3-
<PAGE>
Exhibit A, and shall be subject to any Reservations permitted pursuant to
paragraph 2.2, and to any Permitted Encumbrances described in Exhibit H.
(xxv) "Leased Premises" means the Land and the Facility to the
extent that the same shall remain subject to the leasehold created under this
Agreement.
(xxvi) "Lease Term" means the entire duration of the leasehold
estate created under this Agreement.
(xxvii) "Loan Agreement" shall have the meaning given to such term in
definition (xli), below.
(xxviii) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, wastes, degradation by-products, toxic substances,
petroleum and petroleum products, including without limitation "hazardous
substances," "hazardous wastes," "toxic substances" and "toxic pollutants," as
defined in or identified pursuant to any Environmental Law(s).
(xxix) "Minimum Annual Heat Requirement" means the minimum annual
quantity of thermal energy which Thermo is required to provide to Rocky Mountain
as specified in paragraph 7.1 and Rocky Mountain is required to accept and
utilize in connection with its commercial agricultural activities at the
Facility, pursuant to paragraph 7.5.
(xxx) "Notice" means each and every consent, demand, approval,
notice, information, or other communication required or permitted to be given or
obtained under this Agreement.
(xxxi) "Notice to Proceed" means the Notice provided by Thermo to
the Contractor pursuant to paragraph 6.4 directing the Contractor to commence
construction of the Facility.
(xxxii) "Operating Line of Credit" shall have the meaning given to
such term in clause (d) of paragraph 4.5.
(xxxiii) "Option Purchase Price" means the sum to be paid by Rocky
Mountain to Thermo for the purchase of the Facility if the Purchase Option is
exercised, calculated in the manner described in paragraph 5.2.
(xxxiv) "Owner" means Thermo Cogeneration Partnership, acting as
Owner under the Construction Contract.
(xxxv) "Permitted Encumbrances" means those matters affecting title
to the Land as referenced or set forth in Exhibit H hereto, including without
limitation the Declaration of Restrictive Covenants set forth in such Exhibit.
(xxxvi) "Plant" means the cogeneration plant to be constructed and
operated by Thermo on that portion of the Project Site, other than the Land,
which is described in part II of Exhibit A.
-4-
<PAGE>
(xxxvii) "Postponement" means a permitted deferral of payment of Base
Rent by Rocky Mountain, as provided in paragraph 4.6.
(xxxviii) "Preliminary Construction Schedule" means the schedule
detailing the approximate time required for Rocky Mountain's construction of the
Facility, attached as Exhibit F.
(xxxix) "Project Site" means the location for the proposed Thermo
Cogeneration Partnership cogeneration Plant and the Facility, consisting of
approximately seventy-eight and sixty-four one-hundredths (78.64) acres, and
currently having a postal address at 6501 Weld County Road 31, Fort Lupton,
Colorado 80621. The Land is included within the Project Site. The Project Site
encompasses the real property described on both part I and part II of Exhibit A.
(xl) "Preliminary Plans" means the preliminary drawings and
construction specifications of the Facility, attached as Exhibit E.
(xli) "Prudential" means The Prudential Insurance Company of
America, a New Jersey mutual insurance corporation, as a lender and as lead
agent for the Secured Parties (hereinafter together with any successors and
assigns referred to as "Prudential") under the Construction and Term Loan
Agreement dated as of March 1993 (sometimes herein and in the Supplemental
Agreement referred to as the "Loan Agreement") among Thermo Cogeneration
Partnership, L.P., a Delaware limited partnership to which Thermo intends to
assign its rights hereunder, Prudential, CSW Ft. Lupton, Inc. and the other
financial institutions named therein, as Lenders, Prudential as Lead Agent, and
CSW Ft. Lupton, Inc. as Bank Agent.
(xlii) "Purchase Option" means the option granted by Thermo to
Rocky Mountain in paragraph 5.1 to purchase the Facility, at the price, upon the
terms, and to be exercised in the manner, provided in paragraphs 5.2 and 5.9.
(xliii) "PURPA" means the Public Utility Regulatory Policies Act of
1973, as amended from time to time.
(xliv) "Qualifying Facility (QF)" means a facility which meets all
of the requirements for a "qualifying cogeneration facility" set forth in the
Regulations implementing PURPA as currently established by the Federal Energy
Regulatory Commission and set forth in Sections 292.201 through 292.207 of Title
18, Code of Federal Regulations, and all amendments of such requirements which
may become effective from time to time.
(xlv) "Quarterly Payment Date(s)" shall have the meaning given to
such term in paragraph 4.1.
(xlvi) "Reservations" shall have the meaning given to such term in
paragraph 2.2.
(x1vii) "Substantial Completion (Substantially Complete)" means the
stage of the process of the Work when the Work is sufficiently complete in
accordance with the
-5-
<PAGE>
Construction Plans so the Facility can be occupied and utilized for the
commercial production of agricultural products.
(xlviii) "Supplemental Agreement" means a certain agreement in the
form attached hereto as Appendix II to be executed and delivered by Rocky
Mountain, Thermo, and Prudential of even date with the Loan Agreement (defined
under clause x1i above), and which agreement takes effect upon execution by
Thermo and Prudential of the Loan Agreement and remains in effect only until the
prospective obligations of Thermo under the Loan Agreement and the collateral
and other documents related to Loan Agreement have been fully performed, paid,
and discharged.
(xlix) "Thermal Payments" means the payments which Rocky Mountain is
required to make to Thermo in accordance with paragraph 7.6.
(l) "Thermal Term" means the period beginning on the
Commencement Date and expiring on the twenty-fifth (25th) anniversary of the
initial Date of Commercial Operation.
(li) "Work" means the construction and services to be performed by
the Contractor under the Construction Contract and includes all other labor,
materials, equipment, and services provided or to be provided by the Contractor
to fulfill the Contractor's obligations thereunder. The Work is further
described in Article 2 of the Construction Contract.
TERMS, COVENANTS, AND CONDITIONS
--------------------------------
1. EFFECTIVE DATE; DURATION
OF OBLIGATIONS
------------------------
1.1 Effective Date. The "Effective Date" of this Agreement
--------------
is the date first set forth above, notwithstanding any prior or subsequent date
of execution or ratification. All obligations of both parties, shall take effect
on the Effective Date; provided, however, that the demise of the Leased
Premises shall not become effective until the "Commencement Date" as provided
in paragraph 3.2.
1.2 Duration of Obligations. The leasehold estate to be
-----------------------
conferred hereunder shall begin on the Commencement Date and shall remain in
effect until the earlier of (a) the purchase of the entire Leased Premises
(including both the "Land" and the "Facility") by Rocky Mountain, or (b) the
expiration or earlier termination of the Lease Term as to both the Land and
Facility. Notwithstanding such purchase, expiration, or earlier termination of
the Lease Term because of exercise of the Purchase Option, subject to agreed
earlier termination or the right of either party to terminate in the event of a
material breach by the other, the thermal supply obligations of Thermo and the
thermal usage obligations of Rocky Mountain hereunder shall begin on the
Commencement Date and shall remain in effect for a period of twenty-five (25)
years from the initial Date of Commercial Operation (the "Thermal Term"). The
provisions of this paragraph are subject to the Financial Closing condition
subsequent provided in paragraph 21.1. Should Financial Closing not be achieved
on or before the final date
-6-
<PAGE>
determined in accordance with paragraph 21.1, this Agreement, including the
leasehold estate, the construction obligations, and the thermal supply and usage
obligations of both parties, shall terminate as of such date; provided, however,
all obligations of both parties which were, by the terms of this Agreement,
required to have been performed prior to such termination date, or are required
by their terms or the context to survive such termination date, shall survive.
2. LEASE OF PREMISES
-----------------
2.1 Demise. Effective on the Commencement Date (but not until such
------
date), Thermo shall, and hereby does, lease and demise to Rocky Mountain, for
and during the Lease Term, and subject to all terms and conditions of this
Agreement, that certain Land described in part I of Exhibit A attached hereto
consisting of 35.001 acres, more or less (being a portion of the "Project Site"
also described in Exhibit A), together with certain improvements to real
property and all fixtures and tangible personal property of any nature which,
pursuant to the Construction Contract, shall be constructed on the Land and
furnished for the operation of such improvements as a commercial Greenhouse
prior to the Commencement Date, as provided in section 6; provided, however,
that Thermo shall not be obligated to grant such leasehold interest if Rocky
Mountain or any of Rocky Mountain's Affiliates are then in default under any
then-existing contract between Rocky Mountain or any of Rocky Mountain
Affiliates on one hand, and Thermo or any of Thermo's Affiliates on the other.
Such improvements, fixtures, and personal property, together with any additions
or alterations thereto permitted to be made by Rocky Mountain hereunder, shall
constitute the "Facility". A more complete description of the Facility shall be
included in the Commencement Date Notice to be delivered pursuant to paragraph
3.2. Subject to section 5 (pursuant to which Rocky Mountain may, under certain
circumstances, purchase Facility and, under certain additional conditions, the
Land), the Facility and the Land are hereafter referred to collectively as the
"Leased Premises."
2.2 Reservations from Description: Restrictive Covenants. At any
----------------------------------------------------
time prior to purchase by Rocky Mountain of the entire Leased Premises, Thermo
shall have the right to make reasonable reservations from the interest in
the Land leased hereunder ("Reservations") for such covenants, easements,
licenses, and rights of entry as Thermo may in Thermo's discretion,
reasonably exercised, deem prudent to grant to third parties or retain for
Thermo's business purposes; provided, however, that such Reservations shall not
impair materially the use of the Facility by Rocky Mountain for commercial
agricultural purposes. Thermo shall notify Rocky Mountain a reasonable time
prior to effecting any such Reservations. Within thirty (30) days after
receipt of such Notice(s), Rocky Mountain shall give Notice to Thermo of any
objection by Rocky Mountain stating in such Notice any material impairment of
use for commercial agricultural purposes which will result from such proposed
Reservations. If Rocky Mountain's objection is valid in Thermo's discretion
reasonably exercised, Thermo shall not implement the proposed Reservations. If
no objection is made by Rocky Mountain within such thirty (30) day period, or
if such objection is not valid in Thermo's discretion reasonably exercised,
Exhibit H to this Agreement shall be deemed to have been amended to incorporate
the proposed Reservation. Thermo shall have the right to file with respect to
the Leased Premises, at any time deemed prudent by Thermo, (i) a declaration of
restrictive covenants substantially in accordance with the proposed Declaration
of Covenants set
-7-
<PAGE>
forth in Exhibit H and (ii) such instruments as may be necessary or appropriate
to reflect reservations to be granted or retained by Thermo under this paragraph
2.2. Upon filing of such declaration the Leased Premises shall be deemed to have
been made subject to such restrictions prior to the demise thereof to Rocky
Mountain.
3. LEASE TERM.
-----------
3.1 Basis of Commencement Date. The "Commencement Date" of the Lease
---------------------------
Term shall be determined, in part, based on progress achieved by Thermo in
construction of the Plant. Thermo shall use reasonable efforts to construct (or
cause to be constructed) the Plant at the Project Site in order to achieve an
initial "Date of Commercial Operation" for the Plant (or a portion thereof) of
January 1, 1994. Prior to achieving a Date of Commercial Operation, Thermo must
substantially complete construction, commence initial operation, and complete
start-up of all or a portion of the Plant. Thermo shall not become liable to
Rocky Mountain in any way if the Commencement Date does not occur because
the Plant is delayed in achieving, or is not expected to achieve, an initial
Date of Commercial Operation. Thermo shall inform Rocky Mountain from time to
time upon inquiry concerning progress toward Financial Closing and thereafter
concerning the Plant construction schedule and process of Plant construction.
Rocky Mountain acknowledges that, among other things, delay in achieving
Financial Closing beyond March 31, 1993 may impact, materially and adversely,
the ability of Thermo to achieve the currently proposed initial Date of
Commercial Operation.
3.2 Establishment of Commencement Date: Prior Occupancy. The
----------------------------------------------------
Commencement Date shall be established in the "Commencement Date Notice" which
shall be to Rocky Mountain by Thermo in the form of Exhibit B attached
hereto. Provided that the Facility is then Substantially Complete as envisioned
in section 6, Thermo shall, not less than sixty (60) days before the date
Thermo anticipates that an initial Date of Commercial operation will be
achieved, give to Rocky Mountain the Commencement Date Notice to the effect
that the Lease Term will commence on such future date (the "Commencement Date")
which, is specified in the Commencement Date Notice; provided, however, that
unless Rocky Mountain shall consent the Commencement Date shall not occur
from October 1 through December 31 (inclusive) of any calendar year. The
Commencement Date Notice shall then be incorporated into this Agreement in
lieu of Exhibit "B". In addition, should it reasonably appear to Thermo that the
Plant will, in all probability, achieve an initial Date of Commercial Operation
at some future date (even if such future date is then uncertain), Thermo shall,
upon request by Rocky Mountain, permit Rocky Mountain to occupy the Facility or
any material portion thereof prior to the Commencement Date for purposes of
initial planting and other preparations for Rocky Mountain's first production of
agricultural products at the Facility. Such prior occupancy shall be on a
provisional basis pursuant to a temporary license incorporating such
special terms and conditions as the parties shall deem reasonable. In addition,
Thermo may waive the requirement that the Facility be Substantially Complete
prior to giving the Commencement Date Notice should it reasonably appear to
Thermo that Substantial Completion will be achieved prior to the anticipated
initial Date of Commercial Operations.
3.3 Lease Term Duration. The "Lease Term" shall begin on the
--------------------
Commencement Date, and shall expire, unless sooner terminated, on the date which
is
-8-
<PAGE>
the twenty-fifth (25th) anniversary of the initial Date of Commercial Operation
applicable to the Plant. After the initial Date of Commercial Operation occurs,
Thermo shall confirm the date of expiration of the Lease Term to Rocky Mountain
by Notice. No leasehold estate shall be deemed created until the Commencement
Date shall have occurred. Prior to such date, Rocky Mountain's access to the
facility and the land shall be pursuant to the Construction Contract and any
temporary license which may be granted pursuant to paragraph 3.2.
4. RENT
----
4.1 Base Rent. Subject to deferral in the manner provided in
----------
paragraph 4.6, below and to adjustment in accordance with a certain "Memorandum
Regarding Adjustment of Rent and Option Price" of even date (the form of which
is attached hereto as Appendix I), Rocky Mountain shall pay to Thermo during
that portion of the Lease Term beginning on the Commencement Date and expiring
on the twentieth (20th) anniversary of the initial Date of Commercial Operation
total "Base Rent" for the Leased Premises equal to Seventeen Million, Five
Hundred Twenty-One Thousand, Six Hundred Seventy Eight and 18/100 Dollars ($
17,521,673.18). Subject to deferral and adjustment in like manner, Base Rent for
such initial period shall be paid in seventy-seven (77) equal quarterly
installments of Two Hundred Twenty-Seven Thousand, Five Hundred Fifty-Four and
29/100 Dollars ($227,5554.29). Installments of Base Rent shall be payable in
arrears beginning on the last day (i.e. on March 31, June 30, September 30, or
December 31) of the first complete calendar quarter which commences six (6)
complete calendar months or more after the Commencement Date, and continuing on
the final day of each calendar quarter for seventy-six (76) calendar quarters
thereafter. (For example, if the Commencement Date should be any date from
January 1, 1994 through March 31, 1994, the first installment of Base Rent would
be payable on December 31, 1994; should the Commencement Date be any date from
April 1, 1994 through June 30, 1994, the first installment of Base Rent would be
payable on March 31, 1995, etc.) Such dates on which payments of Base Rent shall
be due (without regard to any Postponement of payment permitted under paragraph
4.6) are hereinafter referred to as "Quarterly Payment Dates." The Quarterly
Payment Dates shall be confirmed in the Commencement Date Notice; subject,
however, to Postponements to the extent permitted under paragraph 4.6. During
the final five (5) years of the Lease Term, Base Rent for the Leased Premises
shall be One Hundred Dollars ($100) per year, payable in advance on the
twentieth (20th) anniversary of the Commencement Day and on the same day of each
year thereafter during the remainder of the Lease Term, and, in addition, Rocky
Mountain shall pay to Thermo any accumulated postponements of Base Rent (plus
interest thereon) which may have been referred and shall then be outstanding
pursuant to paragraph 4.6. During such period, payments of deferred Base Rent
shall be made at such time and in such amounts as is provided in such paragraph
4.6.
4.2 Additional Rent. Rocky Mountain also shall pay, as "Additional
----------------
Rent", all real property and other property taxes, all governmental assessments
levied during the Lease Term against the Leased Premises (including without
limitation the Land) for improvements benefiting the Leased Premises during the
Lease Term, and all other costs or charges of any nature whatsoever which Rocky
Mountain is expressly required by this Agreement to pay with respect to the
Leased Premises during The Lease Term, including, without limitation any
apportionment of insurance premiums allocated to
-9-
<PAGE>
Rocky Mountain under paragraph 9.6. This obligation shall survive expiration of
the Lease Term. Additional Rent shall be paid by Rocky Mountain making payment
of such costs and charges directly to the third party entitled to receive
payment therefor; provided, however, that unless Thermo notifies Rocky
Mountain to make real property tax payments directly to the taxing authority,
all real property taxes and assessments shall be paid to Thermo as Additional
Rent at least ten (10) days before the same would become delinquent. Should the
present method of property taxation or assessment be changed so that there
would be substituted for the whole or any part of the real property taxes or
assessments now or hereafter imposed on the Leased Premises or any part thereof,
a capital tax or other tax imposed on the rent or any other payments received by
Thermo from Rocky Mountain, such other tax, to the extent that it is so
substituted, shall be included in determining Thermo's real property tax bill
for the relevant years, and shall be paid by Rocky Mountain as Additional Rent.
4.3 Manner and Application of Payment. Except as is expressly
---------------------------------
permitted pursuant to paragraph 4.6, all rent and other charges of any nature
required to be paid by Rocky Mountain to Thermo under this Agreement, including
without limitation Base Rent, Additional Rent, and Thermal Payments shall be
paid to Thermo on or before the due date in immediately available funds without
Notice or demand. Payments shall be made at the office of Thermo from time to
time provided for delivery of Notices or to such other address and/or payee, as
Thermo may from time to time designate by Notice to Rocky Mountain. Payments
shall be applied first to pay Additional Rent and other costs and expenses which
shall become payable to Thermo hereunder, second to Thermal Payments required
hereunder, third to Base Rent then currently due and payable hereunder (unless
Rocky Mountain shall then be entitled to and shall elect to defer payment of
Base Rent under paragraph 4-6) and fourth to "Postponements" and accrued
interest thereon as provided in paragraph 4.6 in order of the longest
outstanding to the shortest outstanding Postponement. Payment of those
components of Additional Rent which Rocky Mountain is obligated to Pay directly
to third parties hereunder shall be made in a timely manner, as the applicable
creditors may from time to time direct. Nothing, herein shall create any privity
of contract between Thermo and any third-party creditors of Rocky Mountain, or
otherwise make Thermo responsible for any debts of Rocky Mountain. All covenants
in this Agreement with respect to payments of any nature to be made by Rocky
Mountain, except payment of Thermal Payments, are and shall be deemed to be
independent covenants.
4.4 Least Not Terminable Prior to Payment of Base Rent. Except
---------------------------------------------------
as otherwise expressly set forth in this Agreement, the demise of the Leased
Premises provided in this Agreement shall not expire or become terminable by
Rocky Mountain for any reason whatsoever prior to payment to Thermo in full of
the entire Base Rent provided in paragraph 4.1. Until Base Rent for the Lease
Term shall be paid in full, or until Rocky Mountain shall have purchased the
entire Leased Premises as provided in section 5, below, Rocky Mountain waives
all rights which may now or hereafter be conferred by law to abandon, terminate,
or surrender the leasehold estate, in whole or in part, or to any abatement,
suspension, diminution, deduction, or reduction whatsoever of Base Rent. Nothing
in this paragraph 4.4 or in any other paragraph of this Agreement shall be
construed as a waiver of any claims which may become assertable by Rocky
Mountain against Thermo under this Agreement, or as a relinquishment by Rocky
Mountain of the right of setoff against Base Rent with respect to such claims.
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<PAGE>
4.5 Determination of "Available Net Cash"; Restrictions on
------------------------------------------------------
Distributions. Beginning on the first complete calendar quarter which
- -------------
commences six (6) complete calendar months or more after the Commencement Date,
and continuing throughout the first twenty (20) years of the Lease Term, Rocky
Mountain shall calculate "Available Net Cash" (hereinafter defined) four (4)
times yearly. Such calculations shall be made within fifteen (15) days after the
final day of February, May, August, and November in the manner provided below in
this paragraph 4.5 from receipts and disbursements during the "Calculation
Period" ending on the final day of such months. The results of such calculations
shall be deemed to be the determination of cash available to Rocky Mountain for
payment of Base Rent for the calendar quarter ending on the final day of the
month after such Calculation Period, that is, for the quarters ending March,
June, September, and December, respectively. "Available Net Cash" is defined as:
(a) Rocky Mountain's fractional share on an acreage basis
(the denominator being the total acreage of all commercial greenhouses then
being operated by Rocky Mountain and Rocky Mountain's Greenhouse Affiliates and
the numerator being total acreage of the Facility) of gross cash receipts during
a given Calculation Period from the sale of agricultural products produced at
the Facility and at all other commercial greenhouse facilities operated by all
of Rocky Mountain's Greenhouse Affiliates (for example, with respect, to the
calendar quarter ended December 31, cross cash receipts for the Calculation
Period comprised of months of September, October, and November); provided, that
insurance proceeds received by Rocky Mountain (directly or indirectly) on
account of damage to or loss of crop from insurance carried pursuant to
paragraph 9.7 shall be included in Available Net Cash without apportionment.
(b) Less Rocky Mountain's same fractional share (i.e. determined
in the manner provided in clause (a) of this paragraph 4.5) of reasonable cash
expenditures by Rocky Mountain and all of Rocky Mountain's Greenhouse Affiliates
during the same Calculation Period for marketing of the agricultural products
produced at all such commercial greenhouse facilities;
(c) Less Rocky Mountain's same fractional share of reasonable
cash expenditures by Rocky Mountain and all of Rocky Mountain's Greenhouse
Affiliates during the same Calculation Period for general and administrative
purposes which are properly allocable to the production and sale of such
agricultural products;
(d) Less all other cash expenditures during the same
Calculation Period (i.e. excluding depreciation and amortization) by Rocky
Mountain for ail ordinary and necessary expenses of operating the Facility,
except Base Rent. Repayment of interest and principal on debt which is (i)
reasonably necessary to incur in order to provide for operation of the Facility,
(ii) is used solely to pay ordinary and necessary expenses of operating the
Facility and (iii) is borrowed by Rocky Mountain at rates an on terms not less
favorable to commercial banks doing business in Denver, Colorado (an "Operating
Line of Credit") shall be considered to be an ordinary and necessary expense of
operating the Facility. Repayment of interest or principal on debt which does
not meet the requirements of the preceding sentence shall not be considered to
be an ordinary and necessary expense of operating the Facility, and Rocky
Mountain shall not incur debt
-11-
<PAGE>
which does not meet such requirements without Thermo's prior written consent.
Expenses incurred by Rocky Mountain's Greenhouse Affiliates shall not be
considered for purposes of the deduction permitted under this clause (d);
provided, however, that should Rocky Mountain and any of Rocky Mountain's
Greenhouse Affiliates utilize personnel, services, equipment, materials,
facilities, or other non-financial resources in common (other than such of the
foregoing as are utilized for marketing and general and administrative
purposes), or should Rocky Mountain obtain, in conjunction and as joint obligor
with any of Rocky Mountain's Greenhouse Affiliates, an Operating Line of Credit,
the expenditures attributable to such common usage of non-financial resources
and repayment of debt on such common Operating Line of Credit shall be
apportioned equitably among all such commercial greenhouse operators, based on
the relative utilization of such common resource by each such greenhouse
operator, and the allocation thus made to Rocky Mountain shall be deemed, for
purposes of this clause (d), to have been incurred by Rocky Mountain and not by
any of Rocky Mountain's Greenhouse Affiliates. Nothing in this paragraph 4.5
shall be construed: (i) to require that Rocky Mountain obtain a single Operating
Line of Credit in conjunction with one or more Greenhouse Affiliates or
repayment of principal and interest thereon to be considered an ordinary and
necessary expense of operating the Facility, (ii) to require that Rocky Mountain
obtain an Operating Line of Credit rather than establishing a reserve for
working capital, or (iii) to preclude Rocky Mountain from establishing a reserve
for working capital and also obtaining an Operating Line of Credit to the extent
such Operating Line of Credit meets the requirements set forth above in this
clause (d). However, no amounts set aside as a reserve, for working capital
shall be deductible from gross cash receipts for purposes of determining,
Available Net Cash. Rocky Mountain shall not, without Thermo's prior written
consent, directly or indirectly declare or pay any dividend or make any
distribution of cash or other property out of borrowed funds, regardless of
whether such borrowed funds arc obtained from an Operating Line of Credit:
provided, however, that this shall not be construed to prohibit Rocky Mountain
from making matching, dividends or distributions to the extent permitted in
paragraph 1.6 while Postponements of Base Rent are outstanding.
4.6 Deferral of Base Rent: Limitations on Distributions. In the event
---------------------------------------------------
that, during that portion of the Lease Term which expires on the twentieth
(20th) anniversary of the Commencement Date, operation of the Facility should,
with respect to any calender quarter, fall to generate sufficient Available Net
Cash for payment in full of the installment of Basement due with respect to
such calendar quarter, Rocky Mountain may give to Thermo, not later than ten
(10) days prior to the applicable Quarterly Payment Date, Notice stating Rocky
Mountain's intention to defer payment of all or a portion of the quarterly
installment of Base Rent to become due on such Quarterly Payment Date. Such
Notice shall be accompanied by a complete copy of Rocky Mountain's calculations
showing a deficiency in Available Net Cash for payment in full of Base Rent due
with respect to such calendar quarter and shall be deemed to be a representation
by Rocky Mountain of the completeness and accuracy of such calculations. Such
calculations shall be subject to review and approval by Thermo, which shall not
be withheld unreasonably. Based on such calculations, Rocky Mountain shall have
the right to defer payment of such installment of Base Rent to the extent of the
deficiency in Available Net Cash (each such deferral sometimes herein a
"Postponement"). Each Postponement shall be accounted for separately as a deemed
extension of credit from Thermo to Rocky Mountain, and shall accrue interest
from the time of deferral until the time of payment at the rate of eight percent
(8%) per annum, compounded annually
-12-
<PAGE>
with respect to each postponement beginning twelve (12) months after the date of
such Postponement. Under no circumstances shall Rocky Mountain be permitted to
have outstanding accumulated Postponements plus accrued interest thereon of more
than Two Million Five Hundred Thousand Dollars ($2.500.000). Rocky Mountain may
make payments to Thermo of such Postponement(s), plus accrued interest thereon,
in whole or in part at any time without penalty. Should Rocky Mountain desire to
pay any dividends or make any distribution of cash or other property to its
members or other equity owners at any time while any Postponement is
outstanding, Rocky Mountain shall, simultaneously with such dividend or
distribution, make a payment equal to such dividend or distribution for
application against such total Postponement(s) and accrued interest thereon, but
under no circumstances in excess of total Postponement(s) plus accrued interest
then outstanding. The foregoing notwithstanding standing, Rocky Mountain shall,
in addition to Thermal Payments and payments of Additional Rent, also make
payments to Thermo to apply against Postponements (plus accrued interest
thereon) to tile extent that, as of any Quarterly Payment Date, the sum of all
Postponements plus accrued interest then outstanding (including any Postponement
to which Rocky Mountain would otherwise be entitled for the then-current
calendar quarter) exceeds Two Million Five Hundred Thousand Dollars
($2,500,000). For example, should the sum of all Postponements plus accrued
interest thereon as of any Quarterly Payment Date be $2,600,000 (after giving
effect to the regular quarterly payment of Base Rent made on such date) an
additional payment of $100,000 would be required on such Quarterly Payment Date,
thereby reducing he sum of all Postponements plus accrued interest to
$2,500,000 after application of such additional payment. If not sooner paid,
Rocky Mountain shall, beginning on the final day of each calendar quarter
which occurs after the twentieth (20th) anniversary of the initial Date of
Commercial Operation, and continuing on the final day of each calendar
quarter thereafter until all Postponements outstanding on the twentieth (20th)
anniversary of the initial Date of Commercial Operation, together with
interest accruing thereon through the date of payment, shall have been fully
paid, make payments to apply against such Postponements plus accrued interest
thereon in the amount of the quarterly installments of Base Rent provided in
paragraph 4.1, as the same may be adjusted pursuant to the Memorandum
Regarding Adjustment of Rent and Option Price. Such payments shall be in
addition to the Base Rent payments of One Hundred Dollars ($100) per year
required during the final five (5) years of the Lease Term pursuant to
paragraph 4.1. Anything herein to the contrary notwithstanding, should any
Postponement(s) be outstanding (in whole or in part) upon purchase of the
Facility or the entire Leased Premises (i.e. both the Land and the Facility) as
Provided in paragraphs 5.2 and 5.5. below, such Postponements shall become due
and payable, and shall be paid in full, together with accrued interest thereon,
upon closing of such purchase. Further, should any Postponement(s) of Base Rent
(in whole or in part) be outstanding upon final expiration or other termination
of the Lease Term, such deferred amounts shall become due and payable, and
shall be paid in full, together with interest thereon, upon expiration or
termination of the Lease Term.
4.7 Reserve for Rent Payments: Restriction on Distributions. To the
-------------------------------------------------------
extent required of Thermo in the Loan Agreement, Rocky Mountain shall, on each
Quarterly Payment Date, make payments to Thermo for deposit in a cash reserve
account (the "Greenhouse Rent Reserve Account") equal to seventy percent (70%)
of Available Net Cash in excess of amounts required to pay rent hereunder;
provided, however, that such payments
-13-
<PAGE>
shall not be required at any time when the amount on deposit in the Greenhouse
Rent Reserve Account equals or exceeds Base Rent to become due on the next
succeeding four (4) Quarterly Payment Dates. Thermo shall deliver such sums to
the Disbursement Agent provided for under the Loan Agreement (or to any
successor Disbursement Agent) to be held as security for payment of rent
hereunder by Rocky Mountain. Commencing with the first Calculation Period and
continuing until the Greenhouse Rent Reserve Account shall no longer be required
hereunder, Rocky Mountain shall not declare or pay any dividend or make any
distribution of cash or other property at any time while the Greenhouse Rent
Reserve is not fully funded. In the event that Rocky Mountain shall not have
sufficient Available Net Cash to pay all rent due on any Quarterly Payment Date.
Thermo shall return to Rocky Mountain, from the Rent Reserve Account, sums
sufficient to pay such rent, (to the extent of funds then on deposit in the Rent
Reserve Account), and Rocky Mountain shall forthwith remit such sums to Thermo
for payment of rent. Amounts so returned to Rocky Mountain from the Greenhouse
Rent Reserve Account shall be applied to avert Postponements to which Rocky
Mountain would otherwise be entitled under paragraph 4.6 on such Quarterly
Payment Date, but Thermo shall not be entitled to apply funds obtained from the
Greenhouse Rent Reserve Account to reduce Postponements which accrued on prior
Quarterly Payment Dates. Thermo shall also return to Rocky Mountain from the
Greenhouse Rent Reserve Account on each Quarterly Payment Date any balance in
such account in excess of Base Rent to become due on the next succeeding four
(4) Quarterly Payment Dates. Promptly after receipt of the Tax Rate Certificate,
Thermo shall return to Rocky Mountain the difference between 80% of Available
Net Cash in excess of rent deposited for the preceding tax year and the lesser
percentage (but not less than 70%) of Available Net Cash in excess of rent which
Rocky Mountain was obligated to deposit during such tax year as established by
the Tax Rate Certificate. Upon expiration or earlier termination of the Lease
Term, or upon the Greenhouse Rent Reserve Account no longer being required
hereunder, Thermo shall return all funds then on deposit in such account to
Rocky Mountain. Should an alternate form of security for payment of rent by
Rocky Mountain or a reduced amount of such security be acceptable to the party
or parties providing financing for the Plant and/or the Facility, Rocky Mountain
and Thermo shall cooperate to establish such alternate form or reduced amount of
security. Anything in this paragraph 4.7 to the contrary notwithstanding, Thermo
shall also have the right to set off against rent then due from Rocky Mountain
hereunder all sums obtained by Thermo from the Greenhouse Rent Reserve Account,
in lieu of returning such sums to Rocky Mountain for remission to Thermo. Should
Thermo exercise such right of set off it shall promptly advise Rocky Mountain
thereof.
4.8 Impact of Certain Thermo Financing. Rocky Mountain's payment
----------------------------------
obligations under this Section 4 are subject to the provisions of paragraph 16
of the Supplemental Agreement.
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<PAGE>
5. PURCHASE BY ROCKY MOUNTAIN
--------------------------
5.1 Option to Purchase Facility. Subject to the provisions of paragraph 4
---------------------------
of a certain Supplemental Agreement of even date (the form of which is attached
hereto as Appendix II and is hereinafter referred to as the "Supplemental
Agreement"), for a period beginning on the Commencement Date and expiring twelve
(12) years after the Commencement Date, Thermo grants to Rocky Mountain the
right and option ("Purchase Option") to purchase the Facility upon payment of
the Option Purchase Price determined in accordance with Exhibit C and paragraph
5.2; provided, however, that at the time of exercise of the Purchase Option, and
at the time of closing of such purchase, neither Rocky Mountain nor any
Affiliate of Rocky Mountain shall be in default under this Agreement or any
other agreement then existing between Rocky Mountain on any Affiliate of
Rocky Mountain on one hand, and Thermo or any Affiliate of Thermo on the other;
provided, further, that such purchase shall be closed within the time designated
by Rocky Mountain in its Notice of exercise or such extended time as may be
permitted under paragraph 5.5.
5.2 Exercise of Option: Purchase Price: Closing. Rocky Mountain must
-------------------------------------------
exercise the Purchase Option, if at all, by notifying Thermo of exercise thirty
(30) days or more prior to the date on which Rocky Mountain desires to accept
title to the Facility, but under no circumstances shall such Notice be given
later than one (1) month prior to expiration of the Purchase Option. If the
Purchase Option is exercised, the purchase shall be closed on the last day of
any calendar quarter designated by Rocky Mountain for closing in the Notice of
exercise, but under no circumstances later than the expiration date of the
Purchase Option as provided in paragraph 5.1. The "Option Purchase Price" shall
be, as of the applicable calendar quarter end, the amount on Exhibit "C"
attached hereto (as adjusted, if required, pursuant to the Rent Adjustment
Memorandum), plus any other payments accrued to Thermo hereunder as of the date
of closing, plus any outstanding Postponements and accrued interest thereon in
accordance with paragraph, 4.6, above, plus any prepayment premium of any nature
which Thermo shall be obligated to pay on the Option Purchase Price (but not on
any other sum prepaid in conjunction therewith) to any third party providing
financing for the Plant and/or the Facility holding a security interest in the
Facility and who shall be entitled to receive proceeds from payment of the
Option Purchase Price in accordance with the loan agreement and supporting
security documents between Thermo and such third party, plus the additional sum
of Ten Thousand Dollars ($10,000). Closing shall occur at the principal office
of Thermo, or such other mutually convenient location as the parties may
designate.
5.3 Title to and Condition of Assets Purchased. At the closing of any
------------------------------------------
purchase hereunder, Rocky Mountain shall pay the applicable Option Purchase
Price to Thermo in cash, and Thermo shall convey to Rocky Mountain all of
Thermo's right, title, and interest in the Facility by general warranty deed,
free and clear of all mortgages, liens, and other encumbrances relating to
financing obtained or debts incurred by Thermo, but subject to the continuing
covenants of this Agreement and to the other matters provided in sections 7 and
8 (except paragraph 4.7), which shall be covenants running with the Land for the
benefit of the remaining portion of the Project Site (described in Part II of
Exhibit A) and be enforceable for a period concurrent with the expiration date
of the Thermal Term as if the purchase had not occurred, and subject to those
further matters, if any, then comprising the "Schedule of Permitted
Encumbrances"
-15-
<PAGE>
attached hereto as Exhibit H. The foregoing notwithstanding, Thermo may elect to
convey by special warranty deed, in which event Thermo shall purchase and
provide to Rocky Mountain an ALTA Owner's Policy of Title Insurance in the
amount of the applicable Option Purchase Price. Such title insurance policy
shall insure title in Rocky Mountain subject only to standard exceptions
provided in such form and to special exceptions permitted under this paragraph
5.3). Rocky Mountain shall accept such conveyance of the Facility "as is, where
is," and "with all faults," and shall thereafter defend, indemnify and save
Thermo harmless from any losses, Damages or claims arising out of or occurring
in connection with the operation of the Facility except such losses, damages,
and claims as may arise out of the negligent or intentionally tortious acts or
omissions of Thermo, its agents, and employees.
5.4 Ground Rent if Facility Purchased. In the event that Rocky
---------------------------------
Mountain purchases the Facility, Thermo shall, subject to the provisions of
paragraph 5.5, retain the lessor's interest in the Land (i.e. the reversion in
fee), and the Land will thereafter comprise the entirety of the Leased Premises.
In such event, the Lease Term shall continue with respect to the Land only.
Effective on the closing date of such purchase, total Base Rent for the Leased
Premises for the remainder of the Lease Term shall be reduced to an amount equal
to the number of whole or partial months remaining in the Lease Term multiplied
by one percent (1%) of the unencumbered fair market value of the Land
(determined as if there were no improvements thereon) as of the closing date.
Such reduced total Base Rent shall be payable in equal quarterly installments,
in arrears three (3) months after the closing date and on the same day of each
quarter during the remainder of the Lease Term. The amount of each such
installment shall be three percent (3%) of the unencumbered fair market value
of the Land as of the closing date. Additional Rent for the Land during such
period of ground rent only shall consist of real property taxes and assessments
levied with respect to the Land, and shall be paid in the same manner required
for payment of taxes and assessments with respect to the Land and the Facility
pursuant to paragraph 4.2.
5.5 Purchase of Land: Conditions. Prior to exercising the Purchase
----------------------------
Option, Rocky Mountain may request that Thermo enlarge the Purchase Option to
encompass the right to also purchase all of Thermo's right, title, and interest
in the Land. Thermo shall do so if Rocky Mountain determines, in Rocky
Mountain's discretion reasonably exercised, that Rocky Mountain is unable to
obtain commercially reasonable financing for purchase of the Facility without
also purchasing the Land, and if Rocky Mountain provides to Thermo reasonable
assurances that if the Purchase Option is enlarged Rocky Mountain will in fact
proceed to purchase the Leased Premises, including the Land. In such event, the
Option Purchase Price for the Leased Premises shall be increased by adding
thereto an amount equal to the unencumbered fair market value of the Land
(determined as if there were no improvements thereon) as of the date the
Purchase Option is exercised, and upon payment of such increased Option Purchase
Price Thermo shall, at the closing, also convey the Land to Rocky Mountain in
the same manner and subject to the terms and conditions provided in paragraph
5.3. Rocky Mountain shall have no right or option to purchase the Land separate
and apart from, or later than, the purchase by Rocky Mountain of the Facility
through exercise of the Purchase Option. Should it become necessary to determine
the fair market value of the Land by appraisal pursuant to paragraph 5.7, the
date for closing may be extended to the extent necessary to complete the
appraisal process.
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<PAGE>
5.6 Certain Obligations to Continue. Should Rocky Mountain purchase
-------------------------------
the entirety of the Leased Premises, i.e. both the Facility and the Land, both
the Lease Term and Rocky Mountain's obligation to pay rent shall cease. The
foregoing notwithstanding, in the event of a purchase, there shall be no
apportionment of any expenses with respect to the property purchased, and Rocky
Mountain shall continue to pay all costs and charges of any nature which Thermo
may become obligated to pay with respect to the Facility, and (if applicable)
the Land and which, but for such purchase by Rocky Mountain, would have been
payable by Rocky Mountain as Additional Rent. Anything herein to the contrary
notwithstanding, all covenants and obligations of this Agreement pertaining
to thermal supply matters (including, without limitation, sections 7 and 8)
shall continue, after termination of the Lease Term as a result of purchase by
Rocky Mountain of either the Facility or the entire Leased Premises, for the
period ending on the date for expiration of the Thermal Term.
5.7 Valuation by Appraisal. Whenever this Agreement requires that the
----------------------
fair market value of the Land be determined as of any particular date, the
parties shall negotiate in good faith to determine such value for a period of up
to thirty (30) days after it becomes apparent that valuation is required. If
they are unable to agree within such period, either party may, by Notice to the
other, demand that the value be determined by appraisal. The party demanding
appraisal shall, at the time such demand is made, designate a professional real
estate appraiser to perform such appraisal. If such appraiser is not acceptable
to the non-designating party, the non-designating party shall, within ten (10)
days after demand for appraisal is made, designate a second professional
appraiser. If such second professional appraiser is acceptable to the party
having first demanded appraisal, the appraisal shall be performed by the second
appraiser so designated. Otherwise, both parties (or, should the parties be
unable to agree, the two previously designated appraisers) shall, within ten
(10) days after the second appraiser is designated, designate a third appraiser,
and the three (3) appraisers shall, within thirty (30) days after the third
appraiser is designated, jointly determine the fair market value of the Land, on
an unencumbered and unimproved basis, and render a written report of such
determination to both parties. The appraisers shall attempt to determine value
by consensus, but if they are unable to do so the fair market value of the
property appraised shall be deemed to be the average of their separate
valuations; provided, however, that if two of the three appraisers' valuations
are within ten percent (10%) of each other, and the third appraiser's valuation
is more than ten percent (10%) different from either of the other two
valuations, the valuation which is more than ten percent (10%) different shall
be disregarded. All appraisers shall be independent of either party and shall be
persons having not less than ten (10) years' experience in appraisal of
commercial and industrial real property in the Counties of Weld, Denver,
Boulder, and Adams, Colorado, or if less experienced in the local market shall
hold the then-current designation of Member of the Appraisal Institute ("MAI"),
Society of Industrial Realtors ("SIR"), or other professional appraiser
designation of comparable stature and qualification. Costs and expenses of
appraisal shall be borne equally by Thermo and Rocky Mountain. If any other
transaction in property sold or leased by thermo on or in the vicinity of the
Project Site shall be considered by the appraisers as a comparable transaction,
the appraisers shall analyze and take into consideration, when evaluating such
comparable transaction, the impact of any thermal energy sales contracts or
agreements entered into with Thermo in connection with such transaction.
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<PAGE>
5.8 Mortgage to Secure Performance. Upon closing of any purchase
------------------------------
provided for in this section 5, whether of the Facility alone or of the entire
Leased Premises, should any party providing financing to Thermo so request,
Rocky Mountain shall execute and deliver to Thermo a Mortgage of the Facility
(and if applicable the Land) in substantially the form attached hereto as
Exhibit "D" (the "Mortgage"), in order to secure to Thermo performance by
Rocky Mountain of each and every obligation by Rocky Mountain hereunder which
will survive such purchase by Rocky Mountain. The Mortgage shall be
subordinated in priority to a deed of trust or other financing encumbrance
granted by Rocky Mountain to secure repayment by Rocky Mountain of purchase
money paid to Thermo; or to secure funds advanced to Rocky Mountain from time
to time by a recognized commercial bank or other institutional lender for
working capital purposes; provided, however, that such subordination shall
provide that the Mortgage shall survive foreclosure of any such deed of trust or
other financing encumbrance to which the Mortgage is subordinated, and that any
purchaser of the former Leased Premises at foreclosure shall take title
subject to the terms of the Mortgage. Thermo may assign the Mortgage and all
of its rights thereunder to any party providing financing to Thermo for the
Plant and/or the Facility.
5.9 Impact of Certain Thermo Financing. Rocky Mountain's rights under
----------------------------------
this section 5 are subject to the provisions of paragraph 4 of the Supplemental
Agreement.
6. CONSTRUCTION OF FACILITY
------------------------
6.1 Acceptance of Site. Prior to signing this Agreement, Rocky Mountain
------------------
has visited the Project Site and has examined the Land to its satisfaction.
Rocky Mountain has also obtained such zoninq and other land use regulation
information, soils and subsurface investigation information, and information
with respect to present or prospective availability of utilities, including
without limitation water, sewerage, waste disposal, natural gas, and
electricity, and such other information with respect to the Project Site as
Rocky Mountain deems prudent. Rocky Mountain agrees to commence construction on
the Land pursuant to paragraph 6 4 "as is" (or as shall have been placed by
"Owner" pursuant to the Construction Contract) and to accept possession of the
Land on the Commencement Date as the Land shall be improved pursuant to this
Agreement. Rocky Mountain agrees to make no claims against Thermo with respect
to the physical condition of the Project Site or the Land, and agrees to save,
indemnify and hold Thermo harmless from any such claims asserted by Affiliates
of or persons claiming under Rocky Mountain.
6.2 Preliminary Plans and Schedule. Attached hereto (or incorporated
------------------------------
by reference) as Exhibit E are preliminary drawings and an outline construction
specification for the Facility (the "Preliminary Plans") which have been
furnished by Rocky Mountain. Thermo shall review the Preliminary Plans promptly
to the extent that they provide for interface between the Facility and the
Plant, and shall give Notice to Rocky Mountain within fifteen (15) days after
the effective date stating whether or not the Preliminary Plans are satisfactory
to Thermo for such purposes. Any such Notice shall specify the reasonable
revisions (if any) with respect to interface matters which Thermo requires. In
all other aspects, the Preliminary Plans are agreed by the parties to be
satisfactory. Also attached hereto (or incorporated by reference) as
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<PAGE>
Exhibit F is a "Preliminary Construction Schedule" showing the approximate time
which Rocky Mountain has estimated will be required to construct the Facility.
Based on the Preliminary Plans and the Preliminary Construction Schedule, Thermo
has familiarized itself generally with the nature and scope of the Work required
to construct the Facility. Both parties have considered the Preliminary Plans
and the Preliminary Construction Schedule in determining the time for completing
the Facility and for giving Notice to Proceed pursuant to paragraph 6.4.
6.3 Construction Plans: Changes. Within sixty (60) days after the
---------------------------
later of either Financial Closing or the delivery by Thermo of Notice to Proceed
(accompanied by any "Notice to Proceed Payment" required in the Construction
Contract) Rocky Mountain shall cause to be prepared and delivered to Thermo
Construction Plans. The Construction Plans shall be satisfactory in all respects
to Rocky Mountain, and shall be consistent with the Preliminary Plans. Thermo
shall promptly review the Construction Plans and shall have the right to require
reasonable changes in the Construction Plans in order to ensure that the
Facility will permit the Plant to attain and retain "Qualifying Facility" ("QF")
status for purposes of the Public Utility Regulatory Policies Act of 1978 (also
referred to herein as "PURPA") and to provide for proper interface between the
Facility and the Plant, but not to increase the size or scope of the Facility.
Rocky Mountain shall promptly cause such reasonable changes required by Thermo
to be made to the Construction Plans and shall resubmit the Construction Plans
to Thermo. Thermo shall not withhold or delay approval of the Construction Plans
nor shall Thermo require changes to the Construction Plans which would
materially change the size of the Facility or the scope of the "Work" (as
defined in the Construction Contract). Under no circumstances shall Rocky
Mountain be required or permitted to make any change in the Work which would
make the Facility materially less satisfactory for commercial agricultural
purposes. Upon approval by Thermo of the Construction Plans they shall be
incorporated by reference into the Construction Contract. Thermo and Rocky
Mountain acknowledge that the Construction Contract gives both parties the
authority to make certain changes to the Work after the Construction Plans have
been initially approved, subject to Thermo's prior approval of any change which
would downsize the Facility, affect Facility/Plant interface, impair QF status
for PURPA purposes, impair Plant qualification under applicable on-system power
purchase agreements with a public utility, or materially increase the "Cost of
the Work" (as defined in the Construction Contract) when compared to the Work
Budget (in its original form) which is attached to the Construction Contract.
For purposes of such provisions, changes of not more than $25,000.00 for any
single change or more than $100,000.00 for all such changes (taken in the
aggregate) ordered by Rocky Mountain shall be deemed not to materially increase
the Cost of the Work. Subject to the foregoing, Rocky Mountain shall retain full
responsibility for the Facility design and for the sufficiency and integrity of
all plans and specifications which are used for construction of the Facility.
Rocky Mountain agrees to make no claims against Thermo with respect to the
design of the Facility, such plans and specifications, or the suitability of
the Facility, as finally constructed and occupied, for use as a commercial
greenhouse as required by this Agreement.
6.4 Construction Contract: Completion. Contemporaneously herewith
---------------------------------
Thermo and Rocky Mountain have entered into a construction contract in
substantially the form attached hereto as Exhibit F the ("Construction
Contract"). The Construction Plans shall be incorporated by reference into the
Construction Contract promptly after the Construction Plans have been delivered
to Thermo by Rocky Mountain
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and have been approved by Thermo. Not less than eight (8) months prior to the
date on which Thermo anticipates that the initial Date of Commercial Operation
of the Plant shall occur, Thermo shall give "Notice to Proceed" to the
Contractor under the Construction Contract, accompanied by any Notice to Proceed
payment required by the Construction Contract. Rocky Mountain, acting as
Contractor, shall thereupon proceed expeditiously to construct the Facility
pursuant to the Construction Contract so as to achieve Substantial Completion
not later than eight (8) months after Notice to Proceed is given, subject to
extension as expressly provided in the Construction Contract (the "Completion
Date"). The Completion Date shall also be subject to extension to the extent
that the anticipated initial Date of Commercial Operation provided in paragraph
3.1 is extended. Both Thermo and Rocky Mountain shall use their best efforts to
coordinate their respective construction activities on the Project Site in such
a manner to avoid materially impeding each other with respect to completion of
the Plant and the Facility. All vendors and subcontractors for the Facility
proposed to be engaged by Rocky Mountain acting as Contractor shall be subject
to review and prior approval by Thermo. Subject to active interference with the
prosecution of the Work which materially delays Rocky Mountain acting as
Contractor and is caused solely by Thermo or any person having a direct contract
with Thermo for construction of the Plant, Rocky Mountain, acting as Contractor,
shall (and hereby does) guarantee to Thermo that the Facility shall be
Substantially Complete and ready for use, and occupancy, not later than the
Completion Date. Should the "Project Manager" under the Construction Contract
notify Thermo that it appears to the Project Manager, after due investigation
and consultation with Rocky Mountain that Rocky Mountain is not proceeding so as
to cause the Facility to be Substantially Complete by such Date, Thermo may,
subject to such rights of cure as are provided under the Construction Contract,
exercise its rights under the Construction Contract to declare Rocky Mountain in
default thereunder and, at Thermo's option, terminate the Construction Contract
or, without terminating the Construction Contract, finish the Work as provided
in the Construction Contract. This paragraph 6.4 is subject to the provisions
for extension of time provided in the Construction Contract.
6.5 Contract Sum. The "Contract Sum" under the Construction Contract
------------
shall be the "Cost of the Work" as defined thereunder, plus a "Contractor's Fee"
as provided in the Construction Contract. For purposes of estimating the Base
Rent provided in paragraph 4.1, the Contract Sum has been estimated at Seven
Million Eight Hundred Thousand Dollars ($7,800,000). The Contract Sum shall be
disbursed by Thermo to the Contractor in a timely manner in accordance with the
requirements of the Construction Contract.
7. THERMAL SUPPLY
--------------
7.1 Thermal Energy Commitment - Minimum Level. Thermo shall use
-----------------------------------------
reasonable efforts to cause the Plant to be constructed as herein provided.
Thermo plans that as constructed the Plant will be capable of generating
available thermal energy of not less than sixty million (60,000,000) BTU per
hour. Thermal energy shall be made available to and shall be accepted by Rocky
Mountain at a heat transfer subsystem which shall be constructed by Thermo and
shall constitute a portion of the Plant. Thermal energy shall then be
transmitted to the Facility by means of a self-contained, closed system
circulating hot water loop which shall be part of the Facility. The heat
transfer subsystem shall be reasonably satisfactory to Rocky Mountain and shall
include (but not
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be limited to) interface equipment which will facilitate the prompt connection
to the heat transfer subsystem of temporary steam boiler equipment in the event
of need to utilize temporary sources of thermal energy to supply thermal energy
to the Facility. The heat transfer subsystem shall be located in reasonable
proximity to the boundary of the Land but shall not be located on the Land.
Rocky Mountain shall at all times have satisfactory access to the heat transfer
subsystem for the purpose of connecting thereto such temporary sources of
thermal energy as may be required pursuant to paragraph 7.4, below. After the
Plant is constructed, Thermo shall continually use its best efforts to make
available for use by Rocky Mountain, beginning on the initial Date of Commercial
Operation and extending for a period of twenty-five (25) years thereafter, a per
annum quantity of thermal energy generated through operation of the Plant of not
less than Two Hundred Billion (200,000,000,000) BTU, net of condensate loss at
the heat transfer subsystem, measured annually on a calendar year basis (the
"Minimum Annual Heat Requirement"); provided, however, that for any partial
calendar year in which the Thermal Term of this Agreement shall be in effect,
the Minimum Annual Heat Requirement shall be Two Hundred Billion
(200,000,000,000) BTU multiplied by a fraction, the numerator of which shall be
the number of days in such partial calendar year and the denominator of which
shall be three hundred sixty-five (365). The Plant shall include an instrumenta-
tion system, satisfactory to both Thermo and Rocky Mountain, for continuous
measurement and metering of the thermal energy made available by Thermo and
accepted by Rocky Mountain at the heat transfer subsystem. Both parties to this
Agreement shall have continuous access to such instrumentation system at all
reasonable times for the purposes of monitoring and recording thermal energy
available to and accepted by Rocky Mountain and inspecting the instrumentation
system. Maintenance, testing, and adjustment of the instrumentation system shall
be the responsibility of Thermo. Thermo shall test and calibrate the
instrumentation system from time to time as reasonably requested by Rocky
Mountain, but not less than is necessary to ensure accuracy and measurement of
available and accepted thermal energy. Rocky Mountain shall defend, indemnify
and save harmless Thermo and the other persons who constitute Indemnitees under
paragraph 10.1 below, from any liabilities, costs, expenses, or Damages
resulting from entry on to Project Site by Rocky Mountain, its agents, employees
and contractors, for purposes of obtaining access to the heat transfer subsystem
and the heat transfer instrumentation system.
7.2 Thermal Energy Commitment - Additional Level. Upon not less than
---------------------------------------------
seven (7) days' advance request by Rocky Mountain, Thermo may make available to
Rocky Mountain quantities of thermal energy in excess of the Minimum Annual
Heat Requirement, and Thermo shall do so if it is consistent with Plant
operating requirements (which shall include, without limitation, the
requirements of on system power purchase agreements) and the utilization of or
commitments to make thermal energy available to other thermal users (if any)
served by Thermo who may from time to time conduct operations on or in the
vicinity of the Project Site.
7.3 Manner of Furnishing Thermal Energy. Not less frequently than
------------------------------------
before noon of each Monday during the Thermal Term, Rocky Mountain shall
prepare and furnish to Thermo a written forecast of Rocky Mountain's expected
minimum daily requirements for thermal energy during the ensuing seven (7) day
period which begins at 8:00 a.m. on the first Tuesday following the day the
forecast is delivered. This forecast shall be updated by Rocky Mountain verbally
or in writing as often as may be reasonable and practical for Rocky Mountain to
do so in order to take into consideration
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<PAGE>
anticipated changes in operating conditions, including without limitation
expected changes in weather which would materially increase Rocky Mountain's
thermal energy requirements. Based on the forecasts of heat requirements and the
supplemental heat requirements information which Rocky Mountain shall have
provided to Thermo in a timely manner, Thermo shall operate the Plant in a
manner which will result in the Minimum Annual Heat Requirement being made
available to Rocky Mountain during each calendar year substantially in
accordance with such forecasts and supplemental information. In the event that,
after reasonable prior notice of Rocky Mountain's heat requirements Thermo
should fail to make available thermal energy from operations of the Plant
substantially in accordance with Rocky Mountain's forecasts and supplemental
heat requirements information (within the limits of 60,000,000 BTU per hour and
not in excess of the Minimum Annual Heat Requirement in any calendar year),
Thermo shall make thermal energy available to Rocky Mountain, in a timely manner
and substantially in accordance with Rocky Mountain's forecasts, from alternate
sources arranged by Thermo at Thermo's expense, and should Thermo fail to do so,
Thermo shall be liable to Rocky Mountain as hereinafter provided in paragraph
7.4.
7.4 Temporary Sources of Thermal Energy. Should Thermo fail to furnish
------------------------------------
thermal energy in accordance with paragraph 7.3 on a timely basis after demand
by Rocky Mountain, Rocky Mountain shall, to the extent it is reasonably
practical to do so, attempt to obtain temporary alternate sources of thermal
energy and charge Rocky Mountain's costs in connection therewith to Thermo.
Should Thermo become aware of impending condition(s) which are likely to
materially impair Thermo's ability to furnish, thermal energy as required under
paragraph 7.3, Thermo shall give notice (verbally or in writing) of such
conditions to Rocky Mountain as soon as it is practical to do so. Should Rocky
Mountain be able, in the exercise of reasonable diligence, to obtain and utilize
such temporary alternate sources of thermal energy the actual incremental cost,
(i.e. the cost in excess of Fifty Cents ($.50) per One Million BTU) to Rocky
Mountain of obtaining thermal energy from alternate sources shall be paid by
Thermo and be compensation in the nature of liquidated damages, as Rocky
Mountain's sole remedy in such event. Further, should the Facility be
constructed or modified to include permanent standby heat generating or heat
storage equipment reasonably satisfactory to Rocky Mountain, Rocky Mountain
shall be responsible for operating such equipment in the event that Thermo
should fail to furnish thermal energy, and the actual incremental cost (i.e. the
cost in excess of Fifty Cents ($.50) per One Million BTU produced) of operating
such equipment in a manner which will avoid loss or material damage to Rocky
Mountain's crop because of failure by Thermo to supply thermal energy as herein
required shall also be compensation in the nature of liquidated damages in lieu
of the liquidated damages specified in the preceding sentence. At any time
during the Thermal Term, Thermo shall have the right to install, or to cause
Rocky Mountain to install, such permanent standby heat generating or heat
storage equipment in the Facility at Thermo's expense. The parties agree that in
the event that Rocky Mountain should receive less than ninety-six (96) hours'
prior notice (written or verbal) from Thermo that Thermo will not be able to
furnish thermal energy to Rocky Mountain in a timely manner (i.e. as and to the
extent contemplated under paragraph 7.3), Rocky Mountain's ability to arrange
for temporary sources of thermal energy in sufficient time to avert probable
damage to Rocky Mountain's crop may be materially impaired. Should Rocky
Mountain be unable, in the exercise of reasonable diligence, to obtain temporary
alternate sources of thermal energy under such circumstances, and if the
Facility does not then include permanent standby heat generating or heat storage
equipment, then Rocky Mountain shall be entitled to seek
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<PAGE>
recovery of its Damages resulting from failure by Thermo to supply thermal
energy as herein required; provided, however, that (i) so long as Thermo shall
have paid or reimbursed premiums for a policy of insurance insuring the risk of
damage to crop because of loss of heat as further described in paragraph 9.7,
below, or (ii) Rocky Mountain shall have obtained a policy of such insurance as
permitted under paragraph 9.7, (a) Rocky Mountain shall not be entitled to claim
a breach or default under this Agreement because of failure by Thermo to furnish
thermal energy as herein required; and (b) Rocky Mountain shall have no claim
for loss or damages of any nature arising out of such occurrence except to the
proceeds of such insurance (whether such proceeds are payable directly to Rocky
Mountain as named insured or to Thermo as indemnification or Thermo's liability
to Rocky Mountain under such circumstances). Thermo shall reimburse Rocky
Mountain for any deductible under such insurance which actually diminishes
recovery by Rocky Mountain under such circumstances.
7.5 Use and Operation of Facility: Use of Thermal Energy. As an
-----------------------------------------------------
essential term of this Agreement, Rocky Mountain shall use and operate the
Facility only as a greenhouse for commercial production of agricultural
products, or for such alternative uses (which may not be implemented prior to
Thermo obtaining certification by the Federal Energy Regulatory Commission that
such altered use will continue to qualify the Plant as a QF, and must in any
event require consumption of sufficient useful thermal energy for the Plant to
remain a QF) as may be approved by Thermo prior to any change of use. Thermo
shall not withhold or delay approval unreasonably. Rocky Mountain shall, in
connection with operation of the Facility, provide to Thermo forecasts pursuant
to paragraph 7.3 calling for at least One Hundred Percent (100%) of the minimum
Annual Heat Requirement to be consumed each calendar year beginning with the
year in which the initial Date of Commercial Operation occurs. Unless it is
impossible for Rocky Mountain to do so (and notwithstanding the provisions of
paragraph 7.7 below), Rocky Mountain shall accept One Hundred Percent (100%) of
the Minimum Annual Heat Requirement, plus any additional thermal energy made
available by Thermo to Rocky Mountain upon Rocky Mountain's request,and shall
utilize such Minimum Annual Heat Requirement provided by Thermo for useful
thermal purposes in accordance with rules and regulations from time-to-time
promulgated and in effect under PURPA and any amendment thereof; provided,
however, that this sentence shall not be construed to require use of the
Facility for purposes other than a commercial greenhouse. Rocky Mountain shall
request additional thermal energy from Thermo prior to obtaining or generating
thermal energy for such agricultural production purposes (or approved alternate
useful thermal purposes) from any other source. Rocky Mountain shall refrain
from utilization of any other source of thermal energy (except solar generated
radiant energy) in connection with activities conducted at the Facility so long
as Thermo is able to make available thermal energy to Rocky Mountain sufficient
to satisfy Rocky Mountain's needs. Should Thermo be unable to supply from Plant
operations all of Rocky Mountain's requirements for thermal energy at any time,
Rocky Mountain shall nevertheless be obligated to accept and use, in the manner
herein provided, such portion of Rocky Mountain's requirements as Thermo is able
to and does supply from Plant operations.
7.6 Thermal Payments. Subject to paragraph 7.7 below, beginning
-----------------
with the last day of the first complete calendar quarter after the initial Date
of Commercial Operation shall have occurred, and continuing for the entire
Thermal Term, Rocky Mountain shall pay to Thermo Fifty Cents ($.50) Per One
Million (1,000,000) BTU (or portion thereof) of Thermal Energy made available
pursuant to Rocky Mountain's
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<PAGE>
forecasts under paragraph 7.3 up to the Minimum Annual Heat Requirement, and One
Dollar ($1.00) per One Million (1,000,000) BTU (or portion thereof) for thermal
energy requested by Rocky Mountain and supplied by Thermo pursuant to paragraph
7.2 in excess of the Minimum Annual Heat Requirement by Thermo to Rocky Mountain
during such calendar quarter. Such quarterly payment obligations are herein
referred to as "Thermal Payments." On every January 1 beginning with the second
complete calendar year after the initial Date of Commercial Operation, such
rated per MMBTU shall be adjusted by multiplying the rates in effect during the
preceding calendar year by one hundred three percent (103%). Thermal Payments
shall be due and payable within thirty (30) days after receipt by Rocky Mountain
of Thermo's invoices for such thermal energy. Rocky Mountain's payment
obligations under this paragraph 7.6 are subject to paragraph 16 of the
Supplemental Agreement.
7.7 Force Majeure. The obligations of Thermo to supply thermal energy
-------------
hereunder shall be suspended for so long as Thermo is prevented from performing
such obligations by an act of God, strike, fire, flood, explosion, disease,
blight, pestilence, or any other cause of the kind specifically enumerated in
this sentence hereinafter a condition of "Force Majeure"). The obligations of
Rocky Mountain to make Thermal Payments hereunder shall be suspended for so long
as Rocky Mountain is prevented because of conditions of Force Majeure from
utilizing the Facility for commercial production of agricultural products. The
foregoing notwithstanding, no occurrence or circumstances shall give rise to a
condition of Force Majeure unless such occurrence or circumstances are not
reasonably within the control of and could not, in the exercise of reasonable
diligence, have been avoided by the affected party, and under no circumstances
shall a condition of Force Majeure be deemed to exist solely because of
operational or business circumstances which would require the affected party to
carry on its operations under this Agreement at an economic loss. Such
operational or business circumstances might include, by way of example and
without limitation, lack of demand for or fluctuations in the price of
electricity, fluctuations in the price of fuel and other costs of operation the
Plant, lack of demand for or fluctuations in the price of agricultural products,
and fluctuations in the costs of operating the Facility. Both parties shall use
best efforts to cause all conditions of Force Majeure to be alleviated as soon
as is reasonably practical (and in any event in not more than thirty (30) days),
but nothing herein shall be construed to require the settlement of strikes or
labor disputes in any manner or at any time other than in a manner and at a time
which is within the discretion of the party affected thereby. Further
notwithstanding the foregoing, and without regard to the existence of any
condition of Force Majeure, Rocky Mountain shall continue to accept and utilize
for useful thermal purposes thermal energy made available by Thermo in
accordance with the requirements of this section 7 unless it is impossible for
Rocky Mountain to do so, and then only to the extent of such impossibility.
7.8 Duration of Covenants. Notwithstanding any earlier purchase by
---------------------
Rocky Mountain of the Facility (and if applicable the Land), Thermo and Rocky
Mountain shall be and remain obligated to each other as provided in this section
7 for the Thermal Term, which shall begin on the Commencement Date and shall
expire twenty five (25) years after the initial Date of Commercial Operation of
the Plant. Should Rocky Mountain purchase the Facility (and if applicable the
Land), the provisions of this section 7 shall constitute covenants running with
the Land and with the portion of the Project Site described in Part II of
Exhibit A, and be binding for such twenty-five (25) year period on Rocky
Mountain and Thermo, and their respective successors-in-title to the Land and
the portion of the Project Site described in Part II of Exhibit A.
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<PAGE>
8. FACILITY USE, OCCUPANCY,
AND OPERATION
------------------------
8.1 No Other Activities. Rocky Mountain has not
--------------------
heretofore engaged, and shall refrain from engaging, in any business or activity
other than the development, construction, equipping and operation of the
Facility in compliance with this agreement and the adjunct agreement entered
into pursuant to this Agreement.
8.2 Compliance with Law Generally. Rocky Mountain agrees
------------------------------
that the Facility and the Land shall be used and occupied for the purposes
provided in paragraph 7.5 in a careful, safe, and proper manner, that no
activity which is known in the insurance industry as extra or especially
hazardous shall be permitted therein, and that no waste shall be committed or
suffered by Rocky Mountain to the Leased Premises. Rocky Mountain shall at all
times comply with all laws, ordinances, and lawful regulations of federal,
state, and local governmental authorities having jurisdiction over the Facility
and the Land. Rocky Mountain shall at all times maintain in force and effect all
permits and licenses, if any, required for the operation of the Facility as a
commercial greenhouse. except such permits and licenses as apply to the Plant
and the Facility jointly, which shall be obtained and maintained by Thermo.
8.3 Environmental Compliance. Without limitation of
-------------------------
paragraphs 5.3, 8.2, or 10.1, Rocky Mountain shall at all times comply fully
with all laws, rules, regulations and ordinances now existing or hereafter
enacted of any public authority having jurisdiction with respect to the storage,
use, or release of "Materials of Environmental Concern" at the Facility and on
the Land. For purposes hereof, "Materials of Environmental Concern" shall mean
chemicals, pollutants, contaminants, wastes, degradation by-products, toxic
substances, petroleum and petroleum products, including without limitation
"hazardous substances," "hazardous wastes," "toxic substances," and "toxic
pollutants," as defined in or identified pursuant to any "Environmental Laws."
8.4 Clean and Orderly Appearance. Rocky Mountain shall
-----------------------------
at all times keep the Facility and the Land in a clean, neat, and orderly
condition typical of a well managed commercial greenhouse, shall cause trash and
refuse to be stored out of view of the general public and the adjoining
property, and shall cause such trash, refuse, and other waste products to be
removed on a regular basis. Rocky Mountain shall keep all parking and walkway
areas on the Land clean, orderly, and reasonably free from snow, ice, and
debris. This paragraph 8.4 is subject to the provisions of paragraph 7 of the
Supplemental Agreement.
8.5 Repairs and Maintenance. Rocky Mountain shall from
------------------------
time to time make, at Rocky Mountain's expense, all necessary interior and
exterior repairs and replacements to the Facility and all parts thereof, and
shall perform all necessary interior and exterior maintenance to the Land, the
Facility and the other improvements thereon, including without limitation the
landscaped areas, drives, parking areas, aprons, and sidewalks constituting a
part thereof. Such duty to make repairs shall include all structural and
nonstructural repairs and all partial or complete replacements of Facility
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<PAGE>
components and building systems which may become necessary or advisable during
the Thermal Term of this Agreement in order for the Plant to be and remain a
Qualifying Facility because of supply of useful thermal energy to the Facility
pursuant to this Agreement; provided, however, that nothing in this paragraph
8.5 shall be construed to require Rocky Mountain to make modifications to or
alterations of the Facility, as distinguished from repairs or replacements of
the Facility or components thereof. Should Thermo be entitled to any guarantees
or warranties with respect to the Facility from contractors or vendors, Thermo
shall assign such guarantees and warranties to Rocky Mountain. Should changes in
PURPA or the regulations promulgated thereunder subsequent to the Effective Date
impose materially more rigorous standards of maintenance of the Facility for the
Plant to be and remain a QF than is then customary for maintenance of similar
commercial greenhouses by prudent greenhouse operators, such more rigorous
requirements shall be deemed to be a PURPA-mandated alteration of the Facility
and to be subject to paragraph 8.6. This paragraph 8.5 is subject to the
provisions of paragraph 7 of the Supplemental Agreement.
8.6 Alterations of Facility: When Permitted and Required.
----------------------------------------------------
After providing not less than thirty (30) days' prior Notice to Thermo
accompanied by Construction Plans for such work, Rocky Mountain may make such
changes to the Facility and the, Facility systems as Rocky Mountain from time to
time require or deem appropriate in Rocky Mountain discretion to adapt the same
to Rocky Mountain's reasonable requirements for the commercial production of
agricultural products or such other uses as may be permitted under paragraph
7.5, above; provided, however, that no such change shall impair or diminish in
any material manner Rocky Mountain's ability to discharge fully all obligations
under section 7; provided, further, that no such change shall adversely affect
the status of the Plant as a Qualifying Facility; and provided, further, that
Thermo shall not have objected to such work within such thirty (30) day period.
Should Thermo not object to such work within such thirty (30) day Period, such
work shall be commenced and thereafter completed expeditiously by Rocky Mountain
in accordance with the Construction Plans submitted by Rocky Mountain. Thermo
shall have the right to witthhold approval of such alterations and such
Construction Plans if the alterations to be made do not meet the foregoing
requirements of this paragraph 3.6. If Thermo withholds approval of Construction
Plans as provided in the preceding sentence, Rocky Mountain shall not proceed
with the proposed alteration, but shall have the right to resubmit revised
Construction Plans which meet the foregoing requirements for Thermo's approval.
Should changes in PURPA or in the rules and regulations promulgated thereunder
subsequent to the Effective Date require modifications in the design, size, or
equipment of the Facility in order for thermal energy supplied to the Facility
by Thermo to be deemed (for PURPA purposes) to be utilized by Rocky Mountain for
a useful thermal purpose or for the Plant to retain (or regain) QF status,
Thermo and Rocky Mountain shall promptly negotiate to determine the scope and
costs of such modifications. At Thermo's request, Rocky Mountain shall thereupon
promptly commence and complete the modifications in design, size, or equipment
of the Facility which are required because of changes in PURPA or rules and
regulations promulgated thereunder) for thermal energy supplied to the Facility
by Thermo to be deemed (for PURPA purposes) to be utilized by Rocky Mountain for
a useful thermal purpose, or for the Plant to retain (or regain) QF status, or
if Rocky Mountain declines to do so Rocky Mountain shall promptly permit Thermo
to do so. Such work shall be performed in an expeditious manner so as to
minimize any period of time during which the Plant shall not be entitled to QF
status pending completion of such modifications and so as to minimize disruption
of agricultural
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<PAGE>
production by Rocky Mountain. Regardless of which party proceeds with such
modifications, Thermo shall pay all capital costs associated with such
modifications. If the Purchase Option remains in effect at that time, Exhibit C
shall be modified to reflect an increase in the Base Purchase Price equal to the
fully allocated cost of such additional investment by Thermo. The foregoing
notwithstanding, if the Facility shall have been purchased by Rocky Mountain and
thereafter modifications shall be required for PURPA compliance purposes, Thermo
may request that Rocky Mountain pay the costs of such modifications in lieu of
payment by Thermo, and should Rocky Mountain decline to do so Thermo may pay
such costs as hereinabove provided, and, if such costs exceed a total of Five
Hundred Thousand Dollars ($500,000), at Thermo's option the purchase and sale
of the Facility to Rocky Mountain shall be rescinded, the Option Purchase Price
actually paid shall be refunded to Rocky Mountain, Rocky Mountain shall reconvey
the Facility (and if applicable the Land) to Thermo in the same manner as is
provided in paragraph 5.3, above, and all provisions of this Agreement which had
become inapplicable because of such prior purchase shall be reinstated, except
for the provisions of section 5. In the event of such reconveyance, Thermo shall
also have the right to terminate this Agreement, including the Thermal Term and
the reinstated Lease Term, upon six (6) months' Notice to Rocky Mountain.
8.7 Alterations of Facility: How Effected. All
--------------------------------------
alterations, additions and improvements made by Rocky Mountain (whether or not
Thermo's prior consent is required) shall be effected in a good and workmanlike
manner and subject to prior purchase of the Facility by Rocky Mountain, shall
become the absolute property of Thermo upon expiration or termination of Rocky
Mountain's leasehold or the abandonment of the Leased Premises by Rocky Mountain
unless Thermo elects to require Rocky Mountain to remove the Facility at such
time. Nothing herein shall be construed to constitute Rocky Mountain as the
agent of Thermo for purposes of making any such alterations, additions, or
improvements or to give Thermo any control over the manner of execution of the
work, it being agreed that Rocky Mountain and Rocky Mountain alone is fully
responsible for completion of all such alterations, additions, and improvements.
8.8 Discharge or Liens. Rocky Mountain shall defend,
-------------------
indemnify and hold Thermo and Thermo's interest in the Facility and the Land
harmless from all liens and claims of liens which may be filed or claimed in
connection with any construction repairs, maintenance, alterations, additions,
improvements, or other work made or done by Rocky Mountain on the Facility or
the Land. Upon Thermo's demand, any liens filed against the Facility or the Land
(or against other portions of the Project Site or any improvements thereon)
arising out of or under the Construction Contract or any subcontract (at any
tier) thereunder, or out of any alterations, additions, improvements, or other
work by Rocky Mountain in or on the Leased Premises, shall immediately be
removed by Rocky Mountain, at Rocky Mountain's sole expense, or, if Rocky
Mountain desires to contest the same, Rocky Mountain shall have the right to do
so provided that such contest does not produce a material risk that the Project,
the Facility, the Land, or any significant part thereof, title thereto, or any
significant interest therein may be sold, lost, or forfeited, or the use thereof
interfered with, and provided further that Rocky Mountain shall have posted a
bond for the full amount of such liens. Should any third party providing
financing for the Plant and/or The Facility require Thermo to adhere to more
rigorous standards with respect to the discharge (or bonding) of liens, Rocky
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Mountain shall adhere to such more rigorous standards promptly after Thermo
shall have given Notice to Rocky Mountain of such more rigorous standards.
8.9 Utilities. Rocky Mountain, at its expense, shall
----------
obtain and pay for all necessary or required utilities and other services for
the Facility and the Land. The foregoing notwithstanding, at Rocky Mountain's
request and in lieu of Rocky Mountain obtaining water directly from the City of
Fort Lupton, Thermo shall furnish to Rocky Mountain such reasonable quantities
or raw and/or treated water as shall be available to Thermo and as Rocky
Mountain may reasonably require for operation of a commercial greenhouse in the
Facility in excess of Thermo's requirements from time to time for operation of
the Plant. Thermo shall invoice Rocky Mountain quarterly for Thermo's fully
allocated costs (including without limitation capital investment costs but
without any allocation of general and administrative expenses or allowance for
profit) of providing such water, and such invoices shall be paid by Rocky
Mountain in the same manner as is required herein for the payment of Thermal
Payments. Thermo shall not be liable for any damages Rocky Mountain may suffer
because of any unavailability of or interruption or other deficiency in such
utility services including, without limitation water service furnished by
Thermo, unless such interruption or deficiency is caused by the negligent or
intentionally tortious acts or omissions of Thermo, its agents, and employees in
performance of Thermo's obligations hereunder.
8.10 Abandonment. Should Rocky Mountain vacate or abandon
------------
the Facility, Thermo may enter the same, using such force as may be necessary,
change the locks on the doors, and take possession of the Facility, all without
liability to Rocky Mountain. Thereafter Thermo may use the Facility and the Land
for any desired purpose, with or without terminating this in accordance with
provisions of this Agreement concerning Default.
8.11 Inspection: Maintenance of Records. Rocky Mountain
-----------------------------------
shall permit Thermo to enter and inspect the Facility and the Land at any
reasonable time for any proper purpose, including without limitation review of
compliance by Rocky Mountain with its obligations hereunder and inspection by a
prospective purchaser, mortgagee, or tenant of Thermo's interest in the Facility
or Land. However, Thermo shall have no duty to inspect and no failure by Thermo
to inspect shall relieve Rocky Mountain of any duty which Rocky Mountain may
have under this Agreement. Rocky Mountain shall maintain and preserve, for a
period of at least five (5) years from the close of its applicable fiscal year,
complete books, records, financial statements and tax returns, fully and
accurately reflecting its business activities conducted at and from the Facility
and the financial results of its operation of the Facility. Upon disposal of any
such books, records, financial statements, and tax returns, Rocky Mountain shall
offer to deliver the same to Thermo, which may retain them for Thermo's own
business purposes, subject, however, to the requirements of paragraph 8.12. For
the purpose of ascertaining from time to time that Rocky Mountain is in full
compliance with its obligations hereunder and that any security interest held by
a third party providing debt or equity financing to Thermo for the Plant is not
then, and is not likely to become, impaired, Rocky Mountain shall, from time to
time, within twenty (20) days after receiving a request from Thermo, make
available to Thermo such copies or extracts of, or information from, such books,
records, financial statements, and tax returns, as Thermo or such third party
providing debt or equity financing to Thermo may reasonably request. This
paragraph 8.11 is subject to the provisions of paragraph 8 of the Supplemental
Agreement.
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8.12 Additional information Regarding Operations: Confidentiality.
-------------------------------------------------------------
Rocky Mountain acknowledges that Thermo has a vital and protectable interest in
the use and operation of the Facility in full compliance with all terms and
conditions of this Agreement, in receipt of rent and other payments required to
be made by Rocky Mountain hereunder, and in the continuing financial viability
of the Facility as a commercial greenhouse for the entire duration of the
Thermal Term of this Agreement. It is the intention of the parties that in the
event that the leasehold estate for the Facility should expire or be terminated
prior to the end of the Thermal Term, these interests of Thermo shall be
secured, to the maximum extent possible, by the Mortgage. Rocky Mountain
further acknowledges that, in order for such interests to be adequately
protected, it may be necessary for Thermo (or Thermo's designated
representative) to become and remain knowledgeable of the general nature of
Rocky Mountains business activities at the Facility and the activities of
any Greenhouse Affiliates of Rocky Mountain. Therefore, upon request by Thermo,
Rocky Mountain shall, in addition to the information available to Thermo under
paragraph 8.11, also provide to Thermo from time to time after request by Thermo
reasonable access to other sources of information concerning Rocky Mountain's
business and Rocky mountains activities at the Facility, plus complete and
accurate information on gross cash receipts derived from operation by Rocky
Mountain's Greenhouse Affiliates of other commercial Greenhouses. Such
information may include, without limitation, Rocky Mountain's and such
Greenhouse Affiliates' thencurrent business plan and projections of results
of operations. All of such information, plus any information provided to
Thermo under paragraph 8.11, shall be deemed to be proprietary to Rocky Mountain
and shall be held in confidence by Thermo and any third persons having a need to
know such information because of their interest, financial or otherwise, in
Thermo's business at the Project Site. Such third persons with need to know
shall include, without limitation, those parties from time to time providing
financing for the construction and operation of the Plant and/or the Facility.
Except for disclosure to such third persons with need to know (which shall be
permitted upon such third persons agreeing to be bound by this paragraph) such
information shall not be disclosed by Thermo or by any such third person to
anyone without the prior consent of Rocky Mountain, unless such disclosure is
compelled by applicable law or unless such disclosure is required to protect,
Thermo's, or such third person(s)' legitimate business interests hereunder. Such
legitimate business interests shall include, without limitation obtaining
assurance from time to time that the Plant is and shall remain a Qualifying
Facility. Thermo and such third person(s) shall refrain from any use of such
information which is not reasonably required to protect legitimate interests of
the party obtaining such information during the time while the Thermal Term of
this Agreement remains in effect. Under no circumstances shall any such
information be utilized in any manner to compete with Rocky Mountain or any
Greenhouse Affiliate of Rocky Mountain; provided, however, that this covenant
shall not limit Thermo from exercising any rights or remedies Thermo may have
under this Agreement or under the Mortgage in the event of default by Rocky
Mountain, including without limitation the right to take possession of and
operate the Facility. The additional information to be made available to Thermo
may also include, by way of additional example and without limitation,
invitations for Thermo to attend and observe Rocky Mountain's board meetings and
information concerning and opportunities to observe the day-to-day production,
harvesting, marketing, and shipping activities carried on at the Facility. This
paragraph 8.12 is also subject to the provisions of paragraph 8 of the
Supplemental Agreement.
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8.13 Duration of Covenants. Thermo and Rocky Mountain
----------------------
shall be and remain obligated to each other as provided in this section 8 for a
period which commences with the Commencement Date and expires on the expiration
of the Thermal Term. Should Rocky Mountain purchase the Facility (and if
applicable the land), the provisions of this section 8 shall constitute
covenants running with the Land and with the portion of the Project Site
described in Part II of Exhibit A, and be binding on Rocky Mountain and Thermo,
and their respective successors-in-title to the Land and the portion of the
Project Site described in Part II of Exhibit A until expiration of the Thermal
Term.
9. INSURANCE
---------
9.1 Required Insurance Coverages: Limits. Subject to
-------------------------------------
paragraph 9.6, below, beginning on the Commencement Date (or such earlier date
as Rocky Mountain shall be entitled to beneficial use and occupancy of the
Facility under paragraph 3.2) or as soon thereafter as the specified risks
shall arise, and continuing until expiration of the Thermal Term, Rocky
Mountain (or Thermo pursuant to paragraph 9.6) shall continuously maintain in
force the following insurance coverage:
(a) property damage insurance on an all risk basis
including coverage against damage or loss caused
by earth movement (including but not limited to
earthquake, landslide, subsidence, and volcanic
eruption) and flood and providing (i) coverage
for the Facility in a minimum aggregate amount
equal to the full insurable value of the Facility
(ii) coverage for foundations and other property
below the surface of the ground, and (iii) soft
costs defined as attorneys fees, engineering and
other consulting costs, and permit fees that may
be incurred due to damage to the premises in a
minimum amount of $500,000. For purposes of this
paragraph 9.1(a), "full insurable value" shall
mean the full replacement value of the Facility,
including any improvements and equipment without
deduction for physical depreciation and/or
obsolescence; all such policies may have deductible
of not greater than $550,000; and
(b) boiler and machinery insurance coverage at the
Facility, written on a comprehensive form basis
for all insurable objects, including but not
limited to pressure vessels, electrical turbines
and equipment, motors, air tanks, boilers,
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machinery, pressure piping, or any other
similar objects located on or adjacent to
the Facility in a minimum aggregate amount
equal to the "full insurable value" (as
defined in paragraph 9.1(a), above, of the
Facility, and expediting expenses in the
amount of $100,000 (with losses to be
adjusted on a full replacement value); all
such policies may have deductibles of not
greater than $50,000; and
(c) all risk rental insurance, payable in event
of business interruption sufficient to provide
for payment of Base Rent and Additional Rent
for 12 months.
At all times while this Agreement is in effect subsequent to Financial Closing
Thermo and Rocky Mountain shall each continuously maintain in force the
following insurance coverage:
(d) commercial general liability insurance on
an occurrence basis against claims for personal
injury (including bodily injury and death) and
property damage, with coverage for products
completed operations, blanket, contractual,
explosion, collapse and underground coverage,
broad form property damage, and personal injury,
with a $1,000,000 minimum limit per occurrence for
combined bodily injury and property damage and
a $2,000,000 aggregate annual limit;
(e) workers' compensation insurance as required by
state laws, including employer's liability
insurance for all employees in the amount of not
less than the minimum statutory requirements; and
(f) automobile liability with limits of Two Million
Dollars ($2,000,000) per occurrence with no aggregate
limitation.
Prior to the time that Rocky Mountain is required to assume responsibility for
insurance coverage, Thermo shall maintain adequate insurance coverage with
respect to such of the foregoing risks as shall then be applicable, including
builder's risk coverage with delay in start up coverage endorsement during
construction.
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<PAGE>
9.2 Certain Policy Requirements. All insurance policies required under
---------------------------
paragraph 9.1 shall be written by responsible and accredited companies of
recognized standing authorized to do business in the State of Colorado, with a
Best's Key Rating Guide rating of "A-X" or better (except for Lloyds of London,
AEGIS, Colorado Compensation Insurance Authority or other companies acceptable
to Thermo), and shall provide that the policies shall not be cancelable except
upon sixty (60) days' prior written notice by the insurer to the party to this
Agreement which is not the owner of the policy, and to any mortgagee of the
Facility. Property insurance policies carried by Thermo shall include a
lender's loss payable endorsement similar to form 438 BFU. All liability
policies shall be endorsed (i) to provide a severability of interests or cross
liability clause; and (ii) that the insurance shall be primary and not excess to
or contribution with any insurance or self-insurance maintained by others. Rocky
Mountain's policies shall be endorsed to name Thermo, any mortgagee of the
Facility, their respective officers, agents, partners, and such other parties as
may reasonably be requested by Thermo as additional insured parties, as their
interests may appear. Thermo's policies shall be endorsed to name Rocky
Mountain, its managers, agents, and such other parties as may reasonably be
requested by Rocky Mountain as additional insured parties, as their interests
may appear. Each party shall deliver to the other a copy of such policies (or,
in lieu of policies of insurance, certificates of insurance if then acceptable
to such recipient) prior to the Commencement Date, and a copy of any renewal
policy or certificate of insurance if then acceptable to Thermo shall be
delivered to Thermo and to any mortgagee of the Facility at least fifteen (15)
days prior to the termination date or any expiring policy. Thermo's liability
insurance policy shall provide that in the event of injury as a result of the
sole negligence of Thermo, to persons or property on the Land, Thermo's
liability coverage shall be primary, and in the event of injury to such persons
as a result of the joint or concurrent negligence of Rocky Mountain and Thermo,
the liability coverage of Thermo and Rocky Mountain shall contribute in
proportion to the negligence of the insured parties. Rocky Mountain's liability
insurance policy shall provide that in the event of injury, as a result of the
sole negligence of Rocky Mountain to persons or property on the cogeneration
Plant site, Rocky Mountain's liability coverage shall be primary and in the
event of injury to such persons as a result of the joint or concurrent
negligence of Thermo and Rocky Mountain the liability insurance coverage of
Rocky Mountain and Thermo shall contribute in proportion to the negligence of
the insured parties.
9.3 Application of Proceeds. Anything herein to the contrary
-----------------------
notwithstanding, Thermo and Rocky Mountain agree that at all times while the
Lease Term remains in effect the proceeds of any policy of fire and extended
coverage insuring against casualty loss to the Facility shall be disbursed and
applied in accordance with the requirements of any loan agreement and supporting
security documents in effect between Thermo and any secured lender providing
financing for the Plant and/or the Facility. Both parties shall upon request
promptly take such steps as may be required to cause the disbursement and
application of proceeds provisions of such policies to conform to the secured
lender's requirements. Subsequent to purchase by Rocky Mountain of the Facility
(and the Land, if applicable), Rocky Mountain shall cause each and every
mortgagee of the Facility to agree to disburse, in accordance with such
mortgagee's standard construction loan practices, amounts received by such
mortgagee from fire and extended coverage insurance policies for use by Rocky
Mountain in repairing, rebuilding, or reconstructing the Facility in accordance
with the obligations of Rocky Mountain hereunder. This paragraph 9.3 is subject
to the requirements of paragraph 10 of the Supplemental Agreement.
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<PAGE>
9.4 Waiver of Subrogation. Thermo and Rocky Mountain each hereby
---------------------
waive on behalf of themselves and on behalf of all carriers of the insurance
required to be maintained pursuant to paragraph 9.1 above, all claims, by
subrogation or otherwise, which such waiving party might otherwise have against
the other for loss or damage to the Facility and the Land and the respective
interests of both such parties therein, and for legal liability arising out of
perils insured against in accordance with such requirements of this Agreement,
but only if this waiver does not or will not invalidate, limit, or otherwise
restrict coverage.
9.5 Exculpation for Property Damage. Subject to paragraphs 7.3 and 9.7
-------------------------------
hereof, all personal property of every kind and description, including without
limitation growing crops and agricultural products, that may at any time be in,
at or on the Facility or the Land shall be kept in, at or on the Facility or the
Land at Rocky Mountain's sole risk, or at the risk of those claiming under Rocky
Mountain. Without limitation of the foregoing waivers of claims and subrogation,
Thermo shall not be liable for any damage to said personal property or any loss
of business by Rocky Mountain however arising, including without limitation from
the bursting, overflowing, or leaking or water or pipes, from the malfunction of
the heat transfer subsystem, or from other heating, electrical, or plumbing
fixtures, from electric wires, from gas or odors, from acts of other persons on
or in the vicinity of the Project Site or from any other cause in any other
manner whatsoever, except to the extent that such damage to personal property
may result from and actually be caused by the negligent or willfully tortious
acts or omissions of Thermo provided, however, that the general limitations of
this paragraph 9.5 shall be subject to the specific limitations of paragraphs
7.4 and 9.7 with respect to any failure by Thermo to provide thermal energy to
Rocky Mountain as required hereunder. Rocky Mountain shall be responsible for
disclosing the contents of this paragraph 9.5 to any insurer of Rocky Mountain's
business activities and for taking such steps, if any, as such insurer may
require to maintain coverage of Rocky Mountain's personal property.
9.6 Property, Insurance During Lease Term. Anything in this section 9
-------------------------------------
to the contrary notwithstanding, while this Agreement (including both the Lease
Term and the Thermal Term) remains in effect Thermo may insure the Leased
Premises against fire and extended coverage perils, and such other casualty
losses as may be required under clauses (a), (b) and (c) of paragraph 9.1,
either separately or in conjunction with similar insurance which may be carried
by Thermo on the Plant, and Thermo shall do so if the result of insuring the
Facility in this manner would be to reduce the combined cost of separate
insurance premiums for separate property insurance meeting such requirements on
the Plant and the Facility. If the Leased Premises are insured in this manner,
Rocky Mountain shall not be obligated to carry the insurance required, by
clauses (a), (b) and (c) of paragraph 9.1, but in lieu thereof shall pay to
Thermo as Additional Rent (or as a reimbursement of Thermo's incremental costs
therefor if the Lease Term shall no longer be in effect) an equitably allocated
share of the premium from time to time paid by Thermo for such insurance based
on the relative replacement costs of the Plant and the Facility. Such insurance
carried by Thermo on the Plant and the Facility shall name Thermo and Rocky
Mountain as insureds, as their interests may appear. In the event that such
combined insurance is maintained in force, if the cause of loss can be
determined to have originated in the negligence of either Thermo or Rocky
Mountain, the party responsible for such loss shall be responsible for payment
of any deductible amount; otherwise, the impact of the deductible shall be borne
by the parties equally.
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<PAGE>
9.7 Certain Special Loss Coverages. Beginning on the Commencement Date
------------------------------
or as soon thereafter as the risk shall arise, and continuing until such time as
the Facility shall include permanent standby heat generating or emergency heat
storage equipment, insurance shall also be maintained against losses, including
loss of revenue and reasonably estimated profits, which would be incurred by
Rocky Mountain for damage to crop (including without limitation substantial or
total loss of crop) resulting from failure by Thermo to furnish thermal energy
as required by paragraphs 7.1, 7.3 and 7.4. Rocky Mountain and Thermo shall
consult from time to time with each other and with insurance consultants
concerning the required limits of such policy(ies) and most effective and least
expensive manner of obtaining such coverage, the parties agreeing that it is in
their mutual best interests to maintain flexibility with respect to the specific
type of coverage or coverages which shall be obtained and the party or parties
which shall be designated as named insured thereunder. After such consultation,
the form of coverage shall be selected by Thermo in good faith and with due
consideration of the objectives described above. Thermo shall pay the premium
for such insurance, or, if coverage is effected by endorsement to insurance
coverage otherwise required to be maintained by Rocky Mountain hereunder, shall
reimburse Rocky Mountain for incremental premium costs due to such insurance.
Should insurance then be required under this paragraph 9.7, and should Thermo
fail or decline to select such coverage or to pay the premium (or reimburse
Rocky Mountain for the incremental premium) therefor, Rocky Mountain may effect
such insurance, not less than three (3) days prior notice to Thermo and in such
event Thermo shall reimburse Rocky Mountain for the premiums attributable
thereto; provided, however, that such reimbursement shall not exceed one hundred
twenty percent (120%) of the most recent premium (or reimbursement) incurred by
Thermo for such insurance. Thermo shall have the right to reinstate coverage
upon expiration of any policy thus procured by Rocky Mountain. If the policy or
policies selected to provide this coverage shall be issued for the direct
benefit of Rocky Mountain, such policies shall be primary and noncontributory
with other policies. Without limitation of the foregoing general requirements
and solely for the purposes of illustration, among the forms of coverage, which
may be selected, separately or in combination, are:
(a) "failure to supply coverage," to be maintained by Thermo in
addition to Thermo's general liability coverage (generally to
be considered only if other coverage is unavailable or not
satisfactory to provide adequate recover to Rocky Mountain);
(b) "extended crop insurance coverage-temperature variation," to
be maintained by Rocky Mountain in addition to Rocky Mountain's
standard named peril or broad form crop insurance;
(c) "contingent business interruption coverage," to be maintained by
Rocky Mountain on a scheduled monthly limit basis; and
(d) "business interruption coverage for loss from a named peril"
(failure to supply heat), to be maintained by Thermo as insured
with an
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<PAGE>
extension corresponding to extended crop insurance to provide
payments equivalent to extended crop coverage to Rocky Mountain
as its interests may appear.
If the policy of insurance required by this paragraph 9.7 names Rocky Mountain
as an insured, such policy shall be endorsed with a broad form waiver of
subrogation reasonably satisfactory to Thermo and any party providing secured
financing to Thermo for construction and operation of the Plant and/or the
Facility. The waiver of subrogation in this paragraph 9.7 shall not be construed
to limit any other waiver of claims and subrogation or limitation of Thermo's
liability, provided under other paragraphs of this Agreement, including without
limitation paragraph 7.4. All proceeds of such insurance received by Rocky
Mountain, including without limitation proceeds received indirectly through
Thermo pursuant to Thermo's obligations under paragraph 7.4 or otherwise, shall,
to the extent such proceeds represent compensation for expenditures which are
(or if incurred would have been) deductible for the purpose's of determination
of Available Net Cash, or to the extent such proceeds represent revenues not
received because of such loss of crop, be deemed to be Available Net Cash
without regard to the apportionment requirements set forth in paragraph 4.5,
above.
10. GENERAL INDEMNIFICATION
-----------------------
10.1 By Rocky Mountain. Subject to such waivers and limitations of
-----------------
liability as are specifically provided hereunder, Rocky Mountain shall at all
times defend, indemnify and save Thermo, Thermo's Partners, and their respective
shareholders, directors, officers, agents and employees and any lender providing
secured financing to Thermo and such lender's shareholders directors, officers,
agents and employees (collectively "Indemnitees") harmless from any and all
Damages relating to the Facility and the Land, and from any Damages that may
occur or be claimed by or with respect to any party, person or persons, entity,
property or chattels in, on, or about the Facility or on the Land, resulting in
whole or in part from any negligent or willfully tortious act done or omission
by or through Rocky Mountain, any Affiliate of Rocky Mountain, or any party in
the Facility or on the Land or resulting from Rocky Mountain's, any such
Affiliate's or any such third party's use, non-use, or occupancy of the Facility
in any manner contrary to the requirements of this Agreement. Without limiting
the generality of the foregoing, Rocky Mountain shall defend, indemnify and save
such Indemnitees harmless from any and all Damages that may occur or be claimed
with respect to Rocky Mountain's, any Affiliate of Rocky Mountain's or any such
third party's violation or failure to comply with all Environmental Laws. This
paragraph 10.1 is subject to the provisions of paragraph 6.2 of the Supplemental
Agreement. This covenant of indemnity shall survive expiration or termination of
this Agreement, and shall be construed as supplementary to and not be construed
to conflict with or limit any other covenant of indemnity contained in this
Agreement.
10.2 By Thermo. Subject to such waivers and limitations of liability
---------
as are specifically provided hereunder, Thermo shall at all times defend,
indemnify and save Rocky Mountain and Rocky Mountain's members and their
respective shareholders, directors, officers, agents and employees (collectively
"Indemnified Persons") harmless from any and all Damages relating to the Plant,
and from any Damages that may occur
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<PAGE>
or be claimed by or with respect to any party, person or persons, entity,
property or chattels in, on, or about the Plant or the Project site (exclusive
of the Land), resulting in whole or in part from any negligent or willfully
tortious act done or omission by or through Thermo, any Affiliate of Thermo, or
any third party in the Plant or on the Project Site exclusive of the Land, or
resulting from Thermo's, any such Affiliate's or any such third party's use,
non-use or occupancy of the Plant in any manner contrary to the requirements of
this Agreement. Without limiting the generality of the foregoing Thermo shall,
except to the extent of such waivers and limitations, defend, indemnify and save
such Indemnified Parties harmless from any and all Damages that may occur or be
claimed with respect to Thermo's, any Affiliate of Thermo's or any such third
party's violation of or failure to comply with all Environmental Laws. This
covenant of indemnity shall survive expiration or termination of this Agreement,
and shall be construed as supplementary to and not be construed to conflict with
or limit any other covenant of indemnity contained in this Agreement.
11. DAMAGE OR DESTRUCTION
---------------------
11.1 Rebuilding Required. If, at any time during the Thermal Term of
-------------------
this Agreement (and whether or not Rocky Mountain is then a lessee under this
Agreement), the Facility is damaged or destroyed by fire, hail, windstorm, or
other casualty, regardless of the severity of such loss and whether or not such
loss shall have been insured against, Rocky Mountain shall, unless Thermo shall
consent to Rocky Mountain not rebuilding, promptly repair, and reconstruct the
Facility. If Rocky Mountain is a lessee of the Facility at the time such damage
or destruction occurs, the Facility shall Ve repaired and reconstructed to
substantially the same condition, or better, as existed immediately prior to
such casualty loss. If Rocky Mountain has purchased the Facility, prior to the
time such damage or destruction occurs, the Facility shall be repaired and
reconstructed in such manner as Rocky Mountain may determine in Rocky Mountain's
discretion, reasonably exercised; provided, however, that: (a) such repair and
reconstruction is completed within 180 days or less after the date of such
damage or destruction; (b) after such repair and reconstruction, Rocky
Mountain's annual requirements for thermal energy supplied by the Plant and used
for commercial or industrial purposes shall not be less than the Minimum Annual
Heat Requirement; and (c) the use of such thermal energy shall qualify the Plant
as a Qualifying Facility. All repair and reconstruction of the Facility/Plant
interface equipment shall be subject to Thermo's prior approval, which shall not
be withheld or delayed unreasonably. Any repair or reconstruction of the
Facility for a purpose other than a commercial greenhouse shall require Thermo's
prior consent, which may be withheld. For the purpose of repair and
reconstruction, Thermo shall waive Thermo's interest in insurance proceeds, if
any, relating to such casualty loss, but Rocky Mountain's obligation to repair
and reconstruct shall be limited by the amount of insurance proceeds. Thermo may
provide for the payment of such insurance proceeds in a manner which assures
Thermo of satisfactory, lien-free completion of such repair or reconstruction.
11.2 No Abatement of Rent. If Rocky Mountain is a lessee hereunder at
--------------------
the time of such casualty loss, neither Base Rent nor Additional Rent shall be
abated or reduced during any period in which the Facility is being repaired or
reconstructed or is otherwise untenantable, it being the intention of the
parties that business interruption insurance shall be maintained hereunder.
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<PAGE>
11.3 Impact of Certain Thermo Financing. The provisions of this
----------------------------------
section 11 are subject to the provisions of paragraph 10 of the Supplemental
Agreement.
12. EMINENT DOMAIN.
--------------
12.1 Condemnation During Leasehold - Substantial. If, during any
-------------------------------------------
period in which Rocky Mountain is a lessee under this Agreement, the Leased
Premises or any part thereof is condemned or appropriated by any public
authority, all proceeds of such taking shall belong and are hereby assigned to
Thermo, but shall be subject to distribution as herein provided. If any such
taking would materially and adversely affect the ability of Rocky Mountain to
meet its obligations under section 7 notwithstanding any practical repair or
restoration of the Leased Premises, this Agreement (including without limitation
the thermal supply provisions hereof) shall terminate, and if the Purchase
Option shall not have lapsed, Rocky Mountain shall be deemed to have exercised
the Purchase Option as of the effective date of the appropriation, subject,
however, to the provisions of paragraph 4 of the Supplemental Agreement. In such
event, the proceeds of such appropriation shall be applied: first, to pay to
Thermo an amount equal to the amount which is due to Thermo upon purchase
pursuant to exercise of the Purchase Option, second, to compensate Thermo for
the value of any Land and appurtenant rights easements taken but not compensated
in accordance with the Purchase Option formula, third, to compensate Thermo for
the reasonable costs anticipated by Thermo to be incurred in obtaining at the
Project Site a replacement user of thermal energy so that the Plant shall at all
times remain a Qualifying Facility, and fourth, the balance of such condemnation
proceeds, if any, shall belong to Rocky Mountain. If the Purchase Option shall
have lapsed, this Agreement, including both Rocky Mountain's leasehold estate
and the thermal supply provisions hereunder. shall terminate, and the entire
proceeds of condemnation shall be retained by Thermo.
12.2 Condemnation During Leasehold - Nonsubstantial. If a portion of
----------------------------------------------
the Facility and/or the Land is condemned or appropriated by any public
authority during the term of Rocky Mountain's leasehold interest in a manner
which would not materially and adversely affect the ability of Rocky Mountain to
meet its obligations under section 7 after practical repair and reconstruction,
this Agreement shall remain in effect and Rocky Mountain shall repair and
reconstruct the Facility to as nearly as practicable the same condition, or
better, as existed immediately prior to such taking, in which event Thermo shall
deliver the proceeds relating to such condemnation or appropriation loss to
Rocky Mountain less an equitable amount retained by Thermo to compensate Thermo
for any portion of the Land and any appurtenant rights and casements taken.
Rocky Mountain's obligation to repair and reconstruct shall not be limited to
the proceeds of condemnation available for such purposes. Thermo may provide for
the payment of such proceeds in a manner which assures Thermo of satisfactory,
lien-free completion of such repair or construction.
12.3 Condemnation After Purchase of Leased Premises. If the Facility
----------------------------------------------
and/or the Land, or any part thereof is condemned or appropriated by any public
authority during any period after which Rocky Mountain has purchased the
Facility (and, if applicable, the Land), the proceeds of condemnation shall
belong to, and be apportioned between, the parties as follows: Rocky Mountain
shall retain all proceeds of condemnation which are reasonably apportionable to
the interest then owned by Rocky
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<PAGE>
Mountain in that portion of the Land and/or the Facility which is taken, and
Thermo shall retain all proceeds of condemnation payable which are reasonably
apportionable to any interests then owned by Thermo in such property and any
easements and appurtenant rights of Thermo taken or already affected. The
foregoing notwithstanding, each party shall, if commercially practical (in
Thermo's discretion, reasonably exercised), repair and reconstruct their
respective interests in the Facility and the Plant so that section 7 and all
related provisions of this Agreement shall remain in effect until expiration of
the Thermal Term. Such obligation to repair and reconstruct shall not be limited
by the proceeds of condemnation available for such purposes. If such repair or
restoration is not commercially practical under those circumstances, this
Agreement shall thereupon terminate. In the event of such termination, any
remaining proceeds of condemnation shall be applied first to reimburse Rocky
Mountain for the Option Purchase Price paid by Rocky Mountain, next as provided
in clause "third" and finally as provided in clause "fourth" under paragraph
12.1.
12.4 Special Provisions Concerning Condemnation. Ground rent, if being
------------------------------------------
paid with respect to Land only at the time of any condemnation, shall, if this
Agreement does not terminate, abate in proportion to the ratio of the area of
the Land taken to the area of the Land prior to the appropriation. Thermal
Payments shall abate during repair and reconstruction only to the extent that
Rocky Mountain's ability to utilize thermal energy is reduced. Rocky Mountain
shall not transfer or convey its interest in the Facility or the Land, or any
part thereof under threat of condemnation, nor shall Rocky Mountain settle any
proceedings or suit in eminent domain affecting the Facility or the Land (or any
interest of Rocky Mountain therein), without the prior consent of Thermo.
Regardless of whether Rocky Mountain shall have purchased the entire Leased
Premises prior to such condemnation, Rocky Mountain irrevocably consents to the
appearance by Thermo, in any such eminent domain proceedings or suit, for the
purpose of proving or to prove such damages to Thermo's compensable property
rights and economic interests as may appear because of such eminent domain
proceedings or suit.
12.5 Impact of Certain Thermo Financing. The provisions of this
----------------------------------
section 12 are subject to the provisions of paragraph 10 of the Supplemental
Agreement.
13. DEFAULT AND REMEDIES
--------------------
13.1 Default Defined: Cure Period. Should Rocky Mountain fail to pay
----------------------------
any installment of Base Rent, Additional Rent, or any other sum herein required
to be paid to Thermo (including without limitation Thermal Payments) within
thirty (30) days after such payment is due and payable, making due allowance, if
applicable, for any Postponement to which Rocky Mountain may be entitled
hereunder, and Thermo shall have made written demand therefor; or should Rocky
Mountain abandon, vacate, or fail to operate the Facility as required hereunder;
or should Rocky Mountain fail to maintain any required insurance; or should
Rocky Mountain fail to perform any other covenant or to comply with any other
condition herein provided to be performed or complied with by Rocky Mountain
(other than the payment of money, continuation of operations, and maintenance of
insurance) within thirty (30) days after receipt by Rocky Mountain of written
notice thereof from Thermo (or, in the event such failure can be removed or
corrected, but cannot be removed or corrected within such thirty (30) day
period, in the
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<PAGE>
event Rocky Mountain does not commence to remove or correct such failure as
quickly as practical within said thirty (30) day period and thereafter
diligently pursue such removal or correction to completion as quickly as may be
reasonably practicable but in any event within one hundred eighty (180) days
after the onset of such failure); or should any proceeding in bankruptcy or
under any state or federal law relating to the relief of debtors be filed by or
against Rocky Mountain; or should a receiver be appointed of any of the property
of Rocky Mountain so as to directly affect the fulfillment of the obligations of
Rocky Mountain hereunder then and in any such event Rocky Mountain shall be in
"Default" hereunder.
13.2 Right to Terminate: Re-entry. At any time while Rocky Mountain is
----------------------------
in Default, Thermo may: (a) unless Rocky Mountain shall have previously
purchased the Facility, terminate without Notice Rocky Mountain's right to
possession of the Facility without terminating this Agreement, and thereupon
Thermo may enter and retake possession of the Facility without Notice or demand
and may, without being required to, sublease the Facility as agent of Rocky
Mountain on such sublease terms and conditions as Thermo in its discretion may
deem obtainable for the balance of the Lease Term (subject to the thermal supply
provisions of this Agreement), and receive the sublease rent therefor, applying
the same first to the payment of expenses of such re-entering and subletting and
then to the payment of all rent and other charges due or to become due to Thermo
under the terms of this Agreement, and Rocky Mountain shall pay any deficiency,
or (b) whether or not Rocky Mountain shall have purchased the Facility, declare
this Agreement terminated without Notice. If Thermo retakes possession of the
Facility, Thermo may use such force as Thermo, in Thermo's discretion, may
believe to be necessary to do so without the benefit of prior judicial process
and without being deemed to have committed a breach of peace.
13.3 Retention and Acceleration of Rent. If Thermo terminates this
----------------------------------
Agreement because of a Default by Rocky Mountain while Rocky Mountain remains a
lessee of the Facility, Thermo shall be entitled to retain any and all sums paid
by Rocky Mountain hereunder to the date of termination without prejudice to
recovery of additional damages arising from such Default, and, at the option of
Thermo exercised without Notice to Rocky Mountain, the Base Rent for the entire
remaining Lease Term of this Agreement, discounted to the then present value of
such total remaining sum at the actual average rate of interest determined under
paragraph 4 of the Memorandum Regarding Adjustment of Rent and Option Price,
plus any then-existing Postponements of Base Rent shall accelerate and shall
become immediately due and payable. In case Rocky Mountain is declared bankrupt
or voluntarily offers to creditors terms of composition, or in case a receiver
is appointed to take charge of and conduct the affairs of Rocky Mountain, or if
an order for relief is granted for or against Rocky Mountain, such claim for
unpaid and accelerated installments of Base Rent due under this Agreement shall
constitute a debt provable in bankruptcy or receivership.
13.4 Other Available Remedies. If Rocky Mountain should commit a
------------------------
Default under this Agreement (regardless of whether Rocky Mountain has purchased
the Facility), Thermo shall also be entitled to such other remedies as it may
have at law or in equity on account of such Default, including without
limitation the right to obtain equitable relief such as injunction or a decree
of specific performance, and to proceed against property mortgaged under the
terms of the Mortgage (if any) then granted pursuant to paragraph 5.8. The
remedies to which Thermo may resort under this
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Agreement are cumulative and are not intended to be exclusive of, and Thermo
shall be entitled to exercise, any other remedy to which Thermo may be entitled
by law or in equity.
13.5 Payment of Enforcement Expenses. To the maximum extent permitted
-------------------------------
by law, should either party commit a Default under this Agreement, the
defaulting party covenants and agrees to pay and discharge all reasonable costs
and expenses which shall be incurred by the non-defaulting party arising out of
such Default, in enforcing the covenants and agreements of this Agreement,
including without limitation reasonable attorneys' fees.
13.6 Forbearance not to Limit Remedies. The failure of Thermo to
---------------------------------
insist in any one or more cases on strict or specific performance of any
provision of this Agreement or to exercise any right herein contained shall not
constitute a waiver in the future of such right. Acceptance by Thermo of rent or
other payment, or acceptance of any other performance required hereunder with
knowledge of a breach, by Rocky Mountain of any provision hereof shall not
constitute a waiver of such breach nor shall any acceptance of rent or other
payment in a lesser amount than herein provided for operate or be construed in
any other manner other than as a payment on account of the earliest rent or
other charge then unpaid by Rocky Mountain.
14. ASSIGNMENT, SUBLEASING.
AND SUBCONTRACTING
--------------------
14.1 Assignment by Rocky Mountain. Rocky Mountain may not assign its
----------------------------
rights, or any of them hereunder except to an Affiliate of Rocky Mountain which
shall assume in writing and agree to be bound by all of the terms, conditions,
duties and obligations hereunder and then only if Thermo shall have given its
prior consent to such assignment. Thermo shall not withhold or delay such
consent unreasonably. Rocky Mountain shall not make or agree to make any partial
assignment of the rights granted or conferred hereunder. Except by Thermo acting
on behalf of Rocky Mountain pursuant to paragraph 13.2, no sublease of the Lased
Premises or any portion thereof, or any subcontract for sale of thermal energy,
water, or otherwise, shall be granted hereunder. Any assignment, sublease, or
subcontract (or attempted assignment, sublease, or subcontract) in violation of
these restrictions shall be void. This paragraph 14.1 is subject to the
provisions of paragraph 5.6 of the Supplemental Agreement.
14.2 Effect of Assignment. In the event that Rocky Mountain assigns
--------------------
its rights or any of them hereunder to Rocky Mountain's Affiliate, such
assignment shall not relieve Rocky Mountain of any obligations hereunder. Any
event subsequent to such assignment that causes Rocky Mountain to no longer have
a substantial economic investment in or economically significant relationship
with the entity or person that is Rocky Mountain's Affiliate shall be deemed an
assignment of this Agreement and shall not be valid unless Thermo's prior
consent shall have been obtained.
14.3 Assignment by Thermo. Thermo may assign its rights hereunder, or
--------------------
any of them, collaterally for financing purposes or otherwise, without
limitation.
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14.4 Bind and Inure. All terms, conditions, duties, and obligations of
--------------
this Agreement shall be binding on, and all rights and benefits shall inure to
the benefit of, the respective permitted successors and assigns of Thermo and
Rocky Mountain.
14.5 Third-Party Rights. Whenever this Agreement or the Supplemental
------------------
Agreement expressly provides for rights of review, consent, approval, or similar
rights to be exercised by third parties providing financing for the Plant and/or
the Facility such rights may be assigned to any assignee of such third party's
rights under any secured financing loan agreement with Thermo, or any security
documents supporting such loan agreement, and such rights of review, consent,
and approval shall be deemed to have been assigned by any such third party to
the assignee of any such third party's rights under such secured loan agreement.
Except as expressly provided in paragraph 8.12 relating to confidentiality of
Rocky Mountain's proprietary information, under no circumstances shall the
conferring of such third-party rights under this Agreement impose any duties on
such third parties, their successors and assigns.
15. SURRENDER: PERSONAL PROPERTY
----------------------------
15.1 Condition upon Termination. Except to the extent that Rocky
--------------------------
Mountain shall have purchased the Leased Premises. Rocky Mountain shall
surrender the Leased Premises to Thermo upon expiration or termination of the
Lease Term in as good condition and repair as the same shall be at the
commencement of the Lease Term, ordinary wear and tear and erection of permitted
improvements thereon, excepted. No tenancy of any duration (other than a tenancy
at will), nor any extension of the thermal supply covenants of this Agreement,
shall be created by Rocky Mountain's holding over beyond the end of the Lease
Term.
15.2 Responsibility for Personalty. All equipment and trade fixtures
-----------------------------
furnished by Rocky Mountain and used in the operation of the Facility, including
without limitation any tanks, pipes, and connections installed by Rocky Mountain
on the Leased Premises (unless such equipment and fixtures are included in the
Work under the Construction Contract), shall at all times be and remain the
personal property of Rocky Mountain. Unless Rocky Mountain shall have purchased
both the Facility and the Land, Rocky Mountain shall, on or prior to the date of
expiration or termination of the Lease Term, remove all of such equipment and
trade fixtures from the Leased Premises; provided, however, that upon request
made by Rocky Mountain not less than one hundred eighty (130) days prior to
expiration or termination. Thermo shall permit Rocky Mountain to remain in
possession as a holdover tenant for up to ninety (90) days, during which time
such equipment and fixtures may be removed. Rocky Mountain shall pay a
reasonable holdover rent specified by Thermo at such time during the holdover
period. At Thermo's request, Rocky Mountain shall repair all damages to the
Facility and the Land caused by such trade fixtures and equipment or by their
removal.
15.3 Removal of Facility. If Rocky Mountain shall have purchased the
-------------------
Facility but not the Land, then upon expiration or termination of the Lease
Term, the Facility may, at Rocky Mountain's option, be removed from the Land in
the same manner as provide in paragraph 15.2 for removal from the Facility of
trade fixtures and equipment. Unless Rocky Mountain shall have purchased the
Land as herein provided,
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any property of any nature whatsoever of Rocky Mountain which is not removed on
or before the latest date provided for removal under this section 15 shall
conclusively be deemed to have been abandoned by Rocky Mountain and all right,
title, and interest of Rocky Mountain in such property shall thereby pass
irrevocably to Thermo, which may then use or dispose of such property as Thermo
sees fit. In the event the Facility is so removed by Rocky Mountain, Rocky
Mountain shall prepare the Land, as reasonably required by Thermo, for
commercial or industrial redevelopment.
16. SUBORDINATION
-------------
16.1 Subordination: Nondisturbance. This Agreement and all rights of
-----------------------------
Rocky Mountain hereunder, including without limitation the Purchase Option
granted under section 5, shall be subordinate to the lien of each and every
mortgage, deed of trust, or other financing encumbrance of any nature which
Thermo may grant affecting the Project Site or any portion thereof (including
without limitation the Land), whether previously or hereafter made, unless the
holder of any such financing encumbrance elects by recorded instrument that this
Agreement shall be prior to such encumbrance. This subordination shall be self-
executing and effective without any further action by any party; provided,
however, that Rocky Mountain shall not be required to subordinate its rights and
interests under this Agreement to the lien of any such financing encumbrance
hereafter made unless the holder thereof shall execute a subordination,
attornment and nondisturbance agreement which shall provide in substance: (a)
that this Agreement shall not be terminated by such holder so long as Rocky
Mountain is not in Default of its obligations hereunder; (b) that such holder
shall recognize Rocky Mountain's Purchase Option if the same shall be exercised,
and upon payment to the holder of the net proceeds of such purchase such holder
shall release the lien on the Facility and, if applicable, the Land (subject,
however, to the limitations of paragraph 4 of the Supplemental Agreement); and
(c) that in the event of foreclosure or other action by such holder to enforce
its rights under such financing encumbrance (should Thermo have defaulted in its
obligations to such holder). Rocky Mountain shall remain bound to and shall
recognize such holder, and the successors or assigns of such holder, to the same
extent that Rocky Mountain shall then be required to recognize and be bound to
Thermo hereunder.
16.2 Estoppel Certificates. Rocky Mountain agrees, from time to time,
---------------------
immediately upon request by Thermo, promptly to execute such instruments,
certificates, and tenant estoppel letters as may be reasonably requested by
Thermo to evidence and confirm the subordination herein provided and the then-
current status of this Agreement, stating fully and accurately whether either
party is in default hereunder and whether this Agreement has been amended,
modified or waived in any respect (together with full particulars of such
defaults, amendments, modifications, and waivers), plus such other relevant
factual information with respect to this Agreement as Thermo may reasonably
request. Rocky Mountain shall promptly deliver such instruments, certificates
and letters to any third party designated by Thermo as having a bona fide reason
to know such information, and in the default of such delivery hereby irrevocably
designates Thermo as Rocky Mountain's attorney-in-fact to execute and deliver
such instruments, certificates and letters on Rocky Mountain's behalf.
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17. QUIET ENJOYMENT
---------------
Thermo covenants that, for so long as Rocky Mountain shall enjoy any
leasehold estate under this Agreement, Rocky Mountain, having performed all
covenants and obligations herein set forth, shall have quiet and peaceable
possession of the Leased Premises, subject to and on the terms and conditions
herein provided (including, without limitation, subordination pursuant to
paragraph 16.1), free and clear of any claim by, from, through, or under any
person lawfully claiming an interest in the Leased Premises from or through
Thermo.
18. INDEPENDENT CONTRACTORS
-----------------------
Nothing herein shall be deemed to constitute Thermo and Rocky Mountain as
partners or joint venturers of any nature or to provide that either party shall
have any responsibility or authority for or in connection with the business
activities of the other. Neither party shall have any control over or
responsibility for or obligations to the employees or agents of the other. The
relationship of the parties hereunder is that of independent contractors and,
except to the extent that Rocky Mountain shall have exercised the Purchase
Option, of lessor and lessee.
19. REFORMATION: SEVERABILITY
-------------------------
If any clause or provision of this Agreement shall be held by final
judgment of a court of competent jurisdiction to be illegal, invalid, or
unenforceable, then it is the intention of the parties that the remainder of
this Agreement shall not be affected thereby, and in lieu of each clause or
provision of this Agreement that is illegal, invalid, or unenforceable, there
shall be added as a part of this Agreement a clause or provision as similar
in terms to such illegal, invalid, or unenforceable clause or provision as may
be possible without being illegal, invalid, or unenforceable. If such
reformation cannot be accomplished, the offending provision shall be stricken
and the remainder of this Agreement shall remain in full force and effect;
provided, however, that if such offending provision cannot be reformed without
resulting in a material change in the contractual relationship between the
parties, thereby depriving either or both of the parties of the benefit of the
fundamental economic bargain herein provided, this Agreement shall become
voidable upon demand of the party whose economic interests are thus impaired.
20. NOTICES
-------
Consents, demands, approvals, notices, information, or other communications
required or permitted to be given or obtained under this Agreement in order to
establish, fix, define, or determine the rights or obligations of either party
("Notices") shall be in writing and shall be deemed to have been given when
received at the addresses provided therefor addressed to the respective parties
as provided in this Agreement. Notices shall be delivered personally by the
sending party or addressed to Thermo and Rocky Mountain at their respective
addresses shown in the first paragraph of this Agreement, to the attention of
the officers who are signatories to this Agreement, or to such other addresses
and/or persons who may be designated from time to time by Notice given in the
manner
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herein provided, or sent by registered, certified, or express U.S. Mail, return
receipt requested, or by any recognized independent private mail or courier
service which routinely maintains records of delivery and will upon request
provide verification thereof, or, if facsimile or electronic mail Notices have
been requested by such recipient by Notice as herein provided, at the option of
the sender by facsimile or electronic mail transmission initiated and completed
during the ordinary business hours of the intended recipient; provided, however,
that no Notice given by facsimile or electronic mail shall be deemed given
unless the sender obtains, contemporaneously and in the ordinary course of
business, confirmation of receipt of the written Notice in legible form. This
section 20 is subject to the provisions of paragraphs 9 and 14 of the
Supplemental Agreement.
21. FINANCING BY THERMO
-------------------
21.1 Condition Subsequent. All obligations of Thermo and Rocky
--------------------
Mountain hereunder are conditioned on Thermo, on or before April 30, 1993,
having closed and become entitled to draw funds under a financing arrangement
sufficient to construct and start up the Plant and to pay the Contract Sum under
the Construction Contract ("Financial Closing"). Thermo shall advise Rocky
Mountain from time to time upon Rocky Mountain's request concerning Thermo's
progress toward Financial Closing. If Financial Closing does not occur on or
before such date, this Agreement shall be deemed canceled without any further
obligation of either party to the other; provided, however, that at the option
of either party, exercised by Notice to the other on or before such date, this
time for automatic cancellation shall be extended as set forth in the Notice of
extension, but to no later than February 1, 1994. Should the condition
subsequent provided in this paragraph be fulfilled within the time so provided
by the execution between Thermo and Prudential of the "Loan Agreement," the
Supplemental Agreement shall remain in effect. Should this condition
subsequently be fulfilled in any other manner, the Supplemental Agreement shall
become null and void and of no further force and effect.
21.2 Cooperation of Parties. Thermo shall attempt in good faith and
---------------------
with diligence to achieve Financial Closing, but shall determine in Thermo's
discretion whether any financing opportunities which Thermo may encounter are
satisfactory to proceed to Financial Closing. Rocky Mountain shall cooperate
with Thermo in such efforts upon Thermo's reasonable request. Should any third
person contemplating providing substantial financing to Thermo (regardless of
the form or nature of such financing) and from whom Thermo has a bona fide
interest in obtaining financing (whether before or after Financial Closing)
request. as a condition of providing such financing, (a) amendments or additions
to this Agreement or the Supplemental Agreement, (b) execution of reasonable
supplemental documents for the benefit of such third person(s) or either or both
of the parties hereto, or (c) information (including business plans or other
written projections) concerning the business prospects of Rocky Mountain or
Thermo, both parties shall consider such requested amendments, additions,
supplemental documents and requests for information and shall agree to the same
unless in the discretion, reasonably exercised, of either of the parties to this
Agreement, such amendments, additions, supplemental documents, or requests for
information would materially impair the long range economic interests hereunder
of such objecting party. By way of example, and without limitation, the long
range economic interests of the parties to this Agreement would not be impaired
if, in response to a request by any such
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person providing financing, the parties to this Agreement, or either of them,
would be required to forebear from pursuing any rights or remedies against the
other until such third person had received Notice of any alleged default
hereunder, and a reasonable time had expired, subsequent to receipt of such
Notice, during which time the third person providing financing had failed to
cure any default on the behalf of the defaulting party to this Agreement. The
provisions of this paragraph 21.2 are supplemented in paragraph 12 of the
Supplemental Agreement.
21.3 Condition Precedent. The obligations of each party under this
-------------------
Agreement are further conditioned on the approval of this Agreement,
respectively, by the members of Rocky Mountain and the partners of Thermo,
acting, to the extent applicable, through their boards of directors. If such
approvals have not been obtained by both parties and Notice thereof delivered to
the other party to this Agreement within seven (7) days after the effective date
hereof, a party having obtained such approval may give Notice to the other party
that unless the other party obtains such approval within seven (7) days after
receipt of such Notice, the party having previously obtained approval may revoke
such approval and withdraw from this Agreement. Otherwise such approvals, when
obtained, shall be binding and irrevocable. If such approvals are obtained, the
Effective Date of this Agreement shall nevertheless be the date first set forth
above.
22. CONSTRUCTION AND INTERPRETATION
-------------------------------
22.1 Waivers. Any term, covenant, condition, representation, or
-------
warranty under this Agreernent may be waived by the party entitled to the
benefit thereof, and any default in performance by one party may be waived by
the party entitled to receive such performance, but none or such provisions of
this Agreement shall be considered waived by either party unless such waiver is
reduced to writing and signed by the party entitled to such benefits. No such
waiver shall be construed as a modification of any of the provisions of this
Agreement, or as a waiver of any past or future default or breach hereof unless
as expressly so stated in such waiver.
22.2 Survival of Covenants. All covenants and agreements and all
---------------------
representations of either party not required by their terms to be fully
performed and discharged prior to expiration or earlier termination of this
Agreement shall survive such expiration or termination.
22.3 Exercise of Discretion. Whenever either party shall have the
----------------------
right under this Agreement, either expressly or by implication, to exercise such
party's discretion in making a decision, granting or withholding an approval, or
consenting to some action on behalf of the other party, it is understood that
such discretion is absolute and the exercise thereof is not subject to review or
question for any reason, unless the contrary is expressly provided with respect
to such decision (for example, in those instances in which it is provided that
discretion is to be exercised reasonably). It is further understood that any
such decision, approval or consent by either party may be subject to the
approval, consent or ratification of the third party or parties providing
financing to the party hereto entitled to make such decision, grant or withhold
such approval, or extend such consent.
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22.4 Neither Party Drafter. This Agreement represents the culmination
---------------------
of extensive and arms length negotiations between the parties. Neither party
shall be deemed the drafter of this Agreement.
22.5 Captions. Section and paragraph headings have been included in
--------
this Agreement solely for the convenience of the reader. Such headings do not
constitute a part of this Agreement and shall be disregarded in the construction
or interpretation of this Agreement and every portion hereof.
22.6 Certain Words and Phrases. Whenever the terms "herein," "hereof,"
-------------------------
"hereunder," or words of like import are used in this Agreement, the intended
inference is to the entire Agreement and not to the clause, sentence, paragraph
or section in which such word appears. The word "paragraph" refers to a single
paragraph designated by a separate number. The word "section" refers to a
portion of this Agreement comprised of a series of one or more paragraphs
designated by the same numerical series. For example, this section 22 includes
paragraphs 22.1 through 22.9; the following section 23 consists of a single
paragraph. Pronouns of any specific gender shall be deemed to include all other
genders. The singular shall include the plural, and the plural the singular,
unless the context otherwise requires.
22.7 Time of the Essence. Time is of the essence with respect to
-------------------
all obligations and rights of the parties under this Agreement.
22.8 Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the United States and of the State of Colorado,
without giving effect to conflicts of law principles thereof.
22.9 Agents, Consultants, and Third Persons. Whenever any right is
--------------------------------------
conferred or reserved hereunder on or to either or both of the parties to this
Agreement, it is intended that such right may be exercised by or through an
agent or independent consultant acting on behalf of the benefitted party. It is
understood that either or both of the parties may exercise such rights from
time to time at the request of third persons who have a bona fide business
interest in the success of such party in discharging its obligations hereunder,
including without limitation third persons providing (or contemplating
providing) financing or credit to such party. No reference to the interest or
involvement of such third persons need be made in the provision or context of
this Agreement wherein such right is conferred on or reserved to a party.
Nothing in this paragraph 22.9 shall be construed to impair or conflict with any
provision of this Agreement which limits assignment, subletting, or
subcontracting of rights, or which requires that certain business information
required to be furnished or permitted to be obtained hereunder remain
confidential and not be exploited improperly by the recipient for competitive
purposes. Recipients of confidential information shall take reasonable steps to
assure that if such information becomes available to such third persons, the
third persons will respect such confidentiality and noncompetition requirements.
Nothing herein shall be construed to make any of such interested third persons
third-party beneficiaries under this Agreement.
22.10 No Recourse Except to Contracting Parties. This Agreement is
-----------------------------------------
entered into between a limited liability company and a partnership upon the
express agreement that notwithstanding any statute or other rule of law to the
contrary now or
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hereafter in force, in the event of a breach of or default under this Agreement,
or in the event of.any other claim or cause of action arising out of or under
this Agreement or the transactions herein contemplated, the complaining party
shall have no recourse for the repayment of Damages occasioned thereby except to
the assets of the other contracting party to this Agreement. Both parties to
this Agreement covenant and agree not to seek, obtain, or in any manner attempt
to enforce against the members of Rocky Mountain or against the officers and
directors of Rocky Mountain, or against the partners (directly and indirectly)
of Thermo and the shareholders, officers, and directors of such partners, any
judgment or decree for the payment of money damages on account of any claim or
cause of action arising out of or under this Agreement or the transactions
herein contemplated.
23. MEMORANDUM OF AGREEMENT
-----------------------
A memorandum of this Agreement in proper form to give notice for
recording purposes of the demise of the Leased Premises shall be executed and,
upon commencement of the Lease Term, recorded upon request by either party. Such
memorandum may include selected thermal supply covenants, including without
limitation those which are intended to run with the land hereunder. This
Agreement shall not be recorded.
24. DISPUTES RESOLUTION
-------------------
A. Unless any third party or parties providing financing to Thermo
shall object thereto not later than upon selection of the arbitration panel as
hereinafter provided, all claims, disputes, and other matters in question
arising out of or relating to this Agreement, or the breach thereof, shall, in
lieu of court action, be submitted to arbitration in Weld County, Colorado
before a panel of three (3) arbitrators. This agreement to arbitrate shall be
specifically enforceable under the arbitration laws of the State of Colorado.
Demand for arbitration must be made within a reasonable time after the claim,
dispute, or other matter in question has arisen. In no event shall the
arbitration be made after the date when institution of legal or equitable
proceedings based on such claims, dispute, or other matter in question would be
barred by the applicable statute of limitations.
B. The arbitrators shall be appointed in the following manner:
(1) The claimant shall give notice in writing to that effect to
the respondent and shall in such notice appoint the first
arbitrator to the panel.
(2) The respondent shall, within ten (10) days by notice in
writing to the claimant, appoint a second arbitrator to the
panel, and if the respondent shall fail to do so within the
ten (10) day period such appointment may (at the request of
the claimant) be made by any judge who is willing to so
designate an arbitrator and who is at the time serving on
the court of general jurisdiction for Weld County.
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(3) The two arbitrators appointed under subparagraphs (1) and
(2), above, shall within ten (10) days appoint the third
arbitrator to the panel, and if they shall fail to do so
within the ten (10) day period such appointment shall (at the
request of either party) be made in like manner as is
provided for alternate appointment under subparagraph (2),
above.
No person shall be appointed to act as an arbitrator unless such person shall be
qualified by a minimum of ten (10) years' experience in the operation of or as a
consultant to the cogeneration or commercial greenhouse industries, or a minimum
of ten (10) years' experience in the private practice of law in a discipline
relevant to such industries. No person shall be appointed as an arbitrator if
such person is known to the party appointing the arbitrator to have some then
existing business or professional relationship with the party making the
appointment, or some interest or duty which conflicts or may conflict with such
person's duty to decide the question under arbitration fairly and objectively.
Should any arbitrator(s) be appointed who shall appear, at any time prior to the
announcement by the arbitrators of their final award, to have a conflict of
interest, the position and views of such arbitrator(s) shall be disregarded by
the other(s) and if such disregard would result in the remaining arbitrator(s)
being equally divided on the outcome, the remaining arbitrator(s) shall promptly
appoint disinterested arbitrator(s) to succeed the interested arbitrator(s)
before concluding the arbitration. Any willful attempt by either party to
conceal a conflict of interest on the part of an arbitrator appointed by such
party shall constitute fraud on the arbitration.
C. Notwithstanding any provisions of law or rule of arbitration to
the contrary:
(1) The panel of arbitrators so appointed shall promptly fix a
reasonable time and place for receiving submissions or
information from the parties concerned or from any other
persons that they think fit and such panel may make such
other inquiries and require such other evidence as may be
necessary for determining the matter before them.
(2) If within a period of ninety (90) days after the date of the
appointment of the said panel a decision shall not have been
rendered by the panel or a majority thereof, a new panel of
arbitrators shall at the request of either party be appointed
in the manner aforesaid and the appointment of the previous
panel shall thereupon cease.
(3) The determination of the said panel of arbitrators shall be
in writing and shall be final and binding upon the parties
concerned except in the event of fraud, or agreed mistake,
and judgment upon such determination rendered by the
arbitrators may be entered in any court of competent
jurisdiction. In addition to establishment and enforcement of
such judgment for damages as may be awarded by the
arbitrators, such judgment may establish the basis for entry
by
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such court of an injunction, decree of specific performance,
order of foreclosure, or such other legal or equitable remedy
as it may appear to said court that the party receiving the
award shall be entitled to under the circumstances.
(4) Claimant and respondent shall each bear the costs and
expenses of the arbitrator appointed by it or on its behalf,
and also the costs and expenses of the third arbitrator shall
be paid by either claimant or respondent, or shall be appor-
tioned among parties to the arbitration in such proportions
as the panel of arbitrators shall in the circumstances
consider proper.
(5) Any party to the arbitration may cause to be joined in the
arbitration any third party who is willing to be joined and
whose presence in the arbitration may be necessary or
desirable for a complete and final resolution of the claim,
dispute, or other matter in question. After such joinder,
such third parties shall have all rights of any other party
to the arbitration, except that such third parties shall not
participate in the selection or replacement of members of the
arbitration panel. Refusal by such third parties to be joined
shall not impair the effectiveness of the arbitration as
between the claimant and the respondent.
(6) Any party to the arbitration shall be entitled, in accordance
with an expedited schedule which shall be determined by the
panel upon request by any such party, to obtain discovery
through depositions, interrogatories, demands for admissions
and requests for production and inspection of documents
and reports as provided for in the Colorado Rules of Civil
Procedure, and should disputes arise with respect to such
discovery procedures the party seeking discovery shall be
entitled to apply to the court of general jurisdiction in
Weld County, Colorado to enforce such rules.
(7) A stenographic record of all arbitration proceedings shall be
made upon request of any party to the arbitration, the cost
of which shall be shared equally among all parties, and no
party shall be entitled to receive a copy of the transcript
of proceedings except upon payment of such party's respective
pro rata share of such cost.
(8) The arbitrators shall be required to make detailed findings
of fact, conclusions of law, and award.
(9) Except as is herein otherwise expressly provided or may be
agreed by all parties to the arbitration, the arbitrators
shall be governed by the Commercial Arbitration Rules of the
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American Arbitration Association (or its successor organization)
then in effect.
These directions for arbitration shall be interpreted under the laws of
Colorado. If at any time it is not possible to establish an arbitration in
accordance with the foregoing, arbitration shall nevertheless be conducted in
accordance with substitute procedures which shall be as nearly as may be
practical in accordance with these prescribed procedures, and resort may be had
to the court of general jurisdiction of Weld County, Colorado to establish the
same.
25. INTEGRATION: AMENDMENT
----------------------
This Agreement, together with the Exhibits attached (or to be
attached) hereto or incorporated by reference, and together with certain
additional agreements, the forms of which are set forth in the Appendices
hereto, embodies the entire agreement and understanding of the parties with
respect to the subject matter hereof. Neither party shall be bound by or liable
for any prior or contemporaneous statement, representation, promise, inducement,
or understanding of any kind or nature which is not set forth or provided for
herein. This Agreement may not be amended, changed, modified, or altered except
in a writing signed by both parties and declaring therein the intention of the
parties that said writing shall effect an amendment hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers or agents as of the date and year of
acknowledgement of their signatures, set forth below.
Signed and acknowledged in the THERMO COGENERATION PARTNERSHIP
presence of: By: Thermo Industries, Ltd., a partner
(as to all signatures on behalf of By: Thermo Industries, Inc. of Colorado,
Thermo Cogeneration Partnership) General Partner
/s/ Richard S. Roberts By: /s/ J. Monroe, III
- ----------------------------------- ---------------------------------
Printed Name: Richard S. Roberts James Monroe, III
--------------------- President
By: Thermo Carbonic Inc., a partner
/s/ Lansing A. Wallace By: /s/ J. Monroe, III
- ----------------------------------- ---------------------------------
Printed Name: Lansing A. Wallace James Monroe, III
--------------------- President
-50-
<PAGE>
By: Thermo Fuels, Inc., a partner
By: /s/ James Monroe, III
--------------------------------
James Monroe, III
President
(as to Rocky Mountain Produce ROCKY MOUNTAIN PRODUCE LIMITED
Limited Liability Company) LIABILITY COMPANY
/s/ Robert C. Clark By: /s/ William E. Coleman
- -------------------------------- ------------------------------------
Printed Name: Robert C. Clark Printed Name: William E. Coleman
------------------ ----------------------
TITLE: Manager
-----------------------------
/s/ Richard S. Roberts By: /s/ Nicholas G. Muller
- -------------------------------- ------------------------------------
Printed Name: Richard S. Roberts Printed Name: Nicholas G. Muller,
------------------ ----------------------
TITLE: Manager
-----------------------------
STATE OF COLORADO )
CITY AND ) SS:
COUNTY OF DENVER )
------
The foregoing instrument was acknowledged before me this 25th day of
----
March, 1993, by James Monroe, III, the President of Thermo Industries, Inc., of
- ----- -
Colorado, a Colorado corporation and a general partner of Thermo Industries,
Ltd., a Colorado limited partnership, on behalf of the limited partnership,
and in the limited partnership's capacity of a general partner of Thermo
Cogeneration Partnership.
Witness my hand and official seal.
[NOTARY PUBLIC SEAL /s/ Lansing A. Wallace
OF LANSING A. ----------------------------------------
WALLACE Notary Public
STATE OF COLORADO
APPEARS HERE] My commission expires: 9-30-95
------------------
-51-
<PAGE>
STATE OF COLORADO )
CITY AND ) SS:
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 25th day of
March, 1993, by James Monroe, III, the President of Thermo Carbonic, Inc., a
Colorado corporation, on behalf of the corporation and in the corporation's
capacity as a partner of Thermo Cogeneration Partnership.
Witness my hand and official seal.
[COLORADO SEAL OF NOTARY /s/ Lansing A. Wallace
PUBLIC OF LANSING A. WALLACE] ------------------------------
Notary Public
My commission expires: 9-30-95
------------------------------
STATE OF COLORADO )
CITY AND ) SS:
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 25th day of
March, 1993, by James Monroe, III, the President of Thermo Fuels, Inc., a
Colorado corporation, on behalf of the corporation and in the corporation's
capacity as a partner of Thermo Cogeneration Partnership.
Witness my hand and official seal.
[COLORADO SEAL OF NOTARY /s/ Lansing A. Wallace
PUBLIC OF LANSING A. WALLACE] ------------------------------
Notary Public
My commission expires: 9-30-95
------------------------------
-52-
<PAGE>
STATE OF COLORADO )
CITY AND ) SS:
COUNTY OF DENVER )
------
The foregoing instrument was acknowledged before me this 25th day of
----
March, 1993 by William E. Coleman and Nicholas G. Muller the Manager of Rocky
- ----- - ----------------------------------------- -------
Mountain Produce Limited Liability Company, a Colorado limited liability
company, on behalf of the company.
Witness my hand and official seal.
/s/ Brenda Love
-------------------------------------
Notary Public
My commission expires: 06-10-94
---------------
This instrument prepared by:
Richard S. Roberts
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202-3957
-53-
<PAGE>
EXHIBIT A
---------
Descriptions Comprising the Project Site
(78.643 acres total)
I. The Land (Greenhouse Parcel):
-----------------------------
Located in the State of Colorado, County of Weld, described as:
That part of the Northwest 1/4 of Section 34, Township 2 North, Range 66
West of the 6th principal meridian, County of Weld, State of Colorado, being
more particularly described as:
Beginning at the West 1/4 corner of said Section 34; thence North 00 degrees
1O minutes 58 seconds West on an assumed bearing along the West line of said
NW1/4 of Section 34 a distance of 40.00 feet to the true point of beginning;
thence North 89 degrees 53 minutes 11 seconds East parallel with the South
line of said NW1/4 of Section 34 a distance of 1070.65 feet to the East line
of zoning parcel one as shown on the plat of Thermo Annexation No. 2; thence
North 00 degrees 01 minutes 29 seconds West parallel with the East line of
said NW1/4 of Section 34 a distance of 1453.44 feet; thence South 89 degrees
49 minutes 02 seconds West perpendicular to said West line of the NW1/4 of
said Section 34 a distance of 882.51 feet to the Easterly line of a public
service co. transmission line easement; thence: South 00 degrees 10 minutes
06 seconds East along said Easterly line of said easement a distance of
119.61 feet to the Southeasterly corner of said easement; thence South 59
degrees 42 minutes 58 seconds West along the Southerly line of said easement
a distance of 222.06 feet to said West line of the NW1/4 of Section 34;
thence South 00 degrees 10 minutes 58 seconds East along said West line of
the NW1/4 of Section 34 a distance of 1221.16 feet to the true point of
beginning.
Contains: 35.001 acres, more or less.
II. The Balance of the Project Site (Cogeneration) Plant Parcel):
- ----------------------------------------------------------------
That part of the Northeast 1/4 of Section 33, and the Northwest 1/4 of
Section 34, Township 2 North, Range 66 West of the 6th principal meridian,
County of Weld, State of Colorado, being more particularly described as:
Beginning at the West 1/4 Corner of said Section 34; thence North 00
degrees 10 minutes 58 seconds West on an assumed bearing along the West line
of the Northwest 1/4 of said Section 34 a distance of 40.00 feet to the true
point of beginning; thence South 89 degrees 59 minutes 12 seconds West
parallel with and 40.00 feet North of The East-West centerline of said
Section 33 a distance of 409.95 feet to the East line of Weld County
A - 1
<PAGE>
Road 31; thence Northerly along said East line of Weld County Road 31, the
following 5 courses: North 11 degrees 08 minutes 11 seconds West a distance of
569.37 feet to the beginning of a curve to the left; thence along said curve to
the left, having a radius of 5759.58 feet, a delta angle of 6 degrees 22 minutes
00 seconds, a chord that bears North 14 degrees 19 minutes 11 seconds West -
639.67 feet, and an arc length of 640.00 feet; Thence North 17 degrees 30
minutes 11 seconds West a distance of 327.18 feet to the beginning of a curve to
the right: thence along said curve to the right, having a radius of 2261.83
feet, a delta angle of 17 degrees 26 minutes 00 seconds, a chord that bears
North 08 degrees 47 minutes 11 seconds West - 685.55 feet, and an arc length of
688.20 feet; thence North 00 degrees 04 minutes 11 seconds West a distance of
406.67 feet to a point 30.00 feet South of the North line of said Northeast 1/4
of Section 33; thence leaving said East line of Weld County Road 31, North 89
degrees 36 minutes 49 seconds East parallel with said North line of the
Northeast 1/4 of Section 33 a distance of 213.32 feet to the West line of the
North 3/4 of the East 1/2 of the Northeast 1/4 of the Northeast 1/4 of said
Section 33; thence South 00 degrees 10 minutes 06 seconds East along said West
line of the N3/4 E1/2 NE1/4 NE1/4 of Section 33 a distance of 962.31 feet to the
Southwest corner of said N3/4 E1/2 NE1/4 NE1/4 of Section 33; thence North 89
degrees 45 minutes 13 seconds East along the South line of said N3/4 E1/2 NE1/4
NE1/4 of Section 33 a distance of 660.45 feet to said East line of the Northeast
1/4 of Section 33; thence North 89 degrees 41 minutes 29 seconds East along the
South line of the North 3/4 of the West 1/2 of the West 1/2 of the Northwest 1/4
of the Northwest 1/4 of said Section 34 a distance of 331.83 feet to the
Southeast corner of said N3/4 W1/2 NW1/4 NW1/4 of Section 34; thence North 00
degrees 09 minutes 47 seconds West along the East line of said N3/4 W1/2 NW1/4
NW1/4 of Section 34 a distance of 734.60 feet to a point 260.00 feet South of
the North line of the Northwest 1/4 of Section 34; thence North 89 degrees 34
minutes 30 seconds East parallel with and 260.00 feet South of the North line of
said Northwest 1/4 of Section 34 a distance of 745.07 feet; thence South 00
degrees 01 minutes 29 seconds East parallel with the East line of Said Northwest
1/4 of Section 34 a distance of 902.88 feet to a point 1493.44 feet North of the
South line of said Northwest 1/4 of Section 34; thence South 89 degrees 49
minutes 02 seconds West perpendicular to said West line of the NW1/4 of said
Section 34 a distance of 882.51 feet to the Easterly line of a public service
co. transmission line easement; thence South 00 degrees 10 minutes 06 seconds
East along said Easterly line of said easement a distance of 119.61 feet to the
Southeasterly corner of said easement; thence South 59 degrees 42 minutes 58
seconds West along the Southerly line of said easement a distance of 222.06 feet
to said West line of the NW1/4 of Section 34; thence South 00 degrees 10 minutes
58 seconds East along said West line of the NW1/4 of Section 34 a distance of
1221.16 feet to the true point of beginning.
Contains 43.642 acres, more or less.
A - 2
<PAGE>
EXHIBIT C
---------
Option Purchase Price Schedule
<TABLE>
<CAPTION>
Number of Quarterly Base Purchase Price**
Payment Dates ("QPD") (for closing on or before
Expired* (see paragraph 4.1 serially numbered Quarterly
and Commencement Date Notice) Payment Date in left column)
----------------------------- ----------------------------
<S> <C>
Prior to first QPD $7,800,000.00
1 7,765,300.71
2 7,729,743.48
3 7,693,307.10
4 7,655,969.83
5 7,617,709.39
6 7,578,502.96
7 7,538,327.16
8 7,497,158.01
9 7,454,970.95
10 7,411,740.82
11 7,367,441.82
12 7,322,047.53
13 7,275,530.87
14 7,227,864.08
15 7,179,018.73
16 7,128,965.68
17 7,077,675.07
18 7,025,116.30
19 6,971,258.01
20 6,916,068.07
21 6,859,513.56
22 6,801,560.74
23 6,742,175.04
24 6,681,321.03
25 6,618,962.40
26 6,555,061.96
27 6,489,581.58
28 6,422,482.19
29 6,353,723.77
30 6,283,265.30
31 6,211,064.74
32 6,137,079.03
33 6,061,264.02
34 5,983,574.48
35 5,903,964.07
36 5,822,385.29
37 5,738,789.48
38 5,653,126.76
</TABLE>
C - 1
<PAGE>
<TABLE>
<CAPTION>
Number of Quarterly Base Purchase Price**
Payment Dates ("QPD") (for closing on or before
Expired** (see paragraph 4.1 serially numbered Quarterly
and Commencement Date Notice) Payment Date in left column
------------------------------ ----------------------------
<S> <C>
39 $5,565,346.03
40 5,475,394.92
41 5,383,219.77
42 5,288,765.59
43 5,191,976.03
44 5,092,793.35
45 4,991,158.38
</TABLE>
NOTES: * Purchase Option expires if not exercised for conveyance on or
before end of the twelfth (12th) year following the Commencement
Date.
** This figure is exclusive of the premium of $10,000, plus such
additional sums as may also be due pursuant to paragraph 5.2
*** See "Memorandum Regarding Adjustment of Rent and Option Price" of
even date (Appendix I).
C - 2
<PAGE>
EXHIBIT D
---------
(Form of)
MORTGAGE
THIS INSTRUMENT is made this day of 19 , by and between
ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado limited liability
company, with a mailing address of 303 East Seventeenth Avenue, Suite 1070,
Denver, Colorado 80203 ("Mortgagor"), and THERMO COGENERATION PARTNERSHIP, a
Colorado partnership with a mailing address of 5840 Dahlia Street, Commerce
City, Colorado 80037 ("Mortgagee"), with respect to the following recitals:
A. Mortgagor is obligated to Mortgagee under the terms of a Thermal
Supply Lease Agreement between the parties dated ,19 (the "Thermal
Lease Agreement").
B. Mortgagor is the owner of that property situated in Weld County,
Colorado (the "Property") which is more particularly described in Exhibit A
attached hereto and incorporated herein by reference.
C. Mortgagor is desirous of securing to Mortgagee the full and timely
performance of Mortgagor's obligations under the Thermal Lease Agreement.
NOW, THEREFORE, the Mortgagor, in consideration of the Premises and for
the purposes aforesaid, does grant, bargain, sell, convey, and mortgage to
Mortgagee the Property and all its appurtenances thereto.
TOGETHER WITH AND INCLUDING:
All right, title, and interest which Mortgagor now has or may hereafter
acquire in and to said Property and in and to all improvements, tenements,
easements, hereditaments, and appurtenances thereunto belonging; and
All right, title, and interest, if any, of Mortgagor, in and to the
land lying within any street or roadway adjoining the above-described Property;
and all right, title and interest of Mortgagor in any vacated or hereafter
vacated street or alley adjoining the above-described Property and all right,
title and interest, if any, of Mortgagor in and to any strips or gores adjoining
the above-described Property; and
All rents, issues, proceeds, and profits accruing and to accrue from
said Property; and
D - 1
<PAGE>
All proceeds or sums payable in lieu of or as compensation for the
loss of or damage to (1) any property described herein, or (2) the Property and
all rights in and to all pertinent present and future fire and/or hazard
insurance policies; and
All awards made by any public body or decreed by any court of
competent jurisdiction for a taking or for degradation of value in any eminent
domain proceeding; and
All fixtures and articles of personal property now or hereafter owned
by Mortgagor and attached to or contained in and used or usable in connection
with said Property (but not including removable trade fixtures or personalty,
such as office machines), including, but not limited to, all furnishings, rugs
and carpets, apparatus, machinery (except office machines), motors, elevators,
fittings, radiators, disposals, mechanical refrigerators, televisions, radios
(to the extent such televisions and radios are used in the operation and
maintenance of the Property), recreational equipment, awnings, shades, screens,
equipment and other furnishings and all plumbing, heating, air conditioners,
lighting, ventilating, refrigerating, incinerating, and sprinkler equipment and
fixtures and appurtenances thereto; and all renewals or replacements thereof or
articles of substitution therefor, whether or not the same are or shall be
attached to said building or buildings in any manner; and
All buildings, structures, and improvements of every kind and
description now or hereafter erected or placed thereon and all materials
intended for construction, reconstruction, alteration and repairs of such
improvements now or hereafter erected thereon, including, but not limited to,
lumber, plaster, cement, shingles, roofing, plumbing, fixtures, pipe, lath,
wallboard, cabinets, nails, sinks, toilets, furnaces, heaters, brick, and
unattached refrigerating, cooking, heating and ventilating appliances and
equipment, all of which materials shall be deemed to be included within the said
Property immediately upon the delivery thereof to the said Property.
It is specifically understood that the enumeration of any specific
articles of property shall in no wise exclude or be held to exclude any items of
property not specifically mentioned. All of the land, estate and property
hereinabove described, real, personal and mixed, whether affixed or annexed or
not, and all rights hereby conveyed and encumbered are intended so to be as a
unit and are hereby understood, and agreed and declared to form a part and
parcel of the real estate and to be appropriated to the use of the real estate,
and shall for the purposes of this Mortgage be deemed to be real estate and
conveyed and encumbered hereby.
TO HAVE AND TO HOLD the said Property unto Mortgagee, its successors
and assigns forever;
PROVIDED, ALWAYS, that if Mortgagor, its successors and assigns, shall
well and fully perform all and singular the several obligations, covenants,
agreements and promises contained in the Secured Obligations, hereinafter
described, and shall in the meantime keep and perform all the covenants and
agreements herein contained, then Mortgagee shall execute and deliver a full
and complete release hereof. For purposes of Section 38-39-201, Colorado
Revised Statutes, as amended, the Secured Obligations are currently scheduled
to expire not later than , .
D - 2
<PAGE>
1. Secured Obligations. This Morgage is given to secure the full and
--------------------
faithful performance of Mortgagor's obligations (the "Secured Obligations")
under the Thermal Lease Agreement, including without limitation, the payment of
Base Rent and Additional Rent during the term of the leasehold therein
described, Ground Rent (if any) as provided therein, the covenant to use thermal
energy and to operate the Facility as described in the Thermal Lease Agreement,
the payment of Thermal Payments and the indemnifications and other covenants set
forth in the Thermal Lease Agreement. Mortgagor agrees to abide by and fully
perform each of the foregoing obligations, and agrees that any Default on its
part (which is not cured within the grace period, if any, applicable thereto)
under or pursuant to any of such obligations shall constitute a default under
this Mortgage.
2. Covenant of Title. Mortgagor, for itself and its successors and
------------------
assigns covenants and agrees to and with Mortgagee, its successors and assigns,
that it holds the said Property by title in fee simple; that it has good right
and lawful authority to sell and convey the same; that said Property is free and
clear of all liens and encumbrances whatsoever, except those matters described
on Exhibit B hereto and by this reference made a part hereof; and that except
as aforesaid, Mortgagor will warrant and defend said Property against the lawful
claims of all persons claiming by, through, or under it. Mortgagee shall permit
no superior or subordinate Mortgage, Deed of Trust or other financing
encumbrances to exist with respect to the Property except as is permitted under
paragraph 5.8 of the Thermal Lease Agreement.
3. Default. Each of the following events shall constitute a default
--------
hereunder:
(a) Failure of Mortgagor to fully and faithfully perform each
andevery term and condition to be performed by it under any one or more of the
Secured Obligations;
(b) The occurrence of any default under any encumbrance on all
or any part of the Property which has priority over the lien of this Mortgage,
or the creation of any encumbrance subsequent to the date hereof, except as
permitted under paragraph 5.8 of the Thermal Lease Agreement;
(c) Failure by Mortgagor to comply with or observe any term,
covenant, warranty or representation contained in this Mortgage;
(d) Failure by Mortgagor to comply with the provisions of the
Declaration of Restrictive Covenants recorded on in Book , at
Page Reception No. of the records of County, Colorado,
the terms of which encumber and restrict the use of the Property.
4. Mortgagee's Right to Cure or Perform. In the case of any default
-------------------------------------
herein, Mortgagee may, but need not, make any payments or perform any actions,
including the purchase, discharge, and compromise of any prior encumbrance,
which are necessary or required to cure such default or protect the security of
this Mortgage. All monies paid for the purposes herein authorized and all
reasonable expenses of any such performance, including reasonable attorneys'
fees, shall be included as additional indebtedness secured hereby, and shall
become immediately due and payable with interest
D - 3
<PAGE>
thereon at the lesser of eighteen percent (18%) per annum or the highest non-
usurious rate for commercial transactions permitted by Colorado law. Inaction of
Mortgagee shall never be considered as a waiver of any right accruing to it on
account of any default hereunder on the part of Mortgagor.
5. Mortgagee's Remedies. In the event of any default hereunder,
---------------------
Mortgagee, its successors or assigns, may, at its sole option, elect to
foreclose this Mortgage. Following the occurrence of a default, Mortgagee or the
holder of the certificate of purchase after a foreclosure sale, acting by and
through a Receiver appointed in accordance with law, shall at once become
entitled to the possession, use and enjoyment of the Property, and to the rents,
issues and profits thereof, from the date of occurrence of the default and
during the pendency of foreclosure proceedings and the period of redemption, if
any there be; and such possession shall at once be delivered to such Receiver
appointed in accordance with law; and Mortgagee, or the holder of said
certificate of purchase, shall be entitled to a Receiver for said Property and
of the rents, issues and profits thereof, whether or not foreclosure proceedings
have been commenced, and without regard to the solvency or insolvency of
Mortgagor or of the then owner of said Property and without regard to the value
thereof, and such Receiver may be appointed by any court of competent
jurisdiction upon ex parte application and without notice; and all rents, issues
-- -----
and profits, income and revenue therefrom shall be applied by such Receiver to
the payment of the damages occasioned by Mortgagee on account of such default,
according to law and the orders and directions of the Court.
6. Partial Foreclosures. In the event Mortgagee elects to foreclose
---------------------
this Mortgage, such election may be made in Mortgagee's sole discretion, with
respect to any one or more defaults together with fees, costs, advancements and
expenses incurred with respect to such defaults. Such foreclosure shall not
affect the lien of this Mortgage as to any remaining obligation or any part of
any such obligation, which is secured hereby but not covered by such
foreclosure, and which does not become due prior to the commencement of such
foreclosure proceedings. Any such foreclosure shall not extinguish the lien of
this Mortgage, but title acquired by such foreclosure shall be subject to the
lien of this Mortgage for all remaining obligations secured hereby. A redemption
from any such foreclosure shall have the same effect as if the foreclosure had
been that of an independent mortgage; and if Mortgagee acquires title conveyed
by virtue of any such foreclosure, the title evidenced by this Mortgage shall
nonetheless continue to secure the lien for the remaining obligations and shall
not merge with the title acquired by such foreclosure. Mortgagee expressly
acknowledges and agrees that the limitations on foreclosure set forth in Section
38-38-201, Colorado Revised Statutes, are inapplicable to this Mortgage.
7. Expenses of Foreclosure and Litigation. In the event of foreclosure
---------------------------------------
of the lien hereof, there shall be allowed and included as additional
indebtedness all reasonable expenditures and expenses which may be paid or
incurred on behalf of Mortgagee for attorneys' fees, appraiser's fees, outlays
for documentary and expert evidence, stenographer's charges, publication costs
(which may be estimated as to items to be expended after foreclosure sale or
entry of the decree) of procuring all such abstracts of title, title searches
and examinations, title insurance policies and similar data assurances with
respect to title as Mortgagee may deem reasonably necessary either to prosecute
such suit or to evidence to bidders at any sale which may be had pursuant to
such decree the true condition of title to or the value of the Property. All
expenditures
D - 4
<PAGE>
and expenses of this nature in this paragraph mentioned, and such reasonable
expenses and fees as may be incurred in the protection of said Property, the
maintenance of the lien of this Mortgage, including the reasonable fees of any
attorney employed by Mortgage in any litigation or proceeding affecting this
Mortgage, or said Property, including probate and bankruptcy proceedings, or in
preparation for the commencement or defense of any proceeding or threatened
suit or proceeding, shall be immediately due and payable by Mortgagor, with
interest thereon, at the rate equal to the lesser of eighteen percent (18%)
per annum or the highest non-usurious rate permitted by Colorado law, and shall
be secured by this Mortgage.
8. Binding on Successors and Assigns. This Mortgage and all provisions
----------------------------------
hereof, shall extend to and be binding upon Mortgagor and all persons claiming
under or through Mortgagor, whether or not such persons have executed this
Mortgage, and the terms of this Mortgage shall inure to the benefit of Mortgage
and its successors and assigns. Nothing herein contained, however, shall be
deemed to authorize any conveyance or encumbrance of the Property by Mortgagor
except in accordance with the Thermal Lease Agreement.
9. Captions: Definitions. The captions and headings of various
---------------------
paragraphs of this Mortgage are for convenience only and are not to be construed
as defining or limiting in any way the intent of the provisions hereof.
Capitalized terms used herein but not defined herein shall have the meaning
given to such terms in the Thermal Lease Agreement.
10. Law. This instrument has been executed in Colorado and shall be
---
governed by and construed in accordance with the laws of the State of Colorado.
11. No Merger. In the event Mortgagee acquires any interest in the
---------
Property whether subordinate or superior to the lien of this Mortgage at any
time prior to the full performance of the obligations described herein, it is
the intent of Mortgagor and Mortgagee that such other interest shall not be
merged with any interest of Mortgagor acquired by reason of the grant of this
Mortgage.
IN WITNESS WHEREOF, Mortgagee has hereunto set its hand the day and
year first above written.
Signed and acknowledged in the ROCKY MOUNTAIN PRODUCE LIMITED
presence of. LIABILITY COMPANY
_______________________________ By:___________________________
Printed Name:__________________ Printed Name:_________________
_______________________________ Title:________________________
Printed Name:__________________
D-5
<PAGE>
EXHIBIT E
---------
Preliminary Plans
Foundation Drawing dated February 11, 1993 for Ft. Lupton
Greenhouse by Dalsen Kassenbouw BV, drawing number
80011FU. (Incorporated by reference.)
Greenhouse Drawings Details dated March 8, 1993 for
Ft. Lupton Greenhouse by Dalsen Kassenbouw BV, drawing
number 80011DET01. (Incorporated by reference.)
Outline specifications consisting of pages 8-38 from Dalsen
Kassenbouw BV. Order Confirmation No..8010/Lupton No.138.
E -1
<PAGE>
[LOGO OF DALSEM APPEARS HERE]
General design
--------------
The greenhouse area of 78.641,33 sq. meters is divided into 2 adjacent areas.
The whole block is divided into 12 separate compartments, 12 compartments each
6.528 m2.
Description per greenhouse block
- --------------------------------
MATERIALS
The materials chosen for the greenhouse structure are hot dipped galvanized
steel, aluminium system profiles for the outside cladding and horticultural
tempered glass as covering. These materials will guarantee a longer life under
all weather circumstances.
Type: 6,40 mtrs. span with 2 x 3, 2 mtrs. Venlo, roof
and sections of 4,0 mtrs.
Layout see attached drawing.
Specification 12 units of 6.528 m2
- ----------------------------------
Width : 10 spans of 6,40 mtrs. = 64.00 mtrs.
Length: 25,5 sections of 4,00 mtrs. = 102,00 mtrs.
Covered area (12 units) = 78.336,00 m2
Connecting corridor Connected to greenhouse bij expansion joint.
- -------------------
Width: 1 span of 6,40 mtrs/resp 12.80 = 19.20 mtrs.
Length: 10 sections of 4 mtrs = 40.00 mtrs.
Covered area (Outside dimensions) = 782 m2
One expansion joint 0.5 x 192.31 = 96,16 m2
Total covered area of the greenhouse unit = 78.545,17 m2
Note:
Due to screening end sections and expansion joints, gutter length in
outside dimensions = 408,93 mtrs. while width = 192.31 mtrs.
Total covered area = 79.423,33 m2.
<PAGE>
[LOGO OF DALSEM APPEARS HERE]
Partitions
- ----------
There is one partition in the greenhouse trellis wise.
Gutterheight from foundation = 4,00 mtrs.
Gutterheight from soil level = 4,30 mtrs.
Building site : Fort Lupton, U.S.A.
Anticipated erection period: April 1993.
The whole construction complies with the Dutch standard specification NEN 3859.
TNO-IBBC approved according CASTA version 1.40.
<PAGE>
[LOGO OF DALSEM APPEARS HERE]
Foundations of the greenhouse unit of 79.423,33 mZ (included)
- --------------------------------------------------------------------------------
EXHIBIT 10.12
The greenhouse must be built with a slope towards both gable-ends and middle
partion wall
FOOTING WITH PREFABRICATED INSULATED SLABS:
On site, reinforced prefabricated wall will be built for the
sides, ends and partitions of the greenhouse and corridor.
Slab dimensions :
- - Height = 450 mm
- - Thickness (inclusive insulation) = 65 mm
- - Side wall = 1980 mm
- - Gable-end = 3180 mm
Total length of the concrete footing :+/- 1500 mtr.
Dollies connected to the prefabricated slabs every 3,20 meter in the gable ends
and every 2,00 mtr. in the sides. Dimensions 12 x 15 x 100 cm. These dollies are
placed in + 95 ltr. concrete mortar + 70 cm below soil level.
- -
Concrete dollies
Pre-fabricated dollies are delivered below every steel post of the
inner construction, dimensions 12 x 12 x 100 cm.
These dollies to be placed in 45 ltrs. concrete mortar + 70 cm below
soil level. -
Total number of concrete dollies :2939 pcs.
Concrete pathways (not included)
A concrete path is projected in the centre of each greenhouse in the
corridor area, in the half of the width and in the length of the
greenhouse. The pathways are 10 cm thick and have a single net
reinforcing, size 150 x 150 x 7 mm.
Delivery includes:
- -local readymix concrete for foundation only
- -all reinforcing for foundation only (Dutch origin)
Not included:
- -site levelling according the offer requirements.
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Steel Structure
---------------
Steel posts
Every 6,40 mtrs. wide and 4,00 mtrs. long for the inner construction.
Rolled hollow section dimension : 80 x 50 x 4,0 mm
Posts at cross bracing : 80 x 50 x 5,0 mm
Postheight (from foundation until
gutterheight) : 4,00 mtrs.
Connected to the foundations with anchor bolts and nuts.
Gable-end posts and partion posts.
Rolled hollow steel section 100 x 100 x 4 mm at gable ends.
All necessary provisions for heating suspension and screening purlins
are welded to these posts.
The Gable end posts are drain posts with a "turbo" in-let and an out let at a
low level. The posts function as a drain pipe and are cosmastic coated
internally.
Framed cross-ties (trellis) type 6,40 mtrs.
Composed of: - upper profile RHS : 50 x 25 x 1,5 mm
- lower profile RES : 50 x 25 x 1,5 mm
- tension rods : diam. 14 mm
- pulling rods : diam. 14 mm
- number of rods : 16
- coupler plates : flat 50 x 12 mm
- trellis height : 35 cm
Trelisses are lowered 15 cm.
Gable end, side and partition purlins
Cable-end - 1 U-profiles : 80 x 40 x 3 mm
- 1 U-profile : 35 x 180 x 40 (For screening)
Sides - 2 U-profiles : 80 x 40 x 2 mm
One upright halfway each side section of 4,5 mtrs. made of rolled hollow steel
section 80 x 50 x 2,5 mm.
Gable-and cross struts
Steel bars diam. 10 mm complete with turnbuckles.
Total 10 gable end crosses for the greenhouse.
Cross bracing (per ditilated block)
2 rows of cross bracing. Position: parallel to the gutter composed of
rolled hollow sections 40 x 20 x 1,50 mm and coupler beams between
the posts at a high and low level.
Posts will be 80 x 50 x 5 mm
Extra concrete poured at the dollies for the cross bracing 110ltr.
instead of 45 ltrs. Diameter of drilled hole to be 60 cm and height
of concrete prop 40 cm.
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Windbracing (per dilitated block)
2 rows of windbracing in a horizontal position, projected above the cross
bracing sections composed of tension rods diam. 10 mm complete with coupler
plates and turnbuckles.
Gutters
Galvanized steel width 17,5 cm, thickness 3,0 mm, type APD.
The gutters will be mounted on the steel posts, bolts, washers and
nuts. Gutters are white coated on both sides.
Drip channel
Aluminium drip channel under the above mentioned steel gutter is
included.
The condensate will be collected 4 times per gutter and transported
in a central collecting pipe every 8 gutters outer sidewalls at a
max. distance of 1 mtr.
Crop supports
Each gable-end will be equipped with an adjustable crop wire support
made of diam. 12 mm, projected every 3,20 mtrs.
Total number mounted = 240 pcs.
Crop wires
Total 99.000 mtrs. crop wire no. 10 diam. 3,40 mm for the suspension
of crops, irrigation lines etc.
All crop wires are 60 cm lowered from the trellis with victor chain.
Crop wire and chains are supplied only.
All above mentioned steel parts are hot dipped galvanized according to the Dutch
- --------------------------------------------------------------------------------
standard specification NEN 1275
- -------------------------------
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Aluminium
---------
Roof: Dalsem system
Aluminium standard roof, type 3,2 mtrs. Venlo. The roof is composed
of aluminium profiles such as ridges, reinforced glazing bars
(snowload 50 kg), gutter edges with a roof pitch of 22 deg. suitable
for glass sizes 165 X 100 cm.
According the Dutch standards, the roof is mounted storm-tight with
the following materials:
- -ridge clips for the connection glazing bar - ridge
- -gutter clamps for the connection gutter - glazing bar
- -a double ridge catcher per gable-end of 3,2 mtrs. and near
all 3 expansion joints on both sides.
- -gutter-ridge-gutter connections
positions: - above the first trellis girder at both gable ends
and between the ridge catchers at gable ends.
- above each trellis of the first and the last span
of 3,20 mtrs. and near expansion joint.
The whole roof construction complies with the Dutch standard
specification NEN 3859. TNO-IBBC approved report no: B88-669
(glass 1,00 mtr. APD gutter).
Gables, partition (corridor(s) and sides
The side walls, gable ends and corridors are composed of aluminium
profiles such as wall plates, gutter edge profiles, vertical glazing
bars and horizontal glazing bars. This rubber capped glazing system
increases the stability of the greenhouse and improves the air
tightness.
The greenhouse corners are finished with special aluminium corner
profiles. The glazing bars are suitable for double glazing, glass
width: 78,40 cm.
Expansion joints
One expansion joint (30 cm) is projected one in the centre of the
greenhouse 30x6,4 straight after the partition gable.
This joint is closed with a special expansion rubber between the
profiles.
As the dutch Nen standaards admit greenhouses to be max. 200 mtrs. in
length, the greenhouse is split into two areas divided by the above
described expansion (dilitation) joint. Due to the fact that the
total length of the two areas will be 2x 204 mtrs. the greenhouse
still does not pass the Dutch Nen standards on this point. To compen-
sate the above, two extra expansions will be projected in the roof
and gables allowing the expansion and contraction however the gutters
will not be split at these two joints, enabling an eventual roof
cleaner to pass these joints.
Adjacent to the partition gable (drainposts) the next (dititated)
area will start with posts every 3,20 mtr. (drainposts) and be fitted
with screening purlins and crop supports.
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Roof airing windows on the greenhouse
The supply includes 6.054 ventilation windows on the roof with a
width of three glass sheets of 100,0 cm = 300,0 cm.
The height of the ventilation windows are 100,0 cm.
Position of the ventilation windows one above each trellis per ridge,
on both sides of the ridge alternately.
The airing windows are complete with rubber closing profile at three
sides.
Airinq system "RAIL":
The airing system is a so called "rail" system on 27 mm. galvanized
tubes pulled in a transverse direction under the gutter, position
over each trellis. The tube is guided by three clamp consoles made of
an aluminium tube with two brass bearings.
Drive of the roof airing windows on the greenhouse
Performed by a tooth rack mechanism TRI 25 S. The gear rack to
perform with transverse connection. The motor driveshaft 1" is
galvanized and projected in bearing plates. The supply includes 300
toothracks.
The driving by 48 reduction motors type RW. twenty four for the left
hand and twenty four for the right hand windows with a double worm
gear transmission and with galvanized supports.
The motors are based on a voltage of 480 V - 3 phase 60 Hz.
The airing system of the corridor is carried out with 9 toothracks and two
ventmotor manual operated with electric switch.
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Glazing and glass sheets
------------------------
Glass sheet dimensions
- -on the roof of the production areas : 165,0 x 99,7 cm
- -on the roof of the cooling corridor
*in the airing windows : 100,0 x 99,7 cm
*under the airing windows : 66,5 x 99,7 cm
- -The first 2 mtrs. of the roof on both
ends and on both sides of the ridge
of the first and the last span : 165,0 x 49,7 cm
- -Gables and sides - single max. 78,4 cm width
- -Glass type: clear horticultural tempered glass with a light
transmission of 89 percent with the industrial tolerance
of plus or minus 1 percent.Gable-ends and sides with clear
horticultural glass.
- -Light transmission of the glass to standard specification
concept NEN 2675.
- -Glass thickness : 3,8 - 4,2 mm
- -Origin : U.S.A.
Glazing
The roof glass will be slid into the roof glazing bars and is sup-
ported on the gutter by a gutter edge profile. The gable/side glass
will be fixed on the gable/sides glazing bars with special aluminium
connecting bars (horizontally) and covered with rubber after the
glazing. The first gable ends of 3,2 mtrs. and the first 46,4 mtrs.
of each side will be glazed with half glass sheets.
Rainwater discharge
The rainwater will be collected two times per gutter of each
block.
- -The rainwater will be.transported down to soil.level through
gable-end and partion post. Total 4X per gutter.
- -eight collective pipelines are projected tapering from diam.
315 mm to 125 mm.
- -From each corner to the middle of the connecting corridor into
collecting silo The silo will be provided with overflow.
(max.lenght 20 metres).
The drainage installation includes an automatic pump system TO EMPTY
the eight collecting pipes after rainfall.
Gutters and roof drainage is based on 20 ltrs. per m2 per hour
Rainfall exceeding this average figure may result in overflowing.
The doors of the greenhouse Five aluminium doors running on underrollers.
The door is complete with rails, rollers, upper guide, door frame,
handle and lock, 3 mtrs. wide, 3 mtrs. high.
Two doors are automatically controlled by pull chain switches.
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Enclosure 2
- -----------
Heating system
--------------
The supply includes the installation of a grow-tube heating, tube-
rail heating, ringtransport pipeline, mixing groups and insulation
works.
Calculation conditions:
Outside temperature -12 deg. Celsius
Inside temperature +18 deg. Celsius
Windspeed 5 mtrs./sec.
Main water supply temperature 87 deg. Celsius
Return water temperature 32 deg. Celsius
Maximum difference between main- and
return water 55 deg. Celsius
Transmission coefficient roof 5,8 Watt/m2K
Transmission coefficient wall 5,0 Watt/m2K
Change of air in the greenhouse without
screening 1,2/hour
The heating coils in the greenhouse are connected to a Tichelmann distribution
system.
The maximum water velocity in the supply-return pipeline is 1,6 m/sec. All
suspension materials are hot dipped galvanized Hoses for the mobile loops made
by KVS 4 bar at 110 degrees, 1 cotton ply wall 6 mm.
Based on conditions within the above,the maximum variation in temperature will
not exceed plus/minus 1 degree celsius in any area of the greenhouse.
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The pressure expansion unit must be delivered by purchaser because
of the connection with the thermal reservoirs.
The connection of the powerplant on the ringtransport by means of:
4 valves Keystone 350 mm with motor
4 valves Keystone 350 mm complete with flanges
Ring distribution pipelines incl. mixing groups
The delivery includes the supply and delivery of two ringtransport
pipeline heating systems for the greenhouse.
The pipeline of the ringtransport system is pre-insulated and fitted
with alarm wiring.
The pipeline originates in the boilerhouse and runs parallel to the
gable-ends further to compartments.
The ringtransport pipeline is connected on a manifold. On this
ringtransport pipeline 12 mixing groups for the tube-rail heating and
12 mixing groups for the grow-tube heating are projected.
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XXXXXXXXXXXXXXXXXXXXX
384 pre-insulated underground pipeline 140/200 mm incl.
alarm-wiring
265 pre-insulated underground pipeline 114/200 mm incl.
alarm-wiring
125 pre-insulated underground pipeline 219/315 mm incl.
alarm-wiring
964 pre-insulated underground pipeline 168/250 mm incl.
alarm-wiring
Including T-pieces, welding bends and sleeves.
12 Mixing groups on the ring main supply pipeline in the greenhouse
for the tube-rail heating system in section 1 to 12
4 shut-off valves Keystone diam. 100 mm complete
1 four-way mixing valve diam. 100 mm complete
with servo-motor 24 V, manual operation, flanges
1 pump type Stork 1,5 Kw/480 V - 3ph - 60 Hz.
10 mtrs. tube diam. 114 mm
8 welding bends diam. 114 mm
2 thermometers
4 welding sockets 1/2"
4 mtrs. threaded pipe 1/4" + 2 quick shut-off valves for
central flue.
12 Mixing groups for the grow-tube heating system in section 1 to 12
4 shut-off valves Keystone diam. 100 mm complete
1 four-way mixing valve diam. 100 mm complete
with servo-motor 24 V, manual operation, flanges
1 pump type Stork 1,5 Kw 480V - 3 ph,- 60 Hz.
10 mtrs. tube diam. 114 mm
8 welding bends diam. 114 mm
4 welding reducing sockets
2 thermometers
4 welding sockets 1/2"
4 mtrs. threaded pipe 1/4" 2 quick shut-off valves for
central flue
Excluded excavating
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XXXXXXXX
Greenhouse type : 6,4 mtrs. Venlo
Section nos. : 1 to 12
Span : 6,4 mtrs.
Width : 10 x 6,4 mtrs.
Length : 102 mtrs.
Concrete path : 3,5 mtrs.
Section length : 4,0 mtrs.
Temperature difference outside-inside: 22 deg. C
Needed heating capacity: 665.856 kcal/hr.
Water temperature supply - return: 87 - 62 deg. C
Main supply pipeline: 89 mm pre-insulated in the soil
Cable-end piping: the distributing pipes
Side-wall piping: 4 x diam. 51 mm (incl. stop valve)
The distributing pipes of this trolley heating system are 2 x 32 mtrs. and taper
from 108 - 51 mm.
They will be fitted at low level at one gable end on the uprights.
This greenhouse is heated by 8 x 51 mm heating pipes, wall thickness 2,25 mm per
span of 6,4 mtrs. fitted as per the tube-rail system. The loops are mobile and
connected with a 3,5 mtrs. high pressure hose to the supply lines. The end
pieces are composed of 5 S-bends diam. 51 mm. All loops are fitted with stops
near the gable end to prevent running off of the trolley.
For the suspension of the heating pipes, hooks are projected at the trellisses
every 8 mtrs. The length of the hooks are 200 cm in black. The heating system is
connected to 12 automatic mixing groups on the ring main supply pipeline system.
Exclusive: digging-in for the underground pipeline.
Delivery includes the supply only of 21.710 tube-rail supports projected every
2,25 mtrs. The tube-rail supports are hot dipped galvanized.
Distance c/c : 41,5 cm
Size of footplate : 100 x 1,5 mm, length 50 cm
RHS support : 50 x 30 x 150 mm with holes for strapping.
Supply only of straps and screws are included.
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Grow-tube heating
Dimensions of greenhouse: see enclosed drawing
Sections : 1,3,5,7,9 and 11
Span : 6,4 mtrs.
No. of spans : 10 x 6,4 mtrs.
Span length : 102 mtrs.
Watertemperature supply - return: 62 - 32 deg. C
Mainline : 89 mm pre-insulated in the soil
Gable end piping : the distributing pipes
Side-wall piping : 2 x 51 mm.
One grow-tube heating system per span 6.40 mtrs. of 8 black tubes of 51 mm, wall
thickness 2,25'mm is projected in this greenhouse. The loops turns at the
central path. Four tubes will be mounted in a high position suspended 15 cm from
the lower trellis beam in J hooks while the other 4 tubes are lowered 2.45
mtrs.,at the same place also in J hooks. The pipes in high position are fixed
mounted on the supply pipeline with 1'steelpipe.
The lower pipe is fitted with high pressure hose for the connection to the upper
tube and supply pipeline.
In order to connect the hose to the pipe, a steel bend shall be provided. Also,
to prevent the sagging of pipes, provision is made for a 1" pipe in the gable-
ends to support the 51 mm pipe.
Mains pipeline: diam. 89/140 mm pre-insulated in the soil.
The distribution pipeline of 2 x 38 mtrs. tapers from 102 - 51 mm and is fixed
in a low position at both gable-ends on the uprights.
The grow-tube is suspended with black hooks.
This system allows to change the height by hand.
The grow-tube heating system is connected to 6 automatic mixing groups on the
ring main supply pipeline system and also will be connected to the return of the
tube-railsystem.
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CO-2 system
The CO-2 system is projected for the sections 1 until 12.
The delivery and mounting of P.V.C. mains in the greenhouse, mains are mounted
along gable-ends above soil while 1 main from gable-end to gable-end is mounted
in the soil.
Sub-mains are along both gable-ends and connected with solenoid valve on main
supply.( 4 in total ).
On this sub-mains tubilene hoses 20 mm must be connected with special P.V.C.
couplings.
Per 6.40 mtrs we have projected 2 CO-2 hoses.
Control equipment:
Each electric solenoid is controlled with a individual Priva CO-2 meter.
Each CO-2 meter is connected to the computer for feedback and control of the
system.
On the out-side weather station a fifth CO-2 measering sensor will be mounted
complete the system.
NOT INCLUDED:
C02 TANK AND CO2 GAS WITH A PRESSURE 2.5 AND 3.5 BAR AT A TEMPERATURE OF 20
DEGREE CELSIUS.
EXCAVATION
ROLLING OUT AND MOUNTING OF TUBILENE HOSES.
Dalsem shall supply the pipe paint only for one times painting the greenhouse
heating pipework.
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GROW-TUBE HEATING
77Dimensions of greenhouse: see enclosed drawing
Sections : 2,4,6,8,10 and 12
Span : 6,4 mtrs.
No. of spans : 12 x 6,4 mtrs.
Span length : 98 mtrs.
Water temperature supply - return: 62 - 32 deg. C
Mainline : 89 mm
Gable end piping : the distributing pipes
Side-wall piping : 2 x 51 mm.
One grow-tube heating system per span 6.40 mtrs. of 8 black tubes of 51 mm, wall
thickness 2,25 mm is projected in this greenhouse. The loops turns at the
central path. Four tubes will be mounted in a high position suspended 15 cm from
the lower trellis beam in J hooks while the other 4 tubes are lowered 2.45
mtrs., at the same place also in J hooks. The pipes in high position are fixed
mounted on the supply pipeline with 1' steelpipe.
The lower pipe is fitted with high pressure hose for the connection to the upper
tube and supply pipeline.
In order to connect the hose to the pipe, a steel bend shall be provided. Also,
to prevent the sagging of pipes, provision is made for a 1" pipe in the gable-
ends to support the 51 mm pipe.
Mains pipeline: diam. 89 mm.
The distribution pipeline of 2 x 32 mtrs. 102 - 51 mm and is fixed in a low
position at both gable-ends on the uprights at the partition.
The grow-tube is suspended with black hooks.
This system allows to change the height by hand.
The grow-tube heating system is connected to 6 automatic mixing groups on the
ring main supply pipeline system and also will be connected to the return of the
tube-railsystem.
INSULATION OF THE MANIFOLD PIPEWORK
The insulation of the hot water pipeline of our works at the manifold is done
with 50 mm rockwool, and finished with plain aluminium sheets 0,8 mm thick.
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ENCLOSURE 3
- -----------
Drip irrigation system
----------------------
A complete drip irrigation system for the complete greenhouse area. The drip
irrigation specification is divided into four parts.
SYSTEM FOR ZONE 1,2,3 AND 4
4 Lines of polythene trickle irrigation hose, diam. 25 x 21,2 mm per 6,40 mtrs.
span with so-called "Bato" tubes, rated at 3 ltrs./hr. each at a pressure of 6
mtrs. head.
Total 484 lines.
Holes are punched in the polythene hoses, spaced at 25 cm, for tomatoes with a
plant distance of 50 cm. The drip tubes of 60 cm as well as the pins (model
plant spike) are fitted on the hoses.
The irrigation hoses are been fed from two sides by means of p.v.c. distributing
pipelines diam. 50 mm, fitted along the concrete path and along the gable ends.
The distributing pipelines are connected with the main supply pipeline by means
of a connecting p.v.c. tube 75 mm with a valve set (total 24 valve sets). The
system installation is divided into 12 groups of 2 valve sets.
Each valve set is composed of:
- -one plastic solenoid valve, diam. 1 /1/2/" with adjusting diaphragm in order to
control the pressure
- -a plastic filter, diam. 1 /1/2/"
- -a pressure gauge
- -a plastic by-pass valve, diam. 50 mm for washing of the trickle irrigation
hoses
- -on 4 valve sets a manual valve is mounted for flushing the crops
To reduce the feeding area and/or draining of a group, the distributing
pipelines are provided with 6 p.v.c. ball valves diam. 50 mm
Additional
we install 2 P.V.C. ball valves diam. 50 mm to create an even watergive when 2
valve sets are opend simultaniously.
Four p.v.c. main supply pipelines, diam. 160 mm to be installed along the
concrete path connected to the fertilizer units, projected in the fertilizer
store/pumproom.
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Total 4 substrate control units.
FERTILIZER CONTROL UNIT
In the pumproom 4 substrate units are projected which are working according to
the mixing vessel principle (every unit is suitable to serve 2 valve sets at the
same time).
The unit is composed of the following elements:
- -a stainless steel frame made of rolled hollow sections 40 x 40 x 2 mm
- -a fiberglass mixing vessel, round model, capacity 750 ltrs. with lid
- -1 double action dosing pump, Iwaki type 2 MD 20 R, which pumps the A and 3
fertilizer solutions (EC) into the mixing vessel.
- -1 dosing pump, Iwaki type MD15 R, which pumps the acid or lye solution (Ph)
into the mixing vessel
- -1 self priming filling pump Grundfos, type ZP 250, 3,0 Kw 4 HP 480 V - 3 ph -
60 Hz.
- -1 coated filling water filter, make UDI with stainless steel strainer 3" 300
micron
- -2 solenoid filling valves 1/2" 24 V with adjustable capacity
- -1 stainless steel mixing/supply pump Grundfos type DLP80-125/133 7,5 Kw 10
HP/480 V - 60 Hz.
- -1 Filtomat fully automatic self cleaning filter, rated at 40 m3/hr., diam. 3",
type nr. M 203
- -a return/mixing pipe with control valve and PH control transmitter
- -connections for an EC control transmitter and an EC check in the supply
pipeline
- -pressure gauges for filter- and pump check
- -electronic level control in the mixing vessel for start/stop of the filling
pump and min./max. level of the alarm
- -a pump control panel, suitable for the control by a computer of the alarm of
the filling pump, supply pump, A and B pumps, PH pump and filling valve
- -all pumps are activated by manual switches or automatically, furthermore the
automatic level control for the filling pump/valve, min./max. level of the
alarm and the power failure alarm are included. All alarms are signalled both
optically and acoustically in a so-called blind diagram
- -all pumps are connected to the control panel
- -a litres counter is fitted in the pressure pipe for the recording monitoring
and/or control of the solenoid valves.
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THE FOLLOWING PIPELINES ARE CONNECTED TO THIS UNIT:
- -The main supply pipes to the greenhouses inclusive of a p.v.c. shut-off valves
- -The suction pipe from the waterstorage to the filling pump, maximum length 50
mtrs. of 125 mm p.v.c. tube inclusive of a foot valve, shut-off valve and a
fixed perforated suction tube.
- -Drain/blow down tube from the unit, max. length 20 mtrs. of p.v.c. tube diam.
75 mm.
- -2 only open rectangular polyester fertilizer reservoirs (contents 2.200 ltrs.)
no lids fitted on posts including a draining tray.
Further the reservoirs include the necessary supply pipe and floating suction
and discharge pipelines for the fertilizer solutions A and B.
- -1 only open round polyethelene reservoirs fitted on supports, contents 200
ltrs., including the necessary supply and suction pipelines for the acid/lye
solutions.
- -The supply tubes between the dosing pumps of the fertilizer solutions and the
acid/lye vessels.
- -The filling pipe from the filling pump to the fertilizer- and acid/lye vessels
of 50 mm p.v.c.
With the units described a capacity of 1,5 ltrs. per m2 is available. This value
is possible if the installation uses 2 valve sets in one time.
The irrigation water must be free of Fe.
NOTE:THE ACID OR LYE PUMPS ARE FOR CORRECTION ONLY THUS NOT TO INJECT MAXIMUM
ACID OR LYE QUANTITY.
The density of 2,5 drippers per M2 is calculated, each one rated at 3 ltrs./hr.
The units are coupled, so to avoid an error in the irrigation system.
DRAINWATER DISPOSAL
A p.v.c. collecting pipe of 110 mm (class 51) is installed along all gable ends
and partion wall in order to evaluate the superfluous dripwater.
This pipe is fitted in the ground and equipped with 4 risers of 40 mm with
reducers of 40 x 125 mm per 6,40 mtrs. span.
The collecting pipes are joined in the middle by a coupling pipe of 125 mm
(class 51). These pipes debouch into two round fiberglass vessels of 1000 ltrs.
capacity each.
A stainless steel self priming pump make Lowara, type silverjet 480 V - 3 ph -
60 Hz, is installed next to both vessels.
It pumps the drainwater into the drainwater reservoirs via a XXXX p.v.c. pipe.
P.v.c. non return valves are fitted in the suction pipes.
Liter counters and connecting points for an EC transmitter are fitted in the
p.v.c. pipes.
The pumps are calculated at a processing capacity of 4 ltrs. m2 per day.
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DRAINGUTTERS
This item comprises the supply only of so-called "Bato" troughs.
The supply includes the following:
49.080 mtrs.of "Bato" substrate medium trough 50 x 250 x 50 x 1,2 mm. 49.000
mtrs. polystyreen dim.2000 x 200 x 20 mm.
484 drains
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[LETTERHEAD OF DALSEM APPEARS HERE]
Enclosure 4
- -----------
Internal screening system
-------------------------
The supply of materials for 24 energy saving/screeningcloth installation with a
DS aluminium profile.
Dimensions of the greenhouse section
Width : 30 spans of 6,40 mtrs. + expansion = 192,00 mtrs.
Length: 102 sections of 4,00 mtrs. = 408,00 mtrs.
The supply and installation of a screening system fitted with a VA-profile.
Working of the system : from trellis to trellis over
4,0 mtrs.
Gable ends : not included
Side walls : not included
Type of motor : total 24 Ridder RW - 480 V.
Length of tubular shafts : 24 times 64,00
Number of tooth racks TUS20
length = 4.000 mm : total 21 per drive shaft
Number of pull/push tubes
diam. 32 mm, narrowed ends : total 21 per drive shaft
Screening material LS 13 A : made of polyester/aluminium,
screening 30%, energy saving 20%
when closed
Specification
- -------------
Drive per section
2 wormgear reduction motor, make Ridder, complete with limit switch, chain
coupling (for the protection of the gearbox) and mounting plate for fitting on
the uprights.
This motor is coupled to a galvanized tubular shaft diam. 32 mm (wall 2,6 mm
thick). The tooth racks, made Ridder TUS20, which are activated by this tubular
shaft have been welded directly to the pull/push tubes and they run together
with this tube through special borne pinions, made Ridder.
These pinions are fitted on the trellis girders and serve at the same time as a
bearing of the tubular shaft.
Pull/push tubes
The pull/push tubes to be installed in a lower position (+ 2 cm) in order to
-
prevent the wearing out of the cloth.
The pull/push tubes are all tubes diam. 32 mm with narrowed ends (wall thickness
1,5 mm).
The pull/push tubes run on plastic diabolo wheels, type KST-358/34 fitted on
each truss/trellis girder.
The VA profiles are fitted on the pull/push tubes with aluminium clamps.
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[LETTERHEAD OF DALSEM APPEARS HERE]
Supporting/positioning wires
Per 3,2 mtrs. span 8 support wires and 3 position wires 2,5 mm will be
installed, of which one is made of plastified steel 2,5 mm, the others are made
of Atlas wire 2,5 mm.
Gable-end fixing
The support wires are fixed to Dalsem purlins, size 35 x 180 x 40 mm.
These RH steel profiles are hot dipped galvanized.
Suspension of support wires.
Support wires is effected by the so-called VA profile, provided with a black
rubber strip of 20 mm against the truss.
The installation is made energy-tight with a fixed strip of screen over the
rolled hollow sections and along the sides.
Stainless steel clips are used to fix the cloth to the VA profiles.
The profile is provided with a continuous aluminium catch lock that keeps the
pack as small as possible in the closed position.
The profile is provided with support wire guides so that the screen cannot slip
under the profile.
Trellis clamps are used to fix the screen on the trellis and are equipped with
cloth end-stop stainless steel clips.
If the screening system as specified in this offer is ordered from Dalsem
together with the greenhouse, the screen will be fully integrated in the
greenhouse i.e. the greenhouse is fitted with the so-called Dalsem screen
purlins in the gable-ends.
Fixed strips of film/cloth over the rolled hollow sections are no longer
required then and a perfect sealing at the gable-ends is achieved because the VA
sections stop against the screen purlins.
28
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Enclosure 5
- -----------
Electrical and computer controls
--------------------------------
Remarks:
We assume that there is a municipal sub-station in close vicinity of this
project. The project requires a continuous peak power rating of 210 Kw or 520
Kva when the project is in full operation.
roof sprinkler system - 12 Kw
4 dripunits - 40 Kw
roofventilation - 18 Kw
screening - 18 Kw
heating system - 60 Kw
miscellaneous - 30 Kw
warehouse - 30 Kw
-------
total 208 Kw
Cable ducts
This system comprises:
A cable duct over the full length of the greenhouse along the concrete paths
fitted on wall brackets to upright and/or trellis.
Specification
- -------------
660 mtrs. of cable duct 120 mm
1200 wall brackets 120 mm
500 coupler plates
fixing materials
Sub main distribution device
Total 6 distribution devices made of sheet steel and each equipped with:
1 automatic main switch 100 amps
1 power group of 35 amps
2 power group for the airing motors
1 power group for the screening system
1 power group spare
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
The greenhouse system
This system comprises:
The wiring of 48 vent gear motors and 24 screening/shading motors with
automatic-reverse and motor protection- and emergency stop switches, all mounted
on a wooden board, via feed cables vmvk 4 x 2,5 mm2 to the distribution devices.
The wiring of the low voltage cables for connecting the measuring box. The
measuring box has a max. distance of 40 mtrs. from the concrete path.
Specification
- -------------
8 wooden boards
5200 mtrs. of vmvk cable 4 x 1,5 mm2
5500 mtrs. of vmvk cable 4 x 2,5 mm2
600 mtrs. of low voltage cable 16 x 0,8 mm2
1500 mtrs. of low voltage cable 12 x 0,8 mm2
12 switchboxes for measuring boxes
48 airing window controlboxes
50 mtrs. victor chain
The greenhouse system (path lighting system)
The supply, installing and wiring of a path lighting system composed
of:
32 double wall sockets 120 V
50 FL fittings 1 x 36 Watt waterproof
3 single pole switches
The supply and installing of 12 power wall sockets 480 V / 16 amps and the
wiring via one feed cable vmvk 4 x 2,5 mm2 to the distribution devices.
Specification
- -------------
12 power wall sockets 480 V / 16 amps
50 FL fittings 1 x 36 Watt waterproof
50 FL tubes 36 W / 33
32 double wall sockets 120 V
3 single pole switches
700 mtrs. of vmvk cable 4 x 2,5 mm2
480 mtrs. of vmvk cable 3 x 2,5 mm2
125 branch boxes with coupling nuts and mounting plates
<PAGE>
[LOGO OF DALSEM APPEARS HERE]
Power supply cables (underground)
The delivery includes 6 power supply line cables, size, ymvkas
4 x 16 mm2.
These cables are placed in the cableduct and connected to the main
distribution installation.
Specification
- -------------
1200 mtrs. ymvkas 4 x 16 mm2
incl. fixing materials
The boilerhouse installation
The delivery includes the necessary regulating boxes and cable for the
connection of the ringtransport mains of the water temperature control.
The delivery includes the supply of 1 min. pressure meters incl. low/level
safety for the pressure expansion automat vessel.
(pressure expansion vessel not included in our offer).
The delivery of a pump switchpanel together with automatic and manual
motorsafety switches for the following equipment:
2 greenhouse thermal pumps
3 spare groups
1 supply transformer for the mixing groups in the boilerhouse
The connection wiring for the substrate computer
This installation includes:
The connecting to an available feed point of 480 V - 3 ph 60 Hz of 4 substrate
control units by 25 mtrs. of feed cable ymvk 5 x 6 mm2
The delivery of weak current wiring for the connection of 36 solenoid valves,
24 V.
The wiring of the flowsensor, EC and Ph pumps and transmitters to the computer.
Drainwater disposal and electrical wiring of all necessary equipment according
our specification.
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Specification
- -------------
6 wooden boards
120 mtrs. of vmvk 5 x 6 mm2 cable
150 mtrs. of vmvk 4 x 2,5 mm2 cable
1000 mtrs. of weak current cable 24 x 0,8 mm
1200 mtrs. of weak current cable 12 x 0,8 mm
200 connectors
35 branch boxes and cable inlets
Connection of the environmental computer
This system includes:
The installing of the computer in the computer room and the connect-
ing to the available 120 V double wall socket.
The installing of the mast with outside sensors and the connection to
the computer.
The supply and installing of the required control and test leads from
the computer to:
26 mixing valve motors and water temperature transmitter
48 vent gear motors and vent position indicators (2 parallel)
12 measuring boxes
2 ringtransport main controls
24 screening/shading motors
The supply and installing of the necessary control boxes for the
measuring boxes, mixing valve motors and ventilation motors.
The alarm of the computer is connected to the existing alarm in the
boilerhouse, whilst a horn is installed directly adjacent to the
computer.
Material specification
- ----------------------
1 double wall socket 120 V
35 mtrs. of vmvk cable 3 x 2,5 mm2
20 branch boxes + cable inlet
20 mtrs. of p.v.c. cable ducting
150 mtrs. of p.v.c. cable ducting
26 control boxes for the mixing valve motors
50 mtrs. of mattress chain
2 ringtransport control boxes
32
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
CO-2 control equipment
4 CO-2 measuring points and five Priva CO-2 monitor 250 E with
4 solenoid valves.
Main distribution device
Total 1 distribution cabinet of sheet steel.
Main distributing cabinet consist of:
1 automatic main switch 630 amps
4 power groups of 35 A for the substrate units
2 power groups of 63 A for the greenhouse thermal pumps
2 power groups of 63 A for the cooling system spare
6 power groups of 63 A for the sub distributing systems - spare
3 power groups of 35 A for the roofsprinkler
Delivery of supply cables from powerplant
Not included.
Wiring and connection of the roof sprinkler system is included
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Computer control system for the complete project
------------------------------------------------
For the climate control of the greenhouse we included a "horticultural computer
control system".
Computer system
- ---------------
One CD 750 climate computer for the total greenhouse complex with video
terminal, keyboard and printer 120 D, built in a steel desk, with connection
panel which can be mounted at the left or right side. The computer is suited to
control 12 compartments according to the following specifications:
Communication : in English
Temperature : degrees Celsius
Line voltage : 230 V-60 Hz
Program version : 112
Computer dimensions : base : dxw =79x150 cm
desk-top : dxw =79x108 cm
connection panel : dxwxh=79x42x108 cm
Digital outputs : max. current 1,0 Amp. per digital output
: max. current 1,6 Amp. per 8 dig. outputs
simultaneously
Climate control : triac, 24 V AC
Fertilizer control : triac, 24 V AC
irrigation valves : either 24 V AC-triac or 24 V DC-transistor
outputs per block of 32 valves
The measurement and control of the following:
- -measurement and registration of the outside conditions (light intensity, wind
velocity, wind direction, outside temperature and rain detection)
- -measurement and registration of condition in the compartments (ambient temp.
relative humidity, water temp., vents position, fan stages activated)
- -clock circuit with setting facilities (astronomical times, fixed times)
- -boots setting
- -calculation programs (average values day and night period, calculated values)
- -alarm reports with or without (audible) alarm contact, with automatic
print-out
- -power down protection circuit
- -battery back-up
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Note:
Program numbers with the same substrate unit number are software interlocked, so
only one program at a time can be in operation. In program 112 it is possible to
set independent EC and Ph values per program.
Program numbers with the same pump number are also software interlocked, so only
one program at a time can be in operation.
Delivery includes the following:
1 x Kipp solari meter
1 x outside temperature sensor
1 x wind velocity sensor
1 x wind direction sensor
5 x Priva CO-2 monitor 250 E, range 0-3000 ppm
26 x water temperature sensor in stainless steel body
26 x mixing valve switching box with manual switch for a
24V AC mixing valve motor. Mixing valve switching
box is equipped with solid state outputs.
48 x control box with 24 having potentiometer roofvents
24 x screening/shading control
1 x rainsensor, with heating element to prevent condensation
12 x measuring box temperature & humidity with circulation fan,
including:
* integral watertank, 2 ltrs.
* 5 mtrs. steel chain
* 5 mtrs. cable with 7-p. connector
* 1 mtr. cotton sleeving for humidity measurement
The measuring box consists of a galvanized metal construction with a
white polyester coating. Both sensors are protected against temperature
influences caused by direct solar radiation.
1 x pack registration paper, 2000 sheets
1 x chair with textile cover, colour black/grey
6 x EC interface
12 x EC sensor
6 x Ph interface
12 x Ph sensor
36
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Enclosure 6
- -----------
Waterstorage tank
-----------------
Two waterstorage tanks one of 166 cub. mtrs. drainwater disposal, and
one of 450 cub. mtrs. is included for the storage of the irriga-
tion/roofsprinkler water. The watertanks are projected near the
fertilizer room in the connecting corridor.
Materials to connect the irrigation unit to the waterstorage tank are
included.
Dimensions of the watertank
- - 1 watertank with a capacity of 166 cub. mtrs.
- - 1 watertank with a capacity of 450 cub. mtrs.
Dimensions to be set later because of available space.
Each one of the reservoirs is composed of 5 rings each one assembled
of 10 galvanized corrugated sheets, bolted together.
Genap black water basin film, model Aquatex, thickness 0,5 mm,
suitable for drinking water, KIWA certification is used for lining of
the reservoirs and the existing clean water reservoir.
In order to protect the film against damages Genap polyester sheets
(300 grams/m2) will separate the film from the walls of the reser-
voirs. The top of the films are fitted with a reinforced border.
The borders are fitted with a doubling and rings every 50 cm.
For the installation of the sleeves 6 mm cord is used while for the
fixing of the polyester sheets special profiles are used.
Genap anti-algae tarpaulins for external use are included.
(They fit in the reservoirs as floating tarpaulins).
The place where the reservoirs are assembled on the ground should be
levelled and filled with sand. Further 56 concrete slabs in all are required
and should be laid waterlevel.
The rims of the reservoirs will rest on these slabs.
The slabs are not included in our quotation (size of the slabs
30 x 30 cm).
Note:
Tanks are mentioned in price summary enclosure 3.
37
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Situation in the greenhouse:
- ----------------------------
vents, roofsprinklers & heating control
---------------------------------------
---------------------------------------------------
Cmp. Mv + Ps Airinl. Screens
1 - 12 1 2 1
---------------------------------------------------
Cmp = compartment number
Mv + Ps = mixing valve motor with automatic control of
associated circulation pumps
1 x transport line pre-control program with 2 circulation pumps
with automatic selection of summer and winterpump, depending
on demand of heat required in the compartments thereto.
2 x substrate control program for fertilizer system with 2 EC
measurements and 2 Ph measurements. Included control of:
* fertilizer dosing pump (A & B)
* acid or lye pump
* filling pump
* irrigation pump
* mixing pump
5 x CO-2 measurement and dosing programs
1 x graphics program for 5 graphs on screen or the printer.
2 x control of 16 electro valves 24 V AC, divided into 10
independent programs. Each program has independent start
conditions, depending on:
* time
* light intensity or light sum
* too low rel. humidity in a compartment with minimum rest
time between two starts
Situation
- ---------
Program 1 - 12 : 2 valves each - drip irrigation.
Program 1 - 12 : 24 valves - roof sprinkler.
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Enclosure 6
Roof irrigation system
- ----------------------
The system is split up into 4 times 20 rows with each 11 circular
sprinklers. The polypropelene sprinklers Type "Mamcad". The sprink-
lers are rated at 0,3 m3/hr. at a pressure of 2.0 bar.
The sprinkling diameter is approx. 18 mtrs.
The risers to the sprinklers are made of 32 mm aluminium pipe and are
fitted by aluminium brackets at the uprights and the roof glazing
bars and bushed at the ridge. The sprinklers are fitted right on top
of the ridge and will not protrude more than 30 cm in order not to
hinder the eventual greenhouse roof cleaner.
The 63 mm p.v.c. pipes are installed in the ground. They are joined
with 1,5" valve sets. Our supply includes 12 valve sets in all.
Each valve set is composed of the following elements:
- - one solenoid valve 1,5" make Bermad
- - one take off point 50 mm x 1,5" for draining of the pipes
(frost prevention)
- - a p.v.c. ball valve 32 mm with half Geka 1" coupling
(watering tap).
The valve sets are connected to the main supply.
The 110 mm p.v.c. main supply pipe is installed underground along the
pathway and connected on pump station in the substrate room.
The pumpstation is assembled of a stainless steel frame with
1 Lowara pump type CN 40-160 of 4,0 KW (5,5 HP) 480 V - 60 Hz and a
2" filter, make UDI with stainless steel 300 micron strainer.
The pump capacity is sufficient to control 1 valve at each time.
The following pipework is connected to the pumps:
The pressure pipes of 110 mm p.v.c. fitted with a p.v.c. shut-off
valve. The suction pipe of 90 mm p.v.c. from the mains water reser-
voir at a max. distance of 35 mtrs. inclusive of a fixed perforated
suction pipe, a brass non return valve and p.v.c. shut-off valves.
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
Enclosure 7:
The mounting of 20 hose connectors ball valves 1.5" along pathway for
cleaning and hand irrigation purposes.
These valves connected on a separate main diam. 90 mm connected on the pump set
of the Hydro pressure installation.
Total cost including installation add USD 13.650.
Hydro pressure installation.
The pump installation is placed on a stainless steel frame including pressure
vessel.
In total 3 pumps will be used including filter 3" with stainless
steel strainer 300 micron. One of the pumps is spare to keep the
pressure and to be use in case of emergency.
On this pump set we connect:
A - pressure main 110 mm roof sprinkler installation.
B - pressure main 90 mm cleaning and hand valves.
The suction pipe 90 mm from the main water reservoir at a max.
distance of 20 mtrs. inclusive of a fixed perforates suction pipe, a
brass non return valve and p.v.c. shut-off valve.
Total cost including installation add USD 16.844.
39
<PAGE>
[LETTERHEAD OF DALSEM APPEARS HERE]
EXHIBIT F
---------
Preliminary Construction Schedule
F-1
<PAGE>
[EDGAR DESCRIPTION TO COME]
<PAGE>
EXHIBIT H
---------
Schedule of Permitted Encumbrances
1. Taxes and assessments which are a lien or are now due and payable; any
tax, special assessment, charge or lien imposed for or by any special
taxing district or for water or sewer service; any unredeemed tax sales.
2. Easement granted to Public Service Company of Colorado for the
construction, reconstruction, operation and maintenance of conductors and
conduits for the transmission of electricity, together with the necessary
poles, towers, cross-arms, cables, wires, guys, supports, and other
fixtures and devices, used or useful in the operation of electric
transmission lines, through, on, over, and across the west 13 feet of the
Land, Together with the right of ingress and egress over said premises and
to remove objects or structures therefrom; and, also to survey, construct,
reconstruct, maintain, operate, control, and use said lines and
facilities, as contained in instrument recorded February 27, 1964 in Book
508, at Reception No. 1430152, Weld County, Colorado Records.
3. Oil and gas lease between Mel Anderson, Agent and Attorney in Fact for
Ruth B. Anderson, Martha J. Richardson, and George A. Monson and Walter
A. Ohmart dated May 27, 1970, recorded June 11, 1970 in Book 627 as
Reception No. 1548965, and any interests therein or rights thereunder.
Note: Extension of the above lease as claimed by Affidavit of
Production, pursuant to CRS 38-42-106, by Machii-Ross
Petroleum Co., recorded August 5, 1975 in Book 744 as Reception
No. 1666396 and re-recorded September 10, 1975 in Book 747 as
Reception No 1669444, and by Amoco Production Company recorded
January 30, 1976 in Book 758 as Reception Nos. 1680147 and
1680181, and by Paul M. Mershon, Jr., recorded November 15,
1976 in Book 782 as Reception No. 1703543, corrected by
instrument recorded February 25, 1975 in Book 785 as Reception
No. 1706871, and by W.B. Macey, individually and Paul M.
Mershon Jr., as Trustee of the Paul M. Mershon, Jr. Trust dated
May 4, 1982, recorded January 25, 1984 in Book 1019 as
Reception No. 1954108, August 28, 1984 in Book 1041 as
Reception No. 1979337, and January 29, 1985 in Book 1056 as
Reception No. 1996787.
4. All interests in and to all of the oil, gas, and other minerals, as
conveyed to Gerald D. Browning, Charles H. Conner, and David C. Conner by
deed recorded December 8, 1976 in Book 783 as Reception No. 1705355, and
any interests therein or rights thereunder.
5. Terms, agreements, provisions, conditions, and obligations as contained in
Agreement by and between City of Fort Lupton and Rennoc Corporation
recorded September 22, 1981 in Book 948 as Reception No. 1869885.
H - 1
<PAGE>
6. Terms, agreements, provisions, conditions and obligations as contained in
Annexation Agreement by and between Thermo Carbonic, Inc., Rennoc
Corporation, and The City of Fort Lupton, Colorado, a Colorado municipal
corporation recorded October 1, 1992 in Book 1352 as Reception No.
02305317.
7. Reservations of (1) right of proprietor of any penetrating vein or lode to
extract his ore; and (2) right of way for any ditches or canals constructed
by authority of United States, in U.S. Patent recorded October 20, 1909 in
Book 132 at Page 257. (Affects NW1/4 Section 34)
8. Proposed Declaration of Covenants (See pp. H - 3 through H - 6):
H - 2
<PAGE>
DECLARATION OF COVENANTS
------------------------
THIS DECLARATION is made as of the ____ day of __________, 19__, by THERMO
COGENERATION PARTNERSHIP, a Colorado partnership, hereinafter referred to as
"Declarant."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Declarant is the owner of certain real property located in the
County of Weld, State of Colorado, which is more particularly described on
Exhibit "A" hereto ("Cogeneration Site"), upon which Declarant intends to
construct and operate a cogeneration plant; and
WHEREAS, Declarant is also the owner of certain real property located in
the County of Weld, State of Colorado, which is more particularly described in
Exhibit "B" hereto ("Greenhouse Site"), upon which Declarant intends to
construct and lease to others a commercial greenhouse; and
WHEREAS, the cogeneration plant will be constructed with the intention of
supplying the thermal energy requirements for the operation of the commercial
greenhouse; and
WHEREAS, Declarant would not construct the cogeneration plant but for the
obligation of the Greenhouse Operator (hereinafter defined) to purchase and use
thermal energy produced by the cogeneration plant in the operation of the
commercial greenhouse for a continuous period of twenty-five (25) years from the
initial date of commercial operation of the cogeneration plant; and
WHEREAS, Declarant desires that the Greenhouse Site shall be held, leased
and used subject to the following covenants, conditions and restrictions for the
purpose of protecting the value and desirability of the Cogeneration Site.
NOW, THEREFORE, Declarant, for itself, its successors and assigns, declares
as follows:
1. Definitions
-----------
A. The term "Declarant" shall include Thermo Cogeneration
Partnership and any successors and subsequent owners of the Cogeneration Site
for so long as it owns the Cogeneration Site.
B. "Greenhouse Operator" shall mean the party or parties operating
the greenhouse and shall include, without limitation any party or parties owning
fee title to the Greenhouse Site and for any improvements erected thereon.
H-3
<PAGE>
2. Restriction on Use. The Greenhouse Site shall be used and
------------------
operated only as a commercial greenhouse for the production of agricultural
products, or for such alternative uses (which must in any event require
consumption of thermal energy) as may be approved by Declarant prior to any
change in use, which approval by Declarant shall not be withheld or delayed
unreasonably.
3. Covenant to Operate. The Greenhouse Operator shall use and
-------------------
operate the Greenhouse Site for the permitted purposes described in paragraph 1
hereof. Such operations shall be conducted in accordance with the terms and
conditions of a certain Thermal Supply Lease Agreement dated as of March 15,
1993, under which Declarant is the lessor and Greenhouse Operator is the lessee
(the "Thermal Supply Agreement"); provided however that the term of Greenhouse
Operator's leasehold estate shall not commence until the occurrence of the
Commencement Date as provided in the Thermal Supply Lease and that this
Declaration of Covenants shall not be construed to have effected any demise
of the Greenhouse Site or to constitute actual or constructive notice of
any such demise. In connection with the operation of the Greenhouse Site,
the Greenhouse Operator shall, subject to the terms of the Thermal Supply
Agreement and conditions of Force Majeure as therein provided, accept a
quantity of thermal energy from the Cogeneration Site of not less than
Two Hundred Billion (200,000,000,000) BTU measured on an annual calendar
year basis, which thermal energy shall be received through a heat transfer
system. To the fullest extent reasonably practicable, thermal energy
prepared on the Cogeneration Site shall be utilized on the Greenhouse
Site in lieu of thermal energy obtained from alternate sources. In addition, no
other source of thermal energy (except solar generated radiant energy) shall
be utilized on the Greenhouse Site in connection with the operation of the
permitted use so long as thermal energy sufficient to satisfy the needs of the
operation is produced and made available from the Cogeneration Site.
4. Appointment of Receiver. In addition to any other rights and
-----------------------
powers conferred on the Declarant, it shall have the right after the breach of
any of the covenants herein to apply for the appointment of a receiver for the
Greenhouse Site with the power to enter upon, take possession and control of and
operate the Greenhouse Site for the permitted use herein described, and with
such other powers as may be deemed necessary to perform its duties. Declarant
shall be entitled to such receiver as a matter of right, and shall be entitled
to apply for such receiver ex parte and without
--------
prior notice to Greenhouse Operator. Any receiver so appointed shall apply any
income from the operation of the Greenhouse Site first to the necessary expense
of continuing the operation, then to the reasonable costs of the receivership,
and the balance shall be held and applied as directed by the court.
5. Enforcement. In any legal or equitable proceeding for the
-----------
enforcement (or to restrain the violation) of this Declaration in any provision
hereof, the losing party shall pay the reasonable attorneys' fees of the
prevailing party, and such amount shall be assessed as part of any judgment or
order entered by the court hearing the dispute. All remedies provided herein or
at law or in equity shall be cumulative and not exclusive. The failure of
Declarant to enforce any of the covenants herein contained shall in no event be
deemed to be a waiver of the right to do so for subsequent violations.
H - 4
<PAGE>
6. Term. This Declaration, every provision hereof and every
----
covenant contained herein shall continue in full force and effect for a period
twenty-five years from the initial date of commercial operation of the
cogeneration plant, unless prior thereto the Declarant and the Greenhouse Opera-
tor shall execute and record in the real estate records of Weld County,
Colorado, a written instrument acknowledging the earlier termination hereof. The
date of initial commercial operation of the cogeneration plant shall be deemed
to be the date set forth on a certificate which may be filed in the real estate
records of such county by the Declarant within five (5) years after the date of
filing hereof. Otherwise, such date shall be deemed to be the twenty-fifth
(25th) anniversary of the filing in such real estate records of this
Declaration.
7. Inurement. The covenants herein contained shall bind Declarant
---------
and Greenhouse Operator during the periods in which they shall own their
respective sites, and thereafter shall bind and inure to the benefit of their
respective successors and assigns.
8. Severability. If any of the provisions of this Declaration or
------------
the application thereof in any circumstances shall be invalidated, such
invalidity shall not affect the validity of the remainder of this Declaration or
the application thereof in other circumstances.
Signed and acknowledged in the THERMO COGENERATION PARTNERSHIP
presence of: By: Thermo Industries, Ltd., a partner
(as to all signatures on behalf of By: Thermo Industries, Inc. of Colorado,
Thermo Cogeneration Partnership) General Partner
By:
- --------------------------------------- ---------------------------------
James Monroe, III
Printed Name: President
---------------------------
By: Thermo Carbonic Inc., a partner
By:
- --------------------------------------- ---------------------------------
James Monroe, III
Printed Name: President
---------------------------
By: Thermo Fuels, Inc., a partner
By:
---------------------------------
James Monroe, III
President
H - 5
<PAGE>
MEMORANDUM REGARDING ADJUSTMENT OR RENT
AND OPTION PRICE
Subject: Thermal Supply Lease Agreement dated as of March 22, 1993
(the "Thermal Lease Agreement")
Parties: Thermo Cogeneration Partnership, a Colorado partnership ("Thermo")
Rocky Mountain Produce Limited Liability Company, a Colorado
limited liability company ("Rocky Mountain")
Date: March 25, 1993
1. Reference is hereby made to the Thermal Lease Agreement.
Capitalized terms used in this memorandum have the meanings given to such terms
in the Thermal Lease Agreement. The parties desire to supplement their
agreements and understandings set forth in the Thermal Lease Agreement as
expressly provided in this memorandum.
2. Base Rent payable under paragraph 4.1 of the Thermal Lease
Agreement and the Option Purchase Price set forth on Exhibit C of the Thermal
Lease Agreement have been determined on the assumption that the final Contract
Sum (inclusive of the Contractor's fee under the Construction Contract) for
construction of (and therefore the investment of Thermo in) the Facility will be
Seven Million Eight Hundred Thousand Dollars ($7,800,000). Such Base Rent and
Option Purchase Price also have been determined on the premise that a reasonable
return on Thermo's investment in the Facility should approximate the average
annual rate of interest (not presently capable of final determination) which
Thermo will be required to pay for the definitive
<PAGE>
construction/start-up and term financing to be obtained by Thermo for
construction and start-up of the Plant and the Facility, multiplied by Thermo's
then-unrecovered investment from the Facility, plus recovery by Thermo of its
capital investment in the Facility over a period of not longer than twenty (20)
years after the initial Date of Commercial Operation. Thermo has estimated such
average annual rate of interest to be nine and eighty-nine one-hundredths
percent (9.89%) per annum, and this rate of return has been used in a proforma
calculation of Base Rent payable under paragraph 4.1 and the Option Purchase
Price set forth on Exhibit C.
3. If feasible to do so consistent with Rocky Mountain's operating
requirements, the parties agree to use their best efforts to reduce the Cost of
the Work (as defined under the Construction Contract) so that the final Contract
Sum shall be less than $7,800,000. This best efforts obligation shall not
require either party to agree to any change with respect to which such party is
given a right of prior approval under paragraph 6.3 of the Thermal Lease
Agreement or the Construction Contract or to require Rocky Mountain to agree to
a reduction in the Contractor's Fee, unless such reduction is required pursuant
to those provisions of the Construction Contract under which the final payment
to the Contractor is to be determined, and adjusted if necessary.
4. Thermo agrees that promptly after conversion of the construction/start-
up financing for the Plant and the Facility to term loan financing, Thermo shall
in good faith determine as accurately as is practicable the actual average
annual rate of interest which Thermo has been and will be required to pay for
financing for the construction/start-up and term financing for the Plant and the
Facility. For purposes of determining the average annual rate of interest, loan
"points," loan fees paid to the lender, and similar charges in the nature of
prepaid interest paid to the lender and reasonably allocated to obtaining such
financing shall be deemed to be interest costs. If either the final Contract Sum
is other than $7,800,000, or such
2
<PAGE>
actual average annual rate is less than 9.89% per annum, Thermo shall
redetermine Base Rent payments required to be made during the first twenty (20)
years of the Lease Term according to the following formulae:
(a) Quarterly Base Rent payment = level quarter-annual
payment required to completely amortize in 77 payments the
amount which is the sum of (i) the final Contract Sum, plus
(ii) interest on the unamortized balance of the final Contract
Sum from time to time outstanding at the actual average
annual rate of interest (all sources blended on an equitably
weighed average basis) paid by Thermo, but not greater than
9.89% per annum.
(b) Total Base Rent = sum of all Quarterly Base Rent
payments, i.e. seventy-seven (77) times the Quarterly Base
Rent payment.
Where: the actual average annual rate of interest is determined
-----
based on an equitably weighted average rate of interest on all
borrowings of funds by Thermo and the partners and Affiliates of
Thermo specifically for use in development, construction and
operation of the Plant and the Facility.
The foregoing redetermination of Base Rent shall be made from time to time in
the event of any general refinancing of the Plant and the Facility by Thermo.
5. If the Base Rent is revised, the Purchase Option Price Schedule
(Exhibit C) shall also be revised to change the Base Purchase Price set forth
therein to the actual Contract Sum (prior to the first Quarterly Payment Date),
with such Base Purchase Price declining, on a quarter-by-quarter basis in the
manner presently set forth in such Exhibit C, so that such Base Purchase Price
will always equal the unamortized principal balance of the final Contract Sum
based on a complete amortization, in seventy-seven (77) equal quarterly
installments (level combined principal and interest basis), of the Contract Sum,
at the actual average rate of interest for the initial construction/start-up and
term financing used to redetermine the Quarterly Base Rent Payment.
3
<PAGE>
IN WITNESS WHEREOF the parties have signed this memorandum
contemporaneously with signing of the Thermal Lease Agreement.
THERMO COGENERATION PARTNERSHIP
By: Thermo Industries, Ltd., a partner
By: Thermo Industries, Inc., of Colorado
General Partner
By: /s/ James Monroe, III
----------------------------------
James Monroe, III
President
By: Thermo Carbonic, Inc., a partner
By: /s/ James Monroe, III
----------------------------------
James Monroe, III
President
By: Thermo Fuels, Inc., a partner
By: /s/ James Monroe, III
----------------------------------
James Monroe, III
President
ROCKY MOUNTAIN PRODUCE LIMITED
LIABILITY COMPANY
By: /s/ William E. Coleman
--------------------------------------
Printed Name: William E. Coleman
----------------------------
Title: MANAGER
------------------------------------
/s/ Nicholas G. Muller
and by Nicholas G. Muller, Manager
4
<PAGE>
SUPPLEMENTAL AGREEMENT
AND CONSENT TO ASSIGNMENT
THIS SUPPLEMENTAL AGREEMENT AND CONSENT TO ASSIGNMENT ("Supplemental
Agreement"), effective as of the ______ day of March, 1993, by and between
THERMO COGENERATION PARTNERSHIP, L.P., a Delaware limited partnership
("Thermo"), and ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado
limited liability company ("Rocky Mountain"), and THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, as a lender (hereinafter, together with any successors or
assigns in such capacity, referred to as "Prudential") and as lead agent
(hereinafter, with any successors and assigns in such capacity, referred to as
the "Lead Agent") for the Secured Parties under the Construction and Term Loan
Agreement dated as of March ____, 1993, among Thermo, Prudential, and CSW Ft.
Lupton, Inc., and the other financial institutions named therein as lenders, the
Lead Agent and CSW Ft. Lupton, Inc., as Bank Agent (as amended from time to
time, the "Loan Agreement").
RECITALS:
A. On March 22, 1993, Rocky Mountain entered into with Thermo Cogeneration
Partnership, a Colorado partnership, a Thermal Supply Lease Agreement (the
"Assigned Agreement"), which Assigned Agreement contains, among other things,
the agreement of the parties as to (i) the construction of a twenty (20) acre
(more or less) commercial greenhouse (the "Facility") on certain real property
(the "Land") owned by Thermo
<PAGE>
APPENDIX II
SUPPLEMENTAL AGREEMENT
AND CONSENT TO ASSIGNMENT
THIS SUPPLEMENTAL AGREEMENT AND CONSENT TO ASSIGNMENT ("Supplemental
Agreement"), effective as of the ___ day of March, 1993, by and between THERMO
COGENERATION PARTNERSHIP, L.P., a Delaware limited partnership ("Thermo"), and
ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado limited liability
company ("Rocky Mountain"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as
a lender (hereinafter, together with any successors or assigns in such capacity,
referred to as "Prudential") and as lead agent (hereinafter, with any successors
and assigns in such capacity, referred to as the "Lead Agent") for the Secured
Parties under the Construction and Term Loan Agreement dated as of March __,
1993, among Thermo, Prudential, and CSW Ft. Lupton, Inc., and the other
financial institutions named therein as lenders, the Lead Agent and CSW
Ft. Lupton, Inc., as Bank Agent (as amended from time to time, the "Loan
Agreement").
RECITALS:
A. On March __, 1993, Rocky Mountain entered into with Thermo Cogeneration
Partnership, a Colorado partnership, a Thermal Supply Lease Agreement (the
"Assigned Agreement"), which Assigned Agreement contains, among other things,
the agreement of the parties as to (i) the construction of a twenty (20) acre
(more or less) commercial greenhouse (the "Facility") on certain real property
(the "Land") owned by Thermo
<PAGE>
in Fort Lupton, Colorado, (ii) the leasing of such Land and the Facility by
Thermo to Rocky Mountain, (iii) the operation of the Facility by Rocky Mountain
for the commercial production of agricultural products, and (iv) the agreement
by Thermo to supply, and Rocky Mountain to utilize, Rocky Mountain's thermal
energy requirements for such agricultural production at the Facility from
Thermo's cogeneration plant (the "Plant") to be constructed on the site (the
"Project Site") of which the Land is part;
B. In order to facilitate financing and construction of the Plant
and the Facility, Thermo Cogeneration Partnership has assigned the Assigned
Agreement to Thermo, and Thermo, acting in the capacity of borrower, has entered
into the Loan Agreement. Thermo has also, in accordance with the requirements of
the Loan Agreement, collaterally assigned all of its right, title and interest
in, to and under the Assigned Agreement to Lead Agent pursuant to the Collateral
Assignment dated as of March __, 1993 (the "Collateral Assignment"). It is a
condition precedent to the initial funding by Lenders under the Loan Agreement
that Rocky Mountain execute and deliver this Supplemental Agreement.
C. Pursuant to that certain Project Management Agreement dated as of
December 21, 1992 (the "Project Management Agreement") between Thermo Project
Management, Inc., a Colorado corporation ("Project Manager"), and Thermo (as
assignor or successor to Thermo Cogeneration Partnership), Thermo has appointed
Project Manager as its agent to carry out and enforce the Assigned Agreement
within the scope of Project Manager's obligations under the Project Management
Agreement.
D. The Loan Agreement contains certain terms and conditions that,
during its term, will impact not only Thermo, but also Rocky Mountain as lessee
and Facility Operator under
2
<PAGE>
the Assigned Agreement, and will place certain restrictions and impose certain
obligations on Thermo as lessor and owner and Rocky Mountain as lessee and
operator with respect to the construction, leasing, and operation of the
Facility and the Plant; and
E. By entering into this Supplemental Agreement, the parties desire to
(i) acknowledge the existence of such terms and conditions in the Loan
Agreement, (ii) supplement the terms of the Assigned Agreement in certain
instances in which the Loan Agreement contains additional or more detailed terms
and conditions dealing with similar subjects as dealt with in the Assigned
Agreement, and (iii) provide in certain instances that the terms and conditions
of this Supplemental Agreement and the Loan Agreement shall, to the extent
specifically expressed herein, supersede and prevail over any conflicting
provisions of the Assigned Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained in this Supplemental Agreement, the parties agree as
follows:
1. Definitions. Capitalized terms used herein (including in the schedules
-----------
attached hereto) have the meanings set forth herein, or if not defined herein
the meanings set forth in the Assigned Agreement, and if not defined herein or
in the Assigned Agreement, in the Loan Agreement. The Secured Parties (as
defined in the Loan Agreement) are sometimes referred to herein as "Assignee".
2. Term. This Supplemental Agreement shall remain in full force and
----
effect for the benefit of Lead Agent and the lenders under the Loan Agreement,
and their respective successors and assigns, until the earlier of expiration or
earlier termination of all obligations of Rocky Mountain under the Assigned
Agreement, or until such time as all loans, commitments, and obligations
incurred by Thermo under the Loan Agreement, the Notes, or any collateral or
other documents
3
<PAGE>
entered into in connection herewith (the "Obligations") have been fully paid and
performed ("Termination"); provided however, that the provisions of section 6 of
this Supplemental Agreement shall survive the expiration or complete termination
of the Assigned Agreement; and, provided further, that if the Lead Agent or the
lenders shall initiate action because of an Event of Default by Thermo under the
Loan Agreement, and as a result of such action the rights of Thermo in the
Facility, the Land, the Plant, or the Project Site shall be terminated by
foreclosure or otherwise, any assignee or any transferee of the rights of Thermo
in the Facility, the Land, the Plant, or the Project Site shall also be entitled
to enjoy the benefits of, and to exercise the rights conferred on, the Lead
Agent and the lenders under such section 6. From and after the time of
Termination, the matters, covered by this Supplemental Agreement shall be
governed solely as provided in the Assigned Agreement, as the same may have been
amended in the interim, and this Supplemental Agreement shall automatically
become null and void and be of no further force and effect, except as is
otherwise provided in the preceding sentence. Any extension of time for payment
or performance of the Obligations, whether by amendment, modification or
supplementation of the Loan Agreement or otherwise, shall extend the time for
Termination. After Termination, neither the prior effectiveness of this
Supplemental Agreement nor the text of any provision herein which does not
expressly survive such termination shall have any effect whatsoever on the
construction or interpretation of the Assigned Agreement.
3. Representations And Warranties. Rocky Mountain hereby represents
------------------------------
and warrants to Thermo and to Prudential as follows:
3.1 Duly Organized Etc. (a) Rocky Mountain is a limited liability
------------------
company duly organized, validly existing, and in good standing under the laws of
the State of Colorado. Rocky Mountain is not engaged in any business except the
business of developing,
4
<PAGE>
constructing, and operating the Facility pursuant to the Assigned Agreement.
Rocky Mountain shall not become engaged in any other business unless it shall
first have obtained the prior written consent of Thermo.
(b) Rocky Mountain has the power, authority
and legal right to execute, deliver and perform the Assigned Agreement and this
Supplemental Agreement, and the execution and delivery of Rocky Mountain of the
Assigned Agreement and this Supplemental Agreement and the performance of its
obligations hereunder and thereunder have been duly authorized by all necessary
action do not and will not (i) require any consent or approval of any member of
Rocky Mountain except for those approvals which have been duly obtained and are
in full force and effect, (ii) violate the articles of organization of Rocky
Mountain or any provision of any law, rule, regulation, or any order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to Rocky Mountain, (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which Rocky Mountain is a party or by which it or its
properties may be bound or affected, or (iv) result in, or require, the creation
or imposition of any lien, security interest, charge or en-cumbrance upon or
with respect to any of the properties now owned or hereafter acquired by Rocky
Mountain. The members of Rocky Mountain have approved the Assigned Agreement
and, consequently, the condition referred to in paragraph 21.3 of the Assigned
Agreement has been satisfied.
(c) Each of the Assigned Agreement and this
Supplemental Agreement has been duly executed and delivered and constitutes a
valid and binding obligation of Rocky Mountain, enforceable against Rocky
Mountain in accordance with its terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
5
<PAGE>
(d) Except as set forth in Schedule 2 hereto, no
consent or approval of, or other action by or any notice or filing with, any
court or administrative or governmental body or any other person (except those
previously obtained) is required in connection with the execution and delivery
of the Assigned Agreement or this Supplemental Agreement or the performance by
Rocky Mountain of its obligations hereunder or thereunder. Rocky Mountain has
obtained all permits, licenses, approvals, consents and exemptions with respect
to the performance of its obligations under the Assigned Agreement and this
Supplemental Agreement required by applicable laws, statutes, rules and
regulations in effect as of the date hereof.
(e) Rocky Mountain is not in default with respect to
the Assigned Agreement and has no knowledge, as of the date of execution
hereof, of any claims or rights of set-off by Rocky Mountain or by any of its
affiliates or parent against Thermo.
(f) There are no proceedings pending or to the best of
Rocky Mountain's knowledge after due inquiry, threatened against or affecting
Rocky Mountain in any court or before any governmental authority or arbitration
board or tribunal (whether or not purportedly on behalf of Rocky Mountain) which
may result in a material adverse effect upon the property, business, prospects,
profits or condition (financial or otherwise) of Rocky Mountain, or the ability
of Rocky Mountain to perform its obligations under the Assigned Agreement or
this Supplemental Agreement; and Rocky Mountain is not in default with respect
to any order of any court, governmental authority or arbitration board or
tribunal.
3.2 Governmental Approvals and Other Consents and Approvals.
-------------------------------------------------------
Except as set forth on Schedule 3.2 attached hereto, no Governmental Approvals
or other consents or approval are required to be obtained by Rocky Mountain in
connection with (a) the participation by Rocky Mountain in the transactions
involved in the Assigned Agreement or the execution, delivery,
6
<PAGE>
or performance by Rocky Mountain of the Assigned Agreement, the Supplemental
Agreement or any documents related to the Assigned agreement, or (b) the use,
ownership, lease, operation, or maintenance of the Facility in accordance with
the applicable provisions of any such documents and in compliance with all
applicable laws, including Environmental Laws. Each of the Governmental
Approvals and other consents and approvals listed in Part A of Schedule 3.2 has
been duly obtained or made, validly issued, is in full force and effect and is
not subject to appeal or judicial, governmental, or other review, except as
disclosed on such Schedule. None of the Governmental Approvals and other
consents and approvals listed in Part B of Schedule. None of the Governmental
Approvals and other consents and approvals listed in Part B of Schedule 3.2 is
required to be obtained in order to be in compliance in all respects with all
requirements of law as of the date hereof. Rocky Mountain has no reason to
believe that any of the Governmental Approvals and other consents and approvals
listed in Part B of Schedule 3.2 cannot or will not be obtained or made in the
normal course of business as and when required (as set forth in Schedule 3.2)
and without significant expense. All contracts, Governmental Approvals,
entitlements and other property owned by Rocky Mountain and used in connection
with the Facility shall, upon the Commencement Date of the Lease Term under the
Assigned Agreement, be held by Rocky Mountain free and clear of any Lien, other
than (a) liens incurred by Rocky Mountain in the ordinary course of business to
secure lines of credit for working capital, (b) liens for personal property
taxes, the payment of which is not then due, (c) carrier's, warehousemen's,
repairmen's and other like liens arising in the ordinary course of business or
incidental to the operation of the Greenhouse which secure payment of sums
which are not delinquent, and (d) liens (other than any lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection with
worker's compensation, unemployment insurance and other types of social security
payments. Rocky Mountain shall not create any Lien on any property of Thermo or
suffer to exist any Lien on such property of Thermo which arises as a result of
any action or inaction of Rocky Mountain or any of its Affiliates. Any such
Lien shall
7
<PAGE>
be discharged by Rocky Mountain to the same extent and in the same manner as is
required under paragraph 8.8 of the Assigned Agreement.
3.3 No Proceeding or Litigation. No litigation, investigation, or
---------------------------
proceeding of or before, or any inquiry by, any arbitrator or Governmental
Authority is pending or, to the knowledge of Rocky Mountain, threatened, against
or affecting Rocky Mountain, any Greenhouse Affiliate of Rocky Mountain or
against or affecting any of the properties, rights, revenues, assets
or facilities of Rocky Mountain or any such Greenhouse Affiliate.
3.4 Agreements and Licenses. No licenses, trademarks, patents,
-----------------------
copyrights or agreements with respect to the usage of technology or other
permits (other than those constituting Governmental Approvals referred to in
Schedule 3.2) are required to be obtained by Rocky Mountain for the
construction, development, ownership, operation, or maintenance of the Facility.
4. Option to Purchase Suspended. Anything in the Assigned Agreement to
----------------------------
the contrary notwithstanding, Rocky Mountain shall not be entitled to exercise
the rights conferred under section 5 or be deemed to have exercised such rights
under section 12 of the Assigned Agreement to purchase the Facility (or the
Land) at any time there remains unpaid any indebtedness under the Loan Agreement
unless, at the time of such exercise, Thermo shall have obtained Prudential's
approval (which approval may be withheld in Prudential's sole discretion) of
alternative thermal use arrangements, including all appropriate regulatory and
administrative approvals and filings, for thermal energy produced by the Plant.
Thermo shall from time to time inform Rocky Mountain upon inquiry whether any
such indebtedness is outstanding. Upon receipt of a notice by Rocky Mountain
of its intention to exercise its rights under section 5 of the Thermal Supply
Agreement,
8
<PAGE>
Thermo shall notify Rocky Mountain whether Thermo shall have obtained
Prudential's approval of alternative thermal use arrangements and, if so,
the purchase price payable by Rocky Mountain. Such price shall be the "Option
Purchase Price," determined in the manner provided in paragraph 5.2 of the
Assigned Agreement, plus such additional sum as may be payable pursuant to
paragraph 5.5 of the Assigned Agreement should Rocky Mountain also purchase the
Land as provided in such paragraph. At the closing of such sale, Thermo shall
obtain from Lead Agent and deliver to Rocky Mountain a Release by Lead Agent
from the lien of any mortgage(s), deeds of trust, and other security agreements
encumbering the Facility (and the Land if purchased) to secure repayment of the
indebtedness of Thermo under the Loan Agreement and Rocky Mountain shall deliver
to Thermo and Lead Agent a ratification and reaffirmation of all thermal supply
provisions of the Assigned Agreement in such form as Thermo or Lead Agent may
reasonably request. Nothing herein shall be construed to relieve Rocky Mountain
of its obligations under paragraph 5.8 of the Thermal Supply Agreement. Under no
circumstances shall Rocky Mountain be entitled to exercise the Purchase Option
at any time while Thermo is in default under the Assigned Agreement or this
Supplemental Agreement or while an Event of Default is continuing under the Loan
Agreement. Should the lenders, the Lead Agent or their nominee exercise any
remedies arising because of an Event of Default by Thermo under the Loan
Agreement whereby Thermo's rights in the Facility, the Land, the Plant or the
Project Site shall be terminated, assumed or transferred, the Purchase Option,
effective as of the time of such exercise, shall permanently lapse and become
void and shall no longer be binding upon Thermo, the Lead Agent, any lender
under the Loan Agreement or any transferee of the Facility, the Land, the Plant
or the Project Site in connection with such exercise of rights or remedies
because of such Event of Default.
9
<PAGE>
5. Reports, Information and Approvals. At all times while indebtedness is
----------------------------------
outstanding under the Loan Agreement:
5.1 Lead Agent shall have the same rights as Thermo to receive
reports and information as shall be available to Thermo, and to exercise other
rights with respect to receipt of information as are conferred on Thermo under
paragraphs 8.11 and 8.12 of the Assigned Agreement. Rocky Mountain shall deliver
all such reports and information to Lead Agent at the address set forth in
paragraph 14 hereof, or such other address as Lead Agent may have specified
pursuant to such paragraph.
5.2 Notwithstanding paragraphs 14.1 and 14.2 of the Assigned
Agreement, Rocky Mountain shall make or agree to make any proposed assignment,
sublease or subcontract under the Assigned Agreement without the prior written
consent of Thermo, which consent may be withheld in Thermo's sole discretion.
6. Environmental Matters. Supplementary to and not in lieu of Rocky
---------------------
Mountain's obligations under paragraph 10.1 and certain other provisions of the
Assigned Agreement:
6.1 Rocky Mountain shall at all times comply fully with all laws,
rules, regulations, and ordinances of any public authority having jurisdiction
with respect to the storage, use or release at the Facility and on the Land of
hazardous or toxic substances, and shall not treat, store, transport or release
any Materials of Environmental concern on or from the Facility or the Land in
any manner or quantity which may result in any clean-up obligation or liability
under any Environmental Law; shall keep the Facility free of any lien imposed
pursuant to Environmental Laws because of acts or omissions of Rocky Mountain or
its Affiliates, agents, employees, contractors,
10
<PAGE>
sublessees, successors or assigns: and shall pay or cause to be paid when due
any and all costs of complying with Environmental Laws and responding to the
presence, release, or threatened release of Materials of Environmental Concern
because of acts or omissions of Rocky Mountain or its agents, employees,
contractors, sublessees, successors or assigns (including without limitation all
damages, liabilities, expenses and costs of all third-party claims). If Rocky
Mountain fails to do any of the foregoing, then to the extent that Thermo, Lead
Agent or any lender under the Loan Agreement and their respective partners,
shareholders, directors, officers, agents, employees, successors or assigns
sustains any liability, loss, cost, damage, or expense (including attorneys' and
consultants' fees and expenses) arising out of the presence, release, or
threatened release by Rocky Mountain or its Affiliates, agents, employees,
contractors, sublessees, successors or assigns of Materials of Environmental
Concern on or from the Facility or the Land, Thermo, Prudential or Lead Agent
may, upon such prior written notice to Rocky Mountain as is reasonable under the
circumstances, take any action necessary, in the reasonable judgement of such
responding party, to respond to such presence, release or threatened release,
and the cost of such response action shall be borne by Rocky Mountain. Rocky
Mountain shall give to Thermo, to Prudential and to Lead Agent, and to their
respective officers, agents, employees and contractors, access to the Facility
and the Land, and Rocky Mountain hereby specifically grants to Thermo, to
Prudential and to Lead Agent a license to respond to such presence, release, or
threatened release of such Materials of Environmental Concern.
6.2 In addition to the requirements of paragraph 10.1 of the Thermal
Supply Agreement, Rocky Mountain shall indemnify and hold Thermo, Lead Agent,
Prudential and each other lender under the Loan Agreement and their respective
partners, shareholders, directors, officers, agents or employees free and
harmless from and against all liability, loss, cost, damage,
11
<PAGE>
and expense (including without limitation attorneys' and consultants' fees and
expenses) incurred in connection with the environmental compliance, clean-up and
other response obligations imposed under any Environmental Laws or in connection
with third-party claims relating to or in connection with any violation by Rocky
Mountain or its Affiliates, agents, employees, contractors, sublessees,
successors or assigns of any Environmental Law or in connection with any
Materials of Environmental Concern used, generated, treated, stored, or
otherwise located on, or released by Rocky Mountain or threatened to be released
in, on, under, from or affecting the Facility or the Land, except to the extent
resulting from such indemnitee's negligence or intentionally tortious acts or
omissions. For purposes of this Supplemental Agreement, the definition of
Environmental Laws is further particularized to include, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
/s/s/9601 et seq.), the Resource Conservation and Recovery Act
-- ---
U.S.C. /s/s/6901 et seq.), the National Environmental Policy Act (42 U.S.C.
-- ---
/s/s/4321 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
-- ---
/s/s/1801 et seq.), the Toxic Substances Control Act (15 U.S.C. /s/s/2601
------
et seq.), the Clean Air Act (42 U.S.C. /s/s/7401 et seq.), the Federal Water
-- --- -- ---
Pollution Control Act (33 U.S.C. /s/s/1251 et seq.), the Safe Drinking Water Act
-------
(42 U.S.C. /s/s/ 300(f) et seq.), the Colorado Hazardous Waste Management Act
-- ---
(Colo. Rev.Stat. Title 25, Article 15), the Colorado Water Quality Control Act
(Colo. Rev. Stat. Title 25, Article 8), the Colorado Air Quality Control Act
(Colo. Rev. Stat. Title 25, Article 7), the Colorado Hazardous Materials
Transportation Act of 1987 (Colo. Rev. Stat. Title 43, Article 6), the Colorado
Hazardous Waste Cleanup Act (Colo. Rev. Stat. Title 25, Article 16), the
Colorado Underground Storage Tanks Law (Colo. Rev. Stat. Title 25, Article 18),
Colorado Solid Waste Disposal Sites and Facilities Law (Colo. Rev. Stat. Title
30, Article 20), Colorado Land Use Act (Colo. Rev. Stat. Title 24, Article 65),
and any common law theory of liability, in any case relating to pollution or
protection of human health or the environment (including without limitation
ambient air, surface water, ground water,
12
<PAGE>
land surface, or subsurface strata), all as currently in effect or as shall be
promulgated, issued and amended or ordered in the future, including, without
limitation, laws and regulations relating to emissions, discharges, releases, or
threatened releases of Materials of Environmental Concern, or otherwise relating
to the manufacture, processing, refining, distribution, use, treatment, storage,
disposal, transport, recycling, reporting, or handling of Materials of
Environmental Concern.
6.3 Rocky Mountain shall notify Thermo, Lead Agent, and Prudential
promptly of any notice, advice, or communication from any Governmental Authority
or any other source with respect to Materials of Environmental Concern which may
be in, on, under, or released from or affecting the Facility or the Land. Rocky
Mountain shall also maintain at the Facility, and keep available for inspection
during ordinary business hours and following reasonable notice by Thermo, Lead
Agent, and Prudential, accurate and complete records of all investigations,
studies, sampling, and testing conducted, and any and all response actions
taken, by Rocky Mountain or to its knowledge, by any Governmental Authority or
other person in respect of Materials of Environmental Concern which may be in,
on, under, migrating from, or affecting the Facility or the Land.
The obligations of this section 6 shall survive Termination of this Supplemental
Agreement.
7. Repairs and Maintenance. Supplementary to and not in lieu of the
-----------------------
requirements of paragraphs 8.4 and 8.5 of the Assigned Agreement, Rocky Mountain
shall, at its expense, (a) keep the Facility in good working order and
condition, (b) perform the periodic overhauls and maintenance as recommended by
any manufacturers or vendors of component parts of the Facility or related
equipment, and make all repairs, replacements, renewals, and additions which are
necessary for the Facility to satisfy the terms of the Assigned Agreement and
all
13
<PAGE>
requirements of law affecting the Facility, and (c) cause the Facility to be
operated and maintained with appropriate spare parts, inventories, and
redundancies, in a safe manner and in accordance with normal industry practice.
All repairs, replacements, and renewals shall be at least equal in quality and
class to the original work. Rocky Mountain shall comply with such repair,
service, and maintenance standards as are required to enforce guaranty and
warranty claims and to satisfy standards imposed by any applicable insurance
policy:
8. Delivery of Financial Statements and Other Information. Supplementary
------------------------------------------------------
to and not in lieu of the requirements of paragraphs 8.11 and 8.12 of the
Assigned Agreement, and without limitation of paragraph 5.1 of this Supplemental
Agreement, Rocky Mountain shall furnish or cause to be furnished, to Thermo and
to Lead Agent certain periodic reports and information required by the Loan
Agreement and more fully described in Schedule 8 attached hereto. Annual
financial statements delivered pursuant to section (a) of Schedule 8 shall be
delivered appended to the following certification:
Attached hereto are true, correct and complete copies of (a) the
financial statements of the company; (b) the company's balance sheet
fairly presents its financial position as of the date thereof and has
been prepared in accordance with generally accepted accounting
principles consistently applied except as otherwise specifically
noted therein; (c) there has been no material change in the company's
financial position from that set forth in the balance sheet prepared
as at the date thereof, and (d) all liabilities, contingent or
otherwise, are disclosed by, or reserved against in, such financial
statements or the footnotes thereto to the extent required by
generally accepted accounting principles consistently applied.
9. Notice of Certain Events. Rocky Mountain shall give prompt and
------------------------
simultaneous Notice to Thermo and to Lead Agent of the occurrence of certain
events required by the Loan Agreement and more fully described in Schedule 9
attached hereto. Each Notice delivered pursuant to this paragraph 9 shall be
accompanied by a statement of a manager of Rocky Mountain.
14
<PAGE>
setting forth details of the occurrence referred to and stating what action
Rocky Mountain proposes to take with respect to such occurrence. Notices to
Thermo shall be given in the manner provided in the Assigned Agreement. Notices
to Lead Agent shall be given in the manner provided in paragraph 14 of this
Supplemental Agreement.
10. Insurance Proceeds in Event of Casualty or Condemnation. Anything
-------------------------------------------------------
in section 11, section 12 or any other provision of the Assigned Agreement to
the contrary notwithstanding:
(a) all proceeds in respect of any condemnation, appropriation or
other taking or any insurance policy relating to the Facility
or the Land which are received by Rocky Mountain shall be
promptly paid over to Thermo in the same form as received
(with any necessary endorsement);
(b) Rocky Mountain shall provide such information as Thermo may
reasonably request relating to the costs and expenses
necessary to repair, replace or restore the Facility or the
Land and the feasibility of such repair, replacement or
restoration;
(c) Thermo shall notify Rocky Mountain if all or any of proceeds
received by Rocky Mountain (or by Thermo or any other person)
shall be applied to the repair, restoration or replacement of
the Facility or the Land;
(d) Rocky Mountain shall apply any proceeds received from Thermo
for the sole purpose of paying the necessary costs of repair,
restoration or replacement of the Facility or the Land; and
(e) all such proceeds which are not applied to repair, restore or
replace the Facility or the Land shall be returned to, and/or
retained by, Thermo.
The foregoing notwithstanding, should Rocky Mountain have purchased the Facility
(and if applicable the Land), this paragraph shall not require the payment of
insurance or condemnation proceeds to
15
<PAGE>
Thermo to the extent that such proceeds are allocable to any portion of the
Facility or the Land so purchased by Rocky Mountain. With respect to any such
portion not purchased, the provisions of this paragraph 10 shall apply.
11. Cooperation with Loan Agreement Closing. Supplementary to and not
---------------------------------------
in lieu of Rocky Mountain's obligations under paragraph 21.2 of the Assigned
Agreement, Rocky Mountain's cooperation in connection with the closing of the
Loan Agreement shall include, but shall not be limited to, (i) executing and
delivering a reasonable estoppel certificate and statement of then current facts
with respect to performance by Thermo and Rocky Mountain of the Assigned
Agreement and this Supplemental Agreement, (ii) causing counsel for Rocky
Mountain to deliver the opinions reasonably requested by Lead Agent under the
Loan Agreement, (iii) delivering the evidence of corporate (or equivalent
limited liability company) proceedings evidencing the authorization for
execution and performance by Rocky Mountain of the Assigned Agreement and this
Supplemental Agreement, (iv) delivering certain financial statements as required
by the Loan Agreement, (described in Schedule 8 hereto), and (v) cooperating
with Thermo and Lead Agent to the same extent in connection with conversion of
Construction Loans to Term Loans under the Loan Agreement.
12. Certain Consents. Rocky Mountain hereby irrevocably consents to (a)
----------------
the appointment of Project Manager as agent of Thermo to carry out and enforce
the Assigned Agreement within the scope of Project Manager's obligations under
the Project Management Agreement and (b) the collateral assignment of all of
Thermo's right, title and interest in the Assigned Agreement by Thermo to Lead
Agent for the benefit of Assignee under the Loan Agreement as security pursuant
to the Collateral Assignment, and Rocky Mountain shall, at Thermo's or Lead
Agent's request, as the case may be, in the exercise of its respective rights as
16
<PAGE>
Thermo or Lead Agent, continue performance under the Assigned Agreement in
accordance with its terms and the terms of this Supplemental Agreement.
References herein to Thermo shall include, without limitation, Project Manager
acting as agent of Thermo under the Project Management Agreement.
13. No Present Defaults. Rocky Mountain acknowledges that (a) the
-------------------
Assigned Agreement is in full force and effect and there are no amendments,
modifications or supplements thereto, either oral or written, (b) Rocky Mountain
has not assigned, transferred or hypothecated the Assigned Agreement or any
interest therein, except as described herein, (c) Rocky Mountain has no
knowledge of any default or breach by Thermo in any respect in the performance
of any provision of the Assigned Agreement, and (d) Rocky Mountain has agreed to
and hereby ratifies prior assignments to Thermo of the Assigned Agreement
whereby Thermo has acquired rights under the Assigned Agreement and releases all
prior assignors of the Assigned Agreement from their obligations as parties to
the Assigned Agreement.
14. Notice of Thermo's Defaults and Termination. Anything in the
-------------------------------------------
Assigned Agreement notwithstanding, Rocky Mountain shall not claim prevention of
or interference with performance of its obligations pursuant to the Assigned
Agreement or the suspension or termination of its obligations under the Assigned
Agreement as the result of any default of Thermo without first giving a copy of
any notice of default or termination to Lead Agent, such notice to be coupled
with a request to Lead Agent to cure any defaults which are susceptible of being
corrected by Lead Agent, within a cure period as provided to Thermo in the
Assigned Agreement plus a period of ninety (90) days (thirty (30) days in the
case of a monetary default) thereafter (or, with respect to any defaults not
susceptible of being cured within such cure period, such longer cure period as
shall be required to cure such default provided that Lead Agent is diligently
pursuing such cure), such cure period to
17
<PAGE>
commence upon such notice to Lead Agent, or, with respect to any defaults which
are not susceptible of being corrected by Lead Agent, to rectify to Rocky
Mountain's reasonable satisfaction the effect upon Rocky Mountain of such
default by Thermo within such period. Such notice shall be in writing and shall
be deemed to have been given (a) when presented personally or by Federal Express
or other courier, (b) when transmitted by telecopy to the number specified
below, or (c) when received, if deposited in a regularly maintained receptacle
for the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, addressed to Lead Agent and Prudential at the
address indicated below (or such other address as Lead Agent or Prudential may
have specified by written notice delivered in accordance herewith). The telecopy
(facsimile) numbers provided below are for the convenience of Rocky Mountain
only. Transmission by telecopy shall constitute provision of notice under this
Supplemental Agreement only if receipt thereof is acknowledged in writing by
Prudential or Lead Agent, as the case may be, within such period. The address
for notices to Prudential and Lead Agent is as follows:
The Prudential Insurance Company of America
c/o Prudential Power Funding Associates
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attention: Project Management Team
Facsimile No.: (201) 802-2841
No claim of rescission or termination of the Assigned Agreement by Rocky
Mountain shall be binding upon Prudential or Lead Agent without such notice and
the lapsing of the applicable cure period. Any dispute that may arise under the
Assigned Agreement notwithstanding, Rocky Mountain shall continue performance
under the Assigned Agreement and resolve any such dispute without discontinuing
such performance until the lapse of the notice and the applicable cure periods
or extension periods. Lead Agent may, but shall be under no obligation to, make
any payment or perform any act required thereunder to be made or performed by
Thermo, with the same effect as
18
<PAGE>
if made or performed by Thermo. If Lead Agent or Prudential fails to cure a
default within the same cure period as provided to Thermo in the Assigned
Agreement plus a period of ninety (90) days (thirty (30) days in the case of a
monetary default) thereafter (or, with respect to any defaults not susceptible
of being cured within such cure period, such longer cure period as shall be
required to cure such default provided that Lead Agent is diligently pursuing
such cure), such cure period to commence upon such notice to Lead Agent and
Prudential, Rocky Mountain shall have all its rights and remedies with respect
to such default or right of termination as set forth in the Assigned Agreement.
15. No Previous Assignment. Rocky Mountain warrants and represents to
----------------------
Assignee that it has not previously consented to any assignment, transfer or
hypothecation of the Assigned Agreement, except as specified herein.
16. Payments to Project Control Account. Rocky Mountain hereby agrees
-----------------------------------
that, so long as any Obligations are outstanding under the Loan Agreement, the
Notes or any document executed in connection therewith and until the same have
been terminated or satisfied in full, as the case may be, all payments to be
made by Rocky Mountain with respect to the Assigned Agreement shall be in lawful
money of the United States of America, in immediately available funds at the
location set forth in Schedule 16, directly to the Disbursement Agent designated
in and for deposit as specified in part one of Schedule 16, attached hereto, or
to such other person and/or at such other address as Lead Agent may from time to
time specify in writing to Rocky Mountain. Thermo agrees that proptly after
receipt by Thermo of a written request from Rocky Mountain, Thermo shall confirm
in writing to Rocky Mountain whether any loans, commitments or Obligations are
outstanding under the Loan Agreement, the Notes or any such documents. For
purposes of
19
<PAGE>
paragraph 4.7 of the Assigned Agreement, applicable requirements of the Loan
Agreement are as set forth in part two Schedule 16 hereto.
17. Protection of Lead Agent. In the event that either (a) Thermo's
------------------------
interest in the Project Site, the Project, the Facility (also referred to in the
Loan Agreement as the Greenhouse) and/or the Project Reserves shall be sold,
assigned or otherwise transferred pursuant to the exercise of any right, power
or remedy by Assignee or Lead Agent or pursuant to judicial proceedings, or (b)
Thermo rejects the Assigned Agreement under Title 11, United States Code, or
other similar Federal or state statue and such rejection is approved by the
appropriate bankruptcy court, and in either case (i) no funds payable under the
Assigned Agreement shall then be due and payable to Rocky Mountain at the time
of such transfer or rejection, (ii) Lead Agent shall have arranged for the
curing of any default susceptible of being corrected by Lead Agent or by a
purchaser at any judicial or non-judicial sale, (iii) the Assigned Agreement
shall have been terminated pursuant to the terms thereof by reason of a default
or a rejection by Thermo or a trustee in bankruptcy under Title 11, United
States Code, or other similar Federal or state statute, and (iv) the effect upon
Rocky Mountain of any default not susceptible of being corrected shall have been
rectified to Rocky Mountain's reasonable satisfaction, Rocky Mountain shall,
within (15) days after receipt of written request therefor, execute and deliver
an agreement to Lead Agent or its nominee, purchaser, assignee or transferee, as
the case may be, for the remainder of the term of the Assigned Agreement, and
with the same terms as are contained therein, whereupon such agreement shall be
an Assigned Agreement hereunder.
18. Acknowledgement of Assignee's Obligations and Rights. None of the
----------------------------------------------------
Secured Parties under the Loan Agreement has any obligation hereunder to extend
credit to Rocky Mountain or any contractor to Rocky Mountain at any time for any
purpose. Assignee shall have no obligation
20
<PAGE>
to Rocky Mountain under the Assigned Agreement until such time as Assignee
notifies Rocky Mountain in writing of Assignee's election to exercise its rights
hereunder. If Thermo defaults in the performance of its covenants to the Secured
Parties in, or an Event of Default shall have occurred and be continuing under,
the Loan Agreement, Assignee shall have the right inter alia to (i) declare all
----------
amounts due under the Loan Agreement, the Notes and any of the Collateral
Security documents executed in connection therewith to the Secured Parties under
the Loan Agreement immediately due and payable, (ii) take possession of the
Project Site, the Project, Thermo's rights in and with respect to the
Greenhouse and/or the Gas Reserves and complete the same, (iii) sell the
Project, the Project Site, Thermo's rights in and with respect to the Greenhouse
and/or the Gas Reserves and any purchaser at such sale shall succeed to
Assignee's rights hereunder, (iv) cause Lead Agent or its nominee, purchaser,
assignee or transferee to assume all of Thermo's right, title and interest in,
to and under the (subject to the terms of this Supplemental Agreement) Assigned
Agreement, and (v) exercise any other remedies provided under the Loan Agreement
or otherwise available at law or in equity; subject to Assignee's compliance
with the provisions of the Assigned Agreement and the terms of this Supplemental
Agreement. Rocky Mountain shall cooperate with Assignee in Assignee's exercise
of such rights.
19. Incorporation by Reference. The provisions of sections 20,22,24 and
--------------------------
25 of the Assigned Agreement are incorporated herein by reference.
20. Limitation of Liability. Except as otherwise expressly provided
-----------------------
herein, it is hereby agreed and acknowledged that Rocky Mountain shall not have
any direct contractual obligations to Assignee, and Assignee hereby acknowledges
that it has not relied upon any direct representations of Rocky Mountain, in
connection with lending arrangements with Thermo except as provided herein and
in the Assigned Agreement. In addition, Assignee agrees that, except as
21
<PAGE>
otherwise expressly provided herein, in no event shall Rocky Mountain be liable
to Assignee for any claims, losses, expenses or damages whatsoever other than
liability Rocky Mountain may have to Thermo and its successors and permitted
assigns, including Assignee, under the Assigned Agreement or to Lead Agent,
Prudential or to Assignee, their successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Supplemental Agreement
to be executed by their duly authorized officers or agents as of the date of
acknowledgement of their signatures, set forth below.
Signed and acknowledged in the THERMO COGENERATION PARTNERSHIP
presence of: By: Thermo Industries, Ltd., a partner
(as to all signatures on behalf of By: Thermo Industries, Inc., of
Thermo Cogeneration Partnership) Colorado, General Partner
/s/ Richard S. Roberts By: /s/ James Monroe, III
- -------------------------------- -----------------------------
James Monroe, III
Printed Name: RICHARD S. ROBERTS President
------------------
By: Thermo Carbonic Inc., a partner
[SIGNATURE APPEARS HERE] By: /s/ James Monroe, III
- -------------------------------- -----------------------------
James Monroe, III
Printed Name: [ILLEGIBLE] President
------------------
By: Thermo Fuels, Inc., a partner
By: /s/ James Monroe, III
-----------------------------
James Monroe, III
President
22
<PAGE>
(as to Rocky Mountain Produce ROCKY MOUNTAIN PRODUCE LIMITED
Limited Liability Company) LIMITED COMPANY
/s/ Richard S. Roberts By: /s/ William E. Coleman
- ------------------------------------- ---------------------------------
Printed Name: Richard S. Roberts Printed Name: WILLIAM E. COLEMAN
------------------------ -----------------------
Title: MANAGER
------------------------------
/s/ Robert C. Clark /s/ Nicholas G. Muller
- -------------------------------------
Nicholas G. Muller
Printed Name: Robert C. Clark Manager
------------------------
(as to the Prudential Insurance) THE PRUDENTIAL INSURANCE COMPANY
Company of America) OF AMERICA, as Lead Agent
By:
- ------------------------------------- ---------------------------------
Printed Name: Printed Name:
------------------------ -----------------------
Title:
------------------------------
- -------------------------------------
Printed Name:
------------------------
23
<PAGE>
STATE OF COLORADO )
CITY and ) SS:
COUNTY OF Denver )
The foregoing instrument was acknowledged before me this 25th day of March,
1993, by James Monroe, III, the President of Thermo Industries, Inc., of
Colorado, a Colorado corporation and a general partner of Thermo Industries,
Ltd., a Colorado limited partnership, on behalf of the limited partnership, and
in the limited partnership's capacity as a partner of Thermo Cogeneration
Partnership.
Witness my hand and official seal.
[SEAL OF NOTARY PUBLIC APPEARS HERE]
/s/ Lansing A. Wallace
--------------------------------------
Notary Public
My commission expires: 9-30-95
----------------
STATE OF COLORADO )
CITY and ) SS:
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 25th day of March,
1993, by James Monroe, III, the President of Thermo Carbonic, Inc., a Colorado
corporation, on behalf of the corporation and in the corporation's capacity as a
partner of Thermo Cogeneration Partnership.
Witness my hand and official seal.
/s/ Lansing A. Wallace
--------------------------------------
Notary Public
My commission expires: 9-30-95
----------------
[SEAL OF NOTARY PUBLIC APPEARS HERE]
24
<PAGE>
STATE OF COLORADO )
CITY and ) SS:
COUNTY OF Denver )
The foregoing instrument was acknowledged before me this 25th day of March,
1993, by James Monroe, III, the President of Thermo Fuels, Inc., a Colorado
corporation, on behalf of the corporation and in the corporation's capacity as a
partner of Thermo Cogeneration Partnership.
Witness my hand and official seal.
[SEAL OF NOTARY PUBLIC APPEARS HERE]
/s/ Lansing A. Wallace
----------------------------------------
Notary Public
My commission expires: 9-30-95
------------------
25
<PAGE>
STATE OF COLORADO )
CITY AND ) SS:
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 25th day of
March, 1993, by William E. Coleman and XXXXXXXXXXX, the Managers of Rocky
Mountain Produce Limited Liability Company, a Colorado limited liability
company, on behalf of the company.
Witness my hand and official seal.
/s/ Brenda Love
-----------------------------------------
Notary Public
My commission expires: 06-10-94
-------------------
STATE OF ____________________)
) SS:
COUNTY OF ___________________)
The foregoing instrument was acknowledged before me this ____ day of
_____, 1993, by _________________________________________, the _________________
_____________ of the Prudential Insurance Company of America, a New Jersey
mutual insurance company, on behalf of the company.
Witness my hand and official seal.
-----------------------------------------
Notary Public
My commission expires:
-------------------
26
<PAGE>
SCHEDULE 3.2
------------
Governmental Approvals Required by Rocky Mountain:
Part A (Prior to execution of Supplemental Agreement).
------
None.
Part B (Subsequent to execution of Supplemental Agreement).
------
None.
27
<PAGE>
SCHEDULE 8
----------
From time to time Rocky Mountain shall deliver to Thermo:
(a) as soon as is available, but not later than 90 days after
the end of each fiscal year of Rocky Mountain, a profit and loss statement, a
statement of retained earnings and a statement of cash flows for such year, and
a balance sheet as at the end of such year, in each case setting forth in
comparative form the figures for the previous fiscal year, certified as
presented in accordance with generally accepted accounting principles, the
profit and loss position, retained earnings, cash flows, and balance sheet as of
the date thereof, without qualification or exception as to the scope of its
audit, by independent certified public accountants of national standing
reasonably acceptable to Prudential;
(b) as soon as is available, but not later than 45 days after
the end of each quarterly period of each fiscal year of Rocky Mountain, a profit
and loss statement, a statement of cash flows and statement of retained
earnings, and a balance sheet as at the end of each such period, in each case
setting forth in comparative form the figures for the corresponding period of
the previous fiscal year, certified by an officer of Rocky Mountain as fairly
presenting in all material respects the profit and loss position, retained
earnings, cash flows, and balance sheet as of the date thereof (subject to
normal year-end audit adjustments and footnote disclosures), such financial
statements to be prepared in reasonable detail and in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise specifically noted therein, and shall be complete
and correct, in all material respects (subject to normal year end audit
adjustments and to footnote disclosures);
(c) promptly after receipt thereof, copies of each Governmental
Approval (and copies of any correspondence referred to in any such approval) or
any other material consent or approval obtained or made by Rocky Mountain
pursuant to the Assigned Agreement; and
(d) promptly after receipt of request in writing, such
supplemental financial information with respect to Rocky Mountain or the
Facility as Thermo or its lenders may from time to time reasonably request and
as is reasonably available to Rocky Mountain.
28
<PAGE>
SCHEDULE 9
From time to time Rocky Mountain shall give immediate and
simultaneous Notice to Thermo and to Lead Agent if:
(a) any representation or Warranty made by Rocky Mountain herein or
in the Assigned Agreement or in any certificate, financial statement, or other
document furnished to Thermo hereunder or under the Assigned Agreement shall
prove to have been false or misleading in any material respect as of the time
made or deemed made:
(b) Rocky Mountain shall have failed to comply with or shall be in
default of any of Rocky Mountain's covenants or obligations contained herein or
in the Assigned Agreement beyond any applicable cure period following Notice, if
required:
(c) Rocky Mountain shall make an assignment for the benefit of
creditors or shall generally not be paying its debts as such debts become due
unless such debts are the subject or a bona fide dispute;
(d) (i) any decree or order for relief in respect of Rocky Mountain
shall be entered under any bankruptcy, reorganization, compromise, arrangement
insolvency, readjustment of debt, dissolution or liquidation or similar law,
whether now or hereafter in effect (herein called "Bankruptcy Law") of any
jurisdiction, (ii) any petition or application of the types described in clause
(e), below, of this paragraph 9 shall be filed, or any such proceeding shall be
commenced, against Rocky Mountain and Rocky Mountain, by any act, shall indicate
its approval, consent thereto or acquiescence therein, or an order, judgment, or
decree shall be entered appointing any such trustee, receiver, custodian,
liquidator, or similar official, or approving the petition in any such
proceedings, or (iii) any order, judgment, or decree shall be entered in any
proceedings against Rocky Mountain decreeing the dissolution of Rocky Mountain;
(e) Rocky Mountain shall petition or apply to any tribunal for, or
shall consent to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator, or similar official of Rocky Mountain or of any
substantial part of its assets, or shall commence a voluntary case under the
Bankruptcy Law of the United States or any proceedings relating to Rocky
Mountain under the Bankruptcy Law of any other jurisdiction;
(f) (i) any order or decree is entered by any court of competent
jurisdiction directly or indirectly enjoining the construction or (cumulatively)
operation of the Facility, or (ii) a judgment (or judgments) in excess of
$100,000 (cumulatively) shall be rendered against Rocky Mountain and remain
unsatisfied whether or not such order, judgment, or decree is stayed pending
appeal;
(g) any of the Governmental Approvals required to be obtained by
Rocky Mountain in connection with the Facility and its full performance under
the Assigned Agreement or this Supplemental Agreement shall be rejected or
otherwise denied or shall expire (without being timely renewed) or be revoked,
rescinded, suspended, held invalid or otherwise limited in effect, and such
rejection, denial, expiration, revocation, rescission, suspension, holding, or
other limiting
29
<PAGE>
action, in the judgment of Thermo, materially adversely affects Rocky Mountain's
ability to achieve or maintain operation of the Facility or the ability of Rocky
Mountain to make any payments under this Agreement or the ability of Thermo to
receive payments hereunder when and as due;
(h) there shall exist at any time any litigation, investigation,
inquiry, or proceeding between Rocky Mountain and any Governmental Authority
which concerns the status of the Plant as a Qualifying Facility, or which could
have a material adverse effect on the properties, business, prospects,
operations, or other condition of the Plant or of Thermo;
(i) any material adverse change shall have occurred in the
properties, business, operations, or financial condition of Rocky Mountain from
the condition reflected in the most recent financial information delivered to
Thermo, and of any change of law, rule, or regulation which has caused or could
reasonably be expected to cause such a material adverse change;
(j) there shall have occurred any loss or damage to the Facility in
excess of $250,000; and
(k) there shall have occurred an Event of Loss or there shall have
occurred any other damage or destruction to the Facility that has a material
adverse effect on the viability of the operation of the Facility, and such
damage or destruction is not adequately covered by insurance.
30
<PAGE>
SCHEDULE 16
-----------
Part one:
[Information re Disbursement Agent to be
inserted upon finalization]
Part two:
[Loan Agreement paragraph 8.17(h) to be
inserted upon finalization]
31
<PAGE>
EXHIBIT 10.13
SUPPLEMENTAL AGREEMENT
AND CONSENT TO ASSIGNMENT
THIS SUPPLEMENTAL AGREEMENT AND CONSENT TO ASSIGNMENT ("Supplemental
Agreement"), effective as of the 7th day of April 1993, by and between THERMO
COGENERATION PARTNERSHIP, L.P., a Delaware limited partnership ("Thermo"), and
ROCKY MOUNTAIN PRODUCE LIMITED LIABILITY COMPANY, a Colorado limited liability
company ("Rocky Mountain"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, as
a lender (hereinafter, together with any successors or assigns in such capacity,
referred to as "Prudential") and as lead agent (hereinafter, with any successors
and assigns in such capacity, referred to as the "Lead Agent") for the Secured
Parties under the Construction and Term Loan Agreement dated as of April 7,
1993, among Thermo, Prudential, and CSW Energy, Inc., and the other financial
institutions named therein as lenders, the Lead Agent and CSW Energy, Inc., as
Bank Agent (as amended from time to time, the "Loan Agreement").
RECITALS:
A. On March 22, 1993, Rocky Mountain entered into with Thermo
Cogeneration Partnership, a Colorado partnership, a Thermal Supply Lease
Agreement (the "Assigned Agreement"), which Assigned Agreement contains, among
other things, the agreement of the parties as to (i) the construction of a
twenty (20) acre (more or less) commercial greenhouse (the "Facility") on
certain real property (the "Land") owned by Thermo
<PAGE>
in Fort Lupton, Colorado, (ii) the leasing of such Land and the Facility by
Thermo to Rocky Mountain, (iii) the operation of the Facility by Rocky Mountain
for the commercial production of agriculture products, and (iv) the agreement by
Thermo to supply, and Rocky Mountain to utilize, Rocky Mountain's thermal energy
requirements for such agricultural production at the Facility from Thermo's
cogeneration plant (the "Plant") to be constructed on the site (the "Project
Site") of which the Land is part:
B. In order to facilitate financing and construction of the Plant and
the Facility, Thermo Cogeneration Partnership has assigned the Assigned
Agreement to Thermo, and Thermo, acting in the capacity of borrower, has entered
into the Loan Agreement. Thermo has also, in accordance with the requirements
of the Loan Agreement, collaterally assigned all of its right, title and
interest in, to and under the Assigned Agreement to Lead Agent pursuant to the
Collateral Assignment dated as of April 7, 1993 (the "Collateral Assignment").
It is a condition precedent to the initial funding by Lenders under the Loan
Agreement that Rocky Mountain execute and deliver this Supplemental Agreement.
C. Pursuant to that certain Project Management Agreement dated as of
December 21, 1992 (the "Project Management Agreement") between Thermo Project
Management, Inc., a Colorado corporation ("Project Manager"), and Thermo (as
assignor or successor to Thermo Cogeneration Partnership), Thermo has appointed
Project Manager as its agent to carry out and enforce the Assigned Agreement
within the scope of Project Manager's obligations under the Project Management
Agreement.
D. The Loan Agreement contains certain terms and conditions that, during
its term, will impact not only Thermo, but also Rocky Mountain as lessee and
Facility Operator under
2
<PAGE>
the Assigned Agreement, and will place certain restrictions and impose certain
obligation on Thermo as lessor and owner and Rocky Mountain as lessee and
operator with respect to the construction, leasing, and operation of the
Facility and the Plant; and
E. By entering into this Supplemental Agreement, the parties desire to
(i) acknowledge the existence of such terms and conditions in the Loan
Agreement, (ii) supplement the terms of the Assigned Agreement in certain
instances in which the Loan Agreement contains additional or more detailed terms
and conditions dealing with similar subjects as dealt with in the Assigned
Agreement, and (iii) provide in certain instances that the terms and conditions
of this Supplemental Agreement and the Loan Agreement shall, to the extent
specifically expressed herein, supersede and prevail over any conflicting
provisions of the Assigned Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained in this Supplemental Agreement, the parties agree as
follows:
1. Definitions. Capitalized terms used herein (including in the
-----------
schedules attached hereto) have the meanings set forth herein, or if not
defined herein the meanings set forth in the Assigned Agreement, and if not
defined herein or in the Assigned Agreement, in the Loan Agreement. The Secured
Parties (as defined in the Loan Agreement) are sometimes referred to herein as
"Assignee."
2. Term. This Supplemental Agreement shall remain in full force and
----
effect for the benefit of Lead Agent and the lenders under the Loan Agreement,
and their respective successors and assigns, until the earlier of expiration or
earlier termination of all obligations of Rocky Mountain under the Assigned
Agreement, or until such time as all loans, commitments, and obligations
incurred by Thermo under the Loan Agreement, the Notes, or any collateral or
other documents
3
<PAGE>
entered into in connection therewith (the "Obligations") have been duly paid and
performed ("Termination"); provided, however, that the provisions of section 6
of this Supplemental Agreement shall survive the expiration or complete
termination of the Assigned Agreement; and, provided further, that is the Lead
Agent or the lenders shall initiate action because of an Event of Default by
Thermo under the Loan Agreement, and as a result of such action the rights of
Thermo in the Facility, the Land, the Plant, or the Project Site shall be
terminated by foreclosure or otherwise, any assignee or any transferee of the
rights of Thermo in the Facility, the Land, the Plant, or the Project Site shall
also be entitled to enjoy the benefits of, and to exercise the rights conferred
on, the Lead Agent and the lenders under such section 6. From and after the time
of Termination, the matters covered by this Supplemental Agreement shall be
governed solely as provided in the Assigned Agreement, as the same may have been
amended in the interim, and this Supplemental Agreement shall automatically
become null and void and be of no further force and effect, except as is
otherwise, provided in the preceding sentence. Any extension of time for payment
or performance of the Obligations, whether by amendment, modification or
supplementation of the Loan Agreement or otherwise, shall extend the time for
Termination. After Termination, neither the prior effectiveness of this
Supplemental Agreement nor the text of any provision herein which does not
expressly survive such termination shall have any effect whatsoever on the
construction or interpretation of the Assigned Agreement.
3. Representations and Warranties. Rocky Mountain hereby represents and
------------------------------
warrants to Thermo and to Prudential as follows:
3.1 Duly Organized, Etc. (a) Rocky Mountain is a limited liability
--------------------
company duly organized, validly existing, and in good standing under the laws of
the State of Colorado. Rocky Mountain is not engaged in any business except the
business of developing.
4
<PAGE>
constructing, and operating the Facility pursuant to the Assigned Agreement.
Rocky Mountain shall not become engaged in any other business unless it shall
first have obtained the prior written consent of Thermo.
(b) Rocky Mountain has the power, authority and legal right to
execute, deliver and perform the Assigned Agreement and this Supplemental
Agreement, and the execution and delivery by Rocky Mountain of the Assigned
Agreement and this Supplemental Agreement and the performance of its obligations
hereunder and thereunder have been duly authorized by all necessary action and
do not and will not (i) require any consent or approval of any member of Rocky
Mountain except for those approvals which have been duly obtained and are in
full force and effect, (ii) violate the articles of organization of Rocky
Mountain or any provision of any law, rule, regulation, or any order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to Rocky Mountain, (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which Rocky Mountain is a party or by which it or its
properties may be bound or affected, or (iv) result in, or require, the creation
or imposition of any lien, security interest, charge or encumbrance upon or with
respect to any of the properties now owned or hereafter acquired by Rocky
Mountain. The members of Rocky Mountain have approved the Assigned Agreement
and, consequently, the condition referred to in paragraph 21.3 of the Assigned
Agreement has been satisfied.
(c) Each of the Assigned Agreement and this Supplemental
Agreement has been duly executed and delivered and constitutes a valid and
binding obligation of Rocky Mountain, enforceable against Rocky Mountain in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally.
5
<PAGE>
(d) Except as set forth in Section XX hereof, no consent or
approval of, or other action by or any notice or filing with, any court or
administrative or governmental body or any other person (except those previously
obtained) is required in connection with the execution and delivery of the
Assigned Agreement or this Supplemental Agreement or the performance by Rocky
Mountain of its obligations hereunder or thereunder. Rocky Mountain has obtained
all permits, licenses, approvals, consents and exemptions with respect to the
performance of its obligations under the Assigned Agreement and this
Supplemental Agreement required by applicable laws, statutes, rules and
regulations in effect as of the date hereof.
(e) Rocky Mountain is not in default with respect to the
Assigned Agreement and has no knowledge, as of the date of execution hereof, of
any claims or rights of set-off by Rocky Mountain or by any of its affiliates or
parent against Thermo.
(f) There are no proceedings pending or, to the best of Rocky
Mountain's knowledge after due inquiry, threatened against or affecting Rocky
Mountain in any court or before any governmental authority or arbitration board
or tribunal (whether or not purportedly on behalf of Rocky Mountain) which may
result in a material adverse effect upon the property, business, prospects,
profits or condition (financial or otherwise) of Rocky Mountain, or the ability
of Rocky Mountain to perform its obligations under the Assigned Agreement or
this Supplemental Agreement; and Rocky Mountain is not in default with respect
to any order of any court, governmental authority or arbitration board or
tribunal.
3.2 Governmental Approvals and Other Consents and Approvals. Except
-------------------------------------------------------
as set forth on Schedule 3.2 attached hereto, no Governmental Approvals or other
consents or approvals are required to be obtained by Rocky Mountain in
connection with (a) the participation by Rocky Mountain in the transactions
involved in the Assigned Agreement or the execution, delivery,
6
<PAGE>
or performance by Rocky Mountain of the Assigned Agreement, the Supplemental
Agreement or any documents related to the Assigned Agreement, or (b) the use,
ownership, lease, operation, or maintenance of the Facility in accordance with
the applicable provisions of any such documents and in compliance with all
applicable laws, including Environmental Laws. Each of the Governmental
Approvals and other consents and approvals listed in Part A of Schedule 3.2 has
been duly obtained or made, validly issued, is in full force and effect and is
not subject to appeal or judicial, governmental, or other review, except as
disclosed on such Schedule. None of the Governmental approvals and other
consents and approvals listed in Part B of Schedule 3.2 is required to be
obtained in order to be in compliance in all respects with all requirements of
law as of the date hereof. Rocky Mountain has no reason to believe that any of
the Governmental Approvals and other consents and approvals listed in Part B of
Schedule 3.2 cannot or will not be obtained or made in the normal course of
business as and when required (as set forth in Schedule 3.2) and without
significant expense. All contracts, Governmental Approvals, entitlements and
other property owned by Rocky Mountain and used in connection with the Facility
shall, upon the Commencement Date of the Lease Term under the Assigned
Agreement, be held by Rocky Mountain free and clear of any Lien, other than (a)
liens incurred by Rocky Mountain in the ordinary course of business to secure
lines of credit for working capital, (b) liens for personal property taxes, the
payment of which is not then due, (c) carrier's, warehousemen's, repairmen's and
other like liens arising in the ordinary course of business or incidental to the
operation of the Greenhouse which secure payment of sums which are not
delinquent, and (d) liens (other than any lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security
payments. Rocky Mountain shall not create any Lien on any property of Thermo or
suffer to exist any Lien on such property of Thermo which arises as a result of
any action or inaction of Rocky Mountain or any of its Affiliates. Any such Lien
shall
7
<PAGE>
be discharged by Rocky Mountain to the same extent and in the same manner as is
required under paragraph 8.8 of the Assigned Agreement.
3.3 No Proceeding or Litigation. No litigation, investigation, or
---------------------------
proceeding of or before, or any inquiry by, any arbitrator or Governmental
Authority is pending or, to the knowledge of Rocky Mountain, threatened, against
or affecting Rocky Mountain, any Greenhouse Affiliate of Rocky Mountain or
against or affecting any of the properties, rights, revenues, assets, or
facilities of Rocky Mountain or any such Greenhouse Affiliate.
3.4 Agreements and Licenses. No licenses, trademarks, patents,
-----------------------
copyrights, or agreements with respect to the usage of technology or other
permits (other than those constituting Governmental Approvals referred to in
Schedule 3.2) are required to be obtained by Rocky Mountain for the
construction, development, ownership, operation, or maintenance of the Facility.
4. Option to Purchase Suspended. Anything in the Assigned Agreement to
----------------------------
the contrary notwithstanding, Rocky Mountain shall not be entitled to exercise
the rights conferred under section 5 or be deemed to have exercised such rights
under section 12 of the Assigned Agreement to purchase the Facility (or the
Land) at any time there remains unpaid any indebtedness under the Loan Agreement
unless, at the time of such exercise, Thermo shall have obtained Prudential's
approval (which approval may be withheld in Prudential's sole discretion) of
alternative thermal use arrangements, including all appropriate regulatory and
administrative approvals and filings, for thermal energy produced by the Plant.
Thermo shall from time to time inform Rocky Mountain upon inquiry whether any
such indebtedness is outstanding. Upon receipt of a notice by Rocky Mountain of
its intention to exercise its rights under section 5 of the Thermal Supply
Agreement,
8
<PAGE>
Thermo shall notify Rocky Mountain whether Thermo shall have obtained
Prundential's approval of alternative thermal use arrangements and, if so, the
purchase price payable by Rocky Mountain. Such price shall be the "Option
Purchase Price," determined in the manner provided in paragraph 5.2 of the
Assigned Agreement, plus such additional sum as may be payable pursuant to
paragraph 5.5 of the Assigned Agreement should Rocky Mountain also purchase the
Land as provided in such paragraph. At the closing of such sale, Thermo shall
obtain from Lead Agent and deliver to Rocky Mountain a Release by Lead Agent
from the lien of any mortgage(s), deeds of trust, and other security agreements
encumbering the Facility (and the Land if purchased) to secure repayment of the
indebtedness of Thermo under the Loan Agreement and Rocky Mountain shall deliver
to Thermo and Lead Agent a ratification and reaffirmation of all thermal supply
provisions of the Assigned Agreement in such form as Thermo or Lead Agent may
reasonably request. Nothing herein all be construed to relieve Rocky Mountain of
its obligations under paragraph 5.8 of the Thermal Supply Agreement. Under no
circumstances shall Rocky Mountain be entitled to exercise the Purchase Option
at any time while Thermo is in default under the Assigned Agreement or this
Supplemental Agreement or while an Event of Default is continuing under the Loan
Agreement. Should the lenders, the Lead Agent or their nominee exercise any
remedies arising because of an Event of Default by Thermo under the Loan
Agreement whereby Thermo's rights in the Facility, the Land, the Plant or the
Project Site shall be terminated, assumed, or transferred, the Purchase Option,
effective as of the time of such exercise, shall permanently lapse and become
void and shall no longer be binding upon Thermo, the Lead Agent, any lender
under the Loan Agreement or any transferee of the Facility, the Land, the Plant
or the Project Site in connection with such exercise of rights or remedies
because of such Event of Default.
9
<PAGE>
5. Reports, Information and Approvals. At all times while indebtedness
----------------------------------
is outstanding under the Loan Agreement:
5.1 Lead Agent shall have the same rights as Thermo to receive
reports and information as shall be available to Thermo, and to exercise other
rights with respect to receipt of information as are conferred on Thermo under
paragraphs 8.11 and 8.12 of the Assigned Agreement. Rocky Mountain shall
deliver all such reports and information to Lead Agent at the address set forth
in paragraph 14 hereof, or such other address as Lead Agent may have specified
pursuant to such paragraph.
5.2 Notwithstanding paragraphs 14.1 and 14.2 of the Assigned
Agreement, Rocky Mountain shall not make or agree to make any proposed
assignment, sublease or subcontract under the Assigned Agreement without the
prior written consent of Thermo, which consent may be withheld in Thermo's sole
discretion.
6. Environmental Matters. Supplementary to and not in lieu of Rocky
---------------------
Mountain's obligations under paragraph 10.1 and certain other provisions of the
Assigned Agreement:
6.1 Rocky Mountain shall at all times comply fully with all laws,
rules, regulations, and ordinances of any public authority having jurisdiction
with respect to the storage, use or release at the Facility and on the Land of
hazardous or toxic substances, and shall not treat, store, transport or release
any Materials of Environmental Concern on or from the Facility or the Land in
any manner or quantity which may result in any clean-up obligation or liability
under any Environmental Law; shall keep the Facility free of any lien imposed
pursuant to Environmental Laws because of acts or omissions of Rocky Mountain or
its Affiliates, agents, employees, contractors,
10
<PAGE>
sublessees, successors or assigns; and shall pay or cause to be paid when due
any and all costs of complying with Environmental Laws and responding to the
presence, release, or threatened release of Materials of Environmental Concern
because of acts or omissions of Rocky Mountain or its agents, employees,
contractors, sublessees successors or assigns (including without limitation all
damages, liabilities, expenses and costs of all third-party claims). If Rocky
Mountain fails to do any of the foregoing, then to the extent that Thermo, Lead
Agent or any lender under the Loan Agreement and their respective partners,
shareholders, directors, officers, agents, employees, successors or assigns
sustains any liability, loss, cost, damage, or expense (including attorneys' and
consultants' fees and expenses) arising out of the presence, release, or
threatened release by Rocky Mountain or its Affiliates, agents, employees,
contractors, sublessees, successors or assigns of Materials of Environmental
Concern on or from the Facility or the Land, Thermo, Prudential or Lead Agent
may, upon such prior written notice to Rocky Mountain as is reasonable under the
circumstances, take any action necessary, in the reasonable judgment of such
responding party, to respond to such presence, release or threatened release,
and the cost of such response action shall be borne by Rocky Mountain. Rocky
Mountain shall give to Thermo, to Prudential and to Lead Agent, and to their
respective officers, agents, employees and contractors, access to the Facility
and the Land, and Rocky Mountain hereby specifically grants to Thermo, to
Prudential and to Lead Agent a license to respond to such presence, release, or
threatened release of such Materials of Environmental Concern.
6.2 In addition to the requirements of paragraph 10.1 of the Thermal
Supply Agreement, Rocky Mountain shall indemnify and hold Thermo, Lead Agent,
Prudential and each other lender under the Loan Agreement and their respective
partners, shareholders, directors, officers, agents or employees free and
harmless from and against all liability, loss, cost. damage,
11
<PAGE>
and expense (including without limitation attorneys' and consultants' fees and
expenses) incurred in connection with the environmental compliance, clean-up and
other response obligations imposed under any Environmental Laws or in connection
with third-party claims relating to or in connection with any violation by Rocky
Mountain or its Affiliates, agents, employees, contractors, sublessees,
successors or assigns of any Environmental Law or in connection with any
Materials of Environmental Concern used, generated, treated, stored, or
otherwise located on, or released by Rocky Mountain or threatened to be released
in, on, under, from or affecting the Facility or the Land, except to the extent
resulting from such Indemnitee's negligence or intentionally tortious acts or
omissions. For purposes of this Supplemental Agreement, the definition of
Environmental Laws is further particularized to include, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
(S)9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C: (S)6901
-- ---
et seq.), the National Environmental Policy Act (42 U.S.C. (S)4321 et seq.), the
- -- --- -- ---
Hazardous Materials Transportation Act (49 U.S.C. (S)1801 et seq.), the Toxic
-- ---
Substances Control Act (15 U.S.C. (S)2601 et seq.), the Clean Air Act (42 U.S.C.
-- ---
(S)7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S)1251 et
-- --- --
seq.), the Safe Drinking Water Act (42 U.S.C. (S)300(f) et seq.), the Colorado
- ---
Hazardous Waste Management Act (Colo. Rev. Stat. Title 25, Article 15), the
Colorado Water Quality Control Act (Colo. Rev. Stat. Title 25, Article 8), the
Colorado Air Quality Control Act (Colo. Rev. Stat. Title 25, Article 7), the
Colorado Hazardous Materials Transportation Act of 1987 (Colo. Rev. Stat. Title
43, Article 6), the Colorado Hazardous Waste Cleanup Act (Colo. Rev. Stat. Title
25, Article 16), the Colorado Underground Storage Tanks Law (Colo. Rev. Stat.
Title 25, Article 18), Colorado Solid Waste Disposal Sites and Facilities Law
(Colo. Rev. Stat. Title 30, Article 20), Colorado Land Use Act (Colo. Rev. Stat.
Title 24, Article 65), and any common law theory of liability, in any case
relating to pollution or protection of human health or the environment
(including without limitation ambient air, surface water, ground water,
12
<PAGE>
land surface, or subsurface strata), all as currently in effect or as shall be
promulgated, issued and amended or ordered in the future, including, without
limitation, laws and regulations relating to emissions, discharges, releases, or
threatened releases of Materials of Environmental Concern, or otherwise relating
to the manufacture, processing, refining, distribution, use, treatment, storage,
disposal, transport, recycling, reporting, or handling of Materials of
Environmental Concern.
6.3 Rocky Mountain shall notify Thermo, Lead Agent, and Prudential
promptly of any notice, advice, or communication from any Governmental Authority
or any other source with respect to Materials of Environmental Concern which may
be in, on, under, or released from or affecting the Facility or the Land. Rocky
Mountain shall also maintain at the Facility, and keep available for inspection
during ordinary business hours and following reasonable notice by Thermo, Lead
Agent, and Prudential, accurate and complete records of all investigations,
studies, sampling, and testing conducted, and any and all response actions
taken, by Rocky Mountain or, to its knowledge, by any Governmental Authority or
other person in respect of Materials of Environmental Concern which may be in,
on, under, migrating from, or affecting the Facility or the Land.
The obligations of this section 6 shall survive Termination of this Supplemental
Agreement.
7. Repairs and Maintenance. Supplementary to and not in lieu of the
-----------------------
requirements of paragraphs 8.4 and 8.5 of the Assigned Agreement, Rocky Mountain
shall, at its expense, (a) keep the Facility in good working order and
condition, (b) perform the periodic overhauls and maintenance as recommended by
any manufacturers or vendors of component parts of the Facility or related
equipment, and make all repairs, replacements, renewals, and additions which are
necessary for the Facility to satisfy the terms of the Assigned Agreement and
all
13
<PAGE>
requirements of law affecting the Facility, and (c) cause the Facility to be
operated and maintained with appropriate spare parts, inventories, and
redundancies, in a safe manner and in accordance with normal industry practice.
All repairs, replacements, and renewals shall be at least equal in quality and
class to the original work. Rocky Mountain shall comply with such repair,
service, and maintenance standards as are required to enforce guaranty and
warranty claims and to satisfy standards imposed by any applicable insurance
policy.
8. Delivery of Financial Statements and Other Information.
------------------------------------------------------
Supplementary to and not in lieu of the requirements of paragraphs 8.11 and 8.12
of the Assigned Agreement, and without limitation of paragraph 5.1 of this
Supplemental Agreement, Rocky Mountain shall furnish or cause to be furnished,
to Thermo and to Lead Agent certain periodic reports and information required by
the Loan Agreement and more fully described in Schedule 8 attached hereto.
Annual financial statements delivered pursuant to section (a) of Schedule 8
shall be delivered appended to the following certification:
Attached hereto are true, correct and complete copies of (a) the
financial statements of the company; (b) the company's balance
sheet fairly presents its financial position as of the date
thereof and has been approved in accordance with generally accepted
accounting principles consistently applied except as otherwise
specifically noted therein; (c) there has been no material change
in the company's financial position from that set forth in the
balance sheet prepared as at the date thereof, and (d) all liabilities,
contingent or otherwise, are disclosed by, or reserved against in,
such financial statements or the footnotes thereto to the extent
required by generally accepted accounting principles consistently
applied.
9. Notice of Certain Events. Rocky Mountain shall give prompt and
------------------------
simultaneous Notice to Thermo and to Lead Agent of the occurrence of certain
events required by the Loan Agreement and more fully described in Schedule 9
attached hereto. Each Notice delivered pursuant to this paragraph 9 shall be
accompanied by a statement of a manager of Rocky Mountain
14
<PAGE>
setting forth details of the occurance referred to and stating what action Rocky
Mountain proposes to take with respect to such occurrence. Notices to Thermo
shall be given in the manner provided in the Assigned Agreement. Notices to Lead
Agent shall be given in the manner, provided in paragraph 14 of this
Supplemental Agreement.
10. Insurance Proceeds in Event of Casualty or Condemnation. Anything in
-------------------------------------------------------
section 11, section 12 or any other provision of the Assigned Agreement to the
contrary notwithstanding:
(a) all proceeds in respect of any condemnation, appropri-
ation or other taking or any insurance policy relating
to the Facility or the Land which are received by
Rocky Mountain shall be promptly paid over to Thermo
in the same form as received (with any necessary
endorsement);
(b) Rocky Mountain shall provide such information as Thermo
may reasonably request relating to the costs and
expenses necessary to repair, replace or restore the
Facility or the Land and the feasibility of such
repair, replacement or restoration;
(c) Thermo shall notify Rocky Mountain if all or any of
proceeds received by Rocky Mountain (or by Thermo or
any other person) shall be applied to the repair,
restoration or replacement of the Facility or the
Land;
(d) Rocky Mountain shall apply any proceeds received
from Thermo for the sole purpose of paying the
necessary costs of repair, restoration or replace-
ment of the Facility or the Land; and
(e) all such proceeds which are not applied to repair,
restore or replace the Facility or the Land shall be
returned to, and/or retained by, Thermo.
The foregoing notwithstanding, should Rocky Mountain have purchased the Facility
(and if applicable the Land), this paragraph shall not require the payment of
insurance or condemnation proceeds to
15
<PAGE>
Thermo to the extent that such proceeds are XXX to any portion of the Facility
or the Land so purchased by Rocky Mountain. With respect to any such portion not
purchased, the provisions of this paragraph 10 shall apply.
11. Cooperation with Loan Agreement Closing. Supplementary to and not
---------------------------------------
in lieu of Rocky Mountain's obligations under paragraph 21.2 of the Assigned
Agreement, Rocky Mountain's cooperation in connection with the closing of the
Loan Agreement shall include, but shall not be limited to, (i) executing and
delivering a reasonable estoppel certificate and statement of then current facts
with respect to performance by Thermo and rocky Mountain of the Assigned
Agreement and this Supplemental Agreement, (ii) causing counsel for Rocky
Mountain to deliver the opinions reasonably requested by Lead Agent under the
Loan Agreement, (iii) delivering the evidence of corporate (or equivalent
limited liability company) proceedings evidencing the authorization for
execution and performance by Rocky Mountain of the Assigned Agreement and this
Supplemental Agreement, (iv) delivering certain financial statements as required
by the Loan Agreement, (described in Schedule 8 hereto), and (v) cooperating
with Thermo and Lend Agent to the same extent in connection with conversion of
Construction Loans to Term Loans under the Loan Agreement.
12. Certain Consents. Rocky Mountain hereby irrevocably consents to
----------------
(a) the appointment of Project Manager as agent of Thermo to carry out and
enforce the Assigned Agreement within the scope of Project Manager's obligations
under the Project Management Agreement and (b) the collateral assignment of all
of Thermo's right, title and interest in the Assigned Agreement by Thermo to
Lead Agent for the benefit of Assignee under the Loan Agreement as security
pursuant to the Collateral Assignment, and Rocky Mountain shall, at Thermo's or
Lead Agent's request, as the case may be, in the exercise of its respective
rights as
16
<PAGE>
Thermo or Lead Agent, continue performance under the Assigned Agreement in
accordance with its terms and the terms of this Supplemental Agreement.
References herein to Thermo shall include, without limitation, Project Manager
acting as agent of Thermo under the Project Management Agreement.
13. No Present Defaults. Rocky Mountain acknowledges that (a) the
-------------------
Assigned Agreement is in full force and effect and there are no amendments,
modifications or supplements thereto, either oral or written, (b) Rocky Mountain
has not assigned, transferred or hypothecated the Assigned Agreement or any
interest therein, except as described herein, (c) Rocky Mountain has no
knowledge of any default or breach by Thermo in any respect in the performance
of any provision of the Assigned Agreement, and (d) Rocky Mountain has agreed to
and hereby ratifies prior assignments to Thermo of the Assigned Agreement
whereby Thermo has acquired rights under the Assigned Agreement and releases all
prior assignors of the Assigned Agreement from their obligations as parties to
the Assigned Agreement.
14. Notice of Thermo's Defaults and Termination. Anything in the
-------------------------------------------
Assigned Agreement notwithstanding, Rocky Mountain shall not claim prevention of
or interference with performance of its obligations pursuant to the Assigned
Agreement or the suspension or termination of its obligations under the Assigned
Agreement as the result of any default of Thermo without first giving a copy of
any notice of default or termination to Lead Agent, such notice to be coupled
with a request to Lead Agent to cure any defaults which are susceptible of being
corrected by Lead Agent, within a cure period as provided to Thermo in the
Assigned Agreement plus a period of ninety (90) days (thirty (30) days in the
case of a monetary default) thereafter (or, with respect to any defaults not
susceptible of being cured within such cure period, such longer cure period as
shall be required to cure such default provided that Lead Agent is diligently
pursuing such cure), such cure period to
17
<PAGE>
commence upon such notice to Lead Agent, or, with respect to any defaults which
are not susceptible of being corrected by Lead Agent, to rectify to Rocky
Mountain's reasonable satisfaction the effect upon Rocky Mountain of such
default by Thermo within such period. Such notice shall be in writing and shall
be deemed to have been given (a) when presented personally or by Federal Express
or other courier, (b) when transmitted by telecopy to the number specified
below, or (c) when received, if deposited in a regularly maintained receptacle
for the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, addressed to Lead Agent and Prudential at the
address indicated below (or such other address as Lead Agent or Prudential may
have specified by written notice delivered in accordance herewith). The telecopy
(facsimile) numbers provided below are for the convenience of Rocky Mountain
only. Transmission by telecopy shall constitute provision of notice under this
Supplemental Agreement only if receipt thereof is acknowledged in writing by
Prudential or Lead Agent, as the case may be, within such period. The address
for notices to Prudential and Lead Agent is as follows:
The Prudential Insurance Company of America
c/o Prudential Power Funding Associates
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attention: Project Management Team
Facsimile No.: (201) 802-2841
No claim of rescission or termination of the Assigned Agreement by Rocky
Mountain shall be binding upon Prudential or Lead Agent without such notice and
the lapsing of the applicable cure period. Any dispute that may arise under the
Assigned Agreement notwithstanding, Rocky Mountain shall continue performance
under the Assigned Agreement and resolve any such dispute without discontinuing
such performance until the lapse of the notice and the applicable cure periods
or extension periods. Lead Agent may, but shall be under no obligation to, make
any payment or perform any act required thereunder to be made or performed by
Thermo, with the same effect as
18
<PAGE>
if made or performed by Thermo. If Lead Agent or Prudential fails to cure a
default within the same cure period as provided to Thermo in the Assigned
Agreement plus a period of ninety (90) days (thirty (30) days in the case of a
monetary default) thereafter (or, with respect to any defaults not susceptible
of being cured within such cure period, such longer cure period as shall be
required to cure such default provided that Lead Agent is diligently pursuing
such cure), such cure period to commence upon such notice to Lead Agent and
Prudential, Rocky Mountain shall have all its rights and remedies with respect
to such default or right of termination as set forth in the Assigned Agreement.
15. No Previous Assignment. Rocky Mountain warrants and represents to
----------------------
Assignee that it has not previously consented to any assignment, transfer or
hypothecation of the Assigned Agreement, except as specified herein.
16. Payments to Project Control Account. Rocky Mountain hereby agrees
-----------------------------------
that, so long as any Obligations are outstanding under the Loan Agreement, the
Notes or any document executed in connection therewith and until the same have
been terminated or satisfied in full, as the case may be, all payments to be
made by Rocky Mountain with respect to the Assigned Agreement shall be in lawful
money of the United States of America, in immediately available funds at the
location set forth in Schedule 16, directly to the Disbursement Agent designated
in and for deposit as specified in part one of Schedule 16, attached hereto, or
to such other person and/or at such other address as Lead Agent may from time to
time specify in writing to Rocky Mountain. Thermo agrees that promptly after
receipt by Thermo of a written request from Rocky Mountain, Thermo shall confirm
in writing to Rocky Mountain whether any loans, commitments or Obligations are
outstanding under the Loan Agreement, the Notes or any such documents. For
purposes of
19
<PAGE>
paragraph 4.7 of the Assigned Agreement, applicable requirements of the Loan
Agreement are as set forth in part two Schedule 16 hereto.
17. Protection of Lead Agent. In the event that either (a) Thermo's
------------------------
interest in the Project Site, the Project, the Facility (also referred to in the
Loan Agreement as the Greenhouse) and/or the Project Reserves shall be sold,
assigned or otherwise transferred pursuant to the exercise of any right, power
or remedy by Assignee or Lead Agent or pursuant to judicial proceedings, or (b)
Thermo rejects the Assigned Agreement under Title 11, United States Code, or
other similar Federal or state statute and such rejection is approved by the
appropriate bankruptcy court, and in either case (i) no funds payable under the
Assigned Agreement shall then be due and payable to Rocky Mountain at the time
of such transfer or rejection, (ii) Lead Agent shall have arranged for the
curing of any default susceptible of being corrected by Lead Agent or by a
purchaser at any judicial or non-judicial sale, (iii) the Assigned Agreement
shall have been terminated pursuant to the terms thereof by reason of a default
or a rejection by Thermo or a trustee in bankruptcy under Title 11, United
States Code, or other similar Federal or state statute, and (iv) the effect upon
Rocky Mountain of any default not susceptible of being corrected shall have been
rectified to Rocky Mountain's reasonable satisfaction, Rocky Mountain shall,
within fifteen (15) days after receipt of written request therefor, execute and
deliver an agreement to Lead Agent or its nominee, purchaser, assignee or
transferee, as the case may be, for the remainder of the term of the Assigned
Agreement, and with the same terms as are contained therein, whereupon such
agreement shall be an Assigned Agreement hereunder.
18. Acknowledgment of Assignee's Obligations and Rights. None of the
---------------------------------------------------
Secured Parties under the Loan Agreement has any obligation hereunder to extend
credit to Rocky Mountain or any contractor to Rocky Mountain at any time for any
purpose. Assignee shall have no obligation
20
<PAGE>
to Rocky Mountain under the Assigned Agreement until such time as Assignee
notifies Rocky Mountain in writing of Assignee's election to exercise its rights
hereunder. If Thermo defaults in the performance of its covenants to the Secured
Parties in, or an Event of Default shall have occurred and be continuing under,
the Loan Agreement, Assignee shall have the right, inter alia, to (i) declare
----- ----
all amounts due under the Loan Agreement, the Notes and any of the Collateral
Security documents executed in connection therewith to the Secured Parties under
the Loan Agreement immediately due and payable, (ii) take possession of the
Project Site, the Project, Thermo's rights in and with respect to the Greenhouse
and/or the Gas Reserves and complete the same, (iii) sell the Project, the
Project Site, Thermo's rights in and with respect to the Greenhouse and/or the
Gas Reserves and any purchaser at such sale shall succeed to Assignee's rights
hereunder, (iv) cause Lead Agent or its nominee, purchaser, assignee or
transferee to assume all of Thermo's right, title and interest in, to and under
the (subject to the terms of this Supplemental Agreement) Assigned Agreement,
and (v) exercise any other remedies provided under the Loan Agreement or
otherwise available at law or in equity; subject to Assignee's compliance with
the provisions of the Assigned Agreement and the terms of this Supplemental
Agreement, Rocky Mountain shall cooperate with Assignee in Assignee's exercise
of such rights.
19. Incorporation by Reference. The provisions of sections 20, 22, 24.
--------------------------
and 25 of the Assigned Agreement are incorporated herein by reference.
20. Limitation of Liability. Except as otherwise expressly provided
-----------------------
herein, it is hereby agreed and acknowledged that Rocky Mountain shall not have
any direct contractual obligations to Assignee, and Assignee hereby acknowledges
that it has not relied upon any direct representations of Rocky Mountain, in
connection with lending arrangements with Thermo except as provided herein and
in the Assigned Agreement. In addition, Assignee agrees that, except as
21
<PAGE>
otherwise expressly provided herein in the event shall Rocky Mountain be liable
to Assignee for any claims, losses, expenses or damages whatsoever other than
liability Rocky Mountain may have to Thermo and its successors and permitted
assigns, including Assignee, under the Assigned Agreement or to Lead Agent,
Prudential or to Assignee, their successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Supplemental
Agreement to be executed by their duly authorized officers or agents as of the
date of acknowledgement of their signatures, set forth below.
THERMO COGENERATION PARTNERSHIP, LP.
By: Thermo Ft. Lupton, LP., a general partner
By: Thermo Ft. Lupton I, Inc.,
its general partner
ATTEST:
/s/ Richard S. Roberts By: /s/ James Monroe III
- --------------------------------- ----------------------------------
James Monroe, III
Printed Name: Richard S. Roberts President
--------------------
Assistant Secretary
22
<PAGE>
(as to Rocky Mountain Produce ROCKY MOUNTAIN PRODUCE LIMITED
Limited Liability Company) LIMITED COMPANY
[ILLEGIBLE] By: /s/ William E. Coleman
- ------------------------------------- ---------------------------------
Printed Name: [ILLEGIBLE] Printed Name: WILLIAM E. COLEMAN
------------------------ -----------------------
Title: MANAGER
------------------------------
/s/ Robert C. Clark /s/ Nicholas G. Muller
- -------------------------------------
Nicholas G. Muller
Printed Name: Robert C. Clark Manager
------------------------
(as to the Prudential Insurance) THE PRUDENTIAL INSURANCE COMPANY
Company of America) OF AMERICA, as Lead Agent
[ILLEGIBLE] By: /s/ W. Brad Winegar
- ------------------------------------- ---------------------------------
Printed Name: [ILLEGIBLE] Printed Name: W. BRAD WINEGAR
------------------------ -----------------------
Title: V.P.
------------------------------
[ILLEGIBLE]
- -------------------------------------
Printed Name: [ILLEGIBLE]
------------------------
23
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
--------
On this 3rd day of April, 1993, before me personally came James Monroe,
--- -----
III, to me known, who, being by me duly sworn, did depose and say that he
resides at 2142 South Milwaukee, Denver, Colorado 80210; that he is President of
Thermo Ft. Lupton I, Inc., the corporation described in and which executed the
foregoing instrument; which corporation is the general partner of Thermo Ft.
Lupton, L.P.; which limited partnership is a general partner of Thermo
Cogeneration Partnership, L.P., the partnership described in and which executed
the foregoing instrument; that the execution of the instrument was duly
authorized according to the Partnership Agreement, and that the general partner
executed the instrument on behalf of the said partnership pursuant to said
authorization; and that he signed his name thereto by order of the board of
directors of said corporation.
/s/ Queenie C. Kripps
----------------------
Notary Public
My commission expires:
[Seal] QUEENIE C. KRIPPS
Notary Public, State of New York
No. 31-4671691
Qualified in New York County
Commission Expires December 31, 1994
--
24
<PAGE>
---------------------------------------------
Notary Public
My commission expires:
-----------------------
25
<PAGE>
State of Colorado )
CITY AND ) SS:
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 26th day of
March, 1993, by William E. Coleman and Nicholas G. Muller the Manager of Rocky
Mountain Produce Limited Liability Company, a Colorado limited liability
company, on behalf of the company.
Witness my hand and official seal.
/s/ Brenda Love
-----------------------------------------
Notary Public
My commission expires: 06-10-94
-------------------
26
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 7 day
of April, 1993, by W. Brad Winegar as Vice President of The Prudential Insurance
Company of America, as lead agent for the Secured Parties identified in the Loan
Agreement.
Witness my hand and official seal. NANCY SMITH
NOTARY PUBLIC, State of New York
No. 31-47X9715
Qualified in New York County
My commission expires: Commission Expires December 31, 1994
----------------------------
/s/ Nancy Smith
-----------------------------------------
Notary Public
( S E A L )
<PAGE>
SCHEDULE 3.2
------------
Governmental Approvals Required by Rocky Mountain:
Part A (Prior to execution of Supplemental Agreement).
------
None.
Part B (Subsequent to execution of Supplemental Agreement).
------
None.
27
<PAGE>
From time to time Rocky Mountain shall deliver to Thermo:
(a) as soon as is available, but not late than 90 days after the
end of each fiscal year of Rocky Mountain, a profit and loss statement, a
statement of retained earnings and a statement of cash flows for such year,and a
balance sheet as at the end of such year, in each case setting forth in
comparative form the figures for the previous fiscal year, certified as
presented in accordance with generally accepted accounting principles, the
profit and loss position, retained earnings, cash flows, and balance sheet as of
the date thereof, without qualification or exception as to the scope of its
audit, by independent certified public accountants of national standing
reasonably acceptable to Prudential:
(b) as soon as is available, but not later than 45 days after
the end of each quarterly period of each fiscal year of Rocky Mountain, a profit
and loss statement, a statement of cash flows and statement of retained
earnings, and a balance sheet as at the end of each such period, in each case
setting forth in comparative form the figures for the corresponding period of
the previous fiscal year, certified by an officer of Rocky Mountain as fairly
presenting in all material respects the profit and loss position, retained
earnings, cash flows, and balance sheet as of the date thereof (subject to
normal year-end audit adjustments and footnote disclosures), such financial
statements to be prepared in reasonable detail and in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as otherwise specifically noted therein, and shall be complete
and correct in all material respects (subject to normal year end audit
adjustments and to footnote disclosures);
(c) promptly after receipt thereof, copies of each Governmental
Approval (and copies of any correspondence referred to in any such approval) or
any other material consent or approval obtained or made by Rocky Mountain
pursuant to the Assigned Agreement; and
(d) promptly after receipt of request in writing, such
supplemental financial information with respect to Rocky Mountain or the
Facility as Thermo or its lenders may from time to time reasonably request
and as is reasonably available to Rocky Mountain.
28
<PAGE>
Schedule 9
----------
From time to time Rocky Mountain shall give immediate and simultaneous
Notice to Thermo and to Lead Agent if:
(a) any representation or warranty made by Rocky Mountain herein or in
the Assigned Agreement or in any certificate, financial statement, or other
document furnished to Thermo hereunder or under the Assigned Agreement shall
prove to have been false or misleading in any material respect as of the time
made or deemed made;
(b) Rocky Mountain shall have failed to comply with or shall be in
default of any of Rocky Mountain's covenants or obligations contained herein or
in the Assigned Agreement beyond any applicable cure period following Notice, if
required;
(c) Rocky Mountain shall make an assignment for the benefit of creditors
or shall generally not be paying its debts as such debts become due unless such
debts are the subject of a bona fide dispute;
(d) (i) any decree or order for relief in respect of Rocky Mountain shall
be entered under any bankruptcy, reorganization, compromise, arrangement
insolvency, readjustment of debt, dissolution or liquidation or similar law,
whether now or hereafter in effect (herein called "Bankruptcy Law") of any
jurisdiction, (ii) any petition or application of the types described in clause
(e), below, of this paragraph 9 shall be filed, or any such proceeding shall be
commenced, against Rocky Mountain and Rocky Mountain, by any act, shall indicate
its approval, consent thereto or acquiescence therein, or an order, judgment, or
decree shall be entered appointing any such trustee, receiver, custodian,
liquidator, or similar official, or approving the petition in any such
proceedings, or (iii) any order, judgment, or decree shall be entered in any
proceedings against Rocky Mountain decreeing the dissolution of Rocky Mountain;
(e) Rocky Mountain shall petition or apply to any tribunal for, or shall
consent to, the appointment of, or taking possession by, a trustee, receiver,
custodian, liquidator, or similar official of Rocky Mountain or of any
substantial part of its assets, or shall commence a voluntary case under the
Bankruptcy Law of the United States or any proceedings relating to Rocky
Mountain under the Bankruptcy Law of any other jurisdiction;
(f) (i) any order or decree is entered by any court of competent
jurisdiction directly or indirectly enjoining the construction or
(cumulatively) operation of the Facility, or (ii) a judgment (or judgments) in
excess of $100,000 (cumulatively) shall be rendered against Rocky Mountain and
remain unsatisfied whether or not such order, judgment, or decree is stayed
pending appeal;
(g) any of the Governmental Approvals required to be obtained by Rocky
Mountain in connection with the Facility and its full performance under the
Assigned Agreement or this Supplemental Agreement shall be rejected or otherwise
denied or shall expire (without being timely renewed) or be revoked, rescinded,
suspended, held invalid or otherwise limited in effect, and such rejection,
denial, expiration, revocation, rescission, suspension, holding, or other
limiting
29
<PAGE>
materially affects Rocky Mountain's ability to achieve or maintain operation of
the Facility or the ability of Rocky Mountain to make any payments under this
Agreement or the ability of Thermo to receive payments hereunder when and as
due;
(h) there shall exist at any time any litigation, investigation, inquiry,
or proceeding between Rocky Mountain and any Governmental Authority which
concerns the status of the Plant as a Qualifying Facility, or which could have
a material adverse effect on the properties, business, prospects, operations, or
other condition of the Plant or of Thermo;
(i) any material adverse change shall have occurred in the properties,
business, operations, or financial condition of Rocky Mountain from the
condition refected in the most recent financial information delivered to Thermo,
and of any change of law, rule, or regulation which has caused or could
reasonably be expected to cause such a material adverse change;
(j) there shall have occurred any loss or damage to the Facility in
excess of $250,000; and
(k) there shall have occurred an Event of Loss or there shall have
occurred any other damage or destruction to the Facility that has a material
adverse effect on the viability of the operation of the Facility, and such
damage or destruction is not adequately covered by insurance.
30
<PAGE>
SCHEDULE 16
-----------
Part one:
Bankers Trust Company
4 Albany Street
New York, New York
ABA No. 02-100-1033
Project Control Account No. FF757
Part two:
(h) Greenhouse Rent Reserve. The Borrower shall cause
-----------------------
70% of "Available Net Cash" (as such term is defined in the
Greenhouse Lease*) up to an aggregate amount equal to one
year's rental payments under the Greenhouse Lease which is not
applied to current rental payments under the Greenhouse Lease
to be deposited by the Thermal Energy Purchaser** into the
Greenhouse Rent Reserve Account.
* Hereunder the "Assigned Agreement"
** Hereunder Rocky Mountain
<PAGE>
EXHIBIT 10.25
MARKETING AGREEMENT
This Marketing Agreement (the "Agreement"), dated as of May 12, 1998, is
between CGH SALES, INC. ("CG"), a Delaware corporation whose address is 6811
Weld County Road 31, Fort Lupton, Colorado 80621, and INVERNADEROS LA PEQUENA
JOYA, S.A. de C.V. ("Joya"), a corporation organized and existing under the laws
of the United Mexican States, whose address is Blvd. Culiacan 2580-7, Plaza
Santa Ines, Culiacan, Sinaloa C.P. 80100, Mexico.
RECITALS
A. Pursuant to Subscription Agreement of even date herewith (the
"Subscription Agreement"), Colorado Greenhouse Holdings, Inc. ("CGH"), the owner
of all the outstanding capital stock of CG, has purchased 25% of the outstanding
capital stock of Grupo Batiz CGH S.A. de C.V., the owner of more than 90% of the
outstanding capital stock of Joya.
B. Pursuant to the terms of the Subscription Agreement, CGH and Holdings
have agreed to cause CG and Joya to enter into this Agreement.
AGREEMENT
1. Sale. Joya shall deliver to CG and CG shall accept and use all
----
reasonable efforts to sell all of the "acceptable" agricultural or horticultural
products, of the varieties specified in EXHIBIT A (the "Products"), grown by or
---------
for Joya at its current and future facilities in Baja Mexico, together with any
other facilities built or acquired by (i) Joya, or an Affiliate of Joya, or (ii)
any other entity in which both CG, or an Affiliate of CG, and Joya, or an
Affiliate of Joya, have contributed funds. Products shall be deemed
"acceptable" for all purposes hereunder if in the sole discretion of CG such
product is of a quality and grade consistent with the other products grown or
marketed by CG or any of its Affiliates. Set forth on Exhibit A attached hereto
and made a part hereof (which exhibit may be amended or supplemented from time
to time by the mutual agreement of the parties) are specifications and
descriptions of the various quality and grades of Products. As used herein
"Affiliate" shall mean any person or entity directly or indirectly controlling,
controlled by, or under common control with such person or entity. A person or
entity shall be deemed to control another person or entity if such person or
entity possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such person or entity, whether
through ownership of voting securities, by contract or otherwise.
2. Exclusive Dealings. Joya warrants that it has not heretofore
------------------
contracted to sell, market, consign, or deliver any of such products to any
person, firm, or corporation, except as noted on the annexed schedule. Any
products covered by such existing contract shall be excluded from the terms of
this agreement for the period and to the extent noted. Joya shall not directly,
or indirectly through any party other than CG, sell any of its export quality
products in the United States, Canada, Europe or other agreed upon territory.
<PAGE>
3. Term. The term of this Agreement shall commence at the start of the
----
new 1998/1999 crop season, estimated to begin in October 1998, and subject to
Paragraph 4 shall extend for the greater of (i) ten years or (ii) for as long as
CG, or any Affiliate of CG, shall hold 25% or more of the stock issued by to CG,
pursuant to the Subscription Agreement, unless mutually agreed to be terminated
sooner.
4. Performance Review: There shall be a performance review of the
------------------
Agreement at the end of five years, at which time Joya shall have the right to
terminate based on a set of mutually agreeable performance criteria, notice and
cure periods, with no less than 180 days notice provided before termination.
5. Payment. CG shall be entitled to a 10% commission (the "Commission")
-------
on the gross proceeds of all Products sold in the United States, Canada, Europe
or other agreed-upon territory. Payment for all sales will be collected by CG
and remitted, net of Commissions, advances and other reimbursable expenses
expressly authorized herein to Joya on an as collected basis, subject to the
following provisions:
a. Joya will pay the cost of freight to a receiving warehouse in the
San Diego area to be selected by CG.
b. "In and out" costs at the warehouse will be paid by CG.
c. CG will initially pay "pick and pack" each week for the product
received in the previous week. Amounts so paid will be deducted from gross
receipts of sales of Production. The pick and pack amount will be agreed to
between Joya and CG prior to the beginning of each Product season as a part of
the budgeting process set forth in Article 30, Section 1 of the Bylaws of Grupo
Batiz CGH, S.A. de C.V.
d. Liquidation of sales proceeds from CG to Joya to be within 28
days from date of sales.
e. CG has a responsibility to Joya to collect all accounts
receivables and any uncollected receivables shall be an expense borne by CG.
f. Transportation costs from San Diego area warehouse to final
destination on non-FOB sales will be included in the invoice and CG will be
entitled to reimbursement of such costs. However, the Commission will be paid
on an amount that excludes freight costs and pallet charges.
g. In addition to any advance payments (including, without
limitation, the pick and pack payments, materials charges and delivery costs) CG
will deduct its 10% Commission before remitting proceeds to Joya on each
liquidation.
h. CG will be responsible for all advertising, marketing and
promotion and other sales expenses not otherwise expressly allocated hereunder.
-2-
<PAGE>
i. To the extent insurance covering damage during transportation and
storage plus general calamity insurance covering the Product is not obtained by
Joya, CGH may obtain such insurance and deduct the cost thereof before remitting
proceeds to Joya, provided that Joya shall be a loss payee on any such policy.
6. Sale and Pricing. CG may contract in advance for the sale of all or
----------------
part of Joya's products; fix a fair and reasonable price or prices at which such
products or by-products may be sold and below which none shall be sold;
determine the manner of sale; and fix whatever terms and conditions it deems
advisable; provided, however, in no event may CG sell any Products at prices
less than those received by CG or its Affiliates for its products of equivalent
quality in all respects. Any determination of quality as provided in the prior
sentence shall be made by the senior sales officer of CG in consultation with
the Management Committee and with reference to the specifications set forth in
Exhibit A.
7. Management Committee. A management committee (the "Management
--------------------
Committee") composed of four members will be created to supervise the activities
conducted pursuant to this Agreement. Joya shall be entitled to have two
representatives on the Management Committee. The initial members of the
Management Committee shall be James R. Rinella, Dave Fahrenbruch, Raul Batiz
Guillen and Jorge Guillermo Batiz Guillen.
8. Warranties. All products delivered hereunder by Joya shall be free
----------
from damage and in good marketable and merchantable condition and shall be
delivered to CG, as directed. CG may make rules and regulations and provide
inspectors to standardize the quality, method, and manner of harvesting,
handling, packing, and shipping of such products or for any particular purpose.
Joya shall observe and perform all such rules and regulations. All products
delivered to or at the order of CG shall be of the standard and conform to the
regulations as to quality and otherwise that are prescribed by state and federal
authorities and by CG. Any deduction, allowance, or loss that CG may make or
suffer on account of inferior quality or standard, or condition at delivery,
shall be charged against Joya and be deducted from its net returns hereunder.
9. Packaging. Joya shall ship and return all boxes, delivered to it for
---------
its use and convenience, as agreed upon by the parties. If Joya fails to do so,
it shall pay CG CG's actual cost of each box that is not shipped or returned as
ordered. CG may deduct all such charges from Joya's net returns under this
Agreement. All Products covered hereby shall be packaged and shipped in cartons
approved by CG and such Products shall have only those marks or labels as may be
approved by CG.
10. Chemicals Use. Joya shall insure that no substance shall be
-------------
introduced or applied (including, without limitation, chemicals, pesticides or
growth regulators) to the Products, or on the land on which the Products are to
be grown, which will be in violation of established toxic tolerance levels set
by the United States Food and Drug Administration, by the United States
Department of Agriculture, or by any other applicable federal, state or local
law, or which are not authorized by CG for the Products being grown. Joya will
provide to CG for its review and approval prior to each harvesting season a list
of all chemicals used on the Products together with
-3-
<PAGE>
the rate of application for each such Chemical. CG shall have the right to cause
the Products to be residue tested.
11. Additional Products. If during the term hereof Joya produces any
-------------------
agricultural or horticultural products that come within the scope of CG's
activities as established by contracts or acquires or owns an interest in them,
CG shall have the right to market all such products pursuant to the terms of
this Agreement.
12. Indemnity. Each party (the "Indemnifying Party") agrees to indemnify
---------
and hold harmless the other party, and its officers, directors, employees,
agents and consultants (collectively the "Indemnified Party") from and against
any and all claims, liabilities, costs and expenses arising from or relating to
the negligent actions or omissions of the Indemnifying Party and its employees,
agents and consultants.
13. Personnel. CG agrees to hire all appropriate personnel necessary to
---------
market the Products and otherwise perform its obligations hereunder. At the
option of Joya, such personnel shall include an employee designated by Joya,
provided that the terms of such employment shall be compatible with those
prevalent in the relevant industry. CG agrees that it shall provide or shall
cause its Affiliates to provide all necessary technical assistance to Joya to
assist Joya in reaching the goal of producing the maximum yield, highest quality
and most effective packing and distribution of the Products. If deemed
necessary by CG, CG or its Affiliates will have the right to place on site at
Joya's facilities, such personnel as it deems necessary to perform the functions
described in this paragraph. Any costs of such personnel shall be paid by Joya
to CG on a monthly basis, provided that such costs shall be reasonable and are
reflected in the annual budgets prepared pursuant to the Subscription Agreement.
14. Trade Names. All trade names and marketing campaigns used will be at
-----------
the sole discretion of CG and shall remain the property of CG without any
implication and there shall not be deemed to be an implied license to use such
marks.
15. Marking. All Product sold will identify point of origin on its
-------
shipping containers and point of purchase displays as specified by applicable
laws and by CG.
16. Information/Forecast. Joya will provide to CG all information deemed
--------------------
necessary by CG to effectively market the product including, among other things,
production forecasts and daily inventory and shipping forecasts on a form to be
provided by CG.
17. Arbitration. Except as provided for in Paragraph 18, and herein, any
-----------
dispute or claim in law or equity arising out of this Agreement or any resulting
transaction shall be decided by neutral binding arbitration in accordance with
the rules of the CCI, and not by court action except as provided by Colorado law
for judicial review of arbitration proceedings. There shall be three
arbitrators, with each party choosing one arbitrator and those two picking the
third. Unless otherwise agreed by the parties all arbitration hereto shall be
conducted in San Diego, California. Arbitration shall be conducted in the
English language. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. The parties shall have
-4-
<PAGE>
the right to discovery. The filing of a mechanic's lien or a judicial action to
enforce a mechanic's lien or to enable the recording of a notice of pending
action, for order of attachment, receivership, injunction, or other provisional
remedies, shall be allowed but shall not constitute a waiver of the right to
arbitrate under this paragraph.
18. Remedies. If either party breaches any material provision hereof, the
--------
non-breaching party shall, upon instituting a proper action, be entitled to an
injunction to prevent further breach and a decree for specific performance of
this Agreement according to its terms.
19. Force Majeure. Neither party to this Agreement shall be required to
-------------
perform, or be liable for failure to perform, its obligations under this
Agreement during any period in which non-performance is caused by (i) strikes,
work stoppages, labor shortages or inability to procure labor, (ii) shortages of
equipment, materials, or supplies, (iii) shortages or lack of cooling or
processing facilities, (iv) car or truck shortages, or other transportation
difficulties, (v) war, hostilities, or national emergencies, (vi) acts of God,
the elements, mechanical breakdowns, or power failure, or (vii) causes beyond
the control of the party unable to perform. The non-performing party will
exercise reasonable due diligence to correct any correctable cause of non-
performance and will resume performance as soon as possible.
20. Binding Effect. This Agreement is binding upon and shall inure to the
--------------
benefit of both parties and their respective heirs, legal representatives,
successors, and assigns.
21. Non-Waiver. No delay or failure by either party to exercise any right
----------
hereunder, and no partial or single exercise of such right, shall constitute a
waiver of that or any other right, unless otherwise expressly provided herein.
22. Headings. Headings in this Agreement are for convenience only and
--------
shall not be used to interpret or construe its provisions.
23. Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the State of Colorado (as applied to contracts
entered into wholly within such state).
24. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
25. Time of Essence. Time is of the essence of this Agreement.
---------------
26. Entire Agreement; No Modification. This Agreement constitutes the
---------------------------------
sole agreement between the parties hereto with regarding to the subject matter
hereof and supersedes all prior agreements between the parties concerning the
same. It may not be amended or modified other than by an instrument signed by
both parties or their duly authorized representatives.
-5-
<PAGE>
27. Notices. All notices hereunder shall be in writing and delivered
-------
personally or mailed by certified mail, postage prepaid, addressed to the
parties at their last known addresses.
28. Joint Venture. This Agreement is not, and nothing contained herein
-------------
shall be deemed to constitute, a joint venture, partnership, agency or similar
arrangement between the parties hereto.
29. Successor Agreement. In the event this Agreement is terminated and
-------------------
Joya or any of its Affiliates sells or intends to sell, directly or indirectly,
Products in the United States, Europe or Canada through a marketing company
("Newco") to be formed by Joya or its Affiliate, then CG shall have the option
to acquire a minimum of 25% and a maximum of 50% of the outstanding capital
stock of Newco for the same consideration per share as is paid or contributed by
Joya or its Affiliate.
CGH SALES, INC., a Delaware corporation
By: /s/ James R. Rinella
----------------------------------------
James R. Rinella
INVERNADEROS LA PEQUENA JOYA,
S.A. de C.V., a Mexican corporation
By: /s/ Jorge Guillermo Batiz Guillen
----------------------------------------
Jorge Guillermo Batiz Guillen,
attorney-in-fact
-6-
<PAGE>
ANNEX "A"
QUALITY STANDARDS
- -----------------
Exportable volumes of produce will be utilized on pallets and labeled per
Colorado Greenhouse specifications with grade, size and color and will be
classified into the following categories:
A) BEEFSTEAK TOMATOES
1. All Beefsteak ("Beef") tomatoes will be washed, hand placed into
preformed plastic liners (inserts) placed in corrugated 40cm x 60cm
cartons per Colorado Greenhouse specifications on design, construction
and printing with each tomato uniformly labeled after packing. Each
carton must have a net weight of not less than 15.4 lbs at the point
of delivery in the USA.
2. a. All Beef tomatoes will be sorted by size, color and grade. Only
one grade or color or size is permitted in any one box, and only
like boxes are permitted on the same pallet.
b. Boxes will be palletized 2/3 on a 48" x 40" class A, four way
entry hardwood pallet stacked 15 to 20 high per instructions from
Colorado Greenhouse. Each pallet will be unitized with four
cardboard corner boards and three horizontal evenly spaced
plastic bands.
3. All Beef tomatoes will be sorted into one of the following sizes:
a. Premium MXL and Standard MXL and #2.
18, 20, 22, 25, 28, and 32 count tomatoes per tray.
b. Premium XL and Standard XL
35 and 39 count tomatoes per tray.
c. Premium L and Standard L
45 count tomatoes per tray.
d. Premium S
52 count tomatoes per tray (min. 110 grams each).
4. All Beef tomatoes will be harvested at color stage 3 or more and will
be sorted into one of the following colors according to the Kleur-
Stadia Tomaten color chart: 3, 4, 5 & 6. Tomatoes color range 7 or
more will NOT be exported to the USA but sold elsewhere by Greenver,
S.A. de C.V. Only one color is permitted on a pallet.
5. All Beef tomatoes for export will be sorted in Premium, Standard US #1
and US #2 grades.
a. Premium grade tomatoes must meet the following minimum quality
levels:
Shape: Round, smooth shoulder, no flat spots or indentations.
Well formed, smooth blossom end may be indented but not
more than 1/16".
A-1
<PAGE>
Calyx: In place, trimmed and not damaged.
Appearance: Must be free from all scars, marks, cuts, bruises,
punctures, blotchy ripening and translucent or
soft conditions
Cleanliness: Must be free from all insects and contaminates such
as dirt, dust or other residues from any source.
Russeting: Only minor amounts of russeting is permitted in the
area 1/2" from the center of the calyx and none
beyond that.
Punctures: Must be free from any skin punctures or breaks.
b. Standard US #1 and US #2 grade tomatoes are qualified by the same
criteria with defect levels allowable per "U.S. Standards for
Grades of Greenhouse Tomatoes," a copy of which is attached
hereto and expressly made a part hereof.
B) VINE CLUSTER TOMATOES
1. All Vine Cluster tomatoes will be washed, hand placed into net bags
with closures, both per Colorado Greenhouse specifications. Bags with
a loose tail of less than 2" long will be placed into cartons that
meet the specifications of Colorado Greenhouse in size, design,
construction and printing. Each carton must have a net weight of not
less than 11.3 lbs. at the point of delivery in the USA.
2. All Vine tomatoes will be sorted and graded by size and quality.
a. Only premium (same standards previously defined) will be exported
to the USA.
b. Only tomatoes with a minimum weight of 100 grams can be packed in
this category.
c. Only clusters with a minimum of 3 tomatoes may be packed in this
category. Each package must have a minimum of 4 tomatoes.
d. All tomatoes must be color stage 3 or more. In each package, one
tomato must be color stage 7.
3. All vine tomatoes will palletized per instructions from Colorado
Greenhouse and with the palletizing specifications in A2b.
4. Depending on market demand, vine tomatoes may also be required to be
packed as loose pack and the specifications will be developed for this
form of packing as required.
A-2
<PAGE>
C) PREPACK TOMATOES (CONSUMER PACK)
1. All Prepack tomatoes will be washed, graded and packed according to
the premium standards. Any tomatoes that fail to grade "Premium" will
be packed as US#1 or US#2 grades.
2. Prepack tomatoes will be packed according to size specifications from
Colorado Greenhouse in container specified by Colorado Greenhouse.
3. Prepack tomato containers will be packed into master cartons meeting
Colorado Greenhouse specifications in size, construction and printing.
4. Prepack master cartons will be unitized according to the
specifications in A2b.
A-3
<PAGE>
COLORADO GREENHOUSE TOMATO GRADING STANDARDS
The following document is designed to provide a brief description of the quality
requirements for all of the products that are grown, packed and shipped by
Colorado Greenhouse.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
RUSSETING
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- --------------------------------------------------------------------------------------------------------------------------
Premium (mxl,xl,prepacks) Standard Grade (mxl,xl) Substandard (no2/15, Trash
45ct or larger
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Russeting: Premium tomatoes (#1) can Standard grade tomatoes Russeting in Russeting
- ---------
Russeting refers only have minor levels of (#2) can contain russeting Substandard (#3) may which
to "micro" russeting confined to an levels extending between not exceed 1.5 inches extends
cracking of area extending 1/2 inch from 1/2 inch and 1 inch from the from the calyx. beyond
tomato skin. the center of the calyx. calyx. 1.5 inches
The severity from the
and calyx is
susceptibility to severe and
decay varies must be
greatly from culled.
tomato to Severe
tomato and russeting is
variety to associated
variety. with
"greyness,
dullness,
softness and
wrinkling."
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
STEM PUNCTURES AND SKIN BREAKS
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- --------------------------------------------------------------------------------------------------------------------------
Premium(mxl,xl,prepacks) Standard Grade(mxl,xl) Substandard(no2/15, Trash
45ct or larger
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stem No Tolerance: Any tomato Stem punctures and skin Stem punctures and All fresh/wet
Punctures and containing a skin break breaks must be small skin breaks must be skin breaks
Skin Breaks or puncture must be (pea sized or smaller) less than 1 cm, closed must be
(open and Closed) downgraded to standard closed ("healed/dry/ ("healed/dry/scarred culled!!!!!
must be minimized grade or substandard(no2 scarred over) and over") and minimal
due to the extreme /15) if the break is minimal (one or less (one or less per box).
potential for healed or scarred over. per box. Larger rates Larger rates result
bacterial growth result from improper from improper handling
and decay. All fresh/wet skin breaks handling and the source and the source should
must be culled!!!!! should be corrected. be corrected.
All fresh/wet skin breaks All fresh/wet skin
must be culled!!!!! breaks must be culled!!!!!
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH CRACKS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- ------------------------------------------------------------------------------------------------------------------------------------
Premium (mxl,xl, prepacks) Standard Grade (mxl,xl) Substandard (no2/15, Trash
45ct or larger
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NO TOLERANCE: All Single cracks that are less Single or multiple Any tomato
tomatoes with growth than 1/2 cm are acceptable. cracks which do not with a
cracks must be downgraded exceed 1cm are growth crack
or culled. acceptable. which
All products with deep exceeds
growth cracks (greater than 1cm.
4mm must be discarded). All products with deep
growth cracks (greater
than 4mm must be All products
discarded). with deep
growth
cracks
(greater than
4mm must
be
discarded).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BLOSSOM END ROT
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUALITATIVE ISSUES PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
BLOSSOM END
ROT: NO TOLERANCE: All tomatoes NO TOLERANCE: All tomatoes Single or multiple cracks Any tomato with a
Tomatoes exhibiting black scars must exhibiting black scars must be which do not exceed 1cm growth crack which
with this be downgraded to downgraded to substandard if the are acceptable. exceeds 1 cm.
condition are substandard if the affected affected area is less than 1
characterized area is less than 1 centimeter. All products with deep All products with
by dark black centimeter. growth cracks (greater deep growth cracks
scars and/or If black scars are greater than than 4mm must be (greater than 4mm
indentations 1 cm the tomato must be culled. discarded). must be discarded).
on the blossom
end, in some
cases, the Products with inflamed scars of
border of the any size must be culled.
scarred area
appears to be
inflamed.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-7
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
PUSHERS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUALITATIVE ISSUES PREMIUM (MXL,XL,PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
"Pushers" are
blemishes which occur The affected area must be The affected area must be Tomatoes which have an All tomatoes with
on the blossom end of less than 1/2 cm and must less than 1/2 cm and must opaque, tan, scar-like opaque blemishes
a tomato. be nearly translucent so be nearly translucent so appearance must be downgraded which exceed 1 cm.
The color (light and that the overall premium that the overall premium to substandard or culled if
translucent, light appearance of the tomato appearance of the tomato the blemish exceeds 1 cm.
tan, opaque tan) and is not compromised. is not compromised.
size of the affected
area can vary Tomatoes which have an Tomatoes which have an
greatly from tomato opaque, tan, scar-like opaque, tan, scar-like
to tomato. appearance must be appearance must be
downgraded to substandard downgraded to substandard
or culled if the blemish or culled if the blemish
exceeds 1 cm. exceeds 1 cm.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-8
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
SOFTNESS
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUALITATIVE PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO 2/15) TRASH
ISSUES
In order to NO TOLERANCE: soft NO TOLERANCE: soft NO TOLERANCE: soft All soft tomatoes
reach the tomatoes are not acceptable tomatoes are not acceptable tomatoes are not acceptable must be culled
retailers in any grade and must be in any grade and must be in any grade and must be
shelves, all culled. culled. culled.
CGH products
must be firm.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DECAY AND MOLD
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- -----------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
QUALITATIVE PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Decay and mold NO TOLERANCE NO TOLERANCE NO TOLERANCE All tomatoes
on the fruit or with signs of
calyx due to post decay and
harvest conditions mold.
is not tolerated in
any product and
must be culled.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PITS
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- ----------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
QUALITATIVE PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pits, NO TOLERANCE. All NO TOLERANCE. All Small pits (less than 1 All tomatoes
indentations or tomatoes with pits must be tomatoes with pits must be centimeter wide and with
openings which downgraded to Substandard downgraded to Substandard less than 1/2 cm deep openings
usually occur or culled depending on the or culled depending on the can be salvaged in the which
near the size and severity of the size and severity of the substandard grade. exceed 1 cm
blossom end of opening. opening. Pits which exceed in width and
the tomato and these parameters must 1/4 cm in
may be be culled. depth.
characterized by
seed visibility.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-11
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SCARS
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
QUALITATIVE PREMIUM (MXL,XL,PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scars are superficial Single, small (less than 1/2 cm These tomatoes can have More pronounced scarring Severely
blemishes or marks in diameter) affected areas are up to 2 scarred areas is acceptable as long as deformed
on tomatoes which acceptable as long as the which are small (1 cm shelf life and taste are fruit.
detract from the overall appearance is premium or less). not affected. Severely
overall fruit ("relatively" blemish free). deformed fruit resulting
appearance without from scarring should be
affecting shelf culled.
life or taste.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-12
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SIZE
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- --------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
QUALITATIVE PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sorting by size Uniform Uniform Uniform
must be uniform
within each box
and all cells in a
box must be
filled.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A-13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHAPE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
To fit in the premium Only slight variations from Qualitative Issues Premium
grade all tomatoes a circular fruit are (mx1,x1,
must be round. acceptable in this grade. prepacks)
Oval shaped fruit must be
downgraded to substandard.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COLOR STAGE AT HARVEST
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- -------------------------------------------------------------------------------------------------------
QUALITATIVE PREMIUM (MXL,XL,PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
ISSUES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
All fruit should Uniformity per box and Uniformity per box and Uniformity per box
be picked pallet is crucial for all pallet is crucial for all and pallet is crucial for
between stage 5 grades. grades. all grades.
and 6 as
depicted on a 12
color chart.
Quality
problems
stemming from
russetting and
storage can be
minimized if the
target color is
maintained.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-15
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CALYX
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- -------------------------------------------------------------------------------------------------------------------------
QUALITATIVE ISSUES PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The calyx is a Calyx retention is Calyx retention is Calyx retention is
feature recognized imperative. A box which imperative. A box which imperative. A box
by consumers as an contains more than three contains more than three which contains more
indication of tomatoes without a calyx tomatoes without a calyx than three tomatoes
premium quality. indicates possible picking indicates possible picking without a calyx
problems and should be problems and should be indicates possible
corrected. When packing, corrected. When packing, picking problems and
all tomatoes without a all tomatoes without a should be corrected.
calyx should be made less calyx should be made less When packing, all
visible by lacing them visible by lacing them tomatoes without a
along the outer perimeter along the outer perimeter calyx should be made
of each box. of each box. less visible by lacing
them along the outer
Prepacks which are covered perimeter of each box.
Prepacks which are in plastic wrap must be
covered in plastic wrap packed without the calyx
must be packed without due to potential stem mold Prepacks which are
the calyx due to potential covered in plastic
stem mold wrap must be packed
without the calyx due
to potential stem mold
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-16
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LABELING
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- ----------------------------------------------------------------------------------------------------------------------------------
QUALITATIVE ISSUES PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO 2/15) TRASH
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
All tomatoes Premium labels (4 color) Garden Fresh boxes require No labels
must be labeled are required. the generic label.
on the shoulder
with the
appropriate label Labels must be uniformly Standard grade tomatoes in
except for oriented on each tomato the CGH box require the
prepack tomatoes within each box. two color standard grade
which are labeled label (CGH) or the generic
on the container. label.
Labeling on the calyx is
preventable and should
not be tolerated. Labeling on the calyx is
preventable and should not
be tolerated.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-17
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
BOX CODES
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
GRADING TOLERANCES
- -------------------------------------------------------------------------------------------------------------------------
QUALITATIVE ISSUES PREMIUM (MXL,XL, PREPACKS) STANDARD GRADE (MXL,XL) SUBSTANDARD (NO2/15) TRASH
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Legible box Box codes depicting the Box codes depicting the Box codes depicting
codes depicting harvest date and site are harvest date and site are the harvest date and
the harvest date required for all finished required for all finished site are required for all
and site are goods. goods. finished goods.
required for all
finished goods.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-18
<PAGE>
[TO COME]
<PAGE>
EXHIBIT 10.25
UNITED STATES STANDARDS FOR GRADES OF
GREENHOUSE TOMATOES/1/
(31 F.R. 5939)
Effective April 19, 1966
GRADES
Sec.
51.3345 U.S. No. 1.
51.3346 U.S. No. 2.
UNCLASSIFIED
51.3347 Unclassified.
TOLERANCES
51.3348 Tolerances.
APPLICATION OF TOLERANCES
51.3349 Application of tolerances.
SIZE CLASSIFICATION
51.3350 Size classification.
STANDARD PACK
51.3351 Standard pack.
DEFINITIONS
51.3352 Similar varietal characteristics.
51.3353 Mature.
51.3354 Soft.
51.3355 Clean.
51.3356 Fairly well formed.
51.3357 Reasonably well formed.
51.3358 Damage.
51.3359 Serious damage.
51.3360 Metric conversion table.
AUTHORITY. The provisions of this subpart issued under sect. 203, 205,
60 Stat. 1087, as amended, 1090 as amended; 7 U.S.C. 1622, 1624.
GRADES
(S) 51.3345 U.S. No. 1.
"U.S. No. 1" consists of tomatoes of similar varietal characteristics
which are mature but not overripe or soft, clean, fairly well formed; which are
free from decay, sunscaled, and freezing injury, and free from damage caused by
bruises, cuts, shriveling, puffiness, catfaces, growth cracks, scars, disease,
insects, or other means. (See (S) 51.3348.)
(S) 51.3346 U.S. No. 2.
"U.S. No. 2" consists of tomatoes of similar varietal characteristics
which are mature but not overripe or soft, clean, reasonably well formed; which
are free from decay, sunscald, and freezing injury, and free from serious damage
caused by cuts, shriveling, puffiness, catfaces, growth cracks, scars, disease,
insects, or other means. (See (S) 51.3348.)
UNCLASSIFIED
(S) 51.3347 Unclassified.
"Unclassified" consists of tomatoes which have not been classified in
accordance with any of the foregoing grades. The term "unclassified" is not a
grade within the meaning of these standards but is provided as a designation to
show that no grade has been applied to the lot.
TOLERANCES
(S) 51.3348 Tolerances.
In order to allow for variations incident to proper grading and handling
in each of the foregoing grades, the following tolerances, by weight, are
provided as specified:
(a) Defects--(1) U.S. 1 grade. Ten percent of the tomatoes to any lot
may fail to meet the requirements of the grade, but not more than one-half of
this amount, or 5 percent, shall be allowed to serious damage, including in this
latter amount not more than 1 percent for tomatoes which are soft or affected by
decay.
(2) U.S. No. 2 grade. Ten percent of the tomatoes in any lot may fail to
meet the requirements of the grade, but not more than one-tenth of this amount
or 1 percent shall be allowed for tomatoes which are soft or affected by decay.
(b) Offsize. Fifteen percent of the tomatoes in any lot may vary from
the specified size, including therein no more than 5 percent for tomatoes which
fail to meet any specified minimum size.
APPLICATION OF TOLERANCES
(S) 51.3349 Application of tolerances.
The contents of individual packages in the lot are subject to the
following limitations:
(a) For a tolerance of 10 percent or more, individual packages shall
have not more than one and one-half times the tolerance specified; Provided,
That when the package contains 15 specimens or less, any individual package
shall have not more than double the tolerance specified, except that at lease
one defective and one off-size specimen may be permitted in any package; And
provided further, That the averages for the entire lot are within the tolerances
specified for the grade.
(b) For a tolerance of less than 10 percent, individual packages in
any lot shall have not more than double the tolerance specified, except that at
least one defective and one off-size specimen may be permitted in any packages;
Provided, That the averages for the entire lot are within the tolerances
specified for the grade.
SIZE CLASSIFICATION
(S) 51.3350 Size classification.
The size of tomatoes may be specified in accordance with one of the
following classifications:
(a) "Small" under 3-1/2 ounces;
(b) "Medium" from 3-1/2 to 9 ounces;
and,
(c) "Large" over 9 ounces.
STANDARD PACK
(S) 51.3351 Standard pack.
Tomatoes shall be fairly uniform in size when packed in containers.
(a) "Fairly uniform in size" means that not more than 10 percent, by
weight, of the tomatoes in any container may vary more than the following within
the applicable size classification:
(1) 4 ounces for "Medium," "Small to Medium" or "Medium to Large"; and,
(2) 6 ounces for "Large" size.
DEFINITIONS
(S) 51.3352 Similar varietal characteristics.
"Similar varietal characteristics" means that the tomatoes are alike as
to character of color (bright red varieties shall not be mixed with varieties
having a purplish tinge).
(S) 51.3353 Mature.
"Mature" means that the contents of two or more seed cavities have
developed a jellylike consistency and the seeds are well developed. External
color shows at least a definite break from green to tannish-yellow, pink or red
color on not less than 10 percent of the surface.
(S) 51.3354 Soft.
"Soft" means that the tomato yields readily to slight pressure.
(S) 51.3355 Clean.
"Clean" means that the individual tomato is practically free from dirt
and other foreign matter.
(S) 51.3356 Fairly well formed.
"Fairly well formed" means that the tomato is not more than slightly
kidney-shaped, lopsided, elongated, angular, or otherwise slightly deformed.
(S) 51.3357 Reasonably well formed.
"Reasonably well formed" means that the tomato is not more than
moderately kidney-shaped, lopsided, elongated, angular, or otherwise moderately
deformed.
(S) 51.3358 Damage.
"Damage" means any specific defect described in this section; or any
equally objectionable variation of any one of these defects, any other defect,
or any combination of defects, which materially detracts from the appearance, or
the edible or marketing quality of the tomato. The following specific defects
shall be considered as damage:
(a) Puffiness when the open space in one or more locules materially
detracts from the appearance of the tomato when cut through the center at right
angles to a line running from the stem to the blossom end;
(b) Catfaces when scars are rough or deep, when channels are very deep
or wide, when channels extend into a locule, or when affecting the appearance to
a greater extent than the following:
(1) A small size tomato having a fairly smooth catface equivalent in
area to a circle 3/8-inch diameter; or
(2) A medium size tomato having a fairly smooth catface equivalent in
area to a circle 1/2-inch in diameter; or
(3) A large size tomato having a fairly smooth catface equivalent in
area to a circle 3/4-inch diameter;
(c) Growth cracks (radiating from or concentric to the stem scar) when
not well healed, when more than one-eighth inch in depth; or when affecting the
appearance or marketing quality of the tomato to a greater extent than that of a
tomato 5 ounces in weight having any individual radial crack one-half inch in
length, or having more than a 1 inch aggregate length of all radial cracks,
measured from the edge of the stem scar;
(d) Scars (other than catfaces) when the appearance of the tomato is
affected to a greater extent than that of a tomato 5 ounces in weight having a
scar with no depth which has an area equivalent to that of a circle
three-eighths inch in diameter; and,
(e) Cuts, not well healed, not shallow, or which affect the appearance
or marketing quality of the tomato to a greater extent than that of a tomato 5
ounces in weight having a cut one-half inch in length.
- ------------
/1/ Packing of the product in conformity with the requirements of these
standards shall not excuse failure to comply with the provisions of the Federal
Food, Drug, and Cosmetic Act or with applicable State laws and regulations.
<PAGE>
(S) 51.3359 Serious damage.
"Serious damage" means any specific defect described in this section; or
an equally objectionable variation of any one of these defects, any other
defect, or any combination of defects, which seriously detracts from the
appearance or the edible or marketing quality of the tomato. The following
specific defects shall be considered as serious damage:
(a) Puffiness when the open space in one or more locules seriously
detracts from the appearance of the tomato when cut through the center at right
angles to a line running from the stem to the blossom end;
(b) Catfaces when channels extend into the locule, when the wall has
been weakened to the extent that slight pressure will cause the tomato to leak,
or when the appearance of the tomato is affected to a greater extent than that
of a tomato 5 ounces in which having a fairly smooth catface with an area
equivalent to that of a circle 1 inch in diameter;
(c) Growth cracks (radiating from or concentric to the stem scar) when
not well healed, when more than one-eighth inch in depth, or when affecting the
appearance or marketing quality of the tomato to a greater extent than that of a
tomato 5 ounces in weight having individual radial cracks three-fourths inch in
length, or having more than a 1-1/2-inch aggregate length of all radial cracks,
measured from the edge of the stem scar;
(d) Scars (other than catfaces) when the appearance of the tomato is
affected to a greater extent than that of a tomato 5 ounces in weight having a
scar with no depth which has an area equivalent to that of a circle 1 inch in
diameter; and,
(e) Cuts, not well healed, not shallow, or which affect the appearance
or marketing quality of the tomato to a greater extent than that of a tomato 5
ounces in weight having a cut one-half inch in length.
(S) 51.3360 Metric conversion table.
METRIC CONVERSION TABLE
Inches Millimeters (mm)
1/8 equals .................................... 3.2
1/4 equals .................................... 6.4
3/8 equals .................................... 9.5
1/2 equals .................................... 12.7
5/8 equals .................................... 15.9
3/4 equals .................................... 19.1
7/8 equals .................................... 22.2
1 equals .................................... 25.4
1-1/4 equals .................................... 31.8
1-1/2 equals .................................... 38.1
1-3/4 equals .................................... 44.5
2 equals .................................... 50.8
3 equals .................................... 76.2
4 equals .................................... 101.6
The U.S. Standards for Grades of Greenhouse Tomatoes contained for this
subpart shall become effective April 12, 1966, and will thereupon supersede the
U.S. Standards for Grades of Greenhouse Tomatoes which have been in effect since
April 16, 1962 (7 CPR, (SS) 51.3345 -- 51.3261).
Dated: April 14, 1966
G.R. GRANGE,
Deputy Administrator,
Marketing Services
[F.R. Doc. 56-4246: Filed Apr. 18, 1966; 8:49 a.m.]
- --------------------------------------------------------------------------------
UNITED STATES STANDARDS
FOR GRADES OF
GREENHOUSE TOMATOES
---------------------------------------------------------
EFFECTIVE APRIL 19, 1966
---------------------------------------------------------
[SEAL OF THE U.S. DEPARTMENT OF AGRICULTURE APPEARS HERE]
U.S. DEPARTMENT OF AGRICULTURE
AGRICULTURAL MARKETING SERVICE
WASHINGTON, D.C.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.26
Lease and Project Participation Agreement between City of Grants, a New Mexico
municipal corporation (the "Landlord"), and Colorado Greenhouse, Inc., a
Delaware corporation (the "Tenant")
Dated as of May 14, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Basic Definitions............................................... -1-
-----------------
2. Lease of Land................................................... -3-
-------------
3. Agreements of Landlord.......................................... -3-
----------------------
4. Term............................................................ -3-
----
5. Rent............................................................ -3-
----
6. Project Participation Agreement................................. -5-
-------------------------------
7. Taxes and Charges............................................... -7-
-----------------
8. Use............................................................. -8-
---
9. Maintenance and Repair.......................................... -10-
----------------------
10. New Construction................................................ -10-
----------------
11. Insurance Terms................................................. -14-
---------------
12. Condemnation Provisions......................................... -18-
-----------------------
13. Assignment or Subletting........................................ -20-
------------------------
14. Indemnity....................................................... -20-
---------
15. End of Term..................................................... -21-
-----------
16. Default of Tenant; Remedies of Landlord......................... -21-
---------------------------------------
17. Default of Landlord; Remedies of Tenant......................... -22-
---------------------------------------
18. Right to Charge................................................. -23-
---------------
19. Development Cooperation......................................... -24-
-----------------------
20. Leasehold Mortgages............................................. -24-
-------------------
A. Leasehold Mortgages Authorized............................... -24-
------------------------------
B. Notice to Landlord........................................... -24-
------------------
C. Consent of Leasehold Mortgagee Required...................... -24-
---------------------------------------
D. Default Notice............................................... -24-
--------------
E. Procedure on Default......................................... -25-
--------------------
-i-
<PAGE>
F. Substitute Lease................................................. -26-
----------------
G. Legal Actions.................................................... -27-
-------------
H. Future Amendments................................................ -27-
-----------------
I. Estoppel Certificate............................................. -28-
--------------------
21. Bankruptcy; Insolvency.............................................. -28-
----------------------
22. Recording; Documents Affecting Title and Interest................... -29-
-------------------------------------------------
23. General Provisions.................................................. -29-
------------------
A. Use of "Will or May"............................................. -29-
--------------------
B. Expense.......................................................... -29-
-------
C. Approval......................................................... -29-
--------
D. Computation of Time.............................................. -29-
-------------------
E. Notices.......................................................... -30-
-------
F. Waiver; Remedies................................................. -31-
----------------
G. Time of Essence.................................................. -31-
---------------
H. Binding Effect................................................... -31-
--------------
I. Entire Agreement................................................. -32-
----------------
J. Headings and Use of Terms........................................ -32-
-------------------------
K. Partial Invalidity............................................... -32-
------------------
L. Paragraphs, Articles and Exhibits................................ -32-
---------------------------------
M. Further Assurances............................................... -32-
------------------
N. Governing Law.................................................... -32-
-------------
O. Survival......................................................... -32-
--------
P. Construction..................................................... -32-
------------
Q. Attorneys' Fees.................................................. -33-
---------------
EXHIBITS:
- --------
A. The Land
A-1 Water and Wastewater Provisions
A-2 Permitted Encumbrances
B. Specifications in Connection with Buildings and Site Plans
C. "As-Built" Survey Checklist
D. Memorandum of Lease
E. Hazardous Materials
F. Easement Agreement
-ii-
<PAGE>
LEASE AND PROJECT PARTICIPATION AGREEMENT
------------------------------------------
Pursuant to the Local Economic Development Act, (S)5-10-1 to 5-10-13
NMSA 1978 and the City of Grants Economic Development Plan, the City of Grants,
a municipal corporation (the "Landlord"), and Colorado Greenhouse, Inc., a
Delaware corporation, (the "Tenant"), agree:
1. Basic Definitions. For the purpose of this Lease:
-----------------
A. "City" means the City of Grants, New Mexico and "County"
means the County of Cibola, New Mexico.
B. "Buildings Transfer Obligation" means the obligation of the
Tenant, upon the end or any earlier termination of this Lease, to transfer the
Buildings (as defined in paragraph 10(A) to the City, in reasonable working
condition for the Permitted Use. The boilers and all piping (including effluent
piping) are expressly included in the obligation to transfer Buildings. The
boilers and all piping will be in working condition upon transfer. The Buildings
so transferred will be free of any liens or other claims, and any Leasehold
Mortgage will have been previously satisfied. The transfer documents will be
reasonably satisfactory in form to the City.
C. "Departure Obligation" means the obligation of the Tenant,
upon the end or any earlier termination of this Lease for any reason, to elect
to perform either the Buildings Transfer Obligation or the Reclamation
Obligation. The Tenant will give the City written notice within ten days after
expiration or any earlier termination of this Lease that the Tenant will perform
either the Buildings Transfer Obligation or the Reclamation Obligation. If
Tenant does not give the written notice, Landlord may, after written notice to
the Tenant of the intention of the Landlord to do so within a reasonable period
of time, elect either the Buildings Transfer Obligation or the Reclamation
Obligation on behalf of the Tenant, and the Tenant will then perform that
obligation. Within 30 days after end or any earlier termination of this Lease,
the Tenant will prepare and execute all documents necessary to complete the
Buildings Transfer Obligation, if Tenant has so elected, or will submit written
plans, which will be subject to the written approval of the City, detailing the
specifics of how the Reclamation Obligation will be performed. The Reclamation
Obligation will be fully performed with 180 days after the end or any earlier
termination of the Term. The Landlord is entitled to a lien upon the Buildings,
equipment and other personal property of the Tenant located on the Land to
ensure performance of
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the Departure Obligation.
D. "Lease" means this Lease and Project Participation Agreement
between the Landlord and the Tenant and all amendments, modifications,
extensions and renewals to or of this Lease and Project Participation Agreement.
E. "Leasehold Estate" means the interest of the Tenant in the
Premises created by this Lease.
F. "Leasehold Mortgage" means one or more mortgages, deeds of trust,
or other security instruments by which the Leasehold Estate is mortgaged,
conveyed, assigned, or otherwise transferred, to secure a debt or other
obligation.
G. "Leasehold Mortgagee" means one or more holders of a Leasehold
Mortgage.
H. "Mortgage," whether or not used in combination with other
qualifying words, includes a mortgage, or a deed of trust to a trustee, to
secure an issue of bonds, debentures, notes or other obligations; and
"mortgagee," and "holder," when used with reference to a mortgage, includes a
mortgagee or a holder of a mortgage or the trustee under a deed of trust and,
when appropriate, the holder or holders of the bonds, debentures, notes or other
obligations secured by the mortgage or deed of trust.
I. "Premises" means the land described on attached Exhibit A (the
---------
"Land"), and any building or improvement that may be later built by the Tenant
on the Land.
J. "Project" means the acquisition, construction and equipping of a
greenhouse facility.
K. "Reconstruction Obligation" means the obligation of the Tenant to
use insurance proceeds or other funds to reconstruct the Buildings to the
reasonable equivalent of those structures previously on the Land, after any
Occurrence as defined in Section 11(G).
L. "Reclamation Obligation" means the obligation of the Tenant upon
the expiration or any earlier termination of this Lease to remove all of the
structures and debris on the Land, including foundations and supporting posts,
(but not main sewer or water lines, or other lines providing utility service or
underground piping) and to leave the Land in reasonably buildable condition. The
Tenant may remove the Buildings, signs, personal property and the trade assets
as provided in this Lease from the Premises. The site will be restored by Tenant
to a reasonably buildable condition, including removal of all concrete pads,
posts, docks, foundations and storage units, except as expressly waived by
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Landlord in writing. Any personal property or trade assets not removed will be
deemed to be abandoned. The Reclamation Obligation does not include restoring
the original topography of the Land.
M. "Water". The Landlord and the Tenant have separately addressed
-------
the furnishing by the Landlord to the Tenant of water and wastewater for the
business of the Tenant and the cost to the Tenant of water and wastewater
services as provided in attached Exhibit A-1.
-----------
Other definitions are included in the General Provisions paragraph
------------------
of this Lease, or within the body of this Lease.
2. Lease of Land. The Landlord leases and lets the Land to the Tenant,
-------------
subject to (i) any ad valorem real estate taxes for 1998 and later years, and
--
(ii) the exceptions to title listed on attached Exhibit A-2 (the "Permitted
-----------
Encumbrances"), and (iii) the provisions of this Lease.
3. Agreements of Landlord. On (i) payment and performance of Rent
-----------------------
and other payments provided for in this Lease, and (ii) performance by the
Tenant of all obligations as provided in this Lease, the Tenant will peaceably
and quietly have the exclusive use and enjoyment of the Premises during the
Term, and may exercise all of the rights of the Tenant as provided in this
Lease, subject to (a) the provisions of this Lease, (b) applicable laws,
ordinances, decisions, and governmental rules and regulations (the "Governmental
Rules"), and (c) the Permitted Encumbrances.
4. Term. The initial Term of this Lease is 60 years, beginning May 15,
---- -- ------
1998 the "Initial Term"). The "Term" of this Lease includes the Initial Term
- ----
and any renewal or extension of the Initial Term that may be later agreed upon
in writing by the Tenant and the Landlord.
5. Rent. Instead of monetary rent, the Tenant will strictly perform
----
during the Term promptly, punctually and without notice, all of the obligations
of the Tenant as provided in this Lease. The prospect of the opportunity for
employment of an augmented workforce in the City by the Tenant is a substantial
and material inducement to the Landlord to enter into this Lease, and the
performance by the Tenant of the Employment Standard (defined below) will be
measured by good faith and fair dealing and is a very substantial part of the
consideration to Landlord for entering into this Lease (the "Rent"). The Tenant
will specifically construct and operate a greenhouse operation on the Land, and
will meet the following Employment Standard at all times during the Term:
A. Employees who meet the Employment Standard will be full
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time employees working not less than 35 hours a week at the greenhouse or any
packing house constructed on the Land, and working or anticipated to be working
at least 48 weeks of the calendar year in permanent or long-term positions
("Qualified Employees"). Qualified Employees who meet the Employment Standard
will include persons to whom the Tenant has outsourced certain tasks, provided
those persons are occupied full-time in permanent or long-term positions in the
business of the Tenant at the Land, and receive pay and benefits substantially
similar to those employees of the Tenant performing similar functions, but will
not include vendors, merchants, or providers of intermittent labor through
contracts. Employees employed by the Tenant on management, administrative or
supervisory duties primarily directed toward the greenhouse operation located at
the Land and working at the Land not less than 35 hours a week on those duties,
at least 48 weeks of the calendar year, will be "Qualified Employees."
B. During the first 12 months of the Term, the Tenant will have no
obligation to have Qualified Employees or to meet any Employment Standard.
C. During the next 48 months of the Term (through the end of year
five of the Term) Tenant will have the following Employment Standard: Tenant
will have employees working not less than a cumulative total of 2,400 hours per
week, 52 weeks a year, on an average basis calculated every six months beginning
with the six-month period that commences on the date Tenant begins commercial
greenhouse operations, and at all times (other than as permitted under Paragraph
4.E) during such 42-month period Tenant will employ not less than 50 Qualified
Employees.
D. During the remaining months of the Term (all months after the
sixtieth month) the Tenant will have the following Employment Standard: Tenant
will have employees working not less than a cumulative total of 4,400 hours per
week, 52 weeks a year, on an average basis calculated every six months beginning
with the first day of the 60th month of the Term, and at all times (other than
as permitted under Paragraph 4.E) after such 60th month Tenant will employ not
less than 100 Qualified Employees.
E. After the first eighteen months of the Term, the Tenant may
furlough employees for up to eight weeks every other year without being in
violation of the Employment Standard. During the Term, the Tenant will have a
one-time option to suspend operations and furlough or terminate employees at the
Land for up to eight months, provided the Tenant's decision to do so is in
compliance with all other laws and regulations, the Tenant gives the Landlord
written notice at least six months before starting the suspension, and, before
the suspension, the Tenant is current and remains current on
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all required payments to the State of New Mexico Employment Security Division
for payment of the Tenant's unemployment compensation obligations.
The Tenant will pay and perform the Rent, including meeting the
Employment Standard to the Landlord on an absolutely net basis, free of any
charges, assessments, impositions or deductions of any kind, and without
abatement, deduction or set-off. Tenant will provide true and accurate monthly
reports to Landlord showing the total number of employees, and the total hours
worked by each employee. Qualified Employees will be identified by Tenant on the
reports provided to Landlord. The Landlord may examine such other employment or
accounting records of the Tenant as the Landlord deems necessary to determine or
confirm that the Tenant is in fact in compliance with the Employment Standard.
The Landlord will give the Tenant reasonable written notice before an
examination and will conduct the examination during reasonable business hours.
The Tenant consents to a release to the Landlord of records provided to state or
federal agencies or divisions to the extent those records relate to or evidence
the number of employees employed or maintained by the Tenant at the Land. The
Landlord is not and will not be construed or held to be a partner, joint
venturer or associate of the Tenant in the conduct of the business of the
Tenant. The Landlord will not be liable for any debts incurred by the Tenant in
the conduct of the business of the Tenant. The relationship between the Landlord
and the Tenant is, and will remain, solely that of landlord and tenant.
6. Project Participation Agreement. This Lease will serve as a Project
-------------------------------
Participation Agreement as required by Section 5-10-10 NMSA 1978 and by
Section 10 of the Landlord's Economic Development Plan (the "Plan").
A. Economic Development Goals. Section 10(A)(1) of the Plan requires
--------------------------
the lease to clearly state the economic development goals of the project. The
purpose of the project is to provide business and community development
opportunities in the Cibola County area by creating jobs, reducing unemployment
and retaining or re-employing the local labor force. The project is intended to
diversify and expand the local economic base and develop and optimize the
quality of life in the community.
B. Contributions of the Parties. Section 5-10-10(C)(1) NMSA 1978 and
----------------------------
Section 10(A)(2) of the Plan require the Lease to set out the contributions to
be made by each party to the lease. In order to contribute to the success of the
business of the Tenant, the Landlord will lease the Land to the Tenant under
this Lease for the Term. The Tenant will continue to operate the business of the
Tenant as a going concern and will maintain the Employment Standard as provided
in Section 5 of this Lease.
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<PAGE>
C. Performance Objectives. Section 10(A)(3) of the Plan requires the
----------------------
Lease to provide specific measurable objectives upon which the Landlord will
evaluate the performance of the Tenant under the Lease. The Landlord will review
the performance of the Tenant under the Lease based upon the ability of the
Tenant to meet and maintain the Employment Standard as provided in Section 5 of
this Lease as well as upon the ability of the Tenant to meet the project
development schedule as provided in Subsection D below.
D. Project Development Schedule. Section 5-10-10(C)3 NMSA 1978
----------------------------
requires the lease to establish a schedule for project development and
completion, including measurable goals and time limits for those goals. In
addition, Section 10(A)(4) of the Plan requires a schedule for project
development and goal attainment. The Tenant will construct two greenhouses of
approximately 20 acres each as provided on attached Exhibit B, a packing house
---------
between the two greenhouses and various parking and administrative facilities.
As provided in Section 10 of this Lease, the Tenant will start construction on
the first greenhouse on or about June 15, 1998 and will complete construction on
the first greenhouse no later than June 15, 1999. The Tenant will possess,
occupy and start the conduct of the business of the Tenant in the first
greenhouse on or before March 15, 1999. The Tenant will begin construction on
the second greenhouse on or before June 15, 2002, and will complete construction
on the second greenhouse no later than June 15, 2003. The Tenant will possess,
occupy and start the conduct of the business of the Tenant in the second
greenhouse on or before March 15, 2003.
E. Security. Section 5-10-10(C)(2) NMSA 1978 and Section 10(A)(5) of
--------
the Plan require the lease to include the security provided to the Landlord by
the Tenant. In addition, Section 5-10-10(C)(2) requires the Tenant to pledge
the Tenant's financial or material participation and cooperation to guarantee
the performance of the Tenant as provided in the lease. In addition, the Tenant
pledges to cooperate fully with the Landlord and to remain in compliance the
terms of this Lease, including the terms and conditions of the Employment
Standard, at all times. If the Tenant is in Default as defined in Section 16 of
this Lease, the Landlord may take steps the Landlord deems appropriate pursuant
to the rights of the Landlord as provided in this Lease.
F. Performance Review. Section 5-10-10(C)(4) NMSA 1978 requires the
------------------
lease to contain provisions for performance review and actions to be taken upon
a determination that project performance is unsatisfactory. In addition, Section
10(A)(6) of the Plan requires the lease to include the procedure by which a
project may be
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<PAGE>
terminated and the Landlord's investment in the project recovered. The Landlord
will evaluate the performance of the Tenant as provided in this Lease on an
annual basis. If the Landlord determines that the performance of the Tenant as
provided in the Lease is unsatisfactory as evidenced by an Event of Default as
defined in Section 16 of this Lease, the Landlord may take steps the Landlord
deems appropriate pursuant to the rights of the Landlord as provided in this
Lease.
G. Sunset. Section 10(A)(7) of the Plan requires the lease to
------
include the period of time during with the Landlord will retain an interest in
the project. The Landlord will retain an interest in the project and will
continue oversight of the project until the end or any earlier termination of
this Lease.
7. Taxes and Charges.
-----------------
A. The Tenant will pay before delinquency all ad valorem property
taxes and all personal property taxes levied or assessed against the Premises by
any governmental authority (the "Taxes") although the Landlord will not be
liable for the Taxes on the Land. The Tenant will not claim exemption from the
imposition of Taxes on any Buildings (as defined below) because the Landlord
owns the Land. Both parties anticipate that there will be no Taxes imposed on
the Land, but should Taxes be imposed on Tenant's Leasehold Estate, Tenant will
promptly pay the Taxes, but may thereafter contest the imposition of the Taxes
as provided below.
B. The Tenant will pay before delinquency all charges for Water
(subject to the terms of attached Exhibit A-1), electricity, gas, telephone,
------------
sewer, rubbish and garbage removal, cable television and all other charges with
respect to the Premises.
C. The Tenant will furnish to the Landlord, within 30 days before the
date when Taxes become delinquent, official receipts or other evidence from the
taxing authority satisfactory to the Landlord evidencing the payment of the
Taxes.
D. The Tenant may seek a reduction in the tax valuation of the
Premises, and may contest in good faith by appropriate proceedings the amount or
validity of any Taxes (the "Contested Taxes"), and a deferment of payment of the
Taxes, if the Tenant first pays the Contested Taxes.
E. The Landlord will not be required by the Tenant to join in any
action of the Tenant with respect to Taxes. If the provisions of any law, rule
or regulation require that an action proposed by the Tenant be brought by or in
the name of the Landlord as owner of the fee of the Land, or that the owner of
the fee of the Land be joined in the action, the Tenant may request in writing
that the Landlord join in the action or permit the
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<PAGE>
action to be brought in the name of the Landlord, and the Landlord will
cooperate subject to such reasonable conditions as the Landlord might impose to
insure that the protections of the following sentence are satisfied. The
Landlord will not be liable for payment of any costs or expenses with respect to
the action brought by the Tenant, and the Tenant will indemnify, hold harmless
and defend the Landlord from any costs and expenses with respect to the action
including reasonable fees of lawyers and expenses of any action.
8. Use.
---
A. The Premises may be used only for a greenhouse operation (including
construction, handling, sorting, picking, packing and other processing
activities), and associated office and storage space, in compliance with all
Governmental Rules, and for no other purpose (the "Permitted Use").
B. The Tenant will:
(1) conduct the business of the Tenant in the Premises under the
trade name of the Tenant;
(2) not use, or permit the use of any sound broadcasting or
amplifying device which can be heard outside or beyond the Premises;
(3) not use, or permit the use of, any portion of the Premises as
living quarters, sleeping apartments or lodging rooms except as required to
conduct the Permitted Use;
(4) not perform any act or carry on any practice which may damage
the Premises or the Buildings, cause any offensive odors or loud noises, or
constitute a nuisance or a menace;
(5) at all times, continuously and uninterruptedly (i) use, occupy,
and operate the Premises for the Permitted Use, (ii) use any storage and office
space only with respect to the Permitted Use, and (iii) open and keep open the
Premises for operation as a greenhouse with adherence to the Employment
Standard.
(6) not use any portion of the Premises for services except as
customary for the business and operations of the Tenant with respect to the
Permitted Use;
(7) keep the Premises free of pests or vermin by periodic pest
control treatment;
(8) comply with all governmental laws, rules, and regulations
applicable to the Permitted Use and obtain and maintain in force all
governmental permits and licenses necessary for the lawful conduct of the
business of the
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<PAGE>
Tenant.
(9) not suffer, permit or cause any waste to occur within the
Premises, and will not cause or permit any Hazardous Material to be brought
upon, kept or used in or about the Premises, except such as are normally used in
the operation of a greenhouse, and in strict compliance with all laws,
ordinances or regulations. As used in this Lease, the term "Hazardous Material"
is defined as any hazardous or toxic substance, material or waste that is now or
becomes regulated or restricted by any local governmental authority, New Mexico,
or the United States Government. The term "Hazardous Material" includes, without
limitation, any petroleum products or by-products, asbestos (in any form),
chemicals, gases or any other material or substance that upon exposure or
ingestion may reasonably be anticipated to pose a hazard to the health or safety
of the anticipated occupants of, or visitors to the Premises. If the Tenant, in
the normal course of operation of the business of the Tenant in the Premises, as
stated in this Section, is required to use certain substances that may be
considered Hazardous Material as provided in this Lease, the Tenant may, in such
event and despite the foregoing provisions, use the substances in the business
operations of the Tenant provided, however, the Tenant will be solely
responsible for the proper use and disposal of the substances in accordance with
all applicable laws and Tenant will indemnify the Landlord and the Premises with
respect to the use and disposal of the substances (both during and after the
term of this Lease) and will permit the Landlord to conduct inspections of the
Premises at reasonable times to confirm that the Tenant is in compliance with
all laws, ordinances or regulations. A list of Hazardous Materials that the
Tenant proposes to use in the business operations of the Tenant is attached as
Exhibit E.
- ----------
C. The provisions of subparagraph B. of paragraph 8 of this Lease
are a material part of the consideration which induced the Landlord to sign this
Lease with the Tenant.
D. If the Tenant breaches any provision of this paragraph 8 of this
Lease more than once during any calendar year, the Landlord may, instead of
exercising any other remedies available to the Landlord for each breach, give
notice to the Tenant of a breach, and, if the Tenant fails to cure the breach
within 10 days, elect to receive from the Tenant liquidated damages of 500
dollars a day for each calendar day during which a breach occurs and continues.
The failure of the Tenant to operate the Premises in adherence with paragraph 8
of this Lease will cause great harm to the Landlord and the Buildings. To
specify or determine exactly the amount of damages resulting to the
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Landlord and the Buildings from the failure of the Tenant to operate the
Premises as provided in this paragraph of the Lease is difficult. The daily
liquidated damages provided for in this paragraph of the lease is a reasonable
amount and bears a rational relationship to the damages that the Landlord could
suffer. The Landlord also will be entitled to terminate this Lease as provided
in paragraph 16 of this Lease in addition to receiving liquidated damages. The
Tenant will pay the liquidated damages to the Landlord within 5 days of demand
for payment as provided in this Lease, and failure to timely pay the liquidated
damages to the Landlord will constitute a breach of this Lease without further
notice.
9. Maintenance and Repair. The Tenant will maintain the Premises in
----------------------
a clean, orderly, sanitary, and safe condition, in good repair and in compliance
with all Governmental Rules. The standard of repair will be at least equal the
condition of the repaired item immediately before the event which created the
circumstance requiring the repairs to be made. The Tenant will give notice to
the Landlord of any material alterations or additions by the Tenant to the
Buildings. The Tenant will comply with all Governmental Rules enforced from time
to time which require repairs, replacements or alterations to be made to the
Buildings and with respect to any improvements constructed by the Tenant on the
Land.
10. New Construction.
-----------------
A. As set forth in subparagraph 6.D, the Tenant will start
construction of a new building or buildings and other improvements and fixtures
on the Land as provided on attached Exhibit B (collectively, the "Buildings")
---------
and will use the best and diligent good faith continuous efforts of Tenant to
complete the construction, and, upon completion of construction, will possess
and occupy and start the conduct of the business of the Tenant as soon as
reasonably practicable. "Buildings" includes any additions, replacements, and
fixtures that may be later constructed or installed on the Land or the Premises
when the context of this Lease allows. The Buildings will be constructed in a
good and worker-like manner in accordance with (i) all requirements of City and
County ordinances, (ii) all applicable rules, regulations and requirements of
all departments, boards, bureaus, officials and authorities having jurisdiction
of the construction of the Buildings, and (iii) the requirements of the City and
County fire insurance ratings. All necessary permits for the Buildings will be
obtained by the Tenant. The Tenant will deliver to the Landlord for approval by
the Landlord before any construction is started copies of all final plans,
specifications and vertical elevations which will be prepared as if for
architectural
-10-
<PAGE>
review, for the Buildings (the "Plans").
B. The Tenant will not permit any mechanics' lien or other liens
(collectively, the "Liens") to be recorded against the Premises before, during
or after the Term. If Liens are recorded against the Premises, the Tenant will
cause the Liens to be discharged of record by payment, deposit, bond, order of
court, or otherwise, within 30 days after the Tenant has received actual notice
of any Lien which is filed in the records of the County.
C. The Tenant will provide a notice to the Landlord as provided in
paragraph 23 of this Lease (the "Notice") of any construction, grading,
installation, or improvements on the Land (the "Work") no later than 10 days
before the start of the Work. The Tenant will post on the Premises, as provided
by New Mexico law, two "Notices of the Landlord's Non-Responsibility" before
starting any Work (the "Non-Responsibility Notices"), and will maintain the Non-
responsibility Notices on the Premises until all costs of the Work, including
all costs of architectural, surveying, and engineering fees, and all other
liabilities for which Liens could be recorded as provided by the statutes of New
Mexico, are fully paid and satisfied. The Landlord may post the Non-
responsibility Notices if the Tenant fails to post the Non-responsibility
Notices.
D. If Liens are recorded against the Premises and not discharged
within thirty days after the Lien is filed in the County records as provided in
subparagraph B above and the Tenant has received at least 90 days actual notice
of the Liens, the Landlord may pay the Liens after reasonable inquiry as to the
validity of the Liens. Any amounts so paid, including the fees of lawyers and
title companies, expenses and interest, will be additional Rent due from the
Tenant to the Landlord, and will be paid to the Landlord with interest at the
rate of eighteen percent a year within five days after a Notice from the
Landlord to the Tenant of a bill for the amount is given. The Tenant will
indemnify the Landlord against all costs and charges, including lawyer fees,
reasonably incurred in the defense of any action to discharge the Premises from
Liens. The Tenant may contest Liens in good faith, with due diligence, if the
Liens are discharged of record while contests are pending.
E. Before starting the Work, the Tenant will obtain public
liability, builder's risk and other insurance as provided in this Lease, and
will maintain the insurance in full force and effect during the course of
construction.
F. Before starting the Work, the Tenant will obtain and deliver to
the Landlord waivers of lien from any surveyor, architect or engineer that has
performed
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any pre-grading construction or installation Work with respect to the Premises.
G. Ownership of the Buildings (including fixtures) will remain in
the Tenant during the Term or until any earlier termination of this Lease,
subject to the rights of any Leasehold Mortgagee, and the requirements of this
Lease. At the end of the Term or any earlier termination of this Lease, the
Tenant will perform the Departure Obligation, as defined in paragraph 1(C). If,
pursuant to the Departure Obligation, the Tenant elects to assume and perform
the Reclamation Obligation, title to and ownership of all the buildings,
personal property and trade assets will remain the property of the Tenant and
may be removed from the Premises if removed within 180 days after the end of the
Term or earlier termination of this Lease; provided, however, the Tenant will
pay the Landlord $10,000 per month as monetary additional Rent for each month
after the end of the Term or earlier termination of this Lease in which the
property is not removed. If, pursuant to the Departure Obligation, the Tenant
elects to assume and perform the Buildings Transfer Obligation, title and
ownership to the Buildings, including the boilers and piping (including effluent
piping), will automatically vest in the Landlord free and clear of any liens or
encumbrances without signing of any further instrument and without any payment
by the Landlord. The Tenant will, on demand by the Landlord, sign and
acknowledge any further assurance of title and ownership to the Buildings as the
Landlord may request. The Buildings and all personal property and trade assets,
and fixtures will remain subject to the liens provided in this Lease in favor of
the Landlord. As security for the payment and performance of the Rent or other
obligations required to be paid or performed by this Lease by the Tenant, the
Tenant grants to the Landlord a lien upon the Buildings, all personal property
and trade assets of the Tenant now or later located upon the Premises. Subject
to the provisions of Paragraphs 16 and 20, if the Tenant abandons or vacates any
substantial portion of the Premises or is in default of the payment or
performance of the Rent, or other obligations required to be paid or performed
by this Lease, the Landlord may enter upon the Premises, by force if necessary,
and take possession of all or part of the Buildings, personal property and
trade assets, and may sell all or part of the Buildings, personal property and
trade assets at public or private sale, in one or successive sales, with or
without notice, to the highest bidder for cash and on behalf of the Tenant, sell
and convey all or part to the bidder, delivering to the bidder all of the title
and interest of the Tenant in the Buildings, personal property and trade assets
sold to the bidder. The proceeds of the sale will be applied by the Landlord
toward the cost of the sale and then toward the payment of all sums then due by
the Tenant to the Landlord
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as provided in this Lease. The statutory lien of the Landlord for Rent is not
waived. The express contractual lien granted in this Lease is in addition to the
statutory lien. This Lease is intended as, and constitutes a security agreement
within the meaning of the New Mexico Uniform Commercial Code and, the Landlord,
in addition to the rights of the Landlord as provided in this Lease, will have
all of the rights, titles, liens and interests in the property of the Tenant
now or later located upon the Premises that are granted a secured party, as that
term is defined under the New Mexico Uniform Commercial Code, to secure the
payment to the Landlord of the Rent and obligations of the Tenant provided in
this Lease and in compliance with this Lease. Tenant will execute a financing
statement in favor of Landlord. At the request of the Tenant, the Landlord will
subordinate any lien and the rights and remedies of the Landlord to enforce any
such lien granted to the Landlord by law or by this Lease to the first lien of a
Leasehold Mortgage as to the Buildings and to any purchase money lender as to
any personal property and trade assets, subject to the Landlord's right to
reasonably approve the form and substance of any requested subordination.
10. The Tenant will deliver to the Landlord within a reasonable
period of time after the completion of the Work but not over 30 days, an actual
field survey (the "Survey") of the perimeter boundary of the Land and any
related easement property containing a plat or map showing all buildings and
related improvements (if any). The Survey will (i) state that the Survey is
prepared for the Landlord, the Tenant and any title insurer selected by the
Tenant if the Tenant wants to obtain a lessee's policy of title insurance at the
sole cost and expense of the Tenant, (ii) contain a narrative legal description
and the courses and distances legal description of the Land and any related
easement property, (iii) be certified as of a date then current by a land
surveyor licensed in New Mexico acceptable to the Landlord, and (iv) show the
items listed on Exhibit C. Upon the completion of the construction and fixturing
Work of the Tenant of and within the Premises, (1) the Tenant will deliver to
the Landlord a copy of a properly executed certificate of occupancy from all
governmental entities having jurisdiction, (2) furnish the Landlord with a
complete set of reproducible "as-built" drawings, including "as-built" for all
underground utilities and piping (including effluent piping), and (5) copies of
lien waivers from all parties performing labor or supplying equipment and
materials with respect to the Work of the Tenant.
11. Insurance Terms.
----------------
A. The Tenant will provide and maintain during the Term, for
the
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mutual benefit of the Landlord and the Tenant, fire and extended coverage
insurance with respect to the Buildings. The insurance protection will be
against fire and the other risks are covered by the standard form of extended
coverage insurance generally available from time to time in the City (the "Fire
Insurance"). The Fire Insurance will include in the coverage, loss or damage in
aggregate amounts not less than one hundred percent of the full replacement cost
of the Buildings, foundations excluded, and will be underwritten by an insurance
company acceptable to the Landlord. The Tenant will provide and maintain a steam
boiler, air conditioning equipment, pressure vessels or similar apparatus, and
machinery insurance (the "Boiler Insurance"). The Tenant will furnish the
Landlord a certificate of insurance evidencing the Fire Insurance and the Boiler
Insurance (collectively, the "Insurance") coverages and will furnish the
Landlord a copy of all policies of insurance. During the Term, the Landlord will
be entitled to any insurance in an amount sufficient to avoid being a co-
insurer. While the Buildings are under construction, the Insurance will be
carried by the Tenant in builder's risk form, which will be reviewed and
approved by the Landlord. The insurance policy will name the Tenant and the
Landlord as their interests may appear.
B. During the Term, the Tenant will provide and maintain at all
times broad form comprehensive general public liability insurance, and elevator
insurance (if applicable), as appropriate (the "Comprehensive Insurance"), that
names the Landlord as an additional insured, protecting both the Landlord and
the Tenant against claims of all persons, firms and corporations for personal
injury, death and property damage, with minimum limits of liability with respect
to personal injury of five million dollars for each occurrence, one million
dollars for each individual, and, in connection with property damage, a broad
form policy with minimum limits of five hundred thousand dollars for each
occurrence, or higher coverage as may be required by law, to protect the
Landlord from liability as provided in the New Mexico Tort Claims Act, or any
comparable future statute, or otherwise.
C. The Tenant will provide and maintain for the mutual benefit of
the Landlord and the Tenant any other insurance, in amounts required by the
Landlord, in the reasonable discretion of the Landlord and consistent with
ordinary business practices, against any other insurable hazards insured against
with respect to commercial real estate.
D. All policies of insurance obtained by the Tenant as provided in
this Lease (the "Policies") will be obtained from insurance companies qualified
to do business within New Mexico that have an S&P rating of A+ or better (or
comparable
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ratings if S&P ratings are modified or discontinued). If this lease is ever
allowably assigned by the Tenant, any new insurance companies and the Policies
will also be subject to the approval of the Landlord. All Policies will include
a waiver of subrogation by the insurance company. All Policies will provide for
30 days Notice to the Landlord before cancellation. Before the effective date of
this Lease, the Tenant will deliver to the Landlord certificates of insurance
evidencing all required Policies. At least 30 days before the expiration date of
any Policies, the Tenant will deliver to the Landlord, certificates of insurance
evidencing renewal. All Policies will provide that no act or omission by the
Tenant will impair or affect the rights of the Landlord to receive and collect
the Insurance proceeds, and that the coverage provided by the Policies will not
be affected by the performance of any Work in or about the Premises.
E. Nothing in this Lease will prevent the Tenant from acquiring and
maintaining insurance of the kind in the amounts as provided in this paragraph
under a blanket insurance policy or policies (collectively, the "Blanket
Policy") which includes other properties as well as the Premises if the Blanket
Policy (i) will specify in the policy the amount of the total insurance
allocated to the Premises that will not be less than the amounts required by
this Lease, (ii) the amounts specified will be sufficient to prevent any one of
the assureds from becoming a co-insurer, and (iii) the Blanket Policy will
comply as to endorsements and coverage with the terms of this Lease.
F. If the Tenant fails to obtain or fails to maintain any insurance
required by this Lease, the Landlord may procure the insurance and the Tenant
will reimburse the Landlord for all expenses incurred by the Landlord.
G. If any Building is destroyed or damaged in whole or in part by
fire or other casualty (the "Occurrence"), this Lease will continue in full
force and effect and the Rent and other obligations payable or to be performed
by the Tenant as provided in this Lease will not abate or be reduced because of
an Occurrence except as provided in Paragraph 11.H.
(1) Subject to the terms of any Leasehold Mortgage: all
insurance policies with respect to damage to or destruction of the Buildings
will provide that any Insurance proceeds to be paid will be adjusted solely by
the Landlord and the Tenant, as their interests may appear. The net proceeds, if
less than $200,000, will be paid to the Tenant. The net proceeds, if over
$200,000, will be handled as follows, at the option of Tenant:
(a) The proceeds may be paid to and deposited with
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a bank jointly selected by the Landlord, the Tenant, and any Leasehold
Mortgagee, as insurance trustee (the "Insurance Trustee"), that will hold, apply
and make the proceeds available as provided in this Lease; or
(b) The Tenant will furnish a bond or letter of credit for the
benefit of Landlord, in a form satisfactory to Landlord in the amount of the
Insurance proceeds, or such lesser amount as set forth below, and upon receipt
by Landlord of such bond or letter of credit the insurance proceeds will be
released to Tenant. Five days prior to the time that Tenant makes its election
regarding handling of the Insurance proceeds, Tenant will notify Landlord in
writing whether Tenant has elected the Reconstruction Obligation or the
Reclamation Obligation. If Tenant elects the Reconstruction Obligation, Tenant
will proceed to restore the Buildings to at least the reasonable equivalent of
the previous condition of the Buildings. If applicable, either the Insurance
Trustee will make the proceeds available upon completion of and payment for the
Reconstruction or Reclamation Obligation, or, upon satisfactory completion of
and payment for completion of the Reconstruction or Reclamation Obligation, the
bond or letter of credit will be canceled. If Tenant elects the Reclamation
Obligation, then Tenant will, within 30 days thereafter, provide Landlord with
a written plan for completion of the Reclamation Obligation, including a
reasonable engineer's estimate of probable cost. When the Landlord has indicated
in writing that the Landlord approves the reclamation plan and approves the
engineer's estimate of estimated cost, 125% of the probable cost of reclamation
will be retained by the Insurance Trustee from the Insurance proceeds (or the
letter of credit or bond need only be in that amount), and the Tenant will
proceed to complete the Reclamation Obligation within 180 days of the date of
election of the Reclamation Obligation using the Insurance proceeds to do so.
The remainder of the Insurance proceeds may be released to Tenant and any
Leasehold Mortgagee. If the Tenant elects the Reclamation Obligation, provided
all other obligations of Tenant as provided in this Lease are satisfied,
Landlord will have no other claim on the Insurance proceeds, and the Lease will
terminate upon completion of the Reclamation Obligation.
(2) The Tenant will give prompt notice of any Occurrence to the
Landlord if the damage or loss is or may be over $50,000, and the Tenant,
regardless of the dollar amount of an Occurrence, will promptly repair, replace
and rebuild the Buildings to the extent of the value and as nearly as
practicable to the character of the Buildings existing immediately before the
Occurrence. If the Occurrence is over $200,000, as provided in paragraph 11
(G)(1) above, the Tenant will elect either the Reconstruction or
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Reclamation Obligation, and will thereafter proceed as follows:
(a) Before starting any reconstruction or reclamation work (the
"Insurance Work"), Plans will be filed with and approved by all City and other
governmental authorities having jurisdiction of the Insurance Work (the
"Governmental Approvals"), and a fixed fee estimate for all costs of the
Insurance Work will be obtained by the Tenant and furnished to the Landlord.
(b) Before starting any Insurance Work, the Tenant will deliver to
the Landlord a certificate of insurance evidencing a Comprehensive Insurance
policy as provided in this Lease and a Builder's Risk insurance policy covering
the Work.
(c) The Insurance Work will start within 90 days after settlement
is made with the Insurance companies and the Insurance proceeds are paid to the
Insurance Trustee or the Tenant, as provided in this Lease, and the Governmental
Approvals are obtained. The Reconstruction Obligation will be completed within a
reasonable time, free and clear of all liens and encumbrances, except any
Leasehold Mortgage, as provided in the Plans. The Reclamation Obligation will be
completed within 180 days, free and clear of all liens and encumbrances, and the
lien of the Leasehold Mortgagee will be fully released. The Reclamation
Obligation will be completed as provided in the Plans.
(d) At least 10 days before starting the Reclamation or
Reconstruction Obligation, the Tenant will notify the Landlord if increased
Insurance premiums will be charged, and the Tenant will pay the increased
premiums, if any, charged by the Insurance companies carrying Insurance on the
Buildings to cover the additional risk during the course of the Insurance Work.
(e) The Insurance Trustee or the Tenant, as the case may be, will
apply the net proceeds of any Insurance to the payment of the cost of the
reconstruction or reclamation Insurance Work, as the Insurance Work progresses.
If the net proceeds are held by an Insurance Trustee (1) payments will be made
against properly certified vouchers of a competent architect and general
contractor in charge of the Insurance Work that are selected by the Tenant and
(2) the Insurance Trustee will advance out of the Insurance proceeds toward each
payment, to be made by or on behalf of the Tenant, an amount that bears the same
proportion to the payment as the whole amount received by the Insurance Trustee
bears to the total estimated cost of the Insurance Work, except that the
Insurance Trustee will withhold 10 percent from each amount paid until the
Insurance Work is completed, and proof is furnished that no lien or liability
has attached or
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will attach to the Premises with respect to the Insurance Work. If the total
estimated cost of the Insurance Work is over the amount of the net Insurance
proceeds received by the Insurance Trustee, the Insurance Trustee will require
the Tenant, before the Insurance Work is started, to secure the Insurance
Trustee by surety bond, letter of credit or cash deposit equal to the amount of
the excess of the estimated cost over the net Insurance proceeds as security for
the due completion, within a reasonable time, subject to force majeure, of the
Insurance Work, and the cash deposit will be deemed to be part of the net
Insurance proceeds for the purpose of this paragraph. If the Insurance proceeds
exceed the cost of the Insurance Work, the balance remaining after payment of
the cost of the Insurance Work will be paid over and belong to the Tenant.
H. This Lease will not terminate (unless Tenant elects and properly
completes the Reclamation Obligation) or be affected in any manner because of
the Occurrence, or because of the untenantability of the Premises or of the
Buildings, and the Tenant will pay or perform the Rent and all other obligations
as provided in this Lease without abatement or reduction, except that Tenant
will be relieved of the "continuous operation" requirement and of the
requirement to meet the Employment Standard, so long as the Tenant starts and
promptly completes repairs and resumes the business operations of the Tenant as
soon as repairs are complete, but in any event not later than 12 months from the
date the business operations of the Tenant were suspended as the result of an
Occurrence.
12. Condemnation Provisions.
------------------------
A. If title to the whole or substantially all of the Premises is
taken or condemned by any competent authority (save for the City of Grants) for
any public or quasi-public use, at the option of the Tenant to be exercised by
the Tenant giving written notice to the Landlord within 30 days of the taking or
condemnation, this Lease will cease and terminate, all monetary obligations
payable or performable by the Tenant as provided in this Lease will be prorated
as of the date of vesting title in the condemnation proceedings, and the total
award made with respect to the Premises less all expenses incurred with respect
to the condemnation action (the "Net Award"), will be apportioned between the
Landlord and the Tenant as provided in this Lease subject to the rights of any
Leasehold Mortgagee. The amount of the damages to which the Tenant is entitled
will first be used by the Tenant to obtain a complete release of any Leasehold
Mortgage.
B. If title to less than the whole or substantially all of the
Premises is taken or condemned by any competent authority for any public or
quasi-public
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<PAGE>
use, and the portion of the Premises not taken is sufficient for the continued
operation of the Premises as contemplated by this Lease, the Rent and the other
obligations payable and performable by the Tenant as provided in this Lease for
the remainder of the Term will be reasonably reduced by the Landlord, in
Landlord's reasonable discretion.
C. The rights of the Landlord and the Tenant to the Net Award on a
taking or condemnation will be determined as follows and in the following order
of priority:
(1) If a taking, partial, whole or substantially all, as the case
may be, occurs, the Landlord will be entitled to receive that portion of the
award, with interest on the award, representing compensation for the value of
the Land taken, including consequential damage to any part of the Premises not
taken, and damages measured by the difference in value of the Land immediately
before and after the taking. The Land will be considered as vacant unimproved
land, unencumbered by this Lease.
(2) If the whole or any part of the Premises is taken, the balance
of the award after payment of the portion specified in the preceding subsection
to the Landlord will be paid to the Tenant, except that if any Buildings
existing on the Premises are damaged or partially destroyed by a partial taking
of less than the whole or substantially all of the Premises, and this Lease is
not surrendered and terminated by the Tenant as provided in this paragraph, the
Tenant will rebuild, repair or replace the Buildings, (the "Repair") subject to
the following provisions:
(a) If infrastructure site improvements other than Buildings
are taken or damaged, the Tenant will Repair the infrastructure site
improvements within portions of the Premises not taken but needed for the
business of the Tenant.
(b) If the Buildings are damaged or partially destroyed by a
partial taking and the remaining portion of the Buildings can reasonably be
restored as a complete building capable of producing a fair and reasonable
proportionate return, the Tenant will repair, replace or rebuild the Buildings
in a reasonable manner.
(C) If the Buildings are damaged or partially destroyed by a
partial taking, and the Buildings cannot reasonably be Repaired as provided in
this paragraph, the Tenant will demolish the remaining portion of the Buildings
and clear and reclaim the Land. The Tenant will Repair the Buildings with
Buildings of comparable quality and characteristics to the extent that the
remaining portion of the Premises can reasonably accommodate the Buildings.
D. The Tenant will not be required to spend sums in the Repair of
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the Buildings over the sums paid to the Tenant as provided in this paragraph.
E. If the values of the respective interests of the Landlord and
the Tenant are determined as provided in this paragraph in the condemnation
action, the values so determined will be conclusive upon the Landlord and the
Tenant. If the values are not separately determined, the values will be
determined by the Landlord and the Tenant.
F. The Landlord, the Tenant, and any person or entity having an
interest in the award or awards will have the right to participate in any
condemnation action for the purposes of protecting their interests. Each party
so participating will pay its own expenses.
G. If the whole or any part of the Premises is taken or condemned
by any competent authority solely for the temporary use or occupancy of the
authority, this Lease may be terminated by the mutual agreement of Landlord and
Tenant.
13. Assignment or Subletting.
-------------------------
Subject to the Leasehold Mortgage paragraph of this Lease, the
------------------
Tenant will not sell, assign, mortgage, pledge or transfer any interest in this
Lease and will not sublet all or any part of the Premises or permit anyone to
use or occupy the Premises without the prior written approval of the Landlord,
which approval may be unreasonably and arbitrarily delayed, deferred or denied.
14. Indemnity.
---------
A. The Tenant will indemnify and defend the Landlord against any
expense, loss or liability, resulting from:
(1) Liens;
(2) Claims and awards of damage for death, injury or property
damages with respect to the Premises;
(3) Delay by the Tenant in surrendering the Premises,
including claims made by any succeeding tenant because of delay;
(4) Failure of the Tenant to perform any obligation to be
performed by the Tenant as provided in this Lease;
(5) Failure of the Tenant to protect the Landlord and the
Premises against Hazardous Materials as provided in Section 813(9) of this
Lease; and
(6) Actions or demands with respect to any of the foregoing
(the "Indemnities").
However, if Section 56-7-1 NMSA 1978 is applicable to this
Lease, the Indemnities will not extend to liability, claims, damages, losses or
expenses,
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including fees of lawyers, relating to the construction, installation,
alteration, modification, repair, maintenance, servicing, demolition,
excavation, drilling, reworking, grading, paving, clearing, site preparation or
development of any real property or any improvement of any kind on, above or
under real property and arising out of (1) the preparation or approval of maps,
drawings, opinions, reports, surveys, change orders, designs or specifications
by the Landlord, or the agents or employees of the Landlord, or (2) the giving
of or the failure to give direction or instructions by the Landlord, or the
agents or employees of the Landlord, where the giving or failure to give
directions or instructions is the primary cause of bodily injury to persons or
damage to property.
B. The Tenant will reimburse the Landlord on demand for any payment
made by the Landlord to which the Indemnities relate, including the reasonable
lawyer fees and costs incurred by the Landlord in establishing the right of the
Landlord to indemnity as provided in this Lease.
C. The Tenant may contest the validity of, defend, settle and
compromise any matter to which the Indemnities relate.
D. The Landlord may post on the Premises at any time any reasonable
notices to protect the rights of the Landlord.
15. End of Term.
-----------
A. At the end of the Term, if Tenant is not then in default, the
Tenant will assume the Departure Obligation as defined in paragraph 1(C), and
will elect either the Building Transfer Obligation or the Reclamation
Obligation, and will promptly start to perform the obligation elected.
B. If the Tenant holds over beyond the end of the Term, the Tenant
will be a tenant-at-will at an annual Rent of $120,000, payable in twelve equal
monthly payments, and will vacate the Premises on demand of the Landlord or be
deemed to be in forcible detainer of the Premises.
16. Default of Tenant; Remedies of Landlord.
---------------------------------------
A. The Tenant will be in default on the happening of any of the
following (the "Default of Tenant"):
(1) The failure of the Tenant to make timely payment of any
monetary obligations of the Tenant payable to the Landlord as provided in this
Lease within 30 days after Notice from the Landlord is given to the Tenant.
(2) The failure of the Tenant to perform within 30 days after
Notice from the Landlord is given to the Tenant with respect to any other
obligation of
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the Tenant as provided in this Lease that can be performed within the 30-day
period.
(3) The failure of the Tenant to start, within 30 days after
Notice from the Landlord, to perform any other obligation of the Tenant as
provided in this Lease that by the nature of this lease cannot be performed
within 30 days, and to complete correcting the failure to perform without
interruption and with diligence, such that the default will be fully cured
within ninety days.
(4) Failure to meet the Employment Standard for a period of
more than 45 days after written notice has been given to Tenant by Landlord.
However, Tenant shall have a period of 45 days in which to reestablish
compliance with the Employment Standard in which event the default shall be
cured and the Lease shall remain in full force and effect, provided, however,
that the benefit of such notice and cure period shall not apply more often than
once in any two year period.
B. On the Default of Tenant, subject to the Leasehold Mortgage
------------------
paragraph of this Lease, the Landlord will have all cumulative remedies
available to the Landlord at law or equity in New Mexico for the breach or
default of this Lease by the Tenant, including, without limitation, termination
of this Lease, retaking possession of the Premises with or without termination
of this Lease, and proceeding to recover any damages, including any unpaid
monetary obligations of the Tenant payable to the Landlord, or the value of any
unperformed obligations of the Tenant to be performed by the Tenant as provided
in this Lease.
17. Default of Landlord; Remedies of Tenant.
---------------------------------------
A. The Tenant will look solely to the estate of the Landlord in
the Land for the collection of any judgment or order requiring payment of money
by the Landlord if the Landlord defaults in or breaches this Lease; no other
assets of the Landlord will be subject to levy, execution or other judicial
process for the satisfaction of any claim of the Tenant; and the Landlord will
not be liable for any default or breach or for any indirect, special or
consequential damages except to the extent of the estate of the Landlord in the
Land.
B. If this Lease provides that the exercise of any right by
the Tenant or the performance of any obligations of the Tenant is subject to the
prior written consent of the Landlord and that the consent of the Landlord will
not be unreasonably withheld or delayed, then in any case in which the Landlord
withholds or delays the consent of the Landlord, the determination and action by
the Landlord will be final and conclusive upon the Tenant unless, however,
within 30 days after notice from the Landlord
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of the determination of the Landlord, the Tenant files an action for declaratory
judgment or equitable relief in the appropriate court in Cibola County, New
Mexico, seeking declaratory or injunctive relief from the determination of the
Landlord, which declaratory or injunctive relief will be the sole remedy of the
Tenant for any withholding or delaying of consent by the Landlord. If any action
for declaratory or injunctive relief is filed by the Tenant as provided in this
Section, the sole issue will be the determination if the withholding or delaying
of consent by the Landlord was reasonable or unreasonable, and if a
determination is made that the withholding or delaying of consent by the
Landlord was unreasonable, then the decision will annul the withholding or
delaying of consent, the annulment being the sole remedy of the Tenant, the
Tenant and the Landlord intending (as to which the Tenant and the Landlord are
conclusively bound) no withholding or delaying of consent by the Landlord, or
any decision of any court with respect to the consent (i) will not impose any
financial liability upon or result in any damages being recoverable from the
Landlord; or (ii) create any right cognizable or remedy enforceable in favor of
the Tenant and against the Landlord in law or equity or under any special
statutory proceeding or at all (except as provided in this Section).
C. The obligations of the Landlord as provided in this Lease will
be deemed covenants, not conditions. The Landlord will not be in default as
provided in this Lease until the Landlord has failed to start performance within
30 days, or such additional time as is reasonably required, to correct the
default, after delivery of Notice by the Tenant to the Landlord specifying the
failure of the Landlord to perform any obligation as provided in this Lease.
D. The Tenant expressly waives any right to a trial by jury in any
action to enforce or defend any rights as provided in this Lease or as provided
in any amendment, instrument, document or agreement delivered, or later
delivered with respect to this Lease or arising from any landlord and tenant
relationship existing between the Landlord and the Tenant with respect to this
Lease. The Tenant agrees that any such action will be tried before a court of
competent jurisdiction and not before a jury.
18. Right to Charge.
---------------
If the Tenant fails to pay or perform any obligation to be paid or
performed by the Tenant as provided in this Lease with respect to ad valorem
property taxes or to any other obligation non-payment or non-performance of
which could give rise to a Lien against the Land, the Landlord may make the
payment or perform the obligation, and the Tenant on demand will pay the
Landlord as additional Rent the amount reasonably
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paid, or the reasonable cost of the performance, plus interest at the rate of
eighteen percent a year from the date of the payment or performance of the
Landlord, and reasonable fees of lawyers.
19. Development Cooperation.
-----------------------
The Landlord and Tenant will grant to public entities or public
service or utility corporations, for the purpose of serving the Premises and
adjacent real property owned, leased or otherwise controlled by the Tenant,
reasonable rights-of-way or easements on, under or over the Premises consistent
with ordinary business practices for vehicular access, for telephone,
electricity, water, sanitary or storm sewers and other utilities and municipal
or special district services.
20. Leasehold Mortgages.
--------------------
A. Leasehold Mortgages Authorized. The Tenant may mortgage the
------------------------------
Leasehold Estate to one Leasehold Mortgagee or to a syndicate of Leasehold
Mortgagees, provided the loan is serviced by a single entity. All of the rights
of the Landlord reserved or granted in this Lease will be subject to the rights
of any such Leasehold Mortgage as provided below.
B. Notice to Landlord.
-------------------
The Tenant will provide notice to the Landlord of any Leasehold
Mortgage, and will provide a copy of the Leasehold Mortgage, any changes with
respect the Leasehold Mortgage during the term of the Leasehold Mortgage, and
the name, telephone and fax numbers and mailing and surface address of the
Leasehold Mortgagee.
C. Consent of Leasehold Mortgagee Required. No cancellation,
-----------------------------------------
surrender or modification of this Lease will be effective as to any Leasehold
Mortgagee unless first approved in writing by the Leasehold Mortgagee.
D. Default Notice. The Landlord, on providing the Tenant the
--------------
Notice of (i) Default of Tenant as provided in this Lease, or (ii) any act or
omission of the Tenant on which the Landlord may claim a default, will provide a
copy of the Notice to any Leasehold Mortgagee. If, because of the Default of
Tenant, the Landlord elects to terminate this Lease, the Notice of the Landlord
to the Tenant will include the date on which the Landlord intends to terminate
this Lease. No Notice by the Landlord to the Tenant will be deemed to have been
given unless a copy of the Notice has been given to the Leasehold Mortgagee.
When the Notice has been given to a Leasehold Mortgagee, the Leasehold Mortgagee
will have 20 days to remedy any Default of Tenant or acts or omissions provided
for in the Notice, and in each instance the additional periods of time
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provided for in this Leasehold Mortgages paragraph of this Lease (the "Grace
--------------------
Period"), to remedy, start remedying, or cause to be remedied the Defaults of
Tenant or acts or omissions provided for in the Notice. The Landlord will accept
performance by a Leasehold Mortgagee as if the performance were done by the
Tenant. The Landlord will not terminate this Lease if during the Grace Period
the Leasehold Mortgagee:
(1) Gives Notice to the Landlord of the desire of the Leasehold
Mortgagee to pay and perform, and does in fact pay and perform before the end of
the Grace Period, all the Rent (including the Employment Standard) and the other
obligations of the Tenant payable to the Landlord as provided in the Notice of
default and which may become due during the Grace Period, and
(2) using the diligent best efforts of the Leasehold Mortgagee,
complies in good faith with reasonable diligence all other obligations of the
Tenant as provided in this Lease.
E. Procedure on Default.
---------------------
(1) If despite payment and performance of the Leasehold Mortgagee
as provided in the preceding subparagraph, the Landlord elects to terminate this
Lease by reason of the Default of Tenant, the specified date for the termination
of this Lease as fixed by the Landlord in the Notice of Default of Tenant will
be extended for a period of 90 days (the "Additional Grace Period") if the
Leasehold Mortgagee during the 90-day period:
(a) Pays and performs the Rent, including the Employment
Standard, and any other obligations of the Tenant payable to the Landlord as
provided in this Lease as the Rent and other obligations become due, and
continues the diligent good faith best efforts of the Leasehold Mortgagee to
perform all of the other obligations of the Tenant as provided in this Lease;
and
(b) If not enjoined or stayed, takes steps to acquire or sell
the Leasehold Estate by foreclosure of the Leasehold Mortgage or other
appropriate means and prosecutes the foreclosure to completion with due
diligence.
(2) If, at the end of the Additional Grace Period, the Leasehold
Mortgagee is complying with this Leasehold Mortgages paragraph of this Lease,
-------------------
this Lease will not then terminate and the time for completion by the Leasehold
Mortgagee of the foreclosure proceedings of the Leasehold Mortgagee will
continue so long as the Leasehold Mortgagee is enjoined or stayed and later
for so long as the Leasehold Mortgagee proceeds to complete steps to acquire or
sell the Leasehold Estate by
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foreclosure of the Leasehold Mortgage or by other appropriate means with
reasonable diligence and continuity. If the Default of Tenant is cured and the
Leasehold Mortgagee discontinues the foreclosure action, this Lease will
continue in full force and effect as if the Tenant had not defaulted.
(3) If a Leasehold Mortgagee is complying with this Leasehold
---------
Mortgages paragraph of this Lease, on acquisition of the Leasehold Estate by the
- ---------
Leasehold Mortgagee or any other acquirer, this Lease will continue in full
force and effect as if the Tenant had not defaulted, subject to the reasonable
prior approval by Landlord of the acquirer.
(4) For the purpose of this Leasehold Mortgages paragraph of this
-------------------
Lease, any acquirer of the Leasehold Estate will be deemed to have agreed to
perform all of the obligations of the Tenant to be performed as provided in this
Lease only for so long as the acquirer is the owner of the Leasehold Estate. If
the Buildings have been or become materially damaged on, before or after the
date of the purchase and assignment of the Leasehold Mortgage, the Leasehold
Mortgagee or the acquirer will be obligated to Repair the Buildings only to the
extent of the net insurance proceeds received by the Leasehold Mortgagee or the
acquirer by reason of the damage. The Landlord will have the right to reasonably
approve any acquirer of the Leasehold Estate other than the Landlord, and the
Landlord will have reasonable discretion with respect to the decision to approve
or not approve such an acquirer of the Leasehold Estate. In exercising such
reasonable discretion of the Landlord, the Landlord may take the ability of the
acquirer of the Leasehold Estate to pay and perform the Rent, including the
Employment Standard, in consideration.
F. Substitute Lease. If the Landlord terminates this Lease because
----------------
of a Default of Tenant, the Landlord will, in addition to providing the notices
of default and termination as required by this Leasehold Mortgages paragraph
-------------------
of this Lease, provide the Leasehold Mortgagee with (i) a Notice that the Lease
has been terminated (ii) a statement of all sums which would at that time be due
as provided in this Lease except for the termination, and (iii) a statement of
all other defaults, if any, known to the Landlord. The Landlord will enter into
a Substitute Lease (the "Substitute Lease") of the Premises with the Leasehold
Mortgagee for the remainder of the Term, effective as of the date of termination
of this Lease, at the Rent (including the Employment Standard) and the other
obligations of the Tenant payable and performable to the Landlord and on the
terms of this Lease, if the Landlord approves the acquirer of the Leasehold
Estate as provided in this
-26-
<PAGE>
Lease, and:
(1) The Leasehold Mortgagee gives a Notice to the Landlord
requesting the Substitute Lease within 30 days after the date the Leasehold
Mortgagee receives the termination Notice from the Landlord; and
(2) The Leasehold Mortgagee pays to the Landlord at the time of
the signing and delivery of the Substitute Lease any and all sums which would be
due but for the termination; and
(3) The Leasehold Mortgagee agrees to remedy any of the Default of
Tenant of which the Leasehold Mortgagee was notified by the termination Notice
of the Landlord and which are reasonably susceptible of being so cured by the
Leasehold Mortgagee.
The new tenant as provided in the Substitute Lease will have the
same right, title and interest in and to that portion of the Premises subject to
the Substitute Lease as the Tenant had. The new tenant as provided in the
Substitute Lease will be liable to perform the obligations imposed on the new
tenant by the Substitute Lease (including the Employment Standard) only during
the period the new tenant has ownership of the Leasehold Estate.
G. Legal Actions. The Landlord will give the Leasehold Mortgagee
-------------
prompt Notice of any legal action between the Landlord and the Tenant
or between the Landlord, the Tenant and any condemning authority involving
obligations as provided in this Lease. The Leasehold Mortgagee will have the
right to intervene in the action and become a party to the action, and the
Landlord and the Tenant will approve the intervention. If the Leasehold
Mortgagee elects not to intervene or become a party to the action, the Landlord
will give the Leasehold Mortgagee or other acquirer Notice of, and a copy of,
any award or decision made in the action.
H. Future Amendments. If any Leasehold Mortgagee to which the Tenant
-----------------
proposes to make a Leasehold Mortgage on the Leasehold Estate requires as a
condition to making any loan secured by the Leasehold Mortgage that the Landlord
agree to amendments of this Lease, the Landlord will enter into an agreement
with the Tenant in recordable form making the amendments that are requested by
the Leasehold Mortgagee only if the changes are reasonable in the sole and
absolute discretion of the Landlord. However, the Landlord will not be required
to make any agreement that changes the Premises; decreases the Rent (including
the Employment Standard or other obligations of the Tenant payable or
performable to the Landlord as provided in this Lease; enlarges the
-27-
<PAGE>
Term; requires spending funds by the Landlord which the Landlord is not
obligated to spend as provided in this Lease; or in any way enlarges the
obligations of the Landlord as provided in this Lease. The foregoing enumeration
is not intended as a limitation on the right of the Landlord to refuse to
consent to an amendment if the Landlord acts reasonably. All expenses incurred
by the Landlord with respect to any amendment will be paid by the Tenant or
reimbursed by the Tenant to the Landlord.
I. Estoppel Certificate. The Landlord will, without charge, at
--------------------
any time after the date of this Lease, but not more frequently than twice in any
12-month period, within 30 days after Notice of a written request from the
Tenant to the Landlord, certify as to the status of the Lease and consent to the
assignment by the Tenant of this Lease as additional collateral for the benefit
of any Leasehold Mortgagee.
21. Bankruptcy; Insolvency. The Tenant will be deemed to be in
----------------------
default as provided in this Lease (without the Landlord giving any notice
declaring the default), if all or substantially all of the assets of the Tenant
are placed in the hands of a receiver or trustee, or if the Tenant files a
voluntary petition in bankruptcy, makes an assignment for the benefit of
creditors, admits in writing that the Tenant cannot pay the debts of the Tenant
as the debts become due, or is finally adjudicated a bankrupt, or if the Tenant
petitions or institutes any proceedings under the United States Bankruptcy Code
or under any other similar law.
If a receiver, trustee or debtor-in-possession seeks to assume this
Lease under the provisions of the Code or under some similar bankruptcy or
insolvency statute, then this Lease or any interest in and to the Premises will
not become an asset in any of the proceedings, will not be assumed and will not
be assignable by the receiver, trustee or debtor-in-possession, unless the
receiver, trustee or debtor-in-possession, within the time provided under the
Code or statute cures all outstanding defaults and gives adequate assurances of
future performance, including without limitation, assurances with respect to the
payment and performance of the Rent (including the Employment Standard) and the
other obligations of the Tenant as provided in this Lease, including the use and
operation provisions of this Lease. In any such event as provided in this Lease
in which the cures are not made or the adequate assurances are not given within
the time provided, this Lease will be deemed rejected and the Landlord may, in
addition to any and all rights or remedies of the Landlord as provided in this
Lease or at law, but subject to the rights of any Leasehold Mortgagee, reenter
the Premises and take possession of the Premises and remove all persons and
contents from the Premises and neither the Tenant, nor any
-28-
<PAGE>
guarantor of this Lease, nor any such receiver, trustee, debtor-in-possession,
committee of creditors or other legal entity created by such bankruptcy laws
will have further claim as provided in this Lease or any further interest in the
Premises.
As used in this Lease, the phrase "adequate assurances" means clear
and convincing evidence that the Tenant obligations as provided in this Lease
and as provided in the Code are likely to be timely performed during the entire
remaining balance of the term of this Lease and the person or entity which is to
render the performance has demonstrated to the satisfaction of the Landlord
substantial experience (for the use permitted in this Lease), has specifically
assumed the obligations of the Tenant as provided in this Lease, and is
contractually bound directly to the Landlord, taking into consideration that
full performance of the Lease, including continued satisfaction of the
Employment Standard, was a material inducement for the Landlord to enter into
this Lease.
22. Recording; Documents Affecting Title and Interest. The Tenant will
-------------------------------------------------
not do any act which may encumber the interest or title of the Landlord in and
to the Land.
23. General Provisions. For the purpose of this Lease:
------------------
A. Use of "Will or May". "Will" is a mandatory word denoting an
--------------------
obligation to pay or perform. "May" is a permissive word denoting an option.
B. Expense. Any action, either required or optional, taken by
-------
either the Landlord or the Tenant as provided in this Lease, is taken at the
expense of the actor unless otherwise specifically provided in this Lease. If
the Tenant requests anything of the Landlord that requires preparation of, or
review of, documents by the lawyers of the Landlord and if the Landlord accedes
to such request, the Tenant will reimburse the Landlord on demand any reasonable
legal fees and expenses incurred by the Landlord incident to the preparation or
review as additional Rent as provided in this Lease.
C. Approval. Except with respect to the Assignment and Subletting
-------- -------------------------
section of this Lease, the response to any request for approval as provided in
this Lease will not be unreasonably or arbitrarily withheld, delayed or
deferred.
D. Computation of Time. In computing any period of time by days
-------------------
as provided in this Lease, the date of the act, event or default from which the
designated period of time starts to run will not be included. The last day of
the period so computed will be included unless the day is a Saturday, Sunday or
a New Mexico or federal legal holiday, in which event the period will run until
the end of the next regular business day which is not a Saturday, Sunday or a
New Mexico or federal legal holiday.
E. Notices. All notices, requests, demands, waivers and other
-------
-29-
<PAGE>
communications given as provided in this Lease will be in writing, and, unless
otherwise specifically provided in this Lease, will be deemed to have been given
(i) if delivered in person, upon delivery, or (ii) if mailed by certified or
registered mail, postage prepaid, and addressed to the Landlord or the Tenant at
the addresses provided below on the second business day after deposit in the
United States mail if addressed to an address located within the same state in
which the notice is being mailed or on the third business day after deposit in
the United States mail if addressed to an address located within a state other
than the state in which the notice is being mailed, or (iii) if sent by
overnight express delivery service, enclosed in a prepaid envelope and addressed
to the Landlord or the Tenant at the addresses provided below, on the first
business day after deposit with the service, or (iv) if sent by tested telex,
telegram, telecopy or other form of rapid transmission confirmed by mailing (as
provided in this paragraph), at substantially the same time as the rapid
transmission. Either the Landlord or the Tenant may change their respective
address as provided in this paragraph by giving written notice of the change to
the other (the "Notice") as provided in this paragraph. The addresses for notice
are:
(1) Notice to Landlord:
------------------
City of Grants
P. O. Box 879
Grants, New Mexico 87020
Fax: (505) 287-7502
Attention: City Manager
With copy to:
Sutin, Thayer & Browne
A Professional Corporation
Two Park Square, Suite 1000
6565 Americas Parkway, N.E.
Albuquerque, New Mexico 87110
P. O. Box 1945
Albuquerque, New Mexico 87103
Attention: Gail Gottlieb, Esq.
(2) Notice to Tenant:
-----------------
Colorado Greenhouse, Inc.
6811 Weld County Road #31
Fort Lupton, Colorado 80621
Fax: (303) 857-4049
-30-
<PAGE>
Attention: James R. Rinella, Chief Executive Officer
With copies to:
Holme Roberts & Owen LLP
1401 Pearl Street, Suite 400
Boulder, Colorado 80302
Attention: William R. Roberts, Esq
F. Waiver; Remedies. No waiver of any default as provided in this
----------------
Lease or delay or omission in exercising any right or power of the Landlord or
the Tenant will be considered a waiver of any other default as provided in this
Lease. No exercise or failure to exercise any right or power of the Landlord or
the Tenant as provided in this Lease will be considered to exhaust that right or
power. The exercise of or failure to exercise any one of the rights and remedies
of the Landlord or the Tenant as provided in this Lease will not be deemed to be
instead of, or a waiver of, any other right or remedy as provided in this Lease.
The Tenant may waive any of the terms or conditions precedent to the obligations
of the Tenant as provided in this Lease. Failure on the part of the Landlord to
complain of any action or nonaction on the part of the Tenant, no matter how
long the action or nonaction on the part of the Tenant may continue, will not be
deemed to be a waiver by the Landlord of any of the rights of the Landlord as
provided in this Lease. Further, no waiver at any time of any of the terms of
this Lease by the Landlord will be construed as a waiver of any of the other
terms of this Lease and a waiver at any time of any of the terms of this Lease
will not be construed as a waiver at any later time of the same provisions. The
consent by the Landlord to or of any action by the Tenant requiring the consent
of the Landlord will not be deemed to waive or render unnecessary consent of the
Landlord to or of any later similar act by the Tenant.
G. Time of Essence. Time is of the essence in the performance
---------------
of all the terms of this Lease.
H. Binding Effect. This Lease is binding upon, and inures to the
--------------
benefit of, the Landlord or the successors, successors-in-interest, assigns,
transferees and nominees of Landlord and the Tenant and the successors,
successors-in-interest, assigns, transferees, and nominees of the Tenant.
I. Entire Agreement. Subject to the terms of attached Exhibit A-1,
---------------- -----------
this Lease constitutes the entire agreement of the Landlord and the Tenant and
supersedes all previous agreements, written or oral, between the Landlord and
the Tenant. No statement, promise, or inducement made by the Landlord or the
Tenant, or the agent of
-31-
<PAGE>
the Landlord or the Tenant, either written or oral, which is not provided in
this Lease, is binding upon the Landlord or the Tenant.
J. Headings and Use of Terms. The section and paragraph
-------------------------
headings to this Lease are for convenience and reference only. The words as
provided in the section and paragraph headings will not be held to explain,
modify, amplify or aid in the interpretation, construction or meaning of the
terms of this Lease. Terms defined in this Lease have the meaning, designation,
and significance ascribed to the terms defined in this Lease.
K. Partial Invalidity. If any term of this Lease, or the
------------------
application of the term to any person or circumstance is, to any extent, invalid
or unenforceable, the remainder of this Lease, or the application of the term to
persons or circumstances other than those as to which the term is held invalid
or unenforceable, will not be affected by the application, and each term of this
Lease will be valid and be enforced to the fullest extent permitted by law.
L. Paragraphs, Articles and Exhibits. All references in this
---------------------------------
Lease to paragraphs, subparagraphs and exhibits will, unless otherwise
indicated, be references to paragraphs, subparagraphs and exhibits to this
Lease.
M. Further Assurances. The Landlord and the Tenant will, without
------------------
additional consideration, sign, acknowledge, and deliver any other documents and
take any other action necessary or appropriate and reasonably requested by the
other to carry out the intent and purpose of this Lease.
N. Governing Law. The validity, meaning and effect of this Lease
-------------
will be determined as provided by the laws of New Mexico applicable to leases
made and to be performed in New Mexico.
0. Survival. The obligation of the Tenant to pay and perform any
--------
and all Rent and obligations owing by the Tenant to the Landlord as provided in
this Lease will survive the end or termination of this Lease.
P. Construction. Despite any term to the contrary in this
------------
Lease, this Lease may be modified, amended, discharged, changed or waived only
in writing, signed by the party against which enforcement of the modification,
amendment, discharge, change or waiver is sought. This sentence is intended by
the Landlord and the Tenant to override the holding of Medina v. Sunstate
------------------
Realty, Inc., 119 N.M. 136, 889 P.2d 171 (1995), that a contract may be modified
- -------------
by express or implied agreement of the parties to the contract as shown by the
words or conduct of the parties, even when the contract
-32-
<PAGE>
itself specifies that all modification to the contract must be in writing. This
sentence is intended by the Landlord and the Tenant to incorporate the holding
in Board of Education, Gadsden Independent School District No. 16 v. James
- --------------------------------------------------------------------------
Hamilton Construction CO., 119 N.M. 415, 890 P.2D 807 (CT. APP. 1994) and Chavez
- ------------------------- ------
v. Manville Products Corp., 108 N.M. 643, 777 P.2d 371 (1989), that where the
- --------------------------
contract requires that any modification be in writing, oral modifications are
ineffectual. Neither the Landlord nor the Tenant will ever assert or claim in
any action or arbitration with respect to this Lease that any term of this Lease
was modified in any respect, including by a "course of conduct," "course of
dealing" or by a "waiver or estoppel," except by a written amendment of this
Lease signed by the Landlord and the Tenant. Further, the language used in this
Lease will be construed according to the fair and usual meaning of the language,
and will not be' strictly construed for or against the Landlord or the Tenant.
The Landlord and the Tenant intend that the language used in this Lease means
what the language says. If a matter is specifically covered by the written terms
of this Lease, no agreement with respect to the matter will be implied on the
theory of good faith or fair dealing or any other theory.
Further, the Landlord and the Tenant intend that the rights and
remedies provided in the Lease are plain, adequate and complete and, in any
action or arbitration with respect to this Lease, no need exists for any court
or board of arbitrators to impose equitable solutions, such as judicially
imposed accountings, to meet any problem presented.
The Landlord and the Tenant have each been represented by capable
and competent counsel with respect to this Lease and no great disparity exists
in the bargaining power of the Landlord and the Tenant.
The Landlord and the Tenant also each recognize that the Lease
creates both property rights and contract rights within a sophisticated
commercial setting and that the relationship of the Landlord and the Tenant does
not create fiduciary duties or responsibilities as between the Landlord and the
Tenant.
Q. Attorneys' Fees. If the Landlord or the Tenant is required to
---------------
initiate or defend litigation or other legal action in any way with respect
to this Lease, the prevailing party in the litigation or action, in addition to
any other relief that may be granted, whether legal or equitable, will be
entitled to reasonable attorneys' fees. Attorneys' fees will include attorneys'
fees on any appeal, and, in addition, a party entitled to attorneys' fees will
also be reimbursed for all other reasonable costs for investigating the action,
taking depositions, conducting other discovery, travel, and all other necessary
costs
-33-
<PAGE>
incurred in the litigation. All fees due as provided in this Lease will be paid
whether or not the litigation is prosecuted to judgment.
DATED: May 14, 1998.
LANDLORD: TENANT:
- -------- ------
CITY OF GRANTS, COLORADO GREENHOUSE, INC.,
a municipal corporation a Delaware corporation
By [SIGNATURE ILLEGIBLE] By /s/ James R. Rinella
--------------------- -----------------------------
---------------- James R. Rinella
Its Mayor Its Chief Executive Officer
STATE OF NEW MEXICO
COUNTY OF CIBOLA
This instrument was acknowledged before me on May 15 , 1998, by
------------
Bill Snodgrass , Mayor of City of Grants, a municipal corporation, on
- --------------------
behalf of the City.
Peggy J. Jordan
-------------------------------
Notary Public
My commission expires:
4/21/2000
- -------------------------
-34-
<PAGE>
STATE OF NEW MEXICO
COUNTY OF CIBOLA
This instrument was acknowledged before me on May 15, 1998, by James R.
------
Rinella, Chief Executive Officer of Colorado Greenhouse, Inc., a Delaware
corporation, on behalf of the corporation.
Peggy J. Jordan
-----------------------------
Notary Public
My commission expires:
4/21/2000
- ---------------------------
40017
-35-
<PAGE>
THE LAND
--------
(To be Attached)
BOUNDARY SURVEY PLAT
- -------------------- 70.0000 ACRES, NW1/4
SEC. 32, T.11N., R.9W.
N.M.P.M.
City of Grants
Cibola County, NM
[MAP OUTLINING PLAT OF
PROPERTY APPEARS HERE]
Note; Basis of Bearings is a Property/
---- Ownership Plat furnished by City of
Grants, prepared by Forsgren
Associates/P.A., Phoenix, AZ (Project
No. 5-90-060, Sheet No. G-4), and a
survey by John W. Millar, NM LS
No. 9286, dated Jan. 23, 1991.
* Corners set this survey 1/2" rebars,
caps No. 6262
DESCRIPTION
A tract of land situated within the northwest quarter of Section 32,
T.11N., R.9W., N.M.P.M., in the City of Grants, Cibola County, New Mexico, and
being more particularly described as follows:
Beginning at the northeast corner of said tract, from which point the
North 1/4 Corner of said Section 32 bears N 79 (DEGREES) 02'21" W, and is 329.25
feet distant;
Thence S 01 (DEGREES) 02' W, 1834.43 feet;
Thence S 89 (DEGREES) 42' 26" W, 1660.54 feet;
Thence N 01 (DEGREES) 02' E, 581.61 feet to a point on the West line of
said tract;
Thence N 01 (DEGREES) 00' 12" E, 1254.00 feet to the northwest corner of
said tract;
Thence N 89 (DEGREES) 45' 09" E, 1338.00 feet along the South right of
way line a 60.00-foot road (Camino de Coyote) to a point on the North line of
said tract;
Thence S 89 (DEGREES) 12' E, 323.25 feet along said North line to the
place of beginning, and containing 70.0000 Acres, more or less.
I William R. Runyan, certify that I conducted and am responsible for
this survey, that this survey and plat are true and correct to the best of my
knowledge and belief, and that this survey and plat meet the Minimum Standards
for Surveying in New Mexico.
/s/ WILLIAM R. RUNYAN
[SEAL OF WILLIAM R. RUNYAN --------------------------------------
NEW MEXICO REGISTERED LAND William R. Runyan, R.L.S. No. 6262
SURVEYOR APPEARS HERE] dba Runyan Surveying, P.O. Box 509
Grants, NM 87020 (505) 287/3960
Date of Survey: April 23, 1998
Owner(s): City of Grants, P.O.
Box 879, Grants, NM 87020
<PAGE>
WATER AND WASTEWATER PROVISIONS
-------------------------------
May __, 1998
Mr. Bob Clark
Colorado Greenhouse, Inc.
6811 Weld County Road 31
Fort Lupton, CO 80621
City of Grants
--------------
Dear Mr. Clark:
The City of Grants, New Mexico and Colorado Greenhouse, Inc. entered into a
Lease and Project Participation Agreement (the "Lease") on __________ , 1998.
The Lease requires the Company to operate two greenhouses and related facilities
for a period of 60 years. This letter notifies you of the manner in which the
City can now furnish its water and wastewater treatment to the Company for use
by the Company in its greenhouse facilities. Water and wastewater treatment will
be furnished pursuant to City ordinances and policies on water and wastewater,
as those ordinances and policies may be modified from time to time.
The City currently owns and operates its water and wastewater systems. As long
as the City continues to own and operate its water, the City will provide water
(as opposed to wastewater) services to the Company at the same rates and on the
same terms generally made available to industrial water users under City
ordinance. We understand that the Company will not require in excess of 360 acre
feet of water per year. Because the greenhouses will discharge a high volume of
relatively clean wastewater from its greenhouse operation, the City does not
expect that the Company's wastewater use will be comparable to that of an
average commercial wastewater system user. The City anticipates that substantial
amounts of the wastewater will be able to be discharged directly to the Coyote
del Mal Pais Golf Course without treatment, for reuse as golf course irrigation.
The City will provide separate meters for domestic and greenhouse uses. The City
will only bill Colorado Greenhouse for sewage treatment on the amount of water
utilized for domestic purposes, as long as the City continues to own and operate
its own wastewater system and the Coyote del Mal Pais Golf Course.
EXHIBIT A-1
-----------
Page -1- of 2
<PAGE>
The provisions of the City's water and wastewater ordinances will need to be
complied with by the Company, including prompt payment of all fees and charges
associated with the connection and use of the City's water and wastewater
systems.
If the City elects to sell its water and wastewater utilities (which is not
currently contemplated) or the Coyote del Mal Pais Golf Course (also not
currently contemplated), the City would be willing to work with the purchaser in
good faith in an effort to enable Colorado Greenhouse to continue to receive
water and wastewater services on the same basis as users in the same
classification.
Please indicate your acknowledgment by signing this letter in the space below
and returning a copy to us.
Sincerely,
CITY OF GRANTS
By_____________________
Its City Manager
The terms and conditions described
above are acknowledged by:
COLORADO GREENHOUSE, INC.
By_____________________
Its
EXHIBIT A-1
-----------
Page -2- of 2
<PAGE>
PERMITTED ENCUMBRANCES
----------------------
1. Reservations as shown in Patent for State Land recorded in Miscellaneous
Book 1, Pages 7838-7839, records of Cibola County, New Mexico.
2. Easement dated August 11, 1953, given by E. S. Walker to El Paso Natural Gas
Co., recorded in Book 98, Page 384, records of Valencia County, New Mexico.
3. Easement dated December 22, 1983, given by Joe Fidel, et al, to Continental
Divide Electric Coop., Inc., recorded in Miscellaneous Book 1, Page 2845,
records of Cibola County, New Mexico.
4. In no event does this policy cover any mobile home that may be locate on the
insured premises.
5. Title to oil, gas, coal and other minerals within and underlying the
premises, together with the drilling rights, privileges and easements
appurtenant thereto, and production therefrom.
EXHIBIT A-2
-----------
<PAGE>
SPECIFICATIONS IN CONNECTION
WITH BUILDINGS AND SITE PLANS
-----------------------------
(To be Provided)
<PAGE>
EXHIBIT B
SPECIFICATIONS IN CONNECTION WITH BUILDINGS AND SITE PLANS
----------------------------------------------------------
Facility Description
--------------------
The greenhouse project facilities will consist of two 20-acre glass greenhouses,
built in two phases, plus a support building of approximately 50,000 square
feet.
Each greenhouse will be provided with computer controlled ventilation windows,
energy screen, drip irrigation system, roof sprinkler system, and a hot water
heating system including natural gas-fired hot water boilers.
The support building will house the boilers, irrigation equipment, water
treatment equipment, water storage tanks, boilers, offices, restrooms, luncheon
and storage areas.
The facility will also include suitable roads, parking areas, and a storm water
retention pond.
<PAGE>
"AS-BUILT" SURVEY REQUIREMENTS CHECKLIST
----------------------------------------
The following information should be included on the plat of survey:
1. Scale, Date, Location of North, and Legend.
(1) Location. The location of any and all existing
----------
improvements or structures on the Land.
(2) Encroachments. That no improvements or structures
-------------
located on, under or adjacent to the Land are the subject of any encroachments,
protrusions, overlaps or overhangs.
(3) Area. The exact area of the Land in acres and square
----
feet.
(4) Easements. The location of all existing easements on,
---------
under or above the Land.
(5) Access. The premises, if any, over which ingress to or
------
egress from the Land from a dedicated public street or highway is necessitated.
2. Adjoining streets, roads, highways, alleys, drainages, waterways,
right-of-way lines, right-of-way widths and distances to the
property. Names of streets, roads, etc.,. as applicable. Indicate
exactly how actual physical access to and from the property to and
from a public street, etc. is afforded. If driveways or other cuts
in the curbs along any street, etc. upon which the property abuts do
not exist to afford access, indicate that fact. If drainages, septic
systems, waterways or arroyos exist that affect the property,
indicate that fact.
3. All points of reference should be tied to an identifiable monument
or intersection of streets.
4. All visible buildings, improvements or structures ("improvements")
and all known or indicated sub-surface improvements in place and the
measurements of the improvements and structures should be delineated
and labeled including the following:
a. Boundaries (all property line deflection points must have an
iron pin set in place). All boundary distances should be
expressed in feet and hundredths of feet. All courses should be
expressed in degrees, minutes and seconds.
EXHIBIT C
---------
Page -1- of 4
<PAGE>
b. Utilities and septic systems that benefit or serve the property
(including visible apparent connecting lines to the property
from public utility lines), and volume and page numbers of all
easements provided, if recorded or established by recorded
subdivision plats.
c. Pavement and paved parking area, including size and number of
regular parking spaces and handicap parking spaces (shade edges
and show and number parking space lines). If the ordinances of
the County of Cibola, or City of Grants, New Mexico, including
any applicable extraterritorial ordinances, make a distinction,
show regular vs. compact automobile parking spaces. A statement
should be included with respect to the compliance by the
property with the parking space requirements of the County of
Cibola or City of Grants, New Mexico, or, of any
extraterritorial authority.
d. Walkways (please "dot" concrete) and signs.
e. Ingress and egress (curb cuts and driveways should be delineated
and labeled).
f. Vertical elevations should be delineated and labeled for all
known or indicated sub-surface improvements.
5. Building set-back lines should be shown on the property (as defined
by the County of Cibola or City of Grants, New Mexico, or
extraterritorial zoning ordinances or regulations, plat map and
restrictive covenants) and any other building restrictions
established by protective or restrictive covenants or site
development plans, including the volume and page numbers, if
recorded.
6. Lot, block or square designation, if applicable, and written
(narrative) legal description by courses and distances (metes and
bounds) on the plat of survey.
7. Location and dimensions (with same information as boundaries) of all
easements identified in the commitment for a policy of title
insurance, including the volume and page numbers, if recorded. A
later requirement may be that certificates from utility companies
should be attached or provided that evidence agreement of all the
lines shown on the plat of survey.
8. Location and dimensions (with the same information as boundaries) of
all
EXHIBIT C
---------
Page -2- of 4
<PAGE>
encroachments (including encroachments of all known or indicated
sub-surface improvements in place) onto easements, rights-of-way,
set-back lines, the property, or any adjoining properties, etc.
9. Identification of all abutting lot numbers or names of subdivisions
or tracts.
10. Section, township and range, if applicable.
11. Street address (of each building) should be shown on the building.
12. Area of land and area of buildings in square feet and acres, and
distance of buildings to the boundary of the property and to
building set-back lines.
13. Vicinity sketch showing closest thoroughfare intersection.
14. The point of beginning of description (labeled on the plat of
survey).
15. True point of beginning of description (labeled on the plat of
survey).
16. Surveyor's seal or stamp on the plat of survey clearly showing
registration number.
17. Date of the plat of survey and original surveyor's signature on all
copies of the plat of survey.
18. Chart of curve data information to support length of curves used on
the plat of survey.
19. Curve tangent points indicated on survey lines.
20. Note stating whether or not survey has been balanced and adjusted.
21. Note stating if commitment for policy of title insurance was used
in defining easements and other recordings.
22. Field notes on the plat of survey, if applicable.
23. Indicate on the plat of survey, at all survey line deflections,
whether the survey monument was found or set, such as, "Found Iron
Pin" or "Iron Pin set."
24. Note stating whether or not the property appears in any Flood
Insurance Boundary Map, and, if so, further state the map number,
applicable zones and whether or not the property appears to be in
the "Flood Hazard Area" shown on that map.
25. Statements in the certificate of surveyor (see below) such as
"except as shown" are not acceptable. If exceptions exist, each
exception must be separately listed and fully described in the
certificate of the surveyor.
26. Statements to the effect "this survey is not to be used for
construction
EXHIBIT C
---------
Page -3- of 4
<PAGE>
purposes" or "this survey is only to be used for loan purposes" are
not acceptable. Any limitation in the certificate of the surveyor
that the plat of survey is prepared "to the best of the knowledge"
of the surveyor, or words of similar import, are not acceptable.
27. The certificate of the surveyor should certify to Landlord, Lender
and Tenant as to all matters specified herein.
EXHIBIT C
---------
Page -4- of 4
<PAGE>
MEMORANDUM OF LEASE
-------------------
City of Grants (the "Landlord") and Colorado Greenhouse, Inc. (the
"Tenant"), have signed and acknowledged a Lease dated as of
_______________, 199_ (the "Lease"), concerning the premises described in
attached Exhibit A (the "Premises").
---------
The Lease provides that for good and adequate consideration the
Landlord leases the Premises to the Tenant, and the Tenant accepts the Premises
from the Landlord, on terms provided for in the Lease. The Lease is incorporated
into this Memorandum of Lease (this "Memorandum").
The term of the Lease starts on____________________, 199______, and
ends on ____________________, 20__________,.
This Memorandum is not a complete summary of the Lease. The terms in
this Memorandum will not be used in interpreting the terms of the Lease. If a
conflict arises between this Memorandum and selected provisions of the Lease,
the Lease provisions will control. Signature and acknowledgment of this
Memorandum constitutes signing and acknowledgment of the Lease.
DATED: __________________, 199____.
LANDLORD: TENANT:
- -------- ------
CITY OF GRANTS, COLORADO GREENHOUSE, INC.,
a municipal corporation a Delaware corporation
By____________________ By_____________________________
_________________ James R. Rinella
Its Mayor Its Chief Executive Officer
EXHIBIT D
---------
Page -1- of 2
<PAGE>
STATE OF NEW MEXICO
COUNTY OF CIBOLA
This instrument was acknowledged before me on_________________, 1998,
by ________________________________, Mayor of City of Grants, a municipal
corporation, on behalf of the City.
_____________________________________________
Notary Public
My commission expires:
___________________________
STATE OF NEW MEXICO
COUNTY OF CIBOLA
This instrument was acknowledged before me on_______________, 1998, by
James R. Rinella, Chief Executive Officer of Colorado Greenhouse, Inc., a
Delaware corporation, on behalf of the corporation.
________________________________
Notary Public
My commission expires:
____________________________
EXHIBIT D
---------
Page -2- of 2
<PAGE>
HAZARDOUS MATERIALS,
--------------------
A E
- - -
Acetalyene Epsom Salt/Magnesium Sulfate
Agrimycin 17 Ethrel
Air, Compressed Eyesaline Concentrate
Ajax All Purpose cleaner, Pine Forest Engage
Aerosol Spray paint Engage Lubricant
All-state Aluminum electrode Ethylene Glycol
Amberlite Exotherm Termil
AquaGro Ethrel (R) Brand Ethephon/Tobacco
Anionic Copolymer F
Ammonium Sulfate -
Avow Lubricant Flux Core Arc Welding
Azatin-EC Freeway Lubricant
B G
- - -
Bareground 2 + 2 Genetron 22
Black Magic Green Shield, Whitemire PT 2000
Boron Glass Cleaner
Boot Hill Paraffinized Pellets H
Botanigard -
Bradley Kleersight Concentrate HM-1600, Synthetic Resin based
Buffer Solution- phosphate, pH 7.00, pH adhesive
4.01 Hamp-Ene 13% Iron
C I
- - -
Calcium Chloride, Dowflake 77-80% Industrial Grade Pump Oil
Calcium Chloride Pellets Sl Iron EDTA Chelate 15% Fe
Calcium Nitrate Industrial Grade Pump Oil
Captan 50W J
Carbon Dioxide -
Cardinal Just One Bit - Rat Poison
Cement, CPVC Solvent K
Chain & Wire Rope Lube Aerosol -
Copper Sulfate Kinetic
Cormatic Aire/Ultima Aire Gel Kocide 101
Cuproxat L
Core -
Carnivate Lacquer Thinner
Chain & Wire Lube Lannate Insecticide
D Latex Paint
- - Liquid Steel
Dimethoate 4E Lubricants
Dipel 4L Libfer (R) SP
Dithane M-45 Liquid Steel Activator
M
-
M-Pede Insecticide
Magnesium Sulfate
Manganese Sulfate 31%
Monopotassium Phosphate
Muratic Acid
Mobil Oil
Micro-Flo Sulfur
EXHIBIT E
Page -1- of 2
<PAGE>
N T
- - -
Neemix Talstar 10 WP Insecticide/Miticide
Nitric Acid Thiodan
Nitric Acid 42(degrees) BE Tri-Flow
Naturalis-O U
-
O Urea Phosphate
- -
Open & Shut Solvent V
-
P W
- - -
Paint, Hard Hat Stripping - Aerosol WD-40
Paint Thinner Weld On 711 CPVC Cement Meets
Phosphate, Buffer Solution ASTM D-2565
Phosphoric Acid Weld On P-70 CPVC Primer Meets ASTM
Potassium Nitrate P-656
Potassium Sulfate XYZ
Primer, PVC & CPVC Pipe ---
Propane, Commercial Xentari
Pyrenol Zino Sulfate
Pyrenone Zoom Spout Oiler
Pyreth-it Horticultural S.E.C., Whitmire PT
1133
Peladow (R) Premier Snow and Ice Melter
Pellets Mouse bait
Precision
Provado 1.6 Flowable
Q
- -
Quadris
R
- -
Resinoid Bonded Grinding Wheels
Repell Solvent
Roundup L&G Herbicide
S
- -
Safer Insecticidal Soap Concentrate
Sodium Molybdate: Dihydrate
Soilgard
Stampede
Sulf-N 45, Ammonium Sulfate
Sulfur Six, Liquid
Sulphur, Red Ball EM-53 Liquid
SunSpray
Super Six Liquid Sulfur
Surflan
EXHIBIT E
Page -2- of 2
<PAGE>
WHEN RECORDED, RETURN TO:
WILLIAM R. ROBERTS, ESQ.
HOLME ROBERTS & OWEN LLP
1401 PEARL STREET, SUITE 400
BOULDER, CO 80302
EASEMENT AGREEMENT
------------------
THIS EASEMENT AGREEMENT (this "Agreement") is made this day of May, 1998,
by and between the CITY OF GRANTS, A NEW MEXICO municipal corporation ("the
City") and COLORADO GREENHOUSE, INC., a Delaware corporation ("CGI").
RECITALS
- --------
A. The City is the owner of certain land (the "City Property") located in
the City of Grants, County of Cibola and State of New Mexico, as more
particularly shown on Exhibit A attached hereto and made part hereof, which
---------
includes two parcels identified on Exhibit A as the "Adjacent Property" and the
"Golf Course Property."
B. Pursuant to Lease and Project Participation Agreement (the "Lease") of
even date herewith, the City is the lessor and CGI is the lessee of certain land
(the "CGI Property") consisting of approximately 70 acres of land adjacent to
the Adjacent Property, as more particularly described on Exhibit B attached
---------
hereto and made part hereof. CGI intends to construct two 20-acre greenhouse
facilities (the "Greenhouses") on the CGI Property.
C. CGI desires to obtain from the City and the City desires to grant to
CGI certain easements over, on and through the City Property in order for CGI to
construct, operate and maintain certain improvements (collectively the
"Improvements") relating to a storm water retention pond to be built on the
Adjacent Property and a pipeline designed to carry effluent from the Greenhouses
to a pond located on the Golf Course Property, all as more particularly
described on Exhibit C attached hereto. Capitalized terms not otherwise defined
---------
herein shall have the meanings set forth in the Lease.
AGREEMENT
- ---------
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged by both parties, the parties hereby agree as follows:
1. Grant of Easement.
-----------------
a. The City hereby grants, sells, transfers and conveys to CGI a
nonexclusive easement (the "Storm Water Easement") in and to, over and across,
under and through the real property shown and to be later described by amendment
on Part I of Exhibit D attached hereto and made a part hereof, which property is
---------
also labeled as Storm Water Easement Property (the "Storm Water Easement
Property") shown and to be later described by amendment, on Part 11 of Exhibit
-------
D, for the uses set forth in Section 3(a).
- -
EXHIBIT F
---------
<PAGE>
b. The City hereby grants, sells, transfers and conveys to CGI a
nonexclusive easement (the "Effluent Easement") in and to, over and across,
under and through the strip of real property shown and to be later described by
amendment on Part I of Exhibit D, which property is labeled as Effluent Easement
Property (the "Effluent Easement Property"), shown and to be later described by
amendment on Part 11 of Exhibit D, for the uses set forth in Section 3(b). The
Storm Water Easement and the Effluent Easement are collectively referred to as
the "Easements" and the Storm Water Easement Property and the Effluent Easement
Property are collectively referred to as the "Easement Property".
2. Term. The term of the Easements shall commence as of the date hereof
----
and shall continue until the earlier of (i) the expiration of the Lease, (ii)
the termination of the Lease, or (iii) mutual agreement by the City and CGI.
3. Use. The Easements shall be used for the following uses and purposes:
---
a. Storm Water Easement. The Storm Water Easement shall be for the
--------------------
construction, reconstruction, replacement, repair, maintenance and operation of
the storm water retention pond to be built by CGI upon the Adjacent Property, at
the sole cost and expense of CGI, as CGI from time to time may elect.
b. Effluent Easement. The Effluent Easement shall be for the
-----------------
construction, reconstruction, replacement, repair, maintenance, operation and
removal of the pipeline by CGI connecting the Greenhouses to the pond located on
the Golf Course Property, at the sole cost and expense of CGI, as CGI from time
to time may elect.
C. Access. During construction of the Improvements, CGI and its
------
agents, tenants, subtenants, employees, consultants, contractors and other
licensees and invitees shall have the right to pedestrian and vehicular access
to the Easement Property across the City Property to the extent necessary for
access to the Easement Property in connection with the construction of the
Improvements.
d. Indemnity.
---------
(1) CGI will indemnify and defend the City against any expense,
loss or liability, resulting from CGI's use of the Easements:
(a) Liens arising by, through or under CGI;
(b) Claims and awards of damage for death, injury or property
damages with respect to the Easement Property to the extent arising because of
the acts or failure to act of CGI;
(c) Delay by CGI in surrendering the Easement Property,
including claims made by any succeeding tenant because of delay;
(d) Failure of CGI to perform any obligation to be performed
by CGI as provided in this Agreement;
-2-
<PAGE>
(e) Failure of CGI to protect the City and the Easement
Property against Hazardous Materials as provided in paragraph 8 of this
Agreement; and
(f) Actions or demands with respect to any of the foregoing
(the "Indemnities").
HOWEVER, IF SECTION 56-7-1 NMSA 1978 is applicable to this
Agreement, the Indemnities will not extend to liability, claims, damages, losses
or expenses, including fees of lawyers, relating to the construction,
installation, alteration, modification, repair, maintenance, servicing,
demolition, excavation, drilling, reworking, grading, paving, clearing, site
preparation or development of any real property or any improvement of any kind
on, above or under real property and arising out of (1) the preparation or
approval of maps, drawings, opinions, reports, surveys, change orders, designs
or specifications by the City, or the agents or employees of the City, or (2)
the giving of or the failure to give direction or instructions by the City, or
the agents or employees of the City, where the giving or failure to give
directions or instructions is the primary cause of bodily injury to persons or
damage to property.
(2) CGI will reimburse the City on demand for any payment made by the
City to which the Indemnities relate, including the reasonable lawyer fees and
costs incurred by the City in establishing the right of the City to indemnity as
provided in this Agreement.
(3) CGI may contest the validity of, defend, settle and compromise any
matter to which the Indemnities relate.
4. Restrictions; As Built Drawings. Any and all construction,
-------------------------------
maintenance, repair, replacement and reconstruction of the Improvements and
related facilities accomplished or directed by CGI shall be done: (a) upon
reasonable prior written notice to the City (provided that no notice shall be
--------
required for routine inspections and maintenance and work on the Easement
Property which does not involve more workers or equipment than routine
inspections and maintenance) and (b) in a manner so as to minimize, to the
extent reasonably possible, any inconvenience to the normal operation of the
City Property and the improvements thereon. As soon as reasonably practical
after completion of construction, CGI shall provide the City with a set of as
built drawings showing the location on the Easement Property of each of the
Improvements, at the sole cost and expense of CGI.
5. Noninterference. Subject to the rights of others under any of the
---------------
Permitted Exceptions (as defined below) and the provisions of Sections 8 and 9
below, the City shall not have, nor grant any other party, the right to use the
City Property in any manner which would materially interfere with or materially
obstruct the use of the Easements as contemplated hereunder.
6. Transferability. The Easements and the rights of CGI to the Easements
---------------
shall be for the benefit of CGI and its successors and assigns, to the extent
such successors and assigns are permitted under the provisions of the Lease.
-3-
<PAGE>
7. Warranties of The City. The City warrants that, subject only to the
----------------------
exceptions listed on Exhibit E (the "Permitted Exceptions"), the City is the fee
---------
simple owner of the City Property free and clear of all liens and encumbrances,
subject only to the Permitted Exceptions. The City covenants to defend the
rights granted hereby, subject only to the Permitted Exceptions.
8. Environmental Indemnity by CGI. CGI at all times (i) shall comply
------------------------------
fully with all laws, rules, regulations, and ordinances of any governmental
authority having jurisdiction with respect to the storage, use or release at the
Easement Property of Materials of Environmental Concern, (ii) shall not use,
treat, store, transport or release or threaten to release any Materials of
Environmental Concern in, on, under, from or affecting the Easement Property in
any manner or quantity which may result in any remediation, clean-up obligation
or liability under any Environmental Law, and (iii) shall keep the Easement
Property free of any lien imposed pursuant to Environmental Laws, and shall pay
or cause to be paid when due any and all costs of complying with Environmental
Laws and responding to the presence, release or threatened release of Materials
of Environmental Concern, because of acts or omissions of CGI or its affiliates,
agents, employees, contractors, sublessees, successors or assigns (including
without limitation all damages, liabilities, expenses and costs of all third
party claims). If CGI fails to comply with any of the foregoing, then to the
extent that the City sustains any liability, loss, cost, damage or expense
(including attorneys' and consultants' fees and expenses) arising out of the
presence, release or threatened release by CGI or its affiliates, agents,
employees, contractors, sublessees, successors or assigns of Materials of
Environmental Concern, the City shall be held harmless from and against all such
liability, loss, cost, damage and expense. The City may, upon such prior written
notice to CGI as is reasonable under the circumstances, take any action
necessary in the reasonable judgment of such responding party, to respond to
such presence, release or threatened release, and the cost of such response
action shall be borne by CGI. For purposes of this Agreement the term "Materials
of Environmental Concern" shall mean chemicals, pollutants, contaminants,
wastes, degradation by-products, toxic substances, petroleum and petroleum
products that upon exposure or ingestion may reasonably be anticipated to pose a
hazard to the health or safety of the anticipated occupants of, or visitors or
invitees, to the Easement Property, including without limitation "hazardous
substances," "hazardous wastes," "toxic substances," and "toxic pollutants," as
such terms are defined in or identified by any Environmental Law. For purposes
of this Agreement the term "Environmental Laws" shall mean all existing or
future federal, state, local and foreign laws, statutes, ordinances, rules,
regulations, administrative orders, and final decisions of judicial bodies or
administrative agencies (to the extent the issuing governmental authority has
jurisdiction over the Easement Property), including without limitation any
common law theory of liability, in any case relating to regulation or control of
pollution, or to protection of human health or the environment from or with
respect to Materials of Environmental Concern.
9. Reservation of Rights. The City reserves the right to use and enjoy
---------------------
the Easement Property and the portion of the City Property used for access;
provided that the City shall not construct or maintain any structure on the
- --------
Easement Property and the portion of the City Property used for access, or in
any manner impair or materially interfere with the exercise of any of the rights
herein granted.
-4-
<PAGE>
10. Maintenance of Golf Course Property. The parties acknowledge that the
------------------------------------
City will use water from the pond located on the Golf Course Property for
irrigation purposes on its golf course or elsewhere. In connection therewith the
City agrees to maintain such pond and remove therefrom on a regular basis
sufficient water for the pond to adequately hold all effluent transported by CGI
to such pond on a daily basis. In addition, the City acknowledges that it has
been furnished with a projected chemical composition of the effluent water to be
so transported and agrees that for so long as the quality of such water is
within the standards set forth on Exhibit F attached hereto and made a part
---------
hereof, the City will accept such water.
11. Default: Remedies.
-----------------
a. Should the City or CGI fail to perform any covenant or comply with
any condition required to be performed under this Agreement or the Lease within
60 days after written demand by the other party (or such longer period as may be
reasonably required to cure such failure to perform or comply if such cure is
commenced within such 60-day period), the non-performing party shall be in
default of its obligations under this Agreement and under the Lease allowing the
non-performing party to pursue rights and remedies available to it under the
Lease.
b. In the event a default under this Agreement is not cured within
the applicable cure period (if any), the non-defaulting party shall be entitled
to pursue any and all remedies available to it at law or in equity, including
without limitation the remedy of specific performance, or termination of this
Agreement upon ten additional days' written notice. To the maximum extent
permitted by law, should either party be in default under this Agreement the
defaulting party covenants and agrees to pay and discharge all reasonable costs
and expenses which shall be incurred by the non-defaulting party arising out of
such default, in enforcing the covenants and agreements of this Agreement,
including without limitation reasonable attorneys' fees. Notwithstanding the
foregoing, in no event shall either party be liable for any consequential or
punitive damages, damages for lost business, lost profits, or opportunities
therefor, or business interruption, any claim or remedy therefor being
specifically waived by each of the parties.
12. No Waiver. No provision of this Agreement may be waived or
---------
relinquished except by written instrument signed by the party to be charged with
such waiver. Failure by any party to this Agreement to enforce any provision of
this Agreement shall not constitute a waiver of such provision, and no waiver by
any party to this Agreement of any provision of this Agreement on one occasion
shall constitute a waiver of any other provision or of the same provision on
another occasion.
13. Captions; Definitions. The section and subsection captions used in
---------------------
this Agreement are included for convenience only, and shall be irrelevant to the
construction of any provision of this Agreement. Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Lease.
14. Amendment. The provisions of this Agreement may be abrogated,
---------
modified, rescinded, or amended in whole or in part only by the City and CGI and
their
-5-
<PAGE>
respective successors and assigns by written instrument duly executed and
recorded in the real property records of Cibola County, New Mexico.
15. Severability. If any clause or provision of this Agreement shall be
------------
held invalid or unenforceable, the remainder of this Agreement shall not be
affected thereby.
16. Governing Law. The validity and effect of this Agreement shall be
-------------
determined in accordance with the laws of the State of New Mexico.
17. Notices. Notice shall be given as provided in the Lease.
-------
18. Legal Description. CGI And the City will amend this Agreement at a
-----------------
later date to evidence the legal descriptions, by metes and bounds as
appropriate, of the properties and easements referenced in this Agreement.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement under seal as of the day and year first above written.
THE CITY OF GRANTS, NEW MEXICO
Date:______________________ By:____________________________________
Name:__________________________________
Title:_________________________________
COLORADO GREENHOUSE, INC.
Date:______________________ By:____________________________________
Name:__________________________________
Title:_________________________________
-6-
<PAGE>
ACKNOWLEDGMENTS
STATE OF NEW MEXICO )
)ss.
COUNTY OF CIBOLA)
This instrument was acknowledged before me on May___, 1998 by ____________
____________, ___________ of the City of Grants, New Mexico, a New Mexico
municipal corporation.
Witness my hand and official seal.
My commission expires:______________________________.
_____________________________________________
[SEAL] Notary Public
-7-
<PAGE>
STATE OF COLORADO )
)ss.
COUNTY OF __________ )
This instrument was acknowledged before me on May__, 1998 by _____________
______________, as _______________ of COLORADO GREENHOUSE, INC., on behalf of
said corporation.
Witness my hand and official seal.
My commission expires:______________________________.
_________________________________________
[SEAL] Notary Public
216666
-8-
<PAGE>
DESCRIPTION OF PROPERTIES
-------------------------
[MAP OF CGI PROPERTY APPEARS HERE]
[MAP OF GOLF COURSE PROPERTY APPEARS HERE]
[MAP OF ADJACENT PROPERTY APPEARS HERE]
EXHIBIT A
<PAGE>
CGI PROPERTY GROUNDLEASE
------------------------
BOUNDARY SURVEY PLAT
- -------------------- 70.0000 ACRES, NW1/4
SEC. 32, T.11N., R.9W.
N.M.P.M.
City of Grants
Cibola County, NM
[MAP OUTLINING PLAT OF
PROPERTY APPEARS HERE]
Note; Basis of Bearings is a Property/
---- Ownership Plat furnished by City of
Grants, prepared by Forsgren
Associates/P.A., Phoenix, AZ (Project
No. 5-90-060, Sheet No. G-4), and a
survey by John W. Millar, NM LS
No. 9286, dated Jan. 23, 1991.
* Corners set this survey 1/2" rebars,
caps No. 6262
DESCRIPTION
A tract of land situated within the northwest quarter of Section 32,
T.11N., R.9W., N.M.P.M., in the City of Grants, Cibola County, New Mexico, and
being more particularly described as follows:
Beginning at the northeast corner of said tract, from which point the
North 1/4 Corner of said Section 32 bears N 79 (DEGREES) 02'21" W, and is 329.25
feet distant;
Thence S 01 (DEGREES) 02' W, 1834.43 feet;
Thence S 89 (DEGREES) 42' 26" W, 1660.54 feet;
Thence N 01 (DEGREES) 02' E, 581.61 feet to a point on the West line of
said tract;
Thence N 01 (DEGREES) 00' 12" E, 1254.00 feet to the northwest corner of
said tract;
Thence N 89 (DEGREES) 45' 09" E, 1338.00 feet along the South right of
way line a 60.00-foot road (Camino de Coyote) to a point on the North line of
said tract;
Thence S 89 (DEGREES) 12' E, 323.25 feet along said North line to the
place of beginning, and containing 70.0000 Acres, more or less.
I William R. Runyan, certify that I conducted and am responsible for
this survey, that this survey and plat are true and correct to the best of my
knowledge and belief, and that this survey and plat meet the Minimum Standards
for Surveying in New Mexico.
/s/ WILLIAM R. RUNYAN
[SEAL OF WILLIAM R. RUNYAN --------------------------------------
NEW MEXICO REGISTERED LAND William R. Runyan, R.L.S. No. 6262
SURVEYOR APPEARS HERE] dba Runyan Surveying, P.O. Box 509
Grants, NM 87020 (505) 287/3960
Date of Survey: April 23, 1998
Owner(s): City of Grants, P.O.
Box 879, Grants, NM 87020
EXHIBIT B
---------
<PAGE>
EASEMENTS
---------
[MAP]
EXHIBIT C
---------
<PAGE>
EASEMENTS
---------
EXHIBIT D - PART I
------------------
<PAGE>
EASEMENT PROPERTY
-----------------
(To be Provided)
EXHIBIT D - PART II
-------------------
<PAGE>
PERMITTED EXCEPTIONS
--------------------
1. Reservations as shown in Patent for State Land recorded in Miscellaneous Book
1, Pages 7838-7839, records of Cibola County, New Mexico.
2. Easement dated August 11, 1953, given by E. S. Walker to El Paso Natural Gas
Co., recorded in Book 98, Page 384, records of Valencia County, New Mexico.
3. Easement dated December 22, 1983, given by Joe Fidel, et al, to Continental
Divide Electric Coop., Inc., recorded in Miscellaneous Book 1, Page 2845,
records of Cibola County, New Mexico.
4. In no event does this policy cover any mobile home that may be located on the
insured premises.
5. Title to all oil, gas, coal and other minerals within and underlying the
premises, together with the drilling rights, privileges and easements
appurtenant thereto, and production therefrom.
EXHIBIT E
---------
<PAGE>
WATER QUALITY STANDARDS
-----------------------
EXHIBIT F
---------
<TABLE>
<CAPTION>
CONSTITUENT LIMIT
- -------------------------------- ----------------------------------
<S> <C>
pH 5-9
- -------------------------------- ----------------------------------
Sodium 250
- -------------------------------- ----------------------------------
Potassium 500
- -------------------------------- ----------------------------------
Chloride 250
- -------------------------------- ----------------------------------
P04-P 50
- -------------------------------- ----------------------------------
Sulfate 600
- -------------------------------- ----------------------------------
N03-N 500
- -------------------------------- ----------------------------------
NH4-N 50
- -------------------------------- ----------------------------------
TKN 50
- -------------------------------- ----------------------------------
TDS 5000
- -------------------------------- ----------------------------------
Iron 5.0
- -------------------------------- ----------------------------------
Manganese 5.0
- -------------------------------- ----------------------------------
Copper 1.0
- -------------------------------- ----------------------------------
Zinc 10
- -------------------------------- ----------------------------------
</TABLE>
<PAGE>
WATER QUALITY STANDARDS
-----------------------
<TABLE>
<CAPTION>
CONSTITUENT LIMIT
- ---------------------------------- -------------------------------
<S> <C>
pH 5-9
- ---------------------------------- -------------------------------
Sodium 250
- ---------------------------------- -------------------------------
Potassium 500
- ---------------------------------- -------------------------------
Chloride 250
- ---------------------------------- -------------------------------
P04-P 50
- ---------------------------------- -------------------------------
Sulfate 600
- ---------------------------------- -------------------------------
N03-N 500
- ---------------------------------- -------------------------------
NH4-N 50
- ---------------------------------- -------------------------------
TKN 50
- ---------------------------------- -------------------------------
TDS 5000
- ---------------------------------- -------------------------------
Iron 5.0
- ---------------------------------- -------------------------------
Manganese 5.0
- ---------------------------------- -------------------------------
Copper 1.0
- ---------------------------------- -------------------------------
Zinc 10
- ---------------------------------- -------------------------------
</TABLE>
EXHIBIT F
---------
<PAGE>
[CITY OF GRANTS LOGO]
May 14, 1998
------------
Mr. Bob Clark
Colorado Greenhouse, Inc.
6811 Weld County Road 31
Fort Lupton, CO 80621
City of Grants
--------------
Dear Mr. Clark:
The City of Grants, New Mexico and Colorado Greenhouse, Inc. entered into a
Lease and Project Participation Agreement (the "Lease") on May 14 1998. The
-------
Lease requires the Company to operate two greenhouses and related facilities for
a period of 60 years. This letter notifies you of the manner in which the City
can now furnish its water and wastewater treatment to the Company for use by the
Company in its greenhouse facilities. Water and wastewater treatment will be
furnished pursuant to City ordinances and policies on water and wastewater, as
those ordinances and policies may be modified from time to time.
The City currently owns and operates its water and wastewater systems. As long
as the City continues to own and operate its water, the City will provide water
(as opposed to wastewater) services to the Company at the same rates and on the
same terms generally made available to industrial water users under City
ordinance. We understand that the Company will not require in excess of 360
acre feet of water per year. Because the greenhouses will discharge a high
volume of relatively clean wastewater from its greenhouse operation, the City
does not expect that the Company's Wastewater use will be comparable to that of
an average commercial wastewater system user. The City anticipates that
substantial amounts of the wastewater will be able to be discharged directly to
the Coyote del Mal Pais Golf Course without treatment, for reuse as golf course
irrigation. The City will provide separate meters for domestic and greenhouse
uses. The City will only bill-Colorado Greenhouse for sewage treatment on the
amount of water utilized for domestic purposes, as long as the City continues to
own and operate its own wastewater system and the Coyote del Mal Pais Golf
Course.
<PAGE>
The provisions of the City's water and wastewater ordinances will need to be
complied with by the Company, including prompt payment of all fees and charges
associated with the connection and use of the City's water and wastewater
systems.
If the City elects to sell its water and wastewater utilities (which is not
currently contemplated) or the Coyote del Mal Pais Golf Course (also not
currently contemplated), the City would be willing to work with the purchaser in
good faith in an effort to enable Colorado Greenhouse to continue to receive
water and wastewater services on the same basis as users in the same
classification.
Please indicate your acknowledgment by signing this letter in the space below
and returning a copy to us.
Sincerely,
CITY OF GRANTS
By /s/ [SIGNATURE ILLEGIBLE]
------------------------
Its City Manager
The terms and conditions described
above are acknowledged by:
COLORADO GREENHOUSE, INC.
By /s/ James R. Rinella
------------------------
Its Chief Executive Officer
<PAGE>
MEMORANDUM OF LEASE
-------------------
City of Grants (the "Landlord") and Colorado Greenhouse, Inc.
(the"Tenant"), have signed and acknowledged a Lease dated as of May 14, 1998
------ -
(the "Lease"), concerning the premises described in attached Exhibit A (the
---------
"Premises" ).
The Lease provides that for good and adequate consideration the
Landlord leases the Premises to the Tenant, and the Tenant accepts the Premises
from the Landlord, on terms provided for in the Lease. The Lease is incorporated
into this Memorandum Lease (this "Memorandum").
The term of the Lease starts on May 14, 1998, and ends on May 14,
------ - ------
2058.
--
This Memorandum is not a complete summary of the Lease. The terms in
this Memorandum will not be used in interpreting the terms of the Lease. If a
conflict arises between this Memorandum and selected provisions of the Lease,
the Lease provisions will control. Signature and acknowledgment of this
Memorandum constitutes signing and acknowledgment of the Lease.
DATED: May 14, 1998.
------ -
LANDLORD: TENANT:
- -------- ------
CITY OF GRANTS, COLORADO GREENHOUSE, INC.,
a municipal corporation a Delaware corporation
By /s/ {SIGNATURE ILLEGIBLE] By /s/ JAMES R. RINELLA
------------------------ -------------------------
------------------------ James R. Rinella
Its Mayor Its Chief Executive Officer
<PAGE>
STATE OF NEW MEXICO
COUNTY OF CIBOLA
This instrument was acknowledged before me on May 15, 1998, by Bill
------ ----
Snodgrass, Mayor of City of Grants, a municipal corporation, on behalf of the
- ---------
City.
/s/ [SIGNATURE ILLEGIBLE]
------------------------------------------
Notary Public
My commission expires:
4/21/2000
- --------------------------
STATE OF NEW MEXICO
COUNTY OF CIBOLA
This instrument was acknowledged before me on May 15, 1998, by James
------
R. Rinella, Chief Executive Officer of Colorado Greenhouse, Inc., a Delaware
corporation, on behalf of the corporation.
/s/ [SIGNATURE ILLEGIBLE]
--------------------------------------------
Notary Public
My commission expires:
4/21/2000
- --------------------------
<PAGE>
BOUNDARY SURVEY PLAT
- -------------------- 70.0000 ACRES, NW-1/4
SEC. 32, T.11N., R.9W.
N.M.P.M.
City of Grants
Cibola County, NM
[MAP OUTLINING PLAT OF
PROPERTY APPEARS HERE]
Note; Basis of Bearings is a Property/
Ownership Plat furnished by City of
Grants, prepared by Forsgren
Associates/P.A., Phoenix, AZ (Project
No. 5-90-060, Sheet No. G-4), and a
survey by John W. Millar, NM LS
No. 9286, dated Jan. 23, 1991.
* Corners set this survey 1/2" rebars,
caps No. 6262.
DESCRIPTION
A tract of land situated within the northwest quarter of Section 32,
T.11N., R.9W., N.M.P.M., in the City of Grants, Cibola County, New Mexico, and
being more particularly described as follows:
Beginning at the northeast corner of said tract, from which point the
North 1/4 Corner of said Section 32 bears N 79 (DEGREES) 02'21" W, and is 329.25
feet distant;
Thence S 01 (DEGREES) 02' W, 1834.43 feet;
Thence S 89 (DEGREES) 42' 26" W, 1660.54 feet;
Thence N 01 (DEGREES) 02' E, 581.61 feet to a point on the West line of
said tract;
Thence N 01 (DEGREES) 00' 12" E, 1254.00 feet to the northwest corner of
said tract;
Thence N 89 (DEGREES) 45' 09" E, 1338.00 feet along the South right of
way line a 60.00-foot road (Camino de Coyote) to a point on the North line of
said tract;
Thence S 89 (DEGREES) 12' E, 323.25 feet along said North line to the
place of beginning, and containing 70.0000 Acres, more or less.
I William R. Runyan, certify that I conducted and am responsible for
this survey, that this survey and plat are true and correct to the best of my
knowledge and belief, and that this survey and plat meet the Minimum Standards
for Surveying in New Mexico.
/s/ WILLIAM R. RUNYAN
[SEAL OF WILLIAM R. RUNYAN --------------------------------------
NEW MEXICO REGISTERED LAND William R. Runyan, R.L.S. No. 6262
SURVEYOR APPEARS HERE] dba Runyan Surveying, P.O. Box 509
Grants, NM 87020 (505) 287/3960
Date of Survey: April 23, 1998
Owner(s): City of Grants, P.O.
Box 879, Grants, NM 87020
<PAGE>
Exhibit 10.27
- --------------------------------------------------------------------------------
MASTER LOAN AGREEMENT
BETWEEN
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
AND
COLORADO GREENHOUSE, INC.
DATED
AS OF
JANUARY 24, 1997
- --------------------------------------------------------------------------------
<PAGE>
MASTER LOAN AGREEMENT
THIS MASTER LOAN AGREEMENT is entered into as of this 24th day of January,
1997, by and between COLORADO GREENHOUSE, INC., a Delaware corporation doing
business in Colorado ("CGI"), and COLORADO SPRINGS PRODUCTION CREDIT
ASSOCIATION, a federally chartered association of the Farm Credit System
("Lender").
RECITALS
From time to time CGI may request and Lender may make loans to CGI . In
order to reduce the amount of paperwork associated therewith, Lender, and CGI
would like to enter into a Master Loan Agreement (the "MLA"). For that reason,
and in consideration of Lender's making one or more loans to CGI, Lender, and
CGI agree as follows:
ARTICLE 1
SUPPLEMENTS, DEFINITIONS
SECTION 1.1 SUPPLEMENTS. In the event CGI desires to borrow from Lender
and Lender is willing to lend to CGI , or in the event Lender and CGI desire to
consolidate any existing loans hereunder, the parties will enter into a
Supplement to the MLA (a "Supplement"). Each Supplement will set forth the
amount of the loan, the purpose of the loan, the interest rate or rate options
applicable to that loan, the repayment terms of the loan, and any other terms
and conditions applicable to that particular loan. Each loan will be governed by
the terms and conditions contained in the MLA and in the Supplement relating to
the loan. In the event of any conflict with the terms of the MLA or any new
matter introduced in any Supplement, the terms of the Supplement, for that
Supplement, shall be controlling.
SECTION 1.2 DEFINITIONS. For the purpose of the MLA, and for the purposes
of the MLA and any Supplement (the MLA, Supplements and all other Loan
Documents, together being sometimes referred to as the "Agreement"), except as
otherwise expressly provided or unless the context otherwise requires, the
capitalized terms used shall have the following meanings:
ADVANCE shall mean an advance of funds by Lender to CGI pursuant to any
Supplement.
AFFILIATE shall mean, as to any Person, any other Person (a) that directly
or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person; (b) that
directly or indirectly beneficially owns or holds twenty percent (20%) or
more of any class of voting stock of such Person; or (c) twenty percent
(20%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by the Person in question. The term "control"
means the possession, directly or indirectly, of the power to direct or
cause direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise; provided,
---------
however, in no event shall Lender, Brush Cogeneration Partners, Colorado
-------
Power Partners or American Atlas #1, LTD., or any other person or entity
listed on Exhibit "D" hereto, be deemed an Affiliate of CGI, Holdings, or
of LLC.
1
<PAGE>
AGREEMENT shall have the meaning provided in Section 1.2 of Article 1 of
the MLA.
BUSINESS DAY shall mean any day that Lender and the Federal Reserve Bank of
Kansas City are not authorized or required to be closed.
CGI shall mean the borrower identified as Colorado Greenhouse, Inc. in the
heading hereof, with the federal tax identification number of 84-1375620.
CGI ACCOUNTANT shall have the meaning provided in Section 5.7(a) of Article
5 of the MLA.
CG MEMBER shall mean CG Member, Inc., a Delaware corporation, of which LLC
is a wholly-owned subsidiary, and with the federal tax identification
number of 84-1373503.
CG MEMBER PLEDGE shall have the meaning provided in Section 2.8 of Article
2 of the MLA.
COLLATERAL shall have the meaning provided in the Security Agreement and
the Mortgage, and in any Security Agreement or Mortgage granted to Lender
by CGI pursuant to any Supplement.
COMPLIANCE CERTIFICATE shall have the meaning provided in Section 5.7(i) of
Article 5 of the MLA and shown at Exhibit "A."
DELEGATION AND WIRE TRANSFER AUTHORIZATION shall have the meaning provided
in Section 2.1 of Article 2 of the MLA as shown as Exhibit "E".
DISCLOSURE SCHEDULES shall have the meaning provided in Section 4.1 of
Article 4 of the MLA and shown at Exhibit "B."
EVENT OF DEFAULT shall have the meanings provided in Article 8 of the MLA.
EXISTING LIENS shall have the meaning provided in Section 4.1(h) of Article
4 of the MLA and shown on Exhibit "C".
FCA shall have the meaning provided in Section 2.5 of Article 2 of the MLA.
FCBW shall mean the Farm Credit Bank of Wichita, a federally chartered bank
of the Farm Credit System.
GAAP shall mean generally accepted accounting principles, applied on a
consistent basis, as set forth in opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or the
Statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances of the
date in question. Accounting principles are applied on a "consistent
basis" when the accounting principles observed in a current period are
comparable in all material respects to those accounting principles applied
in a preceding period.
GUARANTEE shall have the meaning provided in Section 2.8 of Article 2 of
the MLA and shown at Exhibit F.
2
<PAGE>
HOLDINGS shall mean Colorado Greenhouse Holdings, Inc., a Delaware
corporation, of which CGI, and CG Member are wholly-owned subsidiaries, and
with the federal tax identification number of 84-1363625.
HOLDINGS PLEDGE shall have the meaning provided in Section 2.8 of Article 2
of the MLA.
LAWS shall have the meaning provided in Section 4.1(e) of Article 4 of the
MLA.
LENDER shall mean the lender identified as Colorado Springs Production
Credit Association in the heading hereof and any participant in any loans
made by Lender, regardless of whether such participant is identified to
CGI.
LIENS shall have the meaning provided in Section 6.2 of Article 6 of the
MLA.
LLC shall mean Colorado Greenhouse, LLC, a Colorado Limited Liability
Company, a wholly-owned subsidiary of CG Member with the federal tax
identification number of 84-1208909.
LOAN DOCUMENTS shall have the meaning provided in Section 4.2(b) of Article
4 of the MLA.
MLA shall have the meaning provided in the Recitals hereto.
PERMITTED ENCUMBRANCES shall have the meaning provided in Section 6.2 of
Article 6 of the MLA.
PERSON shall mean any individual, corporation, business trust, association,
company, partnership, joint venture, limited liability company or other
entity permitted by Law, governmental authority, or other entity.
POTENTIAL DEFAULT shall have the meaning provided in Section 3.4 of Article
3 of the MLA.
SECURITY AGREEMENT shall mean the Security Agreement between CGI and Lender
in which CGI grants to Lender a security interest in its assets, as is more
particularly described therein.
SERVICING ENTITY shall have the meaning provided in Section 10.9 of Article
10 of the MLA.
SUPPLEMENT shall have the meaning provided in Section 1.1 of Article 1 of
the MLA.
UCC shall have the meaning provided in Section 1.3 of Article 1 of the MLA.
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS. All definitions contained in
the MLA are equally applicable to the singular and plural forms of the terms
defined. The words "hereof," herein," and "hereunder" and words of similar
import referring to the MLA refer to the MLA as a whole and not to any
particular provision of the MLA. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. Terms used herein that are
defined in the Uniform Commercial Code, unless otherwise defined herein, shall
have the meanings specified in the Uniform Commercial Code as adopted by the
State of Colorado ("UCC"). Additional terms may be provided in any
3
<PAGE>
Supplement and the meaning assigned to such terms in such Supplements shall be
controlling for that Supplement in the event of any conflict with any term
defined or used in the MLA.
ARTICLE 2
GENERAL CONDITIONS
SECTION 2.1 AVAILABILITY. Advances will be made available on any Business
Day upon the telephonic or written request of CGI. Requests for Advances must be
received no later than 12:00 noon Mountain Time on the date the loan is desired.
Advances will be made available by wire transfer of immediately available funds
to such account or accounts as may be authorized by CGI. CGI shall furnish to
Lender a duly completed and executed copy of a Delegation and Wire Transfer
Authorization Form, and Lender shall be entitled to rely on (and shall incur no
liability to CGI in acting on) any request or direction furnished in accordance
with the terms thereof.
SECTION 2.2 REPAYMENT. CGI's obligation to repay each Advance shall be
evidenced by the promissory note set forth in the Supplement relating to that
Advance. Lender shall maintain a record of all Advances, the interest accrued
thereon, and all payments made with respect thereto, and such record shall,
absent proof of manifest error, be conclusive evidence of the outstanding
principal and interest on the Advances. All payments shall be made by wire
transfer of immediately available funds, or by check, without setoff, deduction
or counterclaim. Wire transfers shall be made to ABA No. 101104562 for advice to
and credit of Lender (or to such other account as Lender may direct by notice).
CGI shall give Lender telephonic notice no later than 12:00 noon Mountain Time
of its intent to pay by wire and funds received after 2:00 p.m. Mountain Time
shall be credited on the next business day. Checks shall be mailed to Farm
Credit Bank of Wichita, 245 N. Waco, Wichita, KS 67201-2940 (or to such other
place as Lender may direct by notice). Credit for payment by check will not be
given until the latter of: (a) the day on which Lender receives immediately
available funds; or (b) the next business day after receipt of the check.
SECTION 2.3 CAPITALIZATION. Stock purchase and conversion shall be made
according to the terms, conditions and designations outlined in the Farm Credit
Act of 1971, as amended (12 U.S.C. (S) 2074), regulations and Lender's bylaws,
including without limitation Lender's statutory first Lien on CGI's stock in
Lender, which Lien CGI acknowledges and expressly hereby grants to Lender. CGI
acknowledges that retirement of stock will be in accordance with Law, regulation
and Lender's bylaws. If an Event of Default shall occur and continue after any
applicable grace period, Lender may retire the stock at book value (not to
exceed par value or face amount) and apply the proceeds to the principal amount
of the Advances outstanding at the time, or to interest, in accordance with Law,
regulations and Lender's bylaws in effect at the time of retirement. If book
value of stock is ever less than par value or face amount of if Lender's capital
becomes impaired, Lender may retire stock in an amount equal to book value. Such
a retirement will in no way affect CGI's obligations under the Loan Documents,
including any amounts borrowed to purchase stock.
SECTION 2.4 SECURITY. To secure the payment of the Advances and the
performance of all obligations of Debtor under the Loan Documents, Debtor
hereby grants to Lender a continuing security interest in and to the following
property and interests in property of Debtor, whether now owned or existing or
hereafter acquired or arising and wheresoever located: all Accounts, Inventory,
Equip-
4
<PAGE>
ment, Fixtures, Farm Products, General Intangibles, Chattel Paper, Instruments,
Documents, Intellectual Property (including specifically without limitation
patents and patent licenses, trademarks, design marks, word marks, tradenames,
logos, and good will connected therewith), and all accessions to, substitutions
for, and all replacements, products and proceeds of the foregoing (including
without limitation, proceeds of insurance policies insuring any of the
foregoing), all books and records (including without limitation customer lists,
credit files, computer programs, printouts, data whether stored electronically
or otherwise, and other computer materials and records) pertaining to any of the
foregoing, and all insurance policies insuring any of the above collateral (the
"Collateral").
SECTION 2.5 CAPITAL ADEQUACY. If after the date hereof Lender shall have
determined that the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by the Farm Credit Administration ("FCA"), Lender's
regulator, or any successor agency thereto, or compliance by Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) of FCA, has or would have the effect of reducing the rate of return on
Lender's capital as a consequence of its obligations hereunder or the
transactions contemplated hereby to a level below that which Lender could have
achieved but for such adoption, change or compliance (taking into consideration
Lender's policies with respect to capital adequacy) by an amount deemed by
Lender to be material, then from time to time, within ten (10) Business Days
after demand by Lender, CGI shall pay to Lender such additional amount or
amounts as will compensate Lender for such reduction. A certificate of Lender
claiming compensation under this section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive, provided that the
determination thereof is made on a reasonable basis. However, to the extent
capital costs relate to Lender's loans in general and not specifically to a loan
hereunder, Lender shall use reasonable averaging and attribution methods. In
addition, Lender agrees that, as promptly as practical after it becomes aware of
the occurrence of an event or the existence of a condition that would entitle it
to exercise its rights under this Section, it will use commercially reasonable
efforts to make, fund or maintain the affected Advances through another
participant if (1) as a result thereof the additional money that would otherwise
be required to be paid in respect of such Advances would be reduced, and (2) the
making, funding or maintaining of such Advances through such other participant
would not adversely affect such Advances or Lender. Finally, if Lender is to
require CGI to make payments under this Section then Lender must make a demand
on CGI to make such payment within ninety (90) days of the later of (1) the date
on which such capital costs are actually incurred by Lender, or (2) the date
on which Lender knows, or should have known, that such capital costs have been
incurred by Lender.
SECTION 2.6 BROKEN FUNDING SURCHARGE. Notwithstanding any provision
contained in any Supplement giving CGI the right to repay any loan prior to the
date it would otherwise be due and payable, CGI agrees that in the event it
repays any fixed rate balance prior to its scheduled due date or prior to the
last day of the fixed rate period applicable thereto (whether such payment is
made voluntarily, as a mandatory prepayment, as a result of an acceleration,
or otherwise), CGI will pay to Lender a surcharge in an amount which would
result in Lender being made whole (on a present value basis) for the actual or
imputed funding losses (including without limitation any loss, cost or expense
incurred by reason of obtaining, liquidating or employing other funds acquired
by Lender to fund or maintain the fixed rate balance being prepaid) incurred by
Lender as a result thereof. Such surcharges will be calculated in accordance
with methodology established by Lender (a copy of which will be made available
to CGI upon request and shall be conclusive absent manifest error).
5
<PAGE>
SECTION 2.7 COMPUTATION OF INTEREST. Interest on all outstanding balances
on all Supplements shall be computed on the basis of a year consisting of 365
days and the actual number of days elapsed. In computing interest, the day of
Advance shall be included and the day of repayment shall be excluded.
SECTION 2.8 SECURED GUARANTEE. All of the obligations of CGI hereunder,
including without limitation CGI's obligations to repay any and all Advances
hereunder and under any Supplement hereto as and when any repayment is due,
to make payments under Sections 2.3 or 2.5 hereof or to comply with all
non-monetary covenants hereof, shall have the continuing and unlimited Guarantee
(the "Guarantee") of Holdings, secured by a first priority security interest in
all of its property other than the CG Member stock, but including without
limitation a pledge of Holdings' interests in the stock of CGI (the "Holdings
Pledge"). Further, as security for LLC's obligations under any Supplement
hereto, CG Member shall pledge (the "CG Member Pledge") to Lender all of its
right, title and interest in and to 100% of the membership interests in LLC..
ARTICLE 3
CONDITIONS PRECEDENT
SECTION 3.1 THE GUARANTEE. Notwithstanding the insufficiency of the MLA
to cause an Advance without a Supplement hereto relating to a specific loan, it
shall be a condition precedent to the effectiveness of the MLA that Lender
receive: the Guarantee in the form attached hereto as Exhibit "F"; a certified
copy of a resolution of the Board of Directors of Holdings authorizing the
Guarantee; an opinion of counsel to Holdings; and evidence satisfactory to
Lender that Lender has a duly perfected first lien in all security provided
therein; the CG Member Pledge in the form attached hereto as Exhibit G; a
certified copy of a resolution of the Board of Directors of CG Member
authorizing the CG Pledge; an opinion of counsel of CG Member; and evidence
satisfactory to Lender that Lender has a duly perfected first priority Lien in
all security provided therein.
SECTION 3.2 CONDITIONS TO INITIAL SUPPLEMENT. Lender's obligation to
extend credit under the initial Supplement hereto is subject to the conditions
precedent that Lender receive, in form and content satisfactory to Lender and
its counsel in their reasonable determination, each of the following:
(A) THE MLA, ETC. A duly executed copy of the MLA and all Loan
Documents contemplated hereby.
(B) OPINION OF CGI'S COUNSEL. A favorable opinion of legal counsel
to CGI, as to such matters as Lender may reasonably request.
(C) LIEN SEARCHES. The results of a search of the records of the
Secretary of State of the States of Colorado and New Mexico; of such counties in
Colorado and New Mexico as Lender may request; of the records relating to
Effective Financing Statements under the Colorado Central Indexing System in
Colorado and the appropriate statutory provision implementing the Food Security
Act in New Mexico as Lender may request; and the U.S. Patent and Trademark
Office, all relating to the Collateral and all being as of a current date.
6
<PAGE>
SECTION 3.3 CONDITIONS TO EACH SUPPLEMENT. Lender's obligation to extend
credit under each Supplement, including the initial Supplement, is subject to
the conditions precedent that Lender receive, in form and content satisfactory
to Lender in its reasonable determination, each of the following:
(A) SUPPLEMENT. A duly executed copy of the Supplement and all
Loan Documents contemplated thereby.
(B) EVIDENCE OF AUTHORITY. Such certified board resolutions,
evidence of incumbency, and other evidence that Lender may require that the
Supplement, all Loan Documents executed in connection therewith, and, in the
case of initial Supplement hereto, the MLA and all Loan Documents executed in
connection herewith, have been duly authorized and executed.
(C) RECEIPT OF OFFICER'S CERTIFICATES, TITLE OPINIONS, OPINIONS OF
COUNSEL. All officer's certificates, management letters, legal opinions and the
like relating to compliance with Loan Documents, the absence of default and
other matters called for in the respective Supplement.
(D) FEES AND OTHER CHARGES. All fees and other charges, including
reasonable attorney fees and costs to be paid to Lender or to others on Lender's
behalf, provided for herein or in the Supplement have been paid in full.
(E) EVIDENCE OF PERFECTION. Such evidence as Lender may, in its
reasonable discretion, require that Lender has a duly perfected first priority
lien on all security for CGI's obligations.
SECTION 3.4 CONDITIONS TO EACH ADVANCE. Lender's obligation under each
Supplement to make any Advance to CGI hereunder is subject to the condition that
no Event of Default or event which with the giving of notice and/or the passage
of time would become an Event of Default hereunder (a "Potential Default"),
shall have occurred and is continuing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 THE MASTER LOAN AGREEMENT. To induce Lender to enter into the
Agreement, CGI represents and warrants to Lender that as of the date of the MLA,
subject to the exceptions set forth on Exhibit B attached hereto (the
"Disclosure Schedule"):
(A) COMPLIANCE. CGI is in compliance with all the terms of the
MLA, and no Event of Default or Potential Default exists hereunder.
(B) ORGANIZATION; POWER; ETC. CGI (i) is duly organized, validly
existing, and in good standing under the laws of its state of incorporation;
(ii) is duly qualified to do business and is in good standing in each
jurisdiction in which the transaction of its business makes such qualification
necessary; (iii) has all requisite corporate and legal power to own and operate
its assets and to carry on its business and to enter into and perform the Loan
Documents; and (iv) has duly and lawfully obtained
7
<PAGE>
and maintained all licenses, certificates, permits, authorizations, approvals,
and the like which are material to the conduct of its business or which may
otherwise be required by Law.
(C) DUE AUTHORIZATION; NO VIOLATIONS; ETC. The execution and
delivery by CGI of, and the performance by CGI of its obligations under the Loan
Documents have been duly authorized by all requisite corporate action on the
part of CGI and do not and will not (i) violate any provision of any Law, the
articles of incorporation or bylaws of CGI, or any agreements, indenture,
mortgage, or other instrument to which CGI is a party or by which CGI or any of
its properties is bound or (ii) be in conflict with, result in a breach of, or
constitute with the giving of notice or lapse of time, or both, a default under
any such agreement, indenture, mortgage, or other instrument. No action on the
part of any shareholder of CGI is necessary in connection with the execution and
delivery by CGI of and the performance by CGI of its obligations under the Loan
Documents except such as has been obtained and is in effect.
(D) CONSENTS. No consent, permission, authorization, order, or
license of any governmental authority is necessary in connection with the
execution, delivery, performance, or enforcement of the Loan Documents, except
such as have been obtained and are in full force and effect.
(E) COMPLIANCE WITH LAWS. CGI is in compliance in all material
respects with all federal, state, and local laws, rules, regulations,
ordinances, codes, and orders, any judgment, order or ruling of any court or
governmental organization (collectively, "Laws"), the failure to comply with
which could have a material adverse effect on the condition, financial or
otherwise, operations, properties or business of CGI, or on the ability of CGI
to perform its obligations under the Loan Documents, except as CGI has disclosed
on Exhibit B attached hereto.
(F) ENVIRONMENTAL COMPLIANCE. Without limiting the provisions of
Section 4.1(e) above, all property owned or leased by CGI and all operations
conducted by it are in compliance in all material respects with all Laws
relating to environmental protection, the failure to comply with which could
have a material adverse effect on the condition, financial or otherwise,
operations, properties, or business of CGI, or on the ability of CGI to perform
its obligations under the Loan Documents, except as CGI has disclosed on
Exhibit B attached hereto.
(G) LITIGATION. There are no pending legal, arbitration, or
governmental actions or proceedings to which CGI is a party or to which any of
its property is subject which, if adversely determined, could have a material
adverse effect on the condition, financial or otherwise, operations, properties,
or business of CGI, or on the ability of CGI to perform its obligations under
the Loan Documents, and to the best of CGI's knowledge, no such actions or
proceedings are threatened or contemplated, except as CGI has disclosed on
Exhibit B attached hereto.
(H) TITLE TO PROPERTY. CGI holds good and marketable title to all of
its real property and owns all of its personal property free and clear of any
lien or encumbrance, except the liens and encumbrances specifically identified
on Exhibit C attached hereto ("Existing Liens").
(I) FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE; ETC. All
financial statements submitted to Lender in connection with this MLA fairly and
fully present the financial condition of CGI and the results of CGI's operations
for the periods covered thereby, and are prepared in accordance with GAAP. Since
the dates thereof, there has been no material adverse change in the
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financial condition or operations of CGI. All budgets, projections, feasibility
studies, and other documentation submitted by CGI to Lender are based upon
assumptions that are reasonable and realistic, and as of the date hereof, no
fact has come to light, and no event or transaction has occurred, which would
cause any assumption made therein not to be reasonable or realistic.
(J) PRINCIPAL PLACE OF BUSINESS; RECORDS. The principal place of
business and chief executive office of CGI and the place where the records
required by Section 5.6 hereof are kept is at the address of CGI shown in
Section 10.4 hereof. Records may also be located at CGI's offices at 4845 Pearl
East Circle, Suite 300, Boulder, CO 80301.
(K) SUBSIDIARIES. CGI has no subsidiaries.
SECTION 4.2 EACH SUPPLEMENT. The execution by CGI of each Supplement
hereto shall constitute a representation and warranty to Lender that:
(A) APPLICATIONS. Each representation and warranty and all
information set forth in any application or other document submitted in
connection with, or to induce Lender to enter into such Supplement, is correct
in all material respects as of the date of the Supplement.
(B) CONFLICTING AGREEMENTS, ETC. The MLA, the Supplements, and
all security and other instruments and documents relating hereto and thereto,
including without limitation the Guarantee (collectively, at any time, the "Loan
Documents"), do not conflict with, or require the consent of any party to, any
other agreement to which CGI is a party or by which it or its property may be
bound or affected, and do not conflict with any provision of CGI's bylaws,
articles of incorporation, or other organizational documents.
(C) COMPLIANCE. CGI is in compliance with all of the terms of the
Loan Documents.
SECTION 4.3 BINDING AGREEMENT. Each of the Loan Documents create legal,
valid, and binding obligations of CGI which are enforceable in accordance with
their terms, except to the extent that enforcement may be limited by applicable
bankruptcy, insolvency, or similar Laws affecting creditors' rights generally.
ARTICLE 5
AFFIRMATIVE COVENANTS
Unless agreed to in writing by Lender, while the MLA and any Supplements
thereto are in effect, whether or not any Advances are outstanding, CGI agrees
to:
SECTION 5.1 CORPORATE EXISTENCE, LICENSES, ETC. (i) Preserve and keep in
full force and effect its existence and good standing, in the jurisdiction of
its incorporation or formation; (ii) qualify and remain qualified to transact
business in all jurisdictions where such qualification is required; and (iii)
obtain and maintain all licenses, certificates, permits, authorizations,
approvals, and the like which are material to the conduct of its business or
required by Law.
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SECTION 5.2 COMPLIANCE WITH LAWS. Comply in all material respects with
all applicable Laws, including, without limitation, all Laws relating to
environmental protection. In addition, CGI agrees to cause all Persons occupying
or present on any of its properties to comply in all material respects with all
environmental protection Laws.
SECTION 5.3 INSURANCE. Maintain insurance with insurance companies or
associations acceptable to Lender in such amounts and covering such risks as are
usually carried by companies engaged in the same or similar business and
similarly situated, and make such increases in the type or amount of coverage as
Lender reasonably may request. All such policies insuring any collateral for
CGI's obligations to Lender shall have mortgagee or lender loss payable clauses
or endorsements in form and content acceptable to Lender in its reasonable
discretion. At Lender's request, all policies or certificates of insurance (or
such other proof of compliance with this subsection as may be satisfactory to
Lender) shall be delivered to Lender. If an Event of Default shall have occurred
and is continuing, all insurance payments for all insured losses shall be paid
to Lender to be applied against the outstanding balances of the Advances, first
with respect to the nature of the insured loss (whether the loss insured against
arose with respect to Advances under any particular Supplement), then in the
order otherwise provided is Section 9.4 hereof.
SECTION 5.4 PROPERTY MAINTENANCE. Maintain all of its property that is
necessary to or useful in the proper conduct of its business in good working
condition, ordinary wear and tear excepted.
SECTION 5.5 BOOKS AND RECORDS. Keep adequate records and books of account
in which complete entries will be made in accordance with GAAP.
SECTION 5.6 INSPECTION. Permit Lender or its agents, upon reasonable
notice and during normal business hours or at such other times as the parties
may agree, to examine its properties, books, and records, and to discuss its
affairs, finances, and accounts with its respective officers, directors,
employees, and independent certified public accountants.
SECTION 5.7 REPORTS AND NOTICES. Furnish to Lender:
(A) ANNUAL FINANCIAL STATEMENTS. As soon as available, but in no
event more than 120 days after the end of each fiscal year of CGI occurring
during the term hereof, annual consolidated financial statements of CGI prepared
in accordance with GAAP. Such financial statements shall: (a) be audited by
Arthur Anderson & Co. or other independent certified public accountants selected
by CGI and acceptable to Lender in its reasonable discretion (the "CGI
Accountant"); (b) be accompanied by a report of the CGI Accountant containing
its opinion thereon acceptable to Lender; (c) be prepared in reasonable detail
and in comparative form; and (d) include a balance sheet, a statement of income,
a statement of retained earnings, a statement of cash flows, and all notes and
schedules relating thereto.
(B) INTERIM FINANCIAL STATEMENTS. As soon as available, but in no
event more than 30 days after the end of each quarter, a consolidated balance
sheet of CGI as of the end of such quarter, a consolidated statement of income
for CGI for such period and for the period year to date, and such other interim
statements as Lender may specifically request, all prepared in reasonable detail
and in comparative form in accordance with GAAP.
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(C) ANNUAL BUDGET. Not later than thirty (30) days before the end of
each fiscal year of CGI, an annual budget for the ensuing fiscal year providing
in reasonable detail projections of the revenues and expenses, balance sheet and
capital expenditures and such other budgetary information as is appropriate or
as Lender may request.
(D) NOTICE OF DEFAULT. Promptly after becoming aware thereof, notice
of the occurrence of an Event of Default or a Potential Default.
(E) NOTICE OF NON-ENVIRONMENTAL LITIGATION. Promptly after the
commencement thereof, notice of the commencement of all actions, suits, or
proceedings before any court, arbitrator, or governmental department,
commission, board, bureau, agency, or instrumentality affecting CGI which, if
determined adversely to CGI, could have a material adverse effect on the
financial condition, properties, profits, or operations of CGI.
(F) NOTICE OF ENVIRONMENTAL LITIGATION, ETC. Promptly after receipt
thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or any other communication alleging a condition that may require
CGI to undertake or to contribute to a cleanup or other response under
environmental Laws, or which seek penalties, damages, injunctive relief, or
criminal sanctions related to alleged violations of such Laws, or which claim
personal injury or property damage to any Person as a result of environmental
factors or conditions.
(G) BYLAWS AND ARTICLES. Promptly after any change in CGI's bylaws
or articles of incorporation (or like documents), copies of all such changes,
certified by CGI's Secretary.
(H) REPORTS AND NOTICES TO OR FROM OTHERS. Concurrent with the
filing of reports or notices to any other Person or received from any other
Person, pursuant to the terms of any credit or similar agreement relating to any
debt; or, to or from any shareholder or the Securities & Exchange Commission;
or, required by or sent from the Pension Benefit Guaranty Corporation or the
U.S. Department of Labor under ERISA; or, in accordance with any contract or any
Laws, provide to Lender a copy of such report or notice.
(I) COMPLIANCE CERTIFICATE. Concurrent with the delivery of each of
the financial statements referred to herein, a Compliance Certificate executed
by the chief financial officer of CGI.
(J) MANAGEMENT LETTERS. Promptly upon receipt thereof, a copy of any
management letter or written report submitted to CGI by independent certified
public accountants with respect to the business, condition (financial or
otherwise), operations, prospects, or properties of CGI.
(K) OTHER INFORMATION. Such other information regarding the
condition or operations, financial or otherwise, of CGI as Lender may from
time to time reasonably request.
SECTION 5.8 PERISHABLE AGRICULTURAL COMMODITIES ACT. Comply in all
material respects with the Perishable Agricultural Commodities Act, as amended
(7 U.S.C. (S)(S) 499(c)(e)) and the regulations promulgated thereunder, so that
the trust for the benefit of all unpaid suppliers or sellers of perishable
agricultural commodities (i) shall arise in CGI's favor in its capacity as a
seller of perishable agricultural commodities and (ii) shall not arise in
connection with its purchase of such commodities.
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ARTICLE 6
NEGATIVE COVENANTS
Unless otherwise agreed to in writing by Lender, while this MLA and any
Supplement hereto is in effect, whether or not any Advance is outstanding, CGI
will not:
SECTION 6.1 BORROWINGS. Create, incur, assume, or allow to exist,
directly or indirectly, any indebtedness or liability for borrowed money
(including, trade or bankers' acceptances), letters of credit, or the deferred
purchase price of property or services (including capitalized leases), except
for: (i) debt to Lender; (ii) accounts payable to trade creditors incurred in
the ordinary course of business; and (iii) current operating liabilities (other
than for borrowed money) incurred in the ordinary course of business; and (iv)
the total current operating lease debt with Colorado National Leasing not to
exceed $665,000.
SECTION 6.2 LIENS. Create, incur, assume, or allow to exist any mortgage,
deed of trust, pledge, lien (including the lien of an attachment, judgment, or
execution), security interest, or other encumbrance of any kind upon any of its
property, real or personal (collectively, "Liens"). The foregoing restrictions
shall not apply to: (i) Liens in favor of Lender; (ii) Liens for taxes,
assessments, or governmental charges that are not past due, or if past due, are
being contested in good faith and by appropriate proceedings, the amount secured
(including interest and penalties) does not exceed $100,000.00, the Liens are
stayed and adequate reserves have been established in accordance with GAAP;
(iii) Liens and deposits under workers' compensation, unemployment insurance,
and security Laws; (iv) Liens and deposits to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), and like
obligations arising in the ordinary course of business as conducted on the date
hereof; (v) Liens imposed by Law in favor of mechanics, warehousemen, and like
Persons that secure obligations that are not past due or if past due, are being
contested in good faith and by appropriate proceedings, the Liens are stayed,
and adequate reserves have been established in accordance with GAAP; and (vi)
easements, rights-of-way, restrictions, and other similar encumbrances which,
in the aggregate, do not materially interfere with the occupation, use, and
enjoyment of the property or assets encumbered thereby in the normal course of
its business or materially impair the value of the property subject thereto
("Permitted Encumbrances").
SECTION 6.3 MERGERS, ACQUISITIONS, ETC. Merge or consolidate with any
other entity or acquire all or a material part of the assets of any Person or
entity, or form or create any new subsidiary or affiliate, or commence
operations under any other name, organization, or entity, including, any joint
venture.
SECTION 6.4 TRANSFER OF ASSETS. Sell, transfer, lease, or otherwise
dispose of any of its assets, except in the ordinary course of business.
SECTION 6.5 LOANS AND INVESTMENTS: Make any advance, loan, extension or
credit, or capital contribution to or investment in, or purchase, any stock,
bonds, notes, debentures, or other securities of any Person, except:
(a) short term operating loans to LLC, not to exceed ONE MILLION FIVE
HUNDRED THOUSAND ($1,500,000) at any one time outstanding;
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(b) readily marketable direct obligations of the United States of
America;
(c) fully insured certificates of deposit with maturities of one year
or less from the date of acquisition of any commercial bank operating in the
United States having capital and surplus in excess of $50,000,000.00; and
(d) commercial paper of a domestic issuer if at the time of purchase
such paper is reported in one of the two highest rating categories of Standard
and Poor's Corporation or Moody's Investors Service.
(e) Cash Management Investment Bonds offered through the Member
Investment Bond Program of the Farm Credit Bank of Wichita. Such bonds are
uninsured and unsecured general obligations of FCBW and exempt from registration
under Federal Law.
SECTION 6.6 CONTINGENT LIABILITIES. Assume, guarantee, become liable as a
surety, endorse, contingently agree to purchase, or otherwise be or become
liable, directly or indirectly (including, but not limited to, by means of a
maintenance agreement, an asset or stock purchase agreement, or any other
agreement designed to ensure any creditor against loss), for or on account of
the obligation of any Person or entity, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
SECTION 6.7 CHANGE IN BUSINESS. Engage in any business activities or
operations substantially different from or unrelated to CGI's present business
activities or operations.
SECTION 6.8 RESTRICTED PAYMENTS: Declare or make any distribution (in
cash, property, or obligations) to its shareholders or return any capital
contribution to its shareholders or set apart any money for a sinking or other
analogous fund for any distribution to its shareholders or for any return of any
capital contribution to its shareholders without prior written consent of
Lender.
SECTION 6.9 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of property or
the rendering of any service, with any Affiliate of CGI except in the ordinary
course of and pursuant to the reasonable requirements of CGI's business and upon
fair and reasonable terms no less favorable to CGI than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of CGI.
SECTION 6.10 CAPITAL EXPENDITURE LIMITS. Permit its capital expenditures
(not including Advances under any Supplement hereto and all costs associated
with the construction of CGI's new greenhouses, or costs relating to project
implementations which are required to be capitalized under GAAP) to exceed
$750,000 per year in the aggregate without prior written approval of Lender,
which approval shall not be unreasonably withheld.
ARTICLE 7
FINANCIAL COVENANTS
Unless otherwise agreed to in writing, while this MLA is in effect, CGI
shall:
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SECTION 7.1 CURRENT RATIO. Maintain at all times a Current Ratio (defined
as current assets divided by current liabilities) of not less than 1.5 to 1.
SECTION 7.2 NET WORTH. Maintain at all times a Net Worth (defined in
accordance with GAAP, including the aggregate of all equity and retained
earnings (or losses) greater than $12.5 million plus one-half of net earnings
(losses excluded) on a going-forward basis.
SECTION 7.3 DEBT SERVICE COVERAGE RATIO. Maintain at all times a Debt
Service Coverage Ratio (net cash income divided by debt service (principal and
interest) of greater than 1.25 to 1.
ARTICLE 8
EVENTS OF DEFAULT
Each of the following shall constitute an "Event of Default" under the MLA:
SECTION 8.1 PAYMENT DEFAULT. CGI should fail to make any payment to, or
to purchase any stock in, Lender within five (5) days of the date when due.
SECTION 8.2 REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made or deemed made by CGI herein or in any Supplement, application,
agreement, certificate, or other document related to or furnished in
connection with the MLA or any Supplement, shall prove to have been false or
misleading in any material respect on or as of the date made or deemed made.
SECTION 8.3 CERTAIN AFFIRMATIVE COVENANTS. CGI should fail to perform or
comply with Section 5.8, or any reporting covenant set forth in any Supplement
hereto, and such failure continues for fifteen (15) days after written notice
(if such notice is required) thereof shall have been delivered by Lender to CGI.
SECTION 8.4 OTHER COVENANTS AND AGREEMENTS. CGI or, to the extent
required hereunder, should fail to perform or comply with any other covenant or
agreement contained herein, in any Supplement or in any other Loan Document, or
should use the proceeds of any loan for an unauthorized purpose.
SECTION 8.5 CROSS-DEFAULT. CGI should, after any applicable grace period,
breach or be in default under the terms of any other agreement between CGI and
Lender.
SECTION 8.6 OTHER INDEBTEDNESS. CGI or should fail to pay when due any
indebtedness to any other Person or entity for borrowed money or any long term
obligation for the deferred purchase price of property (including any
capitalized lease), or any other event occurs which, under any agreement or
instrument relating to such indebtedness or obligation, has the effect of
accelerating, or permitting the acceleration of such indebtedness or obligation,
whether or not such indebtedness or obligation is actually accelerated or the
right to accelerate is conditioned on the giving of notice, the passage of time,
or otherwise.
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SECTION 8.7 JUDGMENTS. A judgment decree, or order for the payment of
money, shall be rendered against CGI and either (i) enforcement proceedings
shall have been commenced; (ii) a Lien prohibited under Section 6.2 of the MLA
shall have been obtained; or (iii) such judgment, decree or order shall continue
unsatisfied and in effect for a period of twenty (20) consecutive days without
being vacated, discharged, satisfied, or stayed pending appeal, with adequate
reserves having been established therefor in accordance with GAAP.
SECTION 8.8 INSOLVENCY, ETC. CGI shall: (i) become insolvent or shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they come due; or (ii) suspend its business operations or a
material part thereof or make an assignment for the benefit of creditor; or
(iii) apply for, consent to, or acquiesce in the appointment of a trustee,
receiver, or other custodian for it or any of its property or, in the absence of
such application, consent, or acquiescence, a trustee, receiver, or other
custodian is so appointed; or (iv) commence or have commenced against it any
proceeding under any bankruptcy, reorganization arrangement, readjustment of
debt, dissolution, or liquidation Law of any jurisdiction.
SECTION 8.9 MATERIAL ADVERSE CHANGE. Any material adverse change occurs,
as reasonably determined by Lender, in CGI's financial condition, results of
operations or ability to perform its obligations hereunder or under any Loan
Document.
SECTION 8.10 THE GUARANTEE. Any of the Guarantee, Holdings Pledge or CG
Member Pledge shall, at any time after its execution, cease to be in full force
and effect; or shall be revoked or declared null and void; or the validity or
enforceability of any such agreement shall be contested by Holdings or CG
Member, respectively; or Holdings or CG Member, respectively, shall deny any
further liability or obligation under any such agreement; or any representation
or warranty set forth in any such agreement shall be breached; or Holdings or CG
Member should breach or be in default under the terms of any other agreement
with Lender, or any event of default set forth in Sections 8.7, 8.8 or 8.9
above should occur with respect to Holdings or CG Member, respectively.
ARTICLE 9
REMEDIES
Upon the occurrence and during the continuance of an Event of Default:
SECTION 9.1 TERMINATION, ACCELERATION, ETC. Lender shall have no
obligation to continue to extend credit to CGI and may discontinue doing so at
any time without prior notice. In addition, upon the occurrence and during the
continuance of any Event of Default, Lender may, upon notice to CGI, terminate
any commitment and declare the entire unpaid principal balance of the loans, all
accrued interest thereon, and all other amounts payable under this MLA, all
Supplements, and the other Loan Documents, to be immediately due and payable.
Upon such a declaration, the unpaid principal balance of the loans and all such
other amounts shall become immediately due and payable, without protest,
presentment, demand, or further notice of any kind, all of which are hereby
expressly waived by CGI.
SECTION 9.2 ENFORCEMENT. Lender may proceed to protect, exercise, and
enforce such rights and remedies as may be provided by this MLA, any other Loan
Document or under Law. Each and every one of such rights and remedies shall be
cumulative and may be exercised from time to time,
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and no failure on the part of Lender to exercise, and no delay in exercising,
any right or remedy shall operate as a waiver thereof, and no single or partial
exercise of any right or remedy shall preclude any other or future exercise
thereof, or the exercise of any other right. Without limiting the foregoing,
Lender may hold and/or set off and apply against CGI's obligations to Lender the
proceeds of any stock in Lender, any cash collateral held by Lender, or any
balances held by Lender for the CGI's account (whether or not such balances are
then due).
SECTION 9.3 APPOINTMENT OF RECEIVER. The Lender shall be entitled to
apply for and obtain, without notice and upon ex parte application, the
appointment of a receiver for the Collateral without regard to CGI's financial
condition or solvency, the adequacy of the Collateral to secure the payment of
the Advances, or the performance of the Loan Documents, or the existence of any
waste to the Collateral. The receiver so appointed shall have all the powers
and authority usually held by receivers and reasonably necessary to accomplish
the purposes herein stated, including without limitation the following: (a) to
take charge of the Collateral and any and all personal property used therewith,
including, but not limited to, rental payments, lease payments, security
deposits, records, contracts, leases, and fixtures used or associated therewith,
if any; (b) maintain and protect the Collateral; (c) pay debts secured by the
Collateral to the extent appropriate, arrange and pay for appropriate insurance
for the receivership property; (d) deposit all sums received in a bank in the
name of the receiver, as receiver, and make payments as required; (e) account to
the court for all sums received, expenditures made and debt service paid; (f)
report to the court from time to time; (g) to the extent Lender advances funds
pursuant to the Loan Documents, if it elects to do so, or from other funds that
may become available, to complete the construction of, repair and maintain
improvements located on the Collateral in the event that the receiver determines
that such completion, repair and maintenance is appropriate and with said
amounts so disbursed to be considered as an additional indebtedness to CGI and
secured by the Mortgage; (h) to borrow funds from Lender or other parties, under
such terms that the receiver determines are reasonable, to the extent that the
receiver determines such funds are necessary for the completion, repair or
maintenance of the Collateral. In case of such borrowing, the receiver may issue
a receivership certificate to the Lender which receivership certificate shall
constitute a lien against the Collateral which is senior and prior to any and
all other liens; (i) to ratify, confirm, renegotiate, and hold all leases,
contracts, or other agreements related to the sale or operation of the
Collateral and to sell said Collateral on such terms and conditions as the
receiver deems appropriate; (j) to use rents and receipts from the Collateral
and from such funds as may be advanced by Lender or other parties for payment of
expenses of the receivership and of the Collateral; (k) to enter into contracts
with third parties to accomplish any of the powers of the receivership,
including hiring; (l) to do any and all acts necessary and convenient or
incidental to the foregoing; (m) to lease or rent the Collateral, if deemed
advisable by the receiver on such terms as are customary; (n) to sell the
Collateral or any portion thereof, in its present condition or upon completion
of construction, upon terms that are customary, and to issue as appropriate any
receiver's certificate and to report to the court as appropriate on the status
of the completion of construction and sale. The receiver shall supply the court
a report detailing the status of any sale of the subject property and
disposition of all sale proceeds; and (o) if the receiver deems appropriate, the
receiver may make changes in the plans and specifications, work, or materials as
it may deem appropriate, and to enter into, modify or terminate any contractual
arrangements as deemed appropriate.
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SECTION 9.4 APPLICATION OF FUNDS. Lender will apply all payments received
by it to CGI's obligations to Lender first to costs (including Lender's
reasonable attorney fees), then to interest, and then to principal, and any
remaining sums to be paid to other Persons as their interests may appear.
SECTION 9.5 DEFAULT INTEREST RATE. In addition to the rights and remedies
set forth above: (i) if CGI fails to purchase any stock in Lender when required,
subject to Sections 2.3 or 2.5 hereof, or fails to make any payment to Lender
when due, then at Lender's option in each instance, such obligation or payment
shall bear interest at four percent (4%) per annum in excess of the applicable
interest rate; and (ii) after the maturity of any loan, whether by reason of
acceleration or otherwise, the unpaid balance of the loan shall automatically
bear interest at four percent (4%) per annum in excess of the rates that would
otherwise be in effect on such loan. All interest provided for herein shall be
payable on demand and shall be calculated from the date such payment was due to
the date paid on the basis of a year consisting of 365 days.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 COMPLETE AGREEMENT; AMENDMENTS. This MLA, all Supplements,
and all other instruments and documents contemplated hereby and thereby, are
intended by the parties to be a complete and final expression of their
agreement. No amendment, modification or waiver of any provision hereof or
thereof, and no consent to any departure by CGI herefrom or therefrom, shall be
effective against Lender unless approved by Lender and contained in a writing
signed by or on behalf of Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. In the event this MLA is amended or restated, each such amendment or
restatement shall be applicable to all Supplements hereto to the extent there is
no direct conflict with any such Supplement.
SECTION 10.2 OTHER TYPES OF CREDIT. From time to time, Lender and CGI may
wish to make other credit accommodations for the account of CGI. In the event
the parties desire to do so under the terms of this MLA, such extensions of
credit may be set forth in any Supplement hereto and this MLA shall be
applicable thereto.
SECTION 10.3 APPLICABLE LAW. Except to the extent governed by applicable
Federal Law, this MLA and each Supplement shall be governed by and construed in
accordance with the Laws of the State of Colorado, without reference to choice
of law doctrine.
SECTION 10.4 NOTICES. All notices hereunder shall be in writing and shall
be deemed to be duly given upon delivery if personally delivered or sent by
telegram or facsimile transmission, or three (3) days after mailing if sent by
express mail, certified mail, registered mail, or other courier service
providing a proof of service, to the parties at the following addresses (or such
other address for a party as shall be specific by like notice):
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If to Lender, as follows: If to CGI, as follows:
(a) Agribusiness Finance Group Colorado Greenhouse, Inc.
Colorado Springs Production 6811 Weld County Road 31
Credit Association P.O. Box 309
3625 Citadel Dr. S. Fort Lupton, CO 80621
P.O. Box 9290 FAX: 303-857-4049
Colorado Springs, CO 80932-9290
FAX: 719-570-6894
(b) Copy to: Farm Credit Bank of Wichita
245 N. Waco
Wichita, KS 67201-2940
FAX: 316-266-5121
SECTION 10.5 TAXES AND EXPENSES. CGI agrees to pay all reasonable
out-of-pocket taxes, costs and expenses (including the fees and expenses of
counsel retained by Lender) incurred by Lender in connection with the
origination, administration, collection, and enforcement of this MLA and the
other Loan Documents, including, without limitation, all costs and expenses
incurred in perfecting, maintaining, determining the priority of, and releasing
any security for CGI's obligations to Lender and any stamp, intangible,
transfer, or like tax payable in connection with this MLA or any other Loan
Document.
SECTION 10.6 ATTORNEY FEES AND COSTS. CGI will pay on demand all costs of
collection and all reasonable attorney fees, costs and expenses incurred or paid
by Lender in enforcing the Loan Documents upon default, whether or not a lawsuit
or foreclosure is commenced, and including, but not limited to, all attorney
fees, costs and expenses (1) incurred in any public trustee or judicial action
to foreclose any Mortgage or Deed of Trust; (2) incurred in any bankruptcy
proceeding, voluntary or involuntary, including , but not limited to, efforts to
modify or vacate any automatic stay or an injunction; and (3) incurred in any
appeals and any post-judgment action or proceedings. CGI will also pay on
demand all costs and expenses in any suit or proceedings in which Lender may be
obliged to defend or protect its interests, including, but not limited to,
reasonable attorney fees, costs and expenses. Any Advances made for these
purposes shall become part of the loan under the respective Supplement, shall be
secured by the Collateral, and shall become immediately due and payable in
accordance with the provisions thereof.
SECTION 10.7 EFFECTIVENESS AND SEVERABILITY. This MLA shall continue in
effect until: (i) all indebtedness and obligations of CGI under this MLA, all
Supplements, and all other Loan Documents shall have been paid or satisfied;
(ii) Lender has no commitment to extend credit to or for the account of CGI
under any Supplements; and (iii) either party sends written notice to the other
terminating this MLA. Any provision of this MLA or any other Loan Document
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof.
SECTION 10.8 SUCCESSORS AND ASSIGNS. This MLA, each Supplement, and the
other Loan Documents shall be binding upon and inure to the benefit of CGI and
Lender and their respective successors
18
<PAGE>
and assigns, except that CGI may not assign or transfer its rights or
obligations under this MLA, any Supplement or any other Loan Document without
the prior written consent of Lender.
SECTION 10.9 PARTICIPATIONS. From time to time, Lender may sell to one or
more banks, associations or other financial institutions a participation in one
or more of the loans or other extensions of credit made pursuant to this MLA.
However, no such participation shall relieve Lender of any commitment made to
CGI under any Supplement hereto. In connection with the foregoing, Lender may
disclose information concerning CGI, Holdings, CG Member, and LLC to any
participant or prospective participant, providing that the participant or
prospective participant agrees to keep such information confidential.
Notwithstanding the foregoing, Lender will maintain one Person, which shall be a
bank or association of the Farm Credit System, to which CGI may apply for all
consents, waivers, approvals or other matters requiring the meeting of the minds
of the parties, with the authority to bind all participants to such matters (the
"Servicing Entity"). Lender will, by appropriate notice, inform CGI of the name,
address, telephone number and contact person of the Servicing Entity.
SECTION 10.10 INDEMNIFICATION. CGI hereby indemnifies Lender and each
Affiliate thereof and their respective officers, directors, employees,
attorneys, and agents from, and holds each of them harmless against, any and all
losses, liabilities, claims, damages, penalties, judgments, costs, and expenses
(including attorneys' fees) to which any of them may become subject which
directly or indirectly arise from or relate to (a) the negotiation, execution,
delivery, performance, administration, or enforcement of any of the Loan
Documents, (b) any of the transactions contemplated by the Loan Documents, (c)
any breach by CGI of any representation, warranty, covenant, or other agreement
contained in any of the Loan Documents, (d) the presence, release, threatened
release, disposal, removal, or cleanup of any Hazardous Substance located on,
above, within, or affecting any of the properties or assets of CGI or the
Property , or (e) any investigation, litigation, or other proceedings,
including, without limitation, any threatened investigation, litigation, or
other proceeding relating to any of the foregoing. No Person to be indemnified
under this Section shall be indemnified from and held harmless against any
losses, liabilities, claims, damages, penalties, judgments, costs, and expenses
(including attorneys' fees) arising out of or resulting from the gross
negligence or willful misconduct of the Person to be indemnified.
SECTION 10.11 LIMITATION OF LIABILITY. Neither Lender nor any Affiliate,
officer, director, employee, attorney, agent or participant of Lender shall have
any liability with respect to, and CGI hereby waives, releases, and agrees not
to sue any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by CGI in connection with, arising
out of, or in any way related to, the MLA or any of the other Loan Documents, or
any of the transactions contemplated by the MLA or any of the other Loan
Documents. CGI hereby waives, releases, and agrees not to sue Lender or any of
Lender's Affiliates, officers, directors, employees, attorneys, agents, or
participants for punitive damages in respect of any claim in connection with,
arising out of, or in way related to, the MLA or any of the other Loan
Documents, or any of the transactions contemplated by the MLA or any of the
other Loan Documents.
SECTION 10.12 NO DUTY. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Lender shall have the right to
act exclusively in the interest of Lender and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to CGI or any of CGI's shareholders or any other Person.
19
<PAGE>
SECTION 10.13 LENDER NOT FIDUCIARY. The relationship between CGI and
Lender is solely that of debtor and creditor, and Lender has no fiduciary or
other special relationship with CGI, and no term or condition of any of the Loan
Documents shall be construed so as to deem the relationship between CGI and
Lender to be other than that of debtor and creditor.
SECTION 10.14 EQUITABLE RELIEF. CGI recognizes that in the event CGI
fails to pay, perform, observe, or discharge any or all of the obligations, any
remedy at law may prove to be inadequate relief to Lender. CGI therefore agrees
that Lender, if Lender so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
SECTION 10.15 COUNTERPARTS. The MLA 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 agreement.
SECTION 10.16 CONSTRUCTION. CGI and Lender acknowledge that each of them
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review the MLA and the other Loan Documents with its legal
counsel and that the MLA and the other Loan Documents shall be construed as if
jointly drafted by CGI and Lender.
SECTION 10.17 PATRONAGE WAIVER. CGI hereby waives and relinquishes any
and all rights and privileges, directly or indirectly, to receive or be awarded
any patronage refunds or dividends from Lender with respect to any loans made
pursuant to the MLA and any Supplement thereto. However, in the event of any
change in Lender's capitalization bylaws (referenced in Section 2.3 hereof) or
capital adequacy law, rule or regulation (referenced in Section 2.5 hereof)
which would require CGI to increase its capitalization of Lender, CGI may be
entitled to participate in Lender's patronage program as it exists at the time,
to the extent any patronage payments are authorized by Lender's Board of
Directors.
SECTION 10.18 USURY PREEMPTION. Pursuant to 12 U.S.C. (S) 2205, interest
rates on loans made by Lender are not subject to any interest rate limitation
imposed by any state constitution or statute or other Laws, such limitations
being specifically preempted by Federal Law.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
MASTER LOAN AGREEMENT
SIGNATURE PAGE
SECTION 10.19 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, CGI AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT
TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
IN WITNESS WHEREOF, the parties have caused this MLA to be executed by
their duly authorized officers as of the date shown above.
COLORADO SPRINGS PRODUCTION
CREDIT ASSOCIATION COLORADO GREENHOUSE, INC.
By: [SIGNATURE ILLEGIBLE] By: /s/ Ed Wetherbee
------------------------ ------------------------
Title: SR. V.P. - CREDIT Title: CEO
--------------------- ---------------------
21
<PAGE>
EXHIBIT A
TO
MASTER LOAN AGREEMENT
FOR PERIOD ___________
COLORADO GREENHOUSE, INC.
COMPLIANCE CERTIFICATE
To induce Lender to make and/or continue to make Advances to CGI and to
comply with and demonstrate compliance with the terms, covenants and conditions
of the MLA and all supplements thereto, this financial statement is furnished to
Lender. The undersigned certifies that (i) this statement was prepared from the
books and records of CGI, is in agreement with them, and is correct to the best
of the undersigned's knowledge and belief and (ii) no event has occurred which,
with notice or lapse of time, might become an Event of Default under the MLA or
any Supplement.
This certificate is attached to and made a part of CGI's Annual/Quarterly
report for the period above stated.
Required Actual
-------- ------
Current Ratio 1.5 to 1.0 ______
Net Worth $12.5 million, ______
plus one-half net earnings
Debt Service
Coverage Ratio 1.25 to 1.0 ______
Colorado Greenhouse, Inc.
By: _____________________________
(name)
_____________________________
(title)
_____________________________
(date)
<PAGE>
EXHIBIT B TO
MASTER LOAN AGREEMENT
---------------------
by and among
COLORADO GREENHOUSE, INC.
and
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
DISCLOSURE SCHEDULE
-------------------
Section 4.1(f) - Environmental Matters
- --------------------------------------
1. Phase I Environmental Site Assessment for East 1/2 of Section
10, Township 5 North, Range 8 East, Torrance County, New Mexico
prepared by Daniel B. Stephens & Associates, Inc. for Colorado
Greenhouse LLC, dated November 20, 1996.
2. [Phase I Environmental Site Assessment for Fort Lupton,
Colorado Facility, prepared by ERM-Rocky Mountain, Inc. for
Colorado Greenhouse, Inc., dated January 17, 1997.]
Section 4.1(g) - Litigation
- ---------------------------
None
Section 4.1(h) - Intellectual Property
- --------------------------------------
Colorado Greenhouse LLC has granted a license to the trademarks
described in the Trademark Security Agreement to Colorado Greenhouse, Inc.
pursuant to that certain Trademark License Agreement dated as of January 24,
1997.
<PAGE>
EXHIBIT C TO
MASTER LOAN AGREEMENT
---------------------
by and among
COLORADO GREENHOUSE, INC.
and
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
Liens
-----
None
<PAGE>
EXHIBIT D TO
MASTER LOAN AGREEMENT
---------------------
by and among
COLORADO GREENHOUSE, INC.,
and
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
Non-Affiliates
--------------
1. CTI Partners I Limited Liability Company
2. CTI Partners II Limited Liability Company
3. Cogen Technology, Inc.
4. Twombly Partners
5. Brush Phase I Limited
<PAGE>
EXHIBIT E
TO THE
MASTER LOAN AGREEMENT
DELEGATION AND WIRE TRANSFER AUTHORIZATION
To: From:
Colorado Springs Production Credit Colorado Greenhouse, Inc.
Association 6811 Weld County Road 31
3625 Citadel Dr. S Ft. Lupton, CO 80621
Colorado Springs, CO 80932-9290
Attn:
Farm Credit Bank of Wichita
245 N. Waco
Wichita, KS 67201-2940
In accordance with our borrowing resolutions, the following individuals have
been delegated or are hereby delegated the authority to request, either orally
or in writing, advances and other financial accommodations from Lender under all
loan and other agreements entered into between the parties. (If more space is
needed than provided below, please photocopy this side and include the completed
photocopy as an attachment hereto. Be sure to include all employees who are
authorized to borrow.)
Two signatures are required on all written construction draw requests or, if you
requested orally, confirmation by one of the following:
Joseph Mazza /s/ Joe Mazza 303-857-4050
_________________ ____________________ ____________
(Name) (Signature) (Telephone)
Kathy Snakenberg /s/ Kathy Snakenberg 303-857-4050
_________________ ____________________ ____________
(Name) (Signature) (Telephone)
Edward Wetherbee /s/ Ed Wetherbee 303-857-4050
_________________ ____________________ ____________
(Name) (Signature) (Telephone)
Matthew Cook /s/ M.B. Cook 303-857-4050
_________________ ____________________ ____________
(Name) (Signature) (Telephone)
The total number of authorized employees (including those listed on any
attachments) is 4.
---
The total number of accounts shown on the reverse side hereof or on any
attachments is 2.
---
(including Joseph Mazza)
<PAGE>
The authorized employees are hereby also delegated the authority to fix rates
and negotiate fees (to the extent such options are provided for in applicable
agreements) and to direct Lender to wire transfer funds to one of the accounts
shown on the attachment hereto. Such authority may be exercised either orally or
in writing. In addition to the above, the authorized employees are hereby
delegated the authority to direct Lender to wire transfer funds to accounts not
shown on the reverse side hereof or on any attachments hereto, whether such
accounts are in our name or the name of a third party (e.g. a creditor). In the
event we desire to wire transfer funds to other accounts, we will submit to
Lender a completed copy of a Special Wire transfer Authorization form signed by
one of the authorized employees. To expedite such requests, we hereby authorize
you to act on any such form received by facsimile or similar transmission.
In the event we desire to make changes in the standing authorizations provided
for herein, we will submit to Lender a revised copy of this form (signed by an
officer or employee of CGI who is authorized to delegate authority by board
resolution). Until actual receipt by Lender of such a form, Lender may continue
to rely on these authorizations.
We understand that Lender may assign to us a personal identification number (or
other security code) for use by the authorized employees, and we agree that we
shall be solely responsible for the security and use of such number (or code).
In addition, we understand that Lender may record some or all of the
telephone conversations, between the authorized employees and Lender regarding
the exercise of any authority contemplated herein and we hereby consent thereto.
Finally, we agree that Lender shall not be liable to us for any improper use by
the authorized employees of the authority contained herein or for acting on any
telephonic or written request made by someone identifying himself or herself as
one of the authorized employees.
/s/ Ed Wetherbee
By: ___________________________________________
(Authorized Signature-See Board Resolution)
Edward Wetherbee
___________________________________________
(Print Authorized Name)
CEO of Colorado Greenhouse, Inc.
___________________________________________
___________________________________________
<PAGE>
Note: If more space is needed than provided below, please photocopy this side
and include the completed photocopy as an attachment hereto.
Name of Bank: Colorado National Bank If a correspondent bank is used to route
Location of Bank: Denver the designation bank, complete the
ABA Routing No.: 102000021 following:
Account Name: Colorado Greenhouse
Account No.: 194310731014 Name of Bank:
Special Instructions: Location of Bank:
ABA Routing No.:
********************************** ******************************************
Name of Bank: Norwest Bank Colorado If a correspondent bank is used to route
Location of Bank: Denver the designation bank, complete the
ABA Routing No.: 102000076 following:
Account Name:
Account No.: Name of Bank:
Special Instructions: Location of Bank:
Account to be set up during ABA Routing No.:
Feb. `97
********************************** ******************************************
Name of Bank: If a correspondent bank is used to route
Location of Bank: designation bank, complete the
ABA Routing No.: following:
Account Name:
Account No.: Name of Bank:
Special Instructions: Location of Bank:
ABA Routing No.:
********************************** ******************************************
Name of Bank: If a correspondent bank is used to route
Location of Bank: the designation bank, complete the
ABA Routing No.: following:
Account Name:
Account No.: Name of Bank:
Special Instructions: Location of Bank:
ABA Routing No.:
********************************** ******************************************
<PAGE>
EXHIBIT F
TO
MASTER LOAN AGREEMENT
- --------------------------------------------------------------------------------
SECURED CONTINUING GUARANTEE OF PAYMENT
BY
COLORADO GREENHOUSE HOLDINGS, INC.
FOR THE BENEFIT OF
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
DATED
AS OF
JANUARY 24, 1997.
- --------------------------------------------------------------------------------
<PAGE>
SECURED CONTINUING GUARANTEE OF PAYMENT
THIS GUARANTEE OF PAYMENT (this "Guarantee") is executed as of the 24th day
of January, 1997 by Colorado Greenhouse Holdings, Inc. (hereinafter referred
to as the "Guarantor") in favor of Colorado Springs Production Credit
Association (hereinafter referred to as "Lender").
BACKGROUND
Colorado Greenhouse, Inc. (the "Borrower") has obtained or may desire at
some point in time and/or from time to time to obtain loans, advances and other
financial accommodations from Lender. Owing to Borrower's financial condition
and/or other factors, Lender is not willing to extend or continue to extend
credit to the Borrower without the guarantee of the Guarantor. The Borrower is a
wholly-owned subsidiary of the Guarantor and the Guarantor has a financial
interest in the Borrower and is expecting to benefit from such credit, and
therefore the Guarantor is willing to furnish that guarantee in order to induce
Lender to extend or to continue to extend credit to the Borrower.
NOW, THEREFORE, in order to induce Lender to extend credit to the Borrower
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Guarantor agrees as follows:
SECTION 1 GUARANTEE. The Guarantor hereby unconditionally and irrevocably
guarantees to Lender the punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all indebtedness, obligations and liabilities,
including without limitation all non-monetary covenants and other obligations,
of the Borrower to Lender, whether now existing or hereafter incurred, including
but not limited to those under or arising out of or in connection with any
loans, advances, acceptances, letters of credit, indemnities, foreign exchange
contracts or any other kind of contract or agreement under which the Borrower
may be indebted to Lender in any manner, whether for principal, inter est, fees,
surcharges, expenses or otherwise. For ease of reference: (i) all such
indebtedness, obligations and liabilities shall hereinafter be collectively
referred to as the "Guaranteed Obligations"; and (ii) all instruments, documents
and agreements evidencing or relating to the Guaranteed Obligations (including
all loan agreements, promissory notes, reimbursement agreements, security
agreements, mortgages and deeds of trust) shall hereinafter collectively be
referred to as the "Loan Documents."
SECTION 2 SECURITY AGREEMENT. To secure the payment or performance of all
Guaranteed Obligations, the hereby grants to Lender a continuing security
interest in and to the following property and interests in property of the
Guarantor, whether now owned or existing or hereafter acquired or arising and
wheresoever located: all accounts, inventory, equipment, fixtures, farm
products, general intangibles, chattel paper, instruments, documents,
intellectual property, and all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing, all books and records
(including without limitation customer lists, credit files, computer programs,
printouts, data whether stored electronically or otherwise, and other computer
materials and records) pertaining to the foregoing, and all insurance policies
insuring the above collateral. Without limiting any of the foregoing, Guarantor
also (i) grants to Lender a continuing security interest in and to and a pledge
of all its interests in (as more specifically set forth in the "Pledge
Agreement" of even date herewith) the Guarantor's interests in Borrower, and
(ii) shall cause CG Member, Inc. ("CG Member"), a wholly-owned subsidiary of
Guarantor, also to grant to Lender a pledge and security interest in all its
interest in its subsidiary, Colorado Greenhouse, LLC (the "LLC"). All of the
property and interests of the Guarantor described
<PAGE>
in this Section 2 (including, without limitation, the Guarantor's interest in
the Borrower) and CG Member's interest in the LLC shall hereinafter be referred
to as the "Collateral."
SECTION 3 GUARANTY OF PAYMENT; WAIVER OF DEFENSES, ETC. This Guarantee is
a guarantee of payment and not of collection, and of performance of Borrower's
obligations to Lender. The Guarantor acknowledges and agrees that this Guarantee
is an absolute and independent obligation of the Guarantor and therefore waives
any right to require that any action be brought against the Borrower, another
guarantor or any other Person or entity which is liable for all or any part of
the Guaranteed Obligations, or to require that resort be had at any time to any
security for the Guaranteed Obligations or to any right of setoff or similar
right. The Guarantor's obligations hereunder shall be payable on demand and
shall be absolute and unconditional irrespective of (and the Guarantor hereby
expressly waives any defense or claim of discharge based on): (i) the alteration
or modification from time to time (whether material or otherwise); (ii) the
waiver by Lender of the Borrower's compliance with any of the terms and
conditions of the Loan Documents; (iii) the forbearance by Lender from
exercising any right or remedy it may have under the Loan Documents or under
law; (iv) any inability, failure, neglect or omission to obtain, perfect,
maintain, enforce, or realize upon any Collateral for the Guaranteed
Obligations, or to pursue or obtain any deficiency judgment against the Borrower
following any foreclosure of any security interest, mortgage or deed of trust;
(v) the loss or impairment of any Collateral, the subordination or release of
Lender's lien thereon, or the sale, pledge, surrender, exchange or substitution
of any Collateral; (vi) Lender releasing, waiving, discharging, or modifying the
obligations of one or more other guarantors (whether a party hereto or to a
separate agreement with Lender); (vii) the acceptance by Lender of any partial
payment on the Guaranteed Obligations or any Collateral therefor, or Lender
settling, subordinating, compromising, discharging, or releasing the Guaranteed
Obligations or any Collateral therefor; (viii) the unenforceability of the loan
Documents; (ix) any defenses or counterclaims assertable by the Borrower,
including any defense or counterclaim based on failure of consideration, fraud,
statute of frauds, bankruptcy, statute of limitations, lender liability, and
accord and satisfaction; (x) any setoff, counterclaim, recoupment or similar
right assertable by the Borrower, the Guarantor, or other guarantor (whether a
party hereto or to a separate guarantee); or (xi) any other circumstance which
constitutes a legal or equitable discharge of a guarantor or surety. This
Guarantee shall continue in full force and effect until five business days after
written notice of termination shall have been received by Lender.
Notwithstanding the foregoing, such notice of termination shall not be effective
as to any Guaranteed Obligations: (1) existing prior to the effective date of
termination; (2) arising thereafter pursuant to any commitment to extend credit
entered into prior to the effective date of such notice (regardless of whether
Lender has or from time to time acquires a right to suspend or terminate such
commitment owing to the occurrence of a default or otherwise); (3) any
extensions, renewals, or refinancing(s) of any Guaranteed Obligations referred
to in (1) or (2) above made before or after the effective date of termination;
and (4) interest, fees, expenses and other Guaranteed Obligations relating to
any of the foregoing. In addition, no such notice of termination shall in any
manner impair or alter Lender's rights or obligations hereunder with respect to
such Guaranteed Obligations (including under Sections 3 and 6 hereof) or affect
or impair the obligations of any other guarantor (whether a party hereto or to a
separate guarantee).
SECTION 4 SUBORDINATION AND SUBROGATION. The Guarantor hereby agrees that
all indebtedness and other obligations of the Borrower (now existing or
hereafter incurred) to the Guarantor are and shall be subordinated in right of
payment to the prior payment in full by the Borrower of its obligations to
Lender under the Loan Documents. During the existence of a default under the
Loan Documents, no payments by the Borrower shall be accepted by the Guarantor
with respect to such subordinated
2
<PAGE>
obligations and, if any such payments are inadvertently received, the same shall
be held in trust and promptly turned over to Lender. The Guarantor hereby waives
all claims, rights or remedies that it may have at law or in equity (including,
without limitation, any law subrogating the Guarantor to the rights of Lender)
to seek contribution, indemnification, or any other form of reimbursement from
the Borrower, any other guarantor, or any other person or entity now or
hereafter primarily or secondarily liable for any obligations of the Guarantor
to Lender for any disbursement made by the Guarantor under or in connection with
this Guarantee. The Guarantor hereby stipulates and agrees that any such
disbursement made by the Guarantor shall be a contribution to the equity capital
of the Borrower.
SECTION 5 RECOVERY OF PAYMENT. If any payment received by Lender and
applied to the Guaranteed Obligations is subsequently set aside, recovered,
rescinded, or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the Guarantor),
the Guaranteed Obligations to which such payment was applied shall for the
purposes of this Guarantee and all instruments or documents executed in
connection herewith or securing the Guarantor's obligations hereunder, be deemed
to have continued in existence, and this Guarantee shall be enforceable as to
such Guaranteed Obligations as fully as if such applications had never been
made.
SECTION 6 INFORMATION REGARDING BORROWER; WAIVER OF NOTICES, ETC. The
Guarantor assumes responsibility for keeping fully informed of the financial
condition of the Borrower, its liability hereunder and all other circumstances
affecting the Borrower's ability to pay and perform the Guaranteed Obligations.
The Guarantor agrees that Lender shall have no duty to report to or notify the
Guarantor of: (i) any information which Lender shall receive about the financial
condition of the Borrower (including adverse matters); (ii) the Borrower's
performance under the Loan Documents (including nonpayment or the occurrence of
any other default); (iii) any circumstances bearing on the Borrower's ability
to perform the Guaranteed Obligations; (iv) any increases in the amount of the
Guaranteed Obligations or any renewals, extension or refinancing(s) of any
Guaranteed Obligation; (v) any actions taken by Lender or the Borrower under any
Loan Document; (vi) any matters relating to another guarantor; (vii) any matter
set forth in Section 3 hereof; or (viii) any other matter relating to the
Guaranteed Obligations; and the Guarantor hereby expressly and unconditionally
waives any defense or claim of discharge based on the failure of Lender to
report to notify the Guarantor of any such information. In addition, the
Guarantor hereby acknowledges that it has entered into this Guarantee based
upon its own independent knowledge of or investigation in to the affairs of the
Borrower and any other guarantor (whether a party hereto or to a separate
guarantee) and has not relied in any respect on Lender or any officers,
employees, or agents thereof.
SECTION 7 REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents
and warrants as follows:
(A) ORGANIZATION; POWER; ETC. The Guarantor: (i) is duly organized,
validly existing, and in good standing under the laws of its state of
incorporation or formation; (ii) is duly qualified to do business and is in good
standing in each jurisdiction in which the transaction of its business makes
such qualification necessary; (iii) has all requisite corporate and legal power
to own and operate its assets and to carry on its business and to enter into and
perform under this Guarantee; and (iv) has duly and lawfully obtained and
maintained all licenses, certificates, permits, authorizations, approvals, and
the like which are material to the conduct of its business or which my be
otherwise required by law, rule, regulation, ordinance, code, order or the like
(collectively, "Laws").
3
<PAGE>
(B) DUE AUTHORIZATION; NO VIOLATION; ETC. The execution and delivery
by the Guarantor of, and the performance by the Guarantor of its obligations
under, this Guarantee and all instruments and documents executed in connection
herewith have been duly authorized by all requisite corporate or other action
on the part of the Guarantor and do not and will not: (i) conflict with, or
constitute (with or without the giving of notice and/or the passage of time
and/or the occurrence of any other condition) a default under, any other
agreement to which the Guarantor is a party or by which it or any of its
property may be bound or affected, or with any provision of its certificate of
incorporation, bylaws or other organizational documents; (ii) require the
consent, permission, authorization, order or license of any governmental
authority or of any part to any agreement to which the Guarantor is a party or
by which it or any of its property may be bound or affected, except as has been
obtained and are in full force and effect; (iii) violate any provision of any
law, rule regulation, order, writ judgment, injunction, decree, determination
or aware presently in effect applicable to it; or (iv) result in, or require,
the creation or imposition of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties now owned or hereafter
acquired, except as created hereunder in favor of Lender).
(C) BINDING AGREEMENT. This Guarantee and each instrument and
document executed in connection herewith is, or when executed and delivered will
be, the legal, valid, and binding obligation of the Guarantor, enforceable in
accordance with its terms, subject only to limitations on enforceability
imposed by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting creditor's rights generally.
(D) LITIGATION. There are no pending legal, arbitration, or
governmental actions or proceedings to which the Guarantor is a party or to
which any of its property is subject which, if adversely determined, could have
a material adverse effect on the condition, financial or otherwise, operations,
properties, or business of the Guarantor, or on the ability of the Guarantor to
perform its obligations hereunder or under any instrument or document executed
in connection herewith, and to the best of the Guarantor's knowledge, no such
actions or proceedings are threatened or contemplated.
(E) TITLE TO PROPERTY. The Guarantor has title to, or valid
leasehold interests in, all of its property, real and personal, (other than any
property disposed of in the ordinary course of business), and none of its
property is subject to any "Lien" (as defined in Section 9(B) hereof), except as
permitted under Section 9(B).
(F) COMPLIANCE WITH LAWS, ENVIRONMENTAL MATTERS, ETC. All of the
properties of the Guarantor and all of its operations are in compliance in all
material respects with all applicable Laws including, without limitation, all
Laws relating to the environment. No property owned or leased by the Guarantor
is being used or, to its knowledge, has been used for the disposal, treatment,
storage, processing or handling of hazardous waste or materials (as defined
under any environment Law) and no investigation, claim, litigation, proceeding,
order, judgment, decree, settlement, lien or the like with respect to any
environmental matter is proposed, threatened, anticipated or in existence with
respect to its properties or operations. In addition, no environmental
contamination or condition currently exists on any property of the Guarantor or,
to its knowledge, any adjoining property, which could delay the sale or other
disposition of, or could have (or already has had) an adverse effect on the
value of, its property.
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<PAGE>
(G) COMPLIANCE WITH GUARANTEE. As of the date hereof, the Guarantor
is operating its business in compliance with all of the covenants set forth in
this Guarantee.
SECTION 8 AFFIRMATIVE COVENANTS. Unless otherwise agreed to in writing by
Lender, while this Guarantee is in effect, whether or not any Guaranteed
Obligations are outstanding hereunder, the Guarantor agrees to:
(A) CORPORATE EXISTENCE, LICENSES, ETC. Preserve and keep in full
force and effect its and its subsidiaries' existence and good standing in the
jurisdiction of their respective incorporation or formation, qualify and remain
qualified to transact business in all jurisdictions where such qualification
is required, and obtain and maintain all licenses, certificates, permits,
authorizations, approvals, and the like which are material to the conduct of its
business or required by Law.
(B) COMPLIANCE WITH LAWS. Comply in all material respects with all
applicable Laws, including, without limitation, all Laws relating to
environmental protection. In addition, the Guarantor agrees to cause all
persons occupying or present on any of its properties to comply in all material
respects with all Laws relating to such properties.
(C) INSURANCE. Maintain insurance with insurance companies or
associations acceptable to Lender in its reasonable discretion in such amounts
and covering such risks as are usually carried by companies engaged in the same
or similar business and similarly situated, and make such increases in the type
or amount of coverage as Lender may reasonably request. All such policies
insuring any collateral for the Guarantor's obligations to Lender shall have
mortgagee or lender loss payable clauses or endorsements in form and content
acceptable to Lender in its reasonable discretion. At Lender's request,
certificates of insurance for all policies (or such other proof of compliance
with this Subsection as may be satisfactory to Lender) shall be delivered to
Lender.
(D) PROPERTY MAINTENANCE. Maintain all of its property that is
necessary to or useful in the proper conduct of its business in good working
condition, ordinary wear and tear excepted.
(E) BOOKS AND RECORDS. Keep adequate records and books of account in
which complete entries will be made in accordance with generally accepted
accounting principles ("GAAP") consistently applied.
(F) INSPECTION. Permit Lender or its agents, upon reasonable notice
and during normal business hours or at such other times as the parties may
agree, to examine its properties, books, and records, and to discuss its
affairs, finances, and accounts, with its respective officers, directors,
employees, and independent certified public accountants.
(G) REPORTS AND NOTICES. Furnish to Lender:
(I) ANNUAL FINANCIAL STATEMENTS. As soon as available, but in no
event more than 120 days after the end of each fiscal year of the Guarantor
occurring during the term hereof, the consolidated annual financial statements
of the Guarantor and its consolidated subsidiaries prepared in accordance with
GAAP consistently applied. Such financial statements shall: (a) be audited by
Arthur Anderson & Co. or such other independent certified public accountant
selected by the Guarantor and acceptable to Lender, in its reasonable
discretion; (b) be accompanied by a report of such
5
<PAGE>
accountant containing an opinion thereon acceptable to Lender; (c) be prepared
in reasonable detail and in comparative form; and (d) include a balance sheet, a
statement of income, a statement of retain ed earnings, a statement of cash
flows, and all notes and schedules relating thereto.
(II) INTERIM FINANCIAL STATEMENTS. As soon as available, but in no
event more than 30 days after the end of each quarter, a consolidated balance
sheet of Guarantor as of the end of such quarter, a consolidated statement of
income for Guarantor and its consolidated subsidiaries for such period and for
the period year to date, and such other interim statements as Lender may
specifically request, all prepared in reasonable detail and in comparative
form in accordance with GAAP.
(III) NOTICE OF DEFAULT. Promptly after becoming aware thereof,
notice of the breach of any covenant contained in this Guarantee or any
instrument or document executed in connection herewith.
(IV) NOTICE OF NON-ENVIRONMENTAL LITIGATION. Promptly after the
commencement thereof, notice of the commencement of all actions, suits, or
proceedings before any court, arbitrator, or governmental department,
commission, board, bureau, agency, or instrumentality affecting the Guarantor
which, if determined adversely to the Guarantor, could have a material adverse
effect on the financial condition, properties, profits, or operations of the
Guarantor.
(V) NOTICE OF ENVIRONMENTAL LITIGATION, ETC. Promptly after receipt
thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or any other communication alleging a condition that may require
the Guarantor to undertake or to contribute to a cleanup or other response under
environmental Laws, or which seek penalties, damages, injunctive relief, or
criminal sanctions related to alleged violations of such Laws, or which claim
personal injury or property damage to any person as a result of environmental
factors or conditions.
(VI) OTHER INFORMATION. Such other information regarding the
condition or operations, financial or otherwise, of the Guarantor as Lender may
from time to time reasonably request.
SECTION 9 NEGATIVE COVENANTS. Unless otherwise agreed to in writing by
Lender, while this Guarantee is in effect, whether or not any Guaranteed
Obligations are outstanding, the Guarantor will not:
(A) BORROWINGS. Create, incur, assume, or allow to exist, directly
or indirectly, any indebtedness or liability for borrowed money (including trade
or bankers' acceptances), letters of credit, or the deferred purchase price of
property or services (including capitalized leases), except for: (i) debt to
Lender; (ii) accounts payable to trade creditors incurred in the ordinary course
of business; and (iii) current operating liabilities (other than for borrowed
money) incurred in the ordinary course of business.
(B) LIENS. Create, incur, assume, or allow to exist any mortgage,
deed of trust, pledge, lien (including the lien of an attachment, judgment,
or execution), security interest, or other encumbrance of any kind upon any of
its property, real or personal (collectively, "Liens"). The foregoing
restrictions shall not apply to: (i) Liens in favor of Lender; (ii) Liens for
taxes, assessments, or governmental charges that are not past due, or if past
due, are being contested in good faith and
6
<PAGE>
by appropriate proceedings, the amount secured (including interest and
penalties) does not exceed $100,000.00, the Liens are stayed and adequate
reserves have been established in accordance with GAAP; (iii) pledges and
deposits under workers' compensation, unemployment insurance, and social
security Laws; (iv) pledges and deposits to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), and like
obligations arising in the ordinary course of business as conducted on the date
hereof; (v) Liens imposed by Law in favor of mechanics, material suppliers,
warehouses, and like persons that secure obligations that are not past due, or
if past due, are being contested in good faith and by appropriate proceedings,
the Liens are stayed, and adequate reserves have been established in accordance
with GAAP; and (vi) easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
Company's occupation, use, and enjoyment of the property or assets encumbered
thereby or materially impair the value of the property subject thereto.
(C) MERGERS, ACQUISITIONS, ETC. Without the prior written consent of
Lender, which consent shall not be unreasonably withheld, merge or consolidate
with any other entity or acquire all or a material part of the assets of any
person or entity, or form or create any new subsidiary or affiliate, or
commence operations under any other name, organization or entity, including any
joint venture; provided, however, that no prior consent shall be necessary if
prior to undertaking any of the above actions Guarantor shall have delivered to
Lender and Lender shall not have objected within fifteen (15) days of receipt of
notice to a certificate delivered by notice pursuant to Section 11 hereof from
the chief executive officer or chief financial officer of Guarantor to the
effect that: (i) prior to and immediately after giving effect to such
transaction, no Event of Default shall exist under any Loan Document; and (ii)
immediately after giving effect to such transaction, the tangible net worth and
the ratio of total capitalization to indebtedness (calculated in accordance with
GAAP) of Guarantor, or any successor entity into which Guarantor is merged,
shall not be less than that of the Guarantor immediately prior to such
transaction.
(D) TRANSFER OF ASSETS. Sell, transfer, lease, or otherwise dispose
of any of its assets, except in the ordinary course of business.
(E) LOANS AND INVESTMENTS. Make any loan or advance to, or make any
investment in, or make any capital contribution to, or purchase or make any
commitment to purchase any stocks, bonds, notes or other securities of, any
person or entity, except for: (i) loans to or investments in Colorado
Greenhouse, Inc. or Colorado Greenhouse, LLC, or other subsidiaries of Guarantor
permitted hereunder, (ii) securities or deposits issued or fully insured as to
payment by the United States of America or any agency thereof; and (iii) stock
in, or obligations of, Lender.
(F) CONTINGENT LIABILITIES. Assume, guarantee, become liable as a
surety, endorse, contingently agree to purchase, or otherwise be or become
liable, directly or indirectly (including, but not limited to, by means of a
maintenance agreement, an asset or stock purchase agreement, or any other
agreement designed to ensure any creditor against loss), for or on account of
the obligation of any person or entity, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of the Guarantor's business.
(G) CHANGE IN BUSINESS. Engage in any business activities or
operations substantially different from or unrelated to the Guarantor's present
business activities or operations.
7
<PAGE>
SECTION 10 EXPENSES. In the event Lender employs counsel to protect or
enforce its rights hereunder against the Guarantor, all reasonable attorneys'
fees arising from such services and all out-of-pocket expenses, costs, and
charges in any way or respect arising in connection therewith or relating
thereto shall be paid by such Guarantor.
SECTION 11 NOTICES. All notices provided for herein shall be writing
(including facsimile) and shall be deemed to be duly given upon delivery if
personally delivered or sent by telegram or facsimile transmission or three days
after mailing if sent by express mail, certified mail, registered mail or other
delivery service providing a return receipt therefor, to the following addresses
or facsimile numbers or to such other address or facsimile number as either
party may specify by notice to the other: (a) If to Lender, to Colorado Springs
Production Credit Association, 3625 Citadel Drive South, P.O. Box 9290, Colorado
Springs, Colorado 80932-9290, Facsimile No. (719) 570-6894; and (b) if to the
Guarantor, to Colorado Greenhouse Holdings, Inc., 6811 Weld County Road 31,
P.O. Box 309, Fort Lupton, Colorado 80621, Facsimile No. (303) 857-4049.
SECTION 12 TERM OF AGREEMENT. This Agreement and all guarantees,
covenants and agreements of the Guarantor contained herein shall continue in
full force and effect and shall not be discharged until such time as all of
the Guaranteed Obligations shall be paid or otherwise discharged in full.
SECTION 13 AMENDMENTS, ETC. This writing is intended by the parties as a
final expression of their agreement and is also intended as a complete and
exclusive statement of the terms of that agreement. No amendment or waiver of
any provision of this Guarantee nor consent to any departure by the Guarantor
herefrom shall be effective unless the same shall be in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14 NO WAIVER; REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder shall operate as
waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right.
SECTION 15 GOVERNING LAW. Except to the extent governed by applicable
Federal law, this Guarantee shall be governed by and construed in accordance
with the laws of the State of Colorado, without reference to choice of Law
doctrine.
SECTION 16 NOTICE OF ACCEPTANCE. The Guarantor hereby waives notice of
acceptance hereof.
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8
<PAGE>
SECURED CONTINUING GUARANTEE OF PAYMENT
SIGNATURE PAGE
SECTION 17 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, GUARANTOR AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTER CLAIM (WHETHER
BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
IN WITNESS WHEREOF, the Guarantor has caused this Secured Continuing
Guarantee of Payment to be executed by its duly authorized officer as of the
date shown above.
COLORADO GREENHOUSE HOLDINGS,
INC.
By: /s/ Edward Wetherbee
---------------------------
Title: Chief Executive Officer
------------------------
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<PAGE>
EXHIBIT 10.28
- --------------------------------------------------------------------------------
COLORADO GREENHOUSE, LLC LOAN SUPPLEMENT
BETWEEN
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
AND
COLORADO GREENHOUSE, INC.
DATED
AS OF
JANUARY 24, 1997
- --------------------------------------------------------------------------------
<PAGE>
COLORADO GREENHOUSE, LLC LOAN SUPPLEMENT
THIS SUPPLEMENT (the "LLC Loan Supplement") to the Master Loan Agreement
dated the 24th day of January, 1997 (the "Lender"), is entered into as of the
24th day of January, 1997, between COLORADO SPRINGS PRODUCTION CREDIT
ASSOCIATION ("Lender") and COLORADO GREENHOUSE, INC. ("CGI"].
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to the definitions set out in the
MLA, which are incorporated herein to the extent there is no conflict with
terms defined herein, the capitalized terms set forth herein shall have the
following meanings:
LLC BORROWING BASE shall have the meaning provided in Section 2.1 of
Article 2 of this Supplement, and shown at Exhibit "A."
LLC COMMITMENT shall have the meaning provided in Section 2.1 of Article 2
of this Supplement.
LLC LOAN DOCUMENTS shall have the meaning provided in Section 5.1(c) of
Article 5 of this Supplement.
LLC LOAN SUPPLEMENT shall have the meaning provided in the preamble hereof.
MATURITY DATE shall have the meaning provided in Section 2.4 of Article 2
of this Supplement.
NOTIFICATION DATE shall have the meaning provided in Section 2 of Article 2
of this Supplement.
PRIME RATE shall mean, for any day, the rate defined as the "prime rate,"
as published from time to time in the Eastern Edition of The Wall Street
Journal as the average prime lending rate for seventy-five percent (75%) of
the United States' thirty (30) largest commercial banks, or if The Wall
Street Journal shall cease publishing the "prime rate" on a regular basis,
such other regularly published average prime rate application to such
commercial banks as is acceptable to Lender in its reasonable discretion.
PROMISSORY NOTE shall have the meaning provided in Section 2.4 of Article 2
of this Supplement, and shown at Exhibit "B."
ARTICLE 2
OPERATING COMMITMENT
SECTION 2.1 THE OPERATING LOAN. On the terms and conditions set forth in
the MLA and this Supplement, Lender agrees to make Advances to CGI to fund
Advances to LLC during the period set
<PAGE>
forth below in any aggregate principal amount not to exceed, at any one time
outstanding, the lesser of the "LLC Borrowing Base" (as calculated pursuant to
the LLC Borrowing Base Report attached hereto as "LLC Borrowing Base Report") or
ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) (the "LLC Commitment").
Within the limits of the LLC Commitment, CGI may borrow, repay and reborrow.
SECTION 2.2 PURPOSE. The purpose of the LLC Commitment is to provide
financing for the operating needs of LLC, and all Advances hereunder shall be
used only to make Advances to LLC under the LLC Loan Documents. Promptly upon
CGI's receipt of a request for Advance from LLC under the LLC Loan Documents,
CGI shall submit a request for Advance to Lender and Lender shall, under the
terms of this Supplement, fund the Advance to CGI, and CGI shall further fund
the Advance to LLC. Promptly upon receipt by CGI of any amount paid by LLC
under the Line of Credit, CGI shall, to the extent amounts are outstanding
hereunder, pay over such amounts to Lender.
SECTION 2.3 TERM. The term of the LLC Commitment shall be from January
24, 1997, up to and including December 31, 1997, or such later date as Lender
may, in its sole discretion, authorize in writing. Notwithstanding the
foregoing, the LLC Commitment shall be automatically extended for an additional
year unless on or before ninety (90) days prior to end of the term in any year
(the "Notification Date"), either party receives written notice from the other
to the contrary. If on or before the Notification Date, Lender grants a
short-term extension of the LLC Commitment, then the Notification Date shall be
extended for a like period, and in the event neither party receives written
notice from the other to the contrary on or before such extended Notification
Date (or any further extension so granted), then the LLC Commitment shall be
automatically extended for an additional year as provided above. All annual
extensions shall be measured from, and effective as of, the anniversary date of
the first day of the initial term of the LLC Commitment. Provided that there
shall be no amounts outstanding hereunder with respect to Advances, interest
thereon or other obligations hereunder, CGI may at any time, by written notice
to Lender, terminate this LLC Supplement and the LLC Commitment.
SECTION 2.4 PROMISSORY NOTE. CGI promises to repay the Advances on the
first Business Day following the last day of the term of the LLC Commitment (the
"Maturity Date"), all in accordance with the Promissory Note in the form
attached hereto as Exhibit "B." In addition to the above, CGI promises to pay
interest on the outstanding principal balance of the Advances on the first day
of each month during the term hereof, with the first such payment due on the
first day of the first month following the first Advance hereon, and in
accordance with the provisions set forth in Article 3 hereof.
ARTICLE 3
INTEREST
SECTION 3.1 INTEREST. Advances on the LLC Commitment shall bear interest
at the Prime Rate, minus twenty-five (25) basis points (.25%).
2
<PAGE>
ARTICLE 4
SECURITY
SECTION 4.1 LLC COLLATERAL. The Advances on the LLC Commitment shall be
secured by the property described in the MLA,the Security Agreement, the Pledge
Agreement of Holdings' interests in CGI, the Pledge Agreement of CG Member,
Inc.'s interests in LLC, and the Mortgages.
ARTICLE 5
ADDITIONAL CONDITIONS PRECEDENT
SECTION 5.1 INITIAL ADVANCE. Lender's obligation to make the initial
Advance hereunder is subject to satisfaction of each of the following additional
conditions precedent on or before the date of such Advance:
(A) CONSENTS AND SUBORDINATIONS OF LANDLORDS. That Lender receive
from each of the landlords of the greenhouses operated by LLC a Consent and
Subordination in the form of Exhibits "C" through "F" attached hereto, which
Consents and Subordinations shall have been assigned to Lender along with the
other LLC Loan Documents.
(B) WAIVER LETTERS OF POWER PLANT LENDERS. That CGI receive from the
lenders for the construction of the power plants of which the greenhouses are a
part a Waiver Letter in the form of Exhibits "G" through "I" attached hereto,
which Waiver Letters shall be for the benefit of Lender.
(C) ASSIGNMENT OF LLC LINE OF CREDIT. That Lender shall have had
assigned to it by CGI the Line of Credit to LLC, including without limitation
the loan agreement, promissory note, security agreements (including the
trademark security agreement), financing statements, and other assignments of
collateral and all other documents, instruments and the like contemplated by
such loan (collectively, the "LLC Loan Documents").
(D) LIEN POSITION. That the LLC Loan Documents demonstrate that CGI
is in a first lien position on all of the Collateral for the LLC Line of Credit.
(E) OPINION OF COUNSEL. That the Lender receive an opinion from
counsel to CGI that the security interest granted by CGI is a perfected security
interest in all of the Collateral for the LLC line of credit and that the
assignment of the LLC Line of Credit to Lender is valid and enforceable
according to its terms.
ARTICLE 6
REPORTS AND NOTICES
SECTION 6.1. BORROWING BASE REPORTS, ETC. CGI agrees to furnish a LLC
Borrowing Base Report to Lender at such times or intervals as Lender may from
time to time request. However, if
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<PAGE>
no balance is outstanding hereunder on any day of such month, then no Report
need be furnished. Regardless of the frequency of the reporting, if at any time
the amount outstanding under the LLC Commitment exceeds the LLC Borrowing Base,
CGI shall immediately notify Lender and repay so much of the loans as is
necessary to reduce the amount outstanding under the LLC Commitment to the
limits of the LLC Borrowing Base.
SECTION 6.2 NOTICE OF DEFAULT. CGI shall copy Lender with any notice of
any LLC default immediately upon receipt of any notice of default from any
Person with respect to any contract, lease, agreement or the like to which LLC
is a party or to which any of its property or other rights is subject.
ARTICLE 7
ADDITIONAL EVENTS OF DEFAULT
SECTION 7.1 LLC DEFAULTS. If there shall be any Event of Default in any
of the LLC Loan Documents, including any defaults in any agreement under which
LLC's rights to occupy, operate and maintain any of the greenhouses it currently
operates may be terminated or otherwise jeopardized, which remains uncured for a
period of thirty (30) days, such event shall be an Event of Default of this
Supplement.
ARTICLE 8
RELEASE OF LLC COLLATERAL
SECTION 8.1 RELEASE OF COLLATERAL. At such time as all Advances and all
interest accruing thereon shall have been paid in full and there are no
obligations owing from CGI under the LLC Commitment, and the LLC Supplement
shall have been terminated, Lender shall release, (a) that certain Assignment of
Loan Documents, made as of this date by CGI in favor of Lender and the Security
Agreement (but only to the extent it grants a Lien on the agreements and
instruments assigned pursuant to the Assignment of Loan Documents), and (b) all
of its rights and interests in the property of LLC in which there has been
granted, directly or indirectly, a security interest or other Lien as security
for the obligations of CGI hereunder or LLC under the Line of Credit, from such
security interest or other Lien upon request for such release from LLC.
IN WITNESS WHEREOF, the parties have caused this Supplement to be executed
by their duly authorized officers as of the date shown above.
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4
<PAGE>
OPERATING LOAN SUPPLEMENT
SIGNATURE PAGE
COLORADO SPRINGS PRODUCTION
CREDIT ASSOCIATION COLORADO GREENHOUSE, INC.
By: [SIGNATURE ILLEGIBLE] By: /s/ Edward Wetherbee
------------------------ ------------------------
Title: SR. V.P. - CREDIT Title: CEO
--------------------- ---------------------
5
<PAGE>
Exhibit A
To
Line of Credit
BORROWING BASE REPORT FOR
COLORADO GREENHOUSE, LLC
For the month ended _________
AMOUNT FACTOR COLLATERAL VALUE
========== ====== ================
Accounts Receivable - produce sales 80%
(less than 60 days)
---------- ----------------
Accounts Receivable - other 60%
---------- ----------------
Inventory - produce 50%
---------- ----------------
Inventory - materials & supplies 75%
---------- ----------------
========== ================
Total
---------- ----------------
Less: claims & allowances 100%
---------- ----------------
Less: other payables 100%
---------- ----------------
Less: Operating loan balance 100%
---------- ----------------
================
Total available Borrowing Base:
----------------
I hereby certify the above information is true and correct as of the date
referenced.
_____________________________________ _______________
(Signature) (Date)
Page 1
<PAGE>
EXHIBIT B
TO
COLORADO GREENHOUSE, LLC LOAN SUPPLEMENT
PROMISSORY NOTE
ONE MILLION FIVE HUNDRED THOUSAND DOLLARS January 24, 1997
$1,500,000.00 Loan No. 2406650
FOR VALUE RECEIVED, the undersigned, Colorado Greenhouse, Inc., a Delaware
corporation doing business in Colorado ("Maker"), hereby promises to pay to the
order of Colorado Springs Production Credit Association ("Lender"), a federally
chartered association of the Farm Credit System, ("Payee"), at its offices, on
the Maturity Date as defined in the LLC Supplement, in lawful money of the
United States of America, the principal amount of ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($1,500,000.00) or so much thereof as may have been Advanced
and is outstanding hereunder, together with interest on the outstanding
principal balance from day to day remaining, at the rate provided in the LLC
Supplement. All accrued and unpaid interest shall be due and payable on the
first day of each month beginning on the first of the first month following the
first Advance hereon and on the Maturity Date. All unpaid principal balance of
the Advances on this Promissory Note shall be due and payable on the Maturity
Date. All past due principal shall bear interest at the Default Rate.
This Promissory Note has been given to Payee pursuant to the Master Loan
Agreement dated as of the 24th day of January, 1997, and the LLC Supplement
dated as of the 24th day of January, 1997, and all capitalized terms used herein
and not otherwise defined shall have the meaning provided therein. Maker may
borrow, repay and reborrow hereunder and under the terms of the LLC Supplement.
Upon the occurrence of any Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Promissory Note immediately due and payable without notice, demand or
presentment, all of which are hereby waived, and upon such declaration, the same
shall become and shall be immediately due and payable, and the holder hereof
shall have the right to foreclose or otherwise enforce all Liens or security
interests securing payment hereof, or any part hereof, and offset against this
Promissory Note any sum or sums owed by the holder hereof to Maker. Failure of
the holder hereof to exercise this option shall not constitute a waiver of the
right to exercise the same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part of any sum due the holder hereunder, or if this Promissory
Note is placed in the hands of an attorney for collection, or if it is collected
through any legal proceedings, Maker agrees to pay all costs, expenses and
reasonable fees incurred by the holder, including reasonable attorney's fees.
This Promissory Note shall be governed by and construed accordance with the
Laws of the State of Colorado and the applicable Laws of the United States of
America.
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<PAGE>
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this Promissory Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Promissory Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release or substitute any such party
or part or all of the collateral securing this Promissory Note, or to grant any
other indulgences or forbearances whatsoever, without notice to any other party
and without in any way affecting the personal liability of any party hereunder.
Maker hereby authorizes the holder hereof to record in its records all
Advances made to Maker hereunder, interest accruing thereon, and all payments
made on account of the principal hereof and interest accruing hereon, which
records shall be prima facie evidence as to the outstanding principal amount of
and accrued interest on this Promissory Note; provided, however, any failure by
the holder hereof to make any records shall not limit or otherwise affect the
obligations of Maker under the Agreement or this Promissory Note.
COLORADO GREENHOUSE, INC.
By:_____________________________________
Title:__________________________________
2
<PAGE>
Exhibit C
to
Colorado Greenhouse, LLC Loan Supplement
CONSENT AND SUBORDINATION
This CONSENT AND SUBORDINATION (the "Agreement") dated as of January 24,
1997. is executed by Colorado Power Partners, a Colorado general partnership
("Landlord"), and Brush Greenhouse Partners, a Colorado general partnership
("Tenant") for the benefit of Colorado Springs Production Credit Association
("Farm Credit").
RECITALS:
--------
A. Landlord and Tenant have entered into that certain Cogeneration and
Greenhouse Lease Agreement dated as of June 8, 1989 (the "Greenhouse Lease")
pursuant to which Landlord has leased the Premises (as defined in the Greenhouse
Lease) to Tenant.
B. Landlord has executed that certain Construction and Term Loan Deed of
Trust Security Agreement and Assignment of Rents dated as of June 30, 1993, in
favor of The Prudential Insurance Company of America and Pruco Life Insurance
Company (collectively, the "Lenders") (as the same has been or may hereafter be
amended, the "Mortgage") pursuant to which Landlord has granted a lien to the
Lenders on, among other property, the Premises.
C. Tenant and Colorado Greenhouse LLC, a Colorado limited liability
company ("Colorado Greenhouse") have entered into that certain Greenhouse
Operation and Management Agreement dated as of December 29, 1994 (as the same
may be amended the "Management Agreement", and together with the Greenhouse
Lease and the Mortgage, herein the "Project Documents") pursuant to which
Colorado Greenhouse has agreed to operate and manage the Premises.
D. Farm Credit and Colorado Greenhouse, Inc. ("CGI"), an affiliate of
Colorado Greenhouse, have entered into that certain Master Loan Agreement dated
as of January 24, 1997 (as the same may be amended, the "MLA"). As allowed under
the MLA, CGI has entered into a Line of Credit Agreement (the "Line of Credit
Agreement") with Colorado Greenhouse, providing for a line of credit in the
aggregate principal amount of $1,500,000, pursuant to which CGI may make loans
to Colorado Greenhouse.
E. In order to secure the obligations arising in connection with the Line
of Credit Agreement (the "Obligations"), Colorado Greenhouse has entered into a
Security Agreement (as the same may be amended, the "Security Agreement") with
CGI dated as of January 24, 1997, pursuant to which Colorado Greenhouse granted
to CGI security interests (the "Security Interests") in all of its right, title
and interest in and to all crops now or hereafter planted, growing or stored on
the Leased Premises (as defined in the Greenhouse Lease, and any such crops,
herein, the "Crops"), all material and supplies utilized in the planting,
growing, harvesting and packaging of such Crops of the type described on Exhibit
A attached hereto, which are now (or may hereafter be) stored on the Leased
Premises (the "Supplies"), certain equipment described on Exhibit B attached
hereto, which is or may be located on the Leased Premises (the
<PAGE>
"Equipment") and all other property owned by Colorado Greenhouse described
therein as the Collateral (such property herein referred to as the "CGI
Collateral").
F. In order to secure its obligations under the MLA, CGI has granted a
security interest (the "Chattel Security Interest") in favor of Farm Credit in
and to the Security Interests.
G. In order to induce (i) CGI to extend credit to Colorado Greenhouse and
(ii) Farm Credit to extend credit to CGI. Landlord and Tenant (together, the
"Project Parties") desire to enter into this Agreement for the benefit of Farm
Credit.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which have hereby been
acknowledged, the parties hereto agree as follows:
1. Landlord acknowledges having been informed of (i) Colorado Greenhouse's
execution and delivery of the Line of Credit Agreement and the Security
Agreement, and of the consummation of the transactions contemplated
thereby and (ii) CGI's execution and delivery of the MLA and the
granting of the Chattel Security Interest.
2. Tenant hereby consents to Colorado Greenhouse's execution and delivery
of the Line of Credit Agreement and the Security Agreement and to the
consummation of the transactions contemplated thereby and agrees that
such execution, delivery and consummation do not conflict with, result
in a breach of or constitute a default under any Project Documents to
which it is a party.
3. Each Project Party represents and warrants to Farm Credit with respect
to itself and the Project Documents to which it is a party that:
(a) No default, event of default or event that would permit the
termination of a Project Document exists under the Project
Documents to which it is a party;
(b) The Project Documents to which it is a party constitutes its
legal, valid and binding obligation enforceable against it in
accordance with their respective terms except as limited by
bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors rights; and
(c) None of the Project Documents to which it is a party has
terminated.
4. Each Project Party hereby subordinates, makes junior, second and
inferior to the Security Interests covering the CGI Collateral, any
security interests, liens, and other rights, titles and interests
(including without limitation, any security interest, lien or other
right covering the CGI Collateral created in any Project Documents)
which it now has or may hereafter acquire with respect to the CGI
Collateral
2
<PAGE>
(regardless of whether the CGI Collateral is now owned or hereafter acquired
by Colorado Greenhouse); provided, however, that this subordination shall
not affect, postpone or diminish in any way the priority of the Landlord's
reversionary interest in the "Facility" (as such term is defined under
Section 2.1 of the Greenhouse Lease) which has been leased and demised to
Tenant under the Greenhouse Lease, or to inhibit or impair in any way the
exercise by Landlord of any rights and remedies available to Landlord in the
event of a Default (defined in the Greenhouse Lease to be a breach extending
beyond any applicable grace or cure period) by Tenant under the Greenhouse
Lease.
5. Farm Credit through its authorized representatives or agents, may during
normal business hours and upon 24 hours advance notice enter upon the
Premises (as defined in the Greenhouse Lease) at any time and from time to
time for the purposes of inspecting and caring for the CGI Collateral and,
after the occurrence of an Event of Default under the Line of Credit
Agreement, for the purpose of removing or conducting a sale or sales of any
or all of the CGI Collateral. Farm Credit shall have no obligation or
liability to Colorado Greenhouse or any Project Party in connection with the
foregoing actions except, however, that Farm Credit shall promptly repair
any damage to the Premises (as defined in the Greenhouse Lease) caused by
such removal, sale or inspection and that Farm Credit shall be liable to a
Project Party that has been damaged as a result of the acts and omissions of
Farm Credit's employees or agents in connection with such removal, sale or
inspection.
6. The Project Parties shall permit Farm Credit immediate access to the
Facility at any time if Farm Credit notifies the Project Parties that such
immediate access is necessary to prevent the value of the crops from being
impaired given their perishable nature and the controlled conditions under
which they are grown, harvested and stored.
7. Farm Credit's right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate on
the date which is the later of:
(a) the date 60 days after the Lenders have (i) taken possession of the
Premises and (ii) provided Farm Credit written notice of such termination,
or
(b) the date 30 days after the completion of the harvest of all crops
which were planted on the Premises prior to the date Colorado Greenhouse's
right to possession of the Premises terminated.
8. Each Project Party agrees to give Farm Credit written notice prior to or
simultaneously with its exercise of any of its rights or remedies, or any
other parties' rights or remedies of which such Project Party has knowledge,
arising under any Project Documents as a result of a default, event of
default or other
3
<PAGE>
event that would entitle a party to terminate any Project Document. Any
notice or other communication required or permitted to be given under this
Agreement to Farm Credit must be in writing and delivered in person or
mailed by registered or certified mail, return receipt requested, postage
prepaid to Farm Credit at this following address:
3625 Citadel Dr. S.
P.O. Box 9290
Colorado Springs, CO 80932-9290
or such other address as shall be set forth in a notice from the
appropriate party given in compliance with this paragraph. Any such notice
or other communication shall be deemed given when delivering in person, or,
if mailed, when duly deposited in the mails. Failure of a Project Party to
provide such notice to Farm Credit shall not constitute a breach of this
Agreement, and Farm Credit agrees that Project Parties shall have no
liability to Farm Credit for such failure; however, no claim of rescission
or termination of the Project Documents by the applicable Project Party
shall be binding upon Farm Credit without such notice.
9. Each Project Party acknowledges and agrees for the benefit of Farm Credit
that as between itself and Colorado Greenhouse, Colorado Greenhouse owns
all crops on the Premises planted by Colorado Greenhouse prior to the
termination of the Management Agreement and all crops harvested therefrom.
10. Each Project Party agrees that the making of any distributions by Colorado
Greenhouse to its members after the payment of all of its other obligations
then due (including, without limitation, all payments due under the
Management Agreement), regardless of the purposes for which such funds are
used by the members of Colorado Greenhouse (including the construction and
operation of any new greenhouses), shall not cause Colorado Greenhouse to
be in violation of Section 3.3(a) of the Management Agreement.
11. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York. This Agreement shall be binding upon the
Project Parties and their successors and assigns and is executed for the
benefit of Farm Credit and its successors and assigns.
12. This Agreement shall continue in full force and effect so long as any
portion of the Obligations remain due and owing and CGI has any commitment
or obligation to Colorado Greenhouse under the Line of Credit Agreement.
13. This Agreement represents the entire agreement of the parties with respect
to the subject matter hereof.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
LANDLORD:
COLORADO POWER PARTNERS
By: TWOMBLY PARTNERS
/s/ Nicholas G. Muller
By:______________________________
Nicholas G. Muller
Management Committee Member
and
By: CTI PARTNERS I LLC
/s/ Edward J. Wetherbee
By:______________________________
Edward J. Wetherbee
TENANT:
BRUSH GREENHOUSE PARTNERS
/s/ Edward J. Wetherbee
By:__________________________________
Name: Edward J. Wetherbee
Title: Management Committee Member
5
<PAGE>
EXHIBIT A
to
Consent and Subordination
Supplies
--------
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/ Insecticides/ Biological Controls/ Bees
Miscellaneous repair parts/ supplies
Packing Materials - boxes, comer boards, panapack, film, labels, pallets,
stretch wrap, trays
A-1
<PAGE>
EXHIBIT B
to
Consent and Subordination
Equipment
---------
Box machines
Forklifts
Pallet jacks
Carts
Sprayers
Graders
Conveyors
B-1
<PAGE>
Exhibit D
to
Colorado Greenhouse, LLC Loan Supplement
CONSENT AND SUBORDINATION
This CONSENT AND SUBORDINATION (the "Agreement") dated as of January 24,
1997, is executed by Brush Cogeneration Partners, a Colorado general partnership
("Landlord"), and Brush Greenhouse Partners II, LLC, a Colorado limited
liability company ("Tenant"), for the benefit of Colorado Springs Production
Credit Association ("Farm Credit").
RECITALS:
--------
A. Landlord and Tenant have entered into that certain Amended and
Restated Cogeneration and Greenhouse Lease Agreement dated as of June 30, 1992
(as the same has been amended by Amendment to Amended and Restated Cogeneration
and Greenhouse Lease Agreement dated as of December 29, 1994, the "Greenhouse
Lease") pursuant to which Landlord has leased the Premises (as defined in the
Greenhouse Lease) to Tenant.
B. Landlord has executed that certain Construction and Term Loan Deed of
Trust, Security Agreement and Assignment of Rents dated as of June 30, 1992,
in favor of The Prudential Insurance Company of America and Credit Suisse
(collectively, the "Lenders") (as the same has been or may hereafter be amended,
the "Mortgage") pursuant to which Landlord has granted a lien to the Lenders
on, among other property, the Premises.
C. Tenant and Colorado Greenhouse LLC, a Colorado limited liability
company ("Colorado Greenhouse") have entered into that certain Greenhouse
Operation and Management Agreement dated as of December 29, 1994 (as the same
may be amended the "Management Agreement", and together with the Greenhouse
Lease and the Mortgage, herein the "Project Documents") pursuant to which
Colorado Greenhouse has agreed to operate and manage the Premises.
D. Farm Credit and Colorado Greenhouse, Inc. ("CGI"), an affiliate of
Colorado Greenhouse, have entered into that certain Master Loan Agreement dated
as of January 24, 1997 (as the same may be amended, the "MLA"). As allowed under
the MLA, CGI has entered into a Line of Credit Agreement (the "Line of Credit
Agreement") with Colorado Greenhouse, providing for a line of credit in the
aggregate principal amount of up to $1,500,000, pursuant to which CGI may make
loans to Colorado Greenhouse.
E. In order to secure the obligations arising in connection with the Line
of Credit Agreement (the "Obligations"), Colorado Greenhouse has entered into a
Security Agreement (as the same may be amended, the "Security Agreement") with
CGI dated as of January 24, 1997, pursuant to which Colorado Greenhouse granted
to CGI security interests (the "Security Interests") in all of its right, title
and interest in and to all crops now or hereafter planted, growing or stored on
the Premises (as defined in the Greenhouse Lease, and any such crops, herein,
the "Crops"), all material and supplies utilized in the planting, growing,
harvesting and packaging of such Crops of the type described on Exhibit A
attached hereto, which are now (or may hereafter be) stored on the Premises (the
"Supplies"), certain equipment described on
<PAGE>
Exhibit B attached hereto, which is or may be located on the Premises (the
"Equipment") and all other property owned by Colorado Greenhouse described
therein as the Collateral (such property herein referred to as the "CGI
Collateral").
F. In order to secure its obligations under the MLA, CGI has granted a
security interest (the "Chattel Security Interest") in favor of Farm Credit in
and to the Security Interests.
G. In order to induce (i) CGI to extend credit to Colorado Greenhouse and
(ii) Farm Credit to extend credit to CGI, Landlord and Tenant (together, the
"Project Parties") desire to enter into this Agreement for the benefit of Farm
Credit.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which have hereby been
acknowledged, the parties hereto agree as follows:
1. Landlord acknowledges having been informed of (i) Colorado
Greenhouse's execution and delivery of the Line of Credit Agreement
and the Security Agreement, and of the consummation of the
transactions contemplated thereby and (ii) CGI's execution and
delivery of the MLA and the granting of the Chattel Security
Interest.
2. Tenant hereby consents to Colorado Greenhouse's execution and
delivery of the Line of Credit Agreement and the Security Agreement
and to the consummation of the transactions contemplated thereby and
agrees that such execution, delivery and consummation do not conflict
with, result in a breach of or constitute a default under any Project
Documents to which it is a party.
3. Each Project Party represents and warrants to Farm Credit with
respect to itself and the Project Documents to which it is a party
that:
(a) No default, event of default or event that would permit the
termination of a Project Document exists under the Project
Documents to which it is a party;
(b) The Project Documents to which it is a party constitutes its
legal, valid and binding obligation enforceable against it in
accordance with their respective terms except as limited by
bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors rights; and
(c) None of the Project Documents to which it is a party has
terminated.
4. Each Project Party hereby subordinates, makes junior, second and
inferior to the Security Interests covering the CGI Collateral, any
security interests, liens, and other rights, titles and interests
(including without limitation, any security interest, lien or other
right covering the CGI Collateral created in any Project Documents)
2
<PAGE>
which it now has or may hereafter acquire with respect to the CGI
Collateral (regardless of whether the CGI Collateral is now owned or
hereafter acquired by Colorado Greenhouse); provided, however, that this
subordination shall not affect, postpone or diminish in any way the
priority of the Landlord's reversionary interest in the "Facility" (as such
term is defined under Section 2.1 of the Greenhouse Lease) which has been
leased and demised to Tenant under the Greenhouse Lease, or to inhibit or
impair in any way the exercise by Landlord of any rights and remedies
available to Landlord in the event of a Default (defined in the Greenhouse
Lease to be a breach extending beyond any applicable grace or cure period)
by Tenant under the Greenhouse Lease.
5. Farm Credit through its authorized representatives or agents, may during
normal business hours and upon 24 hours advance notice enter upon the
Premises (as defined in the Greenhouse Lease) at any time and from time to
time for the purposes of inspecting and caring for the CGI Collateral and,
after the occurrence of an Event of Default under the Line of Credit
Agreement, for the purpose of removing or conducting a sale or sales of any
or all of the CGI Collateral. Farm Credit shall have no obligation or
liability to Colorado Greenhouse or any Project Party in connection with
the foregoing actions except, however, that Farm Credit shall promptly
repair any damage to the Premises (as defined in the Greenhouse Lease)
caused by such removal, sale or inspection and that Farm Credit shall be
liable to a Project Party that has been damaged as a result of the acts and
omissions of Farm Credit's employees or agents in connection with such
removal, sale or inspection.
6. The Project Parties shall permit Farm Credit immediate access to the
Facility at any time if Farm Credit notifies the Project Parties that such
immediate access is necessary to prevent the value of the crops from being
impaired given their perishable nature and the controlled conditions under
which they are grown, harvested and stored.
7. Farm Credit's right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate on
the date which is the later of:
(a) the date 60 days after the Lenders have (i) taken possession of the
Premises and (ii) provided Farm Credit written notice of such termination,
or
(b) the date 30 days after the completion of the harvest of all crops which
were planted on the Premises prior to the date Colorado Greenhouse's right
to possession of the Premises terminated.
8. Each Project Party agrees to give Farm Credit written notice prior to or
simultaneously with its exercise of any of its rights or remedies, or any
other parties' rights or remedies of which such Project Party has
knowledge, arising
3
<PAGE>
under any Project Documents as a result of a default, event of default or
other event that would entitle a party to terminate any Project Document.
Any notice or other communication required or permitted to be given under
this Agreement to Farm Credit must be in writing and delivered in person or
mailed by registered or certified mail, return receipt requested, postage
prepaid to Farm Credit at this following address:
3625 Citadel Dr. S.
P.O. Box 9290
Colorado Springs, CO 80932-9290
or such other address as shall be set forth in a notice from the
appropriate party given in compliance with this paragraph. Any such notice
or other communication shall be deemed given when delivering in person, or,
if mailed, when duly deposited in the mails. Failure of a Project Party to
provide such notice to Farm Credit shall not constitute a breach of this
Agreement, and Farm Credit agrees that Project Parties shall have no
liability to Farm Credit for such failure; however, no claim of rescission
or termination of the Project Documents by the applicable Project Party
shall be binding upon Farm Credit without such notice.
9. Each Project Party acknowledges and agrees for the benefit of Farm Credit
that as between itself and Colorado Greenhouse, Colorado Greenhouse owns
all crops on the Premises planted by Colorado Greenhouse prior to the
termination of the Management Agreement and all crops harvested therefrom.
10. Each Project Party agrees that the making of any distributions by Colorado
Greenhouse to its members after the payment of all of its other obligations
then due (including, without limitation, all payments due under the
Management Agreement), regardless of the purposes for which such funds are
used by the members of Colorado Greenhouse (including the construction and
operation of any new greenhouses), shall not cause Colorado Greenhouse to
be in violation of Section 3.3(a) of the Management Agreement.
11. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York. This Agreement shall be binding upon the
Project Parties and their successors and assigns and is executed for the
benefit of Farm Credit and its successors and assigns.
12. This Agreement shall continue in full force and effect so long as any
portion of the Obligations remain due and owing and CGI has any commitment
or obligation to Colorado Greenhouse under the Line of Credit Agreement.
13. This Agreement represents the entire agreement of the parties with respect
to the subject matter hereof.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
LANDLORD:
BRUSH COGENERATION PARTNERS
By: NOAH I POWER PARTNERS, L.P., a general partner
By: NOAH I POWER GP,INC., its general partner
By: [SIGNATURE ILLEGIBLE]
---------------------------
Name: [NAME ILLEGIBLE]
-------------------------
Title: VICE PRESIDENT
------------------------
and
By: CTI PARTNERS II LLC, a general partner
By: /s/ Edward J. Wetherbee
--------------------------------
Edward J. Wetherbee
Management Committee Member
TENANT:
BRUSH GREENHOUSE PARTNERS II, LLC
By: /s/ Edward J. Wetherbee
--------------------------------
Edward J. Wetherbee
Management Committee Member
5
<PAGE>
EXHIBIT A
to
Consent and Subordination
Supplies
--------
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/ Insecticides/ Biological Controls/ Bees
Miscellaneous repair parts/ supplies
Packing Materials - boxes, corner boards, panapack, film, labels, pallets,
stretch wrap, trays
A-1
<PAGE>
EXHIBIT B
to
Consent and Subordination
Equipment
---------
Box machines
Forklifts
Pallet jacks
Carts
Sprayers
Graders
Conveyors
B-1
<PAGE>
Exhibit E
to
Colorado Greenhouse, LLC Loan Supplement
CONSENT AND SUBORDINATION
This CONSENT AND SUBORDINATION (the "Agreement") dated as of January 24,
1997 is executed by Thermo Cogeneration Partnership, L.P., a Colorado limited
partnership ("Landlord"), and Rocky Mountain Produce LLC, a Colorado limited
liability company ("Tenant"), for the benefit of Colorado Springs Production
Credit Association ("Farm Credit").
RECITALS:
--------
A. Landlord and Tenant have entered into that certain Thermal Supply Lease
Agreement dated as of March 22, 1993 (supplemented pursuant to the Supplemental
Agreement and Consent to Assignment dated April 7, 1993, among Landlord, Tenant
and The Prudential Insurance Company of America ("Prudential"), and as the same
has been amended by Amendment No. 1 to Thermal Supply Agreement dated as of
December 29, 1994, and by Amendment No. 2 to Thermal Supply Agreement dated as
of February 28, 1995, and by Amendment No. 3 to Thermal Supply Agreement dated
as of February 28, 1995 (as so supplemented and amended), the "Greenhouse
Lease") pursuant to which Landlord has leased the Premises (as defined in the
Greenhouse Lease) to Tenant.
B. Landlord has executed that certain Construction and Term Loan Deed of
Trust, Security Agreement and Assignment of Rents (as the same has been or may
hereafter be amended, the "Mortgage") dated as of April 7, 1993, in favor of
Prudential, The Fuji Bank, Limited and certain other lenders (collectively
"Lenders") pursuant to which Landlord has granted a lien to the Lenders on,
among other property, the Premises.
C. Tenant and Colorado Greenhouse LLC, a Colorado limited liability
company ("Colorado Greenhouse") have entered into that certain Greenhouse
Operation and Management Agreement dated as of December 29, 1994 (as the same
may be amended the "Management Agreement", and together with the Greenhouse
Lease and the Mortgage, herein the "Project Documents") pursuant to which
Colorado Greenhouse has agreed to operate and manage the Premises.
D. Farm Credit and Colorado Greenhouse, Inc. ("CGI"), an affiliate of
Colorado Greenhouse, have entered into that certain Master Loan Agreement dated
as of January 24, 1997 (as the same may be amended, the "MLA"). As allowed under
the MLA, CGI has entered into a Line of Credit Agreement (the "Line of Credit
Agreement") with Colorado Greenhouse, providing for a line of credit in the
aggregate principal amount of up to $1,500,000, pursuant to which CGI may make
loans to Colorado Greenhouse.
E. In order to secure the obligations arising in connection with the Line
of Credit Agreement (the "Obligations"), Colorado Greenhouse has entered into a
Security Agreement (as the same may be amended, the "Security Agreement") with
CGI dated as of January 24, 1997, pursuant to which Colorado Greenhouse granted
to CGI security interests (the "Security Interests") in all of its right, title
and interest in and to all crops now or hereafter planted,
<PAGE>
growing or stored on the Premises (as defined in the Greenhouse Lease, and any
such crops herein, the "Crops"), all material and supplies utilized in the
planting, growing, harvesting and packaging of such Crops of the type described
on Exhibit A attached hereto, which are now (or may hereafter be) stored on the
Premises (the "Supplies"), certain equipment described on Exhibit B attached
hereto, which is or may be located on the Premises (the "Equipment") and all
other property owned by Colorado Greenhouse described therein as the Collateral
(such property herein referred to as the "CGI Collateral").
F. In order to secure its obligations under the MLA, CGI has granted a
security interest (the "Chattel Security Interest") in favor of Farm Credit in
and to the Security Interests.
G. In order to induce (i) CGI to extend credit to Colorado Greenhouse and
(ii) Farm Credit to extend credit to CGI, Landlord and Tenant (together, the
"Project Parties") desire to enter into this Agreement for the benefit of Farm
Credit.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which have hereby been
acknowledged, the parties hereto agree as follows:
1. Landlord acknowledges having been informed of (i) Colorado Greenhouse's
execution and delivery of the Line of Credit Agreement and the Security
Agreement, and of the consummation of the transactions contemplated
thereby and (ii) CGI's execution and delivery of the MLA and the
granting of the Chattel Security Interest.
2. Tenant hereby consents to Colorado Greenhouse's execution and delivery
of the Line of Credit Agreement and the Security Agreement and to the
consummation of the transactions contemplated thereby and agrees that
such execution, delivery and consummation do not conflict with, result
in a breach of or constitute a default under any Project Documents to
which it is a party.
3. Each Project Party represents and warrants to Farm Credit with respect
to itself and the Project Documents to which it is a party that:
(a) No default, event of default or event that would permit the
termination of a Project Document exists under the Project Documents to
which it is a party;
(b) The Project Documents to which it is a party constitutes its legal,
valid and binding obligation enforceable against it in accordance with
their respective terms except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of
creditors rights; and
(c) None of the Project Documents to which it is a party has
terminated.
2
<PAGE>
4. Each Project Party hereby subordinates, makes junior, second and
inferior to the Security Interests covering the CGI Collateral, any
security interests, liens, and other rights, titles and interests
(including without limitation, any security interest, lien or other
right covering the CGI Collateral created in any Project Documents)
which it now has or may hereafter acquire with respect to the CGI
Collateral (regardless of whether the CGI Collateral is now owned or
hereafter acquired by Colorado Greenhouse); provided, however, that
this subordination shall not affect, postpone or diminish in any way
the priority of the Landlord's reversionary interest in the "Facility"
(as such term is defined under Section 2.1 of the Greenhouse Lease)
which has been leased and demised to Tenant under the Greenhouse Lease,
or to inhibit or impair in any way the exercise by Landlord of any
rights and remedies available to Landlord in the event of a Default
(defined in the Greenhouse Lease to be a breach extending beyond any
applicable grace or cure period) by Tenant under the Greenhouse Lease.
5. Farm Credit through its authorized representatives or agents, may
during normal business hours and upon 24 hours advance notice enter
upon the Premises (as defined in the Greenhouse Lease) at any time and
from time to time for the purposes of inspecting and caring for the CGI
Collateral and, after the occurrence of an Event of Default under the
Line of Credit Agreement, for the purpose of removing or conducting a
sale or sales of any or all of the CGI Collateral. Farm Credit shall
have no obligation or liability to Colorado Greenhouse or any Project
Party in connection with the foregoing actions except, however, that
Farm Credit shall promptly repair any damage to the Premises (as
defined in the Greenhouse Lease) caused by such removal, sale or
inspection and that Farm Credit shall be liable to a Project Party that
has been damaged as a result of the acts and omissions of Farm Credit's
employees or agents in connection with such removal, sale or
inspection.
6. The Project Parties shall permit Farm Credit immediate access to the
Facility at any time if Farm Credit notifies the Project Parties that
such immediate access is necessary to prevent the value of the crops
from being impaired given their perishable nature and the controlled
conditions under which they are grown, harvested and stored.
7. Farm Credit's right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate
on the date which is the later of:
(a) the date 60 days after the Lenders have (i) taken possession of
the Premises and (ii) provided Farm Credit written notice of such
termination, or
(b) the date 30 days after the completion of the harvest of all crops
which were planted on the Premises prior to the date Colorado
Greenhouse's right to possession of the Premises terminated.
3
<PAGE>
8. Each Project Party agrees to give Farm Credit written notice prior to
or simultaneously with its exercise of any of its rights or remedies,
or any other parties' rights or remedies of which such Project Party
has knowledge, arising under any Project Documents as a result of a
default, event of default or other event that would entitle a party to
terminate any Project Document. Any notice or other communication
required or permitted to be given under this Agreement to Farm Credit
must be in writing and delivered in person or mailed by registered or
certified mail, return receipt requested, postage prepaid to Farm
Credit at this following address:
3625 Citadel Dr. S.
P.O. Box 9290
Colorado Springs, CO 80932-9290
or such other address as shall be set forth in a notice from the
appropriate party given in compliance with this paragraph. Any such
notice or other communication shall be deemed given when delivering in
person, or, if mailed, when duly deposited in the mails. Failure of a
Project Party to provide such notice to Farm Credit shall not
constitute a breach of this Agreement, and Farm Credit agrees that
Project Parties shall have no liability to Farm Credit for such
failure; however, no claim of rescission or termination of the Project
Documents by the applicable Project Party shall be binding upon Farm
Credit without such notice.
9. Each Project Party acknowledges and agrees for the benefit of Farm
Credit that as between itself and Colorado Greenhouse, Colorado
Greenhouse owns all Crops on the Premises planted by Colorado
Greenhouse prior to the termination of the Management Agreement and all
crops harvested therefrom.
10. Each Project Party agrees that the making of any distributions by
Colorado Greenhouse to its members after the payment of all of its
other obligations then due (including, without limitation, all payments
due under the Management Agreement), regardless of the purposes for
which such funds are used by the members of Colorado Greenhouse
(including the construction and operation of any new greenhouses),
shall not cause Colorado Greenhouse to be in violation of Section
3.3(a) of the Management Agreement.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. This Agreement shall be binding upon
the Project Parties and their successors and assigns and is executed
for the benefit of Farm Credit and its successors and assigns.
12. This Agreement shall continue in full force and effect so long as any
portion of the Obligations remain due and owing and CGI has any
commitment or obligation to Colorado Greenhouse under the Line of
Credit Agreement.
4
<PAGE>
13. This Agreement represents the entire agreement of the parties with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
LANDLORD:
THERMO COGENERATION PARTNERSHIP, L.P.
By: Thermo Ft. Lupton, L.P., General Partner
By: Thermo Ft. Lupton I, Inc., General Partner
By: /s/ James Monroe, III
-------------------------------------------
James Monroe, III, President
By: CSW Ft. Lupton, Inc., General Partner
By: /s/ signature illegible
-------------------------------------------
Name: illegible
-----------------------------------------
Title: illegible
----------------------------------------
TENANT:
ROCKY MOUNTAIN PRODUCE LLC
By: /s/ Edward J. Wetherbee
-----------------------------------------------
Edward J. Wetherbee
Management Committee Member
5
<PAGE>
EXHIBIT A
to
Consent and Subordination
Supplies
--------
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/ Insecticides/ Biological Controls/ Bees
Miscellaneous repair parts/ supplies
Packing Materials - boxes, corner boards, panapack, film, labels, pallets,
stretch wrap, trays
A-1
<PAGE>
EXHIBIT B
to
Consent and Subordination
Equipment
---------
Box machines
Forklifts
Pallet jacks
Carts
Sprayers
Graders
Conveyors
B-1
<PAGE>
Exhibit F
to
Colorado Greenhouse, LLC Loan Supplement
CONSENT AND SUBORDINATION
This CONSENT AND SUBORDINATION (this "Agreement") dated as of January 24,
1997, is executed by American Atlas #1, Ltd., a Colorado limited partnership
("Landlord"), and Wolf Creek Rifle Limited Liability Company, a Colorado limited
liability company ("Tenant"), for the benefit of Colorado Springs Production
Credit Association ("Farm Credit").
RECITALS:
---------
A. Landlord and Westinghouse Credit Corporation, a Delaware corporation
("Westinghouse") have entered into that certain Facility and Site Lease (the
"Site Lease") dated as of January 1, 1993, covering certain real property
located near Rifle, Colorado (the "Property") and the cogeneration facility
located thereon.
B. Landlord and Tenant have entered into that certain Greenhouse Lease
Agreement dated as of April 15, 1993, between Landlord and Tenant pursuant to
which Landlord has leased to Tenant the Premises (as defined in the Greenhouse
Lease) located on the Property.
C. Tenant and Colorado Greenhouse LLC, a Colorado limited liability
company ("Colorado Greenhouse"), have entered into that certain Greenhouse
Operation and Management Agreement dated as of July 31, 1996 (as the same may
be amended, the "Management Agreement", and together with the Site Lease and the
Greenhouse Lease, herein the "Project Documents") pursuant to which Colorado
Greenhouse has agreed to operate and manage the Premises.
D. Farm Credit and Colorado Greenhouse, Inc. ("CGI"), an affiliate of
Colorado Greenhouse, have entered into that certain Master Loan Agreement dated
as of January 24, 1997 (as the same may be amended, the "MLA"). As allowed
under the MLA, CGI has entered into a Line of Credit Agreement (the "Line of
Credit Agreement") with Colorado Greenhouse, providing for a line of credit in
the aggregate principal amount of $1,500,000, pursuant to which CGI may make
loans to Colorado Greenhouse.
E. In order to secure the obligations arising in connection with the Line
of Credit Agreement (the "Obligations"), Colorado Greenhouse has entered into a
Security Agreement (as the same may be amended, the "Security Agreement") with
CGI dated as of January 24, 1997, pursuant to which Colorado Greenhouse has
granted to CGI security interests (the "Security Interests") in all of its
right, title and interest in and to all crops now or hereafter planted, growing
or stored on the Premises (as defined in the Greenhouse Lease, and any such
crops, herein, the "Crops"), all material and supplies utilized in the planting,
growing, harvesting and packaging of such Crops of the type described on
Exhibit A attached hereto, which are now (or may hereafter be) stored on the
Premises, certain equipment described on Exhibit B attached hereto, which is
now, or may be hereafter, located on the Premises (expressly excluding, however,
those items of equipment owned by Landlord and Tenant and existing on the
Premises on or before January 1, 1996, as more particularly described on Exhibit
B-1 attached hereto), and
<PAGE>
all other property owned by Colorado Greenhouse described therein as the
Collateral (such property herein referred to as the "CGI Collateral").
F. In order to secure its obligations under the MLA, CGI has granted a
security interest (the "Chattel Security Interest") in favor of Farm Credit in
and to the Security Interests.
G. In order to induce (i) CGI to extend credit to Colorado Greenhouse, and
(ii) Farm Credit to extend credit to CGI, Landlord and Tenant (together, the
"Project Parties") desire to enter into this Agreement for the benefit of Farm
Credit.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which have hereby been
acknowledged, the parties hereto agree as follows:
1. Landlord acknowledges having been informed of (i) Colorado Greenhouse's
execution and delivery of the Line of Credit Agreement and the Security
Agreement, and of the consummation of the transactions contemplated
thereby, and (ii) CGI's execution and delivery of the MLA and the
granting of the Chattel Security Interest.
2. Tenant hereby consents to Colorado Greenhouse's execution and delivery
of the Line of Credit Agreement and the Security Agreement and to the
consummation of the transactions contemplated thereby and agrees that
such execution, delivery and consummation do not conflict with, result
in a breach of or constitute a default under any Project Documents to
which it is a party.
3. Each Project Party represents and warrants to Farm Credit with respect
to itself and the Project Documents to which it is a party that:
(a) No default, event of default or event that would permit the
termination of a Project Document exists under the Project
Documents to which it is a party;
(b) The Project Documents to which it is a party constitutes its
legal, valid and binding obligation enforceable against it in
accordance with their respective terms except as limited by
bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors rights; and
(c) None of the Project Documents to which it is a party has
terminated.
4. Each Project Party hereby subordinates, makes junior, second and
inferior to the Security Interests covering the CGI Collateral, any
security interests, liens, and other rights, titles and interests
(including without limitation, any security interest, lien or other
right covering the CGI Collateral created in any Project Documents)
which it now has or may hereafter acquire with respect to the CGI
Collateral
2
<PAGE>
(regardless of whether the CGI Collateral is now owned or hereafter
acquired by Colorado Greenhouse); provided, however, that this
subordination shall not inhibit or impair in any way the exercise by
Landlord of any rights and remedies available to Landlord if an event
of default has occurred under the Greenhouse Lease, except that
Landlord acknowledges that such exercise of its rights and remedies
does not include possession or removal of the CGI Collateral for so
long as Farm Credit has the right to enter and remain upon the Premises
and to remove therefrom the CGI Collateral as provided in Section 7 of
this Agreement.
5. Farm Credit, through its authorized representatives or agents, may,
during normal business hours and upon 24 hours advance notice, enter
upon the Premises (as defined in the Greenhouse Lease) at any time and
from time to time for the purposes of inspecting and caring for the
CGI Collateral and, after the occurrence of an Event of Default under
the Line of Credit Agreement, for the purpose of removing or conducting
a sale or sales of any or all of the CGI Collateral. Farm Credit shall
have no obligation or liability to Colorado Greenhouse or any Project
Party in connection with the foregoing actions except, however, that
Farm Credit shall promptly repair any damage to the Premises (as
defined in the Greenhouse Lease) caused by such removal, sale or
inspection and that Farm Credit shall be liable to a Project Party that
has been damaged as a result of the acts and omissions of Farm Credit's
employees or agents in connection with such removal, sale or
inspection.
6. The Project Parties shall permit Farm Credit immediate access to the
Property at any time if Farm Credit notifies the Project Parties that
such immediate access is necessary to prevent the value of the crops
from being impaired given their perishable nature and the controlled
conditions under which they are grown, harvested and stored.
7. Farm Credit's right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate
on the date which is the later of:
(a) the date 60 days after Westinghouse has (i) taken possession of
the Premises and (ii) provided Farm Credit written notice of such
termination, or
(b) the date 30 days after the completion of the harvest of all crops
which were planted on the Premises prior to the date Colorado
Greenhouse's right to possession of the Premises terminated.
8. Each Project Party agrees to give Farm Credit written notice prior to
or simultaneously with its exercise of any of its rights or remedies,
or any other parties' rights or remedies of which such Project Party
has knowledge, arising under any Project Documents as a result of a
default, event of default or other event that would entitle a party to
terminate any Project Document. Any notice or
3
<PAGE>
other communication required or permitted to be given under this
Agreement to Farm Credit must be in writing and delivered in person or
mailed by registered or certified mail, return receipt requested,
postage prepaid to Farm Credit at this following address:
3625 Citadel Dr. S.
P.O. Box 9290
Colorado Springs, CO 80932-9290
or such other address as shall be set forth in a notice from the
appropriate party given in compliance with this paragraph. Any such
notice or other communication shall be deemed given, when delivering in
person, or, if mailed, when duly deposited in the mails. Failure of a
Project Party to provide such notice to Farm Credit shall not
constitute a breach of this Agreement, and Farm Credit agrees that
Project Parties shall have no liability to Farm Credit for such
failure; however, no claim of rescission or termination of the Project
Documents by the applicable Project Party shall be binding upon Farm
Credit without such notice.
9. Each Project Party acknowledges and agrees for the benefit of Farm
Credit that as between itself and Colorado Greenhouse, Colorado
Greenhouse owns all crops on the Premises planted by Colorado
Greenhouse prior to the termination of the Management Agreement and all
crops harvested therefrom.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado. This Agreement shall be binding upon
the Project Parties and their successors and assigns and is executed
for the benefit of Farm Credit and its successors and assigns.
11. This Agreement shall continue in full force and effect so long as any
portion of the Obligations remain due and owing and CGI has any
commitment or obligation to Colorado Greenhouse under the Line of
Credit Agreement.
12. This Agreement represents the entire agreement of the parties with
respect to the subject matter hereof.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
LANDLORD:
AMERICAN ATLAS #1, LTD., a Colorado limited
partnership
By: /s/ William E. Coleman
-----------------------------------------
Name: William E. Coleman
Title: Chairman of General Partner
TENANT:
WOLF CREEK RIFLE LIMITED LIABILITY
COMPANY, a Colorado limited liability company
By: /s/ William E. Coleman
------------------------------------------
Name: William E. Coleman
Title: Manager
5
<PAGE>
EXHIBIT A
to
Consent and Subordination
Supplies
--------
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/ Insecticides/ Biological Controls/ Bees
Miscellaneous repair parts/ supplies
Packing Materials - boxes, corner boards, panapack, film, labels, pallets,
stretch wrap, trays
6
<PAGE>
EXHIBIT B
to
Consent and Subordination
Equipment
---------
Box machines
Forklifts
Pallet jacks
Carts
Sprayers
Graders
Conveyors
7
<PAGE>
Exhibit G
to
Colorado Greenhouse, LLC Loan Supplement
January 28, 1997
Colorado Springs Production Credit Association
3625 Citadel Drive S.
Colorado Springs, Colorado 80932-9290
Re: Colorado Power Partners, Partners, Brush Greenhouse Partners and
Colorado Greenhouse LLC
Ladies and Gentlemen:
Reference is made to that certain Construction and Term Loan Deed of Trust,
Security Agreement and Assignment of Rents dated as of June 30, 1993 (as may be
amended, the "Deed of Trust") from Colorado Power Partners ("CPP") in favor of
the undersigned (collectively, the "Lenders"). The Deed of Trust was created
pursuant to the terms of the Construction and Term Loan Agreement among CPP and
the Lenders, which document provided for the advancement of funds from the
Lenders to CPP for the purposes of constructing a cogeneration facility, which
includes a commercial greenhouse facility, located in Brush, Colorado (the
"Facility").
It is our understanding that:
(a) CPP has leased the greenhouse component of the Facility to Brush
Greenhouse Partners ("BGP") pursuant to that certain Cogeneration and
Greenhouse Lease Agreement dated as of June 8, 1989 (the "Greenhouse
Lease");
(b) BGP has entered into a Greenhouse Operation and Management Agreement
("O&M Agreement") dated as of December 29, 1994 with Colorado
Greenhouse LLC ("Colorado Greenhouse"); and
(c) Colorado Greenhouse has entered into a Line of Credit Agreement
(providing for a line of credit in the aggregate principal amount of
up to $1,500,000) and a Security Agreement (together, the "Loan
Documents"), each dated as of January 24, 1997, with Colorado
Greenhouse, Inc. ("CGI"), which is an affiliate of Colorado
Greenhouse;
(d) CPP and BGP have executed that certain Consent and Subordination (the
"Consent") dated as of January 24, 1997, in favor of Colorado Springs
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 2
Production Credit Association ("Farm Credit"), a copy of which is
attached hereto as Exhibit H.
You have informed us that you are entering into a loan transaction (the
"Loan") with CGI evidenced by Master Loan Agreement (the "Master Loan
Agreement") dated as of January 24, 1997, which contemplates the execution of a
Security Agreement (the "Security Agreement") and an Assignment of Loan
Documents (the "Assignment"), copies of which is attached hereto as Exhibits C-1
and C-2, pursuant to which CGI will grant to Farm Credit a security interest in
the Loan Documents. You have also informed us that the Loan Documents, copies of
which are attached hereto as Exhibits D and E, will grant to CGI security
interests in all of Colorado Greenhouse's right, title and interest in and to
all crops now or hereafter planted, growing or stored on the Premises (as
defined in the Greenhouse Lease, and any such crops, herein the "Crops"), all
material and supplies utilized in the planting, growing, harvesting and
packaging of such Crops, of the type described on Exhibit A attached hereto,
which are now (or may hereafter be) stored on the Premises (the "Supplies"),
the equipment described on Exhibit B attached hereto, which is or may be located
on the Premises (the "Equipment") and all the other property owned by Colorado
Greenhouse described therein as the Collateral (such property herein referred to
as the "CGI Collateral").
We acknowledge for your benefit that Colorado Greenhouse has not granted
any liens or security interests to us or for our benefit, and we disclaim any
interest in any of the Crops, Supplies or Equipment.
We also agree for the benefit of Farm Credit that we will not claim any
crops which are now or may hereafter be planted on the Premises prior to the
termination of Colorado Greenhouse's right to possession of the Premises and any
crops now or hereafter stored on the Premises by Colorado Greenhouse as being
part of the Facility encumbered by the Deed of Trust.
As long as either CPP or BGP is entitled to possession of the Facility, the
undersigned Lenders agree not to interfere with any rights Farm Credit has under
the Consent.
Lenders agree that after they have or their authorized representative has
obtained possession of the Facility under the rights set forth in the Deed of
Trust or otherwise, Farm Credit may from time to time, through its authorized
representative, during normal business hours and with 24 hours written notice to
the Lenders at the address set forth herein, enter the Premises for the purposes
of caring for the Crops and removing the Crops, Supplies, Equipment and any
other property that is owned by Colorado
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 3
Greenhouse (as determined by reasonable and customary evidence thereof) which
constitutes CGI Collateral.
After the Lenders or their authorized representatives have obtained
possession of the Facility under the rights set forth in the Deed of Trust or
otherwise, the Lenders shall permit Farm Credit immediate access to the Facility
at anytime if Farm Credit notifies the Lenders that such immediate access is
necessary to prevent the value of the Crops from being impaired given their
perishable nature and the controlled conditions under which they are grown,
harvested and stored.
Farm Credit's right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate on the
date which is the later of:
(a) the date 60 days after the Lenders have (i) taken possession of the
Facility and (ii) provided Farm Credit written notice of such
termination; or
(b) the earlier of (i) the date 30 days after the completion of the
harvest of all Crops which were planted on the Premises prior to the
date Colorado Greenhouse's right to possession of the Premises
terminated or (ii) 10 months after the date Colorado Greenhouse's
right to possession of the Premises terminated.
Farm Credit agrees to promptly and at its own expense repair any damages to
the Facility caused by either it or its authorized representatives while on the
Facility. In furtherance of the foregoing, Farm Credit shall indemnify and hold
the Lenders and their respective affiliates, officers, directors and agents
harmless from any loss, liability or damage incurred or suffered by any such
persons or entity as a direct or proximate result of the acts or omissions of
Farm Credit or its authorized representatives while Farm Credit or its
authorized representatives are present at the Facility.
The Lenders acknowledge and accept that CPP and BGP have agreed that the
making of any distributions by Colorado Greenhouse to its members after the
payment of all of its other obligations then due (including, without limitation,
all payments due under the O&M Agreement), regardless of the purposes for which
such funds are used by the members of Colorado Greenhouse (including the
construction and operation of any new greenhouses), shall not cause Colorado
Greenhouse to be in violation of Section 3.3(a) of the O&M Agreement.
This consent shall terminate and be of no further force and effect in the
event that Farm Credit shall agree to any amendment to or waive, or accept any
waiver of, (a) the provisions of Section 2(D) of the Pledge Agreement, dated as
of January 24, 1997 (the
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 4
"Pledge Agreement"), made by CG Member, Inc., a Delaware corporation ("CG
Member") to Farm Credit, a copy of which is attached hereto as Exhibit F, or any
other provision of the Pledge Agreement if such amendment or waiver affects the
application or effect of the provisions of Section 2(D) thereof or (b) the
provisions of Section 2.2, 2.3 or 8.1 of the Colorado Greenhouse LLC Loan
Supplement, dated as of January 24, 1997 (the "LLC Loan Supplement"), between
Farm Credit and CGI, a copy of which is attached hereto as Exhibit G, or any
other provision of the LLC Loan Supplement is such amendment or waiver affects
the application or effect of the provisions of any such Section. This consent
shall also terminate upon the termination of the LLC Loan Supplement. Finally,
this consent is given based upon our understanding that the shares of CG Member
have not been and will not be pledged to Farm Credit.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Ric E. Abel
-------------------------------------
Name: Ric E. Abel
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
c/o Prudential Capital Group
Global Utility and Project Finance
Four Gateway Center
Newark, NJ 07102
PRUCO LIFE INSURANCE COMPANY
By: /s/ John K. Ward
-------------------------------------
Name: John Ward
-----------------------------------
Title: V.P.
----------------------------------
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address for Notices:
c/o Prudential Capital Group
Global Utility and Project Finance
Four Gateway Center
Newark, NJ 07102
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 5
Accepted and Agreed:
Colorado Springs Production Association
By: /s/ Russell Tomky Address for Notices
---------------------------- 3625 Citadel Dr. S
Name: Russell Tomky P.O. Box 9290
-------------------------- Colorado Springs, CO 80932-9296
Title: SR. V.P. - CREDIT
-------------------------
Colorado Greenhouse, Inc.
By: /s/ Edward Wetherbee Address for Notices
---------------------------- 6811 Weld County Road 31
Name: P.O. Box 309
-------------------------- Ft. Lupton, CO 80621
Title:
-------------------------
<PAGE>
EXHIBIT A
Supplies:
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/Insecticides/Biological Controls/Bees
Miscellaneous repair parts/supplies
Packing Materials - boxes, corner boards, panapack, film, labels, pallets,
stretch wrap, trays
A-1
<PAGE>
EXHIBIT B
Equipment
Box Machines
Forklifts
Pallet Jacks
Carts
Sprayers
Graders
Conveyors
B-1
<PAGE>
Exhibit H
to
Colorado Greenhouse, LLC Loan Supplement
January 28, 1997
Colorado Springs Production Credit Association
3625 Citadel Drive S.
Colorado Springs, Colorado 80932-9290
Re: Brush Cogeneration Partners, Brush Greenhouse Partners II, LLC and
Colorado Greenhouse LLC
Ladies and Gentlemen:
Reference is made to that certain Construction and Term Loan Deed of
Trust, Security Agreement and Assignment of Rents dated as of June 30, 1992, as
amended (the "Deed of Trust") from Brush Cogeneration Partners ("BCP") in favor
of the undersigned (collectively, the "Lenders"). The Deed of Trust was created
pursuant to the terms of the Construction and Term Loan Agreement among BCP and
the Lenders, which document provided for the advancement of funds from the
Lenders to BCP for the purposes of constructing a cogeneration facility, which
includes a commercial greenhouse facility, located in Brush, Colorado (the
"Facility").
It is our understanding that:
(a) BCP has leased the greenhouse component of the Facility to Brush
Greenhouse Partners II, LLC ("BGP II") pursuant to that certain
Amended and Restated Cogeneration and Greenhouse Lease Agreement
dated as of June 1, 1992 (as amended, the "Greenhouse Lease");
(b) BGP II has entered into a Greenhouse Operation and Management
Agreement (the "O&M" Agreement") dated as of December 29, 1994 with
Colorado Greenhouse LLC ("Colorado Greenhouse");
(c) Colorado Greenhouse has entered into a Line of Credit Agreement
(providing for a line of credit in the aggregate principal amount
of up to $1,500,000) and a Security Agreement (together, the "Loan
Documents"), each dated as of January 24, 1997, with Colorado
Greenhouse, Inc. ("CGI"), which is an affiliate of Colorado
Greenhouse;
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 2
(d) BCP and BGP 11 have executed that certain Consent and Subordination
(the "Consent") dated as of January 24, 1997, in favor of Colorado
Springs Production Credit Association ("Farm Credit"), a copy of which
is attached hereto as Exhibit H.
You have informed us that you are entering into a loan transaction (the
"Loan") with CGI evidenced by Master Loan Agreement (the "Master Loan
Agreement") dated as of January 24, 1997, which contemplates the execution of a
Security Agreement (the "Security Agreement") and an Assignment of Loan
Documents (the "Assignment"), copies of which are attached hereto as Exhibits
C-1 and C-2, pursuant to which CGI will grant to Farm Credit a security interest
in the Loan Documents. You have also informed us that the Loan Documents, copies
of which are attached hereto as Exhibits D and E, will grant to CGI security
interests in all of Colorado Greenhouse's right, title and interest in and to
all crops now or hereafter planted, growing or stored on the Premises (as
defined in the Greenhouse Lease, and any such crops, herein the "Crops"), all
material and supplies utilized in the planting, growing, harvesting and
packaging of such Crops, of the type described on Exhibit A attached hereto,
which are now (or may hereafter be) stored on the Premises (the "Supplies"), the
equipment described on Exhibit B attached hereto, which is or may be located on
the Premises (the "Equipment") and all the other property owned by Colorado
Greenhouse described therein as the Collateral (such property herein referred to
as the "CGI Collateral").
We acknowledge for your benefit that Colorado Greenhouse has not granted
any liens or security interests to us or for our benefit, and we disclaim any
interest in any of the Crops, Supplies or Equipment.
We also agree for the benefit of Farm Credit that we will not claim any
crops which are now or may hereafter be planted on the Premises prior to the
termination of Colorado Greenhouse's right to possession of the Premises and any
crops now or hereafter stored on the Premises by Colorado Greenhouse as being
part of the Facility encumbered by the Deed of Trust.
As long as either BCP or BGP II is entitled to possession of the Facility,
the undersigned Lenders agree not to interfere with any rights Farm Credit has
under the Consent.
Lenders agree that after they have or their authorized representative has
obtained possession of the Facility under the rights set forth in the Deed of
Trust or otherwise, Farm Credit may from time to time, through its authorized
representative, during normal business hours and with 24 hours written notice to
the Lenders at the address set forth herein, enter the Premises for the purposes
of caring for the Crops and removing the
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 3
Crops, Supplies, Equipment and any other property that is owned by Colorado
Greenhouse (as determined by reasonable and customary evidence thereof) which
constitutes CGI Collateral.
After the Lenders or their authorized representatives have obtained
possession of the Facility under the rights set forth in the Deed of Trust or
otherwise, the Lenders shall permit Farm Credit immediate access to the Facility
at any time if Farm Credit notifies the Lenders that such immediate access is
necessary to prevent the value of the Crops from being impaired given their
perishable nature and the controlled conditions under which they are grown,
harvested and stored.
Farm Credit's right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate on the
date which is the later of:
(a) the date 60 days after the Lenders have (i) taken possession of the
Facility and (ii) provided Farm Credit and CGI written notice of such
termination; or
(b) the date 30 days after the completion of the harvest of all Crops
which were planted on the Premises prior to the date Colorado Greenhouse's right
to possession of the Premises terminated.
Farm Credit agrees to promptly and at its own expense repair any damages to
the Facility caused by either it or its authorized representatives while on the
Facility. In furtherance of the foregoing, Farm Credit shall indemnify and hold
the Lenders and their respective affiliates, officers, directors and agents
harmless from any loss, liability or damage incurred or suffered by any such
persons or entity as a direct or proximate result of the acts or omissions of
Farm Credit or its authorized representatives while Farm Credit or its
authorized representatives are present at the Facility.
The Lenders acknowledge and accept that BCP and BGP II have agreed that the
making of any distributions by Colorado Greenhouse to its members after the
payment of all of its other obligations then due (including, without limitation,
all payments due under the O&M Agreement), regardless of the purposes for which
such funds are used by the members of Colorado Greenhouse (including the
construction and operation of any new greenhouses), shall not cause Colorado
Greenhouse to be in violation of Section 3.3(a) of the O&M Agreement.
This consent shall terminate and be of no further force and effect in the
event that Farm Credit shall agree to any amendment to or waive, or accept any
waiver of, (a) the
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 4
provisions of Section 2(D) of the Pledge Agreement, dated as of January 24, 1997
(the "Pledge Agreement"), made by CG Member, Inc., a Delaware corporation ("CG
Member") to Farm Credit, a copy of which is attached hereto as Exhibit F, or any
other provision of the Pledge Agreement if such amendment or waiver affects the
application or effect of the provisions of Section 2(D) thereof or (b) the
provisions of Section 2.2, 2.3 or 8.1 of the Colorado Greenhouse LLC Loan
Supplement, dated as of January 24, 1997 (the "LLC Loan Supplement"), between
Farm Credit and CGI, a copy of which is attached hereto as Exhibit G, or any
other provision of the LLC Loan Supplement if such amendment or waiver affects
the application or effect of the provisions of any such Section. This consent
shall also terminate upon the termination of the LLC Loan Supplement. Finally,
this consent is given based upon our understanding that the shares of CG Member
have not been and will not be pledged to Farm Credit.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ Joseph J. Lemanswicz
-------------------------------------
Name: Joseph J. Lemanswicz
-----------------------------------
Title: Vice President
----------------------------------
Address for Notices:
c/o Prudential Capital Group
Global Utility and Project Finance
Four Gateway Center
Newark, NJ 07102
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 5
CREDIT SUISSE FIRST BOSTON
By: /s/ SIGNATURE ILLEGIBLE
--------------------------------------
Name: NAME ILLEGIBLE
------------------------------------
Title: Associate
-----------------------------------
By: /s/ Anderew H. Leon
--------------------------------------
Name: Anderew H. Leon
------------------------------------
Title: Associate
-----------------------------------
Address for Notices:
Global Project Finance Group
11 Madison Avenue, 19th Floor
New York, New York 10010-3629
Accepted and Agreed:
Colorado Springs Production Credit Association
By: _________________________ Addresses for Notices:
Name: _______________________ 3625 Citadel Dr. S
Title: ______________________ P.O. Box 9290
Colorado Springs, CO 80932-9296
Colorado Greenhouse, Inc.
By: _________________________ Address for Notices:
Name: _______________________ 6811 Weld County Road 31
Title: ______________________ P.O. Box 309
Ft. Lupton, CO 80621
Colorado Springs Production Credit Association
January 28, 1997
Page 5
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
Address for Notices:
Global Project Finance Group
11 Madison Avenue, 19th Floor
New York, New York 10010-3629
Accepted and Agreed:
Colorado Springs Production Credit Association
By: /s/ Russell Tomky Addresses for Notices:
------------------------- 3625 Citadel Dr. S
Name: Russell Tomky P.O. Box 9290
----------------------- Colorado Springs, CO 80932-9296
Title: Sr. V.P.-Credit
----------------------
Colorado Greenhouse, Inc.
By: _________________________ Address for Notices:
Name: _______________________ 6811 Weld County Road 31
Title: ______________________ P.O. Box 309
Ft. Lupton, CO 80621
<PAGE>
EXHIBIT A
Supplies:
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/Insecticides/Biological Controls/Bees
Miscellaneous repair parts/supplies
Packing Materials - boxes, corner boards, panapack, film, labels, pallets,
stretch wrap, trays
A-1
<PAGE>
EXHIBIT B
Equipment
Box Machines
Forklifts
Pallet Jacks
Carts
Sprayers
Graders
Conveyors
B-1
<PAGE>
Exhibit I
to
Colorado Greenhouse, LLC Loan Supplement
January 28, 1997
Colorado Springs Production Credit Association
3625 Citadel Drive S.
Colorado Springs, Colorado 80932-9290
Re: Thermo Cogeneration Partnership, L.P., Rocky Mountain Produce LLC and
Colorado Greenhouse LLC
Ladies and Gentlemen:
Reference is made to that certain Construction and Term Loan Deed of Trust,
Security Agreement and Assignment of Rents dated as of April 7, 1993, as
amended (the "Deed of Trust") from Thermo Cogeneration Partnership, L.P.
("Thermo") in favor of the undersigned (collectively, the "Lenders"). The Deed
of Trust was created pursuant to the terms of the Construction and Term Loan
Agreement among Thermo and the Lenders, which document provided for the
advancement of funds from the Lenders to Thermo for the purposes of
constructing a cogeneration facility, which includes a commercial greenhouse
facility, located in Fort Lupton, Colorado (the "Facility").
It is our understanding that:
(a) Thermo has leased the greenhouse component of the Facility to Rocky
Mountain Produce LLC ("RMP") pursuant to that certain Thermal Supply
Lease Agreement dated as of March 22, 1993 (as amended, the
"Greenhouse Lease");
(b) RMP has entered into a Greenhouse Operation and Management Agreement
("O&M Agreement") dated as of December 29, 1994 with Colorado
Greenhouse LLC ("Colorado Greenhouse");
(c) Colorado Greenhouse has entered into a Line of Credit Agreement
(providing for a line of credit in the aggregate principal amount of
up to $1,500,000) and a Security Agreement (together, the "Loan
Documents"), each dated as of January 24, 1997, with Colorado
Greenhouse, Inc. ("CGI"), which is an affiliate of Colorado
Greenhouse;
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 2
(d) Thermo and RMP have executed that certain Consent and Subordination
(the "Consent") dated as of January 24, 1997, in favor of Colorado
Springs Production Credit Association ("Farm Credit"), a copy of which
is attached hereto as Exhibit H.
You have informed us that you are entering into a loan transaction (the
"Loan") with CGI evidenced by Master Loan Agreement (the "Master Loan
Agreement") dated as of January 24, 1997, which contemplates the execution of a
Security Agreement (the "Security Agreement") and an Assignment of Loan
Documents (the "Assignment"), copies of which are attached hereto as Exhibits C-
1 and C-2, pursuant to which CGI will grant to Farm Credit a security interest
in the Loan Documents. You have also informed us that the Loan Documents, copies
of which are attached hereto as Exhibits D and E, will grant to CGI security
interests in all of Colorado Greenhouse's right, title and interest in and to
all crops now or hereafter planted, growing or stored on the Premises (as
defined in the Greenhouse Lease, and any such crops, herein the "Crops"), all
material and supplies utilized in the planting, growing, harvesting and
packaging of such Crops, of the type described on Exhibit A attached hereto,
which are now (or may hereafter be) stored on the Premises (the "Supplies"), the
equipment described on Exhibit B attached hereto, which is or may be located on
the Premises (the "Equipment") and all the other property owned by Colorado
Greenhouse described therein as the Collateral (such property herein referred
to as the "CGI Collateral").
We acknowledge for your benefit that Colorado Greenhouse has not granted
any liens or security interests to us or for our benefit, and we disclaim any
interest in any of the Crops, Supplies or Equipment.
We also agree for the benefit of Farm Credit that we will not claim any
crops which are now or may hereafter be planted on the Premises prior to the
termination of Colorado Greenhouse's right to possession of the Premises and any
crops now or hereafter stored on the Premises by Colorado Greenhouse as being
part of the Facility encumbered by the Deed of Trust.
As long as either Thermo or RMP is entitled to possession of the Facility,
the undersigned Lenders agree not to interfere with any rights Farm Credit has
under the Consent.
Lenders agree that after they have or their authorized representative has
obtained possession of the Facility under the rights set forth in the Deed of
Trust or otherwise, Farm Credit may from time to time, through its authorized
representative, during normal business hours and with 24 hours written notice to
the Lenders at the address set forth herein, enter the Premises for the
purposes of caring for the Crops and removing the
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 3
Crops, Supplies, Equipment and any other property that is owned by Colorado
Greenhouse (as determined by reasonable and customary evidence thereof) which
constitutes CGI Collateral.
After the Lenders or their authorized representatives have obtained
possession of the Facility under the rights set forth in the Deed of Trust or
otherwise, the Lenders shall permit Farm Credit immediate access to the Facility
at any time if Farm Credit notifies the Lenders that such immediate access is
necessary to prevent the value of the Crops from being impaired given their
perishable nature and the controlled conditions under which they are grown,
harvested and stored.
Farm Credits right to enter and remain upon the Premises and to remove
therefrom the CGI Collateral as hereinbefore set forth shall terminate on the
date which is the later of:
(a) the date 60 days after the Lenders have (i) taken possession of the
Facility and (ii) provided Farm Credit written notice of such
termination; or
(b) the earlier of (i) the date 30 days after the completion of the
harvest of all Crops which were planted on the Premises prior to the
date Colorado Greenhouse's right to possession of the Premises
terminated or (ii) 10 months after the date Colorado Greenhouse's
right to possession of the Premises terminated.
Farm Credit agrees to promptly and at its own expense repair any damages
to the Facility caused by either it or its authorized representatives while on
the Facility. In furtherance of the foregoing, Farm Credit shall indemnify and
hold the Lenders and their respective affiliates, officers, directors and agents
harmless from any loss, liability or damage incurred or suffered by any such
persons or entity as a direct or proximate result of the acts or omissions of
Farm Credit or its authorized representatives while Farm Credit or its
authorized representatives are present at the Facility.
The Lenders acknowledge and accept that Thermo and RMP have agreed that the
making of any distributions by Colorado Greenhouse to its members after the
payment of all of its other obligations then due (including, without limitation,
all payments due under the O&M Agreement), regardless of the purposes for which
such funds are used by the members of Colorado Greenhouse (including the
construction and operation of any new greenhouses), shall not cause Colorado
Greenhouse to be in violation of Section 3.3(a) of the O&M Agreement.
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 4
We understand that it is the intention of CGI that certain of the proceeds
of the loans to be made by Farm Credit to CGI under the Master Loan Agreement
are to be utilized to pay the costs of constructing a new greenhouse facility
(the "New Greenhouse") at the premises of Thermo's cogeneration facility. We
further understand that in connection with the construction of the New
Greenhouse, Thermo may request that the Lenders consent to certain actions
proposed to be taken by Thermo (or its affiliates) including, without
limitation, the grant to CGI of certain easements, the sale of certain premises
to CGI, the sale of natural gas by Thermo to CGI, and the provision or sharing
of certain water and wastewater, disposal rights to or with CGI. Please be
advised that by executing and delivering this consent to you, the Lenders are
not in any way undertaking to you or to CGI or Colorado Greenhouse to consent to
or consider any such actions and that the Lenders are granting this consent
based upon the mutual understanding of the Lenders, Farm Credit, CGI or Colorado
Greenhouse that the Lenders have no obligations whatsoever to Farm Credit, CGI
or Colorado Greenhouse to consent to or consider any such actions by Thermo.
This consent shall terminate and be of no further force and effect in the
event that Farm Credit shall agree to any amendment to or waive, or accept any
waiver of, (a) the provisions of Section 2(D) of the Pledge Agreement, dated as
of January 24, 1997 (the "Pledge Agreement"), made by CG Member, Inc., a
Delaware corporation ("CG Member") to Farm Credit, a copy of which is attached
hereto as Exhibit F, or any other provision of the Pledge Agreement if such
amendment or waiver affects the application or effect of the provisions of
Section 2(D) thereof or (b) the provisions of Section 2.2, 2.3 or 8.1 of the
Colorado Greenhouse LLC Loan Supplement, dated as of January 24, 1997 (the "LLC
Loan Supplement"), between Farm Credit and CGI, a copy of which is attached
hereto as Exhibit G, or any other provision of the LLC Loan Supplement if such
amendment or waiver affects the application or effect of the provisions of any
such Section. This consent shall also terminate upon the termination of the LLC
Loan Supplement. Finally, this consent is given based upon our understanding
that the shares of CG Member have not been and will not be pledged to Farm
Credit.
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 5
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ SIGNATURE ILLEGIBLE
----------------------------------
Name: NAME ILLEGIBLE
--------------------------------
Title: Vice President
-------------------------------
Address for Notices:
c/o Prudential Capital Group
Global Utility and Project Finance
Four Gateway Center
Newark, NJ 07102
THE FUJI BANK LIMITED
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
1221 McKinney Street, Suite 4100
Houston, Texas 77010
CREDIT LOCAL DE FRANCE
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
450 Park Avenue, 3rd Floor
New York, New York 10022
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 6
CREDIT LYONNAIS
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
Credit Lyonnais Building
1301 Avenue of the Americas
New York, New York 10018
MELLON BANK, N.A.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
One Mellon Bank Center
500 Grant Street, Room 4436
Pittsburgh, Pennsylvania 15258-000
THE SANWA BANK, LIMITED
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
55 East 52nd Street
New York, New York 10055
<PAGE>
Colorado Springs Production Credit Association
January 28, 1997
Page 7
CAMPAGNIE FINANCIERE DE CIC ET
DE L'UNION EUROPEENE
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address for Notices:
4, Rue Gaillon
75107 Paris Cedex 02 France
Accepted and Agreed:
Colorado Springs Production Credit Association
By: /s/ Russell Tomky Address for Notices
------------------------- 3625 Citadel Dr. S.
Name: Russell Tomky P.O. Box 9290
----------------------- Colorado Springs, CO 80932-9290
Title: SR. V.P. - CREDIT
----------------------
Colorado Greenhouse, Inc.
By: /s/ Edward Wetherbee Address for Notices:
------------------------- 6811 Weld County Road 31
Name: P.O. Box 309
----------------------- Ft. Lupton, CO 80621
Title:
----------------------
<PAGE>
EXHIBIT A
Supplies:
Growing Media
Seed
Fertilizer
Greenhouse consumables - bobbins, clips, truss supports, white wash, etc.
Pesticides/Insecticides/Biological Controls/Bees
Miscellaneous repair parts/supplies
Packing Materials - boxes, corner boards, panapack, film, labels, pallets,
stretch wrap, trays
A-1
<PAGE>
EXHIBIT B
Equipment
Box Machines
Forklifts
Pallet Jacks
Carts
Sprayers
Graders
Conveyors
B-1
<PAGE>
EXHIBIT 10.29
- --------------------------------------------------------------------------------
CONSTRUCTION LOAN SUPPLEMENT
BETWEEN
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
AND
COLORADO GREENHOUSE, INC.
DATED
AS OF
JANUARY 24, 1997
- --------------------------------------------------------------------------------
<PAGE>
CONSTRUCTION LOAN SUPPLEMENT
THIS SUPPLEMENT to the Master Loan Agreement dated the 24th day of January,
1997 (the "MLA"), is entered into as of the 21st day of January, 1997, between
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION, (the "Lender"), and COLORADO
GREENHOUSE, INC. ("CGI").
ARTICLE 1
DEFINITIONS, INTERPRETATIONS
SECTION 1.1 DEFINITIONS. In addition to the definitions set out in the
MLA, which are incorporated herein to the extent there is no conflict with
terms defined herein, the capitalized terms set forth herein shall have the
following meanings:
ACSM shall have the meaning provided in Section 7.1(c) of Article 7 of this
Supplement.
ALTA shall have the meaning provided in Section 7.1(c) of Article 7 of this
Supplement.
BUILDER'S RISK shall have the meaning provided in Section 7.1(e) of Article
7 of this Supplement.
CHANGE ORDER REQUEST shall have the meaning provided in Section 10.1 of
Article 10 of this Supplement, and shown at Exhibit "A."
COMPLETION DATE shall have the meaning provided in Section 7.1(b) of
Article 7 of this Supplement.
CONSTRUCTION CERTIFICATE shall have the meaning provided in Section 7.2(b)
of Article 7 of this Supplement and shown at Exhibit "B."
CONSTRUCTION COMMITMENT shall have the meaning provided in Section 2.1 of
Article 2 of this Supplement.
DISBURSEMENT SCHEDULE shall have the meaning provided in Section 7.1(b) of
Article 7 of this Supplement.
DISCLOSURE SCHEDULE shall have the meaning provided in Article 8 of this
Supplement and shown at Exhibit "F."
EVENT OF DEFAULT shall have the meaning provided in Article 8 of the MLA
and Article 13 of this Supplement.
IMPROVEMENTS shall have the meaning provided in Section 2.2 of Article 2 of
this Supplement.
MATURITY shall have the meaning provided in Section 3.2 of Article 3 of
this Supplement.
<PAGE>
MORTGAGE shall mean the first purchase money mortgage liens on the
Property, whether such document is characterized as a mortgage or deed of
trust, and shall refer to the plural or the singular, as the case may be.
PLANS shall have the meaning provided in Section 2.2 of Article 2 of this
Supplement.
PRIME RATE shall have the meaning provided in Section 5.1 of Article 5 of
this Supplement.
PROJECT APPROVALS shall have the meaning provided in Section 7.1(b) of
Article 7 of this Supplement.
PROJECT BUDGET shall have the meaning provided in Section 7.1(b) of Article
7 of this Supplement.
PROJECT SCHEDULE shall have the meaning provided in Section 7.1(b) of
Article 7 of this Supplement.
PROMISSORY NOTE shall have the meaning provided in Section 3.1 of Article 3
of this Supplement and shown on Exhibit "C."
PROPERTY shall have the meaning provided in Section 2.2 of Article 2 of
this Supplement, and more particulary described in the Mortgage and on
Exhibit G.
REQUEST FOR CONSTRUCTION LOAN ADVANCE shall have the meaning provided in
Section 7.2(a) of Article 7 of this Supplement, and shown at Exhibit "D."
RETAINAGE shall have the meaning provided in Section 4.1(b) of Article 4 of
this Supplement.
SPECIAL CONSTRUCTION ACCOUNT shall have the meaning provided in Section
7.1(a) of Article 7 of this Supplement.
SCHEDULE OF PAYMENTS shall have the meaning provided in Section 3.2 of
Article 3 of this Sup plement, and shown at Exhibit "E."
U.S. TREASURY RATE shall have the meaning provided in Section 5.2 of
Article 5 of this Supplement.
SECTION 1.2 INTERPRETATION. Whenever this Supplement calls for the
approval of an act, change, omission, or the like of CGI by Lender, such
approval shall not be interpreted or construed to mean that such act, change,
omission or the like has any intrinsic value or worthiness to CGI or Lender.
Such approval shall only mean that Lender will consider such act, change,
omission or the like as not being an Event of Default and will continue to make
Advances otherwise provided for under the Construction Commitment in the
presence of such act, change, omission or the like.
2
<PAGE>
ARTICLE 2
CONSTRUCTION COMMITMENT
SECTION 2.1 THE CONSTRUCTION LOAN FACILITY. On the terms and conditions
set forth in the MLA and this Supplement, Lender agrees to make Advances for
construction to CGI from time to time during the period set forth below in an
aggregate principal amount not to exceed FIFTEEN MILLION DOLLARS
($15,000,000.00) (the "Construction Commitment"). Under the Construction
Commitment, amounts borrowed and later repaid may not be reborrowed.
SECTION 2.2 PURPOSE. The purpose of the Construction Commitment is to (i)
finance CGI's acquisition of real property and attendant water rights in New
Mexico and Colorado, as is more particularly described in Exhibit "G," hereof
(the "Property"); (ii) the construction of two new twenty-acre (20-acre)
greenhouse facilities thereon (the "Improvements") identified in the plans and
specifications provided to and approved by Lender pursuant to Section 7.1(b)
hereof (as the same may be amended pursuant to Section 10.1), (the "Plans");
(iii) the installation of necessary Fixtures and Equipment for the effective
operation of the greenhouse facilities; and (iv) to capitalize interest during
the construction and start-up phase in accordance with GAAP; and CGI agrees to
utilize the proceeds of the Construction Commitment for these purposes only.
SECTION 2.3 EXPIRATION OF CONSTRUCTION COMMITMENT. Lender's obligations
to make Advances on the Construction Commitment shall expire on September 30,
1997, or such later date as Lender may in its sole discretion authorize in
writing.
ARTICLE 3
PROMISSORY NOTE
SECTION 3.1 PROMISSORY NOTE. CGI promises to repay the Advances in
accordance with the Promissory Note in the form of note attached as Exhibit "C,"
which Exhibit is incorporated herein by this reference. If any installment due
date is not a Business Day, then such installment shall be due and payable on
the next Business Day. In addition to the above, CGI promises to pay interest
on the unpaid principal balance hereof at the times and in accordance with the
provisions set forth in Article 3.3 hereof.
SECTION 3.2 PRINCIPAL REPAYMENT AND MATURITY. The Promissory Note, this
Supplement and the balance of all Advances outstanding on the expiration of the
Construction Commitment shall be due and payable in equal monthly installments
of principal repayment, with the first such installment being due on the 1st day
of January, 1998. The principal balance shall amortize in accordance with the
Schedule of Payments to be attached hereto as Exhibit "E" upon the expiration of
the Construction Commitment, and shall mature on December 31, 2006 ("Maturity").
3.3 PAYMENT OF INTEREST. Interest accruing during construction and start-
up shall be capitalized pursuant to Section 2.2 hereof, and thereafter the
interest accruing on the outstanding balance of the Advances at the rate
provided in Article 5 hereof shall be paid monthly in arrears, with
3
<PAGE>
the first such payment due on the 1st day of November, 1997, and on the 1st day
of each month thereafter until the entire amount shall have been paid in full.
ARTICLE 4
DISBURSEMENT OF PROCEEDS
SECTION 4.1 DISBURSEMENT PROCEDURES.
(a) FUNDING ORDER. Disbursement of funds to pay acquisition and
construction costs on each greenhouse shall be for each greenhouse first from
funds placed by CGI in the Special Construction Account held by Lender until
CGI's equity committed to each greenhouse of FOUR MILLION FIVE HUNDRED THOUSAND
DOLLARS ($4,500,000) shall have been disbursed, then from Advances on the
Construction Commitment.
(b) LIMITS ON ADVANCES. Lender shall not be required to Advance
funds (i) for any category or line item of acquisition or construction cost an
amount greater than the amount specified therefor in the Project budget; or (ii)
for any services not yet performed or for materials or goods not yet
incorporated into the Improvements or delivered to and properly stored on the
Property. No Advance hereunder shall exceed ninety percent (90%) of the
aggregate costs actually paid or currently due and payable and represented by
invoices accompanying a Request for Construction Loan Advance submitted pursuant
to Section 7.2 (the remaining percentage of such costs is hereinafter referred
to as "Retainage"). Advances shall be in the minimum amount of $1,000,000, and
not more frequently than the 5th day and the 20th day of each month during the
term of the Construction Commitment.
(c) ADVANCE OF RETAINAGE. The Retainage (and in no case greater than
the unused bal ance of the Construction Commitment allocated for construction)
will be Advanced by Lender to CGI upon satisfaction of the following conditions:
(i) The proper and timely filing for recordation of a notice
of completion;
(ii) Expiration of the appropriate time periods allowed by law
for the filing of mechanics' liens and receipt of verification from CGI that no
liens have been filed prior to or dur ing such period or receipt from CGI of
lien waivers from all subcontractors and releases of any such liens which have
been filed; and
(iii) The issuance to Lender of an ALTA mortgagee's policy of
title insurance with appropriate endorsements reflecting the aggregate amount
advanced hereunder and insuring the property to be free and clear of any and all
materialmen's and mechanics' liens, all in form and con tent satisfactory to
Lender.
SECTION 4.2 PAYMENTS TO THIRD PARTIES. At its option and without further
authorization from CGI, Lender is authorized to make Advances under the
Construction Commitment by paying, directly or jointly with CGI, any person to
whom Lender in good faith determines payment is due and any such Advance shall
be deemed made as of the date on which Lender makes such payment and shall be
secured under the Mortgage securing the Construction Commitment and any other
loan documents securing the Construction Commitment as fully as if made directly
to CGI. Lender shall comply with the disbursers notice provisions of the Laws
of Colorado, C.R.S. (S) 38-22-126 and any equivalent provision of New Mexico
Law.
4
<PAGE>
ARTICLE 5
INTEREST
SECTION 5.1 PRIME RATE OPTION. Except as CGI may elect from time to time
in accordance with Section 5.2 hereof, Advances shall bear and CGI agrees to pay
interest equal to the Prime Rate. Prime Rate shall mean for any day, the rate
defined as the "prime rate" as published from time to time in the Eastern
Edition of The Wall Street Journal as the average prime lending rate for
seventy-five percent (75%) of the United States' thirty (30) largest commercial
banks, or if The Wall Street Journal shall cease publishing the "prime rate" on
a regular basis, such other regularly published average prime rate application
to such commercial banks as is acceptable to CGI in its reasonable discretion.
SECTION 5.2 U. S. TREASURY RATE OPTION. At the request of CGI, the rate
of interest charged on the Advances may be fixed at a rate per annum equal to
two and one-half percent (2.5%) above the U. S. Treasury Rate. For purposes
hereof, U. S. Treasury Rate shall mean the yield to maturity of U. S. Treasury
instruments having the same maturity date as the Advances, as indicated by
Telerate (page 5) at approximately 9:30 a.m. Eastern Time on the date the rate
is fixed. If, however, no yield is available for the period selected, then the
rate shall be interpolated based on the rates quoted for the next longest and
shortest period of time. In the event Telerate ceases to provide such
quotations or materially changes the form or substance of page 5 (as reasonably
determined by Lender), the Lender will notify CGI and the parties hereto will
agree upon a substitute basis for obtaining such quotations. Notwithstanding
the foregoing, if the spread between Lender's costs of funds (as reasonably
determined by Lender according to its methodology) and the U. S. Treasury Rate
should widen (or lessen) from the spread in effect for the same period of time
on the date hereof, then the spread over the U. S. Treasury Rate shall be
automatically adjusted upward (or downward) to reflect any such change.
However, the first such adjustment may not be made until January 1, 2000, and no
adjustment shall be applied retroactively to any Advances made prior to the date
of such adjustment. Under this option, individual amounts may be fixed for
periods ranging from one (1) year to Maturity, and the minimum amount that may
be fixed at any one time for any single period shall be One Million Dollars
($1,000,000). Rates may only be fixed for periods which expire on a Business
Day and may not be fixed in such a manner as to require CGI to have to prepay
any fixed rate balance in order to pay any installment of principal. Upon the
expiration of any fixed rate period, interest shall automatically accrue at the
rate set forth in Section 5.1 above, unless the amount fixed is repaid or CGI
fixes the rate pursuant to this Section 5.2 for a new period.
SECTION 5.3 FEES. CGI agrees to pay fees:
(a) ORIGINATION FEE. At the closing of this Supplement, CGI shall
pay a fee to the Lender equal to one and one-half percent (1.5%) of the total
Construction Commitment. CGI shall be credited at closing for the ten percent
(10%) of the origination fee paid in advance on the 21st day of November, 1996,
in the amount of $22,500.
(b) COMMITMENT FEE. At the end of each quarter in which there has
been any unused Construction Commitment, CGI shall pay to Lender an unused
commitment fee of twenty-five (25) basis points on such unused Construction
Commitment.
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SECTION 5.4 PREPAYMENT. The loans may be prepaid in whole or in part as
provided in the MLA. Unless otherwise agreed, all prepayments will be applied
to principal installments in the inverse order of their maturity.
ARTICLE 6
SECURITY
SECTION 6.1 COLLATERAL. In addition to the Collateral described in the
MLA, the Security Agreement, the Guarantee, the Holdings Pledge, and the CG
Member Pledge, Advances on the Construction Commitment shall be secured by the
assignment of the construction contracts, Plans, Approvals and the like, and the
Mortgages.
ARTICLE 7
ADDITIONAL CONDITIONS PRECEDENT
SECTION 7.1 INITIAL ADVANCE. Lender's obligation to make the initial
Advance hereunder is subject to satisfaction of each of the following additional
conditions precedent on or before the date of such Advance:
(a) MINIMUM EQUITY. CGI certifies that a minimum of Twelve Million
Dollars ($12,000,000) in new equity capital has been raised, and that a minimum
of Ten Million Dollars ($10,000,000) of the net proceeds of the equity offering
will be placed in a Special Construction Account with Lender for future
construction disbursements. Notwithstanding the foregoing, not more than Nine
Million Dollars ($9,000,000) will be used for construction disbursements.
Immediately after the Final Payment (as that term is defined in the construction
contracts) is made on both new greenhouses, and if no Event of Default has
occurred and is continuing, Lender shall release all sums remaining in the
Special Construction Account to CGI, however, after the Final Payment is made on
the first greenhouse completed, CGI may request release of funds (other than
funds needed for construction) based upon the percentage of completion of the
second greenhouse. Upon such request Lender will, in good faith, consider and
grant so much of the request, which in Lender's reasonable discretion is
warranted.
(b) PROJECT BUDGET AND SCHEDULE, CONTRACTS AND PLANS. That Lender
receive and approve for each of the New Mexico and Colorado greenhouses (i) a
budget setting forth the total estimated direct and indirect costs for the
construction of the Improvements, including line item cost breakdowns for all
direct costs by trade, job, and subcontractor, and a schedule of all sources of
funds to pay such costs (the "Project Budget"); (ii) a schedule setting forth,
by trade, job, and subcontractor, the estimated dates of commencement and
completion of construction of the Improvements (the "Project Schedule"); (iii) a
schedule of the amounts and times of Advances anticipated to be requisitioned by
CGI from time to time during the term of construction of the Improvements (the
"Disbursement Schedule"); (iv) a list of all subcontractors and materialmen who
have been or, to the extent then determined by CGI, will be supplying labor,
materials or goods for the Improvements; (v) two sets of the Plans with a
certification from CGI and from CGI's architect or engineer, or with other
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evidence satisfactory to Lender, as to the following matters: (a) that the
Improvements on each greenhouse can be completed by the same day of the month
six months after the date of the Notice to Proceed (as defined in the
Construction Contracts) for each greenhouse (the "Completion Dates"); (b) that
the Project Budget, Project Schedule, Disbursement Schedule and the Plans
satisfactorily provide for the construction of the Improvements; and (c) that
the Improvements upon completion will comply with all Laws (as defined in the
MLA), including, without limitation, all Laws relating to the environment, and
all approvals, consents, permits and licenses required under such Laws (the
"Project Approvals") which have been obtained or are to be obtained by CGI
relating in any way to the acquisition, construction or the contemplated
operation of the Improvements (including, without limitation, those relating to
zoning, building, use and occupancy, fire prevention and health); and (vi) a
list of the Project Approvals indicating those Project Approvals obtained and to
be obtained (and a schedule for obtaining such Project Approvals).
(c) SURVEY. That Lender receive a plat of survey of the Property by
a licensed surveyor satisfactory to Lender and complying with the 1988 Minimum
Standard Detail Requirements for ALTA/ACSM Land Title Surveys, as adopted by the
American Land Title Association ("ALTA") and the American Congress on Surveying
& Mapping, including, without limitation, showing through the use of course
bearings and distances, the following: (i) all foundations of the Improvements,
including driveways and fences, if any, in place or to be constructed; (ii) all
easements and roads or rights of way and setback lines, if any, affecting the
Improvements, and showing that the same are unobstructed; (iii) the dimensions,
boundaries and square footage of the Improvements; (iv) no encroachments by any
improvements on the Property onto adjoining property; and (v) such other
information as may be reasonably be required by Lender.
(d) UTILITIES; ACCESS. That Lender receive a certificate from CGI or
CGI's architect, or other evidence satisfactory to Lender, as to the methods of
access to and egress from the Property and the availability of water supply,
electricity and other utilities, all in locations and capacities sufficient to
meet the reasonable requirements of the Property and the Improvements and
otherwise satis factory to Lender.
(e) INSURANCE. That Lender receive certificates from the insurance
carrier for the general contractor or contractors (and if CGI is not adequately
insured therein, from CGI's insurance carrier) evidencing worker's compensation
and liability insurance (including contractual liability) carried during the
course of construction, naming Lender as an additional insured, with liability
insurance limits for death of or injury to persons of not less than One Million
Dollars ($1,000,000) and for damages to property of not less than Five Million
Dollars ($5,000,000) or such other limits if any are established under the
construction contract(s). Without limiting the provisions in the MLA or the
foregoing, CGI agrees to obtain Builder's Risk casualty insurance covering fire
and other casualty with extended coverage including vandalism and malicious
mischief.
(f) TITLE INSURANCE. That prior to any Advances under the
Construction Commitment, CGI shall furnish to Lender an ALTA lender's form of
title insurance on the Property in the aggregate face amount of Fifteen Million
Dollars ($15,000,000.00) insuring the Mortgage as first purchase money mortgage
liens on the Property, subject only to exceptions approved in writing by Lender
in its reasonable discretion. In the event any construction of the Improvements
has commenced prior to issuance of such title policy, CGI will obtain any and
all indemnification agreements and/or lien waiver agreements required by the
title insurer for issuance of such title insurance policies.
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(g) APPRAISAL. That Lender receive appraisals performed by a duly
certified appraiser acceptable to Lender demonstrating that the Construction
Commitment is less than or equal to eighty-five percent (85%) of the value of
the collateral offered to Lender.
(h) CONTRACTS AND REPORTS. That prior to any Advance on the
Construction Commit ment, Lender receive copies of the construction contracts,
supervising engineer's reports, environmental inspection reports, and other
reports contemplated for construction in the Loan Documents.
SECTION 7.2 ADVANCES GENERALLY. Lender's obligation to make each
Advance hereunder, including the initial Advance, is subject to the satisfaction
of each of the following additional condi tions precedent on or before the date
of such Advance:
(a) REQUEST FOR CONSTRUCTION ADVANCE. That Lender receive an executed
Request for Construction Advance from CGI in the form of Exhibit "D" attached
hereto (the "Request for Con struction Advance"), together with all items
called for therein, not later than five (5) days prior to the date the Advance
is desired, subject to Section 4.1(b) hereof.
(b) CONSTRUCTION CERTIFICATE. That Lender receive from the Project
Manager (as that term is defined in the construction contracts) or, if an
independent inspector has been employed by Lender pursuant to Section 12.3, a
certificate or report of such inspector to the effect that the construction of
the Improvements to the date thereof has been performed in a good and
workmanlike manner and in accordance with the Plans, stating the estimated total
cost of construction of the Improvements, stating the percentage of in-place
construction of the Improvements, and stating that the remaining non-disbursed
portion of the loan is adequate to complete the construction of the
Improvements, in the form attached hereto as Exhibit B.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
In addition to the representations and warranties contained in the MLA
subject only to those exceptions set forth in the Disclosure Schedule, CGI
represents and warrants as follows.
SECTION 8.1 PROJECT APPROVALS; CONSENTS; COMPLIANCE. CGI has obtained
all Project Approvals relating to the construction and operation of the
Improvements. All such Project Approvals heretofore obtained remain in full
force and effect and CGI has no reason to believe that any such Project Approval
not heretofore obtained will be obtained by CGI in the ordinary course during or
following completion of the construction of the Improvements. No such Project
Approval will terminate, or become void or voidable or terminable, upon any
sale, transfer or other disposition of the Property or the Improvements,
including any transfer pursuant to foreclosure sale under the Mortgage. No
consent, permission, authorization, order, or license of any governmental
authority is necessary in connection with the execution, delivery, performance,
or enforcement of the Loan Documents to which CGI is a party, except such as
have been obtained and are in full force and effect. CGI is in compliance in all
material respects with all Project Approvals having application to the Property
or the Improvements,. Without limiting the foregoing, there are no unpaid or
outstanding
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real estate or other taxes or assessments on or against the Property or the
Improvements or any part thereof (except only real estate taxes not yet due and
payable). CGI has received no notice nor has any knowledge or any pending or
contemplated assessment against the Property or the Improvements.
SECTION 8.2 ENVIRONMENTAL COMPLIANCE. Without limiting the provisions of
the MLA, all property owned or leased by CGI, including, without limitation, the
Property and the Improvements, and all operations conducted by it are in
compliance in all material respects with all Laws and all Project Approvals
relating to environmental protection, the failure to comply with which could
have a material adverse effect on the condition, financial or otherwise,
operations, properties, or business of CGI, or on the ability of CGI to perform
its obligations under the Loan Documents.
SECTION 8.3 FEASIBILITY. Each of the Project Budget, the Project Schedule
and the Disbursement Schedule is realistic and feasible.
ARTICLE 9
AFFIRMATIVE COVENANTS
In addition to the affirmative covenants contained in the MLA, CGI agrees
to:
SECTION 9.1 REPORTS AND NOTICES.
(a) REGULATORY AND OTHER NOTICES. Promptly after receipt thereof,
furnish to Lender copies of any notices or other communications received from
any governmental authority with respect to the Property, the Improvements, or
any matter or proceeding the effect of which could have a material adverse
effect on the condition, financial or otherwise, operations, properties, or
business of CGI, or the ability of CGI to perform its obligations under the Loan
Documents.
(b) NOTICE OF NONPAYMENT. Promptly after the filing or receipt
thereof, furnish to Lender a description of or a copy of any lien filed by or
any notice, whether oral or written, from any laborer, contractor, subcontractor
or materialman to the effect that such laborer, contractor, subcontractor or
materialman has not been paid when due for any labor or materials furnished in
connection with the construction of the Improvements.
(c) NOTICE OF SUSPENSION OF WORK. Furnish to Lender prompt notice of
any suspension in the construction of the Improvements, regardless of the cause
thereof, in excess of five (5) days and a description of the cause for such
suspension.
SECTION 9.2 CONSTRUCTION LIENS. Pay or cause to be removed, within five
(5) days after notice from Lender, any Lien on the Improvements or Property,
provided, however, that CGI shall have the right to contest in good faith and
with reasonable diligence the validity of any such lien or claim upon furnishing
to the appropriate title insurance company such security or indemnity as it may
require to induce said title insurance company to issue its title insurance
commitment or its mortgage title insurance policy insuring against all such
claims or Liens, and provided further that Lender will not be required to make
any further Advances of the proceeds of the Construction Commitment until
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any mechanic's lien claims shown by the title insurance company or interim
binder have been so insured against by the title insurance company.
SECTION 9.3 IDENTITY OF CONTRACTORS; ETC. Furnish to Lender from time to
time on the request of Lender, in a form acceptable to Lender, correct lists of
all contractors, subcontractors and suppliers of labor and material supplied in
connection with the construction of the Improvements and true and correct copies
of all executed contracts, subcontracts, and supply contracts. Lender may
contact any contractor, subcontractor, or supplier to verify any facts disclosed
in the lists and contracts. All contracts and subcontracts relating to
construction of the Improvements must contain provisions authoriz ing such
contractor, subcontractor or supplier to provide to Lender the listed
information and copies of contracts, and to disclose to Lender any information
regarding the performance of the contract.
SECTION 9.4 LIEN WAIVERS. Furnish to Lender, at any time and from time to
time upon the request of Lender, lien waivers bearing a then current date and
prepared on a form satisfactory to Lender from such contractor, subcontractor,
or supplier as Lender shall designate.
ARTICLE 10
NEGATIVE COVENANTS
In addition to the negative covenants contained in the MLA, CGI will not:
SECTION 10.1 CHANGE ORDERS. Allow any substantial deviation, addition,
extra, or change order to the Plans, Project Budget or Project Schedule and will
not make any material change in any contract or subcontract (including, but not
limited to, those with any contractor, subcontractor, architect or engineer)
without Lender's prior written approval. All requests for substantial changes
shall be made using a Change Order Request in the form of Exhibit "A" attached
hereto. For the purposes hereof, the term "substantial" shall mean an addition
or extra which exceeds One Hundred Thousand Dollars ($100,000) in the aggregate
for each greenhouse, or for any particular item if such change would increase
the cost for such item by five percent (5%) or greater. Lender will have a
reasonable time to evaluate any requests for its approval of any changes
referred to in this covenant, and will not be required to consider approving any
changes unless all other approvals that may be required have been obtained.
Lender may approve or disapprove changes in its sole discretion. All contracts
and subcontracts relating to the construction of the Improvements must contain
provisions satisfactory to Lender implementing the above provisions of this
covenant. CGI shall promptly provide to Lender copies of all change orders
that, pursuant to the above described procedures, did not require Lender's prior
written approval.
SECTION 10.2 MATERIALS. Purchase or install any materials, equipment,
fixtures, or articles of personal property for the Improvements if such shall be
covered under any security agreement or other agreement where the seller
reserves or purports to reserve title or the right of removal or repossession,
or the right to consider them personal property after their incorporation into
the Improvements.
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ARTICLE 11
CASUALTIES
SECTION 11.1 RIGHT TO ELECT TO APPLY PROCEEDS. In case of material loss
or damage to the Property or the Improvements by fire or other casualty, by a
taking by condemnation for public use or the action of any governmental
authority or agency, or the transfer by private sale in lieu thereof, either
temporarily or permanently, or otherwise, if in the sole judgment of Lender
there is reasonable doubt as to CGI's ability to complete construction of the
Improvements on or before the Completion Date by reason of such loss or damage
or because of delays in making settlements with governmental agencies or
authorities or with insurers, Lender may terminate its obligations to make
Advances hereunder and elect to collect, retain and apply to the outstanding
balance all proceeds of the taking or insurance after deduction of all expenses
of collection and settlement, including attorneys' and adjusters' fees and
charges. In the event such proceeds are insufficient to pay the outstanding
balance in full, Lender may declare the balance remaining unpaid on the
outstanding balance to be due and payable forthwith and avail itself of any of
the remedies afforded hereby as in case of any Event of Default.
SECTION 11.2 ELECTION NOT TO APPLY PROCEEDS. In case Lender does not
elect to apply such proceeds to the outstanding balance, CGI will:
(a) SETTLE. Proceed with diligence to make settlement with the
governmental agencies or authorities or the insurers, as the case may be, and
cause the proceeds to be paid to CGI.
(b) RESUME CONSTRUCTION. Promptly proceed with the resumption of
construction of the Improvements, including the repair of all damage and
restoration to its former condition.
SECTION 11.3 USE OF PROCEEDS. All such proceeds shall be fully used
before the disbursement of any further proceeds of the Construction Commitment.
ARTICLE 12
OTHER RIGHTS OF LENDER
SECTION 12.1 RIGHT TO INSPECT. Lender or its agent may enter on the
Property at any time and inspect the Improvements. If the construction of the
Improvements is not satisfactory to Lender, Lender may stop the construction and
order its replacement or the correction thereof or additions thereto, whether or
not said unsatisfactory construction has been incorporated in the Improvements,
and withhold all Advances hereunder until such construction is satisfactory to
Lender. Such construction shall promptly be made satisfactory to Lender.
SECTION 12.2 NO OBLIGATION OF LENDER. Neither Lender nor any inspector
hired pursuant to Section 12.3 below is obligated to construct or supervise
construction of the Improvements. Inspection by Lender or such inspector
thereof is for the sole purpose of protecting Lender's security and is not to be
construed as a representation that there will be compliance on anyone's part
with the Plans or that the construction will be free from faulty material or
workmanship. Neither Lender nor such in-
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spector shall be liable to CGI or any other person concerning the quality of
construction of the Improvements or the absence therefrom of defects. CGI will
make or cause to be made such other independent inspections as it may desire for
its own protection.
SECTION 12.3 RIGHT TO EMPLOY INDEPENDENT ARCHITECT OR ENGINEER. Lender
reserves the right to employ an independent construction architect or engineer,
among other things, to review the Project Budget, the Project Schedule and the
Plans, inspect all construction of the Improvements and the periodic progress of
the same, and review all Requests for Construction Loan Advances and change
orders, the cost therefor to be the sole responsibility of CGI and shall be paid
by CGI upon demand by Lender.
SECTION 12.4 INDEMNIFICATION AND HOLD HARMLESS. CGI shall indemnify and
hold Lender harmless from and against all liability, cost or damage arising out
of this Supplement or any other Loan Document or the transactions contemplated
hereby and thereby, including, without limitation, (i) any alleged or actual
violation of any Law or Project Approval relating to the Property or the
Improvements and (ii) any condition of the Property or the Improvements whether
relating to the quality of construction or otherwise and whether Lender elects
to complete construction upon an Event of Default or discontinues or suspends
construction pursuant to this Section, except for any liability, cost or damage
arising from Lender's own gross negligence or willful misconduct. Lender may
commence, appear in or defend any such action or proceeding or any other action
or proceeding purporting to affect the rights, duties or liabilities of the
parties hereunder, or the Improvements, or the Property, or Advances of the
Construction Commitment, and CGI agrees to pay all of Lender's costs and
expenses, including its reasonable attorneys' fees, in any such actions. The
obligations of CGI under this Subsection shall survive the termination of this
Agreement.
ARTICLE 13
EVENTS OF DEFAULT
In addition to the events of default set forth in the MLA, each of the
following shall constitute an "Event of Default" hereunder:
SECTION 13.1 CESSATION OF CONSTRUCTION. Any cessation at any time in
construction of the Improvements for more than fifteen (15) consecutive days,
except for strikes, acts of God, or other causes beyond CGI's control, or any
cessation at any time in construction of the Improvements for more than thirty
(30) consecutive days, regardless of the cause.
SECTION 13.2 INSUFFICIENCY OF LOAN PROCEEDS. Lender, in its sole
discretion, shall determine that the remaining undisbursed portion of the
Construction Commitment is or will be insufficient to fully complete the
Improvements in accordance with the Plans.
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ARTICLE 14
REMEDIES UPON DEFAULT
In addition to the remedies set forth in the MLA, upon the occurrence of
and during the contin uance of each and every Event of Default:
SECTION 14.1 COMPLETION. Lender may (but shall not be obligated to) take
over and complete construction of the Improvements in accordance with the Plans
approved by Lender with such changes as Lender may, in its sole discretion, deem
appropriate, all at the risk, cost, and expense of CGI. Lender may assume or
reject any contracts entered into by CGI in connection with the Improvements,
and may enter into additional or different contracts for services, labor, and
materials required, in the sole judgment of Lender, to complete the construction
of the improvements. All sums, including reasonable attorneys' fees, charges or
fees for supervision and inspection of the construction, and for any other
necessary purpose in the discretion of Lender, expended by Lender in completing
the construction of the Improvements (whether aggregating more or less than the
amount of this Construction Commitment) shall be deemed Advances made by Lender
to CGI under this Construction Commitments, and CGI shall be liable to Lender
for the repayment of such sums, together with interest on such amounts from the
date of their expenditure at the Default Interest Rate specified above. Lender
may, in its sole discretion, at any time, abandon work on the construction of
the Improvements after having commenced such work, and may recommence such work
at any time, it being understood that nothing in this Section shall impose any
obligation on Lender to complete or not to complete the construction of the
Improvements. In the event Lender elects to complete the construction, it may
demand such additional sums from CGI as may be necessary to complete
construction, which sums CGI shall promptly pay to Lender. For the purposes of
carrying out the provisions of this section upon an Event of Default and for so
long as an Event of Default continues, CGI irrevocably appoints Lender its
attorney-in-fact, with full power of substitution to execute and deliver all
such documents, pay and receive such funds, and take such action as may be
necessary, in the judgment of Lender, to complete the construction of the
Improvements. This appointment of attorney-in-fact is coupled with an interest
and given as security and is irrevocable.
ARTICLE 15
MISCELLANEOUS
SECTION 15.1 NOTICE OF COMPLETION. CGI appoints Lender as CGI's attorney-
in-fact to file of record any notice of completion, cessation of labor or any
other notice that Lender deems necessary to file to protect any of the interests
of Lender. Lender, however, shall have no duty to make such filing. This
appointment is coupled with an interest and given as security, and is
irrevocable.
SECTION 15.2 SIGNS AND PUBLICITY. CGI will allow Lender to post signs on
the Property at the construction sites for the purpose of identifying Lender as
the construction lender, and will use its best efforts to identify Lender as the
construction lender in publicity concerning the Project.
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SECTION 15.3 COOPERATION. CGI will cooperate at all times with Lender in
bringing about the timely completion of the Improvements, and CGI will resolve
all disputes arising during the work construction in a manner which will allow
work to proceed expeditiously.
SECTION 15.4 TERMINATION. This Supplement shall terminate when the
indebtedness evidenced by the Promissory Note is paid in full and all
obligations, covenants, conditions, and agreements of CGI contained herein and
in the Loan Documents are performed and discharged, and, in such event, upon the
request of CGI and at the cost of CGI, Lender shall execute and deliver to CGI
instruments effective to evidence the termination of the Supplement.
IN WITNESS WHEREOF, CGI has caused this Agreement to be executed, attested,
and sealed and Lender has caused this Agreement to be executed by their duly
authorized officers as of the date shown above.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.)
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CONSTRUCTION LOAN SUPPLEMENT
SIGNATURE PAGE
COLORADO SPRINGS PRODUCTION
CREDIT ASSOCIATION COLORADO GREENHOUSE, INC.
By: /s/ signature illegible By: /s/ Edward Wetherbee
--------------------------- ---------------------------
Title: SR. V.P. - CREDIT Title: CEO
------------------------ ------------------------
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EXHIBIT A
TO
CONSTRUCTION LOAN SUPPLEMENT
CHANGE ORDER REQUEST
Date:_________________________
Change Order Request Number:_________________________
To: Colorado Springs Production Credit Association ("Lender")
FROM: Colorado Greenhouse, Inc. ("CGI")
Loan Agreement No.: 2406649
Dated: January _____, 1987
Project Description:____________________________________________________________
Project Location:_______________________________________________________________
In accordance with the terms of the above referenced Construction Loan
Supplement, the undersigned hereby requests that Lender approve the change
orders more particularly described in the scheduled attached hereto as Exhibit
"A" and incorporated herein.
The undersigned hereby certifies that:
1. There have been no changes in the Plans and/or contracts except those
permitted in the Construction Loan Supplement and/or approved in writing by
Lender; and
2. Copies of the proposed changes to the Plans and/or contracts are attached
hereto as Exhibit "A" and that all such documents are complete and fully comply
with all applicable permits and approvals, subject to the written approval of
Lender.
COLORADO GREENHOUSE, INC. ENGINEER:
By:___________________________ By:___________________________
CONTRACTOR:
By:___________________________
CHANGE ORDER APPROVED:
LENDER: COLORADO SPRINGS PRODUCTION
CREDIT ASSOCIATION
By:___________________________ Date:___________________________
<PAGE>
EXHIBIT B
TO
CONSTRUCTION LOAN SUPPLEMENT
CONSTRUCTION CERTIFICATE
This certificate is given pursuant to Section 7.2(b) of that certain
Construction Loan Supplement, dated as of ___________________________, 19___ by
and between Colorado Greenhouse, Inc., and Lender.
I hereby certify that based upon a review of the Work, the construction contract
and Plans:
1. The construction of the Improvements to this date has been performed in a
good and workman like manner in accordance with the Plans;
2. The estimated total construction costs of construction of the Improvements
is _____________.
3. The percentage of in-place construction of the Improvements is ___________.
4. The remaining non-disbursed portion of the construction commitment is
adequate to complete the construction of the Improvements.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
_________________, 19___.
______________________________
Engineer
Raytheon Engineers & Constructors, Inc.
5555 Greenwood Plaza Boulevard
Suite 100
Englewood, CO 80111
<PAGE>
EXHIBIT C TO CONSTRUCTION LOAN SUPPLEMENT
PROMISSORY NOTE
FIFTEEN MILLION DOLLARS January 24, 1997
$15,000,000.00 Loan No. 2406649
FOR VALUE RECEIVED, the undersigned, Colorado Greenhouse, Inc., a Delaware
corporation doing business in Colorado ("Maker"), hereby promises to pay to the
order of Colorado Springs Production Credit Association ("Lender"), a federally
chartered association of the Farm Credit System, ("Payee"), at its offices, at
Maturity as defined in the Construction Loan Supplement, in lawful money of the
United States of America, the principal amount of FIFTEEN MILLION DOLLARS
($15,000,000.00) or so much thereof as may have been Advanced and is outstanding
hereunder, together with interest on the outstanding principal balance from day
to day remaining, at the rates provided in the Construction Loan Supplement.
Interest accruing during construction and start-up shall be capitalized pursuant
to the Construction Loan Supplement, and thereafter the interest accruing hereon
shall be due and payable monthly in arrears, with the first such payment due on
the 1st day of November, 1997, and on the 1st day of each month thereafter, and
at Maturity. All unpaid principal balances of the Advances on this Promissory
Note shall be due and payable in equal monthly installments of principal
repayment, with the first such installment being due on the 1st day of January,
1998, and monthly thereafter in accordance with the Schedule of Payments
attached hereto and to the Construction Loan Supplement as Exhibit E, with the
final payment on December 31, 2006 ("Maturity"). All past due principal shall
bear interest at the Default Rate.
This Promissory Note has been given to Payee pursuant to the Master Loan
Agreement dated as of the 24th day of January, 1997, and the Construction Loan
Supplement dated as of the 24th day of January, 1997, and all capitalized terms
used herein and not otherwise defined shall have the meaning provided therein.
Advances borrowed hereon and repaid may not be reborrowed.
Upon the occurrence of any Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Promissory Note immediately due and payable without notice, demand or
presentment, all of which are hereby waived, and upon such declaration, the same
shall become and shall be immediately due and payable, and the holder hereof
shall have the right to foreclose or otherwise enforce all liens or security
interests securing payment hereof, or any part hereof, and offset against this
Promissory Note any sum or sums owed by the holder hereof to Maker. Failure of
the holder hereof to exercise this option shall not constitute a waiver of the
right to exercise the same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part of any sum due the holder hereunder, or if this Promissory
Note is placed in the hands of an attorney for collection, or if it is collected
through any legal proceedings, Maker agrees to pay all costs, expenses and
reasonable fees incurred by the holder, including reasonable attorney's fees.
This Promissory Note shall be governed by and construed in accordance with
the Laws of the State of Colorado and the applicable Laws of the United States
of America.
<PAGE>
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this Promissory Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Promissory Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release or substitute any such party
or part or all of the collateral securing this Promissory Note, or to grant any
other indulgences or forbearances whatsoever, without notice to any other party
and without in any way affecting the personal liability of any party hereunder.
Maker hereby authorizes the holder hereof to record in its records all
Advances made to Maker hereunder and interest accruing thereon and all payments
made on account of the principal hereof and interest accruing hereon, which
records shall be prima facie evidence as to the outstanding principal amount of
and interest accrued on this Promissory Note; provided, however, any failure by
the holder hereof to make any records shall not limit or otherwise affect the
obligations of Maker under the Agreement or this Promissory Note.
COLORADO GREENHOUSE, INC.
By:_____________________________________
2
<PAGE>
EXHIBIT D
TO
CONSTRUCTION LOAN SUPPLEMENT
REQUEST FOR CONSTRUCTION LOAN ADVANCE
Request No.________________________ Date:________________
(Number sequentially)
TO: Colorado Springs Production Credit Association ("Lender")
FROM: Colorado Greenhouse, Inc. ("CGI")
Construction Loan Supplement No. 2406649
Dated: January ____, 1997
Project Description:____________________________________________________________
________________________________________________________________________________
In accordance with the terms of the above-referenced Construction Loan
Supplement (capitalized terms used herein but not defined herein shall have the
meanings ascribed to such terms in such Construction Loan Supplement), you are
hereby authorized and requested to make an Advance in the amount of
$____________ for the construction items set forth in the request schedule
attached hereto as Schedule A and incorporated herein.
The undersigned hereby certifies that:
1. The requested Advance (a) is to pay for labor, services, equipment,
fixtures, personal property, and materials (i) which have been performed upon or
incorporated into the Improvements or delivered to and properly stored on the
Property, and (ii) which are accurately described in the supporting invoices
attached to Schedule A, each of which invoice has been paid or is currently due
and payable and has not been the subject of any previous Request for
Construction Loan Advances, and (b) does not exceed ninety percent (90%) of the
aggregate amount of the supporting invoices attached to Schedule A.
2. No amount requested hereby for any category or line item of acquisition or
construction cost is more than the amount specified therefor in the Project
Budget, and there has been no change in the Project Budget previously supplied
to and approved by Lender except as expressly permitted by the Construction Loan
Supplement or as has been approved in writing by Lender;
3. All construction completed as of the date hereof has been performed in a
good and workmanlike manner and in accordance with the Plans, and there has been
no change in the Plans except as expressly permitted by the Construction Loan
Supplement or as has been approved in writing by Lender, and descriptions or
copies of all deviations, additions, extras, or change orders to date to the
Plans, the Project Budget and all other Project Documents have been provided to
Lender.
<PAGE>
4. There has been no change in the Project Schedule except as has been
approved in writing by Lender;
5. The payments to be made with the requested Advance will pay all presently
due and payable bills and invoiced received to date, less any required
withholds, for labor, services, equipment, fix tures, personal property, and
materials furnished in connection with the construction of the Improve ments;
6. All amounts previously advanced by Lender for labor, services, equipment,
fixtures, personal property, and materials furnished in connection with the
construction of the Improvements pursuant to previous Requests for Construction
Loan Advances have been paid to the parties entitled thereto in the manner
required in the Construction Loan Supplement;
7. All conditions to advances set forth in the Construction Loan Supplement
have been fulfilled, no Default or Event of Default under the Construction Loan
Supplement has occurred and is continu ing, and all warranties and
representations contained in the Loan Documents are true and correct on the date
of this Requests for Construction Loan Advance.
8. Excluding the funds requested in this Request for Construction Loan
Advance, CGI has requested and received the sum of $_______________ under the
Construction Commitment;
9. No Liens have been filed or claims made against the Property or the
Improvements for unpaid labor, services, equipment, fixtures, personal property,
or materials; and
10. CGI has no offset, counterclaim, or defense against the Loan or any other
amount due under the Loan Documents.
COLORADO GREENHOUSE, INC.
By:___________________________
APPROVED FOR PAYMENT:
COLORADO SPRINGS PRODUCTION
CREDIT ASSOCIATION
By:___________________________
Date:_________________________
2
<PAGE>
EXHIBIT E
TO
CONSTRUCTION LOAN SUPPLEMENT
Schedule of Payments:
To be provided by Lender upon expiration of the
construction commitment.
<PAGE>
EXHIBIT F TO
CONSTRUCTION LOAN SUPPLEMENT
----------------------------
between
COLORADO GREENHOUSE, INC.
and
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
Section 8.1 Project Approvals; Consents
- ----------------------------------------
CGI has obtained all Project Approvals and all other necessary consents,
permissions, authorizations, order and licenses of applicable governmental
authority, except as follows:
A. Estancia. New Mexico Greenhouse:
-------------------------------
1. Groundwater Discharge Permit. Application submitted to NMED.
2. Building Permit. Application to be submitted [Torrance County, NM]
B. Ft. Lupton, Colorado Greenhouse
-------------------------------
1. Subdivision Application and Request for Variance. Application and
request submitted to City of Ft.Lupton, CO on January 17, 1997.
2. Air Permit. Application submitted to Colorado Department of Health
on January 17, 1997.
3. Building Permit. Application to be submitted to City of
Ft. Lupton, CO]
Section 8.2 Environmental Matters
- ----------------------------------
1. Phase I Environmental Site Assessment for East 1/2 of Section 10, Township
5 North, Range 8 East, Torrance County, New Mexico prepared by Daniel B.
Stephens & Associates, Inc. for Colorado Greenhouse LLC, dated November
20, 1996.
2. Phase I Environmental Site Assessment for 25 Acre Undeveloped Parcel, Fort
Lupton, Colorado, prepared by ERM-Rocky Mountain, Inc. for Colorado
Greenhouse, Inc., dated January 17,1997.
7
<PAGE>
Exhibit G
to
Construction Loan Supplement
Description of Real Property on which crops are growing or are to be grown and
on which fixtures are located.
Tract #1, Estancia, Torrance County, New Mexico:
The Northeast Quarter (NE1/4) of Section Ten (10), Township Five (5) North,
Rang Eight (8) East, N.M.P.M., Torrance County, New Mexico.
AND
Tracts letter "A" and "B" situate within the Southeast Quarter (SE1/4) of
Section Ten (10), Township Five (5) North, Range Eight (8) East, N.M.P.M., as
the same are shown and designated on that certain Plat entitled "Lands of Donald
G. and Carol R. Ansley", prepared by Jerry Nickels, N.M.P.L.S. #6256, filed for
record on March 2, 1994 at 4:20 o'clock, P.M., as document number 4045, and
filed in Cabinet C, Slide 68, Plat Records of Torrance County, New Mexico.
Tract #2, Ft. Lupton, Weld County, Colorado:
THAT PART OF THE NORTHWEST 1/4 OF SECTION 34, TOWNSHIP 2 NORTH, RANGE 68
WEST OF THE 6TH PRINCIPAL MERIDIAN, COUNTY OF WELD, STATE OF COLORADO, BEING
MORE PARTICULARLY DESCRIBED AS:
BEGINNING AT THE WEST 1/4 CORNER OF SAID SECTION 34; THENCE NORTH 00
DEGREES 37 MINUTES 57 SECONDS WEST ON AN BEARING BASED ON A COLORADO STATE
PLANE, NORTH ZONE, MODIFIED COORDINATE GRID AND ALONG THE WEST LINE OF SAID
NORTHWEST 1/4 SECTION 34 A DISTANCE OF 40.00 FEET;
THENCE NORTH 89 DEGREES 25 MINUTES 58 SECONDS EAST PARALLEL WITH AND 40.00 FEET
NORTHERLY OF THE SOUTH LINE OF SAID NORTHWEST 1/4 OF SECTION 34 A DISTANCE OF
1070.65 FEET TO THE TRUE POINT OF BEGINNING;
THENCE NORTH 00 DEGREES 25 MINUTES 23 SECONDS WEST PARALLEL WITH THE EAST LINE
OF SAID NORTHWEST 1/4 OF SECTION 34 A DISTANCE OF 1453.44 FEET;
THENCE NORTH 89 DEGREES 22 MINUTES 03 SECONDS EAST PERPENDICULAR TO SAID WEST
LINE OF THE NORTHWEST 1/4 OF SAID SECTION 34 A DISTANCE OF 801.51 FEET TO A
POINT 777.91 FEET WESTERLY OF SAID EAST LINE OF THE NORTHWEST 1/4 OF SECTION 34;
THENCE SOUTH 00 DEGREES 25 MINUTES 23 SECONDS EAST PARALLEL WITH AND 777.91 FEET
WESTERLY OF SAID EAST LINE OF THE NORTHWEST 1/4 OF SECTION 34 A DISTANCE
OF 1454.36 FEET TO A POINT 40.00 FEET NORTHERLY OF SAID SOUTH LINE OF THE
NORTHWEST 1/4 OF SECTION 34;
THENCE SOUTH 89 DEGREES 25 MINUTES 58 SECONDS WEST PARALLEL WITH SAID SOUTH LINE
OF THE NORTHWEST 1/4 OF SAID SECTION 34 A DISTANCE OF 801.51 FEET TO THE TRUE
POINT OF BEGINNING.
CONTAINS: 26.752 ACRES MORE OR LESS.
<PAGE>
Exhibit 10.30
- --------------------------------------------------------------------------------
SECURED CONTINUING GUARANTEE OF PAYMENT
BY
COLORADO GREENHOUSE HOLDINGS, INC.
FOR THE BENEFIT OF
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
DATED
AS OF
JANUARY 24, 1997.
- --------------------------------------------------------------------------------
<PAGE>
SECURED CONTINUING GUARANTEE OF PAYMENT
THIS GUARANTEE OF PAYMENT (this "Guarantee") is executed as of the 24th day
of January, 1997 by Colorado Greenhouse Holdings, Inc. (hereinafter referred to
as the "Guarantor") in favor of Colorado Springs Production Credit Association
(hereinafter referred to as "Lender").
BACKGROUND
Colorado Greenhouse, Inc. (the "Borrower") has obtained or may desire at
some point in time and/or from time to time to obtain loans, advances and other
financial accommodations from Lender. Owing to Borrower's financial condition
and/or other factors, Lender is not willing to extend or continue to extend
credit to the Borrower without the guarantee of the Guarantor. The Borrower is
a wholly-owned subsidiary of the Guarantor and the Guarantor has a financial
interest in the Borrower and is expecting to benefit from such credit, and
therefore the Guarantor is willing to furnish that guarantee in order to induce
Lender to extend or to continue to extend credit to the Borrower.
NOW, THEREFORE, in order to induce Lender to extend credit to the Borrower
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Guarantor agrees as follows:
SECTION 1 GUARANTEE. The Guarantor hereby unconditionally and irrevocably
guarantees to Lender the punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of all indebtedness, obligations and liabilities,
including without limitation all non-monetary covenants and other obligations,
of the Borrower to Lender, whether now existing or hereafter incurred, including
but not limited to those under or arising out of or in connection with any
loans, advances, acceptances, letters of credit, indemnities, foreign exchange
contracts or any other kind of contract or agreement under which the Borrower
may be indebted to Lender in any manner, whether for principal, interest, fees,
surcharges, expenses or otherwise. For ease of reference: (i) all such
indebtedness, obligations and liabilities shall hereinafter be collectively
referred to as the "Guaranteed Obligations"; and (ii) all instruments, documents
and agreements evidencing or relating to the Guaranteed Obligations (including
all loan agreements, promissory notes, reimbursement agreements, security
agreements, mortgages and deeds of trust) shall hereinafter collectively be
referred to as the "Loan Documents."
SECTION 2 SECURITY AGREEMENT. To secure the payment or performance of all
Guaranteed Obligations, the hereby grants to Lender a continuing security
interest in and to the following property and interests in property of the
Guarantor, whether now owned or existing or hereafter acquired or arising and
wheresoever located: all accounts, inventory, equipment, fixtures, farm
products, general intangibles, chattel paper, instruments, documents,
intellectual property, and all accessions to, substitutions for, and all
replacements, products and proceeds of the foregoing, all books and records
(including without limitation customer lists, credit files, computer programs,
printouts, data whether stored electronically or otherwise, and other computer
materials and records) pertaining to the foregoing, and all insurance policies
insuring the above collateral. Without limiting any of the foregoing, Guarantor
also (i) grants to Lender a continuing security interest in and to and a pledge
of all its interests in (as more specifically set forth in the "Pledge
Agreement" of even date herewith) the Guarantor's interests in Borrower, and
(ii) shall cause CG Member, Inc. ("CG Member"), a wholly-owned subsidiary of
Guarantor, also to grant to Lender a pledge and security interest in all its
interest in its subsidiary, Colorado Greenhouse, LLC (the "LLC"). All of the
property and interests of the Guarantor described
<PAGE>
in this Section 2 (including, without limitation, the Guarantor's interest in
the Borrower) and CG Member's interest in the LLC shall hereinafter be referred
to as the "Collateral."
SECTION 3 GUARANTY OF PAYMENT; WAIVER OF DEFENSES, ETC. This Guarantee is
a guarantee of payment and not of collection, and of performance of Borrower's
obligations to Lender. The Guarantor acknowledges and agrees that this Guarantee
is an absolute and independent obligation of the Guarantor and therefore waives
any right to require that any action be brought against the Borrower, another
guarantor or any other Person or entity which is liable for all or any part of
the Guaranteed Obligations, or to require that resort be had at any time to any
security for the Guaranteed Obligations or to any right of setoff or similar
right. The Guarantor's obligations hereunder shall be payable on demand and
shall be absolute and unconditional irrespective of (and the Guarantor hereby
expressly waives any defense or claim of discharge based on): (i) the alteration
or modification from time to time (whether material or otherwise); (ii) the
waiver by Lender of the Borrower's compliance with any of the terms and
conditions of the Loan Documents; (iii) the forbearance by Lender from
exercising any right or remedy it may have under the Loan Documents or under
law; (iv) any inability, failure, neglect or omission to obtain, perfect,
maintain, enforce, or realize upon any Collateral for the Guaranteed
Obligations, or to pursue or obtain any deficiency judgment against the Borrower
following any foreclosure of any security interest, mortgage or deed of trust;
(v) the loss or impairment of any Collateral, the subordination or release of
Lender's lien thereon, or the sale, pledge, surrender, exchange or substitution
of any Collateral; (vi) Lender releasing, waiving, discharging, or modifying the
obligations of one or more other guarantors (whether a party hereto or to a
separate agreement with Lender); (vii) the acceptance by Lender of any partial
payment on the Guaranteed Obligations or any Collateral therefor, or Lender
settling, subordinating, compromising, discharging, or releasing the Guaranteed
Obligations or any Collateral therefor; (viii) the unenforceability of the loan
Documents; (ix) any defenses or counterclaims assertable by the Borrower,
including any defense or counterclaim based on failure of consideration, fraud,
statute of frauds, bankruptcy, statute of limitations, lender liability, and
accord and satisfaction; (x) any setoff, counterclaim, recoupment or similar
right assertable by the Borrower, the Guarantor, or other guarantor (whether a
party hereto or to a separate guarantee); or (xi) any other circumstance which
constitutes a legal or equitable discharge of a guarantor or surety. This
Guarantee shall continue in full force and effect until five business days after
written notice of termination shall have been received by Lender.
Notwithstanding the foregoing, such notice of termination shall not be effective
as to any Guaranteed Obligations: (1) existing prior to the effective date of
termination; (2) arising thereafter pursuant to any commitment to extend credit
entered into prior to the effective date of such notice (regardless of whether
Lender has or from time to time acquires a right to suspend or terminate such
commitment owing to the occurrence of a default or otherwise); (3) any
extensions, renewals, or refinancing(s) of any Guaranteed Obligations referred
to in (1) or (2) above made before or after the effective date of termination;
and (4) interest, fees, expenses and other Guaranteed Obligations relating to
any of the foregoing. In addition, no such notice of termination shall in any
manner impair or alter Lender's rights or obligations hereunder with respect to
such Guaranteed Obligations (including under Sections 3 and 6 hereof) or affect
or impair the obligations of any other guarantor (whether a party hereto or to a
separate guarantee).
SECTION 4 SUBORDINATION AND SUBROGATION. The Guarantor hereby agrees that
all indebtedness and other obligations of the Borrower (now existing or
hereafter incurred) to the Guarantor are and shall be subordinated in right of
payment to the prior payment in full by the Borrower of its obligations to
Lender under the Loan Documents. During the existence of a default under the
Loan Documents, no payments by the Borrower shall be accepted by the Guarantor
with respect to such sub-
2
<PAGE>
ordinated obligations and, if any such payments are inadvertently received, the
same shall be held in trust and promptly turned over to Lender. The Guarantor
hereby waives all claims, rights or remedies that it may have at law or in
equity (including, without limitation, any law subrogating the Guarantor to the
rights of Lender) to seek contribution, indemnification, or any other form of
reimbursement from the Borrower, any other guarantor, or any other person or
entity now or hereafter primarily or secondarily liable for any obligations of
the Guarantor to Lender for any disbursement made by the Guarantor under or in
connection with this Guarantee. The Guarantor hereby stipulates and agrees that
any such disbursement made by the Guarantor shall be a contribution to the
equity capital of the Borrower.
SECTION 5 RECOVERY OF PAYMENT. If any payment received by Lender and
applied to the Guaranteed Obligations is subsequently set aside, recovered,
rescinded, or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the Guarantor), the
Guaranteed Obligations to which such payment was applied shall for the purposes
of this Guarantee and all instruments or documents executed in connection
herewith or securing the Guarantor's obligations hereunder, be deemed to have
continued in existence, and this Guarantee shall be enforceable as to such
Guaranteed Obligations as fully as if such applications had never been made.
SECTION 6 INFORMATION REGARDING BORROWER; WAIVER OF NOTICES, ETC. The
Guarantor assumes responsibility for keeping fully informed of the financial
condition of the Borrower, its liability hereunder and all other circumstances
affecting the Borrower's ability to pay and perform the Guaranteed
Obligations. The Guarantor agrees that Lender shall have no duty to report to
or notify the Guarantor of: (i) any information which Lender shall receive about
the financial condition of the Borrower (including adverse matters); (ii) the
Borrower's performance under the Loan Documents (including nonpayment or the
occurrence of any other default); (iii) any circumstances bearing on the
Borrower's ability to perform the Guaranteed Obligations; (iv) any increases in
the amount of the Guaranteed Obligations or any renewals, extension or
refinancing(s) of any Guaranteed Obligation; (v) any actions taken by Lender or
the Borrower under any Loan Document; (vi) any matters relating to another
guarantor; (vii) any matter set forth in Section 3 hereof; or (viii) any other
matter relating to the Guaranteed Obligations; and the Guarantor hereby
expressly and unconditionally waives any defense or claim of discharge based on
the failure of Lender to report to notify the Guarantor of any such information.
In addition, the Guarantor hereby acknowledges that it has entered into this
Guarantee based upon its own independent knowledge of or investigation in to
the affairs of the Borrower and any other guarantor (whether a party hereto or
to a separate guarantee) and has not relied in any respect on Lender or any
officers, employees, or agents thereof.
SECTION 7 REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents
and warrants as follows:
(A) ORGANIZATION; POWER; ETC. The Guarantor: (i) is duly organized,
validly existing, and in good standing under the laws of its state of
incorporation or formation; (ii) is duly qualified to do business and is in good
standing in each jurisdiction in which the transaction of its business makes
such qualification necessary; (iii) has all requisite corporate and legal power
to own and operate its assets and to carry on its business and to enter into and
perform under this Guarantee; and (iv) has duly and lawfully obtained and
maintained all licenses, certificates, permits, authorizations, approvals, and
the like which are material to the conduct of its business or which my be
otherwise required by law, rule, regulation, ordinance, code, order or the like
(collectively, "Laws").
3
<PAGE>
(B) DUE AUTHORIZATION; NO VIOLATION; ETC. The execution and delivery
by the Guarantor of, and the performance by the Guarantor of its obligations
under, this Guarantee and all instruments and documents executed in connection
herewith have been duly authorized by all requisite corporate or other action
on the part of the Guarantor and do not and will not: (i) conflict with, or
constitute (with or without the giving of notice and/or the passage of time
and/or the occurrence of any other condition) a default under, any other
agreement to which the Guarantor is a party or by which it or any of its
property may be bound or affected, or with any provision of its certificate of
incorporation, bylaws or other organizational documents; (ii) require the
consent, permission, authorization, order or license of any governmental
authority or of any part to any agreement to which the Guarantor is a party or
by which it or any of its property may be bound or affected, except as has been
obtained and are in full force and effect; (iii) violate any provision of any
law, rule regulation, order, writ judgment, injunction, decree, determination
or aware presently in effect applicable to it; or (iv) result in, or require,
the creation or imposition of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties now owned or hereafter
acquired, except as created hereunder in favor of Lender).
(C) BINDING AGREEMENT. This Guarantee and each instrument and
document executed in connection herewith is, or when executed and delivered will
be, the legal, valid, and binding obligation of the Guarantor, enforceable in
accordance with its terms, subject only to limitations on enforceability
imposed by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting creditor's rights generally.
(D) LITIGATION. There are no pending legal, arbitration, or
governmental actions or proceedings to which the Guarantor is a party or to
which any of its property is subject which, if adversely determined, could
have a material adverse effect on the condition, financial or otherwise,
operations, properties, or business of the Guarantor, or on the ability of the
Guarantor to perform its obligations hereunder or under any instrument or
document executed in connection herewith, and to the best of the Guarantor's
knowledge, no such actions or proceedings are threatened or contemplated.
(E) TITLE TO PROPERTY. The Guarantor has title to, or valid
leasehold interests in, all of its property, real and personal, (other than any
property disposed of in the ordinary course of business), and none of its
property is subject to any "Lien" (as defined in Section 9(B) hereof), except as
permitted under Section 9(B).
(F) COMPLIANCE WITH LAWS, ENVIRONMENTAL MATTERS, ETC. All of the
properties of the Guarantor and all of its operations are in compliance in all
material respects with all applicable Laws including, without limitation, all
Laws relating to the environment. No property owned or leased by the Guarantor
is being used or, to its knowledge, has been used for the disposal, treatment,
storage, processing or handling of hazardous waste or materials (as defined
under any environment Law) and no investigation, claim, litigation, proceeding,
order, judgment, decree, settlement, lien or the like with respect to any
environmental matter is proposed, threatened, anticipated or in existence with
respect to its properties or operations. In addition, no environmental
contamination or condition currently exists on any property of the Guarantor or,
to its knowledge, any adjoining property, which could delay the sale or other
disposition of, or could have (or already has had) an adverse effect on the
value of, its property.
4
<PAGE>
(G) COMPLIANCE WITH GUARANTEE. As of the date hereof, the Guarantor
is operating its business in compliance with all of the covenants set forth in
this Guarantee.
SECTION 8 AFFIRMATIVE COVENANTS. Unless otherwise agreed to in writing by
Lender, while this Guarantee is in effect, whether or not any Guaranteed
Obligations are outstanding hereunder, the Guarantor agrees to:
(A) CORPORATE EXISTENCE, LICENSES, ETC. Preserve and keep in full
force and effect its and its subsidiaries' existence and good standing in the
jurisdiction of their respective incorporation or formation, qualify and remain
qualified to transact business in all jurisdictions where such qualification
is required, and obtain and maintain all licenses, certificates, permits,
authorizations, approvals, and the like which are material to the conduct of its
business or required by Law.
(B) COMPLIANCE WITH LAWS. Comply in all material respects with all
applicable Laws, including, without limitation, all Laws relating to
environmental protection. In addition, the Guarantor agrees to cause all
persons occupying or present on any of its properties to comply in all material
respects with all Laws relating to such properties.
(C) INSURANCE. Maintain insurance with insurance companies or
associations acceptable to Lender in its reasonable discretion in such amounts
and covering such risks as are usually carried by companies engaged in the
same or similar business and similarly situated, and make such increases in
the type or amount of coverage as Lender may reasonably request. All such
policies insuring any collateral for the Guarantor's obligations to Lender
shall have mortgagee or lender loss payable clauses or endorsements in form
and content acceptable to Lender in its reasonable discretion. At Lender's
request, certificates of insurance for all policies (or such other proof of
compliance with this Subsection as may be satisfactory to Lender) shall be
delivered to Lender.
(D) PROPERTY MAINTENANCE. Maintain all of its property that is
necessary to or useful in the proper conduct of its business in good working
condition, ordinary wear and tear excepted.
(E) BOOKS AND RECORDS. Keep adequate records and books of account in
which complete entries will be made in accordance with generally accepted
accounting principles ("GAAP") consistently applied.
(F) INSPECTION. Permit Lender or its agents, upon reasonable notice
and during normal business hours or at such other times as the parties may
agree, to examine its properties, books, and records, and to discuss its
affairs, finances, and accounts, with its respective officers, directors,
employees, and independent certified public accountants.
(G) REPORTS AND NOTICES. Furnish to Lender:
(I) ANNUAL FINANCIAL STATEMENTS. As soon as available, but in no
event more than 120 days after the end of each fiscal year of the Guarantor
occurring during the term hereof, the consolidated annual financial statements
of the Guarantor and its consolidated subsidiaries prepared in accordance with
GAAP consistently applied. Such financial statements shall: (a) be audited by
Arthur Anderson & Co. or such other independent certified public accountant
selected by the Guarantor and acceptable to Lender, in its reasonable
discretion; (b) be accompanied by a report of such
5
<PAGE>
accountant containing an opinion thereon acceptable to Lender; (c) be prepared
in reasonable detail and in comparative form; and (d) include a balance sheet, a
statement of income, a statement of retained earnings, a statement of cash
flows, and all notes and schedules relating thereto.
(II) INTERIM FINANCIAL STATEMENTS. As soon as available, but in no
event more than 30 days after the end of each quarter, a consolidated balance
sheet of Guarantor as of the end of such quarter, a consolidated statement of
income for Guarantor and its consolidated subsidiaries for such period and for
the period year to date, and such other interim statements as Lender may
specifically request, all prepared in reasonable detail and in comparative
form inaccordance with GAAP.
(III) NOTICE OF DEFAULT. Promptly after becoming aware thereof,
notice of the breach of any covenant contained in this Guarantee or any
instrument or document executed in connection herewith.
(IV) NOTICE OF NON-ENVIRONMENTAL LITIGATION. Promptly after the
commencement thereof, notice of the commencement of all actions, suits, or
proceedings before any court, arbitrator, or governmental department,
commission, board, bureau, agency, or instrumentality affecting the Guarantor
which, if determined adversely to the Guarantor, could have a material adverse
effect on the financial condition, properties, profits, or operations of the
Guarantor.
(V) NOTICE OF ENVIRONMENTAL LITIGATION, ETC. Promptly after receipt
thereof, notice of the receipt of all pleadings, orders, complaints,
indictments, or any other communication alleging a condition that may require
the Guarantor to undertake or to contribute to a cleanup or other response under
environmental Laws, or which seek penalties, damages, injunctive relief, or
criminal sanctions related to alleged violations of such Laws, or which claim
personal injury or property damage to any person as a result of environmental
factors or conditions.
(VI) OTHER INFORMATION. Such other information regarding the
condition or operations, financial or otherwise, of the Guarantor as Lender may
from time to time reasonably request.
SECTION 9 NEGATIVE COVENANTS. Unless otherwise agreed to in writing by
Lender, while this Guarantee is in effect, whether or not any Guaranteed
Obligations are outstanding, the Guarantor will not:
(A) BORROWINGS. Create, incur, assume, or allow to exist, directly
or indirectly, any indebtedness or liability for borrowed money (including trade
or bankers' acceptances), letters of credit, or the deferred purchase price of
property or services (including capitalized leases), except for: (i) debt to
Lender; (ii) accounts payable to trade creditors incurred in the ordinary course
of business; and (iii) current operating liabilities (other than for borrowed
money) incurred in the ordinary course of business.
(B) LIENS. Create, incur, assume, or allow to exist any mortgage,
deed of trust, pledge, lien (including the lien of an attachment, judgment, or
execution), security interest, or other encumbrance of any kind upon any of its
property, real or personal (collectively, "Liens"). The foregoing
restrictions shall not apply to: (i) Liens in favor of Lender; (ii) Liens for
taxes, assessments, or governmental charges that are not past due, or if past
due, are being contested in good faith and
6
<PAGE>
by appropriate proceedings, the amount secured (including interest and
penalties) does not exceed $100,000.00, the Liens are stayed and adequate
reserves have been established in accordance with GAAP; (iii) pledges and
deposits under workers' compensation, unemployment insurance, and social
security Laws; (iv) pledges and deposits to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), and like
obligations arising in the ordinary course of business as conducted on the date
hereof; (v) Liens imposed by Law in favor of mechanics, material suppliers,
warehouses, and like persons that secure obligations that are not past due, or
if past due, are being contested in good faith and by appropriate proceedings,
the Liens are stayed, and adequate reserves have been established in accordance
with GAAP; and (vi) easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
Company's occupation, use, and enjoyment of the property or assets encumbered
thereby or materially impair the value of the property subject thereto.
(C) MERGERS, ACQUISITIONS, ETC. Without the prior written consent of
Lender, which consent shall not be unreasonably withheld, merge or consolidate
with any other entity or acquire all or a material part of the assets of any
person or entity, or form or create any new subsidiary or affiliate, or commence
operations under any other name, organization or entity, including any joint
venture; provided, however, that no prior consent shall be necessary if prior to
undertaking any of the above actions Guarantor shall have delivered to Lender
and Lender shall not have objected within fifteen (15) days of receipt of notice
to a certificate delivered by notice pursuant to Section 11 hereof from the
chief executive officer or chief financial officer of Guarantor to the effect
that: (i) prior to and immediately after giving effect to such transaction, no
Event of Default shall exist under any Loan Document; and (ii) immediately after
giving effect to such transaction, the tangible net worth and the ratio of total
capitalization to indebtedness (calculated in accordance with GAAP) of
Guarantor, or any successor entity into which Guarantor is merged, shall not be
less than that of the Guarantor immediately prior to such transaction.
(D) TRANSFER OF ASSETS. Sell, transfer, lease, or otherwise dispose
of any of its assets, except in the ordinary course of business.
(E) LOANS AND INVESTMENTS. Make any loan or advance to, or make any
investment in, or make any capital contribution to, or purchase or make any
commitment to purchase any stocks, bonds, notes or other securities of, any
person or entity, except for: (i) loans to or investments in Colorado
Greenhouse, Inc. or Colorado Greenhouse, LLC, or other subsidiaries of Guarantor
permitted hereunder, (ii) securities or deposits issued or fully insured as to
payment by the United States of America or any agency thereof; and (iii) stock
in, or obligations of, Lender.
(F) CONTINGENT LIABILITIES. Assume, guarantee, become liable as a
surety, endorse, contingently agree to purchase, or otherwise be or become
liable, directly or indirectly (including, but not limited to, by means of a
maintenance agreement, an asset or stock purchase agreement, or any other
agreement designed to ensure any creditor against loss), for or on account of
the obligation of any person or entity, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of the Guarantor's business.
(G) CHANGE IN BUSINESS. Engage in any business activities or
operations substantially different from or unrelated to the Guarantor's present
business activities or operations.
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<PAGE>
SECTION 10 EXPENSES. In the event Lender employs counsel to protect or
enforce its rights hereunder against the Guarantor, all reasonable attorneys'
fees arising from such services and all out-of-pocket expenses, costs, and
charges in any way or respect arising in connection therewith or relating
thereto shall be paid by such Guarantor.
SECTION 11 NOTICES. All notices provided for herein shall be writing
(including facsimile) and shall be deemed to be duly given upon delivery if
personally delivered or sent by telegram or facsimile transmission or three days
after mailing if sent by express mail, certified mail, registered mail or other
delivery service providing a return receipt therefor, to the following addresses
or facsimile numbers or to such other address or facsimile number as either
party may specify by notice to the other: (a) If to Lender, to Colorado Springs
Production Credit Association, 3625 Citadel Drive South, P.O. Box 9290, Colorado
Springs, Colorado 80932-9290, Facsimile No. (719) 570-6894; and (b) if to the
Guarantor, to Colorado Greenhouse Holdings, Inc., 6811 Weld County Road 31,
P.O. Box 309, Fort Lupton, Colorado 80621, Facsimile No. (303) 857-4049.
SECTION 12 TERM OF AGREEMENT. This Agreement and all guarantees,
covenants and agreements of the Guarantor contained herein shall continue in
full force and effect and shall not be discharged until such time as all of
the Guaranteed Obligations shall be paid or otherwise discharged in full.
SECTION 13 AMENDMENTS, ETC. This writing is intended by the parties as a
final expression of their agreement and is also intended as a complete and
exclusive statement of the terms of that agreement. No amendment or waiver of
any provision of this Guarantee nor consent to any departure by the Guarantor
herefrom shall be effective unless the same shall be in writing and signed by
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14 NO WAIVER; REMEDIES. No failure on the part of Lender to
exercise, and no delay in exercising, any right hereunder shall operate as
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
SECTION 15 GOVERNING LAW. Except to the extent governed by applicable
Federal law, this Guarantee shall be governed by and construed in accordance
with the laws of the State of Colorado, without reference to choice of Law
doctrine.
SECTION 16 NOTICE OF ACCEPTANCE. The Guarantor hereby waives notice of
acceptance hereof.
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<PAGE>
SECURED CONTINUING GUARANTEE OF PAYMENT
SIGNATURE PAGE
SECTION 17 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, GUARANTOR AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF
THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
IN WITNESS WHEREOF, the Guarantor has caused this Secured Continuing
Guarantee of Payment to be executed by its duly authorized officer as of the
date shown above.
COLORADO GREENHOUSE HOLDINGS,
INC.
By: /s/ Edward Wetherbee
---------------------------
Title: Chief Executive Officer
------------------------
9
<PAGE>
Exhibit 10.31
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PLEDGE AGREEMENT
BY
COLORADO GREENHOUSE HOLDINGS, INC.
FOR THE BENEFIT OF
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
DATED
AS OF
JANUARY 24, 1997.
- --------------------------------------------------------------------------------
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of the 24th day of
January, 1997, is made by Colorado Greenhouse Holdings, Inc. ("Grantor") in
favor of Colorado Springs Production Credit Association ("Secured Party").
BACKGROUND
From time to time, Secured Party may make loans and extend other types of
credit to or for the account of Colorado Greenhouse, Inc. ("CGI"), a wholly-
owned subsidiary of Grantor. In order to induce Secured Party to do so, the
Grantor has furnished to Secured Party or is, simultaneously herewith,
furnishing to Secured Party, a continuing guarantee of payment (such guarantee,
as amended, supplemented or restated from time to time shall hereinafter be
referred to as the "Guarantee"). In order to secure the Grantor's obligations
under the Guarantee, the Grantor is entering into this Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to extend credit to the
Borrower, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledge, Grantor hereby represents,
warrants, covenants, agrees and pledges as follows:
SECTION 1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the following meanings:
CERTIFICATES shall mean all certificates, instruments or other documents
now or hereafter representing or evidencing any Pledged Securities.
GUARANTEE shall mean the Secured Continuing Guarantee granted by Guarantor
to Secured Party of even date herewith.
LOAN DOCUMENTS shall have the meaning given to that term in the Guarantee.
OBLIGATIONS shall mean (1) the payment and performance of all obligations
of the Grantor under the Guarantee and this Agreement, whether now existing
or hereafter arising; and (2) the payment of all other indebtedness and the
performance of all other obligations of the Grantor to Secured Party of
every type and description, whether now existing or hereafter arising,
fixed or contingent, as primary obligor or as guarantor or surety, acquired
directly or by assignment or otherwise, or liquidated or unliquidated.
PLEDGED COLLATERAL shall mean the Pledged Securities, the Certificates
representing or evidencing the same, all right, title, interest,
privileges, benefits, and preferences appertaining or incidental to such
Pledged Securities, and any and all proceeds and products of the Pledged
Securities (including, without limitation, all dividends, distributions,
collections, redemption payments, liquidation payments, cash, and
instruments).
<PAGE>
PLEDGED SECURITIES shall mean: (1) any and all shares of capital stock of
CGI now owned or hereafter acquired by the Grantor; (2) any and all
warrants, options or other rights to subscribe to or acquire any additional
capital stock or member interests in such entity or entities; and (3) any
and all securities, certificates, agreements, instruments or other
documents now or hereafter issued in substitution, exchange or replacement
of any of the foregoing or with respect thereto.
SECTION 2 CREATION OF SECURITY INTEREST.
(A) PLEDGE OF PLEDGED COLLATERAL. As security for the Obligations,
Grantor hereby pledges and grants to Secured Party a continuing security
interest in and to all of its capital stock in CGI. Grantor shall cause to be
noted in the records of CGI, which records the holders of capital stock of CGI,
the existence of this Agreement and Secured Party's security interest in the CGI
stock.
(B) DELIVERY OF CERTAIN PLEDGED COLLATERAL. Simultaneously with the
execution here of, Grantor shall cause to be pledged and delivered to Secured
Party all Certificates evidencing the capital stock of the Borrower. All such
Certificates (as well as any Certificates delivered to Secured Party pursuant to
the terms of this Agreement after the date hereof) shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Secured Party in its reasonable discretion. Secured Party shall hold all
Certificates pursuant to this Agreement unless and until released in accordance
with Section 11 of this Agreement.
(C) NO MERGER. In the event that Secured Party acquires the ownership
of the Pledged Collateral by exercise of the rights granted herein or otherwise,
such ownership interest shall not merge with the Secured Obligations, and
security interests granted in the Loan Documents shall remain in full force,
effectiveness and enforceability at the option of the Secured Party.
SECTION 3 FURTHER ASSURANCES. Grantor agrees that at any time, from time
to time, and at the expense of Grantor, Grantor will promptly execute, deliver,
and file or record such financing statements, instruments and documents, and
will take all further actions, that Secured Party may reasonably require in
order to: (a) perfect and protect any pledge or security interest granted
hereby; (b) enable Secured Party to exercise and enforce Secured Party's rights
and remedies hereunder; and (c) preserve, protect, and maintain the Pledged
Collateral and the value thereof, including, without limitation, paying all
taxes, assessments, and other charges imposed on or relating to the Pledged
Collateral.
SECTION 4 GRANTOR'S VOTING RIGHTS; DIVIDENDS; ETC. So long as no "Event
of Default" (as such term is defined in any Loan Document) occurs and remains
continuing:
(A) VOTING RIGHTS. Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Securities, or any
part thereof, for any purpose not inconsistent with the terms of this Agreement,
the Guarantee or the Loan Documents.
(B) DIVIDEND AND DISTRIBUTION RIGHTS. Grantor shall be entitled to
receive and to retain and use any and all dividends or distributions and all
cash or other property paid, payable or otherwise paid or distributed in respect
of the Pledged Securities; PROVIDED, HOWEVER, that any and all such dividends or
-----------------
distributions received in the form of capital stock, partnership units, and the
like
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<PAGE>
shall be delivered to the Secured Party to hold as Pledged Collateral and shall,
if received by Grantor, be received in trust for the benefit of Secured Party,
be segregated from the other property of the Grantor, and be forthwith delivered
to the Secured Party as Pledged Collateral in the same form as so received (with
any necessary endorsements).
SECTION 5 GRANTOR'S RIGHTS DURING EVENT OF DEFAULT. When an Event of
Default has occurred and is continuing:
(A) VOTING, DIVIDEND, AND DISTRIBUTION RIGHTS. At the option of
Secured Party, all rights of Grantor to exercise the voting and other consensual
rights which would otherwise be entitled to exercise pursuant to Section 4(A)
above and to receive the dividends and distributions which it would otherwise be
authorized to receive and retain pursuant to Section 4(B) above, shall cease,
and all such rights shall thereupon become vested in Secured Party who shall
thereupon have the sole right to exercise such voting and other consensual
rights and to receive and to hold as Pledged Collateral such dividends and
distributions. Secured Party shall, after deciding to exercise voting rights
with respect to the Pledged Collateral, give notice thereof to Grantor;
PROVIDED, HOWEVER, that: (1) neither the giving of such notice nor the receipt
- ------------------
thereof by Grantor shall be a condition to exercise of any rights of Secured
Party hereunder; and (2) Secured Party shall incur no liability for failing to
give such notice.
(B) DIVIDENDS AND DISTRIBUTIONS HELD IN TRUST. All dividends and
other distributions which are received by Grantor contrary to the provisions of
this Agreement shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Grantor, and shall be paid over to
Secured Party as Pledged Collateral in the same form as so received (with any
necessary endorsements).
SECTION 6 IRREVOCABLE PROXY. Grantor hereby revokes all previous proxies
with regard to the Pledged Securities and appoints Secured Party as its
proxyholder to attend and vote at any and all meetings of the shareholders,
partners or other owners of the Companies held on or after the date of the
giving of this proxy and prior to the termination of this proxy, and to execute
any and all written consents of shareholders, partners or other owners of the
Companies executed on or after the date of the giving of this proxy and prior to
the termination of this proxy, with the same effect as if Grantor had personally
attended the meetings or had personally voted the Pledged Securities or had
personally signed the written consents; PROVIDED, HOWEVER, that the proxyholder
-----------------
shall have rights hereunder only upon the occurrence and during the continuance
of an Event of Default and only in the event the Secured Party, as proxyholder,
has decided to exercise voting rights with respect to the Pledged Securities or
any of them. Grantor hereby authorizes Secured Party to substitute another
person as the proxyholder and, upon the occurrence or during the continuance of
any Event of Default, hereby authorizes and directs the proxyholder to file this
proxy and the substitution instrument with the secretary (or other authorized
official) of the Companies. This proxy is coupled with an interest and is
irrevocable until such time as this Agreement is released in accordance with
Section 11 hereof.
SECTION 7 TRANSFERS AND OTHER LIENS. Grantor agrees that it will not:
(A) sell, assign, exchange, transfer or otherwise dispose of, or contract to
sell, assign, exchange, transfer or otherwise dispose of, or grant any option
with respect to, any of the Pledged Collateral; (B) create or permit to exist
any lien or right of others upon or with respect to any of the Pledged
Collateral; or (C) take any
3
<PAGE>
action with respect to the Pledged Collateral which is inconsistent with the
provisions or purposes of this Agreement or any Loan Document.
SECTION 8 SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints the Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor, and in the name of Grantor, or
otherwise, from time to time, in Secured Party's sole and absolute discretion,
to do any of the following acts or things if Grantor fails to do so promptly
after demand by the Secured Party: (A) to do all acts and things (including
without limitation, the execution, filing and/or recording of all financing
statements and other documents) necessary or advisable to perfect and continue
perfected the security interests created by this Agreement and to preserve,
maintain, and protect the Pledged Collateral, including, without limitation, the
authority to pay, purchase, contest, and compromise any lien or right of others
which, in the reasonable judgment of Secured Party, appears to be prior or
superior to Secured Party's security interests; (B) to do any and every act
which Grantor is obligated to do under this Agreement; and (C) to endorse and
transfer the Pledged Collateral upon foreclosure by the Secured Party; PROVIDED,
---------
HOWEVER, that Secured Party shall be under no obligation whatsoever to take any
- --------
of the foregoing actions, and Secured Party shall have no liability or
responsibility for any act (other than Secured Party's own gross negligence or
willful misconduct) or omission taken with respect thereto. Grantor hereby
agrees to repay immediately upon demand all reasonable costs and expenses
incurred or expended by Secured Party in exercising any right or taking any
action under this Agreement, together with interest at a rate per annum equal at
all times to the Prime Rate as defined in the Loan Documents.
SECTION 9 REASONABLE CARE. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which Secured Party accords its own property.
Notwithstanding the foregoing and whether or not an Event of Default has
occurred or is continuing, Secured Party shall be under no duty or obligation
to: (A) exercise any voting or other rights with respect to the Pledged
Collateral; (B) make or give notices of default, presentments, demands for
performance, notices of nonperformance or dishonor, protests, notices of protest
or notices of any other nature whatsoever in connection with the Pledged
Collateral on behalf of Grantor or any other person having any interest therein;
(c) ascertain or take action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged; or (D) take any
necessary steps to preserve rights against the Companies or any other person
with respect to any Pledged Collateral. In addition, Secured Party does not
assume and shall not be obligated to perform the obligations of Grantor, if any,
with respect to the Pledged Collateral.
SECTION 10 EVENTS OF DEFAULT AND REMEDIES.
(A) RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have, in any
jurisdiction where enforcement is sought, in addition to all other rights and
remedies that Secured Party may have under this Agreement and under applicable
law or in equity, all rights and remedies of a secured party under the Uniform
Commercial Code as exacted in any such jurisdiction, and in addition to the
following rights and remedies, all of which may be exercised with or without
further notice to Grantor:
(1) (a) to notify any issuer of any Pledged Securities, and any
and all other obligors on, or partners, joint ventures or other interested
parties with respect to, any Pledged Collateral,
4
<PAGE>
that the same has been pledged, and/or that a security interest in the same has
been granted, to Secured Party, and that all dividends, distributions, and other
payments thereon are to be made directly and exclusively to Secured Party, and
that all dividends, distributions, and other payments thereon are to be made
directly and exclusively to Secured Party; (b) to renew, extend, modify, amend,
accelerate, accept partial payments on, make allowances and adjustments and
issue credits with respect to, release, settle, compromise, compound, collect or
otherwise liquidate, on terms acceptable to Secured Party, in whole or in part,
the Pledged Collateral and any amounts owing thereon or any guaranty or security
therefor; (c) to enter into any other agreement relating to or affecting the
Pledged Collateral; and (d) to give all consents, waivers, and ratifications
with respect to the Pledged Collateral and exercise all other rights (including
voting rights), powers and remedies and otherwise act with respect thereto as if
Secured Party were the owner thereof;
(2) to enforce payment and prosecute any action or proceeding
with respect to any and all of the Pledged Collateral and take or bring, in
Secured Party's name or in the name of Grantor, all steps, actions, suits or
proceedings deemed by Secured Party necessary or desirable to effect collection
of or to realize upon the Pledged Collateral;
(3) in accordance with applicable laws, to take possession of any
Pledged Collateral (with or without judicial process) that has not previously
been delivered to Secured Party;
(4) to endorse, in the name of Grantor, all checks, notes,
drafts, money orders, instruments and other evidences of payment relating to the
Pledged Collateral;
(5) to transfer any or all of the Pledged Collateral into the
name of Secured Party or its nominee or nominees; and
(6) in accordance with applicable laws, to foreclose the liens
and security interests created under this Agreement or under any other agreement
relating to the Pledged Collateral by any available judicial procedure or
without judicial process, and to sell, assign or otherwise dispose of the
Pledged Collateral or any part thereof, either at public or private sale or at
any broker's board or securities exchange, in lots or in bulk, for cash, on
credit or for future delivery, or otherwise, with or without representations or
warranties, and upon such terms as shall be acceptable to Secured Party, all at
the sole option of and in the sole discretion of Secured Party.
(B) NOTICE OF SALE. Secured Party shall give Grantor at least five
(5) days' prior written notice of sale of all or any party of the Pledged
Collateral. Any sale of the Pledged Collateral shall be held at such time or
times and at such place or places as Secured Party may determine in the exercise
of its sole and absolute discretion. Secured Party may bid (which bid may be,
in whole or in part, in the form of cancellation of Obligations) and purchase
for the account of Secured Party or any nominee of Secured Party the whole or
any part of the Pledged Collateral. Secured Party shall not be obligated to
make any sale of the Pledged Collateral if it shall determine not to do so
regardless of the fact that notice of sale of the Pledged Collateral may have
been given. Secured Party may, without notice or publication, adjourn the same
from time to time by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place to which the
same was so adjourned.
5
<PAGE>
(C) PRIVATE SALES. Whether or not any of the Pledged Collateral has
been effectively registered under the Securities Act of 1933 or other applicable
laws, Secured Party may, in its sole and absolute discretion, sell all or any
part of the Pledged Collateral at private sale in such manner and under such
circumstances as Secured Party may deem necessary or advisable in order that the
sale may be lawfully conducted. Without limiting the foregoing, Secured Party
may: (1) approach and negotiate with a limited number of potential purchasers;
and (2) restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Pledged Collateral for their
own account for investment and not with a view to the distribution or resale
thereof. In the event that any of the Pledged Collateral is sold at private
sale, Grantor agrees that if the Pledged Collateral is sold for a price which
Secured Party in good faith believes to be reasonable, then: (a) the sale shall
be deemed to be commercially reasonable in all respects; (b) Grantor shall not
be entitled to a credit against the Obligations in an amount in excess of the
purchase price (less all expenses contemplated in Subsection (E) hereof); and
(c) Secured Party shall incur no liability or responsibility to Grantor in
connection therewith; notwithstanding the possibility that a substantially
higher price might have been realized at a public sale. Grantor recognizes that
a ready market may not exist for Pledged Collateral which is not regularly
traded on a recognized securities exchange, and that a sale by Secured Party of
any such Pledged Collateral for an amount substantially less than a pro rata
share of the fair market value of the issuer's assets minus liabilities may be
commercially reasonable in a view of the difficulties that may be encountered in
attempting to sell a large amount of Pledged Collateral that is privately
traded.
(D) TITLE OF PURCHASERS. Upon consummation of any sale of Pledged
Collateral pursuant to this Section, Secured Party shall have the right to
assign, transfer, and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold. Each such purchaser at any such sale shall hold the
Pledged Collateral sold absolutely free from any claim or right on the part of
Grantor, and Grantor hereby waives (to the extent permitted by applicable laws)
all rights of redemption, stay, and appraisal which it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. If the sale of all or any part of the Pledged Collateral is
made on credit or for future delivery, Secured Party shall not be required to
apply any portion of the sale price to the Obligations until such amount
actually is received by Secured Party, and any Pledged Collateral so sold may be
retained by Secured Party until the sale price is paid in full by the purchaser
or purchasers thereof. Secured Party shall not incur any liability in case
any such purchaser or purchasers shall fail to pay for the Pledged Collateral so
sold, and, in case of any such failure, the Pledged Collateral may be sold
again upon like notice.
(E) DISPOSITION OF PROCEEDS OF SALE. The net cash proceeds resulting
from the collection, liquidation, sale or other disposition of the Pledged
Collateral shall be applied: (1) first, to the reasonable costs and expenses
(including reasonable attorneys' fees) of collecting, liquidating, selling or
otherwise disposing of the Pledged Collateral including, without limitation, all
costs and expenses of retaking, holding, storing, and preparing the Pledged
Collateral for sale; (2) second, to the satisfaction of all Obligations in such
order and manner as Secured Party in its sole and absolute discretion may
determine; and (3) to whomever shall be entitled thereto.
SECTION 11 RELEASE OF GRANTOR. This Agreement and all obligations of
Grantor hereunder shall be released when all Obligations have been paid in full
in cash or otherwise performed in full and when all Loan Documents have expired
or have otherwise been terminated. Upon such release, Secured Party shall
return all Certificates representing the Pledged Collateral to the Grantor and
shall
6
<PAGE>
endorse, execute, deliver, record, and file all instruments and documents and do
all other acts and things, reasonably required for the return of the Pledged
Collateral to Grantor and to evidence or document the release of Secured Party's
interests arising under this Agreement, all as requested by, and/or at the
expense of Grantor.
SECTION 12 EVIDENCE OF AUTHORITIES. Grantor hereby consents and agrees
that the issuers of, or obligors on, or the partners or joint ventures with
respect to, the Pledged Collateral, or any registrar or transfer agent or
trustee for any of the Pledged Collateral, shall be entitled to accept the
provisions of this Agreement as conclusive evidence of the right of Secured
Party to effect any transfer or exercise any right hereunder, notwithstanding
any other notice or direction to the contrary heretofore or hereafter given by
Grantor or any other person to such issuers or such obligors or such partners
or joint venturers or to any such registrar or transfer agent or trustee.
SECTION 13 COVENANT NOT TO ISSUE UNCERTIFICATED SECURITIES. Grantor
represents and warrants to Secured Party that all of the capital stock granted
as security hereunder is in certificated form, and covenants to Secured Party
that it will not cause or permit the Companies to issue any capital stock in
uncertificated form or seek to convert all or any part of its existing capital
stock into uncertificated form.
SECTION 14 GOVERNING LAW. Except to the extent governed by applicable
Federal law, this Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
as of the date first above written.
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7
<PAGE>
HOLDINGS PLEDGE AGREEMENT
SIGNATURE PAGE
GRANTOR:
COLORADO GREENHOUSE HOLDINGS, INC.
By: /s/ Edward Wetherbee
-------------------------------
Title: Chief Executive Officer
----------------------------
8
<PAGE>
EXHIBIT 10.32
- --------------------------------------------------------------------------------
PLEDGE AGREEMENT
BY
CG MEMBER, INC.
FOR THE BENEFIT OF
COLORADO SPRINGS PRODUCTION CREDIT ASSOCIATION
DATED
AS OF
JANUARY 24, 1997.
- -------------------------------------------------------------------------------
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of the 24th day of
January, 1997, is made by CG Member, Inc. ("Grantor") in favor of Colorado
Springs Production Credit Association ("Secured Party").
BACKGROUND
In order to induce Secured Party to make loans and other financial
accommodations available to Colorado Greenhouse, Inc. ("CGI"), a wholly-owned
subsidiary of Colorado Greenhouse Holdings, Inc. ("Holdings"), of which Grantor
is a wholly-owned subsidiary, and for the benefit of Colorado Greenhouse, LLC
("LLC"), a wholly-owned subsidiary of Grantor, and from which loans and other
financial accommodations Grantor expects to profit, this Agreement is hereby
made in favor of Secured Party to secure the payment and performance of the
Secured Obligations (hereinafter defined) of CGI and LLC.
AGREEMENT
NOW, THEREFORE, in order to induce Secured Party to extend credit to CGI,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledge, Grantor hereby represents, warrants, covenants,
agrees and pledges as follows:
SECTION 1. DEFINITIONS. In addition to the terms defined elsewhere in
this Agreement, the following terms shall have the following meanings:
LOAN DOCUMENTS shall have the meaning given to that term in the Master Loan
Agreement.
MEMBER INTERESTS shall mean all interests of Grantor in LLC, whether or not
such interests are represented by certificates, and certificates,
instruments or other documents, now or hereafter representing or evidencing
any Pledged Securities.
SECURED OBLIGATIONS shall mean (1) the payment and performance of all
obligations of Holdings, CGI and LLC under the Master Loan Agreement,
Construction Loan Supplement, LLCLoan Supplement, Line of Credit and all of
the Loan Documents (as defined in the Master Loan Agreement) contemplated
in all of the foregoing, whether now existing or hereafter arising; and (2)
the payment of all other indebtedness and the performance of all other
obligations of the Grantor to Secured Party of every type and description,
whether now existing or hereafter arising, fixed or contingent, as primary
obligor or as guarantor or surety, acquired directly or by assignment or
otherwise, or liquidated or unliquidated.
PLEDGED COLLATERAL shall mean the Pledged Securities, the Member Interests
representing or evidencing the same, all right, title, interest,
privileges, benefits, and preferences appertaining or incidental to such
Pledged Securities, and any and all proceeds and products of the Pledged
Securities (including, without limitation, all dividends, distributions,
collections, redemption payments, liquidation payments, cash, and
instruments).
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PLEDGED SECURITIES shall mean: (1) the Member Interests; (2) any and all
warrants, options or other rights to subscribe to or acquire any additional
capital stock or member interests in such entity or entities; and (3) any
and all securities, certificates, agreements, instruments or other
documents now or hereafter issued in substitution, exchange or replacement
of any of the foregoing or with respect thereto.
SECTION 2. CREATION OF SECURITY INTEREST.
(A) PLEDGE OF PLEDGED COLLATERAL. As security for the Secured
Obligations, Grantor hereby pledges and grants to Secured Party a interest in
and to the Pledged Collateral.
(B) DELIVERY OF CERTAIN PLEDGED COLLATERAL. Simultaneously with the
execution hereof, Grantor shall cause to be pledged and delivered to Secured
Party such financing statements as may be necessary, in form and content
satisfactory to Secured Party which, in its reasonable judgment, is necessary
to perfect the security interest in the Pledged Collateral.
(C) NO MERGER. In the event that Secured Party acquires the
ownership of the Pledged Collateral by exercise of the rights granted herein or
otherwise, such ownership interest shall not merge with the Secured Obligations,
and security interests granted in the Loan Documents shall remain in full force,
effectiveness and enforceability at the option of the Secured Party.
(D) CHANGE IN MANAGEMENT OF LLC. Notwithstanding the pledge of the
Pledged Collateral and the other rights granted to Secured Party herein,
Secured Party agrees that in the event of Secured Party's election to exercise
its voting rights under Section 6(A) hereof, Secured Party will not remove or
replace the officers or directors of LLC or change their respective authority to
manage the affairs of LLC unless there shall be any amounts with respect to
Advances (as defined in the Line of Credit), interest or other obligations then
outstanding under the Line of Credit, and an "Event of Default" (as defined in
the Line of Credit) has occurred and is continuing under the LLC's Secured
Obligations with CGI.
SECTION 3. FURTHER ASSURANCES. Grantor agrees that at any time, from time
to time, and at the expense of Grantor, Grantor will promptly execute, deliver,
and file or record such financing statements, instruments and documents, and
will take all further actions, that Secured Party may reasonably require in
order to: (A) perfect and protect any pledge or security interest granted
hereby; (B) enable Secured Party to exercise and enforce Secured Party's rights
and remedies hereunder; and (C) preserve, protect, and maintain the Pledged
Collateral and the value thereof, including, without limitation, paying all
taxes, assessments, and other charges imposed on or relating to the Pledged
Collateral.
SECTION 4. WAIVER OF SURETY'S DEFENSES. This Agreement, being in the
nature of an agreement of a surety, may give rise to certain defenses of a
surety or guarantor, which defenses Grantor intends to waive. Wherefore,
Grantor acknowledges and agrees that this Agreement is an absolute and
independent obligation of the Grantor and therefore waives any right to require
that any action be brought against the borrower, another guarantor or any other
Person or entity which is liable for all or any part of the Secured Obligations,
or to require that resort be had at any time to any security for the Secured
Obligations or to any right of setoff or similar right. The Grantor's
obligations hereunder shall be payable on demand and shall be absolute and
unconditional irrespective of (and the Grantor hereby expressly waives any
defense or claim of discharge based on): (i) the alteration or modification from
time to time (whether material or otherwise); (ii) the waiver by Secured Party
of the borrower's
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compliance with any of the terms and conditions of the Loan Documents; (iii) the
forbearance by Secured Party from exercising any right or remedy it may have
under the Loan Documents or under law; (iv) any inability, failure, neglect or
omission to obtain, perfect, maintain, enforce, or realize upon any collateral
for the Secured Obligations, or to pursue or obtain any deficiency judgment
against the borrower following any foreclosure of any security interest,
mortgage or deed of trust; (v) the loss or impairment of any collateral, the
subordination or release of Secured Party's Lien thereon, or the sale, pledge,
surrender, exchange or substitution of any collateral; (vi) Secured Party's
releasing, waiving, discharging, or modifying the obligations of one or more
other guarantors (whether a party hereto or to a separate agreement with Secured
Party); (vii) the acceptance by Secured Party of any partial payment on the
Secured Obligations or any collateral therefor, or Secured Party settling,
subordinating, compromising, discharging, or releasing the Secured Obligations
or any collateral therefor; (viii) the unenforceability of the Loan Documents;
(ix) any defenses or counterclaims assertable by the borrower, including any
defense or counterclaim based on failure of consideration, fraud, statute of
frauds, bankruptcy, statute of limitations, lender liability, and accord and
satisfaction; (x) any setoff, counterclaim, recoupment or similar right
assertable by the borrower, the Grantor, or other guarantor (whether a party
hereto or to a separate guarantee); or (xi) any other circumstance which
constitutes a legal or equitable discharge of a guarantor or surety. The Grantor
hereby agrees that all indebtedness and other obligations of the borrower (now
existing or hereafter incurred) to the Grantor are and shall be subordinated in
right of payment to the prior payment in full by the borrower of its obligations
to Secured Party under the Loan Documents. During the existence of a default
under the Loan Documents, no payments by the borrower shall be accepted by the
Grantor with respect to such subordinated obligations and, if any such payments
are inadvertently received, the same shall be held in trust and promptly turned
over to Secured Party. The Grantor hereby waives all claims, rights or remedies
that it may have at law or in equity (including, without limitation, any law
subrogating the Grantor to the rights of Secured Party) to seek contribution,
indemnification, or any other form of reimbursement from the borrower, any
other guarantor, or any other person or entity now or hereafter primarily or
secondarily liable for any obligations of the Grantor to Secured Party for any
disbursement made by the Grantor under or in connection with this Agreement or
otherwise. The Grantor hereby stipulates and agrees that any such disbursement
made by the Grantor shall be a contribution to the equity capital of the
borrower.
SECTION 5. GRANTOR'S VOTING RIGHTS; DIVIDENDS; ETC. So long as no "Event
of Default" (as such term is defined in any Loan Document) occurs and remains
continuing:
(A) VOTING RIGHTS. Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Securities, or any
part thereof, for any purpose not inconsistent with the terms of this
Agreement or the Loan Documents.
(B) DIVIDEND AND DISTRIBUTION RIGHTS. Grantor shall be entitled to
receive and to retain and use any and all dividends or distributions and all
cash or other property paid, payable or otherwise paid or distributed in respect
of the Pledged Securities; PROVIDED, HOWEVER, that any and all such dividends or
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distributions received in the form of Member Interests, and the like shall be
delivered to the Secured Party to hold as Pledged Collateral and shall, if
received by Grantor, be received in trust for the benefit of Secured Party, be
segregated from the other property of the Grantor, and be forthwith delivered to
the Secured Party as Pledged Collateral in the same form as so received (with
any necessary endorsements).
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SECTION 6. GRANTOR'S RIGHTS DURING EVENT OF DEFAULT. When an Event of
Default has occurred and is continuing:
(A) VOTING, DIVIDEND, AND DISTRIBUTION RIGHTS. At the option of
Secured Party, all rights of Grantor to exercise the voting and other consensual
rights which would otherwise be entitled to exercise pursuant to Section 5(A)
above and to receive the dividends and distributions which it would otherwise be
authorized to receive and retain pursuant to Section 5(B) above, shall cease,
and all such rights shall thereupon become vested in Secured Party who shall
thereupon, but subject to Section 2(D), have the sole right to exercise such
voting and other consensual rights and to receive and to hold as Pledged
Collateral such dividends and distributions. Secured Party shall, after
deciding to exercise voting rights with respect to the Pledged Collateral, give
notice thereof to Grantor; PROVIDED, HOWEVER, that: (1) neither the giving of
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such notice nor the receipt thereof by Grantor shall be a condition to exercise
of any rights of Secured Party hereunder; and (2) Secured Party shall incur no
liability for failing to give such notice.
(B) DIVIDENDS AND DISTRIBUTIONS HELD IN TRUST. All dividends and
other distributions which are received by Grantor contrary to the provisions
of this Agreement shall be received in trust for the benefit of Secured Party,
shall be segregated from other funds of Grantor, and shall be paid over to
Secured Party as Pledged Collateral in the same form as so received (with any
necessary endorsements).
SECTION 7. IRREVOCABLE PROXY. Grantor hereby revokes all previous proxies
with regard to the Pledged Securities and appoints Secured Party as its
proxyholder to attend and vote at any and all meetings of the shareholders,
partners or other owners of the Companies held on or after the date of the
giving of this proxy and prior to the termination of this proxy, and to execute
any and all written consents of shareholders, partners or other owners of the
Companies executed on or after the date of the giving of this proxy and prior to
the termination of this proxy, with the same effect as if Grantor had personally
attended the meetings or had personally voted the Pledged Securities or had
personally signed the written consents; PROVIDED, HOWEVER, that the proxyholder
-----------------
shall have rights hereunder only upon the occurrence and during the continuance
of an Event of Default and only in the event the Secured Party, as proxyholder,
has decided to exercise voting rights with respect to the Pledged Securities
or any of them and subject however to Section 2(D). Grantor hereby authorizes
Secured Party to substitute another person as the proxyholder and, upon the
occurrence or during the continuance of any Event of Default, hereby authorizes
and directs the proxyholder to file this proxy and the substitution instrument
with the secretary (or other authorized official) of the Companies. This proxy
is coupled with an interest and is irrevocable until such time as this Agreement
is released in accordance with Section 11 hereof.
SECTION 8. TRANSFERS AND OTHER LIENS. Grantor agrees that it will not:
(A) sell, assign, exchange, transfer or otherwise dispose of, or contract to
sell, assign, exchange, transfer or otherwise dispose of, or grant any option
with respect to, any of the Pledged Collateral; (B) create or permit to exist
any lien or right of others upon or with respect to any of the Pledged
Collateral; or (C) take any action with respect to the Pledged Collateral which
is inconsistent with the provisions or purposes of this Agreement or any Loan
Document.
SECTION 9. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints the Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor,
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and in the name of Grantor, or otherwise, from time to time, in Secured Party's
sole and absolute discretion, to do any of the following acts or things if
Grantor fails to do so promptly after demand by the Secured Party: (A) to do all
acts and things (including without limitation, the execution, filing and/or
recording of all financing statements and other documents) necessary or
advisable to perfect and continue perfected the security interests created by
this Agreement and to preserve, maintain, and protect the Pledged Collateral,
including, without limitation, the authority to pay, purchase, contest, and
compromise any lien or right of others which, in the reasonable judgment of
Secured Party, appears to be prior or superior to Secured Party's security
interests; (B) to do any and every act which Grantor is obligated to do under
this Agreement; and (C) to endorse and transfer the Pledged Collateral upon
foreclosure by the Secured Party; PROVIDED, HOWEVER, that Secured Party shall
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be under no obligation whatsoever to take any of the foregoing actions, and
Secured Party shall have no liability or responsibility for any act (other than
Secured Party's own gross negligence or willful misconduct) or omission taken
with respect thereto. Grantor hereby agrees to repay immediately upon demand all
reasonable costs and expenses incurred or expended by Secured Party in
exercising any right or taking any action under this Agreement, together with
interest at a rate per annum equal at all times to the Prime Rate as defined in
the Loan Documents.
SECTION 10. REASONABLE CARE. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which Secured Party accords its own property.
Notwithstanding the foregoing and whether or not an Event of Default has
occurred or is continuing, Secured Party shall be under no duty or obligation
to: (A) exercise any voting or other rights with respect to the Pledged
Collateral; (B) make or give notices of default, presentments, demands for
performance, notices of nonperformance or dishonor, protests, notices of protest
or notices of any other nature whatsoever in connection with the Pledged
Collateral on behalf of Grantor or any other person having any interest therein;
(c) ascertain or take action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged; or (D) take any
necessary steps to preserve rights against the Companies or any other person
with respect to any Pledged Collateral. In addition, Secured Party does not
assume and shall not be obligated to perform the obligations of Grantor, if any,
with respect to the Pledged Collateral.
SECTION 11. EVENTS OF DEFAULT AND REMEDIES.
(A) RIGHTS UPON EVENT OF DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, Secured Party shall have, in any
jurisdiction where enforcement is sought, in addition to all other rights and
remedies that Secured Party may have under this Agreement and under applicable
law or in equity, all rights and remedies of a secured party under the Uniform
Commercial Code as enacted in any such jurisdiction, and in addition to the
following rights and remedies, all of which may be exercised with or without
further notice to Grantor, subject however to Section 2(D):
(1) (a) to notify any issuer of any Pledged Securities, and any and
all other obligors on, or partners, joint ventures or other interested parties
with respect to, any Pledged Collateral, that the same has been pledged,
and/or that a security interest in the same has been granted, to Secured Party,
and that all dividends, distributions, and other payments thereon are to be made
directly and exclusively to Secured Party, and that all dividends,
distributions, and other payments thereon are to be made directly and
exclusively to Secured Party; (b) to renew, extend, modify, amend, accelerate,
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accept partial payments on, make allowances and adjustments and issue credits
with respect to, release, settle, compromise, compound, collect or otherwise
liquidate, on terms acceptable to Secured Party, in whole or in part, the
Pledged Collateral and any amounts owing thereon or any guaranty or security
therefor; (c) to enter into any other agreement relating to or affecting the
Pledged Collateral; and (d) to give all consents, waivers, and ratifications
with respect to the Pledged Collateral and exercise all other rights (including
voting rights), powers and remedies and otherwise act with respect thereto as if
Secured Party were the owner thereof;
(2) to enforce payment and prosecute any action or proceeding with
respect to any and all of the Pledged Collateral and take or bring, in Secured
Party's name or in the name of Grantor, all steps, actions, suits or proceedings
deemed by Secured Party necessary or desirable to effect collection of or to
realize upon the Pledged Collateral;
(3) in accordance with applicable laws, to take possession of any
Pledged Collateral (with or without judicial process) that has not previously
been delivered to Secured Party;
(4) to endorse, in the name of Grantor, all checks, notes, drafts,
money orders, instruments and other evidences of payment relating to the Pledged
Collateral;
(5) to transfer any or all of the Pledged Collateral into the name of
Secured Party or its nominee or nominees; and
(6) in accordance with applicable laws, to foreclose the liens and
security interests created under this Agreement or under any other agreement
relating to the Pledged Collateral by any available judicial procedure or
without judicial process, and to sell, assign or otherwise dispose of the
Pledged Collateral or any part thereof, either at public or private sale or at
any broker's board or securities exchange, in lots or in bulk, for cash, on
credit or for future delivery, or otherwise, with or without representations or
warranties, and upon such terms as shall be acceptable to Secured Party, all at
the sole option of and in the sole discretion of Secured Party, provided that
any purchaser of the Pledged Collateral shall take such Pledged Collateral
subject to limitations set forth in Section 2(D).
(B) NOTICE OF SALE. Secured Party shall give Grantor at least five
(5) days' prior written notice of sale of all or any party of the Pledged
Collateral. Any sale of the Pledged Collateral shall be held at such time or
times and at such place or places as Secured Party may determine in the exercise
of its sole and absolute discretion. Secured Party may bid (which bid may be,
in whole or in part, in the form of cancellation of the Secured Obligations) and
purchase for the account of Secured Party or any nominee of Secured Party the
whole or any part of the Pledged Collateral. Secured Party shall not be
obligated to make any sale of the Pledged Collateral if it shall determine not
to do so regardless of the fact that notice of sale of the Pledged Collateral
may have been given. Secured Party may, without notice or publication, adjourn
the same from time to time by announcement at the time and place fixed for sale,
and such sale may, without further notice, be made at the time and place to
which the same was so adjourned.
(C) PRIVATE SALES. Whether or not any of the Pledged Collateral has
been effectively registered under the Securities Act of 1933 or other applicable
laws, Secured Party may, in its sole and absolute discretion, sell all or any
part of the Pledged Collateral at private sale in such manner and under such
circumstances as Secured Party may deem necessary or advisable in order that the
sale
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may be lawfully conducted. Without limiting the foregoing, Secured Party may:
(1) approach and negotiate with a limited number of potential purchasers; and
(2) restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Pledged Collateral for their
own account for investment and not with a view to the distribution or resale
thereof. In the event that any of the Pledged Collateral is sold at private
sale, Grantor agrees that if the Pledged Collateral is sold for a price which
Secured Party in good faith believes to be reasonable, then: (a) the sale shall
be deemed to be commercially reasonable in all respects; (b) Grantor shall not
be entitled to a credit against the Secured Obligations in an amount in excess
of the purchase price (less all expenses contemplated in Subsection (E)
hereof); and (c) Secured Party shall incur no liability or responsibility to
Grantor in connection therewith; notwithstanding the possibility that a
substantially higher price might have been realized at a public sale. Grantor
recognizes that a ready market may not exist for Pledged Collateral which is not
regularly traded on a recognized securities exchange, and that a sale by Secured
Party of any such Pledged Collateral for an amount substantially less than a pro
rata share of the fair market value of the issuer's assets minus liabilities may
be commercially reasonable in a view of the difficulties that may be encountered
in attempting to sell a large amount of Pledged Collateral that is privately
traded.
(D) TITLE OF PURCHASERS. Upon consummation of any sale of Pledged
Collateral pursuant to this Section, Secured Party shall have the right to
assign, transfer, and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold. Each such purchaser at any such sale shall hold the
Pledged Collateral sold absolutely free from any claim or right on the part of
Grantor, and Grantor hereby waives (to the extent permitted by applicable laws)
all rights of redemption, stay, and appraisal which it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted, provided that any purchaser of the Pledged Collateral shall
take such Pledged Collateral subject to limitations set forth in Section 2(D).
If the sale of all or any part of the Pledged Collateral is made on credit or
for future delivery, Secured Party shall not be required to apply any portion of
the sale price to the Secured Obligations until such amount actually is received
by Secured Party, and any Pledged Collateral so sold may be retained by Secured
Party until the sale price is paid in full by the purchaser or purchasers
thereof. Secured Party shall not incur any liability in case any such purchaser
or purchasers shall fail to pay for the Pledged Collateral so sold, and, in case
of any such failure, the Pledged Collateral may be sold again upon like notice.
(E) DISPOSITION OF PROCEEDS OF SALE. The net cash proceeds resulting
from the collection, liquidation, sale or other disposition of the Pledged
Collateral shall be applied: (1) first, to the reasonable costs and expenses
(including reasonable attorneys' fees) of collecting, liquidating, selling or
otherwise disposing of the Pledged Collateral including, without limitation, all
costs and expenses of retaking, holding, storing, and preparing the Pledged
Collateral for sale; (2) second, to the satisfaction of all Secured Obligations
in such order and manner as Secured Party in its sole and absolute discretion
may determine; and (3) to whomever shall be entitled thereto.
SECTION 12. RELEASE OF GRANTOR. This Agreement and all obligations of
Grantor hereunder shall be released when all Secured Obligations have been paid
in full in cash or otherwise performed in full and when all Loan Documents have
expired or have otherwise been terminated. Upon such release, Secured Party
shall return all Certificates representing the Pledged Collateral to the Grantor
and shall endorse, execute, deliver, record, and file all instruments and
documents and do all other acts and things, reasonably required for the return
of the Pledged Collateral to Grantor and to evidence or document the release of
Secured Party's interests arising under this Agreement, all as requested by,
and/or at the expense of Grantor.
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SECTION 13. EVIDENCE OF AUTHORITIES. Grantor hereby consents and agrees
that the issuers of, or obligors on, or the partners or joint ventures with
respect to, the Pledged Collateral, or any registrar or transfer agent or
trustee for any of the Pledged Collateral, shall be entitled to accept the
provisions of this Agreement as conclusive evidence of the right of Secured
Party to effect any transfer or exercise any right hereunder, notwithstanding
any other notice or direction to the contrary heretofore or hereafter given by
Grantor or any other person to such issuers or such obligors or such partners or
joint venturers or to any such registrar or transfer agent or trustee.
SECTION 14. GOVERNING LAW. Except to the extent governed by applicable
Federal law, this Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
as of the date first above written.
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CG MEMBER, INC. PLEDGE AGREEMENT
SIGNATURE PAGE
GRANTOR:
CG MEMBER, INC.
By: /s/ Edward Wetherbee
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Title: Chief Executive Officer
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EXHIBIT 10.33
================================================================================
LINE OF CREDIT AGREEMENT
BETWEEN
COLORADO GREENHOUSE, INC.
AND
COLORADO GREENHOUSE, LLC
DATED
AS OF
JANUARY 24, 1997
================================================================================
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LINE OF CREDIT AGREEMENT
THIS LINE OF CREDIT AGREEMENT (sometimes referred to herein as this
"Agreement" or in the Loan Documents as defined by the MLA as the "Line of
Credit") is made and entered into as of this 24th day of January, 1997, by and
between COLORADO GREENHOUSE, INC ("CGI") and COLORADO GREENHOUSE, LLC (the
"Borrower").
SECTION 1. THE LINE. On the terms and conditions set forth herein, CGI
agrees to make Advances to Borrower during the period set forth below in any
aggregate principal amount not to exceed, at any one time outstanding, the
lesser of the "LLC Borrowing Base" (as calculated pursuant to the LLC Borrowing
Base Report attached hereto as Exhibit "A") or ONE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($ 1,500,000) (the "Line"). Within the limits of the Line, Borrower may
borrow, repay and reborrow.
SECTION 2. TERM. The term of the Line shall be from January 21, 1997, up
to and including December 31, 1997, or such later date as CGI may, in its sole
discretion, authorize in writing. Notwithstanding the foregoing, the Line shall
be automatically extended for an additional year unless on or before 90 days
prior to end of term in any year (the "Notification Date"), either party
receives written notice from the other to the contrary. If on or before the
Notification Date, CGI grants a short-term extension of the Line, then the
Notification Date shall be extended for a like period, and in the event neither
party receives written notice from the other to the contrary on or before such
extended Notification Date (or any further extension so granted), then the Line
shall be automatically extended for an additional year as provided above. All
annual extensions shall be measured from, and effective as of, the anniversary
date of the first day of the initial term of the Line. Provided that there
shall be no amounts outstanding hereunder with respect to Advances, interest
thereon or other obligations hereunder, Borrower may, at any time, by written
notice to CGI terminate this Agreement and the commitments hereunder.
SECTION 3. PURPOSE. The purpose of the Line is to finance the operating
needs of the Borrower, and the Borrower agrees to use the proceeds of the Line
for that purpose only.
SECTION 4. AVAILABILITY. Advances under the Line may be made available on
any day that funds for such Advances are available to CGI.
SECTION 5. INTEREST.
(A) ADVANCES. Advances on the Line shall bear interest at the Prime
Rate, minus twenty-five (25) basis points (.25%). Prime Rate shall mean, for any
day, the rate defined as the "prime rate," as published from time to time in the
Eastern Edition of The Wall Street Journal as the average prime lending rate for
seventy-five percent (75%) of the United States' thirty (30) largest commercial
banks, or if The Wall Street Journal shall cease publishing the "prime rate" on
a regular basis, such other regularly published average prime rate application
to such commercial banks as is acceptable to CGI in its reasonable discretion.
(B) PAYMENT AND CALCULATION. Interest shall be payable on the 1st
day of each month beginning on the 1st day of the first month following the
first Advance hereon and shall be
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calculated on the number of days each Advance will be outstanding on the basis
of a year consisting of 365 days. In calculating interest, the date each Advance
is made shall be included and the date each Advance is repaid shall be excluded.
(C) DEFAULT RATE. If prior to maturity the Borrower fails to make
any payment, at CGI's option in each instance, such payment shall bear interest
at four percent (4%) per annum in excess of the rate set forth in Subsection (A)
above. After maturity, whether by reason of acceleration or otherwise, the
unpaid principal balance hereunder shall automatically bear interest at four
percent (4%) per annum in excess of the rates that would otherwise be in effect
(the "Default Rate"). All interest provided for in this Subsection shall be
payable on demand and shall be calculated from the date such payment was due to
the date paid on the basis of a year consisting of 365 days.
SECTION 6. NOTE. The Borrower's obligation to repay the Advances shall be
evidenced by a promissory note in the form of Promissory Note attached hereto as
Exhibit "B" (the "Note").
SECTION 7. MANNER AND TIME OF PAYMENT. The Borrower promises to repay the
Advances on the first business day following the last day of the term of the
Line ("Maturity Date"), all in accordance with the Note, and to pay interest on
the Advances in accordance with Section 5 above.
SECTION 8. SECURITY. To secure the repayment of all Advances hereunder,
Borrower shall grant a security interest in the property more particularly
described in the Security Agreement of even date herewith, being all of
Borrower's interest in all Accounts, Inventory, Equipment, Fixtures, Farm
Products, General Intangibles, Chattel Paper, Instruments, Documents,
Intellectual Property (including without limitation the Trademarks and Logos
shown on Schedule 3 of the Security Agreement), and all products and proceeds
therefrom (the "Collateral"), subject only to the Trademark License Agreement
between CGI and Borrower.
SECTION 9. CONDITIONS PRECEDENT. CGI's obligation to make the initial
Advance hereunder is subject to satisfaction of each of the following conditions
precedent on or before the date of the initial Advance:
(A) LOAN DOCUMENTS. That CGI receive duly executed originals of the
Agreement, the Note, and all other instruments and documents contemplated hereby
(this Agreement, the Note and such other instruments and documents, if any,
collectively, the "Loan Documents").
(B) AUTHORIZATION. That CGI receive copies of all corporate
documents and proceedings of the Borrower authorizing the execution, delivery,
and performance of the Loan Documents, certified to be true and correct by a
Manager of the Borrower.
(C) APPROVALS. That CGI receive evidence satisfactory to it that
all consents and approvals which are necessary for, or required as a condition
of the validity and enforceability of the Loan Documents have been obtained and
are in full force and effect.
(D) EVENT OF DEFAULT. That no Event of Default (as that term is
defined in Section 13 hereof) exists, and that there has occurred no event which
with the passage of time or the giving of notice, or both, could become an Event
of Default ("Potential Default").
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(E) CONTINUING REPRESENTATIONS AND WARRANTIES. That the
representations and warranties of the Borrower contained in this Agreement be
true and correct on and as of the date of the initial Advance as though made on
and as of such date.
SECTION 10. REPRESENTATIONS AND WARRANTIES. To induce CGI to make
Advances hereunder, and recognizing that CGI is relying hereon, the Borrower
represents and warrants as follows:
(A) ORGANIZATION; POWER; ETC. The Borrower (i) is duly organized,
validly existing, and in good standing under the laws of its state of
incorporation; (ii) is duly qualified to do business and is in good standing in
each jurisdiction in which the transaction of its business makes such
qualification necessary; (iii) has all requisite corporate and legal power to
own and operate its assets and to carry on its business and to enter into and
perform the Loan Documents; and (iv) has duly and lawfully obtained and
maintained all licenses, certificates, permits, authorizations, approvals, and
the like which are material to the conduct of its business or which may be
otherwise required by law.
(B) DUE AUTHORIZATION; NO VIOLATIONS; ETC. The execution and
delivery by the Borrower of, and the performance by the Borrower of its
obligations under, the Loan Documents have been duly authorized by all requisite
limited liability company action on the part of the Borrower and do not and will
not (i) violate any provision of any law, rule or regulation, any judgment,
order or ruling of any court or governmental agency, the articles of
organization or operating agreement of the Borrower, or any agreement,
indenture, mortgage, or other instruments to which the Borrower is a party or by
which the Borrower or any of its properties is bound, including without
limitation any of the operation and management agreements under which it
occupies, operates and manages any of its greenhouse facilities, or (ii) be in
conflict with, result in a breach of, or constitute with the giving of notice or
lapse of time, or both, a default under any such agreement, indenture, mortgage,
or other instrument. No action on the part of any member of the Borrower is
necessary in connection with the execution and delivery by the Borrower of and
the performance by the Borrower of its obligations under the Loan Documents.
(C) CONSENTS. No consent, permission, authorization, order, or
license of any governmental authority is necessary in connection with the
execution, delivery, performance, or enforcement of the Loan Documents, except
such as have been obtained and are in full force and effect.
(D) BINDING AGREEMENT. Each of the Loan Documents is, or when
executed and delivered will be, the legal, valid, and binding obligation of
the Borrower, enforceable in accordance with its terms, subject only to
limitations on enforceability imposed by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting creditors' rights
generally.
(E) COMPLIANCE WITH LAWS. The Borrower is in compliance in all
material respects with all federal, state, and local laws, rules, regulations,
ordinances, codes, and orders (collectively, "Laws"), the failure to comply with
which could have a material adverse effect on the condition, financial or
otherwise, operations, properties, or business of the Borrower, or on the
ability of the Borrower to perform its obligations under the Loan Documents,
except as the Borrower has disclosed on Schedule 1 attached hereto.
(F) ENVIRONMENTAL COMPLIANCE. Without limiting the provisions of
Subsection (E) above, all property owned or leased by the Borrower and all
operations conducted by it are in com-
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pliance in all material respects with all Laws relating to environmental
protection, the failure to comply with which could have a material adverse
effect on the condition, financial or otherwise, operations, properties, or
business of the Borrower, or on the ability of the Borrower to perform its
obligations under the Loan Documents, except as the Borrower has disclosed on
Schedule 1 attached hereto.
(G) LITIGATION. There are no pending legal, arbitration or
governmental actions or proceedings to which the Borrower is a party or to which
any of its property is subject which, if adversely determined, could have a
material adverse effect on the condition, financial or otherwise, operations,
properties, or business of the Borrower, or on the ability of the Borrower to
perform its obligations under the Loan Documents, and to the best of the
Borrower's knowledge, no such actions or proceedings are threatened or
contemplated, except as the Borrower has disclosed on Schedule 1 attached
hereto.
(H) TITLE TO PROPERTY. The Borrower has good and marketable title
to all of the property reflected in the financial statements referred to in
Subsection (1) below, free and clear of any lien, encumbrance, deed to secure
debt, deed of trust, mortgage, warrant, option, right to purchase, right of
first refusal or other lien or interest of any person or entity except (i) as
specifically disclosed in Schedule 1 attached hereto ("Existing Liens") and (ii)
liens or other interests permitted pursuant to Section 13 hereof.
(I) FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE; ETC. All
financial statements submitted to CGI in connection with the application for
the Line or in connection with this Agreement fairly and fully present the
financial condition of the Borrower and the results of the Borrower's operations
for the periods covered thereby, and are prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied. Since the dates
thereof, there has been no material adverse change in the financial condition or
operations of the Borrower. All budgets, projections, feasibility studies,
and other documentation submitted by the Borrower to CGI are based upon
assumptions that are reasonable and realistic, and as of the date hereof, no
fact has come to light, and no event or transaction has occurred, which would
cause any assumption made therein not to be reasonable or realistic.
(J) PRINCIPAL PLACE OF BUSINESS; RECORDS. The principal place of
business and chief executive office of the Borrower and the place where the
records required by Section 11(G) hereof are kept is at the address of the
Borrower shown in Section 17 hereof.
(K) SUBSIDIARIES. The Borrower has no subsidiary.
SECTION 11. AFFIRMATIVE COVENANTS. Unless otherwise agreed to in writing
by CGI, while this Agreement is in effect, whether or not any Advance is
outstanding, the Borrower agrees to:
(A) LIMITED LIABILITY COMPANY EXISTENCE. Preserve and keep in full
force and effect its limited liability company existence and good standing in
the jurisdiction of its incorporation, and its qualification to transact
business and good standing in all places required by Law.
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(B) COMPLIANCE WITH LAWS AND AGREEMENTS. Comply in all material
respects with (i) all Laws, the failure to comply with which could have a
material adverse effect on the condition, financial or otherwise, operations,
properties or business of the Borrower or on the ability of the Borrower to
perform its obligations under the Loan Documents; and (ii) all agreements,
indentures, mortgages, and other instruments to which it is a party or by which
it or any of its property is bound, and under which it has the right to occupy,
operate and manage any of its greenhouse facilities.
(C) COMPLIANCE WITH ENVIRONMENTAL LAWS. Without limiting the
provisions of Subsection (B) above, comply in all material respects with, and
cause all persons occupying or present on any properties owned or leased by the
Borrower to so comply with all Laws relating to environmental protection, the
failure to comply with which could have a material adverse effect on the
condition, financial or otherwise, operations, properties, or business of the
Borrower, or on the ability of the Borrower to perform its obligations under the
Loan Documents.
(D) LICENSES; PERMITS; ETC. Duly and lawfully obtain and maintain in
full force and effect all licenses, certificates, permits, authorizations,
approvals, and the like which are material to the conduct of the Borrower's
business or which may be otherwise required by Law.
(E) INSURANCE. Maintain insurance with insurance companies or
associations acceptable to CGI in such amounts and covering such risks as are
usually carried by companies engaged in the same or similar business and
similarly situated, and make such increases in the type or amount of coverage as
CGI may request. All such policies insuring any collateral provided for herein
shall provide for loss payable clauses or endorsements in form and content
acceptable to CGI. At the request of CGI, certificates of insurance for all
policies (or such other proof of compliance with this Section as may be
satisfactory) shall be delivered to CGI.
(F) PROPERTY MAINTENANCE. Maintain and preserve at all times its
property, and each and every part and parcel thereof, in good repair, working
order and condition and in compliance with all applicable Laws, regulations and
orders.
(G) BOOKS AND RECORDS. Keep adequate records and books of account
in accordance with GAAP consistently applied.
(H) INSPECTION. Permit CGI or its agent, during normal business
hours or at such other times as the parties may agree, to examine the Borrower's
property, books, and records, and to discuss the Borrower's affairs, finances,
operations, and accounts with its respective officers, directors, employees, and
independent certified public accountants.
(I) REPORTS AND NOTICES. Furnish to CGI:
(1) ANNUAL FINANCIAL STATEMENTS. As soon as available, but in
event later than one hundred and twenty (120) days after the end of any fiscal
year of the Borrower occurring during the term hereof, annual financial
statements of the Borrower prepared in accordance with GAAP consistently
applied. Such financial statements shall: (i) be audited by Arthur Anderson or
other independent certified public accountants selected by the Borrower and
acceptable to CGI; (ii) be accompanied by a report of such accountants
containing an opinion acceptable to CGI; (iii) be prepared in reasonable detail
and in comparative form; and (iv) include a balance sheet, a statement of
income,
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a statement of retained earnings, a statement of cash flows, and all notes and
schedules relating thereto.
(2) INTERIM FINANCIAL STATEMENTS. As soon as available, but in no
event more than thirty (30) days after the end of each quarter, a balance sheet,
a statement of income for such quarter and for the period year to date, and such
other interim statements as CGI may specifically request, all prepared in
reasonable detail and in comparative form in accordance with GAAP.
(3) NOTICE OF DEFAULT. Promptly after becoming aware thereof, notice
of (i) the occurrence of any Default, and (ii) the occurrence of any breach,
default, event of default, or event which with the giving of notice or lapse of
time, or both, could become a breach, default, or event of default under any
agreement, indenture, mortgage, or other instrument (other than the Loan
Documents) to which it is a party or by which it or any of its property is bound
or affected if the effect of such breach, default, event of default or event is
to accelerate, or to permit the acceleration of, the maturity of any
indebtedness under such agreement, indenture, mortgage, or other instrument;
provided, however, that the failure of the Borrower to give such notice shall
- -------- -------
not affect the right and power of CGI to exercise any and all of the remedies
specified herein.
(4) NOTICE OF NON-ENVIRONMENTAL LITIGATION. Promptly after the
commencement thereof, notice of the commencement of all actions, suits, or
proceedings before any court, arbitrator, or governmental department,
commission, board, bureau, agency, or instrumentality affecting the borrower
which, if adversely determined, could have a material adverse effect on the
condition, financial or otherwise, operations, properties, or business of the
Borrower, or on the ability of the Borrower to perform its obligations under the
Loan Documents.
(5) NOTICE OF ENVIRONMENTAL LITIGATION. Without limiting the
provisions of Clause (4) above, promptly after receipt thereof, notice of the
receipt of all pleadings, orders, complaints, indictments, or other
communication alleging a condition that may require the Borrower to undertake or
to contribute to a cleanup or other response under Laws relating to
environmental protection, or which seeks penalties, damages, injunctive relief,
or criminal sanctions related to alleged violations of such Laws, or which
claims personal injury or property damage to any person as a result of
environmental factors or conditions or which, if adversely determined, could
have a material adverse effect on the condition, financial or otherwise,
operations, properties, or business of the Borrower, or on the ability of the
Borrower to perform its obligations under the Loan Documents.
(6) REGULATORY AND OTHER NOTICES. Promptly after receipt thereof,
copies of any notices or other communications received from any governmental
authority with respect to any matter or proceeding the effect of which could
have a material adverse effect on the condition, financial or otherwise,
operations, properties, or business of the Borrower, or the ability of the
Borrower to perform its obligations under the Loan Documents.
(7) MATERIAL ADVERSE CHANGE. Prompt notice of any matter which has
resulted or may result in a material adverse change in the conditions, financial
or otherwise, operations, properties, or business of the Borrower, or the
ability of the Borrower to perform its obligations under the Loan Documents.
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(8) OTHER INFORMATION. Such other information regarding the
condition, financial or otherwise, or operations of the Borrower as CGI may,
from time to time, reasonably request.
(J) PERISHABLE AGRICULTURAL COMMODITIES ACT. Comply in all
material respects with the Perishable Agricultural Commodities Act, as amended
(7 U.S.C. (S)(S) 499(c)(e)) and the regulations promulgated thereunder, so that
the trust for the benefit of all unpaid suppliers or sellers of perishable
agricultural commodities (i) shall arise in CGI's favor in its capacity as a
seller of perishable agricultural commodities and (ii) shall not arise in
connection with its purchase of such commodities.
SECTION 12. NEGATIVE COVENANTS. Unless otherwise agreed to in writing by
CGI, while this Agreement is in effect, whether or not any Advance is
outstanding, the Borrower shall not:
(A) BORROWINGS. Create, incur, assume, or allow to exist, directly
or indirectly, any indebtedness or liability for borrowed money, for the
deferred purchase price of property or services, or for the lease of real or
personal property which lease is required to be capitalized under GAAP or which
is treated as an operating lease under regulations applicable to the Borrower
but which otherwise would be required to be capitalized under GAAP (a "Capital
Lease"), except for (1) indebtedness outstanding on the date hereof and set
forth on Schedule 1 attached hereto, (2) accounts payable to trade creditors and
current operating liabilities (other than for borrowed money) incurred in the
ordinary course of the Borrower's business, and (3) Capital Leases, the
aggregate amount of which does not exceed $700,000 at any one time.
(B) LIENS. Create, incur, assume, or allow to exist any mortgage,
deed of trust, deed to secure debt, pledge, lien (including the lien of an
attachment, judgment, or execution), security interest, or other encumbrance of
any kind upon any of its property, real or personal. The foregoing restrictions
shall not apply to (1) the Existing Liens; (2) liens in favor of CGI; (3) liens
for taxes, assessments, or governmental charges that are not past due; (4)
liens, pledges, and deposits under workers' compensation, unemployment
insurance, and social security laws; (5) liens, deposits, and pledges to secure
the performance of bids, tenders, contracts (other than contracts for the
payment of money), and like obligations arising in the ordinary course of the
Borrower's business as conducted on the date hereof; and (6) liens imposed by
law in favor of mechanics, materialmen, warehousemen, and like persons that
secure obligations that are not past due, other than liens which individually or
in the aggregate have no material adverse impact on Borrower or its operations.
(C) MERGERS; ACQUISITIONS; ETC. Merge or consolidate with any
other entity, or acquire all or substantially all of the assets of any person or
entity, or form or create any new subsidiary or affiliate, or commence
operations under any other name, organization, or entity, including any joint
venture.
(D) TRANSFER OF ASSETS. Sell, transfer, lease, or otherwise
dispose of any of the Borrower's assets, except in the ordinary course of
business.
(E) LOANS AND INVESTMENTS. Make any loan or Advance to, or make
any investment in, or purchase or make any commitment to purchase any stock,
bonds, notes, or other securities of, or guarantee, assume, or otherwise become
obligated or liable with respect to the obligations of, any person or entity,
exceeding at any one time outstanding an aggregate of $100,000, other than
securities
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or deposits issued, guaranteed or fully insured as to payment by the United
States of America or any agency thereof.
(F) CHANGE IN BUSINESS. Engage in any business activities or
operations substantially different from or unrelated to the Borrower's present
business activities or operations.
SECTION 13. EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default" hereunder:
(A) PAYMENT DEFAULT. Failure by the Borrower to make any payment
required to be made hereunder, under the Note, or under any other Loan Document
within five (5) days of the date when due.
(B) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made by the Borrower herein shall prove to have been false or misleading in any
material respect on or as of the date made.
(C) CERTAIN AFFIRMATIVE COVENANTS. Failure by the Borrower to
perform or comply with any covenant set forth in Section 11 hereof (other than
Section 11(I)(3), (4), (5), (6) and (7)), and such failure continues for fifteen
(15) days after written notice thereof shall have been delivered by CGI to the
Borrower, provided that if any default (except defaults of payment of money) can
be cured but cannot be cured within the respective cure period, it shall not be
deemed a default if actions to cure have been taken by Borrower within such cure
period and are diligently prosecuted to completion within thirty (30) days after
the end of the initial cure period.
(D) OTHER COVENANTS AND AGREEMENTS. The Borrower should fail to
perform or comply with any other covenant or agreement contained herein,
including, without limitation, any covenant excluded under Subsection (C) above.
(E) CROSS-DEFAULT. The Borrower should, after any applicable grace
period, breach or be in default under the terms of any other agreement between
the Borrower and CGI, including, without limitation, any loan agreement,
security agreement, mortgage, deed to secure debt, or deed of trust.
(F) OTHER INDEBTEDNESS. The occurrence of any breach, default,
event of default, or event which with the giving of notice or lapse of time, or
both, could become a default or event of default under any agreement, indenture,
mortgage, or other instrument by which the Borrower or any of its property is
bound or affected if the effect of such breach, default, event of default or
event is to accelerate, or to permit the acceleration of, the maturity of any
indebtedness under such agreement, indenture, mortgage, or other instrument.
(G) JUDGMENTS. Judgments, decrees, or orders for the payment of
money in the aggregate in excess of $100,000 shall be rendered against the
Borrower and either (1) enforcement proceedings shall have been commenced; or
(2) such judgments, decrees, and orders shall continue unsatisfied and in effect
for a period of twenty (20) consecutive days without being vacated,
discharged, satisfied, or stayed pending appeal.
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(H) INSOLVENCY, ETC. The Borrower: (1) shall become insolvent or
shall generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they come due; or (2) shall suspend its business
operations or a material part thereof or make an assignment for the benefit of
creditors; or (3) shall apply for, consent to, or acquiesce in the appointment
of a trustee, receiver, or other custodian for it or any of its property or, in
the absence of such application, consent, or acquiescence, a trustee,
receiver, or other custodian is so appointed; or (4) shall commence with respect
to it or have commenced against it any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution, or liquidation
law or statute of any jurisdiction.
(I) BREACH OF OPERATION AND MANAGEMENT AGREEMENTS. The Borrower
shall breach or be in default under any material term of any operations and
management agreements under which it occupies, operates and manages any
greenhouse facilities.
(J) MATERIAL ADVERSE CHANGE. Any material adverse change occurs,
as reasonably determined by CGI, in the Borrower's condition, financial or
otherwise, operations, properties, or business, or the Borrower's ability to
perform its obligations under the Loan Documents.
SECTION 14. REMEDIES.
(A) NO OBLIGATION TO MAKE ADVANCES. During the continuation of any
Default or upon the occurrence of and during the continuation of an Event of
Default, CGI shall have no obligation to make Advances hereunder.
(B) TERMINATION; ETC. Upon the occurrence and during the
continuation of any Event of Default, and upon notice to the Borrower, CGI may
terminate the Line and declare the entire unpaid principal balance of the Note,
all accrued interest thereon and all other amounts payable under this Agreement
and all other agreements between CGI and the Borrower, to be immediately due and
payable. Upon such a declaration, the unpaid principal balance of the Note and
all such other amounts shall become immediately due and payable, without
protest, presentation, demand, or further notice of any kind, all of which are
hereby expressly waived by the Borrower.
(C) ENFORCEMENT. Upon the occurrence and during the continuation
of any Event of Default, CGI may proceed to protect, exercise, and enforce such
rights and remedies as may be provided by agreement or under law, including
without limitation the right to apply for and obtain, without notice and upon ex
parte application, the appointment of a receiver for the Collateral without
regard to Borrower's financial condition or solvency, the adequacy of the
Collateral to secure the payment of Advances and the performance of the Loan
Documents, or the existence of any waste to the Collateral. Each and every one
of such rights and remedies shall be cumulative and may be exercised from time
to time, and no failure on the part of CGI to exercise, and no delay in
exercising, any right or remedy shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy preclude any other or future
exercise thereof, or the exercise of any other right.
(D) APPLICATION OF PAYMENTS. After termination and acceleration of
the Line, all amounts received by CGI shall be applied first to costs (including
CGI's reasonable attorney fees), then to interest, and then to principal, and
any remaining sums to be paid to other Persons as their interests may appear.
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SECTION 15. COMPLETE AGREEMENT; AMENDMENT. This Agreement, the Note and
the other Loan Documents are intended by the parties to be a complete and final
expression of their agreement. No amendment, modification or waiver of any
provision hereof or thereof, nor any consent to any departure of the Borrower
herefrom or therefrom, shall be effective unless approved by CGI and contained
in a writing signed by or on behalf of CGI, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 16. APPLICABLE LAW. Except to the extent governed by applicable
federal Law, this Agreement shall be governed by and construed in accordance
with the Laws of the state of Colorado, without reference to choice of law
doctrine.
SECTION 17. NOTICES. All notices hereunder shall be in writing and shall
be deemed to be duly given upon delivery, if delivered by "Express Mail,"
overnight courier, messenger or other form of hand delivery providing a proof of
delivery, or sent by telegram or facsimile transmission, or three (3) days after
mailing if sent by certified or registered mail, to the parties at the following
addresses (or to such other address for a party as shall be specified by like
notice):
If to CGI, as follows: If to Borrower, as follows:
Colorado Greenhouse, Inc. Colorado Greenhouse, LLC
6811 Weld County Road 31 6811 Weld County Road 31
P. O. Box 309 P.O. Box 309
Fort Lupton, CO 80621 Fort Lupton, CO 80621
FAX: 303-857-4049 FAX: 303-857-4049
SECTION 18. COSTS AND EXPENSES. To the extent allowed by law, the
Borrower agrees to pay to CGI on demand, all out-of-pocket costs and expenses
incurred by CGI (including, without limitation, the reasonable fees and
expenses of counsel retained by CGI) in connection with the enforcement of CGI's
rights under the Loan Documents.
SECTION 19. EFFECTIVENESS AND SEVERABILITY. This Agreement shall continue
in effect until all indebtedness and obligations of the Borrower hereunder and
under all other Loan Documents shall have been repaid or the Line shall expire,
whichever is later. Any provision of the Loan Documents which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or thereof.
SECTION 20. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Borrower and CGI and their respective successors
and assigns, except that the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of CGI. Borrower hereby
consents to the assignment of this Agreement, the Note and all other Loan
Documents to CGI's lender, Colorado Springs Production Credit Association, as
security for a loan to CGI, which loan may be used to make Advances hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date shown above.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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LINE OF CREDIT AGREEMENT
SIGNATURE PAGE
COLORADO GREENHOUSE, INC. COLORADO GREENHOUSE, LLC
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ [SIGNATURE ILLEGIBLE]
------------------------- -------------------------
Title: CEO Title: MANAGER
---------------------- ---------------------
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Exhibit A
to
Line of Credit Agreement
BORROWING BASE REPORT FOR
COLORADO GREENHOUSE, LLC
For the month ended __________
AMOUNT FACTOR COLLATERAL VALUE
====== ====== ================
Accounts Receivable - produce sales 80%
(less than 60 days) ______ ________________
Accounts Receivable - other ______ 60% ________________
Inventory - produce ______ 50% ________________
Inventory - materials & supplies ______ 75% ________________
====== ================
Total
______ ________________
Less: claims & allowances ______ 100% ________________
Less: other payables ______ 100% ________________
Less: Operating loan balance ______ 100% ________________
================
Total available Borrowing Base:
________________
I hereby certify the above information is true and correct as of the date
referenced.
______________________________ __________
(Signature) (Date)
Page 1
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EXHIBIT B
TO
LINE OF CREDIT AGREEMENT
PROMISSORY NOTE
ONE MILLION FIVE HUNDRED THOUSAND DOLLARS January 24, 1997
$1,500,000.00 Loan No.__________
FOR VALUE RECEIVED, the undersigned, Colorado Greenhouse, LLC, a Colorado
limited liability company (Maker"), hereby promises to pay to the order of
Colorado Greenhouse, Inc., a Delaware corporation doing business in Colorado,
("Payee"), at its offices, on the Maturity Date as defined in the Line of Credit
Agreement, in lawful money of the United States of America, the principal amount
of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000.00) or so much thereof
as may have been Advanced and is outstanding hereunder, together with interest
on the outstanding principal balance from day to day remaining, at the rate
provided in the Line Credit Agreement. All accrued and unpaid interest shall be
due and payable on the first day of each month beginning on the first day of the
first month following the first Advance hereon and on the Maturity Date. All
unpaid principal balance of the Advances on this Promissory Note shall be due
and payable on the Maturity Date. All past due principal shall bear interest at
the Default Rate.
This Promissory Note has been given to Payee pursuant to the Line of Credit
dated as of the 24th day of January, 1997, and all capitalized terms used herein
and not otherwise defined shall have the meaning provided therein. Maker may
borrow, repay and reborrow hereunder and under the terms of the Line of Credit
Agreement.
Upon the occurrence of any Event of Default, the holder hereof may, at its
option, declare the entire unpaid principal of and accrued interest on this
Promissory Note immediately due and payable without notice, demand or
presentment, all of which are hereby waived, and upon such declaration, the same
shall become and shall be immediately due and payable, and the holder hereof
shall have the right to foreclose or otherwise enforce all liens or security
interests securing payment hereof, or any part hereof, and offset against this
Promissory Note any sum or sums owed by the holder hereof to Maker. Failure of
the holder hereof to exercise this option shall not constitute a waiver of the
right to exercise the same upon the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce payment
of all or any part of any sum due the holder hereunder, or if this Promissory
Note is placed in the hands of an attorney for collection, or if it is collected
through any legal proceedings, Maker agrees to pay all costs, expenses and fees
incurred by the holder, including reasonable attorney's fees.
This Promissory Note shall be governed by and construed in accordance with
the Laws of the State of Colorado and the applicable Laws of the United States
of America.
<PAGE>
Maker and each surety, guarantor, endorser and other party ever liable for
payment of any sums of money payable on this Promissory Note jointly and
severally waive notice, presentment, demand for payment, protest, notice of
protest and non-payment or dishonor, notice of acceleration, notice of intent to
accelerate, notice of intent to demand, diligence in collecting, grace, and all
other formalities of any kind, and consent to all extensions without notice for
any period or periods of time and partial payments, before or after maturity,
and any impairment of any collateral securing this Promissory Note, all without
prejudice to the holder. The holder shall similarly have the right to deal in
any way, at any time, with one or more of the foregoing parties without notice
to any other party, and to grant any such party any extensions of time for
payment of any of said indebtedness, or to release or substitute any such party
or part or all of the collateral securing this Promissory Note, or to grant any
other indulgences or forbearances whatsoever, without notice to any other party
and without in any way affecting the personal liability of any party hereunder.
Maker hereby authorizes the holder hereof to record in its records all
Advances made to Maker hereunder and all payments made on account of the
principal hereof and interest accruing hereon, which records shall be prima
facie evidence as to the outstanding principal amount of and interest accrued on
this Promissory Note; provided, however, any failure by the holder hereof to
make any records shall not limit or otherwise affect the obligations of Maker
under the Agreement or this Promissory Note.
COLORADO GREENHOUSE, LLC
By:______________________________
Title:___________________________
2
<PAGE>
SCHEDULE I
TO
LINE OF CREDIT AGREEMENT
Disclosures:
Section 10(E): None
-------------
Section 10(F) - Environmental Matters
------------- ---------------------
1. Phase I Environmental Site Assessment for the Brush Cogeneration Facility,
Brush, Colorado, prepared by Environmental Engineering & Services
Corporation for Brush Cogeneration Partners, dated June 1992.
2. Phase I Environmental Site Assessment for East 1/2 of Section 10, Township
5 North, Range 8 East, Torrance County, New Mexico prepared by Daniel B.
Stephens & Associates, Inc. for Colorado Greenhouse LLC, dated November
20, 1996.
3. Phase I Environmental Site Assessment for American Atlas #1, Rifle,
Colorado, prepared by Parsons Brinckerhoff Energy Services, Inc., for
American Atlas #1, dated March 15, 1995.
4. Phase I Environmental Assessment for Fort Lupton, Colorado Facility,
prepared by ERM-Rocky Mountain, Inc. for Thermo, Inc., dated February 18,
1992.
Section 10(G) - Subsidiary's Litigation
-------------- -----------------------
The Subsidiary is currently a party to two pending litigation matters.
1. EEOC Complaint:
A former employee, Michael Vondy, filed a charge of discrimination against
LLC in September 1995, alleging that LLC discriminated against him in violation
of the American With Disabilities Act when it terminated him following his
recovery from a work related injury.
2. Worker's Compensation Claim
Ernesto Godinez, a former employee, strained his lower back on February 4,
1994. On May 9, 1995, it was ruled that the claimant is permanently and totally
disabled. A petition to review was filed on May 16, 1995, on behalf of BGP, and
on May 22, 1995, Colorado Insurance Compensation Authority ("CCIA"), LLC's
worker's compensation carrier, filed an appeal of the ruling. On February 8,
1996, the Industrial Claim Appeals Office upheld the findings of fact. CCIA
requested a reversal of the final order on February 8, 1996. There has been no
ruling on the final appeal.
<PAGE>
Section 10(H) - LLC's Leased Real Property
-------------- --------------------------
1. Ft. Lupton Greenhouse, 6811 Weld County Road, Ft. Lupton, CO 80621
(leased by Rocky Mountain Produce ("RMP"))
2. Brush 1 Greenhouse, 1500 S. Clayton Street, Brush, CO 80723 (leased by
Brush Greenhouse Partners)
3. Brush 2 Greenhouse, 1500 S. Clayton Street, Brush, CO 80723 (leased by
Brush Greenhouse Partners II LLC)
4. Rifle Greenhouse, 0056-C County Road 352, Rifle, CO 81650 (leased by Wolf
Creek Rifle LLC)
5. Ft. Lupton Administration Building (leased by RMP)
Intellectual Property
---------------------
Colorado Greenhouse LLC has granted a license to the trademarks
described in the Trademark Security Agreement to Colorado Greenhouse, Inc.
pursuant to that certain Trademark License Agreement dated as of January 24,
1997.
Section 10(K) - None
- -------------
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